Chairman’s Statement

Dear Shareholders,

In my first annual statement to you as Chairman, I am delighted to report to you on behalf of myself and my fellow Board members, Esterad’s positive performance and its sound financial position for the year 2017.

It is important to remember that in 2017 the global economy led by the major economies of the USA, EU, China, UK, and Japan continued to grow as manifested from their robust industrial production, capacity utilization and unemployment. The resultant buoyant global business activities, coupled with the abundant liquidity and the still benign interest rate environment have led the stock markets across the globe to produce some of the star annual performances in 2017. The global investment buoyancy mirrored through the stretched valuation in almost all investment assets from equities to bonds, commodities to real estate and other alternative investments has stubbornly persisted despite the numerous economic, political and social challenges that have marred many parts of the globe over the past few years. Other than short-lived glitches affecting certain markets, the investment community seemed unhinged by bad news and remained heavily committed to risky assets.

On the other hand and despite the improvement in the WTI prices to around the mid $50 a barrel from the low $40’s beginning of the year, the GCC countries where among the few stock markets around the world that unfortunately had mediocre performance during 2017. The intensity of the geopolitical risk and the political uncertainties in the GCC and the wider region have naturally spread a mood of fear among the local investors and even caused flights of capital to more secure venues outside the region. Naturally, such rapid pace of the geopolitical developments have negatively affected Esterad’s GCC equity holdings. The portfolio concentration in Qatar before the breakout of the neighborly tension early during the year, and later the Saudi market debacle on the back of the rapid Saudi political and social changes, had the most direct impact on performance.

To some degree, however, the Company’s results, proved resilient to the GCC negative market performance because of the comparatively decent net inflow of current income that is mostly generated from the fixed income portfolio. Additionally, the Company’s bottom line continues to be supported by the respectable income and capital gains delivered by the large holding in the strategic listed securities, predominately the Company’s large shareholding in the Bahrain Duty Free Shops, whilst also keeping the operating cost relatively low compared to other asset management companies.


Esterad’s performance for 2017 is healthier than the same period last year on almost all grounds; total income, net profit as well as comprehensive profit. The Investment income generated by the Company was BD 2,494,819 which is a gross return over total average assets of approximately 6%. Specifically in terms of the audited consolidated financial results for the year 2017, Esterad achieved a total income and net profit of BD 2,554,659 and BD 1,329,847 compared to 2016’s BD 1,903,929 and BD 806,360 respectively. The Company also produced a total comprehensive income of BD 1,410,382 compared to a cumulative loss of BD 1,374,943 last year. The Company’s expenses, on the other hand, was higher than last year by approximately 12%. Accordingly, the Company’s earnings per share increased from 5.65 fils in 2016 to 9.47 fils in 2017.

Esterad’s financial condition in terms of its balance sheet standing continued to demonstrate a solid and healthy financial position. The Company’s total assets increased by approximately 13% from BD 40,885,024 in 2016 to BD 46,278,695 end of 2017. Moreover, the shareholders equity also edged up, albeit at a slower pace by around 2% only, from BD 34,145,403 beginning of the year to BD 34,851,048 at year end. The year also ended with a healthy and higher cash position of BD 5,650,536 than the BD 4,530,397 beginning of the year.


Based on the above financial results, I am pleased to report that the Board of Directors in its meeting held on 23rd January 2018 has resolved to propose to the shareholders to pay out a cash dividends for the year 2017 worth BD 837,025 which is equivalent to 6% of the paid up capital.


In the aftermath of the financial crisis and during the Company’s financial rehabilitation, Esterad took early and decisive action to reduce costs and redirect its asset allocation to more income producing investment and less private and growth oriented assets. Now that the global economies and the financial markets have more or less recovered, we are now seeing the benefits of our earlier strategic investment decisions and setting the pace for a new growth era.

In terms of the global economic and market outlook, the US, the Eurozone and the other developed economies seem to be in a growth uptick momentum. Likewise, the Chinese economy continued its growth momentum albeit at a lower rate of circa 6.5% due to the remarkable credit expansion and infrastructure spending which should, to a certain extent, spur growth and demand for materials, food and commodities elsewhere in the world. Moreover, the other emerging markets of East Europe and the export oriented Asian countries are also experiencing robust growth on the back of the expansionary momentum of their neighbouring advanced economies.

As for markets expectation, the projection is that interest rates in most of the major economies will marginally rise but remaining rather at its recent historical low levels. The flattening of the US yield curve, which usually is a signal for a possibility of future recession, may actually be due to the conviction that the world is in a long-term disinflationary cycle. Other market expectation is for the dollar, as in 2017, to depreciate against most of the major currencies, especially the Euro, given the relative pace of economic growth in the US compared to the other major economies and its effect on the interest rate differential. In general, also, the global demand and the healthy resumption of growth in China will continue to fuel demand for raw material and certain industrial commodities, which in turn may lead to another bumper year for commodities in aggregate.

As for the GCC countries, although GDP growth showed signs of improvement during 2017 the visibility for market direction is blurred by the politics of the region and the governments’ fiscal budgets; as guided by the direction of the oil price and the rehabilitation policy measures recently adopted. In line with its ambitious Vision 2030, and changes taking place in the Kingdom of Saudi Arabia, it is widely anticipated that the authorities will embark on generous budgets to spend on mega economic and infrastructure projects, partially supported by the introduction of VAT. This will boost business activities benefiting a number of private sector companies in various industries and stimulate banking activities, ultimately attracting more foreign investors. However, the investment market sentiment will still be bogged down by tensions and uncertainties in the regional geopolitical arena, including sudden policy changes and new measures that heightens business uncertainties. In any case, the sectors that will benefit from the regional government expenditure and private investment are such as the construction, material, logistics and in particular the banking and financial sectors.

In terms of the looming risks, turbulence and unsettling events causing business disruption and investment losses are highly possible in 2018. For one thing, the unexpected rise in inflation and interest rates beyond the consensus expectation, is perhaps the most damaging outcome that could happen to financial markets in 2018. The damaging effect will be exacerbated due to the global debt bubble, the stretched asset valuation and the overleveraged global economies. The occurrence of such a scenario will also trigger major sell-off in lower rated and other emerging bond and equity markets, among which will possibly be the frontiers markets of the region and the GCC.


In March the company held its AGM and announced Board changes. Mr. Rashed Almeer and Mr. Adnan Al Bassam retired from their Board positions and Mr. Abdulla Kamal was appointed as a non-executive, non-Independent Director representing Osool Asset Management. On behalf of the Board – and myself – I would like to thank Mr. Rashed and Mr. Al Bassam for their significant contributions made to the Company during their time on Board.

Consequently, other changes to the Board committees included Mr. Husain Al Hussaini replacing Mr. Rashed as Board Chairman and Mr. Abdulla Kamal replaced Mr. Adnan as Chairman of the Audit and Risk Committee.


Finally, on behalf of the Board, I would like to take this opportunity to thank our shareholders for their unwavering support during the years and to express my gratitude to my fellow directors for their strong and effective leadership. Lastly, I want to thank our valued employees who have worked hard over the last 12 months to improve the Company’s operating performance. In conjunction with the Company’s refreshed strategy, I look forward to 2018 and beyond with immense optimism.

Husain Al Hussaini

23 January 2018