Palestine of Opportunities. Annual Report. Palestine Securities Exchange Public Shareholding Company

Transcription

1 Palestine of Opportunities فلسطين الفرص 2012 Palestine Securities Exchange Public Shareholding Company

2 Vision The PEX seeks to be a model for Arab and regional stock exchanges by combining stateof-the art technology with best practice corporate governance to offer an expanding range of innovative products and services that attract investment and help build a strong and interconnected capital market. 2

3 PSE milestones 2012 Palestine Securities Exchange (PSE) listed on the PEX The PEX listed a record seven new companies in one year The PEX became a public shareholding company and acquired a new corporate identity The PEX rated second among Arab exchanges in providing investor protection Online trading (e-trading) began. Investor Education Program launched Al-Quds Index raised 306 percent, more than any other global market First trading session held The PEX incorporated as a private shareholding company. 1

4 About The PEX Founded in 1995, and holding its first trading session in February 1997, the PEX began as the first private sector-owned stock exchange in the Arab world. In 2010, it converted into a public shareholding company with paid-up capital of US$10 mn. This transformation was accompanied by a new corporate identity bearing the brand name Palestine Exchange and the slogan Palestine of Opportunities. Committed to the principles of good governance, the PEX listed for trading on April 4, 2012 thus becoming the second Arab exchange to do so. The PEX is registered with the Companies Controller at the Ministry of National Economy under registration number ( ). The PEX focuses on attracting regional and international individual and institutional investors, including Palestinian diaspora. Currently, the PEX conducts it s business through it s head - quarters in Nablus and it s representative office in Ramallah. Since its inception as the first fully automated Arab exchange, the PEX has sought to mesh the latest financial market technology with best practice governance and management to ensure maximum transparency, integrity and investor protection. Along with securities trading, the PEX offers transaction processing services through its Clearing Depository Settlement Center (CDS). These include opening investor accounts, off-floor transactions, issuing share books and ownership certificates. Monitored by the SMARTS market surveillance platform, the HORIZON system carries out trading transactions. Settlement and clearing transactions are carried out through the Clearing Depository & Settlement Center (CDS) electronic system linked to the trading system. During the settlement process, securities are transferred from the seller to the buyer in T+3, while clearing is done through the settlement bank (Arab Bank). HSBC bank acts as a custodian for securities on behalf of foreign investors. On 31 December 2012, 48 companies with a total market value of some US$2.86 bn were listed on the PEX. They encompassed five economic sectors: banking and financial services, insurance, investment, industry, and services. Shares trade in Jordanian dinars and US dollars. Only ordinary shares trade but there remains the possibility and readiness for trading other securities in the future. On 31 December 2012, nine member securities companies (brokerage firms) distributed among different cities in the West Bank and Gaza Strip operated in the PEX. The PEX maintains a regional and international presence through membership in several specialized federations: Federation of Arab Stock Exchanges. Federation of Euro-Asian Stock Exchanges (FEAS). World Federation of Exchanges WFE (Affiliate Member). Forum of Islamic Stock Exchanges. Africa & Middle East Depositories Association (AMEDA). Association of National Numbering Agencies (ANNA). In addition, the PEX signed Memoranda of Understanding with each of the following: Swedish Exchange, Nasdaq OMX. Egyptian Exchange. Arab Monetary Fund. 2

5 : Contents Overview 2012 Growth strategy Organizational Structure Achievements and Developments 2012 The PEX technical Performance Shareholders Information The PEX Governance Corporate Social Responsibility Audited Financial Statements 3

6 Overview 2012 Sebastia Nablus4

7 Activities and Achievements February Launch of the Palestine Chapter of the Middle East Investor Relations Society. The PEX welcomes a Chinese investment delegation. March Signs a Memorandum of Understanding with the Monetary Authority whereby the PEX becomes agent for the Real Time Gross Settlement (RTGS) known as Buraq. Participates in Invest in Palestine, a conference held in Qatar organized by the Palestine Chapter of the World Chambers Federation. April The Palestinian Securities Exchange lists on the PEX. Launches the PEX Investor Relations section and website. Participates in the annual conference of the Union of Arab Stock Exchanges held in the Sultanate of Oman. The fifth round of the PEX s Stock Simulation Competition concludes. May Participates in the Federation of Euro-Asian Stock Exchanges (FEAS) equity markets roadshow and the Working Committee Annual Meeting held in Istanbul. June Clearing Depository & Settlement Center (CDS) becomes a full member in the Association of National Numbering Agencies (ANNA). Participates in the Regional Governance Action Committee for Middle East and North Africa Stock Exchanges Corporate Governance initiative held in Istanbul. Participates in the Association of National Numbering Agencies (ANNA) meeting in London. July PALAQAR for Real Estate Development & Management lists on the PEX. Member Securities Company branch director specifications approved. Holds a professional Training course Investment Strategy and Portfolio Management with the participation of trainees from the banking and financial sector. 5

8 September Companies Guide 2011 is published. Holds a course titled Financial Broker for the banking and financial sector. Start halting the Cancellation of trading Transactions. October IPO Initiative package distributed to family-owned enterprises and other interested parties. Participates in World Federation of Exchanges Annual Conference in Taiwan. November Receives award for enhancing Investor Relations in Palestine and the Middle East. The PEX wins second place in the King Worldwide Digital ranking for Investor Relations pages among listed companies in Palestine. Participates in the Global Pension Funds Special Conference held in Washington. Participates in the Middle East Investor Relations Society Annual Conference. Holds sixth round of Stock Simulation Competition. The PEX publishes Road to IPO. Holds Investor Relations and Corporate Communications Best Practices training course. December Sixth Annual Palestinian Capital Market Forum. The PEX convenes with listed companies representatives to review annual report preparation. Acknowledges the Clearing Depository & Settlement Center (CDS) as an operational local unit that defines the legal entity of companies according to ANNA s norm. Completes amendments to the New Listing Regulation in effect January 1,

9 The PEX Performance Summary Indicators Change (% ) Number of listed companies % Number of subscribed shares 1,006,565,913 1,081,208,617 1,125,426,453 1,461,720,090 1,523,328, % Market capitalization (Million USD) 2,123,057,098 2,375,366,531 2,449,901,545 2,782,469,900 2,859,140, % Value of traded shares (Million USD ) 1,185,204, ,393, ,208, ,648, ,440,441 (25.22) % Number of traded shares 339,168, ,877, ,516, ,455, ,304,208 (20.14)% Number of concluded transactions 152,319 88,838 82,525 61,928 41,442 (33.08) % Number of trading days % Shares turnover (%) (23.44) % Al-Quds Index (points) % Average value of traded shares per session 4,857,394 2,034,119 1,812,082 1,474,387 1,098,154 (25.52)% Average number of traded shares per session 1,390, , , , ,583 (20.46) % Average number of transactions per session (33.33) % Number of member companies (10.00) % Number of accounts of Clearing Depository & Settlement Center (CDS) 74,380 79,988 87,594 96, , % Currency: US $ Al-Quds Index Daily Closing of AL- Quds index Trading by economic sector for 2012 Banking Industry Insurance Investment Services 7

10 Financial Performance Summary The political and economic conditions that the State of Palestine passed through in 2012, as well as the psychological ramifications caused by the global financial crisis, negatively affected trading volume which dropped 25 percent in 2012 compared with This decline is mirrored in the weak financial performance shown in the following table: Key Financial Indicators Indicators Change (% ) Total assets 14,621,841 12,493,623 12,522,702 12,658,010 11,723,148 ( 7 ) % Total liabilities 2,003, , ,467 1,526,332 1,487,110 ( 3 ) % Net Equity 12,617,858 11,671,610 11,587,235 11,131,678 10,236,038 ( 8 ) % Liquidity ratio (71 ) % Cash ratio 160 % 43 % 81 % 123 % 33 % (73) % Earnings per share (0.026) (0.027) (0.07) 159 % Return on shareholder equity Rate of return on total assets Total liabilities to total assets Total liabilities to total equity Net profit before depreciation and tax (0.023) (0.024) (0.07) 192 % (0.021) (0.021) (0.06) 185 % 14 % 7 % 7 % 12 % 13 % 8 % 16 % 7 % 8 % 14 % 15 % 7 % 2,725, ,347 81,395 37,375 (331,851) (988) % Currency: US $ 8

11 Gross revenues Gross expenses Gains (losses) 9

12 Looking forward, despite the challenges of recent years, the PEX remains on solid ground and ready to leap ahead on the regional and international investment map once conditions ameliorate. 10

13 Chairman s Statement Shareholders, Dear eco- The challenges of 2012 were perhaps the inevitable repercussions of the political, nomic and financial change that has swept through regional and global economies characterized by slow growth, recession and a poor investment environment. On the domestic level, decreased donor levels coupled with the Israeli action to block Palestinian tax funds following Palestine s UN member status elevation in November, exacerbated the Palestinian Authority financial crisis. Meanwhile, amidst Israeli obstacles and a deadlocked political situation, the government s decision to address its financial deficit through the amendment of laws and tax policies has depressed the economy and investment environment. de- This negative atmosphere influenced the PEX performance which saw significant creases in trading volume and value. The Al-Quds Index fell during the year s first three quarters before a fourth quarter rally registered a slight year-over-year growth of 0.14 percent, putting the exchange in the eighth place among Arab peers. Looking forward, despite the challenges of recent years, the PEX remains on solid ground and ready to leap ahead on the regional and international investment map once conditions ameliorate. To conclude, I would like to extend my gratitude and appreciation to my colleagues on the Board of Directors, the Executive Management and all the PEX staff for their efforts in driving our business forward. My gratitude goes as well to the Board and management of the Palestine Capital Market Authority, member firms, listed companies, investors and all parties that deal with the PEX, wishing them success and progress in the year ahead.. Prof Dr. Rami Hamdallah Chairman of the Board 11

14 We Hope 2013 will bring a better investment climate and remain confident in our listed companies, of which 70 percent distributed US $ 120 mn in cash dividends during 2012.

15 CEO Statement Shareholders, Dear Listing Palestine Securities Exchange was perhaps the most prominent highlight for the PEX in 2012, clearly demonstrating the PEX efforts to be a good governance role model. com- At the same time, the Al-Quds Index recovered at the end of 2012, closing up 0.14 percent pared to 2011 putting it mid-level among regional exchanges. Likewise, listed companies market capitalization rose three percent in 2012 to US $2.86 mn., However the value of shares traded dropped 25 percent to US$273.4 mn while the number of traded shares dropped 20 percent and the number of transactions 33 percent. Clear- Despite a 1.48 percent drop in general and administrative expenses and a 26 percent rise in ing Depository & Settlement Center (CDS) revenues, the PEX operating income fell 19 percent as a direct result of the weak trading volumes and values. 3 stra- In the face of these challenges, the PEX took several important steps towards achieving its tegic goals. We worked to widen market depth by listing two new companies including the Palestine Securities Exchange, the only Arab exchange owned by the private sector. In conjunction, we created an investor relations section and launched an IR website. We also acquired status as an agent for the Real Time Gross Settlement (RTGS) known as Buraq to conduct cash settlements relating to the securities sector. Finally, we took key steps to enhance the PEX governance including amendment of the listing regulations. The amended regulations, effective of this year, will distribute companies to first and second tier markets., Meanwhile the PEX has embarked on a strategic initiative to internally develop its core IT systems enabling it to reduce costs and dependence on monopolizing supplier companies. mem- At a regional relations level, the Clearing Depository & Settlement Center (CDS) acquired full bership in the Association of National Numbering Agencies ANNA. Meanwhile, we established the Palestinian Chapter of the Middle East Investor Relations Society in order to enhance IR practices among listed companies. In addition, we organized several investment education initiatives including the 6th Annual Palestinian Capital Market Forum. In conclusion, we bid farewell to 2012 and embrace a new year with optimism and the hope it will hold within its folds more stable economic conditions for the entire region and for Palestine in particular. We Hope 2013 will bring a better investment climate and remain confident in our listed companies, of which 70 percent distributed US $ 120 mn in cash dividends during col-, Finally I extend my gratitude to the Chairman of the Board of Directors and its members, my leagues at the exchange, the Palestine Capital Markey Authority, and all our partners in the securities sector. To all I wish success and prosperity. Ahmad Aweidah Chief Executive Officer

16 Growth Strategy Hisham Palace Jericho 14

17 Growth Strategy Aiming to further develop the Palestinian capital market, the PEX established a set of strategic goals for Here is a summary : Strengthen market governance (legislation, regulation, systems, operational procedures, information security, and management). Enhance interactive partnership with the Palestinian Capital Market Authority (PCMA), brokerage firms, and listed companies to provide premium, timely responses to investor needs and market evolution. Increase market depth and liquidity and expand investor base through: Completing the listing of public shareholding companies in Palestine, and encouraging eligible family-owned enterprises to convert to the PEX-listed public shareholding companies. Including the exchange in MENA frontier market indices such as those provided by MSCI, S&P, and FTSE. Encouraging diaspora Palestinians to invest in the shares of Palestinian listed companies. Attracting national and regional institutional and retail investors. Diversify sources of market income through: Expanding central depository services. Developing data dissemination channels and providing an online trading and companies database. Strengthen relationships with local, regional and international markets, and obtain full membership in the World Federation of Exchanges (WFE). Promote, create and develop good governance and investor relations best practices among listed companies. 15

18 Organizational Structure AL Ibrahimi Mosque 16 Hebron

19 Organizational Structure 17

20 Board of Directors Members of the Board of Directors Prof. Dr. Rami Waleed Kamel Hamdallah Chairman Representative of(padico) Dr. Farouq Ahmad Hasan Zuaiter Vice Chairman Representative of(padico) Mr. Ziad Mohammad Mahmoud Turk Board member Representative of(padico) Mr. Samir Othman Mahmoud Hulileh Board member Representative of(padico) Dr. Basim Khalid Said Makhool Board member Representative of(padico) Mr. Romen Joseph Mathieu Board member Representative of(padico) Dr. Mohammad Shtayyeh Board member Independent: Not associated with the company that he represents Dependent: Associated with the company that he represents Representative of Al-Sanabel Trading and Investment Company Ltd. All Board members are non-executive in the PEX. All Board members have a Palestinian nationality except Mr. Ziad Turk who has a Jordanian nationality and Mr. Romen Mathieu who has a Lebanese nationality. Board Committees Audit committee. Governance and Remuneration Committee. Investment Committee. 18

21 Executive Management Management Members of the Executive. Mr Ahmad Sameh Raja i Aweidah Chief Executive Officer. Mr Khaled Hasan Jian. Mrs Nagham Mohammad Said Salameh. Mr Mohammad Amin Hijaz. Mr Khalid Mousa Hamdan. Mr Mohammad Hosni Obeid. Mrs Fida Farid Musleh-Azar Deputy Chief Executive Officer Manager of Financial and Administrative Affairs Department Manager of Trading, Surveillance and Member Affairs Department Manager of Companies Department (CDS) Manager of Clearing Depository & Settlement Center Manager of Systems and Technology Department Manager of Ramallah Representative Office Manager of Public Relations & Investor Education Department 19

22 Achievements and Developments 2012 Dome of the Rock 20 Jerusalem

23 New Listings Palestine Securities Exchange The listing of the shares of the Palestine Securities Exchange (PSE) and their trading in the PEX early in April 2012 is considered a paramount achievement. The shares of the Exchange were listed in the Banks and Financial Services sector and trade under the symbol PSE. As a result of the listing, the PEX has become the second publically traded Arab financial market (after Dubai) and the only Arab stock market owned by the private sector. PalAqar In July 2012, the shares of PalAqar for Real Estate Development & Management (PALAQAR) were listed on the PEX. PalAqar s shares are traded in the Services sector under the symbol PALAQAR. All together, the number of listed companies rose to 48 in 2012 with a total market value of US$2.86 billion at year-end. Legal and Legislative Environment Enhancements aimed at strengthening the governance of the exchange and securities regulation in 2012 included: 21

24 1- Listing Regulation Amendment The Exchange listing regulation was amended upon endorsement of the Palestine Capital Market Authority on 21 November The amendment took place in accordance with the PEX rules in order to achieve compatibility with the existing condition of Palestinian public shareholding companies and keep abreast of global developments. The amended regulation entered into force 1 January 2013 with listed companies distributed into first and second market tiers. 2- Halting the Cancellation of Trading Transactions The PEX Board of Directors approved a resolution in July 2012 ending the cancellation of Trading transactions. Endorsed by the Palestine Capital Market Authority the decision entered into force 4 September The resolution calls for the annulment of articles (99, 100, 101) from the securities trading regulations relevant to the cancellation of transactions. Therefore, the transactions executed under the securities trading regulations in the PEX, pursuant to the above-mentioned amendment, become valid and not subject to cancellation except for the transactions that violate the laws and regulations pursuant to Article (102) of the Trading Regulations. 3- Specifications of the branch director of the member Securities Company In July 2012, the PEX Board of Directors approved the technical specifications for branch directors of member Securities Companies. The Palestine Capital Market Authority also endorsed the resolution, which entered into force 31 July The approved specifications require the branch Director to work full-time, hold a university degree and have at least three years experience in financial institutions or banks. Technology Aware of technology s ongoing impact on capital markets, the PEX strives to remain an IT and communications leader. Six key initiatives marked 2012: 1. Local Development of the PEX IT Infrastructure A plan was devised and budget allocated for a two-year strategic project that will free the exchange from monopolizing provider companies and have a direct impact in reducing expenses and potentially creating a source of income. 2. Automation of All Exchange Processes Launched in 2012, this project will be operational in the first half of The automated system of electronic processes will be a key platform in developing the main Exchange systems and providing new services. Moreover, the project is expected to be a characteristic feature of the Exchange in administrative, organizational and technical areas. 3. E-Disclosure Development and Implementation Project Launched in 2012 and fully online by the first quarter of 2013, the system will automate management of all disclosure processes ranging from data entry to publication. 22

25 4. Enterprise Resources Planning Project (ERP) The ERP system was successfully implemented during the first half of 2012 using Dynamics AX technologies from Microsoft. ERP provides an accounting and administrative system specially developed to meet the needs of the exchange including salary, attendance, and agreements management systems. 5. Advances in Information Security Several related projects were implemented in 2012 including: Security Information and Event Management System (SIEM) Implementation of 2-Factor Authentication. External security evaluation of the Exchange s systems and networks. IT application of Virtual Local Area Network (VLAN) to isolate and separate local networks Regulating and documenting all databases utilized in the e-market environment. 6. Infrastructure Development of IT and Communication Systems The PEX IT and communication systems were enhanced via installation of new central servers to ensure optimal availability of all support systems and services. In addition, a sophisticated VMware Virtualization System was applied to streamline the use and management of IT systems infrastructure. Regional and International Presence Throughout the year, the PEX participated in a number of regional and international events including: Provident Funds Special Conference held in Washington. Annual Middle East Investor Relations Conference held in Abu Dhabi, which introduced the Best Practices Code for Middle East Investor Relations. World Federation of Exchanges Annual Conference held in Taiwan. Regional Action Committee on Governance Annual Meeting for MENA Exchanges held in Istanbul. Association of National Numbering Agencies (ANNA) Meeting in London. Equity markets roadshow of the Federation of Euro-Asian Stock Exchanges (FEAS) and the Working Committee Annual Meeting in Istanbul. Union of Arab Stock Exchanges Annual Conference held in the Sultanate of Oman. Invest in Palestine Conference organized by the Palestine Chapter of the World Chambers Federation in Qatar. 23

26 Hosting Chinese Business and Investment Delegation In February 2012, the PEX welcomed a delegation from the People s Republic of China at its Ramallah Representative Office. The delegation of businessmen, investors, academics and journalists met with Exchange staff to learn more about the PEX and investment opportunities in its listed companies. Full Membership in ANNA In its June 14, 2012 general meeting in London, the Association of National Numbering Agencies (ANNA) upgraded the PEX s membership status from partner to full member. The PEX now enjoys the rights granted to all members of the association such as the right to vote, to run for membership on ANNA s Board, and to partake in its technical action committees. The PEX Accreditation as a Local Operational Unit for the Issuance of the Legal Entity Identifier (LEI) The Clearing Depository & Settlement Center (CDS) fulfilled the requirements whereby the PEX obtained the prerogative to act as a local operational unit in Palestine for the LEI. Accordingly, the PEX shall be authorized by the Association of National Numbering Agencies (ANNA) to issue international numbers for the companies internalized in the Palestinian capital market. The PEX numbered (1392) within the international numbering system ranking fourth local operational unit after Germany, the USA and Ireland. The primary purpose for the issuance of such numbering is to facilitate the identification of companies internationally and dispel any ambiguity with regard to the name, address or data pertaining to them. The CDS an Agent for Monetary Settlement A Memorandum of Understanding was signed on March 29, 2012 with the Palestinian Monetary Authority which included a declaration recognizing the Clearing Depository & Settlement Center (CDS) agent for monetary settlement and its third-party membership in the Real Time Gross Settlement known as Buraq. In this regard, the instructions and procedures regulating the implementation mechanisms of monetary settlement were drawn up using the Real Time Gross Settlement electronic system, which is expected to be operational in

27 Significant Rise in CDS Revenues The Clearing Depository & Settlement Center executed 2,720 transactions in 2012 compared to 2,568 transactions in Total fees increased 26 percent to US$283,806 compared with US$225,584 in Details are shown in the table below: # Transaction Type Transactions 2012 Transactions 2012 Fees 2012 Fees 2011 Change % 1 Family Transfers ,839 27,800 (14)% 2 Inheritance Transfers ,647 18,677 37% 3 Pledges , , % 4 Ownership Certificates ,230 1,179 4 % 5 Issuing Sharebooks ,600 8, % 6 Corporate Actions ,267 26, % 7 8 Transferring Securities Among Brokers Additional Accounts Opening ,908 4, % 1,026 1,135 3,078 3,405 (10)% TOTAL 2,720 2, , , % Targeting Family-Owned Enterprises In 2012, the PEX undertook a range of initiatives aimed at encouraging family-owned businesses to consider conversion to listed public shareholding companies. In-person meetings gathered first hand information on individual business conditions while the PEX presented opportunities and explained its role in facilitating the process. The PEX also developed and distributed a guide for companies seeking to convert to public shareholding entities prior to their listing on the PEX. A CD containing the IPO and Listing Guide, a list of IPO consultants and all relevant regulations, instructions and laws, the information package is a reference and roadmap for private sector companies seeking the benefits of a public shareholding structure. Developing Statistical Reports The PEX continues to develop a range of statistical reports with perhaps the most notable in 2012 shedding light on the operational activities of the Clearing Depository & Settlement Center (CDS). It was widely distributed among listed firms, member companies and other relevant parties. Compliance and Risk Compliance Agenda Key to facilitating follow-up action, the agenda (organized annually, monthly, and daily), functions as a guide for securing the conduct of the PEX technical operations. Monetary Settlement Review Procedures Currency: US $ The procedures were prepared to facilitate their implementation in the Real Time Gross Settlement, known as Buraq, of the Palestinian Monetary Authority early in

28 Human Resources A total of 52 people worked at the PEX head-quarters in Nablus and its Ramallah Representative Office at the end of 2012, down from 55 in 2011 Staff Distribution by Education Staff Distribution by Location Ramallah High school Diploma B.A 52 M.A Nablus Staff Distribution by Gender Staff Distribution by Age Female Male Less than Capacity Building In 2012, the PEX organized, implemented and participated in 26 internal and external professional development activities for some 600 training hours on a diverse range of technical and managerial topics. Almost two-thirds of all staff took part. When preparing for training programs, the PEX considers the reliability of the trainers and their distinction in their respective areas. In addition, the PEX accommodates for the appropriateness of the venue with the requirements of the training programs to ensure maximum benefit. 26

29 The 6th Annual Palestinian Capital Market Forum The PEX organized the 6th Annual Palestinian Capital Market Forum themed Financial Brokerage Industry: Current Challenges and Future Prospects. The forum, held December 11, 2012 in Ramallah City under the auspices of Prime Minister Dr Salam Fayyad, was attended by a multinational array of guest speakers from the USA, the UAE, Jordan and Palestine. Highlighting the challenges and future prospects of the financial brokerage industry, the gathering featured broad participation by representatives from the public and private sectors including securities companies, listed firms, the Capital Market Authority and the media. Major national companies sponsored the forum. PalTel and PADICO were joint diamond sponsors and the National Bank was the golden sponsor. The forum received exclusive media coverage from Ellam TAM and the international PR-Newswire. Investor Education Stock Simulation Competition Com- Having concluded the fifth session, the PEX opened the sixth session of the Stock Simulation petition in November 2012 with the participation of 180 male and female students from nine universities: An-Najah National University in Nablus, Birzeit University, Al-Quds University in Abu Dis, Hebron University, Islamic University in Gaza, Palestine Technical Khadoori in Tulkarem, Palestine Ahliya in Bethlehem, Bethlehem University, and Arab American University in Jenin. Students Visits Throughout 2012, the PEX continued efforts aimed at enhancing a share investment culture among all segments of Palestinian society, especially students. The PEX received student delegations totaling some 600 male and female students from Palestinian schools, colleges and universities from across Palestine. The visits featured detailed discussions on a variety of capital markets concepts. Media Presence and Information Dissemination The PEX was the focus of increasing local, regional and international media attention in 2012 with management providing dozens of radio, TV and print media interviews. nation-, Meanwhile the PEX continued to widen its range of information dissemination by including al and global entities via up-to-date IT systems and programs. The PEX signed several agreements for information dissemination and publication with listed companies as well as national, regional and international media organizations. Dissemination of information encompasses statistical data on trading and share prices, as well as other important financial and non-financial data of interest to investors and the PEX clients. 27

30 The PEX Publications 2012 Road to IPO As part of its integrated initiative to reach out to family-owned enterprises, the PEX published an e-version of a booklet titled Road to IPO. The booklet, containing numerous guides, laws, regulations and terms of reference, is also available on CD and provides a roadmap for private sector companies, both family and non-family owned, seeking the long-term opportunities offered by a public shareholding structure. Listed Shareholding Companies Guide 2011 The PEX issued Companies Guide 2011 in Arabic and English. Available in hard copy and CD, it provides a broad range of information on each listed company as well as information on the national economy and stock exchange. Souk El-Mal Magazine Published quarterly, Souk El-Mal magazine covers a diverse array of specialized economic and financial issues and has become a model of economic journalism in Palestine. Financial and Banking Sector Training The PEX organized training sessions, seminars and workshops for members of the Palestinian financial and banking sector, including: Financial Broker Training Held in September, 16 trainees met with the PEX and Capital Market Authority personnel. The training and subsequent test qualify successful candidates for work in brokerage firms Clearing Depository & Settlement (CDS) Section. Investment Strategy and Portfolio Management Training The training was held in July 2012 with the participation of 23 trainees from the banking and financial sector. Participants included listed companies, financial brokerage companies, banks, the Monetary Authority and the PEX. Workshop In cooperation with the Palestinian Capital Market Authority, the PEX Companies Department held a meeting early in December 2012 attended by 50 officials responsible for the preparation of annual reports. During the meeting, participants reviewed recent amendments to disclosure regulations and discussed current issues relating to listed company annual reports. Investor Relations Section The PEX Investor Relations Section commenced operations upon listing. 28

31 Investor Relations Section Main Achievements Launch of Investor Relations pages Concurrent with the PSE s listing, the PEX launched an investor relations pages in Arabic and English on its website The digital window offers investors and stakeholders an upto-date view on financial and technical data, governance information, share performance and the latest news. Ranked Second Among Palestinian Companies The Exchange ranked second in the King Worldwide Digital classification of investor relations pages among Palestinian companies listed on the PEX. The award was received in a special ceremony held especially for that occasion in Doha, Qatar, on October Palestine Chapter of Middle East Investor Relations Society (ME-IRS) Led by the PEX, the Palestine Chapter of the ME-IR Society was established in February 2012 with the aim of enhancing investor relations best practices among Palestinian companies listed on the Exchange. The Chapter encourages listed companies to establish investor relations units based on regional and global best practices. Meeting frequently throughout the year and in coordination with its members, the Chapter actively examined development needs and opportunities. The new Board of the Palestine Chapter consists of representatives from PADICO, PALTEL, Bank of Palestine, Wataniya mobile, Jerusalem Pharmaceuticals, and the Palestinian Distribution and Logistics Services Co. (WASSEL). Palestinian Chapter of ME-IR Society 2012 Main Activities: Investor Relations and Corporate Communications Best Practices Training Held in cooperation with the Middle East Investor Relations Society and Finance Talking Ltd., a two-day session at the PEX Representative Office in Ramallah City brought together 15 male and female participants from listed companies, the private sector and the PEX. Award of Excellence in Enhancing Investor Relations in Palestine and the Middle East Public Relations & Investor Education Department Manager, Chairwoman of the Palestine chapter Mrs. Fida Musleh/Azar received the Award of Excellence for promoting the importance of investor relations in Palestine and the Middle East at the ME-IR Society Conference hosted by the Abu Dhabi Securities Exchange in November

32 T he PEX Technical Performance Church of Nativity 30 Bethlehem

33 Al-Quds Index Daily closing of Al - Quds index during At the end of 2012, the Al-Quds index closed at points, up 0.66 points or 0.14 percent from The index peaked at points on 1 April 2012 before declining throughout the second and third quarters while recovering in the fourth. The PEX performance put it at a mid-level position among exchanges ranking eighth of 17 Federation of Arab Stock Exchanges. Change of Arab Market Indices During 2012 compared with

34 Sector Indices After hitting a yearly high of points in April the Al-Quds index declined to points in September and closed the year at points. The banking and financial services sector rose 9.97 percent to close at points and the insurance sector index rose 3.92 percent to points. In contrast, the services sector declined 1.89 percent to close at points, the investment sector declined 8.72 percent to points, and the industry sector fell 3.30 percent to points. Sector Open Close Change (%) Point Al-Quds % 0.66 General % Banking and Financial services % 9.55 Industry % Insurance % 1.79 Investment % Services % : The PEX main Index: Base Year: 1997, Base Value: 100 : include all listed companies: Base Year: 2003, Base Value: 100 The following graph shows the movement of the banking and financial services sector index in 2012, noting that this index has achieved the highest ratio of 10 percent. Banking Sector Index AL - Quds Index Banking Sector Index 2012 AL - Quds Index

35 Trading Activity The PEX held 249 trading sessions in 2012 in which 147,304,208 shares valued at US$273,440,441 executed through 41,442 contracts. The market value of listed companies shares at the end of 2012 amounted to US$2,859,140,375 a 2.76 percent rise over The value of traded shares amounted to US$273,440,441, declining percent compared to At percent, the services sector made up the largest portion of total the PEX trading value in It was followed by the banking and financial services sector which constituted percent of total trading value during the same period. The services sector was the PEX s largest with percent of total market value. Banking and financial services ranked second at percent. Comparison of No. & Value of Traded Shares Value of Traded Shares (US $ mn) No. of Traded Shares Daily Average Turn Over Value (US $ mn) 33

36 Trading by Sector in 2012 Sector Statistics for 2012 Sector Listed Companies Volume Value No. of transactions Market Capitalization Banking & Financial Services 9 54,449,352 85,474,771 11, ,684,139 Industry Insurance Investment Services Total 11 6,740,195 13,507,153 3, ,022, ,414,778 8,115,012 1, ,291, ,465,990 41,887,995 10, ,606, ,233, ,455,510 13,861 1,441,535, ,304, ,440,441 41,442 2,859,140,375 Currency: US $ Percentage of value traded shares per sector Banking Industry Insurance Investment Services Percentage of No.of traded shares per sector Banking Industry Insurance Investment Services

37 Trading According to Nationality Sell Buy Sell Volume of shares % Value of shares % Volume of shares % Value of shares Ratio Palestinian 104,429, % 171,309, % 104,442, % 170,740, % Foreign 38,951, % 91,834, % 38,938, % 92,403, % Total 143,380, % 263,143, % 143,380, % 263,143, % Currency: US $ Investment at the PEX Palestinian investment Foreign investment No. of shares value No. of shares value Sell Buy Shares ownership by nationality & type Shareholders by nationality & type local individuals local Companies Foreign individuals Foreign Companies N/A local individuals local Companies Foreign individuals Foreign Companies N/A 35

38 Listed Companies The PEX listed two new companies in 2012 raising the overall number to 48 with a total market value of some US$2.86 bn on 31 December 2012, a rise of 2.76 percent compared to Listed companies dividend distributions amounted to approximately US$140 mn. No. of listed companies Market capitalization (US $ mn) No. of listed companies Market capitalization (US $ mn) Dividends of listed companies (US $ mn) 36

39 hareholders S Information Akka Walls Akka 37

40 Shares and Shareholders On 31 December 2012, the PEX had 19 shareholders that owned a total of 10 million shares. The table below provides a breakdown of shareholders and shares: Shareholders According to Volume of Shareholding Shareholding volume No. of shareholders Percentage of shareholders Volume of shares Percentage of shares % 0 % % 0 % % 10 % % 0.08 % % 40 % 264, , % 2 % % 0 % 60, % 0 % & above % 50 % 9,637,168 9,791, % % TOTAL % 100 % 10,000,000 10,000, % 100 % Shareholders Geographic Distribution No. of Shares No. of Shareholders Foreign Palestinian Type of Shareholders No. of shareholders Volume of shares Percentage of shares Individuals ,332 8, % 0.08 % Institutions: Companies ,252,256 9,323, % % Brokerage companies , % 0 % Banks , , % 1.68 % Investment funds , ,000 5 % 5 % TOTAL ,000,000 10,000, % 100 % 38

41 Major Shareholders Name of Shareholding Company Share Volume in 31/12/2011 Percentage Share Volume in 31/12/2012 Percentage Palestine Development & Investment PADICO (Liberia) 6,923, % 6,769, % Al-Sanabel Trading and Investment Company Ltd. 1,700, % 1,700, % Palestine Development & Investment Ltd. 500, % 500, % EuroMena Limited Partnership Co. 500, % 500, % TOTAL 9,623, % 9,469, % Major Shareholders Overview Palestine Development & Investment PADICO (Liberia) PADICO is a limited public holding company established according to the Liberian nonresident company law on October 14, Among its corporate purposes is the development and promotion of investments in various sectors including industry, real estate, tourism, housing, services, as well as conducting technical research and providing consultancy services, all through the establishment of subsidiaries or projects managed either wholly or partially by it or through its subsidiaries, and to cooperate with subsidiaries and those linked to its purposes. Al-Sanabel Trading and Investment Company Ltd. A private limited liability shareholding company with a share capital of US$50 mn registered in Palestine with the Companies Controller under registration number ( ) on 17 February Its registered headquarters is in Ramallah City, and it may establish sub-offices in Palestine and abroad in accordance with the law. Palestine Development & Investment Company Ltd. A private limited liability shareholding company with a share capital of 100,000 Jordanian Dinars registered with the Companies Controller under registration number ( ) in It seeks to develop, promote, and manage investments in various fields, including finance, commerce, industry and tourism, as well as provide investment and technical research and consultancy services. EuroMena Limited Partnership Co. EuroMena is an investment fund set up by Capital Trust Company with a share capital of 63 mn USD. It was established in 2006 and registered in England under registration number LP It specializes in providing private equity contributions to businesses engaged in private and commercial real estate activities. It operates in the Middle East and North Africa, Europe and the USA through its subsidiaries. The group has offices in London, New York, Washington and Beirut. EuroMena Fund, which is managed from the headquarters of Capital Trust Company in Beirut, is the eighth fund of the group, and the second regional fund that focuses on the Middle East and North Africa. Capital Trust established a second fund, EuroMena II following the first EuroMena. 39

42 Company s Share Trading Activity Share trading began upon the Exchange s listing. The table below shows trading activity from 4 April 2012 through 31 December 2012 Item Value Share symbol PSE Share international number PS Number of traded shares 206,500 Value of traded shares 1,038,174 Number of executed transactions 94 Share average turnover 2.07 % Number of share trading sessions 6 Company s market value on 31 December ,000,000 Percentage of free shares 5.31 % Highest trading price in 2012 (USD) 5.20 Lowest trading prices in 2012 (USD) 5 Closing prices on 31 December 2012 (USD) 5.10 Quarterly share price details were as follows: Details Highest price Lowest price Closing price 1st Quarter nd Quarter rd Quarter th Quarter Information Delivery to Shareholders Prior to listing, the PEX Board of Directors endorsed a shareholder communication policy that ensures the PEX shareholders receive accurate, clear and comprehensible information about financial performance, goals, and strategic plans to enable shareholders to exercise their rights and actively participate in the company s activities. Under this policy, the PEX will utilize available media such as its website, , regular mail and landline to communicate with shareholders. The communication policy is available at the PEX website under Investor Relations pages. 40

43 Dividend Distribution The PEX dividend policy depends upon profitability and the availability of sufficient reserves to distribute dividends to shareholders. Dividend distribution is not guaranteed. The following table shows dividends distributed during : Fiscal year Distribution type Value of Distributed Dividends Dividend/ Share 2008 Cash 1,900, Cash 2,000, Cash 3,112, Free shares 7,171, The PEX Competitive Features Currency: US $ A number of factors have contributed to the successful development of the Palestinian Securities Exchange, including: Since inception, we have sought to use modern technology; we were the first fully automated electronic Arab financial market. Our listed companies are among the largest and most innovative in Palestine, contributing enormously to the Exchange s success and evolution. Prospects are good for increasing the number of listed companies based on the provisions of the Securities Law No. 12 for the year A vital component of any economy, the exchange is a primary source for capital raising by pub lic shareholding companies and provides investment opportunities for a multitude of investors, including bank portfolios. The Exchange is favored by investors who seek swift and easy trading governed by clear and transparent rules. The Exchange serves small and large investors alike. Any amount of capital investment is pos sible in a diverse range of companies. Investment Policy The Board of Directors Investment Committee develops and monitors the investment policy of the company s assets in line with the stipulations of the Committee s guidelines. Most global stock markets, including the PEX, depend largely on trading returns. However, the PEX assiduously strives to diversify income streams and reduce its dependence on fees and trading commissions. The rules and regulations allowed the PEX to carry out measured investment activities in order to upgrade and promote the efficiency of financial assets utilization and enhance its role in serving both shareholders and the Palestinian economy. The investment policy has a disciplined investment philosophy based on the preservation of capital while seeking opportunities to maximize returns. Balancing investment objectives with risk analysis, it seeks safe, liquid, and long-term opportunities. It avoids speculation and gives priority to promising and practical domestic investments that serve the national economy and development. The investment policy areas of investment include investment in capital productivity and service 41

44 companies, investment in monetary market tools and debt tools, and real estate. During , the PEX provided PADICO with two separate loans of seven million USD. Details of the loans and can be reviewed in the financial statement and its clarifications. Note the PEX holds previous investments which amounted to the following on 31/12/2012: Investment Amount V Tel Co. 157,500 (Rawan) portfolio 807,131 Dubai Financial Market 3,243 Currency: US $ Risks and Challenges The major risks the PEX faces are those common risks associated with politics, the Palestinian internal situation and the domestic, regional and international economic crises. However, even though it is difficult to find any investment free of risk in this world, and in addition to the general familiar risks just mentioned, there are special potential risks that the PEX might face which should be accommodated for irrespective of the possibility of their occurrence. Nor may they be the only risks to take into account since there could be other risks and doubts unknown to us at the moment, or risks that are intangible or ineffective. The realization of any of the risks mentioned below could have a substantial negative impact on our work, the outcomes of our operations and financial position. Risks of Legislation The Exchange is supervised by the Palestinian Capital Market Authority (PCMA) and the instructions it issues. The PCMA regulates the non-banking financial sector, including the securities industry, securities advisors and other persons working in the securities sector. Any changes to the rules and regulations issued by the Palestinian Capital Market Authority might affect the activities of the Exchange. Note that the Capital Market Authority receives fees assessed as a percentage of the Exchange s commissions, being the main source of income for the PEX. Competitive Edge Like other countries in the region, except the UAE which has a special political characteristic, Palestine has one exchange only. Considering that most other countries have only one exchange, and considering the limited number of public shareholding companies operating in the West Bank and Gaza Strip, it is not expected that a second exchange will be established. The real competition lies in nearby markets which sometimes drain considerable Palestinian liquidity since local investors invest in neighboring stock markets particularly in Jordan, Egypt and the UAE. The banking sector is also considered one of the competing markets. Political and Economic Trends The Exchange is registered in Palestine with head-quarters based in the city of Nablus. It has a branch office in Ramallah. Palestine has been influenced by political fluctuations in past years, especially during the time of the Intifada, which have adversely affected the Palestinian economy causing high unemployment rates leading to poverty and limited investment. 42