Chairman’s Statement

Dear Shareholders,

On behalf of myself and my fellow members of the Board of Directors of Esterad, I would like to present to you the Company’s Annual Statement Reports for the financial year ending 31st December 2016.

I am sure all agree that 2016 was another difficult year for the financial and business communities in many countries and companies around the world. The year was full of diverse events, perhaps mostly political or geopolitical in nature, which applied direct or indirect pressure on the direction of currencies, interest rates and other financial markets. Two such events which had notable impact on selected markets around the world are the Brexit and the US presidential election. There were, however, other breaking or escalating news all year round exacerbating the feeling of uncertainty and negativity across the investment and business world. A summary highlight of the noteworthy happenings in 2016 were for instance the escalation of conflict in Yemen, the heightened migrant crisis in Europe, the Iran-US nuclear deal and lifting of sanctions, oversupply and drop of the oil price to around US$30, China’s presumed growth slow down, the GCC austerity measures, terrorist attacks in places such as Brussels and Turkey, Russia’s ongoing tension with the west and last but not least the failed military coup in Turkey.

The sum effect of the incidents above on top of the outcome of the weak economic data in mainly the USA, China and Europe were generally negative for the US dollar, the global stock markets and the price of oil during the first few months of the year. During the same period until about the middle of the year, however, commodity prices, especially metals, as well as the bond markets were booming due to the downward trend in bond yields and dollar value. As the year progressed into the second half, the key data coming out of the major economies proved resilient showing signs of solid recovery and henceforth reversal of the US dollar and bond yields’ downward trend. The surprise outcome of the US election result, in addition to the expectation of higher interest rates in the horizon fuelled a rally of US dollar against most of currencies especially those of emerging markets causing massive selloffs in the bond markets almost everywhere. By the close of the year, the value of most commodities including oil price maintained their double digit growth returned during the year whilst equity markets in general including the GCC stock markets reversed most of their earlier losses beginning of the year and ended up more or less breakeven.

The conclusion of the global investment environment explained above somehow resembles the performance of Esterad’ assets last year. The gross income generated by the Company was BD1,903,929 which is a gross return over total assets of only 4.66%. It should be known however that such total income is only generated from the productive, marketable and income producing assets currently under Esterad’s direct management, which means that excluding the private equity and the other legacy pre-crisis assets mostly controlled by external managers, the return on the relatively new and income producing assets would certainly produce a much improved percentage figure. Moreover, these non-productive legacy assets which have significantly dwindled in value over the past few years, either through liquidation or fair value losses, were once again the main culprit in 2016 for most of the other comprehensive revaluation losses that caused the gross comprehensive revenue to dip into negative bottom line territories. However, the process of liquidation and reinvestment into revenue generating assets is ongoing and for this reason your Board of Directors are cautiously optimistic the worse of these troublesome assets are over especially that in aggregate they currently constitute a relatively much smaller percentage of the total investment assets than before.

Specifically in terms of the audited consolidated financial results for the year 2016, Esterad achieved lower total income and net profit of BD 1,903,929 and BD 806,360 compared to 2015’s BD 2,270,936 and BD 1,155,070 respectively. The Company also produced a total comprehensive Income of BD (1,374,943) compared to a small profit of BD 55,624 last year primarily as mentioned above due to further fair value losses on mainly some private holdings that deteriorated further under the turbulent business environment of the past two years. Accordingly, the Company’s earnings per share dropped from 8.12 fils in 2015 to 5.65 fils in 2016, whilst on a more positive note, total expenses was controlled at BD 1,097,569 in 2016, which is a further drop of 2% from the BD 1,115,866 figure in 2015.

As for Esterad’s financial condition at the end of 2016, the Company’s total assets and shareholders’ equity have contracted compared to last year by 11% and 8% respectively. Total assets stood at BD 40,885,024 at the end of 2016 relative to BD 45,799,254 end of 2015, whilst the shareholders equity was BD 34,145,403 end of 2016 compared to BD 36,932,173end of 2015. The primary reason for the drop in the value of total assets was the decision in the 4th quarter to sell some of the fixed income securities for the purpose of profit taking, which also led to a reduction in the total borrowings by around 30% from BD 6,762,626 end of 2015 to BD 4,750,200 end of 2016. The Company’s cash balance has marginally increased by BD 684,278 from its level end of 2015 to reach BD 4,530,397 by year end 2016.

Based on the above financial results, the Board of Directors in its meeting held on 25th January 2017 has resolved to propose to the shareholders to pay out a cash dividends for the year 2016 worth BD 697,521 which equivalent to 5% of the paid up capital.

We in Esterad expect a relatively better economic condition in 2017 compared to the past two years both regionally in the GCC and globally in many of the developed countries despite a number of looming uncertainties on the back of mainly the political overhand in the USA and Europe next year. The reason for optimism is a combination of short term surge in some of the key economic measures in the USA, Europe, China and Japan, particularly in relation to improving figures of employment, consumer expenditure and industrial production. Moreover, a longer term observation of the same main economic indicators over the past 5 years also reveals a steady growth trend, albeit currently slow, in the above mentioned economies upon which one hopes that the upward growth cycle is well entrenched and working. Tighter economic condition and more buoyant trade and investment activities throughout the rest of world will be stimulants for higher commodities’ prices including oil, the key economic booster for the GCC markets. As a result, the Company will gear up its investment activities for a growing but still volatile stock market performance whilst heavily increasing exposure to the fixed income producing assets. At the same time, all efforts will be made to control lower the general operating cost of running your Company.

Finally, on behalf of the Board of Directors I wish to thank the shareholders for their patience and support during the past difficult years in Esterad’s long life, hoping the years ahead will be more rewarding and fruitful to all. I would also like to thank our business associates and my fellow directors for their support and vision that they bring to the board. Finally and in particular I thank Esterad’s Management and employees for their dedication, hard work and commitment to the wellbeing of the Company.

Hussain Al Hussaini

25 January 2017