Palestine Development and Investment Ltd. (PADICO HOLDING) A public shareholding limited liability company registered in the Republic of Liberia

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

2 2 Images shown in the report are part of a number of artworks for artists from the Gaza Strip which PADICO HOLDING displays within the Company s offices, as part of its corporate social responsibility directed towards supporting Palestinian artists in general, and particularly artists in the Gaza Strip due to the difficult circumstances they live in. Nabil Abu Ghanima Maha Dayyah Raouf Ajouri Ibrahim Awadi Tahani skeik Mohamad Hawajri Salem Awad Pages: 4 Pages: 6-7 Pages: 10 Pages: 24 Pages: 42 Pages: 50 Pages: 60

3 20 Years of Investing in Palestine 3 Contents ABOUT PADICO HOLDING PADICO HOLDING: Twenty Years of Investing in Palestine Board of Directors Governance Message from the Board of Directors Executive Management Report OUR INVESTMENTS The Palestinian Economy in 2013 Sectors and Investments Summary of Investments Performance Future Outlook OUR SOCIAL RESPONSIBILITY OUR THOUGHT LEADERSHIP 47 OUR FINANCIAL PERFORMANCE IN 2013 Main Financial Indicators Summary of Financial Performance Financial Position for 2013 AUDIT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS

4 4 PADICO HOLDING s diversified investment strategy provided the opportunity to achieve increasing revenues over the past years despite the difficult situation, which has made the Company a role model for investing in Palestine

5 20 Years of Investing in Palestine 5 About PADICO HOLDING Overview Palestine Investment and Development Ltd. (PADICO HOLDING) was founded in 1993 as a limited public shareholding company registered in Liberia. The Company was incepted as an initiative by distinguished Palestinian and other Arab businessmen, for the purpose of building and developing the Palestinian economy through implementing projects in vital sectors. PADICO HOLDING s paid-in-capital is 250 million US dollars (USD), and is traded on the Palestine Exchange (PEX) since The Company s shareholder base has grown from 710 shareholders in 1998 to around 10,000 shareholders in 2013, attracting institutional investors and funds from Palestine, Jordan, the MENA Region, and from wellestablished international markets in Europe. Values and Mission PADICO HOLDING is dedicated to contribute to the development of Palestine and its economy and continues to reaffirm this commitment to the founders, subsidiaries, affiliates, and shareholders. The most essential means by which PADICO HOLDING engages in Palestine is through the implementation of investment projects in vital sectors, leading to job creation, pioneering economic initiatives for the nation, and initiating partnerships between both the public and private sectors. This position has enabled the Company to play a key role in attracting local and international investors to invest in Palestine. PADICO HOLDING is equally committed to its social and moral obligations to its employees and to local and international communities. The Company adheres to high standards within its corporate value system and embraces strong corporate governance principles that are compliant with global best practices. As a leading national company, PADICO HOLDING abides by an ethical code of conduct throughout all of its professional activities, aiming to ensure good citizenship practices and dedication to work. Additionally, the Company continuously endeavors to enhance its internal work environment, adopt responsible investment projects, and implement community development initiatives. Our Strategy PADICO HOLDING fulfills its mission and vision by managing a diverse portfolio of subsidiary and affiliate companies on which the Company depends for income. Investing in and maintaining companies that operate in a wide range of economic sectors has enabled the Company to thrive and become the leading investment and development company in Palestine. PADICO HOLDING is unique compared to other Palestinian and international corporate entities for many reasons. It has the resources to invest in largescale projects that assure sustainability in earnings and cash flows and it is guided by a diverse board of directors with significant experience relevant to the many sectors in which the Company operates. PADICO HOLDING has also employed a shrewd, long-term investment strategy since its establishment, premised on diversification and sustainability that allow it to adapt to the challenging circumstances in Palestine. Our Social Responsibility Since its inception, PADICO HOLDING has evolved in response to resurgent social and developmental needs. This commitment has developed throughout the progression of PADICO HOLDING to reach an advanced methodological and systematic understanding of corporate social responsibility, which is reflected on its continuous devotion to community programs and initiatives. PADICO HOLDING utilizes its resources in cooperation with its partners to create a new strategic context for community work and university education empowerment with scientific expertise, innovation, and creativity. The Company also focuses on optimum values to refine the personality of youth and increase their competitiveness as well as their ethical and national principles.

6 6 PADICO HOLDING: Twenty Years of Investing in Palestine The Company s Milestones Since its Inception With your continuous and unyielding support, we celebrate with you, dear shareholders, twenty years of investing in Palestine. Your trust and hope attributed to draw features of a bright future and a better tomorrow for our nation. Through these achievements, we renew our pledge to remain a primary investment company that leads the private sector in Palestine; and to position all our energy and effort to serve the Palestinian cause in order to build an independent national economy, providing a decent life and work opportunities to our people A group of patriotic Palestinian and Arab investors founded PADICO HOLDING with paid-in capital of USD 172 million. PADICO HOLDING founded the Palestine Real Estate Investment Company (PRICO), one of Palestine s largest real estate development companies. PADICO HOLDING founded the Palestine Telecommunications Company (PALTEL), the first telecommunications company in Palestine. PADICO HOLDING founded the Palestine Securities Exchange as a private shareholding company. Its name was later changed to the Palestine Exchange (PEX). PADICO HOLDING founded Palestine Industrial Investment Company (PIIC) in Nablus to invest in large industrial projects. The Palestine Securities Exchange opened for trading on 18 February. PADICO HOLDING was listed on the Palestine Securities Exchange on 5 June. Palestine Mortgage & Housing Corporation was founded, one of the first companies to offer mortgage financing for the housing sector in the region. Palestine Industrial Investment Company (PIIC) founded the Palestine Poultry Company (PPC), one of the largest poultry companies in the country. PADICO HOLDING s affiliate, PALTEL, launched Jawwal, providing Palestine with its first mobile phone operator. PADICO HOLDING established Palestine Industrial Estate Development and Management Company (PIEDCO Gaza) to manage the first industrial zone in Palestine. PADICO HOLDING distributed dividends to shareholders for the first time. PADICO HOLDING opened the Jacir Palace InterContinental Hotel in Bethlehem.

7 20 Years of Investing in Palestine PADICO HOLDING opened the Al Hambra Palace, the Company s first investment in Jerusalem. PADICO HOLDING founded NAKHEEL Palestine for Agricultural Investment, which produces Medjool dates. It is one of the largest agricultural companies in the country. The Movenpick Hotel was opened as the first 5 stars hotel in Ramallah. In partnership with a number of Palestinian and regional companies, PADICO HOLDING founded Palestine for Power Generation Plc. and began work on the construction of the first power plant in the West Bank. The Palestinian Recycling Company (TADWEER), a PADICO HOLDING subsidiary, opened the first solid waste management facility in Jenin. Al-Mashtal Tourism Investment Company opened Al-Mashtal Hotel, the first five stars hotel in the Gaza Strip. PADICO HOLDING established Jericho Gate in partnership with PALTEL Group, to execute the largest residential, recreational, and entertainment developmental project in Palestine. PADICO HOLDING issued USD 85 million in corporate bonds, becoming the first company to issue corporate bonds in Palestine. PADICO HOLDING opened the St. George Landmark Hotel in Jerusalem. PADICO HOLDING completed its restructuring, which placed the majority of its investments under three main holding companies Palestine Real Estate Investment Company (PRICO), Jerusalem Development & Investment Company (JEDICO), and Palestine Industrial Investment Company (PIIC). The Palestine Exchange (PEX) made the initial public offering of its stock. TAICO company which is fully owned by PADICO HOLDING obtained all construction lines for Rabiyat Al Quds Residential Neighborhood.

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

9 20 Years of Investing in Palestine 9 Ammar A. Aker Board Member Yazid A. Mufti Board Member representing Cairo Amman Bank Samir H. Zraiq* Board Member *Resigned from the Board of Directors on 1/1/2014 Omar A. Bitar Board Member representing Palestine Technology Transfer Co. Jamal S. Hourani Board Member representing the Arab Bank Ziad M. Turk Secretary General Samir O. Hulileh Chief Executive Officer

10 10 PADICO HOLDING believes governance is an integral part of the administrative principles overseeing the Company s operations, as it is a strategic necessity to ensure the progression of the company in the right direction

11 20 Years of Investing in Palestine 11 Governance PADICO HOLDING considers corporate governance as an integral part and a strategic necessity; as the Company adheres to a system of governance that guides all it is affairs, including the structure, future prospects, optimal utilization of resources, distribution of functions and authorities among the Board of Directors and the executive management. Corporate governance is also a fundamental principle which ensures the Company s commitment to international standards including safe work environment, regulated by a code of conduct, and to organize the relationship with shareholders and the community. This practice has improved the efficiency and effectiveness of the system that the Company operates within. PADICO HOLDING s commitment to the standards of good governance is not only affirmed by signing the Code of Corporate Governance in Palestine, but also by being the first Palestinian company to join the United Nations Global Compact (UNGC) which reflects its assurance of maximum transparency. The Company provides annual progress reports to the UNGC to guarantee abiding by international standards, as in 2013 the third annual report was submitted. PADICO HOLDING issues quarterly and annually financial disclosures and press releases stating the Company s recent developments such as it s corporate social responsibility and sustainability programs, as well as its commitment towards the environment. Furthermore, the Company publishes quarterly newsletter to shed light on its latest updates, activities, and investment plans. The Company also presents annual reports in accordance with all the requirements set by the Palestine Capital Market Authority (PCMA) and the Palestine Exchange (PEX). In 2013, PADICO HOLDING completed with the International Finance Corporation (IFC), the investment arm of the World Bank Group, conducting a comprehensive review of PADICO HOLDING s governance structure and transparency and will provide recommendations for improvements based on the results of the study. This came as part of the Company s commitment to strengthen the standards of international best practices within its structure and to benefit from international expertise in the areas of governance.

12 12 Role of the Board of Directors, its Committees and Procedures The Board of Directors at PADICO HOLDING is composed of eleven members who are charged with oversight of the Company s strategic direction, future outlook, and budget. They supervise all financial and investment decisions and all related policies and procedures, making decisions through majority vote. The Board executes its functions through various committees. To ensure transparency, the Board is organized into separate Executive and Audit Committees, in addition to several interim committees mandated to perform certain tasks at specific times. Board members are required to hold a minimum of 100,000 shares of the Company s stock. Neither the Chairman nor the other board members hold executive management positions within the Company or any of its affiliates, in accordance with best governance practices. The Board of Directors conducted 7 meetings, and 4 days of workshops throughout Board of Directors Committees Executive Committee Omar Bitar Head of Committee Ammar Aker Jamal Hourani Samir Zraiq * Samir Hulileh - Rapporteur Audit Committee Yazid Mufti- Head of Committee Kameel Saad Edeen Ziad Turk *Resigned from the Board of Directors on 1/1/2014 Legal Advisors Fadi Maalouf Zaher Jardaneh Haytham Al-Zubi External Auditors Ernst &Young Main Banks Arab Bank Cairo Amman Bank Bank of Palestine Al Quds Bank Executive Management Samir Hulileh Amjad Hassoun Abdullah Sharawi Hiba Darwish Jihad Zamari Samer Safadi Rasha Matwali Ziad Tafesh Chief Executive Officer Chief Financial Officer Manager of Investments and Business Development Department Manager of Sustainability and Corporate Communications Department Manager of the Internal Audit Department Head of Shareholders Management Unit Head of Human Resources Unit Head of Support Services Unit

13 20 Years of Investing in Palestine 13 Sustainability and Responsible Investments PADICO HOLDING is dedicated to the principles of sustainability and transparency, and pursues responsible investments in the fields of energy and environment, while remaining committed to the community. PADICO HOLDING s membership of the United Nations Global Compact (UNGC) has improved the Company s scope of work in regards to human rights standards, labor rights, environmental practices, and the application of business ethics as advocated by the UNGC charter. PADICO HOLDING also seeks to expand the network of Palestinian companies that are members of the UNGC. Investor Relations and Communication with Shareholders PADICO HOLDING maintains a proactive relationship with its investors to improve transparency, promote local, regional and international partnerships, and enhance the value of the Company s shares. PADICO HOLDING employs various means of communication to connect with investors and shareholders, including telephone calls, the Company s website, , the annual report, a quarterly newsletter, the media, and social networking, as well as the annual meeting of the General Assembly for all shareholders between April and May of each year. This meeting is a forum to discuss the Company s position, the results of its operations, and its future plans. During the meeting, shareholders approve the statements for the previous financial year, discharge the Board of Directors, elect a new Board of Directors and auditors, and approve any recommendations for the distribution of profits. Financial Disclosures PADICO HOLDING discloses its financial statements through its quarterly reports, the annual report, and during the meetings of its General Assembly. Financial data is presented to the Palestine Capital Market Authority (PCMA) and the Palestine Exchange (PEX) pursuant to the regulations in force in Palestine. Internal Audit PADICO HOLDING emphasizes the importance of internal auditing, and the Internal Audit Department has full autonomy and reports directly to the audit committee of the Company s Board of Directors. Consequently, PADICO HOLDING and all its subsidiaries work in accordance with international standards. The Internal Audit Department s relationship with the companies was determined and approved by a resolution passed by the Board of Directors and based on the Internal Audit Charter.

14 14 Shareholders Structure PADICO HOLDING has 9,040 shareholders as of the end of 2013, distributed as follows: Shareholders Distribution by Type Shareholders Distribution by Nationality Individuals 51% Palestine 47% Companies 49% Jordan 37% Rest of the World 17% Name Capital ratio PALTEL Group 16.31% Sabih Masri - Group 12.60% Massar - Group 6.24% Munib Masri - Group 5.22% Kingdom Holding - Prince Waleed Bin Talal Group 2.57% Nidal Sukhtian - Group 2.23% Sideeq Omar Abu Sido 1.92% Rasmala Investment Banking Group 1.87% Ramzi Dalloul - Group 1.75% Abdel Mohsin Al-Qattan 1.19% Sheikh Mohamad Al Thani - Group 1.02% Social Security Corporation 0.96% Al Said Company Ltd. 0.74% HANA International Company Ltd. 0.72% Arab Jordan Investment Bank 0.62% Adel Said Ibrahim Al Qassem 0.58% Reyad Tawfiq Al Sadeq 0.56% Dubai National Investment Company 0.56% Nabil Sarraf - Group 0.54% Cairo Amman Bank 0.44% Ghazi Husseini Jamous 0.40% Mohamad Zuheir Bin Hamza Fatayerji 0.40% Arab Bank - Group 0.40% Hayel Saeed Anam Co. (HSA Group) 0.34% Mahdi Husni Al-Saifi 0.32%

15 20 Years of Investing in Palestine 15 Message from the Board of Directors Esteemed Shareholders, We are pleased to present to you the annual report of PADICO HOLDING of 2013, to reflect an overview of the performance and investments of the Company during the last year. We also take this opportunity to review the milestones that took place in 2013, including our remarkable achievements that clearly outnumbered challenges and managed to overcome the various political and economic difficulties and turbulences. These achievements would not have been possible without your invaluable trust, support and faith in PADICO HOLDING s diversified investment targets and as a steadfast pillar of the Palestinian economy, which has been a leading force in the investment sector in Palestine for two decades. Our twodecade experience has proven that the investment climate in the country is rewarding and opportunities are in abundance. Thanks to the combination of skilled labor, high literacy rates, appropriate natural and climate factors as well as the historic and religious significance of the Holy Land that attracts international tourism. As we present this report, we celebrate this lengthy experience of investment, marking the twentieth anniversary of establishing PADICO HOLDING. We also feel proud and honored as we reflect on the perseverance, relentless efforts and the deployment of Palestinian investment capacities in Palestine and abroad, which all came together to found PADICO HOLDING which has become today a major player in the Palestinian economy. As we embark today on the third decade of the journey of this Company, we tend to look forward to a better future with optimism. We continue to dream of the day when the Palestinian collective dream is realized, witnessing the end of occupation and the establishment of an independent sovereign Palestinian state with a powerful economy that delivers social justice and equal opportunities for all Palestinians and where pillars of citizenship, including diversity and human dignity, are respected. Additionally, due to the wise vision of investment, introduced by the Board of Directors of PADICO HOLDING, and the relentless efforts of the executive management, the Company managed to generate rewarding profits last year. Profits of the Company stood at USD million in 2013 with a growth rate

16 16 of 38.3%, and the total amount of consolidated assets increased from USD million at the end of 2012 to USD million at the end of 2013 with a growth rate of 4.5%. These outcomes show that the financial results of the Company continue to improve annually and that the next few years bear promising financial prospects. Esteemed Investors, This growth in the profits of PADICO HOLDING in 2013 further proves the feasibility of our investment approach, promising of greater profits in the next year as we begin to harvest the returns of new projects and investments, namely Rabiyat Al-Quds, Jericho Gate, The Executive Club and NAKHEEL Palestine. PADICO HOLDING has sought to expand its investment approaches in various fields, providing an ideal example for the Arab private sector to embark on new projects. To this end, it has initiated and launched Palestine Exchange, the first non-governmental financial market owned and run by the private sector in an unprecedented investment in this sector. Today, Palestine Exchange (PEX) enjoys a distinguished presence among Arab and international financial markets, occupying high ranks in terms of achievement compared with other Arab financial markets. In addition, PADICO HOLDING has maintained various investment partnerships that played a major role in achieving great financial returns. Palestine Telecommunications Company (PALTEL) is one of the main investments of PADICO HOLDING in the telecommunications sector; the ever-growing successes of PALTEL are a further proof to the strategic vision of PADICO HOLDING, which resulted in establishing the company two decades ago and achieving a major change in the telecommunications sector as it has become one of the most prosperous in Palestine. In addition to achieving one of the highest returns of investment in the region, PALTEL was a turning point as it was the first Palestinian company that ended the dependence of Palestinian citizens on telecommunications services provided by Israeli companies. Throughout this period, PALTEL was characterized by highly dynamic nature and ability to introduce the most advanced utilities in telecommunications, responding positively to the latest technologies around the world. Today, PADICO HOLDING owns investment arms that include leading companies and projects in the majority of the economic sectors. In real estate sector, PADICO HOLDING owns 75 % of the shares of Palestine Real Estate Investment Company (PRICO), the investment arm of PADICO HOLDING in this sector. As for tourism, the Company also owns five-star hotels in Bethlehem, Gaza, Ramallah, and Jerusalem, and is currently working on establishing Jericho Gate as an entertainment touristic project in the city of Jericho. In addition, the Company intends to inaugurate the Executive Club in Ramallah soon. PADICO HOLDING has invested in the industrial sector through Palestine Industrial Investment Company, which encompasses numerous companies including Palestine Poultry Company, Palestine Plastic

17 20 Years of Investing in Palestine 17 Industries Company and other food factories. As for agriculture sector, PADICO HOLDING established NAKHEEL Palestine Company to produce and manufacture Medjool dates, and it owns today the largest farms of palm trees in Palestine and exports to different international markets. Jerusalem has always been present in our agenda, as PADICO HOLDING has sought to secure a foothold and leave a remarkable impact in the holy city. The Company launched real estate projects of Rabiyet Al-Quds in Bait Safafa, St George Hotel and Al Hambra Palace. The projects implemented and excuted by PADICO HOLDING have always been a central pillar of Palestinian economy, given the large number of job opportunities they provided and their large contribution to the Palestinian Gross (GDP). Ladies and Gentlemen, Considering itself part and parcel of the Palestinian society, PADICO HOLDING has sought to support different social segments, and fulfill its national, moral and social commitments towards the Palestinian society. To this end, PADICO HOLDING has supported the education sector either directly through its support to educational institutes, schools and education funds, or through its annual commitment to provide university scholarships to several Palestinian universities. Furthermore, it has sought to bridge the gap between the outcomes of the Palestinian educational system and the labor market, which resulted in launching different initiatives with the aim of overcoming these problems in cooperation with several Palestinian and international institutions that work in this field. PADICO HOLDING has remained loyal to its shareholders, who have given their trust to this Company and found it worthy of their support. Therefore, the Company has been committed for years to distribute the profits among shareholders, as the General Assembly of PADICO HOLDING approved in Mid May of 2013 the distribution of 5% of the capital among shareholders. This step comes in line with the policy of the Company despite the fact that it is preoccupied with the implementation of new projects, costing millions of dollars. However, fulfilling this commitment remains of paramount importance. Needless to say, these achievements of the Company have not been easy and smooth, and this long path has never been devoid of challenges and difficulties. On the contrary, these investments have been the result of our perseverance, tremendous efforts in planning and the consolidation of efforts amid unstable political and economic circumstances, including the intra- Palestinian divisions that continue to disturb our unity. More recently, we have seen a form of rapprochement between Fatah and Hamas, which made us more optimistic and hopeful about the national reconciliation that would turn the page of division once and for all. We believe that the Palestinian unity indeed serves our Palestinian interests in this critical particular phase, which will enable us to unite as Palestinians and face the grave chal-

18 18 lenges that lay ahead, threatening our just cause and future especially in light of the turbulent political changes that are sweeping the Arab world in particular. We also hope that the international efforts will bear fruit and achieve a peaceful resolution and a just peace, safeguarding the legitimate rights of the Palestinian people. Esteemed Shareholders, In the next phase, the strategy of PADICO HOLDING will focus primarily on attracting Arab and foreign capital to Palestine. To this end, the Company is currently working on conducting an investment conference to showcase the investment opportunities accessible to Arab and foreign businessmen, in an attempt to revitalize the investment sector, strengthen the Palestinian economy and provide job opportunities to combat the growing unemployment rates. As we celebrate the twentieth anniversary of PADICO HOLDING, we feel obliged to renew our deep appreciation of the tremendous efforts of the founders of PADICO HOLDING, who worked relentlessly at home and abroad to create this landmark investment. It was a dream in the past, and today it has become a remarkable success story. We also commend the sincere efforts of the successive executive managements and all cadres who worked as one team to achieve the prosperity and growth of the Company. Lastly, please allow me to thank you for your profound trust and continuous support in irder to reach sustainable development, capable of bolstering the Palestinian economy and transforming it into an independent economy that corresponds to the needs of an independent Palestinian state. We will always remain true to our slogan, which embodies a commitment to invest in Palestine and remain the pioneers in the private Palestinian sector towards construction and development. Yours respectfully, Munib Rashid Al Masri Chairman

19 20 Years of Investing in Palestine 19 Executive Management Report Dear Shareholders, The executive management is pleased to review with you our annual report of 2013, which sheds the light on the Company s performance and outcomes, the most remarkable achievements as well as the important progresses and developments in the projects, plans and future strategies. In addition, the report illustrates political and economic factors that govern the Company as part of the investment sector. As we embark on the third decade of PADICO HOLDING, we celebrate the achievements of two decades, full of relentless efforts, unparalleled perseverance, defiance of challenges and achievements that shaped this unique investment experience. We reflect today on this past, rich with experiences and lessons, to reach a better state in the present time and plan for a more brightening future that we are willing to embrace with ambition, hope, the desire to overcome challenges and achieve further prosperity. The Strategic Approach of the Company Since its establishment in 1993, PADICO HOLDING has followed a unique investment approach, taking into consideration the special circumstances of the Palestinian economic context and all that it bears of investment opportunities. Over the span of two decades, the Company has demonstrated great dynamism in dealing with the political circumstances and changes in Palestine, proving that investment in Palestine is a rewarding experience, and that the performance of the Company has been highly consistent with its strategy since its inception in spite of the continued occupation. As the Chairman pointed out in his letter, the vision of the founders of PADICO HOLDING was geared towards investment in vital economic sectors that aim primarily at supporting and bolstering the Palestinian economy. This vision has translated into launching mega projects that achieve adequate returns on investment and provide thousands of job opportunities. In its early beginnings, PADICO HOLDING launched distinguished projects in different sectors all over Palestine, including Palestine Telecommunications Company (PALTEL), Palestine Exchange (PEX), Palestine Real Estate Investment Company ( PRICO), Palestine Industrial Investment Company, Gaza Electricity Station, Five star hotels and the Industrial zone in the Gaza Strip. Thanks to the wisdom of the Board of Directors, PADICO HOLDING has managed to overcome the difficult political and economic circumstances that took place in the region. Against the backdrop of these circumstances, the Board of Directors has decided to re-structure the investments of the company and integrate them into three specialized holding companies. In

20 20 addition, PADICO HOLDING is working to strengthen the internal structure of these three companies, placing a great emphasis on the administration, financial administration and marketing fields. This important decision of the Board had a clear impact on the financial performance of the Company, as the policy of limiting administrative expenditures, approved by the Board of PADICO HOLDING, started paying off in In addition, PADICO HOLDING completed a great part in the implementation of its new projects, especially Jericho Gate for Real Estate Investment, NAKHEEL Palestine, Rabiyet Al-Quds, and The Executive Club. Responding to a strategic and urgent need, these projects primarily seek to create a balance in the Company s sources of income, given that the most prominent source of PADICO HOLDING s income is currently generated from PALTEL. This state is not consistent with rules of risk and income distribution. Therefore, the Company has begun implementing these projects in order to reach a more balanced state in terms of the sources of income, and they are expected to generate adequate and satisfactory revenues in the upcoming period. Overview of the Company s Performance and Key Influential Circumstances in 2013 In light of the political turbulences and regional changes that took place in our region, the year 2013 was an eventful one to say the least. These events have surely had their repercussions on the Palestinian political and economic reality, as the economic situation became more complicated in the Gaza Strip due to the closure of borders, destruction of tunnels with Egypt and continuation of blockade. In addition, the financial crisis that the Palestinian Authority suffers from continues to affect the overall situation. Against the backdrop of these complicated circumstances, intensive international efforts and several rounds of negotiations took place, with the stated aim of reaching a peaceful resolution to pending issues in a manner that safeguards the political rights of the Palestinian people, creates a state of stability and continuity for the Palestinian economy and investment sector and puts an end to the continuous Israeli violations and transgressions. Despite these unfavorable conditions, the financial performance of PADICO HOLDING in 2013 was excellent and promises increased growth in the upcoming phase. The company achieved a considerable growth in its profits in 2013, as the consolidated net profit stood at USD million compared to USD million in the previous year of 2012, with a growth rate of 38.3 %. This growth was the result of the improved financial performance of many projects and companies of PADICO HOLDING in 2013, especially its new projects and subsidiaries whose operating revenues contributed to the consolidated income statement with new margins of profits. This growth is also attributed to the policy of limiting expenditures that was approved by the Board of Directors of PADICO HOLDING and adopted by the companies of the group, achieving a tangible difference in the operating and administrative expenditures in 2013.

21 20 Years of Investing in Palestine 21 This growth in the operating profits of PADICO HOLDING was reflected in the performance of shares in the end of 2013, reaching USD 1.35 with a growth rate of 50% in 2013 as opposed to USD 0.90 in Investors, both as individuals and institutions, were increasingly attracted to this share especially in the fourth quarter of 2013 following the divulgence of the financial statements of the third quarter. Relatively remarkable deals involving these shares were sealed, among which the most important was a positive step from the Palestine Telecommunications Company (PALTEL) to buy a considerable share of PADICO HOLDING that formed 16.3% of the total capital of the Company. In addition, the consolidated revenues of the Company increased by 8.6% from USD million in 2012 to USD million in This is attributed to the growth of operating income from subsidiaries at a rate of 7.0 % from USD million in 2012 to USD million in 2013, which is primarily due to the increase in operating income of Palestine Industrial Investment Company and PADICO Tourism, as well as the new projects that started their operations in 2011 and 2012 and started generating growing operating revenues such as NAKHEEL Palestine Company for Agricultural Investment. This growth also stems from the increase of PADICO HOLDING s share of associates results of operations, which increased by 9.7% from USD million in 2012 to USD 41.9% million in 2013 thanks to the increase of net profits of PALTEL from USD million in 2012 to USD million in 2013 with a growth rate of 11.8 %. In addition, the profits of the financial assets portfolio also witnessed an increase due to the improved performance of financial markets in 2013, as the profits of financial stocks stood at USD 2.53 million in 2013 as opposed to USD 0.08 million in Remarkable Achievements of 2013 In 2013, PADICO HOLDING achieved a remarkable progress in the new projects it is implementing, whether in terms of completing all necessary procedures to begin the implementation or approaching the actual completion of some of these projects. Continuously Jericho Gate has completed the detailed structural plan of the project and work is currently underway to enable the site to host a number of activities and events that shall coincide with the inception of the preparations of infrastructure as of the first quarter of As for Rabiyet Al-Quds Housing Project, implemented by PADICO HOLDING in the South of Jerusalem and consisting of 22 residential buildings, the Company completed in 2013 the full architectural plans so that the actual construction starts before the end of The year 2013 was also full of achievements for NAKHEEL Palestine Company, as it managed to plan 4500 additional trees in 2013, and the total amount of dates manufactured and sold stood at 550 Tons. The Company also found new markets for its products. The Executive Club, one of the

22 22 pioneering projects in Palestine, was also completed. The total investment on the establishment of the club, located in Tal Al-Safa neighborhood in Ramallah on a 2600-square meter land plot, has exceeded USD 7 million, and it is expected to be inaugurated in the second quarter of Social Responsibility of the Company Throughout its professional journey, PADICO HOLDING has always given considerable attention to Developmental and societal programs, incorporating them into its agenda and priorities. In 2013, the Company fulfilled its social responsibilities towards various sectors of the local community, taking the form of either direct support to education, culture and entrepreneurship or the launch of initiatives in different sectors. PADICO HOLDING also aspired to take a clear strategic path in this field, aiming at achieving a positive impact that not only covers a large number of beneficiaries and target segments, but also lasts for a long time. Inspired by this vision, the Company launched in 2013 the second phase of Tamayyaz program, implemented in cooperation with a number of universities and community organizations. In the second phase, PADICO HOLDING sought to engage the majority of Palestinian universities, as it expanded the program and included 7 universities while the first phase covered three universities only. The program seeks to bridge the gap between the educational outcomes of universities and requirements of labor market. This program translates the great emphasis the company places on investing in the human capital and attempting to realize the dynamic promising potential of the younger generation, tasked with building the Palestinian economy and paving the way for a better future. Being an integral part of the national Palestinian economy, which it seeks to support in every possible mean, PADICO HOLDING continued to implement Al Watani Awalan Initiative through PADICO Tourism Company. The initiative seeks to support the products of Palestinian cooperatives, using them to supply the hotels of the Company with their needs. Today, hotels of PADICO HOLDING receive national Palestinian products in order to support their competitiveness when compared to foreign products. Our Future Outlook In 2012, PADICO HOLDING launched a number of vital projects that were expected to generate satisfactory revenues and continued to complete some of these projects in Therefore, in the upcoming stage, the Company looks forward to maintaining and developing its investments, completing the implementation of some of these projects, and improving the performance and profitability of the current existing projects. As for bolstering the cash flow and reducing debt and administrative expenditures, the company will continue to implement its plan, aiming at limiting and controlling administrative and general expenditures and continuing to reduce the debt of the company in the next few years.

23 20 Years of Investing in Palestine 23 Esteemed Shareholders, Samir Hulileh CEO The year 2013 was an important one, marking several major achievements of PADICO HOLDING. As we review these achievements with you today, we must express our gratitude for the trust that you have bestowed upon us, which was our primary source of motivation for these achievements. The hope that you instill in us also continues to inspire our determination and perseverance, enabling us to carry on with this path and face all the challenges that lay ahead. We also cannot help but commend the critical role of the founders, the current and former members of the Board and the executive managements, as well as the staff of the company, who, over the span of two decades and since the inception of the Company, worked as one team with a spirit full of hope and determination towards success. After twenty years of investing in Palestine, we renew our commitment to the slogan that the founders of the company once phrased: Committed to Investing in Palestine. Yours sincerely,

24 24 By the end of 2013, the total amount of direct investments of PADICO HOLDING in numerous economic sectors stood at USD million in book value

25 20 Years of Investing in Palestine 25 Our Investments 1. The Palestinian Economy in 2013 The performance of Palestinian economy continued to witness a slowdown in 2013, as shown in the actual statements of the first nine months of 2013 compared to the same period in During this period, the growth of the Gross Domestic Product (GDP) stood at 2.1 %, as the GDP in real terms totaled USD 5,172.5 million in the first nine months of 2013, distributed between the West Bank (approximately USD 3,765 million) and Gaza Strip (USD 1,416 million). The GDP Per capita at constant prices in Palestine stood at USD 1,245 during the same period in 2013, which means it decreased by 0.8 % from the same period in Furthermore, unemployment rates saw an increase in the third quarter of 2013 and reached 23.7%, while it stood at 20.6 % in the second quarter of 2013 and 24.3 % in the third quarter of 2012, taking into consideration that the unemployment rate of 2012 was 23%. The prospects of the Palestinian economy in 2014 and beyond highly depend on the outcomes of the ongoing peace talks. In the current context, whereby the outcomes of the peace talks remain unknown, any progress in the political track will help increase the annual average growth rate of the real GDP to reach 6.5% in the next five years. If the current scenario and status quo persist, the growth rate of the GDP is expected to be 2.5% in Sectors and Investments Investment Sectors By the end of 2013, the total amount of direct investments of PADICO HOLDING reached USD million in book value, spread over a number of economic sectors. The following figure shows the distribution of these investments according to sectors at the end of Financial and Services Sector Real Estate Sector Tourism Sector Infrastructure, Environment and Agriculture Sectors Industrial Sector

26 26 The financial and services sector make up 67 % of the total direct investments, mainly through the investment in the Palestine Telecommunications Company (PALTEL). This sector is among the least vulnerable economic sectors, which are least exposed to the influence of economic and political changes. Investment in real estate ranks second after the financial and services sector. Investments of PADICO HOLDING in this sector stand at 12 % of the total direct investments primarily through the contribution in Palestine Real Estate Investment Company (PRICO). The tourism sector constitutes 9% of the total investments of the Company, through investing in Jerusalem Development and Investment Company (PADICO Tourism), the investment arm of PADICO HOLDING in the sector at hand. Industrial, agriculture, infrastructure and environment sectors form 12 % of the total investments of PADICO HOLDING. The Company intends to expand and increase its investments in these sectors, as shown in its plans for the next years. Classification of Investments for Financial Reporting Purposes For the purposes of financial reporting, direct investments are divided into three main categories as follows: Subsidiary companies, affiliate companies and other companies. 1 The following table highlights the distribution of the direct investment portfolio of PADICO HOLDING, according to its audit classification at the end of 2013: Distribution of direct investments as per the audit classification: ) Million USD( 1. A subsidiary is an entity that is controlled by another entity, where an investor controls an investee, when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. An associate is an entity over which the investor has significant influence, where an investor has the power to participate in the financial and operating policy decisions of the investee but not control or joint control over those policies. Investment in Subsidiary Companies Investment in Affiliate Companies Other 38.3 Total 595.4

27 20 Years of Investing in Palestine Summary of PADICO HOLDING s Investments Performance in 2013 Financial and Services Sector The total amount of PADICO HOLDING s investments in the financial and services sector reached approximately USD million, forming 67% of the total investments of PADICO HOLDING by the end of The following is a summary on the key operating companies in the financial and services sector and their most remarkable achievements in Palestine Telecommunications Company (PALTEL) The year 2013 was a promising one for the Palestine Telecommunications Company (PALTEL), as its financial outcomes of 2013 show an increase in net profits, reaching JD 91.8 million with a growth rate of 11.8 % compared to JD 82.1 million in The company also managed to achieve a continuous and stable growth in the number of subscribers, as they reached 3.25 million subscribers by the end of 2013 in all telecommunications services, with a growth rate of 2.7 % compared to the end of Furthermore, the company witnessed a growth in the subscriptions of land line services as well, as the number grew from 396 thousand subscribers by the end of 2012 to 403 thousand subscribers by the end of 2013, with a growth rate of 1.7 %. Additionally, in spite of the competition from the mobile services in the local market, the number of subscribers in Jawwal increased from 2.58 million in 2012 to 2.63 at the end of 2013, marking an increase of 1.9%. Due to this growth, the company was able to maintain its distinguished status in the telecommunications sector in Palestine. The number of ADSL lines in the data services also increased from 185 thousand lines by the end of 2012 to 213 thousand lines by the end of 2013, with a growth rate of 14.9 % even with the presence of other competitors in the Palestinian market. PALTEL is the first company, listed in Palestine Exchange, to be registered within the most prominent Arab and international indices. The PALTEL share was featured in the index of Standard and Poors for the Union of Arab Stock Exchanges ( P-AFE 40 &S) and Dow Jones Index for excellence, which is affiliated with the Federation of Euro-Asian Stock Exchanges ( 50 Dow Jones FEAS).

28 28 VTEL Holding VTEL Holding was established in the United Arab Emirates in 2006 with a total capital of USD 377 million. The company provides 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. In 2013, the company established strategic partnerships with local partners to launch services of the fourth generation, through its partnership with Newroz Telecommunications. In addition, the company signed another strategic partnership agreement in Kurdistan, Iraq. This achievement is expected to further diversify the investments of PADICO HOLDING in the local and regional spheres, as it owns 10 % of the shares of VTEL Holding, while the Palestine Telecommunications Company (PALTEL), one of the affiliate companies of PADICO HOLDING, owns 25 % of the stocks of VTEL. Palestine Exchange In 2013, Palestine Exchange launched a Palestinian index within the indices of Standard and Poors and Morgan Stanley, a remarkable achievement that rendered the exchange a distinguished status among international investment powers. In addition, after adherence to Al Buraq, the Real Time Gross Settlement System affiliated with the Palestinian Monetary Authority, member companies were able to complete their cash settlements. Furthermore, the Exchange has managed to increase the number of listed companies to reach 49 companies, with a market value of USD 3.25 billion by the end of In 2013, the Exchange also sought to enhance its own system of governance through a series of legislative and legal procedures. Being the first Arab Exchange, owned by the private sector, the unique experience of the Exchange was featured in a study, conducted by Economic Cooperation and Development Organization OECD on the governance of exchange markets in the Middle East and North Africa region. Palestine Exchange has continued to implement its programs to raise awareness on investment, and provide training programs for the financial and banking sectors. It has also worked on enriching the practices of intra-investors relations among Palestinian companies through the activities of the Investor relations Middle East society, affiliated with Palestine Exchange. The Exchange also strengthened its connection with relevant regional and international spheres, participating in numerous regional and international meetings, conferences and activities such as: The annual meeting of the Federation of World Stock Exchanges which took place in Mexico, the Conference of the Federation of Euro-Asian Stock Exchanges, and the annual meeting of the Union of Arab Stock Exchanges which was convened in the Tunisian capital. On the local level, Palestine Exchange also participated in different national task forces, working on joining the International Trade Organization and the National Strategy for Exports. National Bank The National Bank was the result of a merger between Rafah Bank for Micro Finance and The Palestinian Arab Investment Bank with a capital of USD 50 million. In line with its vision to reach an advanced status among the operating banks in Palestine, the National Bank aspires to be the national alternative for all Palestinians who seek a powerful financial institution, capable of meeting their different financial needs. The National Bank is the largest in the Palestinian banking sector in terms of the number of shareholders, as they exceed 13 thousand shareholders. Audited financial statements of the Bank for the fiscal year of 2013 reveal that net profits after tax of this period stood at USD 3.6 million compared to USD 2.02 million in the audited statements of 2012, with a growth rate of 78.1 %.