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CEO Message

In the name of Allah, praise be to Allah, peace and blessings be upon Prophet Mohamed, his family, companions and followers.

Dear Shareholders ... Peace and Blessings of Allah be upon you

It is my pleasure, on behalf of the executive management of Aayan Leasing & Investment Company to present to you the financial indicators of the fiscal year ending on 31/12/2018, and a brief review of the most important financial and economic developments during the mentioned year.

Brief of Economic Situation during 2018

First: Global Situation

Reports issued regarding the global economy performance indicate that the global economy achieved %3 growth during the past year, which is considered the best growth rate since 2011.

While the marsh continues to return the normal monetary policy in the next two years, it is expected that growth will decline into levels lower than those achieved prior to the global financial crisis. There are several risks and challenges highlighted in the April 2018 issue of World Economic Outlook report issued by the International Monetary Fund, mainly the escalation of trade barriers and the reversal of capital flows that were heading to emerging market economies. Such risks became far more visible nowadays or partially achieved.

Although the growth expectation of the United States remains strong, it is expected that the growth rate will be lower than the expected ratios in the April issue of World Economic Outlook report issued by the International Monetary Fund, which was %2.9 in 2018 and %2.7 in 2019; though this ratio has been adjusted to %2.5 for the year 2019 due to the recent trade tensions between the United States of America and China.

With the improvement in the macroeconomic conditions and the fiscal stimulus program, these factors are expected to have an impact on the Federal Reserves towards pursuing its efforts to gradually restore normal monetary policy. As anticipated, the United States raised the interest rate on the US dollar four times during 2018. The tightening of financial conditions in advanced economies is likely to cause confusing changes in investment portfolios, sharp movements in exchange rates, and further cuts in capital inflows into emerging markets. Expectations indicate that the US Federal Reserve may raise interest rates once every quarter until mid-2019, as it sees that the interest rates on the US dollar will be in a balanced and moderate position when it reaches about %3.

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

As for the growth rates, China and India have remained the driving force for global economic growth, despite the weakness shown by the Chinese economy. Also, China's economy, which recorded a growth of 6.6% in 2018, is expected to register a growth of 6% in 2019 and 2020. The government of Chine seeks to regain the balance of economy away from relying on investment and export activities and directing it towards domestic consumption and demand.

Second: Regional Situation

Energy prices recorded an increase during the first quarter of 2018, according to data and statistics published in this regard, mainly due to the high oil prices, as the reduction in the oil supply and the improvement of the pace of economic activity during the first half of 2018 have contributed to raising oil prices during the months of May and June to reach the highest levels since November 2014. The increase of oil production is Saudi Arabia and Russia, and the USA threat of imposing sanctions on Iran had restored balance in the oil market; the price of which fell to about $ 54 a barrel as in December 2018 after it had witnessed several increases and its price reached $64 a barrel.

According to World Economy Outlook for Middle East and Middle Asia issued in November 2018, the International Monetary Fund expects the real GDP of the Gulf Cooperation Council countries to grow by a percentage of %2.4 and %3 in 2018 and 2019 consecutively. The estimates were revised and raised when the forecasts for May 2018 were produced as a result of the growth of oil-related GDP and expected to see growth due to the adjustment and rising of expectations related to the growth of oil-related GDP in Saudi Arabia, UAE, and Kuwait during 2018. Meanwhile, oil-related GDP is expected to grow in the Sultanate of Oman in 2019. The rate of non-oil GDP growth in the GCC region for the year 2018 remained unchanged at a percentage %2.7, while the expectations for 2019 were adjusted and raised (by around %0.2) to reach %2.9. The growth of non-oil GDP in the GCC region is supported by the development of investment projects offered by the countries of the region such as the five-year development plan of Kuwait, and infrastructure investment projects of Qatar (World Cup 2022), and the continued preparations of Dubai International Expo 2020 in United Arab Emirates. The International Monetary Fund welcomed the introduction of the value-added tax by both Saudi Arabia and the UAE, which is expected to improve non-oil revenues leading to decreasing the reliance on goods related or generated revenues, and hence the enhancement of financial resources.

Third: Local Situations – Kuwait

The government continued its efforts towards execution of infrastructure development projects; this represents a driving force and stimulus for construction and building sector activities and the growth of private sector lending activities. The government has awarded a number of projects worth $11 billion and $ 6 billion in 2017 and 2018, respectively.

The local operational environment, one could say, is dominated by a state of cautious optimism as a result of the improvement in the outlook for economic growth and the financial situation, especially the rise of oil prices since the beginning of the first quarter to the third quarter of 2018. According to the International Monetary Fund expectations, the real local GDP growth will reach a rate of %2.3 in 2018, and %4.1 in 2019 (2017: -%3.3). The investment spending is expected to contribute greatly into realizing this growth; however, as a result of the recent decline in oil prices, it is expected that the financial situation will decline after recording a large surplus during the period from April to October 2018. Undoubtedly, any drop in oil prices will have major consequences on the capital markets, as one of the main concerns of the local economy is the risks that may be reflected by the decline in oil revenues on the rates of government spending and the decline in the volume of that spending.

Fourth: Performance of Financial Markets

Reports of the performance of financial markets in the Middle East and North Africa region indicate that the stock exchanges in this region have succeeded in achieving a positive performance during the year 2018 despite the low oil prices and the global turmoil in financial markets throughout 2018. The Standard & Poor's index of the Gulf Cooperation Council countries increased by about %11.47 in 2018, supported by the strong performance achieved by Saudi Arabia and Abu Dhabi markets, while the Kuwait Stock Exchange registered the fourth best performing Gulf market in 2018.

Fifth: Financial Indicators

The parent company (Aayan Leasing & Investment Company) was able to achieve net profit of KD 3 million as of end of 2018, an increase of %4.7 compared to shareholders’ equity at the end of 2017 which was KD 78.2 million.

In addition, the total accumulated assets of the Aayan group amounted to KD 307 million as at the end of 2018, while the total combined assets of the Aayan group amounted to KD 186 million at the end of 2018.

The company continued its focus on money generating activities as shown in the performance review of the company's sectors included in the 2018 annual report.

Sixth: Progress on Governance Standards and Norms

Aayan Leasing & Investment Company puts matters related to compliance and the application of effective regulatory requirements and internal audit systems at the top of its priorities. From this standpoint, the company prepares the necessary reports to meet all the criteria and rules related to the implementation of governance, and takes into account the observations and instructions issued by the Capital Markets Authority in this regard. In pursuant to Capital Markets Authority requirements, a detailed governance report is enclosed with the company’s annual report.

Seventh: View of Company Activities

Leasing:

The leasing sector realized excellent performance rates during 2018, in pursuant of its distinguished operational performance. The year 2018 witnessed the achievement of excellent operational revenues, a noticeable increase in net profits, as well as an increase in the overall profit compared to the previous year. Aayan Leasing Holding Company achieved further progress in its operations, as the operational revenues reached KD 32,515,662 for 2018. Total profit increased by %9 to reach KD 7,859,282 for 2018 compared to KD 7,189,640 for 2017. Moreover, profit margin was 24% for 2018, which is an excellent rate compared to 22% for 2017. The company achieved a remarkable increase in its net profit by 29%, to reach KD 5,341,122 compared to KD 4,141,358 for 2017. Equity increased by %2 to reach KD 34,583,799 compared to KD 33,816,038 for 2017.

As part of its constant endeavor to develop its services and provide an enjoyable and upscale experience for customers of operational leasing, Aayan Leasing Holding Company has developed and updated its electronic services that contribute to the speedy completion of transactions and facilitation for customers. Additionally, the company was keen on offering various distinctive marketing campaigns over the year designed especially to attract new segments of the clients, as well as focusing on being present and available at places where clients gather.

On the other hand, the Leasing sector management (Aayan Leasing Holding Company) strengthened its efforts in operational leasing operations and concluded a number of major deals during the year with a number of the most important and largest car agencies for the purpose of diversifying the vehicles it provides to its corporate, ministries and individual customers; and provide better competitive services and new cars to customer to satisfy them and offer them the maximum levels of luxury and quality. Aayan Kuwait Auto Company (a subsidiary of Aayan Leasing Holding Company) won several major contracts and tenders that were added to its list of marvelous accomplishments in the Kuwaiti market. The company was also successful in disbursing a higher number of used cars through cooperation with various financing agencies.

As for subsidiary companies, Aayan Leasing Holding Co. continued its efforts to support its subsidiaries in and outside of Kuwait; assisting them to develop their activities, planning, and overcome any obstacles they may encounter. As a result, there has been an accelerated and noticeable development in subsidiary companies, where the focus was on developing and expanding subsidiaries activities in everything related to the field of car rental, whether long, medium, or short term (daily and weekly).

It is noteworthy to mention that Aayan Leasing Holding Co. is wholly owned by Aayan Leasing & Investment Co. and is considered its operational arm in the automotive sector and services, as it manages the fleet of vehicles inside Kuwait and abroad. It includes many subsidiaries, most notably Aayan Auto Kuwait Company, a company specialized in leasing and sale of used cars. Budget Rent-A-Car, an international leasing agency, owned by Aayan in Kuwait and focuses on short and medium rental operations. Rekab Rent A Car company, also specialized in short and medium rental operations. Aayen Garage, the main center for repair and maintenance of Aayan’s fleet of vehicles; it is equipped with the latest tools and equipment, with two locations in Industrial Shuwaikh and Ahmadi area.

Real Estate Department:

In 2018 the investment real estate market faced a decline in rental values of investment properties and in demand for residential units due to the large supply and low demand, and the government plan to nationalize many jobs with Kuwaiti workers instead of expatriates.

At the same time, there was noticeable demand on the craft plots the company owns in Ardhia and Abu Fateera areas. The year 2018 witnessed a remarkable demand due to the stability in the rate of return on real estate and the increase in demand for rental units by investors, which led to an increase in the rental value of the units, contributing to the increase in operational revenues from KD 2.491 million in 2017 to KD 2.626 million, an increase of %5.4.

Jahra Commercial Mall Project:

Aayan Leasing & Investment Co. owns %78.53 of Jahra Mall. Through the marketing plan for the rental of mall units, the rental rate reached 16,427.44 m2 at the end of 2017 %82.31 of total rental space; and at the end of 2018 it reached %92.41, an increase of %10 from 2017.

Assets Department:

The Assets Department at Aayan Leasing & Investment Co. continued its careful management of investment portfolios and real estate funds to further improve its performance. The Assets Department follows up on investment assets in various countries such as Kuwait, Egypt, UAE, etc. During the previous period, the Department endeavored to develop those products, improve performance, and liquidate some of them. With regard to investment portfolios, the company commenced working to reconcile the conditions of these investments after a regulation was issued to regulate the collective investment process. The company continues to work on conciliating the conditions of these investments according to the time frame set by the Capital Markets Authority.

Awaed Real Estate Fund persisted serving his customers in a manner competitive to many investment products available in the local market. The Fund is well-known by its monthly distributions and its competitive returns in comparison with the real estate sector in Kuwait and the competing funds. The Fund management continued to improve the performance of the fund’s assets to maintain the assets levels despite the decline of the real estate sector performance. The Fund achieved positive performance in comparison with the competing funds and the local real estate sector during 2018.

Furthermore, Aayan began liquidation of Egypt third portfolio in 2018, giving portfolio investors several options to exit the investment. The exit of 78.32% of the portfolio's investors has been completed, and contact is ongoing with the other investors to obtain the results of the liquidation and terminate the investment completely. It is worth mentioning that the portfolio had invested in a real estate project in the Fifth Tajamoa in Egypt, in a prime location in front of the main building of the American University in Cairo, but the political and economic circumstances that accompanied the project caused the delay in accomplishment.

In terms of the Fourth Egypt portfolio, the company reached an agreement with the parties contributing to the project to exit from the portfolio based on an evaluation made to find out the final value of the portfolio in an initial plan to start the liquidation work. Currently, the company is preparing the appropriate mechanism to liquidate the portfolio and create suitable exit options for investors. It is noteworthy that the Green Waves project, for which the portfolio was established, is located in the Sheikh Zayed area opposite the new building of Al Ahly Club in the Arab Republic of Egypt. The project is divided into three phases, and consists of 584 residential units in addition to shops.

Investment Sector

The investment sector represents a core element of Aayan Leasing & Investment Co., where sister and subsidiary companies play a basic role in enhancing company profitability and cash flow. During this year Aayan was able to exit several investments in Oman in a deal worth KD 2.9 million, resulting in profits of around KD 1 million. This cash flow was utilized primarily towards payment of company creditors.

As for the main investments of the company, Aayan Real Estate Company, owned by 57.78% by Aayan Company, managed to overcome the negative results in 2017, as the company achieved a net profit of KD 5.94 million in the fiscal year ending on 31/12/2018. These profits came mainly from the evaluation of Yal Complex, in which the occupancy rate increased significantly. In light of this positive result and to confirm the strength of its cash flow, the company’s Board of Directors submitted a proposal to the general assembly to distribute dividends of up to 5 fils per share.

Moreover, Mubarad Holding Company continued its positive result and achieved its set goals achieving net profit of KD 1.67 million. The Board of Directors submitted a proposal to the general assembly to distribute dividends of 5 fils per share for the fifth consecutive year, and distribute 5% bonus shares.

In addition, Mashaer Holding Company went through major changes in the administration. The new administration continues to implement the Board of Director’s plan and to address some of the outstanding problems in some assets, especially some real estate investments in Saudi Arabia, which had great effect on company results last year. As for Abyar Real Estate Company, it still faces major cash flow challenges, and the assets were significantly affected by the real estate market in the Emirate of Dubai. Abyar witnessed major changes in its administration; and we hope that 2019 will come with solutions for many of its cash flow problems encountered by the company to reach the best results that would reflect positively on Aayan Leasing & Investment Co.

Eighth: Future Outlook

Aayan Leasing & Investment Co. shall pursue its efforts aimed at fulfilling its obligations towards creditors, and also secure the financial position of the company. It will also seek to promote future prospects for its presence among the ranks of investment companies in the State of Kuwait, despite the vague circumstances and conditions that prevail in the region and which affect the leasing and investment activities.

Ninth: Conclusion

In conclusion, I would like to express my deep gratitude to company shareholders for their great trust and continued support that they extend to the company. I would also like to thank our clients for their trust in company services and products, and to the regulatory agencies that seek to establish regulatory structures to reduce risks. Additionally, I would like to thank all employees for their dedicated performance and sincerity to work.

I also extend my sincere thanks to the Chairman and members of the Board of Directors for their continued support of executive management of the company.

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