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Chairman's Statement Dear Shareholders, It is with immense pleasure that I present the 24th consolidated financial statements of United Gulf Bank B.S.C. for the year ended 31 December 2003, our best year ever. Record Earnings in Difficult Market Conditions The year 2003 was extremely unpredictable. It dawned with uncertainties on the political and economic fronts associated with the looming war in Iraq. When the year ended the political skies were clearer, after the situation stabilised with the brisk ending of Saddam regime in Iraq in May 2003.At year-end global economic performance, as well as the outlook, were comparatively much brighter. In my last year statement to you, I stated that we had adopted a multidimensional strategy of maximising returns by a better profiling of and managing our risk assets; maintaining strong liquidity; managing our expenses; and maintaining a strong capital base to lead and manage your Bank in the difficult times of 2002. That strategy continues to be followed, and consequently I am pleased to announce that in 2003 your Bank recorded its best-ever performance since its inception in June 1980.The Bank earned a record best income of $ 36.2 million, higher than $ 35.5 million earned in 1982.This performance in 2003 is more significant as net income recorded was after making provisions of $ 23.7 million for protecting our assets against any future possible adverse valuation impact. Financial Performance After a 140 per cent increase in net profits in 2002, the Bank continued to improve its performance and recorded a 277 per cent jump in net income from $ 9.6 million in 2002 to $ 36.2 million in 2003.Total income almost doubled from $ 57.6 million in 2002 to $ 112.1 million in 2003, while operating income increased 146.5 per cent to $ 92.7 million from $ 37.6 million in 2002. Net operating income before provision shot up by 196.5 per cent up to $ 67.0 million from $ 22.6 million in 2002. Positioning ourselves with the right mix of assets and managing the risks involved has led to excellent results. Investment income almost tripled to $ 46.1 million in 2003 from $ 16.1 million in 2002; shares in profits of associated companies jumped 139.7 per cent from $ 11.6 million in 2002 to $ 27.8 million in 2003; fees and commission income increased 33.8 per cent to $ 21.4 million in 2003 from $ 16.0 million in 2002; and foreign exchange gains increased 135.7 per cent from $ 2.8 million in 2002 to $ 6.6 million in 2003. With a very solid $ 67.0 million in operating income before provision, your Board decided to take a total provision of $ 23.7 million to protect against a drop in value of non-trading investments and loan assets. Income before the minority interest almost tripled, increasing by 276.5 per cent to $ 43.3 million in 2003 over $ 11.5 million in 2002. Net income for the year soared to $ 36.2 million over $ 9.6 million in 2002. This translates to basic earning of 4.743 US cents per share against 1.270 US cents per share earned in 2002. The total balance sheet expanded 26.6 per cent to $ 1.19 billion as at 31 December, 2003 over $ 0.94 billion as of year-end in 2002, coupled with a boost of 23.5 per cent in shareholders’ equity, increasing from $ 210.8 million in 2002 to $ 260.3 million as of year-end in 2003. Risk adjusted capital adequacy (consolidated BIS ratio) continues to remain strong and strengthened further to 21.9 per cent (2002:18.6 per cent) maintaining our position as one of the best capitalised regional investment banks. Our commitment to value creation for our shareholders continued during the year. The market value of our investments in four of our listed subsidiaries and associates, namely: Jordan Kuwait Bank; KIPCO Asset Management Company; United Real Estate Company; and United Industries Company is $ 162.1 million in excess of our carrying values of these investments, as of 31 December, 2003. This is a very substantial but unrecognised appreciation in these assets, which may be unlocked over the years to come. The market perception of our current and future potential performance is reflected in the sharp increase of our share price from 170 Bahraini fils at the beginning to 262 Bahraini fils at close of the year in 2003, yielding a solid 54 per cent appreciation in the value of UGB’s shares on the market. 2003 Highlights Significant events took place during 2003 within our corporate landscape, expanding upon the well-defined business strategy for your Bank, initially building the values and subsequently realising those values. I will list below some of the important events, which will be discussed in some detail in the Management Review:
Your Bank will move into the 25th year of its life in June 2004.We shall celebrate our silver jubilee year with a sober commitment to our shareholders to produce outstanding performances in the years to come working within our chosen business parameters. The year will also be of significance for our management team and staff, as we shall recommend our Employees Stock Option Plan (ESOP) to our General Assembly for its approval. Corporate Governance Your Board has been responsive to adoption of the best practice in corporate governance and risk management.Your Board held seven scheduled and six unscheduled meetings to consider and take decisions in corporate management and business proposals, and on various strategic actions during 2003. The Board Audit Committee met two times during the year to consider and evaluate various reports from the Internal Audit Department.This is an ongoing process of ensuring controls on working and compliance parameters of your Bank. Other committees that oversee various functions of the Bank are the Management Committee, Asset & Liability Committee, Investment Committee, Board Executive Committee and Board of Directors Share Trading Committee. The corporate life of your Bank, initially set for 25 years in 1980, has been extended to an indefinite period through a Resolution passed in the Extraordinary General Meeting (EGM) held on June 1, 2003. Dividend and Donations The last three years have been dividend-barren for our shareholders, as the Bank was consolidating its financial strength through retention of yearly net earnings. We thank them for bearing with us through the period of consolidation and value creation. I am pleased that the Board has recommended to the Annual General Assembly the payment of 14 per cent in cash dividend (3.5 US cents per share). Your Board has recommended an allocation of $ 250,000 for its on-going charities work in Bahrain to the Annual General Assembly. Gratitude and Thanks We are grateful to the Government of Bahrain and the Bahrain Monetary Agency for their support and for providing sound regulatory and economic environment for our success. On behalf of the Board, I extend our gratitude and best wishes to His Majesty King Hamad Bin Isa Al-Khalifa, the Prime Minister H.H. Sheikh Khalifa Bin Salman Al Khalifa and to the Crown Prince and Commander in Chief of the Bahrain Defence Force H.H. Sheikh Salman Bin Hamad Al Khalifa. Our special thanks to the Bahrain Monetary Agency for its continuous support and understanding, and to the Ministry of Commerce and to the Stock Exchanges in Bahrain and Kuwait for their encouragement. I thank our shareholders and all stakeholders for their support and look forward to more rewarding periods working for and with them. I extend my appreciation and thanks to our management team and staff for their hard and dedicated work and contributions, without which our exceptional results could not have been achieved in 2003.  Faisal Hamad Al Ayyar Chairman  |
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