Chairman's Statement

In The Name of God, Most Gracious, Most Merciful
Report of the Board of Directors
For the Fiscal Year Ended on 31 December 2013

Honorable shareholders

Peace be upon you, with God’s mercy and blessings,,, It gives me and my fellow board members great pleasure to welcome you and to review with you some features of your Company’s activity in year 2013 through the forty-third annual report, which comprises a brief explanation of the most important accomplishments of the Company and its subsidiary companies, along with the report of the independent auditors and the consolidated financial statements for the fiscal year ended on 31 December, 2013.

Dear Shareholders,

The year 2013 was eventful with a lot of difficulties and challenges, yet the Company has managed, with the grace of God and the great trust it has acquired from its customers and other consumers for over four decades filled with significant achievements realized steadily in calculated steps, to become one of the most important pillars in the national industry and stronghold for the development projects and urban movement in the country, and it will persist diligently and with enthusiasm in its customary dedication so as to preserve its accomplishments and take off with its expertise to new horizons, with a view to realize the aspirations of its shareholders and to explore distinct opportunities to promote the Company to a more comprehensive and broader rank in a world witnessing intense competition in the cement industry and its marketing. We plea to the God Almighty to help us to realize our hopes and aspirations.

Here below is an explanation of the Company’s activities and accomplishments in year 2013:

  • Second (New) Kiln for Clinker Production

  • With the grace of God, the trial production of the second kiln for clinker production – the basic material in the cement industry – began successfully in the cement plant in East Shuaiba area, where the production capacity of the kiln has reached 8500 tons of clinker per day and 2.5 million tons per year, to be added to the current potential of the first kiln with the total clinker production capacity reaching 15000 tons per day, (5) million tons per year, thus allowing your company to produce sixteen thousand tons of cement per day. This shall meet the objectives of securing the requirements of the citizens, the development plan projects and the special projects in the long-term by covering the full requirements of the country through the Company’s efforts to provide storage space for keeping the raw materials whose import will double with the operation of the new kiln in order to ensure the continuity of production, especially since the nature of the work of your plant requires the provision of a strategic reserve stock of such materials that suffices a period of (4-6) months in order to ensure the operational safety. In anticipation of the emergency supply, shipping and political crisis, as well as other factors, the Company has acquired an increase in the allocated space for the storage of raw materials in West Shuaiba area amounting to 130,000 m2 added to the existing area of 100,000 m², thus making the total storage capacity reach 230,000 m² which enables it to meet the needs of the production capacity of the plant. In the same context, the Company is always seeking to reduce the cost of productive inputs used in the kilns of clinker production, especially since any increase in these costs will be added to the manufacturing cost which would not be in favor of the consumer. Consequently, imported coal was used to run the kilns instead of petroleum coke whose price has risen abnormally, thus overburdening the Company and increasing the cost of cement production. The use of coal has proved successful in operations and has reduced the technical problems inside the kiln.

  • Marketing and Production

  • Despite the competition the Company experiences with similar products of other Gulf markets and the stagnation witnessed by the construction market as a result of the delayed and slow implementation of governmental projects and private sector projects, together with a reduction in the quantities of cement exported to Iraq, and the conditions and political events in the region which have increased the economic recession, the Company has nonetheless withstood those challenges. We shall exert the utmost efforts to continue maintaining a high degree of superiority and standing, which have gained the confidence of various State projects. Quantities of Ordinary Portland and Sulphate Resisting type V cement, Masonry cement and the GGBS Slag have been marketed this year with an increase from last year 2012, although they did not rise to the level of our expectations for the stated reasons. The exclusive production by the Company of granulated ground blast furnace slag granules of GGBS, an environment friendly product which only your plant can produce in Kuwait and is used in several governmental and private projects (such as bridges, high towers, buildings in the sea, water treatment plants and buildings in general), has contributed to increased sales. The demand for this product by projects is increasing due to its operational specifications which have been met with acceptance and approval by its users in different projects. We look forward with hope for the fading of the circumstances that led to the recession in order for the Company to increase the volume of its sales, especially with the start of the implementation of major projects in the country (such as Sheikh Jaber Al-Ahmad Causeway Project, a number of hospitals, new housing cities, Al-Zour Northern Station Project, etc.). We also look forward to a response on the part of the concerned authorities to the Company's efforts in seeking Customs exemptions on the intermediary coal commodity in clinker production and an exemption from the discharge fee on raw materials imported through Shuaiba Port, while giving priority to governmental projects in the use of its cement production in order to lower the cost of production to an extent which allows it to survive in the face of severe competition, also for the welfare and great support of this vital strategic industry for the country.

  • Capital increase by 15%

  • Based upon the approval by the Ordinary and Extraordinary General Assembly in its meeting on 17/04/2011 of increasing the capital by floating 95,648,332 shares – the rate of 15% of the paid-up capital on the call date amounting to 63,765,554 Kuwaiti Dinars – for subscription at a value of 325 Fils per share (100 Fils nominal value to which are added 225 Fils as an issue premium) with the total amounting to 9,564,833 Kuwaiti Dinars. Following the issuance of the Amiri Decree to that effect, the said shares were offered for subscription with the subscription agent "Kuwait Clearing Company" over two stages at the rate of 8% for 51,012,444 shares in the first stage and at the rate of 7% for 44,635,888 shares in the second stage, with a total value of 31,085,708/- Kuwaiti Dinars. The shares, amounting to 6,727,685 shares which have not been subscribed into in accordance with the principle of ratio and proportion, were distributed, thus making the fully paid-up capital after covering this subscription amounting to 73,330,387 Kuwaiti Dinars, noting that the issuance proceeds have been used to pay a substantial part of the cost of constructing the second kiln.

  • Terminal for Storage and Sale of Bulk Cement in West Shuaiba / Mina Abdullah Area

  • The trial operation of the bulk cement storage and sale terminal in West Shuaiba / Mina Abdullah area was performed successfully, with God’s grace, in mid February 2013 and commercial production began in March 2013. The objective of establishing this terminal with an operational capacity of six thousand tons of cement per day is to enable a large number of Company clients, with urgent requests, to easily access the terminal in order to receive their requirements, as it is located outside the main gate of Shuaiba Industrial Area and will grant the Company a marketing capability in light of the direct sales from the plant, noting that the design of this terminal and its construction were carried out personally by the Company engineers. Moreover, technical and administrative staffs operate the terminal and the vehicles and cement bulk trucks are provided through the Company instead of commissioning an external contractor, thus reducing the costs.

  • Kuwait Cement Ready Mix Company (K.S.C.) Closed

  • Kuwait Cement Ready Mix Company, wholly-owned by your company, continued its successful journey in good achievements during 2013 and established an excellent presence in the cement ready mix market in the State of Kuwait over a relatively short period since its inception. It has commenced its activity in the beginning of 2011 and has become among the prestigious companies marketing cement locally, this through its ownership of two plants with one in Sulaibiya Industrial area and the other in Al- Doha area. It also has a site in Al-Doha area in order to meet the needs of Jamal Abdul Nasser project and another site in Sulaibiya in order to meet the needs of Sabah Al Salem Kuwait University project - Al-Shadadiyah. The Company owns a large fleet of mixers and concrete pumps and employs approximately four hundred employees of engineers, technicians, administrators, drivers and operators. The Company strives to find other sites in execution of the targeted geographic expansion, which will reflect positively on its sales as it is deemed among the largest marketing channels for the cement produced by the Company plant.

  • Shuwaikh Cement Company (K.S.C.) Closed

  • Shuwaikh Cement Company – wholly-owned by your company – was able to obtain the approval by Fujairah Government of its request to expand the current Shuwaikh Crusher site in the Emirate of Fujairah in an area of 1.5 km2, which is an extension of the current site, thus making the Shuwaikh Crusher production stock equivalent to one hundred and twenty million tons sufficing (20-25 years) at the current rate of sales. This consent was timely, with the grace of God, particularly since the stock of raw materials available at the current crusher site had begun to decline as a result of the growing demand for crusher products in the Emirates market. The constant growth in crusher sales calls for joy and optimism. A noticeable increase was achieved in year 2013 in its production and in the sales of gravel, sand and paving materials, with sales value reaching 40,056,465 AED compared with 34,379,604 AED in year 2012 i.e. an increase at the rate of 17%, which gives us hope for further growth and good results in the coming years, especially with the efforts exerted to develop and to add new equipments in order to increase production, which would be beneficial for the Company, with God’s will.

  • Financial Report

  • The net profit amounted to 17,160,048 Kuwaiti Dinars with earnings per share of 26.14 Fils for the fiscal year ended on 31 December 2013, in comparison with a net profit of 14,782,574 Kuwaiti Dinars and earnings per share of 23.74 Fils for the fiscal year ended on 31 December 2012. The sales of the Company and its subsidiary companies reached 69,035,362 Kuwaiti Dinars for the fiscal year ended on 31 December 2013, in comparison with 61,063,314 Kuwaiti Dinars for the fiscal year ended on 31 December 2012, representing an increase of 13%.
    Here below is a comparison between Company’s gross operational profit and that of its subsidiary companies:

    Fiscal Year Ended on 31 December 2013

    Item

    31/12/2013

     

    31/12/2012

    Sales

    69,035,362

     

    61,063,314

    Cost of Sales

    (51,326,937)

     

    (44,368,648)

    Gross Profit

    17,708,425

     

    16,694,666

    The value of assets, installations and equipments, including the sums paid for completion of the second "new" kiln amounted to 155,460,323 Kuwaiti Dinars as of 31 December 2013, compared to the sum of 136,284,797 Kuwaiti Dinars as of 31 December 2012.

    The value of the sums collected from increasing the Company’s capital by 15% of the paid-up capital which is 63,765,554 Kuwaiti Dinars over the two phases, namely "8%" for the first and "7%" for the second, amounted to 31,085,708 Kuwaiti Dinars, thus leading to reduction in the value of banks loans and facilities, the matter which will, in turn, lead to reducing the financing burdens during the coming years, with God’s will.

    Here below is a statement showing the total value of bank loans and facilities and their classifications according to maturity dates:

    Item

    31/12/2013

     

    31/12/2012

    Bank loans & facilities – non-current

    73,469,975

     

    105,294,172

    Bank loans and facilities –current

    23,282,253

     

    7,004,522

    Total

    96,752,228

     

    112,298,694

    The value of reserves as of 31 December 2013 amounted to 92,587,465 Kuwaiti Dinars in comparison with 88,991,985 Kuwaiti Dinars as of 31 December 2012.

     

  • Dividends Distribution

  • The total equity amounted to 194,146,913 Kuwaiti Dinars and the profits carried forward reached 24,739,790 Kuwaiti Dinars as of 31 December 2013, hence the Board of Directors suggests distributing the profits as follows:

    Kuwaiti Dinars 

    Item 

    12,835,857 

    To distribute 18% cash to shareholders

    11,903,933

    Profit carried forward for the coming year

    24,739,790

    Total

     

  • Honorable Shareholders,

  • Following the review of the Company’s main accomplishments in year 2013, the Board of Directors is privileged to extend the highest verses of thanks and admiration to His Highness the Amir of Kuwait Sheikh / Sabah Al-Ahmad Al-Jaber Al-Sabah, may God protect him for his generous support and patronage of industrial advancement, and we ask God Almighty to preserve his health and wellbeing, and to safeguard Kuwait during his auspicious reign and perpetuate the blessings of security, stability and prosperity on it.

    The Board also extends its earnest thanks to His Highness the Crown Prince Sheikh / Nawaf Al-Ahmad Al-Jaber Al-Sabah, and His Highness the Prime Minister Sheikh / Jaber Mubarak Al-Hamad Al-Sabah, may God protect both of them, as well as their excellencies the distinguished ministers for their generous support. The Board would also like to extend the utmost thanks and appreciation to all State authorities, subsidiary companies and national banks, particularly the Industrial Bank of Kuwait for its support and continuous collaboration. The Board would also like to thank the honorable shareholders and takes pride in their valuable trust and support. Thanks also go to all the staff, both technical and administrative, for their genuine efforts and keenness on the Company’s realization of progress and prosperity.

Pleading to God to grant us success and more progress to your company.
Peace be upon you, with God’s mercy and blessings,,,

Rashed Abdulaziz Al-Rashed
Chairman & Managing Director