And Consolidated Financial Statements

Dear Shareholders,

It is my pleasure to present to you Asiya Capital Investments Company K.S.C.P.’s (“Asiya”) financial statements for the year 2022.

Summary

The financial year 2022 presented us with several growth opportunities in our core investments, as the markets re-opened from the restrictions on Covid-19, but also provided challenges related to market volatility and tighter credit market conditions.  Our key priorities during the year were to:

1. Preserve and enhance the value of our core investments. We did this through:
   • Increased monitoring, review and oversight of Duet India Hotels (“Duet”), one of our largest holdings investing in six operating hotels in India.  We continue to ensure that the properties were well managed, and operations continued at a high standard as the Indian hospitality market rebounded in 2022.  This translated to record average daily rates (ADRs), occupancy rates, and earnings before interest, tax, depreciation, and amortization (EBITDA) in 2022.  Please see the section on Duet below.
   • Advancing bridge investments to Asia Gulf & Pacific (“AGP”), one of our key core positions investing in LNG and gas infrastructure projects, in order to ensure smooth execution of the underlying projects and create value for shareholders.  AGP has continued to build on its backlog of contracts and identified new LNG development opportunities globally.
   • Continuing to monitor and follow up on our private equity fund investments with certain positive liquidity events supporting our cash flows.
2. Opportunistically expand our positions in core positions at lucrative entry valuations. We reached an agreement in February 2022 to opportunistically acquire an additional 21.4% stake in AGP from a highly motivated seller, bringing our cumulative holding to 39.3%.  The purchase was executed at a deep discount to both: (i) intrinsic valuation; and (ii) the recent funding round towards the end of 2021. The acquisition generated a gain of KWD 13.7 million on our financial statements.
3. Enhance our ESG framework through a number of new initiatives. These initiatives included the following: (i) We conducted a full gap analysis of our existing policies and procedures through our engagement with a specialist consultant and, subsequently, updated all of our policy and procedure manuals to ensure alignment with regulations and best practices; (ii) We appointed a new compliance officer, with the relevant skills to ensure the highest level of compliance; and (iii) We initiated our social responsibility program by supporting initiatives and institutions that are important to our wider community.
4. Invest the excess liquidity in treasury shares with a view to creating shareholder value. We deployed our excess liquidity in our own shares, which we believed traded at large discount to our intrinsic value.  Our share repurchase program involved investment of KWD 0.77 million at an average purchase cost of 51 fils per share, relative to our book value of 110 fils per share at 31-December-2022.

Financial Performance:

Our initiatives, combined with generally positive developments in our core sectors, enabled us to deliver our best financial performance in 15 years.  The financial performance in 2022 can be summarized as follows:

• Our net income for the year 2022 is KWD 9.45 million compared with a net profit of KWD 3.19 million in 2021.  The net income is primarily driven by:
  • A net gain of financial assets at fair value through profit or loss of KWD 10.64 million in 2022 (compared to a gain of KWD 4.04 million in 2021).
  • Total operating expenses increased to KWD 1.26 million in 2022 compared with KWD 1.02 million in 2021.  However, approximately KWD 0.27 of operating expenses in 2022 related to one-off payments and non-recurring items.
• Our Earnings Per Share (EPS) for the year 2022 is a profit of 12.42 fils per share compared with 4.10 fils per share in 2021.
• Our return on average equity (ROE) for 2022 is 12.0%, compared to 4.4% in 2021.  It is important to note that during 2022, the MSCI Emerging Markets Asia Index declined by 21.1%.
• Our total assets increased to KWD 85.30 million in 2022 from KWD 76.11 million, increasing by 12.1%.
• Our shareholders’ equity increased to KWD 83.47 million in 2022 from KWD 74.75 million in 2021; this is our highest level of shareholders’ equity since 2014.
• The company ended 2022 with a comfortable liquidity profile with considerable cash resources (KWD 1.69 million) and no bank debt.

Commensurate with our financial performance, we are recommending a 5% share dividend through distribution of our treasury shares.  This will be our first dividend distribution since 2014.

In the remaining sections, we provide more detail regarding two of our core positions.

Duet India Hotels (Duet)

Duet, our hospitality business in India, owns and operates six hotels across various markets in India, including important cities like Hyderabad, Ahmedabad, Chennai, Pune, and Jaipur.  The hotels include three Four Points (by Sheraton) hotels and three Fairfield (by Marriott) hotels. 

The hospitality market rebounded strongly in 2022, resulting in rising ADRs and occupancy rates across all major sub-markets.  Our portfolio continued to benefit from this uplift and delivered an excellent performance in 2022.  The key metrics for our portfolio in calendar year 2022 can be summarized as follows:

• ADRs in 2022 increased to INR 4,435, rising by 69% relative to levels in 2021.
• Occupancy rates increased to 74% in 2022 relative to 56% in 2021.
• Property-level EBITDA for the portfolio reached record-levels at INR 565 million, relative to INR 116 million in 2021.

We have also initiated measures to enhance the long-term profile of our business through the following:

• We emphasized the maintenance and enhancement of our properties by re-investing significantly more capital expenditure in the portfolio relative to our peers.  The goal is to ensure an excellent guest experience so that our hotel assets continue to out-perform market benchmarks.
• We implemented an incentive program for our senior hospitality staff to create strong alignment in the underlying profitability of the business.

These measures supported our portfolio in outperforming our peers in each micro-market; our portfolio outperformed the peer group by 13% based on relative revenues.  Our goal for 2023 is to build on this performance and develop monetization options in public markets in India, which finally has a strong positive outlook on the sector.  Towards this, we are exploring the possibility of merging with a larger hospitality platform with a view to an initial public offering in 2023.

Asia Gulf & Pacific (AGP)

AGP, headquartered in Singapore, is a market-leading gas infrastructure company in Asia.  It’s key holdings include 12 gas distribution concessions in India (a geographic area covering 100 million people), and construction and engineering operations.  Asiya invested in AGP in 2010 and we added to our stake in 2022 through a deeply discounted acquisition from a motivated seller, bringing our holding to 39.3% and allowing us to consolidate our stake in this important long-term asset.

Natural gas is becoming an important clean energy replacement for traditional sources and most major Asian countries have stated objectives of increasing the share of natural gas in their energy baskets.  For example, India has a stated objective of increasing natural gas in its energy basket from 6.2% in 2020 to 15.0% by 2030.  However, many of these markets are still constrained by the infrastructure required, e.g. terminals, storage, distribution networks, etc.  AGP has established itself as a major player in this field with a number of synergistic segments, including development, investment, construction and technology solutions.  

During 2022, in line with these trends, the company has been focused on building strategic partnerships globally, growing its order book and executing in-hand projects.  As gas prices normalize going forward, AGP is well positioned to support clients across key markets in rolling out their gas infrastructure needs.

A key example is AGP’s strategic investment in City Gas Distribution project in India.  Even though the implementation of the project was slightly delayed due to supply-chain challenges posed by COVID-19, the company has made significant progress by the end of 2022 with 173 operational CNG stations, 16,000 household connections, and 1,700 km gas distribution pipeline network.  In 2023, the company is targeting to add 1,000 new household connections per day to the network.

We continued to support the business with short-term bridge investments to ensure projects are properly executed and create value for the investors.  The company is in the process of raising additional funding in 2023 to support its acquisition of additional LNG projects and finance working capital for newly awarded projects.

Closing remarks

I would also like to convey, on behalf of Asiya Capital Investments Company’s Board of Directors, employees and myself, our sincere gratitude and appreciation to H.H. The Emir of Kuwait Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah, H.H. The Crown Prince Sheikh Mishal Al-Ahmad Al-Jaber Al-Sabah, H.H. The Prime Minister Ahmad Nawaf Al-Ahmad Al-Sabah, as well as to our Government for its continued support of Kuwait’s national institutions and companies, praying to God Almighty to bestow upon our beloved homeland, blessing of safety, security and prosperity.

Chairman,
Dari Ali Al-Rasheed Al-Bader