Palestine Development and Investment Company Ltd. (PADICO HOLDING)

Transcription

1 Palestine Development and Investment Company Ltd. (PADICO HOLDING) A public shareholding limited liability company registered in the Republic of Liberia under the Liberian Business Law of 1976 Annual Report 2014

2 2 Nablus 20 Years of Investment in Palestine ANNUAL REPORT

3 Table of Contents About Padico Holding PADICO HOLDING: Twenty Years of Investment in Palestine Board of Directors Our System of Governance Message from the Board of Directors Message from the Executive Management Our Investments The Palestinian Economy in 2014 Econmic Sectors and Investments Summary of Investments Performance in 2014 Looking to the Future Our Social Responsibility Inspiring New Ideas Our Financial Performance In 2014 Summary of consolidated Statement of Financial postion Main Financial Indicators Performance of PADICO HOLDING s Shares during Auditor Report and Consolidated Financial Statements 67

4 4 20 Years of Investment in Palestine For twenty years, PADICO HOLDING has made development the top priority in all of its activities. Our ultimate objective is to achieve economic development through strategic investments across different economic sectors

5 Annual Report 5 Values and Mission We at PADICO HOLDING believe fundamentally in the importance of our role as a catalyst for investment growth in Palestine in order to develop a viable Palestinian economy. We aim to make substantial contribution to the Palestinian economy through job creation, innovative economic, developmental and social initiatives, fostering public-private partnerships in order to build capacity and work together to achieve solid economic development. As a result of these initiatives PADICO HOLDING has played a key role in attracting international investment to Palestine. We are committed to meeting our social and ethical obligations to our employees as well as to our local and international partners. As an international company, we adhere to high corporate standards and embrace strong corporate governance principles that are compliant with global best practice. As a leading national company, we follow an ethical code of conduct in all areas of our work, with a firm commitment to good citizenship practices and a strong work ethic. We continually strive to improve the work environment within our company, make socially responsible choices in our investment decisions in order to uplift the communities in which we work. About PADICO HOLDING General Overview Palestine Investment and Development Ltd. (PADICO HOLDING) was founded in 1993 as an initiative of several high profile businessmen from Palestine and other Arab states. Our mandate is to develop the Palestinian economy through strategic initiatives in key sectors. PADICO HOLDING s paid-in capital stands at 250 million US dollars (USD). It has been trading on Palestine Exchange (PEX) since The company s shareholder base has grown from 710 shareholders in 1998 to more than 8,424 shareholders in 2014, attracting institutional investors as well as funds from Palestine, Jordan, the MENA region and international markets. PADICO HOLDING is registered as a limited public shareholding company in Liberia. Our Strategy PADICO HOLDING executes its mandate through a diverse portfolio of subsidiary and affiliate companies that invest in key sectors including real estate, telecommunications, tourism, industry, agriculture, the environment and financial services. Profits are derived primarily through the performance of our subsidiary and affiliate companies. By diversifying investment across a wide range of economic sectors and expanding geographical locations, we have secured the position of the leading investment and Development Company in Palestine. Our Social Responsibility Since its establishment, we have regarded PADICO HOLDING s social responsibility towards the community as both a core value which underpins all of its operations and as a key component of its strategy. At PADICO HOLDING we support pioneering initiatives and projects that correspond to the needs of the Palestinian society and we are committed to serving every sector of society in which we operate. Over the past two decades, our social responsibility initiatives have continued to evolve. Given the extreme conditions characterizing the Palestinian context, our social commitment has sometimes been required to take exceptional forms. During Israel s attack on Gaza Strip during 2014, PADICO HOLDING employed all of the resources at its disposal and responded to needs reported from the field with a variety of forms of assistance. Our Competitive Advantage A number of key factors give PADICO HOLDING a competitive edge over other Palestinian and international companies in the world of business. Our directors bring significant international expertise from across the economic spectrum to the company. We have gained recognition for pioneering large-scale investment projects with secure earnings and returns. Our shrewd investment policy, which has built up a diverse investment portfolio, has enabled us to generate increasing returns in a high-risk environment. Our success provides a solid model for others considering investment in Palestine.

6 6 20 Years of Investment in Palestine Celebrating Twenty Years Of Investment In Palestine At the beginning of each new year we take the opportunity to celebrate with our valued shareholders PADICO HOLDING s achievements over the years. These accomplishments would not have been possible without your trust and support. Two decades ago our company s founders acted on their vision to mobilize resources in Palestine and abroad in order to build a solid investment block and develop a sound economy in Palestine. Investors from Palestine and the region joined forces to found PADICO HOLDING with the aim of providing leadership to the private sector in order to accelerate development. Their vision was to invest in key initiatives that would become pillars in different sectors and provide resiliency to the Palestinian economy. In 1994, PADICO HOLDING established Palestine Real Estate Investment Company (PRICO) to lead development in the real estate sector in Palestine. A year later, another major leap forward took place when we founded Palestine Telecommunications Company (PALTEL), the first telecommunications company providing landline services in Palestine. In 1995, we achieved an economic breakthrough by establishing Palestine Exchange (PEX), owned and run by the Palestinian private sector through PADICO HOLDING. In the same year, PADICO HOLDING founded Palestine Industrial Investment Company (PIIC) in Nablus, which has initiated numerous valuable projects including Palestine Poultry Company (PPC), one of Palestine s largest livestock companies. In 1997, in cooperation with a number of partners in Palestine and abroad, PADICO HOLDING founded Palestine Mortgage and Housing Corporation, one of the first companies in the region to offer mortgage financing. A year later, the Palestinian economy experienced a qualitative transformation when our affiliate PALTEL launched Jawwal, the first Palestinian telecom company to specialize in mobile phone telecommunications. In 1999, PADICO HOLDING established Palestine Industrial Estate Development and Management Company (PIEDCO Gaza) which developed the first industrial zone in Palestine. In 2000, we opened Jacir Palace Hotel in Bethlehem, the first five-star hotel in Palestine, and established Al-Mashtal Tourism Investment Company to operate the first five-star hotel in Gaza. PADICO HOLDING took over Jerusalem Development and Investment Company (JEDICO) in 2006, shaping it into an investment vehicle for the tourism sector which initiated numerous tourism projects over the

7 Annual Report 7 following years. In 2010, we established NAKHEEL Palestine for Agricultural Investment, which developed into one of Palestine s biggest agricultural companies. In the same year we opened Ramallah s first 5-star hotel, the Mövenpick. As part of our commitment to development, we partnered with a number of companies in Palestine and the region to establish Palestine for Power Generation Company (PPGC) in 2010, which was given the mandate to build the first power plant in the West Bank with a capacity of 400 megawatts. PADICO HOLDING has undertaken numerous projects in the real estate and tourism sectors aimed at diversifying its sources of revenue. In 2011, in partnership with PALTEL group, we established Jericho Gate, the largest developmental, tourism and recreational project in Palestine. In 2014, we launched our first housing project, Rabiyat Al Quds, which aims to meet the increased demand for housing in Jerusalem. The project comprises twenty-two residential buildings with views overlooking several important landmarks in the Holy City. After two decades of investment in Palestine, PADICO HOLDING remains loyal to its base of shareholders. Our cash dividends over the past twenty years were valued at million USD and free stock dividends were over 40 million USD, with a total value of 234.1million USD at the end of The wealth of achievements that has marked our journey over the past twenty years of investment in Palestine is the result of tireless effort on the part of our Board of Directors and executive managers. They have led the company from strength to strength despite the extremely adverse circumstances that Palestine has experienced, including uprisings, turmoil, wars, blockades and both political and economic crises. Thanks to their dedicated efforts, PADICO HOLDING has continued its investment activities with unwavering determination and perseverance. As we embark now on our third decade together, we renew our pledge to remain a beacon, taking new steps to build a better future for our nation. We commit our efforts to building a national economy that will support a decent standard of living for all Palestinians in a full-fledged Palestinian state. As we celebrate this milestone, we are full of hope for a day when the collective dream of a Palestinian state is realized, bringing Palestinians freedom, independence and self-determination.

8 8 20 Years of Investment in Palestine Board Of Directors Munib R. Masri Chairman Nidal M. Sukhtian Vice Chairman Sabih T. Masri Board Member Nabil G. Sarraf Board Member Kameel A. Saad Edeen Board Member representing Al-Masira Investments Co. Zahi W. Khouri Board Member

9 Annual Report 9 Yazid A. Mufti Board Member representing Cairo Amman Bank Ammar A. Aker Board Member Jamal S. Hourani Board Member representing Arab Bank Omar A. Bitar Board Member representing Palestine Technology Transfer Company Ziad M. Turk Secretary General Samir O. Hulileh Chief Executive Officer

10 10 20 Years of Investment in Palestine Years of Investment in Palestine

11 Annual Jerusalem Report 11 Strategic governance has been key to our success, enabling us to foresee opportunities, optimize resources and distribute authority and responsibility among the Board of Directors and the executive management. Twenty years after its inception, PADICO HOLDING has achieved significant progress in its system of governance as a result of the cumulative experience it has acquired over the years

12 12 20 Years of Investment in Palestine Our System Of Governance PADICO HOLDING employs a system of governance which regulates administrative operations and behavior within the company as well as relations with external stakeholders including shareholders, decision-makers, community-based organizations, partners, the local community and the environment. Strategic governance has been key to our success, enabling us to foresee opportunities, optimize resources and distribute authority and responsibility among the Board of Directors and the executive management. Twenty years after its inception, PADICO HOLDING has achieved significant progress in its system of governance as a result of the cumulative experience it has acquired over the years. As a signatory to the Palestinian Code of Corporate Governance, PADICO HOLDING has affirmed its commitment to the principles of transparency and good governance. In our commitment to excellence, we have also worked to develop our own practice of good governance beyond the traditional understanding of this concept. To this end, PADICO HOLDING elected to enter the United Nations Global Compact (UNGC), becoming the first and only Palestinian company to bind itself to international standards of human rights, worker rights, good governance, transparency and responsibility towards the environment. We report annually to this body. Our stringent compliance with good governance has bolstered us against corruption by regulating our internal structures, administrative and financial functions and relations with shareholders and the local community. In order to keep the public abreast of our initiatives, PADICO HOLDING issues quarterly and annual financial reports and press releases, reporting on such aspects of our work as corporate social responsibility, sustainability programs and our commitment to the environment. Our annual reports comply with the requirements of Palestine Capital Market Authority (PCMA). We also publish a quarterly newsletter about our activities, contracts and investment plans. PADICO HOLDING has restructured its administrative model as needed over the years to better serve its business needs. Most recently, we have restructured our investments into three holding companies, which have enhanced good governance, performance and efficiency. We continue to draw on international expertise and research in order to strengthen our systems of governance. We have contracted the International Finance Corporation (IFC), the investment arm of the World Bank Group, to conduct a comprehensive review of our governance structures. The IFC s recommendations deal with aspects such as the transparency of our operations; the structure, responsibilities and powers of our Board of Directors; our relationships with shareholders and the community; the quality of our reports and publications; corporate responsibility; our sustainability policies for projects and compliance with environmental regulations in the implementation of all of our projects.

13 Annual Report 13 Functions of the board The Board of Directors is charged with oversight of the company s strategies, activities and long term plan. The board is also responsible for approving the budget, our fiscal and investment policies and releasing financial statements. Decisions are made by majority vote. Board members are required to hold a minimum of 100,000 shares in the company. No member of the board may hold an executive position within the company or any of its affiliates. The board met six times during Committees The Board executes its functions through various permanent and ad hoc committees. The Executive Committees comprised of the following board members: Omar Bitar (chair) Ammar Aker Jamal Hourani Ahmad Jamjoum Samir Hulileh (rapporteur) The Audit Committee is comprised of the following board members: Yazid Mufti (chair) KameelSaadEdeen Ziad Turk Legal advisors to the board are as follows: FadiMaalouf ZaherJardaneh Haytham Al-Zubi External auditing is conducted by the following firms: Ernst &Young Main Banks Arab Bank Cairo Amman Bank Bank of Palestine

14 14 20 Years of Investment in Palestine Investor Relations and Communication with Shareholders PADICO HOLDING maintains a strong relationship with its shareholders through active communication by telephone, , our website, social networking and our various publications. The Department of Investor Relations and the Investors Affairs Unit handle this function, ensuring that all enquiries from shareholders and investors are answered in a timely manner. All shareholders are invited to attend our Annual General Meeting in April or May of each year in order to discuss our position, progress and future plans. At this meeting shareholders also approve financial statements for the previous financial year, elect directors and appoint auditors, and approve the distribution of profits. We also maintain a close relationship with the press. Financial Disclosures PADICO HOLDING discloses its financial statements by means of quarterly reports, the annual report and our Annual General Meetings. Reports are also made to the Palestine Capital Market Authority (PCMA) and to Palestine Exchange (PEX) in compliance with regulatory requirements in Palestine. Sustainability and Responsible Investments PADICO HOLDING is dedicated to the principles of sustainability and transparency and seeks to promote these principles in the communities in which it works through responsible investment in the fields of energy and the environment and through our corporate responsibility programs. By joining the United Nations Global Compact (UNGC), we have brought our policies into stronger alignment with international standards of human rights, workers rights and environmental practice. We also comply with the code of ethics spelled out in the UNGC s charter. We actively encourage other Palestinian companies to join the UNGC.

15 Annual Report 15 Shareholder Structure PADICO HOLDING had 8,424 shareholders at the end of 2014, distributed as follows: Individuals Companies Rest of the world Jordan Palestine Number of Shareholders Number of Shareholders Main shareholders in PADICO HOLDING Name Shareholders Distribution by Type Capital ratio PALTEL Group 16.35% Sabih Masri Group 12.64% Massar International Group for Investment 7.38% Munib Masri Group 5.22% Saraj for Investment Funds Group 5.08% Kingdom Holding 2.57% Nidal Sukhtian Group 2.23% Sideeq Omar Abu Sido 1.92% Ramzi Dalloul - Group 1.75% Rasmala Investment Banking Group 1.45% Etihad Bank 1.20% Abdul Mohsen Hassan Qattan 1.19% Sheikh Mohammad bin Hamad Al-Thani and relevant entities 1.02% General Social Security Corporation 0.96% Al-Sa eed Company Limited 0.74% Hanaa International Company Limited 0.72% Arab Jordan Investment Bank 0.62% Adel Sa eed Ibrahim Al-Qassem 0.58% RiyadTawfiq Al-Sadeq 0.56% Dubai National Investment Company 0.56% Nabil Sarraf and relevant entities 0.54% Ahmad Yusuf Qassem Hammouri 0.46% Grand Farm for Pharmaceutical Investments 0.45% Mohammad Zuhair bin Hamza bin Ibrahim Fatayerji 0.40% Arab Bank Company 0.40% Mahdi Husni Abdullah Saifi 0.32% Shareholders Distribution by Nationality

16 16 20 Years of Investment in Palestine Message from the Board Esteemed Shareholders, It is with great pleasure that we present to you our 2014 annual report, allowing us to reflect together on our accomplishments over the last year despite the adverse conditions that we have experienced in Palestine. Israel s assault on Gaza, which continued for over 50 days, resulted in large-scale destruction with a massive toll upon human lives and the environment. PADICO HOLDING has a strong commitment to our collective national and moral obligation towards our community in Gaza. During the attack, PADICO HOLDING acted on its commitment to social responsibility by supporting relief campaigns launched by various organizations, conducting meetings to consolidate relief efforts and providing cash and in-kind donations. We see PADICO HOLDING as having an integral role in the process of reconstruction following the attack and are committed to making every effort to improve the situation of those in Gaza, in partnership with public and international entities. The extensive destruction of infrastructure that resulted from Israel s attack on Gaza slowed economic growth across Palestine. The projects and facilities of PADICO HOLDING and our subsidiary and affiliate in Gaza strip were also affected, weakening our financial performance during the fourth quarter. PADICO HOLDING took decisive action in the face of these challenges and through strategic vision and dynamic planning based on our deep understanding of the fragile investment sector in Palestine which is frequently impacted by Israel s actions, we have made a strong recovery. Political events throughout 2014 have negatively impacted the Palestinian economy. Despite the signing of a reconciliation accord and the formation of the Government of National Unity, the issue of the intra-palestinian division is still prominent. What makes this division even more painful is that it has happening at a time when the Palestinian people are in dire need of cohesion and unity in order to face these difficult circumstances. Gaza Strip is still suffering from the aftermath of Israel s attack which destroyed tens of thousands of houses and left hundreds of thousands of internally displaced people to face extremely cold winters without shelter. Reconstruction efforts have made little progress to date, leaving Gazans deprived of their most basic needs, including decent housing to safeguard their human dignity. Today, this is a national and moral responsibility that we all need to shoulder.

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18 18 20 Years of Investment in Palestine The most recent steps taken by the Palestinian government in our beloved Gaza have brought new hope to us that this initiative reflects movement in a positive direction. We hope that this will lead to the full implementation of the reconciliation agreement, resolving all pending issues and bringing the necessary pressure to bear that will end Israel s unjust blockade of Gaza Strip. PADICO HOLDING has turned its corporate responsibility into a sustainable and strategic approach to serve Palestinian society. To this end, we have supported various educational and developmental initiatives to combat unemployment and have initiated strategic partnerships with a variety of organizations. During 2014, the Palestinian GDP fell 2.5% from This year begins with continued economic challenges as Israel continues to withhold tax revenues for the fourth month in a row. Israel s withholding of taxes, now totaling around USD 180 million, has imposed tremendous financial pressure on the Palestinian government. A national plan is needed to address this crisis and force Israel to fulfill its obligations. Despite these negative factors, PADICO HOLDING have continued to make strides with the investments, development plans and projects it has underway. These include Rabiyat Al Quds real estate project, Jericho Gate project, NAKHEEL Palestine and the establishment of Palestine Power Generation Company. These projects promise to bring substantial profits to the company. We continue to find inspiration from the vision of our Board of Directors and from the dedicated efforts of our CEO. As PADICO HOLDING celebrates its twentieth anniversary, we consider what an honor it has been to have been able to contribute to the various economic sectors in Palestine. On this occasion, we renew our commitment to development and investment in Palestine, inspired by the rich legacy of vision and perseverance which our founders have given us. We continue to strive to realize their aspirations for an independent Palestinian state supported by a strong and viable economy of which PADICO HOLDING is an integral part. In keeping with our holistic vision for the Palestinian economy we have worked to diversify our investments across all sectors. In so doing we have created an innovative model through which projects of a high quality are initiated. Our establishment of Palestine Exchange (PEX), for example, proved to be a breakthrough in investment as it was the first non-governmental stock exchange owned and run by the private sector. Today, Palestine Exchange holds a strong position among regional and international financial stock markets and entities. PADICO HOLDING has also maintained diverse investment partnerships that have been strategic in generating revenue, such as Palestine Telecommunications Company, or PALTEL Group. Like many of our other affiliates, PALTEL was targeted by Israel during the attack on Gaza. Today, PADICO HOLDING owns numerous investment vehicles which include large-scale companies and projects across most economic sectors. PADICO HOLDING owns 74.5% of the shares of Palestine Real Estate Investment Company (PRICO), our real estate investment vehicle. In the tourism sector, we own five-star hotels in Bethlehem, Gaza, Ramallah and Jerusalem. We have also made substantial progress towards completing Jericho Gate, amega tourism and entertainment project in the city of Jericho. During 2014 we also launched the Executive Club, which has attracted business people widely through the diverse economic, political, national and cultural activities it has organized or hosted.

19 Annual Report 19 In the industrial sector, PADICO HOLDING invests through Palestine Industrial Investment Company, which comprises numerous companies including Palestine Poultry Company and Palestine Plastic Industries Company. It has also invested in the Vegetable Oil Industries Company, the National Carton Industries Company, the Golden Wheat Mills Company and other projects. In terms of the agricultural sector, PADICO HOLDING established NAKHEEL Palestine farm which has become one of the largest palm farms in Palestine, exporting Medjoul dates to various international markets. Because of our strong desire to have a presence in Jerusalem, which holds such a significant place in the Palestinian consciousness, we have undertaken three real estate endeavors in our Holy City: Rabiyat Al Quds housing project in Beit Sfafa, Saint George Hotel and Al-Hambra Palace. At PADICO HOLDING we see our commitment towards our shareholders as a non-negotiable priority, as they form the community which has believed in us and chosen PADICO HOLDING as their investment outlet. In line with this commitment, at our AGM in April payout of dividends of 6% (6 cents per share) to shareholders was approved. Over our 20 years in operation we have paid out USD million to our shareholders USD million in cash profits and USD 40 million dollars in free shares. We are confident that the next few years will bring further growth in profits. Our strategy for the coming years will focus primarily on developing our existing projects in order to increase the profitability of the company. In addition, we will continue to engage in the reconstruction efforts in Gaza Strip, working to heal the wounds that still remain from the recent war. Finally, as I conclude this letter, I would like to express my deepest gratitude to our family at PADICO HOLDING, represented by the Board of Directors which has spared no effort to ensure the continued success of our endeavors. I commend all of our staff for working together with such dedication to ensure that PADICO HOLDING continues to enjoy the high status it holds within the Palestinian economy as a leader of the private sector. Please allow me to express my deepest gratitude to you, our valued shareholders, as well, for placing your trust in PADICO HOLDING for the investment of your capital. We are truly grateful for your support and faith in our company throughout its journey. Let us renew our commitment to work together to create a better future for the Palestinian people through the holistic development of a strong economy. I conclude with a renewed commitment to invest in Palestine, because it deserves our best today and every day. Yours Respectfully, Munib Rashid Masri Chairman

20 20 20 Years of Investment in Palestine Message From the Executive Managment Dear Shareholders, It is with great pleasure that we present to you our 2014 annual report, which discusses the performance of PADICO HOLDING and its subsidiary and affiliate companies, our investment approach, progress made in the company s various undertakings, and our vision and strategy for the future. We also take this opportunity to discuss future prospects with you, as we celebrate the twentieth anniversary of PADICO HOLDING. On this occasion, we are honored to celebrate a journey in which economic accomplishments have been abundant thanks to the dedicated efforts of our founders, who achieved their dream as proud Palestinians of establishing PADICO HOLDING as an economic landmark in Palestine. As a result, PADICO HOLDING today leads the private sector in Palestine and has transformed the construction and development sectors in our country. At the end of 2014, our consolidated revenues totaled USD million compared to USD million in The value of our total consolidated assets increased from USD million at the end of 2013 to USD million at the end of 2014, with a growth rate of 3.3%. Our total consolidated liabilities also increased to USD million in 2014 from USD million at the end of 2013, a growth estimated at USD million and equivalent to 4.2%. In addition, the owner s equity of the shareholders of the mother company increased from USD million at the end of 2013 to USD million at the end of 2014; an increase of USD million which is equivalent to 3.5%. As we celebrate this special occasion today, our rich legacy continues to inspire us to carry on with our mission with even greater determination and faith in our ability to realize a better future in which Palestinians enjoy genuine economic development. Challenges to performance during 2014 Extreme political conditions cast their shadow on the economic status of our country during 2014, as Palestinian economic performance was negatively affected by Israel s most recent assault on Gaza Strip. This war had a catastrophic impact on Gaza, as tens of thousands of homes were reduced to rubble. The Palestinian economy at large and the performance of individual companies were affected by these events. As PADICO HOLDING invests in most sectors of the Palestinian economy, the negative impact on the economy was reflected in our financial standing as well.

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22 22 20 Years of Investment in Palestine In 2014, our total profit before tax came to USD million compared to USD million in 2013, showing a decline of 23.4%. Our consolidated net profit stood at USD million at the end of 2014 compared to USD million in the same period in 2013, indicating a decline of 24.2%. These signs of decline reflect the impacts of Israel s war on Gaza which lasted for more than 50 days during the third quarter of the year and led to both direct and indirect losses which affected PADICO HOLDING as well as its subsidiary companies that operate in Gaza Strip. This negative impact was probably felt most profoundly in the tourism sector, where we own mega investments through Jerusalem Development and Investment Company (JEDICO), our investment vehicle in the tourism sector. In addition, our affiliate companies experienced losses which had a direct impact on our own profits, particularly as a result of the losses borne by Palestine Real Estate Investment Company in Gaza, the losses in the tourism industry in the second half of 2014 and the catastrophe experienced by Palestine Telecommunications Company, whose towers, equipment and facilities were systematically targeted by Israel. The performance of Palestine Exchange (PEX) was also affected by the war: the monthly average for exchange decreased from USD million in the first half of 2014 to USD17.87 million in the third quarter of the same year. While these event scompromised the profitability of many of our companies and projects, current indicators show that we are now on the road to recovery, particularly in the tourism sector. Achievements during 2014 During 2014, PADICO HOLDING continued to develop its various real estate and tourism projects. The Supreme Organization Council approved the structural plans for Jericho Gate project, a mega tourism and real estate project implemented with our affiliate company PALTEL at Jericho s southern gate. We are currently finalizing the design of the network of roads, water, sewage, electricity and telecommunication services for the project. Construction of roads and related infrastructure for the first phase of the project is expected to begin in the first half of 2015, encompassing an estimated area of 1000 dunums. The project is expected to generate profits over During 2014 we also completed master plans for the first phase of Rabiyat Al Quds project, our first housing project. The project was initiated in order to meet the increased demand for housing in Jerusalem. Eighty-two housing units in 22 residential buildings are planned which overlook landmark sites in the Holy City. The licensing process for the first 12 buildings has been initiated with municipality of Jerusalem. Plans for the second phase, which will provide 150 apartments in 12 additional buildings, are already underway. We expect this project to generate revenues over the years In other developments this year, Palestine Power Generation Company has restructured its capital base. Gaza Electricity Company decreased its share from 43% to 5%; Palestine Telecommunications Company, the Arab Bank and Palestine Investment Fund took over these shares, forming a new base of shareholders alongside PADICO HOLDING which owns 20% of shares. Preparations to sign the final agreements with the Palestinian National Authority have been completed, and the plant is expected to start operating by the end of Palestine Power Generation Company has decided to increase its output from 200 megawatts to 400 megawatts. While the current capital of the company stands at USD 10 million, it is expected to rise to more than USD150 million over the next three years. NAKHEEL Palestine, which was established by a number of PADICO HOLDING s subsidiary companies in March 2010, as a vehicle to invest in the palm industry in Palestine, continued to expand the scope of its activities in The company planted 1,332 new palm trees; it now owns a total of 22,021 trees. Farm production increased to 439 tons in 2014 compared to 280 tons in the previous year. In 2014, NAKHEEL Palestine produced and packaged a total of 685 tons of dates. The company has continued to upgrade and enhance its irrigation system through wells, reservoirs and storage ponds. The total assets of the company increased from USD 16.1 million in 2013 to approximately USD18.3 million in Our approach towards social responsibility and development At PADICO HOLDING, we believe that corporate social responsibility is a top priority, as it reflects our commitment to different segments of Palestinian society. This translates

23 Annual Report 23 into youth empowerment programs and launching or supporting cultural, creative, entrepreneurial and intellectual initiatives. In order to meet our social responsibilities in a sustainable way, PADICO HOLDING takes a longterm strategic approach which is underpinned by the principle of supporting endeavors that benefit a wide segment of society rather than only individuals on a limited scale. During 2014 Israel s most recent assault on Gaza necessitated that our social responsibility took new forms. From the beginning of the attack, we took firm and swift action to provide support and relief in coordination with governmental entities, civil society organizations and international organizations in cooperation with a call by the Palestinian Private Sector Coordination Council for relief efforts for Gaza. Our efforts took various forms. One of these was the signing of a memorandum of understanding with Sharek Youth Forum to support an emergency relief campaign to address the material and psychological needs of internally displaced Gazans housed in shelters across the five governorates of Gaza Strip. In response to the shortage of medical supplies experienced in Gaza during the attack, we sent medicines to the Red Cross Hospital. We also initiated a series of consultations with various entities in the public and private sectors as well as with civil society and international organizations in order to enhance cooperation and consolidate relief efforts. In addition, from the beginning of the war and until the end of 2014, employees of PADICO HOLDING s companies donated one day of wages per month, matched by the company, to aid Gaza. Following the attack we have provided direct financial support to the Palestinian Businesswomen s Association (ASALA) to support women entrepreneurs in Gaza with the task of rebuilding their projects following the destruction that resulted from the war. In tandem with the efforts directed specifically towards relief for Gaza, we have continued our social development efforts in all sectors during We have continued to implement TAMMAYAZ, a program that aims to equip graduates for the labor market by addressing the mismatch between the outputs of education and the needs of the labor market, for the second year in a row in partnership with civil society and international organizations. Today, the program includes seven Palestinian universities. During 2014 we have also supported numerous entrepreneurial, artistic and creative projects, such as Global Entrepreneurship Week, the Traces exhibition which featured plastic art works from more than 49 Gazan artists and a host of other activities, events, initiatives and creative works, some of which will be discussed further later in this report. Our plans for the future PADICO HOLDING s current action plan focuses on moving forward projects that are under development and enhancing the profitability and performance of existing projects. We and our affiliate and subsidiary companies intend to play an active role in the reconstruction of Gaza Strip. We strongly believe that this is an economic and national obligation that should be shouldered by the Palestinian government and the Palestinian private sector - of which PADICO HOLDING is an integral part together. The year 2014, with its many difficult political and economic circumstances, proved yet again the exceptional ability of our company to cope with crisis, resilience and flexibility. With twenty year of experience investing in Palestine, we have acquired the ability to foresee political developments and respond withinsight to the specific needs of each situation. We have overcome many difficulties throughout the years and are able to recover from crisis with resilience because of the steadfast support of our shareholders. As we are start a new third decade with you, we are confident that great achievements lie ahead that will be added to our record of success. Such a strong position as we enjoy would not have been possible without the efforts of our founders, the wisdom of our Board of Directors and the dedication of our Executives and staff who have proven an unbeatable team over the past twenty years. We will continue to work tirelessly to maintain the status of PADICO HOLDING as a prosperous investment landmark and an integral pillar of the Palestinian economy. Yours respectfully, Samir Hulileh CEO

24 Bethlehem Years of Investment in Palestine By the end of 2014, PADICO HOLDING s direct investments across various economic sectors stood at USD million in book value. Twenty years of investment activity have built a diverse investment portfolio

25 Annual Report 25 Our Investments 1.Overview of the Palestinian Economy in 2014 The year 2014 demonstrated again the turbulence that characterizes the Palestinian economy as a result of aggression by Israel and the political stalemate that prevents the arrival at a just solution to the Palestinian cause. By the end of 2013, political forecasts indicated a possibility of progress, both in terms of Palestinian-Israeli negotiations and intra-palestinian issues. Based on these positive expectations, economic analysts predicted a growth rate of 2.5% at worst and 6.5% at best during In reality, however, initial indicators have shown a 2.7% decline in the GDP during This is hardly surprising considering the political developments on the ground and their ramifications for various sectors of the Palestinian economy. While official economic indicators of Palestine for the year 2014 have not yet been released at the time of writing this report, it can be assumed that the economy experienced a decline in its performance, particularly during the second half of the year. The total growth rate for the Palestinian economy during the first half of 2014 was 5.1% compared to the same period in 2013, as a result of a 9% increase in consumption and a 7.5% increase in exports. In addition, there were increases in value added in various sectors, particularly trade, services, financial and insurance services which experienced growth of 24.8%, 10.5% and 6.4% respectively during the same period. This can be attributed to the satisfactory performance of the West Bank s economy, which grew by 9.3%, while the economy in Gaza continued to experience restrictions due to the political conditions and Israel s blockade of the area, resulting in a decline in its performance of 6% during the same period. In the second half of 2014, estimates by Palestine Monetary Authority (PMA) indicated that the Palestinian economy witnessed a sharp decline in its performance due to Israel s attack on Gaza Strip. The war took a toll on economic activity as the infrastructure and the production base of the main economic sectors were severely damaged, especially in agriculture, fishing, industry, construction and services. PMA reported that as a result of these factors the Palestinian economy experienced a decline in its real growth rate in 2014 that reached 2.7% compared to a growth rate of 2.2% in As a result, the per capita real income (average per capita of real GDP) was also negatively affected, with a decline of 5.5% compared to The estimates of PMA also showed that the added value of the private and public sectors also declined by 3.5% and 2.1% compared to a growth rate of 1.8% and 5.2% respectively in In addition, the rate of unemployment also increased in 2014 to 29% of the total workforce compared to 23.4% in Economic forecasts of PMA for 2015 show potential for the Palestinian economy to grow by 6 to 7% if conditions are favorable. Key will be progress in the political arena, regular transfer of Palestinian revenues collected by Israel and reliable access to the grants and other financial assistance which has been allocated for the reconstruction of Gaza Strip. If, on the other hand, the political situation destabilizes further and Israel continues to withhold Palestinian revenues, forecasts show that real GDP will decline by 4-5% growth of about 2% will be expected in the next year.

26 26 20 Years of Investment in Palestine 2. Economic Sectors and Investments Investment sectors By the end of 2014, PADICO HOLDING s direct investments across different sectors totaled USD million at book value. The financial and services sector makes up 68% of our total direct investments, primarily through our investments in Palestine Telecommunications Company (PALTEL), Palestine Stock Exchange and the National Bank. This sector is among the least vulnerable of the economic sectors, having limited exposure to the influence of economic and political changes. Investment in real estate ranks second after the financial and services sector. Our investments in this sector stand at 11% of our total direct investments primarily through our investment in Palestine Real Estate Investment Company (PRICO). Nine percent of our total investments fall in the tourism sector in the form of our investment in Jerusalem Development and Investment Company (JEDICO), our investment vehicle in the tourism sector. Industry, agriculture, infrastructure and environment together make up 12% of our total investments. We plan to expand our investments in these sectors, as discussed in our plan for the years ahead. financial and services sector real estate sector tourism sector infrastructure and environment sector Industry and agriculture sector Classification of investments For the purposes of financial reporting, our direct investments are divided into three main categories as follows: subsidiary companies, affiliate companies and other companies¹. The following table highlights the distribution of our direct investment portfolio across these categories at the end of 2014: Distribution of direct investments by accounting category Accounting category Million USD Investment in Subsidiary Companies Investment in Affiliate Companies Other Investments 52.5 Total Subsidiaries are those companies in which PADICO HOLDING owns more than 50%, granting it control over the decision making process in terms of operating and financial policies. Affiliate companies are those in which PADICO HOLDING holds 20%-50%, granting it influence over financial and operational policies. Others represent investments in which PADICO HOLDING owns less than 20% and therefore has limited influence on the decision making process.

27 Annual Report 27 Summary of Investment s Performance in 2014 Financial and services sector PADICO HOLDING s investments in the financial and services sector totaled approximately USD million at the end of 2014, accounting for 68% of our total investments. Key companies in our investment portfolio in the financial and services sector are listed below along with their major achievements during Palestine Telecommunications Company (PALTEL) The attack by Israel cast a shadow on the financial performance of Palestine Telecommunications Company during At the end of the year its net profits stood at JD 85.1 million, compared to JD 91.8 million in 2013; a decline of 7.4%. Its consolidated operating revenues totaled JD million, a 5.2% drop from its JD million the year before. As a result, earnings per share declined to JD compared to JD in Following the war, a large part of the company s budget was allocated to rehabilitate the infrastructure and networks that were destroyed in Gaza Strip. The company is still working hard to recover from the crisis. The decline in the exchange rate between the Israeli Shekel and the Jordanian Dinar also affected the company s financial standing. Furthermore, prices for telecommunications services have dropped as competition in this sector has increased. Despite these grave challenges, the company did increase subscriptions for land and mobile lines and ADSL internet services during 2014, demonstrating its ability to stay on the cutting edge technologically and respond to the increased demands in the Palestinian market. PALTEL is the first company listed in Palestine Stock Exchange to also be registered in the top indices regionally and internationally. It was featured in Standard and Poor s index for the Union of Arab Stock Exchanges (S&P AFE 40) and the Dow Jones Index for excellence, which is affiliated with the Federation of Euro-Asian Stock Exchanges (Dow Jones FEAS 50).

28 28 20 Years of Investment in Palestine Palestine Stock Exchange In 2014, Palestine Stock Exchange (PEX) celebrated numerous accomplishments. Operating revenues increased by 5.3%. Administrative expenditures dropped by 13.2 % following the introduction of measures approved by the Board of Directors in cooperation with the administrative staff to manage the negative impact of the political challenges in This led to an 11% increase in net profits for total operating revenues. During 2014 PEX also made it onto the monitored list of FTSE indices and launched the first exchange of commercial bonds in Palestine. In addition, it continued its promotion of investments through information sessions with university students, specialized training courses and by hosting a large number of media and academic delegates. After the Center of Deposits and Transfers joined the national payment system, Buraq, PEX switched to a T+2 monetary settlement systems, an additional advantage of this new development. With the aim of increasing the depth of the market, PEX listed a new company in 2014, while two other companies were eliminated as they were converted into private shareholding companies. Renewing its strategic commitment to raise public awareness, PEX ran the Simulating Exchange competition for the 7th year, bringing together 240 students from 10 Palestinian universities. VTEL Holding VTEL Holding was established in the United Arab Emirates in 2006 with a total capital of USD 377 million. The company provides wired and wireless telecommunication services in the Middle East, Africa, Eastern Europe and Central America. VTEL Holding runs investments in the telecommunications sector in Jordan, Iraq, Georgia, Armenia, Ukraine, Burundi and Barbados. PADICO HOLDING owns 10% of VTEL Holding s capital, while Palestine Telecommunications Group owns over 25%. Despite the instability in Iraq -where the bulk of its operations takes place-, VTEL Holding managed to achieve substantial growth in its level of operations in The revenues of the group increased by 23% over 2013 due to the fact that it owns 45% of the shares of Fastlink (fast data services through LTE) and Ireach (a telecom services distribution company) both of which operate in the Kurdistan region. The fast internet service offered by VTEL is in increasing demand as the demand for audio services increases which corresponds to trends in international telecom markets where there is an unprecedented demand for broadband services. VTEL Holding is currently negotiating with the government of Burundi in order to transfer the assets of Africell Company to another company in order to get the MVNO license and merge with the public cell phone company. According to this arrangement, the cell phone license can be valid for no less than 15 years in Burundi, which will have a relatively high market value.

29 Annual Report 29 National Bank The National Bank experienced a successful year, with net profits (after tax) of USD 4.4 million, a 23.3% increase from last year. The bank s assets grew to USD 680 million, representing a 28.4% increase. In terms of other achievements, the bank increased its capital to USD 75 million (a 50% increase) in a secondary public offering, where 84% of the shares accounting for this increase were covered, reflecting investors faith in the Bank. Shares that were not subscribed to were allocated to Etihad Bank in Jordan, which signed a memorandum of understanding with the National Bank to take over its assets and liabilities in Palestine. The process is set to begin in The National Bank was named Fastest Growing Bank in Palestine by the CPI Financial Foundation in mid-2014 and at the end of the year was named Fastest Growing Bank in the Middle East. During 2014, the Bank opened its eighth branch. The branch is located in Al-Ram and is the bank s first branch in Jerusalem governorate. Also this year, the Bank signed a contract with Temenos, an international leader in banking systems, to upgrade to a state-of-the-art T24 banking system. The bank also introduced TNB Mobile for users of smart phones with Android or IOS systems, which represented a first in banking in Palestine.

30 30 20 Years of Investment in Palestine Real Estate Sector The total amount of PADICO HOLDING s investments in the real estate sector amounted to USD million, constituting 11 % of the Company s total investments by the end of These are managed through shares in Palestine Real Estate Investment Company (PRICO), PADICO HOLDING s investment arm in this sector. The following is summary of the performance of PRICO, including its projects, main accomplishments in 2014, and its future plans.

31 Annual Report 31 1: Real Estate Development Projects Al-Ghadeer Neighborhood This development boasts 374 residential units housed in 34 buildings, with some space reserved for commercial use and services. The estate is situated on 32 dunums, 900 meters from the main road between Ramallah and Birzeit, where the villages of Surda, Abu Qash and Jefna converge. The project was launched in 2011 and construction was 96% complete by the end of Plans for transportation and public services network which include a 22-meter wide road were approved during PRICO is currently engaged in marketing and sales and expects all title deeds to be transferred by the end of Total revenues for the development are expected to be around USD 38 million. Al-Masayef Project - second phase This project is located in al-masayef area on one of northern hills of Ramallah, with a view of the coast and the villages to the west of Ramallah. The development consists of 39 residential units housed in three buildings. The project began at the end of 2012 and was completed by the end of PRICO is currently engaged in marketing and sales, and expects all title deeds to be transferred by the end of Total revenues of USD 5.5 million are expected.

32 32 20 Years of Investment in Palestine PRICO House Project 2 This development is located in a fast-growing commercial hub a kilometer away from Ramallah s city center. The Ministry of Justice, as well as head offices of a number of businesses and banks, including the Arab Bank, Al Quds Bank, Bank of Palestine and several five-star hotels, are located in the immediate vicinity. Construction of the nine storey building started in September, The building boasts 3 levels of basement parking with 1000 m 2 of showroom space. Two floors are designated for commercial use with the remaining four floors to be rented as office space for architects, engineers, lawyers, medical doctors and information technology companies. By the end of 2014 the project was 35% complete. The project is expected to generate total revenues of USD million over : OPERTIONAL MANAGEMENT Al-Bireh Central Station As part of a public-private partnership contract in effect until 2023, PRICO manages and operates Al-Bireh Central Station, a major hub for taxi and bus transport services both around Ramallah / Al-Bireh and across the West Bank. PRICO is in the process of developing the levels over the station as upmarket commercial space and is exploring an option of developing an adjacent 300 m 2 lot owned by the Islamic Waqf Committee into a double storey commercial space. Bethlehem Tourist Bus Station PRICO also manages the Bethlehem Tourist Bus Station, which provides state-of-the-art services to the tourism sector in Bethlehem. Over 1.3 million people are estimated to use the station each year. The station contains two commercial floors above the garages for buses and taxis. PRICO s contract with the municipality to manage the station has been extended until 2017, and it is negotiating to extend the contract further in order to complete developments that were slowed by the events which impacted the West Bank negatively during Blue Beach Resort Located on the northern side of Gaza City adjacent to Al Mashtal Hotel, this project boasts 300 meters of beachfront on the Mediterranean Sea. The resort contains 164 chalets housed in four buildings, each with a view of the sea. Each building offers unique family-oriented recreational and entertainment facilities. Building was completed at the end of 2013 with plans to open in the summer of The political events that transpired during 2014 deterred the launch of the project, however. PRICO is now exploring two scenarios for limiting the vulnerability of the project to political climate. If the current political situation continues, it may lease the entire project. If the political situation improves and the blockage of Gaza is lifted, it may go ahead with plans to manage the project directly. PRICO s investment will continue until 2095, providing ample opportunity for development of the marina or bay or of additional recreational facilities to increase revenues should the political climate improve.

33 Annual Report 33 Park Plaza Project This is the first project undertaken by a high-profile public-private partnership between PRICO s subsidiary Al-Marafeq Construction and Operation Company and the Greater Amman Municipality in Jordan. The project was launched in 2010 and ownership is to be transferred to the municipality after 25 years of operation. The project is located in a developed 50,000 m 2 area near Amman s sixth circle in Suweifieh, a prosperous commercial hub. The development includes eleven floors that contain parking garages, retail space and offices.

34 34 20 Years of Investment in Palestine 3: Industrial Zones Jericho Agro-Industrial Park (JAIP) Jericho Agro-Industrial Park Development Company was established in 2012, in cooperation with the Palestinian National Authority and with support from the Japanese government, as Palestine s first agro-industrial multi-sectoral company. It offers investment incentives for companies and investors in the agro-industrial sector providing industrial space, comprehensive storage solutions and logistical services to companies in Jericho. PRICO s vision is to develop the Park as a hub that will attract local and international investment in the agricultural sector so as to promote Palestinian agricultural products in regional and international markets. Construction of the foundations and some of the buildings for the industrial area was completed in The construction of the complex s first factory, which will specialize in herbal extracts, was completed. A building housing (1,000 m 2 ) of office space was opened in January of Space has been allocated to the Commission of Industrial Parks, the free zone, commercial banks and the Investment One Stop Shop. Numerous contracts were signed during 2014 with investors looking to set up factories in the industrial zone and take advantage of the incentive package. PRICO has signed a contract to build a solar power plant in order to meet some of the complex s energy needs. In the year ahead PRICO plans to begin the second phase of the development of the park.

35 Annual Report 35 Gaza Industrial Zone Gaza Industrial Zone, Palestine s first industrial zone, boasts state-of-the-art environmental and developmental solutions, addressing the issue of illegal building in residential areas while supporting the development of small and medium enterprises which contribute to the major industries. Encompassing 486 dunums, the zone is comprised of industrial areas, administrative areas, roads and green spaces. The Park is located to the east of Gaza City, only 4 kilometers away from Shuhada Square (also called Palestine Square) near the Mintar crossing. The first two of three construction phases have been completed and the industrial buildings are now in use. After the war in Gaza, key services such as electricity and water were back in operation in record time during the fourth quarter, allowing factories and workers to resume production.

36 36 20 Years of Investment in Palestine Tourism Sector PADICO HOLDING s investments in the tourism sector were worth USD million at the end of 2014 and represented 9% of our total investments through Jerusalem Development and Investment Company (JEDICO), PADICO s investment vehicle in the tourism sector.

37 Annual Report 37 Jerusalem Development and Investment Company (JEDICO) Our tourism investment portfolio includes Jerusalem Tourism Investment Company, Palestine Tourism Investment Company, Al-Mashtal Tourism Investment Company, the Arab Hotels Company and the First Specialized Entertainment Company. JEDICO manages a number of five-star hotels as well: Jacir Palace in Bethlehem, Mövenpick in Ramallah, Al- Mashtal Hotel in Gaza and St. George Hotel in Jerusalem. In addition, we manage a number of properties in the tourism sector, including the Executive Club in Ramallah and Al-Hambra Palace in Jerusalem. 1: Jerusalem Tourism Investment Company St George Hotel In 2014, St George Hotel was awarded the American Hotel & Lodging Educational Institute s Gold Quality Service Certificate following intensive training of its management team. The branding for the hotel and its facilities was improved. During the second half of 2014, bookings at the hotel along with tourism across Palestine - dwindled as a result of the political unrest. After the war, business picked up again, with numerous bookings for group accommodation and conferencing. 2: Palestine Tourism Investment Company Jacir Palace- Bethlehem Following its inception in 1994, Palestine Tourism Investment Company began the development of a five-star hotel in the heart of Bethlehem. The hotel opened in 2000 under the management of the Intercontinental International Group. Due to the political unrest that year, however, during which the second intifada began, the hotel was closed down. The hotel suffered heavy losses to infrastructure as a result of continuous attacks by Israel. In 2005, the company was tasked with re-opening the hotel. With the help of committed partners, the company was able to restructure its capital and debt through amortizing losses to increase capital. In 2014 Vatche Yergatian -who serves as General Manager of St George Hotel in Jerusalem and has over 30 years of experience in hotel managementwas appointed General Manager of the hotel. Because the contract with the Intercontinental Group ended in 2014, the hotel was renamed Jacir Palace. The hotel is now considered to be the top five-star hotel in Bethlehem. During 2014 it hosted numerous conferences and other events, including the International Palestinian Conference for Orthodontics and the Fifth Palestinian Conference on Environmental Awareness and Education. The management of the hotel was given the Golden Quality Service award in 2014.

38 38 20 Years of Investment in Palestine 3: Al-Mashtal Tourism Investment Company Al-Mashtal Hotel/Gaza After its establishment in 2000, Al-Mashtal Tourism Investment Company began construction of a five-star hotel on Gaza City beach. Due to political unrest, work on the project was halted between 2001 and The hotel was finally opened in In 2014, the tourism sector in Gaza was deeply affected by Israel s attack on the area. Al-Mashtal Hotel, in particular, was affected by shortages of resources such as electricity and increased prices in commodities such as fuel. The number of tourists declined rapidly, including Palestinian tourists on which the sector relied during the final period. In addition, Israel s closure of Gaza s borders prevented tourists, and also those in solidarity, from entering Gaza. The hotel s only guests were journalists and the staff of relief organizations. 4:The First Specialized Entertainment Company The First Specialized Entertainment Company was established in In 2014, it opened the Executive Club, an innovative endeavor aimed to meet the needs of the business community by accommodating the social activities of its members in an attractive environment that provides facilities for personal care and recreation. The Club was launched at a celebration that was attended by numerous businessmen and the CEOs of our affiliate and subsidiary companies. Located in Tal Al-Safa neighborhood of Ramallah, the Club is situated on 2,600 m 2 of real estate overlooking the beautiful hills to the west of Ramallah. Representing an investment of over USD 6 million, it boasts two main restaurants and a variety of luxury entertainment and recreational facilities. The Club runs the Speakers Forum, which organizes seminars to explore and debate ideas for economic development which attract key figures in business and the media. A local or international leader is usually invited as the keynote speaker. The first session of the Speakers Forum was held in August United States Consul Michael Ratni gave the keynote address, and the event was attended by numerous business executives and investors from Palestine and across the Arab world. During 2014, the Club hosted numerous activities and events. The most significant of these was the consultation which we initiated to discuss mechanisms for the private sector to contribute to the relief work in Gaza. Another event was held to discuss the national plan for reconstruction in Gaza, which was attended by Deputy Prime Minister Dr. Mohammad Mustafa and over a hundred other participants, including economic figures, Palestinian investors, members of the Executive Club and business people from Gaza Strip.

39 Annual Report 39 5: The Arab Hotels Company Mövenpick Hotel The Arab Hotel Company was established in Its focus has been the development of the Mövenpick Hotel in Ramallah, which opened in The hotel, which overlooks Ramallah and has views all the way to Jerusalem, is located only a few minutes away from Al Masyoun, where the majority of Ramallah s shopping malls and entertainment centers are located. In 2014, the hotel resumed its evening musical program, organizing a number of musical activities in cooperation with local artists and cultural centers.

40 40 20 Years of Investment in Palestine Industrial Sector Since its inception, PADICO HOLDING has paid special attention to the industrial sector. Our investments in this sector, which represent 4% of our total investments, were worth USD million at the end of 2014.

41 Annual Report 41 Palestine Industrial Investment Company Palestine Industrial Investment Company, which was established in Nablus in 1995, is our investment vehicle in the industrial sector. The company invests in light, medium and heavy industries and offers administrative and technical support to local industries. Since its foundation, it has established two public shareholding companies, Palestine Plastic Industries Company and Palestine Poultry Company, also called AZIZA. It also owns a host of influential shares in the Golden Wheat Mills Company, the National Carton Industries Company and the Vegetable Oil Industries Company. Audited financial statements for 2014 indicate that the company s net profit after tax was JD 3.2 million over JD 4.2 million in 2013, showing a decline of 23%. Operating revenues rose from approximately JD 27.2 million in 2013 to approximately JD 31.6 million in an increase of 16%. The decline in net profit resulted from the decrease in the price of poultry in the Palestinian market in 2014 in addition to losses due to unfavorable exchange rates. The impact of these losses was reflected in the performance of the company and its subsidiary and affiliate companies. The investments of Palestine Industrial Investment Company are summarized below. Palestine Poultry Company AZIZA Established by Palestine Industrial Investment Company in 1997, Palestine Poultry Company, also called AZIZA, has become one of Palestine s largest livestock producers. The company s main activities include manufacturing feeds, breeding broiler chicken, producing and selling hatching eggs and managing the abattoir. In 2014, the company continued to improve its performance and develop its projects. It raised its market share and expanded its feed factory, raising its production capacity to 150 thousand tons annually. The factory complies with the ISO 9001 standards for monitoring and quality. It uses organic protein exclusively in its products and produces a full range of feed mixtures. The feed laboratory employs ISO systems for quality control. The company s audited financial statements for 2014 show JD 29.5 million in sales compared to JD 26.2 million in a 13% increase. Net profit after tax only came to JD 2.3 million compared to JD 3.4 million in This is mainly attributed to the decline in the prices of poultry in the Palestinian market in addition to losses due to unfavorable exchange rates as mentioned above.

42 42 20 Years of Investment in Palestine National Carton Industries Company The National Carton Industries Company was established in 1993 and produces a range of cartons for the local Palestinian market. It was the first company licensed to produce cartons in Palestine and holds the highest market share in the industry in Palestine. The company is well positioned to identify new investment opportunities in the dynamic and rapidly growing packaging industry. This company is committed to its strategy for development even in the volatile investment market in Palestine. In 2014, the company added a new production line for open pack which is now fully operational. Demand for this product has increased as a result of the boycott of Israeli products in the Palestinian market. The company s audited financial statements for 2014 show net profit after tax of JD 315,000 for 2014, down from JD 458,000 in The Golden Wheat Mills Company The Golden Wheat Mills Company was established in 1995 and is the first mill of its kind in Palestine. Its entire operation has been imported from Switzerland and is among the most advanced in the Middle East, with a production capacity of 450 tons per day. The mill produces a range of flours as well as other products such as semolina and bran. The company is currently investigating opportunities to produce other products such as corn flour, pasta and biscuits. The audited financial statements of the company for 2014 show net profit after tax of JD 164,000, compared to JD 215,000 in The Vegetable Oil Industries Company The Vegetable Oils Industries Company was established in 1953 and is one of the longest operating companies in Palestine. It produces vegetable oil products from non-hydrogenated palm oil, refined corn oil, soybean oil and sunflower oil which comply with international quality standards. In addition to meeting the needs of the local Palestinian market, the company exports to other Arab countries in the region, where it has developed a favorable reputation. The company s investments have done well. It owns 25% of the capital of the Palestinian Beverages Company, a Coca Cola producer. The audited financial statements of the company for 2014 show net profit after tax of JD 4.9 million, up slightly from JD 4.8 million in Sales have increased by 131% for liquid oils and by 5% for partially-hydrogenated oils.

43 Annual Report 43 Jordanian Vegetable Oils Industries Company One of the first vegetable oil industries in the Arab world, the Jordanian Vegetable Oils Industries Company was established in 1953 as a public shareholding company with a total capital of JD 500,000. The capital was later increased to JD 3 million in 1998 and now stands at JD 4 million. The company produces nonhydrogenated vegetable oil from palm, corn, soybean and sunflower oils. The audited financial statements of the company for 2014 show net profit after tax of JD 474,000, an increase of 20.5% from Gross profits also rose by 8.5% from the previous year.

44 44 20 Years of Investment in Palestine Infrastructure, environmental and agricultural sectors PADICO HOLDING s investments in this sector were worth USD million at the end of 2014 and made up 8% of its total investments. A brief overview of our investments in this sector follows.

45 Annual Report 45 Jericho Gate Real Estate Investment Company Jericho Gate Real Estate Investment Company was established in 2011 by PADICO HOLDING, Palestine Telecommunications Company (PALTEL) and Palestine Real Estate Investment Company (PRICO) and is currently worth JD 35 million. The company was established to manage the development of a massive tourism complex that will provide a range of accommodation housed in villas, hotels and a resort, a sports complex, amusement parks and a commercial center. The complex targets both Palestinian and international tourists. During 2014, significant progress was made on the project. The master plans were approved by the municipality and the regional committee. In December 2014 the plans were published and in April 2014 they were approved by the Supreme Organizational Council. Once approval was in place, technical studies began in preparation for construction of infrastructure including roads, water and sewage systems, storm water drainage and electricity. Construction is planned to begin bymid Nakheel Palestine Company A number of PADICO HOLDING s subsidiaries launched Nakheel Palestine Company in March, 2010, as a private limited shareholding company with a total capital of USD 13 million. The company s primary aim is to develop the palm industry in Palestine and market Palestinian dates abroad, although at present local demand exceeds supply significantly. The company has established 3,000 dunums of Medjoul date palms to date. During 2014, the company continued to expand the scope of its activities and processes. A total of 1,332 new palms were planted, bring the total number of trees on the company s farms to 22,021. Production increased from 280 tons to 439 tons, a growth rate of 57%. The company produced, filled and packed a total of 685 tons of dates in total, a 22% increase from the previous year. Packaging services were also provided for 376 tons of produce from other farms, increasing the company s earnings and reducing fixed costs per ton. The company was able to reduce farming costs by 13% from the previous year, bringing production costs down by 8%. Total profits for the year came to USD 532,000, 211% higher than the previous year. The company installed an electric irrigation network to accommodate expected growth in In addition, wells were developed on Al-Husseini farm with a production capacity of 40 cups of drinking water per hour. Storage ponds were also built on Al-Husseini farm. The total assets of the company increased from USD 16.1 million in 2013 to USD 18.3 million in 2014 with a growth rate of 13.7%.

46 46 20 Years of Investment in Palestine Rabiyat Al-Quds Real Estate Project Rabiyat Al-Quds is a real estate project launched by PADICO HOLDING comprising 22 residential buildings in the southern part of Jerusalem. In 2014, plans for 82 apartments were submitted to the municipality; approval is pending. While initial plans were for 10 buildings, we decided to expand the project to 22 buildings, increasing the first phase of the project to 94 units; approval for this modification was granted by the municipality. Building permits are expected to be issued around October 2015 with construction expected to start before the end of Plans for public facilities and play grounds around the buildings were approved earlier.

47 Annual Report 47 Palestine Power Generation Company As part of its investment portfolio in infrastructure, and specifically in the energy sector, PADICO HOLDING established Palestine Power Generation Company in 2010 in cooperation with a number of other companies within Palestine and in the region. PADICO HOLDING owns 20% of the shares of the company. The company has signed a contract with the Palestinian Energy and Natural Resources Authority to build the first electrical station in the West Bank. The station will produce 400 megawatts. This represents an important step towards achieving independence in the Palestinian energy sector and by making energy prices more competitive will pave the way for industries such as cement and steel to enter the Palestinian market. The project is based on the concept of build, operate and own (BOO). Palestine Electricity Company Palestine Electricity Company was established in 1999 with a total paid capital of USD 60 million and began commercial operations in It has been listed on Palestine Exchange since March 28, The company s mandate is to establish and run electrical plants in the areas under the jurisdiction of the National Palestinian Authority. The company has been given exclusive rights by the National Palestinian Authority to produce electricity and energy in Gaza Strip and has been authorized to sell its products to entities owned or managed by the Palestinian Authority for its first twenty years of operation. This contract may be extended for two consecutive 5-year terms. The company operated normally during the first half of 2014, but was bombed during Israel s attack on Gaza, resulting in the destruction of three fuel tanks. The company recovered, however, and began generating electricity again before the end of the year. Losses to property and equipment as a result of the war came to USD 5.6 million and revenue decreased by 20.5% from the previous year as a result. Nonetheless, the company was able to achieve a net profit of USD 1.9 million during Looking to the future As described above, PADICO HOLDING made significant strides with new projects during These can be expected to generate substantial profits in the future. We are excited about our plans for the next few years as we continue to establish our new investments, develop investments we have started and increase the performance and profitability of our well established ventures. We are committed to continuing to cut administrative costs and general expenditure, as well as reduce our debt, over the next few years in order to optimize cash flow.

48 Jenin Years of Investment in Palestine As an integral part of our mandate at PADICO HOLDING, our commitment to social responsibility provides a solid base for building relationships with the community in order to make far-reaching contributions in terms of service and support. We aim to build pillars in sectors needing strategic intervention in order to promote holistic development through empowering the economic, educational, entrepreneurial, intellectual, art, media, culture and youth sectors. We achieve this through direct support or by sponsoring strategic initiatives, activities and events. This has been our commitment for the past twenty years that we have invested in Palestine

49 Annual Report 49 Our Social Responsibility Israel s assault on Gaza Strip in 2014 caused massive casualties and destruction of infrastructure. Homes and properties were reduced to rubble depriving tens of thousands of Gazans of their basic human rights. As an expression of our sense of social responsibility as a company, we at PADICO HOLDING dedicated our best efforts to providing support and relief to the people of Gaza. Support and relief for Gaza From the beginning of the attack, we took swift and decisive action to provide support and relief in coordination with governmental entities, civil society organizations and international organizations in cooperation with a call by the Palestinian Private Sector Coordination Council for relief efforts for Gaza. Our efforts took various forms, one of these was signing a memorandum of understanding with Sharek Youth Forum to support an emergency relief campaign to address the material and psychological needs of internally displaced Gazans housed in shelters across the five governorates of Gaza Strip. A number of PADICO HOLDING s subsidiary companies participated in this campaign, including Palestine Real Estate Investment Company (PRICO), Jerusalem Development and Investment Company (JEDICO), Palestine Exchange (PEX), Palestine Industrial Investment Company (PIIC) and Palestine Poultry Company (AZIZA). As part of the campaign, numerous items were distributed to shelters, including water tanks filled with drinking water; mineral water for Deir Balah and Jabalia; food packages; hot meals for 9,200 families; milk for infants; cleaning supplies; sanitary, personal hygiene and care products and diapers. In addition, haircuts were donated to 6,000 children. Recreational activities for children were held during Eid Al-Fitr at 50 shelters with the aim of providing psychological support to children who had experienced trauma. Sleeping mats, clothes, shoes and wheelchairs for the disabled were also distributed. In addition, from the beginning of the war and until the end of 2014, employees of PADICO HOLDING s companies donated one day of wages per month, matched by the company to aid Gaza. In response to the shortage of medical supplies experienced in Gaza during the attack, we sent medicines to the Red Cross Hospital. Following the attack we provided direct financial support to the Palestinian Businesswomen s Association (ASALA) to support women entrepreneurs in Gaza with the task of rebuilding their projects following the destruction that resulted from the war. We also initiated a series of consultations with various entities in the public and private sectors as well as with civil society and international organizations in order to enhance cooperation and consolidate relief efforts. The meeting was held at the Executive Club and brought together business, government and civil society to develop mechanisms for the private sector to effectively contribute to the relief work in Gaza. PADICO HOLDING held a second meeting at the Executive Club to discuss the national plan for the reconstruction of Gaza Strip. This meeting was attended by the Deputy Prime Minister as well as Minister of Finance Dr. Mohammad Mustafa. About a hundred people attended the meeting in total, including leading economic figures, Palestinian investors, members of the Executive Club and businessmen from Gaza Strip.

50 50 20 Years of Investment in Palestine Initiatives to support education and youth When it comes to social responsibility, education is one of PADICO HOLDING s top priorities. We are proud of the fact that Palestine has been ranked as one of the top nations in terms of academic achievement, with one of the world s lowest literacy rates. Our support to the educational sector has taken diverse forms. During 2014, we continued to provide undergraduate scholarships to numerous Palestinian universities and supported the xlobs program implemented by the Center for Continuing Education at Birzeit University. Targeting teachers of science and math, xlobs is a training program that seeks to develop teaching tools, enrich Palestinian curricula and empower teachers to use optimal teaching methods. PADICO HOLDING also supported Birzeit University s Alumni Association by funding its annual party and its annual charity dinner. TAMAYYAZ: Strategic partnership and sustainable entrepreneurship In 2014, PADICO HOLDING renewed its strategic partnership with the International Youth Foundation (IYF), Sharek Youth Forum and seven Palestinian universities to continue TAMAYYAZ program for a second year. The program aligns with our efforts to improve the conditions of Palestinian graduates and address the challenges they face in light of increased unemployment. Launched at the end of 2012, TAMAYYAZ is a strategic developmental program that addresses the mismatch between the skills of Palestinian graduates and the needs of the labor market. To this end, the program seeks to build the character of students, equip them with life skills, help them to unlock their potential and expose them to a wide range of experiences designed to increase their competitive edge in the job market. The majority of students who participated in the first year of the program were able to find appropriate jobs in government, the private sector and civil society organizations. Some utilized the entrepreneurial skills they had acquired through the program and began their own business initiatives. TAMAYYAZ has now become a wellknown brand in the field of entrepreneurship and investing in human capital and is considered a valuable resource for equipping a new generation to tackle the challenges they are faced with and to build a better future for the Palestinian economy. TAMAYYAZ benefited from a creative design and development process which involved workshopping of international best practice in the field. However, the quality of the program s content was not the sole factor behind its success. It also proved a good example of active partnership between the private sector, international organizations, civil society and Palestinian universities. These diverse parties came together to enrich the program and give it a strong impetus to move forward. PADICO HOLDING and its partners plan to expand the support base for TAMAYYAZ by bringing additional institutions from the private sector on board. In addition, the partners plan to expand the scope of the program and introduce it into other Palestinian universities, including those in Gaza Strip, in order to facilitate graduates transition from school to work. In cooperation with its partners in this program, PADICO HOLDING visits partner universities regularly in order to strengthen its relationships with them and provide input to students through lectures on a wide range of topics, including unemployment, recruitment strategies and community initiatives which could benefit new graduates. Partner universities include Birzeit University, Al-Najah National University, Palestine Polytechnic University, Palestine Technical University Kadoorie, Al-Quds University, the Arab American University of Jenin and Al-Quds Open University. Students are selected to participate in the program through a group interview process.

51 Annual Report 51 Sponsorship of economic and developmental activities PADICO HOLDING is committed to sponsoring economic and developmental activities which add value to these sectors in Palestine. To this end we took part in the Second Capital and Business Forum which was held in Bethlehem. The forum brought together a large number of businessmen from across the Arab world, as well as CEOs and managers from Palestinian companies and organizations and government officials. In addition, PADICO HOLDING co-sponsored the Global Entrepreneurship Week (GEW) in Palestine, which was held for the second year in a row in Palestine in In essence, the GEW is an international festival that usually held in November every year, it aims to bring together innovators and entrepreneurs to spark new ideas which could drive economic growth. PADICO HOLDING participated actively in the event and sponsored the Celebration of Innovation that is part of the GEW s activities. We also supported a campaign to rehabilitate the agricultural sector in Gaza which was launched by the Arab Group for the Protection of Nature. We also co-sponsored recruitment day at An-Najah National University in PADICO HOLDING has always sought to engage in initiatives or entrepreneurial alliances that could promote development and entrepreneurship in Palestine. To this end, we actively participated in an initiative launched by Aspen Institute called Palestine for a New Beginning and now serve on the organization s board. The initiative aims to enhance the engagement of the private sector with topics such as entrepreneurship, sciences, education, technology and cultural exchange across the Arab and Islamic world. During 2014, PADICO HOLDING was also an active member of Give Palestine Association, a Palestinian charity organization that seeks to rehabilitate Palestinian children on the psychological, social and cultural levels, help Palestinian families in need and develop the skills of youth volunteers. PADICO HOLDING also focuses on training graduates and equipping them with the necessary skills to enter the labor market, addressing the mismatch between the outputs of education and the needs of the market. To this end, the company became a member of Injaz Palestine, a non-profit organization that is led by private sector companies which organizes practical lectures by volunteers from the private sector for Palestinian students. The lectures attempt to build students practical skills to use their knowledge in the work environment. In 2014, PADICO HOLDING also supported the 6th Yousif A. Sayegh Memorial Development Lecture, organized by the Palestine Economic Policy Research Institute (MAS). The lecture, titled A Three-Level Model for Social Change, was given by Professor Mathias Weiter from Humboldt University, Berlin. In cooperation with the American Consulate, Ruwwad Youth Palestine and Palestine for a New Beginning, we sponsored a workshop titled Find Your Voice which was held in Ramallah. The workshop targeted businesswomen and female employees of commercial, banking and financial institutions and provided training in public speaking. The workshop was run by Alisson Shapira, chairperson of the Global Public Speaking Institute and an expert in the field, and covered topics such as building self-confidence, communicating concisely, the use of body language, creating an impact on listeners, networking skills and building good relations.

52 52 20 Years of Investment in Palestine Partnering with the media At PADICO HOLDING, we believe in the power of the media to shape public opinion and raise collective awareness on different issues. We maintain positive relationships with a variety of media outlets, supporting their role as a fourth pillar of society which monitors public policy, critiques issues and sheds light on political, economic and social problems. In 2014, PADICO HOLDING sponsored the program Women in Economy which was broadcasted on Nisaa FM. In a roundtable discussion with journalists from Internews Network in Ramallah, PADICO HOLDING s CEO Samir Hulileh analyzed the state of the Palestinian economy and challenges that it faces and shared insights from the perspective of the private sector. This event was part of a project to increase media coverage of economic and financial issues that was implemented by Internews Network and funded by the American Consulate in Jerusalem. Mr. Hulileh also participated in a seminar on the media titled The Role of the Media in a Developing National Economy which was organized by the Media Department at Birzeit University in cooperation with the university s Media Club. In addition, the partners of TAMAYYAZ program (PADICO HOLDING, Sharek Youth Forum, and the International Youth Foundation) organized a meeting on the role of social media in implementing initiatives, social campaigns and advocacy. Supporting arts and culture Arts and culture have always been part and parcel of our social responsibility agenda at PADICO HOLDING. In 2014, we sponsored Traces, an exhibition featuring artwork by 40 artists from Gaza Strip. The exhibition was organized by PADICO HOLDING in cooperation with the Artist Pension Fund, the United Nations Development Program (UNDP) and the French Institute in Amman, with the aim of supporting artists from Gaza to create works of art inspired by the past. The exhibition stressed on the importance of documentation and its impact on the contemporary cultural scene in Palestine. PADICO HOLDING promoted and hosted the exhibition and purchased a number of the pieces that were exhibited. We maintained close contact with the artists after the exhibition and our CEO, Samir Hulileh, visited some of them after the war to discuss the needs of artists in Gaza and how the impacts of the war could be overcome. PADICO HOLDING also co-sponsored the production of Nun Wa Zaytoun a film by Palestinian director Imtiyaz Diab. We screened the film at a fundraiser at the Executive Club (one of PADICO HOLDING s tourism projects) that was attended by numerous executives and representatives of businesses. We have also given support to the Palestine Popular Art Center, a non-profit organization that aims at promoting the arts and culture sectors in Palestine. At PADICO HOLDING, we believe in the importance of sports, too. To this end, we supported a number of Palestinian sports clubs in 2014, including Jericho Youth Sports Club, Hilal Areiha Sports Club, Aqaba Jaber Club and the Amaari Youth Social Center. Humanitarian and national initiatives At PADICO HOLDING, we believe we have a fundamental responsibility to support the Palestinian cause, with special emphasis on Palestinian refugees. We believe that it is important to document the experience of refugees and ensure that the history of the refugees has a protected place in our collective memory as Palestinians. To this end, in 2014 we renewed our support for the Electronic Archive, a project started by the United Nations Relief and Works Agency (UNRWA) for Palestinian Refugees which aims to document the life and history of Palestinian refugees. In 2014, we also renewed our support for Al Watani Awwalan, a project that was launched by Jerusalem Development and Investment Company for (JEDICO) in partnership with the United Nations Development Program (UNDP) to support agricultural societies and cooperatives by contracting them as suppliers for our hotels. PADICO HOLDING has made significant efforts to establish and support Palestine Center for Public Diplomacy, which works to develop, manage and execute strategies, policies and programs that promote a positive image of Palestine locally and abroad.

53 Annual Jericho Report 53 Over the span of its twenty year journey, PADICO HOLDING has played a proactive role in promoting debates on economic, social and political topics. We value quality discourse in which participants can learn from others experiences and find inspiration to create positive change in Palestine

54 54 20 Years of Investment in Palestine Inspiring new ideas At PADICO HOLDING, we have always been dedicated to fostering intellectual engagement on economic, social and political topics both locally and in the international arena. As a leader within the private sector, we have facilitated engagement on a wide range of issues. We believe in the importance of understanding people s experiences and stories in order to engage with their circumstances to bring positive change in their lives and to Palestinian society as a whole. To this end, we have organized and participated in a number of workshops and conferences both locally and internationally. Pioneering initiatives and active partnerships to support development of knowledge and employment In keeping with our goal of achieving holistic development, we look closely at the many economic, social and developmental challenges faced by Palestinian society and initiate activities and discussions aimed to develop strategies and solutions for these issues. One of the greatest developmental challenges we have witnessed is the mismatch between the skills of the large numbers of graduates entering the labor market annually and the actual needs of this market. At PADICO HOLDING we have explored this issue, looking for solutions, with local and international experts and with a number of Palestinian universities. After long discussion, we and a number of partners arrived at the concept for TAMAYYAZ program at the end of 2012 and ran the program for the first time in In 2014, we ran the program for the second time in a row. It has proven effective as a tool to facilitate the transition for graduates from school to work by equipping them with skills for excellence and creativity which can give them a competitive edge in the job market. Because of the success of the program over its first two years, we are committed to taking it forward and actively promoting TAMAYYAZ concept both locally and internationally. Proactive Presence in local and International conferences PADICO HOLDING, along with other representatives from Palestine, participated in a tour of London organized by the Palestinian Trade Center to promote the Palestinian financial sector. Representatives of PADICO HOLDING met a number of international investment funds that showed a genuine interest in examining potential investment opportunities in Palestine, especially the projects and investments of PADICO HOLDING. As part of our promotion of Jericho Gate project, our subsidiary Jericho Gate Company participated in the International Real Estate and Investment Show in Abu Dhabi on November 20-22, 2014, which was attended by investors and developers from Arab countries. Jericho Gate exhibit attract- ed a large number of people and drew significant attention from investors and businessmen, who commented that the project demonstrates the feasibility of investment in Palestine. As part of our commitment to keep our employees up-to-date on the latest technological innovations in the industrial sector, we organized a tour to explore state-of-the-art technologies for recycling waste in a number of factories in Europe. A group of representatives from PADICO HOLDING visited EBIOSS, a leading Spanish company focused on transforming waste into a source of multi-purpose clean energy, with factories in Spain and Bulgaria. In addition, Jericho Gate Company for Real Estate Investment, one of our investments, co-sponsored and participated in the Second Capital and Business Forum. The event was organized in Bethlehem under the patronage of Prime Minister Dr. Rami Hamdallah and was attended by a large number of businessmen from various Arab countries. The CEO of PADICO HOLDING, Mr. Samir Hulileh, contributed to the second session of the forum, titled Strategic Investment Opportunities: The Perspective of the Private Sector. Together with our partners in TAMAYYAZ program, we participated in a conference titled Life skills: Enhancing job opportunities for the youth. As the conference was organized by the International Youth Foundation in Amman - Jordan, it brought together a wide range of Arab and international

55 Annual Report 55 participants. At this conference, Mr. Hulileh shared our experience with TAMAYYAZ program. In addition, we participated in the second Istikshaf conference, titled On the go: Supporting freedom of movement and mobility. Held in Amman, the conference was organized by the Arab Education Forum and Istikshaf alliance in partnership with the Greater Amman Municipality (GAM) and was supported by the European Union and the Open Society Foundation. Bringing together more than 40 speakers from 12 countries, the conference was a platform to exchange experiences from the Arab world and the Mediterranean on the impact of mobility for learning. It provided an opportunity for artists, social entrepreneurs, youth and policy makers to reflect on their experiences in mobility and its impact on their professional, personal and collective journeys. In the last session, PADICO HOLDING gave an overview of its social responsibility strategy and highlighted the role of the private sector in supporting mobility. PADICO HOLDING also participated in a study tour to a number of British universities organized by the British Council. The tour included a number of representatives from the private sector and Palestinian universities and sought to explore educational models and policies, the linkages between British universities and the private sector as well as the impact of such linkages on employability and entrepreneurship. The tour was important for building cooperative relationships between Palestinian institutions and their British counterparts. In addition, PADICO HOLDING participated in a training program organized by the Kennedy School of Government at Harvard University in the United States in cooperation with the King Abdullah Fund for Development (KAFD). The program, Leading for The Future: the Arab Region in a Changing World was reserved for upper management and aimed to develop leadership skills among decision-makers and senior officials. The training covered leadership, public-private partnership, economic policies and international trade, negotiation skills and decision-making, public policy and diplomacy.

56 56 20 Years of Investment in Palestine At a roundtable meeting with journalists from Internews Network in Ramallah, PADICO HOLDING s CEO Samir Hulileh presented on the current status of the Palestinian economy, sharing insights from the perspective of the private sector and analyzing the major challenges facing the economy, including decline in economic growth and the increased rate of unemployment. He also discussed the national budget allocations for the development plan and strategies for economic recovery from a political deadlock. This event was organized as part of an initiative by Internews Network to improve media coverage of economic and financial issues. The event was funded by the American Consulate in Jerusalem. In addition, partners in TAMAYAZZ program (PADICO HOLDING, Sharek Youth Forum, International Youth Foundation) organized a meeting on the role of social media in implementing initiatives, social campaigns and advocacy. These partners also organized a session on Education and Training in Palestine as part of Palestine Entrepreneurship Week. The session discussed mechanisms for education and training in Palestine and how the rising unemployment rate among youth could be addressed. TAMAYYAZ model, which has experienced success with empowering Palestinian undergraduate students to transition into the job market, was presented. PADICO HOLDING served as a member of the jury for the Garage 48 initiative organized by the Palestine Foundation for a New Beginning and the Leaders Foundation in Ramallah. The initiative is run as a competition in which young entrepreneurs develop business concepts and then present them to a jury. Tender FQ was chosen as the winner of the competition. As part of our efforts to develop practical interventions for students in Palestine, we have cultivated relationships with some of the world s top educational institutions in order to draw inspiration and glean lessons that can be applied to Palestine. One of these endeavors is an exchange program with Harvard University in the United States in which we host delegations of students from the Kennedy School of Government and the Business Management School annually. The program has been running for four years now. It also seeks to familiarize students with the political, economic and social realities in Palestine. In 2014, PADICO HOLDING received an award from the Capital Financial International, a London-based finance magazine, in recognition of our contribution to development and investment in Palestine and the role we have played in the economic sphere internationally. We were pleased that this honor coincided with our twentieth anniversary.

57 Annual Report 57 Our Financial Performance in 2014

58 58 20 Years of Investment in Palestine Our Financial Performance in 2014 Consolidated Profit Our profits before income tax amounted to USD million in 2014 compared to USD million in 2013, a decline of 23.4%. PADICO HOLDING and its group that operates in Palestine suffered direct and indirect losses as a result of Israel s assault on Gaza and tension in Hebron, Jerusalem and other cities during As a result, our consolidated profit stood at USD million in 2014, compared to USD million in Net Comprehensive Income Our net comprehensive income amounted to USD million in 2014 due to unrealized gains of USD million that resulted from revaluation of financial assets through other comprehensive income. These unrealized gains contributed to the increase in total equity from USD to USD million by 2.8 % at the end of 2014 after USD 15 million in cash dividends were paid to shareholders ( at 6 cents per share). Consolidated Revenues Our consolidated revenues increased from USD million in 2013 to USD million in 2014, a growth that is mainly attributed to the increase of our subsidiaries operating income which rose from USD million in 2013 to USD million in This increase resulted from the improvements that some subsidiaries experienced in their operating activities, in particular Palestine Industrial Investment Company which experienced a 16% increase in its operating income which rose to USD million. In addition, the revenues of NAKHEEL PALESTINE for Agricultural Investment rose by 20% to reach USD 3.09 million Subsidiaries operating income Other sectors, such as real estate and tourism, however, experienced a decline in their operating income, due to the political unrest during The operating incomes of Jerusalem Development and Investment Company (JEDICO) and Palestine Real Estate Investment Company (PRICO) decreased by 14% and 20% respectively. Table 1: Consolidated Revenues (amounts in USD million) Item Change % Subsidiaries operating income Share of associates results of operation (6.7) Gain from financial assets portfolio (46.9) Gain from sale of investment properties (100.0) Total consolidated revenues

59 Annual Report 59 In addition, gains from the financial assets portfolio of PADICO HOLDING and its subsidiaries decreased from USD 2.53 million in 2013 to USD 1.34 million in This decline was mainly attributed to the poor performance of shares on Palestine Exchange during Consolidated Expenses PADICO s share of associates results of operation Our consolidated expenses rose from USD million in 2013 to USD million in 2014, an increase of 6.4%. This resulted from an 8.8% increase in the operating expenses of our subsidiaries from USD million in 2013 to USD million (an increase of USD 4.33 million). Palestine Industrial Investment Company was the main contributor to this increase; however its operating revenues increased by16% as mentioned above. Consolidated general and administrative expenses experienced a slight decline of 1.5% from USD million in 2013 to USD million in Consolidated finance costs increased by 11.3% from USD million to USD million due to an increase in the group s average total debt from USD million at the Table 2: Consolidated Expenses (Amounts in USD million) end of 2013 to USD million in In addition, the high cost of the Item % change repo agreement for PADICO HOLDING s shares in Jericho Gate which was Operating expenses signed with PALTEL in early 2014 had a significant impact on finance costs. G&A expenses (1.5) Consolidated depreciation and Finance costs amortization expenses remained constant at USD 8.36 million from Depreciation and amortization the year before, while income tax expenses rose to USD 0.82 million Income tax expenses from USD 0.79 million the previous year. Total consolidated expenses As for consolidated depreciation and amortization expenses, they maintained the same level of 2013, as they stood at USD 8.36 million. Lastly, consolidated income tax expenses amounted to USD 0.82 million compared to USD 0.79 million in the previous year.

60 60 20 Years of Investment in Palestine Summary of Consolidated Statement of Financial Position Consolidated Assets Our total consolidated assets increased by 3.3% from USD million at the end of 2013 to USD million at the end of Current assets constitute 8.3% of total consolidated assets, consisting of cash, deposits, current financial assets, receivables, inventories and ready-for-sale properties. Non-current assets constitute 91.7% of total consolidated assets, consisting of investment properties, (property, plant and equipment), projects in progress, investments in associates, and financial assets at fair value through other comprehensive income. Table 3: Distribution of Assets and Investments (Amounts in USD million) Item 31/12/2014 % of total 31/12/2013 % of total % change Cash and financial assets at fair value through profit or loss (2.1) Accounts receivables and other current assets (5.2) Inventories and ready for sale properties, biological assets and other assets Financial assets at fair value through other comprehensive income Investment properties (1.2) Investment in associates Property, plant and equipment, and projects in progress Total assets In regards to our current, cash and financial assets at fair value through profit or loss decreased by 2.1% from USD million at the end of 2013 to USD million at the end of Accounts receivable and other current assets also decreased by 5.2% from USD at the end of 2013 to USD million at the end of It should be mentioned that the bulk of receivables belongs to PADICO HOLDING s subsidiaries primarily PRICO, PIIC and JEDICO and consists of trade receivables and receivables due from the Ministry of Finance. As for noncurrent assets, financial assets at fair value through other comprehensive income increased by 20% from USD million at the end of 2013 to USD million at the end of This increase is mainly attributed to unrealized gains that resulted from the re-evaluation of these financial assets at the end of These unrealized gains amounted to USD million and were recorded directly in our consolidated statement of comprehensive income in accordance with the international financial reporting standards. A major portion of this amount is derived from unrealized revaluation gains from PACIDO HOLDING s investment in Vtel Company, which achieved significant growth in its operational performance. Investment properties, however, experienced a decline of 1.2%, from USD million at the end of 2013 to USD million at the end of These include all real estate investments of PADICO HOLDING and its subsidiaries, including PRICO and Jericho Gate which led this sector. It is worth mentioning that the value of these investments is shown at the historical costs on the consolidated statement of financial position. According to specialist appraisers, the appraised value of these investments was USD million at the end of 2014 (clarified in note no. 8 in the consolidated financial statements), which means that the unrealized gains from the valuation of these assets amounted to USD million. These unrealized gains do not appear in the consolidated income statement or equity as per accounting policy that PADICO HOLDING adopts. Property, plant, equipment and projects in progress increased by 6% from USD million at the end of 2013 to USD million at the end of This increase resulted from the 28.6% increase in projects in progress worth USD million that reflects additional investment in these projects. The additional investments in Al-Ghadeer Residence and Gaza Chalets projects, both implemented by Palestine Real Estate Company, amounted USD 8.44 million in PRICO completed a major part of these two projects which are expected to positively impact the company s cash flow and income statement in 2015 and following years.

61 Annual Report 61 Investments in subsidiaries experienced an increase of 2.1% and amounted to USD million at the end of This increase resulted from PADICO HOLDING s share of associates results of operation (USD million) deducting cash dividends received from associates in 2014 according to the accounting treatment (equity methods) adopted by PADICO HOLDING. Our investment in Palestine Telecommunications Company accounts for the major part of our investment in associate companies, and amounted to USD million at the end of Investment in associates Properties, plant, equipment and projects in progress Investment in properties Current assets Financial assets at fair value through other comprehensive income Other assets Consolidated Liabilities Our total consolidated liabilities amounted to USD million at the end of 2014 compared to USD million at the end of 2013, an increase of 4.2% which amounted to USD million. Total debt (bonds, bank loans, repo agreements and credit facilities) constituted 79% of total liabilities, which stood at USD million at the end of 2014 compared to USD million at the end of These include bonds that were issued by PADICO HOLDING in 2011 with a nominal value of USD 85 million in addition to the repo agreement signed with PALTEL in early 2014 for an amount of USD 50 million. The following table illustrates the distribution of debt among PADICO HOLDING and its subsidiary companies: Item Debt (Amounts in USD million) % of total PADICO HOLDING Palestine Real Estate Investment Company (PRICO) Jerusalem Development and Investment Company (JEDICO) Palestine Industrial Investment Company (PIIC) The Palestinian Waste Recycling Company Total Debt Other liabilities constitute 21% of total liabilities and stood at USD million at the end of These include trade payable related to subsidiaries operations, dividends payable, provision for income tax and provision for employee indemnity.

62 62 20 Years of Investment in Palestine Equity Equity attributable to equity holders of the parent company increased by 3.5% from USD million at the end of 2013 to USD million at the end of This increase of USD million is due to growth in comprehensive income (attributable to equity holders of the parent company) during 2014 which amounted to USD million after deducting cash dividends of USD 15 million 6 cents/ share for Equity attributable to equity holders of the parent company consists of USD 250 million of paid-in capital and retained earnings amounting to USD million and reserves and other items that totaled USD million at the end of Based on this, the book value per share reached to USD 1.74 at the end of 2014, exceeding the market value of the share by 27.7% (USD 1.36 per share). Non-controlling interests (the interest of other subsidiaries shareholders) amounted to USD million at the end of 2014, constituting 19.0% of total equity which came to USD million, as shown in the following table Equity attributable to equity holders of the parent company Liabilities Non-controlling interest Table 4: Equity (Amounts in USD million) Item 31/12/2014 % of total 31/12/2013 % of total % change Paid-in capital Reserves and other items Retained earnings Equity attributable to equity holders of the parent Non-controlling interests (0.1) Total equity

63 Annual Report 63 Main Financial Indicators Main items of consolidated income statement (Amounts in USD million) % change Total consolidated revenues Subsidiary operating income PADICO s share of associates results of operation (6.7) Profit before income tax (23.4) Profit attributable to equity holders of the parent company (24.8) Consolidated profit (24.2) Main items of consolidated statement of financial position 31/12/ /12/2013 % change Total assets Loans and credit facilities Other liabilities Non-controlling interests (0.1) Equity attributable to equity holders of the parent Total equity Main profitability indicators % change Return on capital (24.9) Return on average equity 3.64 % 4.99 % (27.1) Return on average assets 2.35 % 3.21 % (26.9) Main liquidity and solvency indicators 31/12/ /12/2013 % change Debt/equity % % 0.7 Debt / total assets % % 0.2 Current ratio (time)

64 64 20 Years of Investment in Palestine Discrepancies between initial and audited consolidated statements for 2014 On February 15, 2015, PADICO HOLDING disclosed its initial consolidated financial statements for the year Some of the discrepancies between these statements and the final audited statements bear discussion. Consolidated profit of USD million was initially reported but was reduced to USD million in the final statement. This is primarily the result of the consolidated loss by Palestine Real Estate Investment Company (PRICO), reported as USD 2.80 million initially but increasing to USD 3.41 million in the final disclosure, an increase in loss of USD 0.61 million. In addition, other differences as well as provisions made by PADICO HOLDING and its subsidiaries which were not represented in the initial statements were factored into the final audit process. With regard to consolidated income statement, total revenues decreased by USD 0.28 million, from USD million to USD million. This was accompanied by a decrease in total expenses of USD 0.03 million, from USD million to USD million. A number of revenues and expenses were re-classified for the audited statement, leading to slight discrepancies between the two sets of statements. As for the consolidated financial position, total assets decreased from USD million as per the initial disclosure to USD million according to the final one. The decrease was amounted to USD 6.21 million, resulting from the reclassification of accounts receivable and payable in PRICO in an amount of USD 7.18 million, coupled with an increase in projects in progress item from USD million to USD million (USD 0.76 million). On the other hand, total liabilities decreased from USD million according to the initial disclosure to USD million in the final one, a decrease of USD 5.40 million resulting from the re-classification of receivable and payables accounts in PRICO. Total equity decreased from USD million according to initial disclosure to USD million in the final one. Key management personal and board of directors compensation: Compensation for directors of PADICO HOLDING and its subsidiaries amounted to USD 591,000 in Of this, USD 360,000 was allocated to PADICO HOLDING s board of directors, while salaries and benefits of the upper management of PADICO HOLDING and its subsidiaries amounted to USD 2,656,000 and USD 1,161,000 of this was allocated to the upper management of PADICO HOLDING itself.

65 Annual Report 65 Performance of PADICO HOLDING s shares during 2014 The performance of PADICO HOLDING s shares fluctuated during 2014, with a significant increase in the first quarter due to optimism about the political and economic prospects in Palestine at the beginning of the year. During the first quarter, shares rose by 38.5% to USD 1.87 per share. However, as the political situation deteriorated, prices closed at USD Main stock indicators Indicator Change % Paid in capital (million shares) BV/Share Year end share market price P/E P/BV (2.6) Total trading volume ( million share) (38.4) Total trading value (USD million) (11.7) Turnover ratio 21.63% 35.11% (38.4) 52 week high week low

66 66 20 Years of Investment in Palestine Audit report and consolidated financial statements as at December 31,2014

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