Board Of Directors Report. Year Ended 31/12/2015

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1 Financial/ Economic conditions: Board Of Directors Report Year Ended 31/12/ During, the economy continued to be affected by the deterioration in crude oil prices, which was caused by excess production of oil, coupled with a slowdown in the global economy. The slowing Chinese economy and pressure on its currency adversely impacted its stock markets and had a knock on effect on the global indices.. Despite demand for oil increasing during, it was not enough to offset the increase in supply. This resulted in the average price of a barrel of OPEC oil basket dropping by 4% while the price of a barrel of Kuwaiti oil fell below $ 3. Given that oil is the main source of income for the Gulf Cooperation Council (GCC), its economic growth according to the IMF will fall from 3.5% in 214 to 3.25% and 2.75% for the years and 216, respectively. There will also be record deficits in their budgets for after achieving fiscal surpluses in 214. The crisis of lower oil prices exacerbated by the security and political tensions in the region weighed heavily on the financial markets in the region, as the market indicators suffered a sharp decline with a significant drop in trading activity. The stock markets in the GCC ended with declines and trading volumes fell by 32% from the previous year. The Saudi market has been affected the most with a decline of 17% with its petrochemical sector falling by 28%, more than any other market sector. % Change in share price & Index values 3% 2% 1% % -1% -2% -3% -4% -5% IKARUS SHARE PRICE VS. KUWAIT,SAUDI STOCK INDICES Ikarus KSI SSI Source:Zawya In, the Kuwait Stock Exchange witnessed a series of sharp declines that brought its three indices to multi-year lows, especially the price index, which fell by 14% and almost reached a 1 year low, while the weighted index fell by 13%, its lowest level since 21.The oil and gas sector in which Ikarus is a component, recorded the largest rate of annual decline of 32.7%. 9

2 IKARUS petroleum industries - KPSC Locally, in terms of positive events this year was the passing of the foreign investment law and the continued spending on major development projects, the most prominent of which is the award of Al- Zour refinery project worth 3.9 billion Kuwaiti dinars and the heavy oil project north of Kuwait at a cost of 1.2 billion Kuwaiti dinars. The CMA also issued the final amendments to its executive regulations at the end of the year, which should be a positive step for the stock market. 7 OPEC Basket Crude Price - USD/Barrel Petrochemicals in The profitability of the petrochemical industry in the region declined to the lowest level in six years with the continued decline in oil prices eroding the regions competitive advantage of low cost feedstock. Demand for and margins in petrochemicals was affected by the weak economic growth in Asia and especially China, which suffered a contraction in industrial activity and a slow down inits GDP, which fell to its lowest growth rate in 2 years. This situation has significantly affected the results of most petrochemical companies in the region and depressed their market values, including Ikarus strategic investments of Sipchem and Tasnee. It is expected that the prices of petrochemical products will remain under pressure in the short and medium term future due to the abundant supply of expected production capacity increases in the Middle East and Asia and the shale gas driven petrochemical investments in the United States. 1

3 USD/MT Yearly Average Petrochemical Prices (Asia) Yearly Average Petrochemical Prices (Asia) Polypropylene Polyethylene HD Ethylene Titanium Dioxide Source:Icis USD/MT Methanol Acetic Acid VAM Butanediol Ikarus Strategic Investments: The company's strategic investments comprise: 1. National Industrialization Company "Tasnee" 2. Saudi International Petrochemical Company "Sipchem." 3. International Acetyls Company. 4. International Vinyl Acetate Company. 11

4 IKARUS petroleum industries - KPSC 1. National Industrialization Company (Tasnee) Ikarus has a stake of 5.2% of the total shares of Tasnee. The company is engaged in industrial investment in the petrochemical industry, chemical industry, mechanical engineering, management and ownership of industrial projects. Tasnee was founded in 1985 as the first Saudi joint stock company in the petrochemicals sector listed in the Saudi market.the current capital of the company is estimated at 6,689 million Saudi riyals equivalent to 52 million Kuwaiti dinars. It has major plants for the production of polypropylene, polyethylene and titanium dioxide with production capacity that exceeds 4 million metric tons per year. Tasnee incurred a net loss during of 1423 million Saudi riyals (KD 115 million) compared with a profit of 1,7 billion Saudi riyals in 214 (KD 87 million). The losses are due to the sharp decline in the average selling prices of titanium dioxide, lower average selling prices for petrochemical products, as well as higher general and administrative expenses as a result of the business restructuring and performance improvement programs. It is to be noted that these costs are likely not to recur and should have a positive impact for the company going forward. 2.Saudi International Petrochemical Company (Sipchem) Sipchem was founded in 1999, a company listed on the Saudi market and the company's capital amounts to 3,666 million Saudi riyals (KD 275 million). Ikarus owns 8.2% of the shares of Sipchem. The company is engaged primarily in the petrochemical industry and has plants producing methanol and butandiol in addition to acetyls related products. Total annual production capacity of existing Sipchem plants is around 2.6 million metric tons. saw commencement of commercial operation in plants of two Sipchem subsidiaries, the International polymers co. and Gulf advanced cable insulation co. plants. Sipchem made a net profit during of 288 million Saudi riyals equivalent to KD 23 million compared with a profit of 66 million Saudi Riyals, equivalent to 49 million dinars in 214. This significant drop in profits is due to the sharp decline in the average selling price of company's products which decreased by from 32% to 18%. Sipchem had distributed a cash dividend of 6 % of the capital for the first half of fiscal year. 3. International Acetyls Company (IAC): Ikarus owns 11% of the International Acetyl Company (IAC). IAC is a Saudi limited liability company established in 26 and with capital of 1,3 million Saudi riyals (KD 75 million). Headquartered in Jubail Industrial City, Saudi Arabia, its main activity is in the production of acetic acid and acetic anhydride and has a production capacity of 46 thousand metric tons per year. Total annual production of IAC has reached

5 thousand metric tons in, down 7% from the previous year. The company made a loss of around $ 1 million, compared with a profit of $ 8 million for the year International vinyl Acetate Company (IVC): Ikarus owns 11% of the International Vinyl Acetyl. IVC is a Saudi limited liability company established in 26 and with capital of 676 million Saudi riyals (KD 5 million). Headquartered in Jubail Industrial City, Saudi Arabia, Its main activity is in the production of vinyl acetate monomer and has a production capacity of 33 thousand metric tons per year. The company's production has reached 31 thousand metric tons in, down by 13.8 % from that achieved in 214.Net profit totaled $ 1.95 million, compared to a profit of $ 17 million in 214. This sharp decline in profits is attributed to lower prices of company's products and a reduction in sales volume due to lower demand. At the end of the year Ikarus exited its investments in the above Acetyls companies for a sum of around 3 million Kuwaiti Dinars realizing a profit of 2.3 million Kuwaiti dinars. 4% SIPCHEM, TASNEE SHARE PRICES VS. SAUDI PETROCHEMICAL INDEX () % change in share price and Index values 2% % -2% -4% -6% -8% Source:Zawya SIPCHEM TASNEE Saudi Petrochemical Index Source: Zawya 13

6 IKARUS petroleum industries - KPSC Other Investments Kuwait Energy Plc Ikarus maintained its 1.3% stake in KEC. Preliminary results up to the third quarter of, have shown a profit of about $ 15 million, with a decrease in daily production from 24,9 barrels of oil equivalent in the third quarter of 214 to 23,5 barrels. A production decline equivalent to 5.6% due to the shutdown of Yemen facilities that would be partially offset by the start of the company's production from Iraq in the fourth quarter. While revenues declined from the same period in 214 by 4 % due to the lower price of oil. Local share portfolio The market value of the local share portfolio fell by 6.5 per cent to 8.4 million in. Cash dividends from this local portfolio amounted to 32, Kuwaiti dinars, which was higher than 214. Investment opportunities The company in evaluated 2 investment opportunities in different geographical areas and in various oil industry sectors, 16 opportunities were ultimately rejected and the rest are in various stages of research and study. The company in partnership with Gulf Investment Corp (GIC) have commissioned an international advisor to conduct a consultancy study that aims to identify the best opportunities to set up a downstream petrochemical project in Jubail in Saudi Arabia. 14

7 This joint effort intends to take advantage of feed stocks produced by the Sadara petrochemical project as well as the financial facilities and logistics available within the framework of this project. The first phase of the study has been done to identify a short list of potential projects that would be analyzed in more detail in the second phase. Funding The first installment of a local bank loan repayment plan was paid and the effort continues to arrange competitive acquisition finance facilities, secured by the company's assets. Dividends Distribution Continuity of dividend distribution to shareholders was maintained for the fourth consecutive year as the company paid a dividend to shareholders equivalent to 1% of Capital on the results of 214. Corporate Governance Work continues to complete the development of a number of policies and regulations required for the implementation of Resolution 48/ of the Capital Market Authority regarding corporate governance. Financial Results for the FY ended 31/12/: The financial results of the company were negatively and significantly impacted in by the steep fall in the market value of its investments in the Kingdom of Saudi Arabia (KSA). The financial results and the auditor's report for the financial year ended 31/12/ show the company's revenues decreasing to 9.5 million Kuwaiti dinars compared with 14.2 million Kuwaiti dinars in 214.The lower revenue was due mainly to a decrease in realized gains and volume of KSA investment shares sold, as a result of the significant decline in their market values. The company's revenue comprised of 6.1 million Kuwaiti dinar from dividends and a profit on sale of investments of 3.85 million Kuwaiti dinars. However, the company incurred a net loss equivalent of 7.8 million Kuwaiti dinars due an impairment loss of the Saudi investments by the value of 14.7 million Kuwaiti dinars. 15

8 IKARUS petroleum industries - KPSC Million KD 5-5 Revenue Net Income The value of the company's assets declined to KD 14 million, compared with assets of KD 181 million in 214.The fall in assets value is due to the decline in Sipchem and Tasnee market values, driven by the sharp drop in the prices of their products as a result of lower oil price during the year. Shareholders' equity was 7 million Kuwaiti dinars (a book value of 9 fils/share), compared with 144 million Kuwaiti dinars in 214, caused by the same reasons mentioned above regarding the decline in the portfolio s market values. Long-term financial liabilities of the company were reduced to 3.9 million dinars, compared with 33 million dinars in 214 after the payment of the first installment of a local bank loan. Million KD Total Assets -9.7 Change in Sharehoders Liabilities Fair Value Equity Book Value (fils/share) The loss realized this year led to the erosion of the retained earnings, which makes company unable to distribute dividends to shareholders this year. 16

9 Future directions The company, despite the difficult conditions faced in, will continue working to implement its strategy, which is to: Reduce financial obligations and work to strengthen the financial position of the company to enable it to regain the ability to distribute dividends to its shareholders and finance new investments. Maintain the company s strategic investments in the Kingdom of Saudi Arabia. Acquire effective stakes in operational opportunities either short or long term based on the company's focus on field of oil and gas and its strategy to diversify its investments. 17