Global Research Kuwait Results Update Reuters Code ASCK.KW Listing Kuwait Stock Exchange October 2003 HOLD Current Price 1,600 fils We recommend a HOLD on the stock of Automated Systems Company (ASC) at the current price. The operating margins and profits of ASC were significantly lower in the first half of 2003 as compared to the same period last year on account of lower revenues from the high margin Galileo CRS business. The decline in commission income from airline ticket sales was on account of lower air traffic due to the conflict in neighboring Iraq. However, the revenues from airline ticket commissions have improved following the end of the war in Iraq. The company is expected to report improved performance over the next few years on account of the expected increase in business traffic due to the reconstruction of Iraq. Omar M. ElQuqa, CFA Executive Vice President omar@global.com.kw Shailesh Dash Senior Financial Analyst shaileshdash@global.com.kw Shahab Haider Financial Analyst shahab@global.com.kw Srikanth Ramanathan Financial Analyst srikanth@global.com.kw Pravin Bokade Financial Analyst pravin@global.com.kw Chandresh Bhatt Financial Analyst cbhatt@global.com.kw The Kuwaiti economy is expected to benefit from the increase in business activity over the medium term, due to increase in trade with Iraq. ASC will benefit from the improving business climate in the country and the resulting increase in business travel. It has been reported that Amadeus plans to set up base in Kuwait. This is likely to result in higher competition over the medium to long term. The strong relationship that ASC enjoys with its travel agents will however enable the company to maintain a high market share in the short to medium term. In order to diversify its revenue base and reduce dependence on the CRS (Computerized Reservation Systems) business, ASC plans to enter new business areas such as Services Outsourcing, Ecommerce and ASP (Application Services Provider). Some of the main projects the company plans to implement include the setting up of a data processing center at Sharjah in UAE, and the setting up of a Crew Management System ASP (Application Services Provider) for Kuwait Airways. 1
Global Research Kuwait During the first six months of the current financial year, ASC reported revenues of around KD2.56million (a decrease of 1% over the same period last year), while net profits declined by 59.4% over the same period last year to around KD0.52million. The steep decline in profits during the first half of the current year was due to lower operating margins and higher amortization charges incurred during the period on account of the commissioning of the company s travel related portal. ASC also incurred a one time charge of KDmn during the period on account of earlier contractual obligations. The performance of the stock would depend to a large extent on the successful implementation of the various new projects being planned. We have valued the company s share at an intrinsic price of around 1,610 fils based on the Discounted Cash Flow (DCF) method. The value arrived at using the DCF method is around 0.6% higher than the current market price of 1,600 fils. Hence we recommend a HOLD on the stock. ASC at a Glance Price (Sept. 22, 2003) Shares in Issue Market Cap 52week Price Range 1,600 fils 2 KD 35.2 mn 1,200 2,020 fils Year Sales Revenue KD 000 Net Profit KD 000 EPS fils * Book Value ROAE P/E P/BV fils * 2004F 2003F 2002A 2001A 5,948.7 5,190.9 5,141.1 4,722.8 1,746.5 1,369.8 2,133.2 1,866.6 79.4 62.3 106.7 93.3 282.0 262.6 320.4 313.7 28.8 22.5 33.6 32.0 2 25.7 15.0 17.1 * The EPS and BV for 2001 and 2002 have been calculated on the capital before the stock dividend. Source: ASC and Global Research 5.7 6.1 5.0 5.1 Share Price Movement visàvis Global General and Services Indices 700 600 500 400 2.500 2.000 1.500 300 1.000 200 100 Nov02 Jan03 Mar03 May03 Jul03 Sep03 0.500 0 General Index General Index ASC Source: KSE, Global 2
Global Research Kuwait ASC s Performance Review H1 2003 War in Iraq drives down margins and profits ASC reported a marginal 1% decline in revenues to KD2.55mn in the first half of 2003. However, operating profits declined by a huge 64.3%. This was due to the decline in revenues from the high margin CRS business. The commission on airline ticket sales were lower due to the war in neighboring Iraq earlier in the year. The revenues from the relatively low margin secondment business were however higher during the period. The net profit of the company was also much lower and declined by 59.4% during the period on account of lower operating margins, higher amortization charges on the development of the travel portal (around KD0.17mn for the half year period) and a one time expense (KDmn) on account of prior contractual obligations (replacement of computers for Kuwait Airways). ASC s net profits declined by 59.4% to KD0.52mn in the first half of 2003. Revenues and profits expected to improve in the second half The company s revenues and margins from the CRS business are expected to improve in the second half of 2003 and grow moderately over the medium term. The revenues from airline ticket commission is expected to grow due to increased business travel on account of reconstruction of Iraq and also due to the increasing business activity in Kuwait. The revenues from the secondment and airline Billing Settlement Plan (BSP) businesses are also expected to grow moderately over the medium term. The profits of ASC are expected to increase in 2004 after a decline in 2003 due to poor performance in the first half of the year. The growth in profits over the medium term will largely be driven by increase in revenues. The expected increase in business travel to Kuwait is expected to drive the revenues and profits of ASC over the medium term. Margins to come under pressure ASC reported high operating margins of 49.7% in 2002. The margins of the company are expected to come under pressure going forward on account of the expected decline in the share of revenues from the high margin CRS business. The wage costs of the company are expected to increase significantly over the medium term due to the increasing share of manpower intensive businesses such as the secondment and outsourcing business. Thus we expect operating margins to decline over the medium to long term. Operating margins are expected to show a sharp decline in 2003 due to the decline in profitability on account of reasons mentioned earlier. The operating margins of the company are expected to recover from 2004 onwards but will however still be lower than the 2002 levels. The net margins of the company will be impacted for the next few years by higher amortization charges on account of the commissioning of the travel portal. 3
Global Research Kuwait Proposed new projects ASC plans to set up an ebusiness and Imaging / data processing center at Sharjah in association with SCCI. The company plans to embark on several new projects. These projects are expected to contribute significantly to the revenues and profitability of the company over the medium term. The future plans of ASC are driven by its motive to diversify its sources of revenue and to capitalize on its strengths that emanate from years of experience in the travel industry as a critical service provider. A brief description of the new projects ASC proposes to undertake are given below. (a) Sharjah Data Processing Center: ASC has entered into an MoU with Sharjah Chamber of Commerce and Industry (SCCI) to establish a state of the art ebusiness management, Imaging and data processing center to provide services to private and government agencies. This center will cater to the outsourcing market for image and data processing and also services such as outsourced IT applications and call centers. ASC is currently conducting market, technical and financial feasibility studies for the project. The crew management system ASP for Kuwait Airways is expected to be operational by early 2004. (b) ASC plans to provide ASP (Application Service Provider) services which will enable clients to access web based applications. This is expected to help streamline operations of clients and save on costs. ASC plans to set up a crew management system ASP for Kuwait Airways, which is expected to be operational by early 2004. The revenues of ASC from this operation will depend on the number of flights and crew using the application. The cost of this project is estimated at around USD2.5mn (around KD0.8mn). ASC expects a minimum revenue of KD5mn from this service in 2004. (c) ASC plans to enter the business of services outsourcing (management of third party business). The mechanism of this business depends on handling functional activities on behalf of other companies (third parties). ASC plans to target outsourcing contracts from governmental and nongovernmental institutions. The company plans to provide outsourcing in the areas of human resources, fulfillments and Information Technology. ASC has won outsourcing contracts from KAC, MTC and Equate and is evaluating several other outsourcing contracts. (d) The company has entered into a contract under which ASC will act as SITA s agent in Kuwait. SITA is the world's leading provider of global information and telecommunication solutions to the air transport and related industries. ASC plans to provide services such as network administration, communication, and supply / maintenance of hardware to SITA. The company expects this tieup to give a significant boost to its revenues and profits. (e) ASC is also planning to expand its Galileo products to the Iraq market. The company is in the final stages of granting distribution rights. 4
Global Research Kuwait (f) The company is also exploring establishing new ventures and IT alliances. It is currently negotiating an alliance with Open Jaw Technologies of Ireland, which is a leading provider of XML distribution software to the travel industry. In our projections, we have not assumed any revenues from the proposed new projects (with the exception of the crew management system ASP for KAC, which will commence in early 2004) as they have not yet been finalized. Capex to be funded by cash reserves and internal accruals ASC is a debt free company and has financed its capital expenditure and working capital requirements in the past through internal accruals and existing reserves. The company has accumulated significant cash reserves over the years owing to its strong cash flows from operations. ASC had cash and investments of around KD3.3mn as of end June 2002. Hence, we expect the company to fund its expansion plans by way of cash reserves and internal accruals without resorting to debt. The liquidity position of the company is expected to remain comfortable on account of the high cash reserves and strong cash flows from operations. The investment portfolio of the company, which stood at KD2.94mn as of end June 2002, is expected to decline in 2003 on account of the investment in the proposed new projects and increase over the medium term. The capital expenditure plans of ASC are likely to be funded through internal accruals and cash reserves. Improving operational efficiency ASC has significantly improved its working capital management over the last few years. Inventory levels have declined from around 66 days cost of sales in 1999 to 26 days cost of sales in 2002. During the same period, receivables declined from around 97 days sales to 49 days sales. However payables increased from 27 days cost of sales in 1999 to 46 days cost of sales in 2002. Overall, the length of the cash cycle declined from 136 days in 1999 to 29 days in 2002. The company is expected to further improve its working capital management over the medium term. Investor friendly management ASC has paid out generous dividends in the past. In 2002, the company gave a 100 fils per share cash dividend and 10% bonus shares. We have assumed dividend payout ratios of over 90% in our projections. 5
Global Research Kuwait Valuation We have valued the ASC stock at 1,610 fils per share using the DCF method. In the valuation of Automated Systems Company (ASC), we have used the Discounted Cash Flow (DCF) model. In this method, the future cash flow stream accruing to ASC from its operating activities is discounted to its present value at the weighted average cost of capital (WACC). The annual cash flows have been projected for three years from 2003 to 2005. Thereafter a terminal value has been calculated by assuming a longterm growth rate in the FCF of 2.5%. In order to arrive at the equity value, we have added the value of nonoperating investments such as cash and marketable securities as at the end of June 2003. In order to compute the cost of equity, we have used the Capital Asset Pricing Model (CAPM). The following assumptions have been made in order to arrive at the equity value of ASC. 1. Riskfree rate of 3.25% (one year TBill rate) 2. A equity risk premium of 6.75% has been assumed. 3. A Beta of 1 has been assumed as the stock does not have sufficient price history. 4. Cost of capital of 10% derived using Capital Asset Pricing Model (CAPM). 5. Terminal growth rate of 2.5% Table 1: DCF valuation (in KD) FCF NPV of FCF expected (03E05F) NPV of Terminal Value Firm Value Debt Add: Cash and Marketable Investments NPV of the Equity of the Firm No. of Shares Outstanding Estimated Fair Value Per Share (fils) Current Share Price (fils) Upside potential 2003F 1,891,752 5,566,299 26,557,741 32,124,040 3,302,417 35,426,457 2 1,610 1,600 0.6% 2004F 2,000,529 2005F 2,408,031 Terminal Value 32,909,757 6
Global Research Kuwait Based on the above method and assumptions, the DCF model gives a value of 1,610 fils per share of ASC. The sensitivity analysis given below shows that the fair value for the shares of ASC would vary depending upon the cost of capital and the terminal growth rate projected. Table 2: Sensitivity Analysis Terminal Growth Rate 0.5% 1.5% 2.5% 3.5% 4.5% 5.5% Cost Of Equity 8% 9% 10% 11% 1,643 1,472 1,338 1,229 1,847 1,626 1,458 1,325 2,125 1,828 1,610 1,444 2,526 2,103 1,810 1,595 3,158 2,500 2,081 1,792 4,294 3,124 2,474 2,060 12% 13% 1,139 1,063 1,217 1,129 1,313 1,206 1,430 1,300 1,579 1,417 1,774 1,564 Source: Global Research The company s performance in 2003 is likely to be subdued on account of lower airline commission revenues due to the war in Iraq. Consequently, margins and profits are expected to decline during the current year. However, we expect the revenues and profits of the company to improve over the medium term on account of the likely increase in revenues from existing operations and also the new projects that the company plans to implement. The proposed Sharjah project would have a significant impact on the revenues and profits of the company. Operating margins over the medium term are expected to decline from the levels reported in 2002 due to the increase in contribution to revenues from low margin businesses. Higher amortization charges (on account of the commissioning of the travel portal) will keep the net margins of the company under pressure over the medium term. We feel that the stock is fairly valued and hence recommend a HOLD on the stock. The current market price discounts the projected 2003 earnings by around 25.7 times and the projected 2004 earnings 2 times. The prospects of the company would depend to a large extent on the successful planning and implementation of the proposed new projects. The DCF method suggests a price of around 1,610 fils per share based on forecasted earnings. The stock currently trades at around 1,600 fils, which implies that the value arrived at using the DCF method is around 0.6% higher than the current market price. In our view, the stock is fairly valued at current levels and hence we recommend a HOLD on the stock. 7
Global Research Kuwait BALANCE SHEET (KD) 2000 2001 2002 2003(F) 2004(F) 2005(F) Assets: Bank & cash equivalents 2,984,520 732,971 1,028,675 936,074 1,193,863 1,290,200 Accounts receivable 1,125,730 718,256 662,389 711,081 733,402 801,140 Inventories 180,384 156,329 144,834 179,796 172,431 178,601 Investments 247,839 3,654,383 3,873,026 3,373,026 4,123,026 4,873,026 Other current assets 102,498 140,745 326,213 227,546 228,170 231,441 Total Current Assets 4,640,971 5,402,684 6,035,137 5,427,522 6,450,891 7,374,407 Longterm investments Gross fixed assets 3,487,624 2,209,009 2,365,082 2,563,116 3,313,116 3,813,116 Less: accumulated depreciation 2,078,781 1,390,023 1,741,440 2,160,337 2,630,436 3,164,903 Net fixed assets 1,408,843 818,986 623,642 402,780 682,681 648,213 Capital workinprogress 484,864 2,400 198,034 750,000 500,000 500,000 Intangible Assets 1,269,060 1,266,209 844,139 Deferred Charges Total Assets 6,534,677 7,493,129 8,123,022 7,424,441 8,055,642 8,522,620 Liabilities: Accounts payable 46,620 180,980 349,256 323,633 337,365 365,320 Other current liabilities 835,101 725,825 953,798 853,297 977,870 1,068,187 Directors fees Provision for proposed dividend Total Current Liabilities 908,723 933,806 1,330,054 1,203,930 1,342,235 1,460,507 Employee Indemnity Provision 217,634 284,367 384,802 442,522 508,901 585,236 Owner's Equity: Paidup equity capital 2,200,000 2,200,000 2,200,000 proposed bonus shares 200,000 Statutory reserve 770,392 963,226 1,000,000 1,100,000 1,100,000 1,100,000 General reserve 770,392 963,226 1,000,000 1,144,540 1,328,207 1,469,526 Proposed cash dividend 1,000,000 1,320,000 1,650,000 1,760,000 Retained earnings 867,536 348,503 208,165 13,448 (73,700) (52,649) Total Shareholder's Equity 5,408,320 6,274,956 6,408,165 5,777,988 6,204,506 6,476,877 Total Liabilities 6,534,677 7,493,129 8,123,022 7,424,441 8,055,642 8,522,620 8
Global Research Kuwait OPERATING STATEMENT (KD) 2000 2001 2002 2003(F) 2004(F) 2005(F) Sales Revenue 4,687,902 4,722,831 5,141,063 5,190,890 5,948,707 6,498,138 Total Cost of Sales 2,140,709 1,949,543 2,091,368 2,625,024 2,736,405 2,963,151 Gross Profit 2,547,193 2,773,288 3,049,695 2,565,866 3,212,302 3,534,987 Less: General & Administrative Expenses 667,472 503,896 528,754 524,280 606,768 660,861 Add: Other Operating income 63,681 36,558 33,941 35,638 37,420 39,291 (Loss)/Profit on sale of equipment 50 (23,573) (1,973) (750) Operating Profit 1,943,452 2,282,377 2,552,909 2,076,475 2,642,954 2,913,418 Add: Other income Gain on investments 1,400 63,316 84,883 200,000 75,000 50,000 Other Income Interest 153,360 74,874 8,244 9,893 10,882 11,970 Less: Depreciation 552,417 492,220 410,081 418,897 470,099 534,467 Less: Amortization Gain/ (Loss) on Account of extraordinary item 135,975 Profit Before Tax 1,681,770 1,928,347 2,235,955 1,445,401 1,836,667 2,018,851 Contribution to KFAS 30,272 34,711 21,992 13,454 18,367 20,189 Board of Directors Remuneration Labour Tax 53,755 35,124 44,783 49,292 Net Profit attributable to shareholders 1,624,498 1,866,636 2,133,208 1,369,823 1,746,518 1,922,371 P&L Appropriation Account: Op Balance of Retained Earnings 579,392 867,536 348,503 208,165 13,448 (73,700) Adjustments Net Profit for the year 1,624,498 1,866,636 2,133,208 1,369,823 1,746,518 1,922,371 Trfr to Statutory Reserve 168,177 192,835 36,773 100,000 Trfr to Voluntary Reserve 168,177 192,835 36,773 144,540 183,667 141,320 Proposed Dividend KD 1,000,000 1,320,000 1,650,000 1,760,000 Bonus 200,000 Cl Balance of Retained Earnings 867,536 348,503 208,165 13,448 (73,700) (52,649) 9
Global Research Kuwait CASH FLOW STATEMENT (KD) 2000 2001 2002 2003(F) 2004(F) 2005(F) Operating Operating Activities (a) 2,079,376 2,305,950 2,554,882 2,276,475 2,717,954 2,963,418 Net Profit (before KFAS & BoD payments) 1,681,770 1,928,347 2,235,955 1,445,401 1,836,667 2,018,851 Depreciation 552,417 492,220 410,081 418,897 470,099 534,467 Interest Income (153,360) (74,874) (8,244) (9,893) (10,882) (11,970) Loss/ (Profit) on sale of equipment (51) 23,573 1,973 Gain from marketable investments (1,400) (63,316) (84,883) Amortisation of deferred charges Working Capital (b) 1,032,368 477,461 41,358 (102,573) 117,812 39,272 Dec/(inc.) in receivables 773,972 407,474 55,867 (48,692) (22,321) (67,738) Dec / (inc) in Inventories 212,602 24,055 11,495 (34,962) 7,365 (6,170) Dec/ (inc) in other current assets 246,181 (38,247) (185,468) 98,667 (624) (3,271) Inc/(dec) in accounts payable (297,739) 134,360 168,276 (25,623) 13,732 27,955 Inc/(dec) other current liabilities 97,352 (50,181) (8,812) (91,963) 119,660 88,496 BoD Remuneration (c) () () () () () () Labour Tax (d) (35,124) (44,783) (49,292) KFAS Payment (e) (45,631) (30,272) (34,711) (21,992) (13,454) (18,367) Total Operating 3,039,113 2,726,139 2,534,529 2,089,786 2,750,529 2,908,031 Investing Capex ( f) (550,596) 74,063 (188,966) (198,034) (750,000) (500,000) Other assets (CWIP) (370,856) (786,597) (22,544) (551,966) 250,000 Gain/ Loss on sale of Equipment Dec / (inc.) in investments (247,840) (3,343,228) (108,974) 500,000 (750,000) (750,000) Interest received 49,144 74,874 8,244 9,893 10,882 11,970 Total Investing (1,120,148) (3,980,888) (312,240) (240,107) (1,239,118) (1,238,030) Financing Dividend Employees' terminal benefits Total Financing (800,000) (800,000) (996,800) (1,926,585) () (1,320,000) (1,650,000) 57,720 66,378 76,335 (996,800) (1,926,585) (1,942,280) (1,253,622) (1,573,665) Net change in cash 1,118,965 (2,251,549) 295,704 (92,601) 257,789 96,336 Net cash at beginning 1,865,555 2,984,520 732,971 1,028,675 936,074 1,193,863 Net cash at end 2,984,520 732,971 1,028,675 936,074 1,193,863 1,290,200 Actual cash at end 2,984,520 732,971 1,028,675 936,074 1,193,863 1,290,200 Gross Cash Flow (a+c+d) 2,079,376 2,305,950 2,554,882 2,276,475 2,717,954 2,963,418 Free Cash Flow (a+b+c+d+e+f) 2,488,517 2,800,202 2,345,563 1,891,752 2,000,529 2,408,031 10
Global Research Kuwait RATIOS (KD) 2000 2001 2002 2003F 2004F 2005F LIQUIDITY RATIOS Current Ratio 5.1 5.8 4.5 4.5 4.8 5.0 Quick Ratio 4.8 5.5 4.2 4.2 4.5 4.8 Inventory stock (days) 49 32 26 23 23 22 Receivables outstanding (days) 112 71 49 48 44 43 Length of operating cycle (days) 161 103 75 71 68 65 Payables outstanding (days) 33 21 46 47 44 43 Length of cash cycle (days) 128 81 29 24 24 21 PROFITABILITY RATIOS Gross Profit Margin (%) 54.3 58.7 59.3 49.4 54.0 54.4 Operating Margin (%) 41.5 48.3 49.7 40.0 44.4 44.8 Net Profit Margin (%) 34.7 39.5 41.5 26.4 29.4 29.6 Return on assets (%) 26.1 26.6 27.3 17.6 22.6 23.2 Return on Equity (%) 32.5 32.0 33.6 22.5 29.2 30.3 Return on Paid up equity capital (%) 81.2 93.3 106.7 65.2 79.4 87.4 ACTIVITY RATIOS Inventory Turnover Ratio 7.5 11.6 13.9 16.2 15.5 16.9 Debtor turnover Ratio 3.2 5.1 7.4 7.6 8.2 8.5 Creditors Turnover Ratio 11.0 17.1 7.9 7.8 8.3 8.4 LEVERAGE RATIOS Current Liability/ Equity 0.1 Cash from Operations to Debt 1.8 1.9 1.5 1.4 1.5 1.4 Capital Expenditure Ratio 3.8 (31.1) 13.5 11.5 3.6 5.9 Debt/ Assets VALUATION RATIOS EPS (fils) 81.2 93.3 106.7 62.3 79.4 87.4 Cash Flow per Share (fils) 104.0 115.3 127.7 103.5 123.5 134.7 Book Value Per Share (fils) 270.4 313.7 320.4 262.6 282.0 294.4 Dividend Payout 62% 107% 94% 96% 94% 92% P/E 19.7 17.1 15.0 25.7 2 18.3 P/BV 5.9 5.1 5.0 6.1 5.7 5.4 11
Global Research Kuwait The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure. Disclosure Checklist Company Recommendation Ticker Price Disclosure HOLD ASCK.KW 1,600 fils 1,10 1. did not receive and will not receive any compensation from the company or anyone else for the preparation of this report. 2. The company being researched holds more than 5% stake in. 3. makes a market in securities issued by this company. 4. acts as a corporate broker or sponsor to this company. 5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company. 6. An employee of serves on the board of directors of this company. 7. Within the past year, has managed or comanaged a public offering for this company, for which it received fees. 8. has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. expects to receive or intends to seek compensation for investment banking services from this company in the next three month. 10. Please see special footnote below for other relevant disclosures. This material was produced by KSCC ( Global ),a firm regulated by the Central Bank of Kuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time,to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities ( securities ), perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgement. Global shall have no responsibility or liability whatsoever in respect of any inac curacy in or ommission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice.past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment what so ever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. By accepting this report you agree to be bound by the foregoing limitations. 12