DIRECTORS' REPORT
YEAR ENDED 31 DECEMBER 2015

Dear Shareholders:

On behalf of the Board of Directors, it’s my pleasure to present to you the Group’s audited results for the year ended 31 December 2015. Despite extremely difficult market conditions, OMINVEST delivered healthy performance for the year and also achieved some major milestones to position your company for greater success for the years ahead. Following OMINVEST’s successful merger with ONIC Holding (ONICH) in August 2015, we have seamlessly combined all financial, business and operating activities. Our merger with ONICH has made OMINVEST much stronger, well diversified, and one of the largest investment companies. More importantly, in terms of Key Performance Indicators (including balance sheet strength, profitability growth, ROE, Debt to Equity Ratio and Cost to Income Ratio), OMINVEST stacks-up very well with other leading investment firms in the region. OMINVEST is in compliance with its respective internal regulations and control systems.

In the following sections, we have elaborated on OMINVEST’s financial performance, major business initiatives and its future strategic direction. 

Group Consolidated Performance:

At 31 December 2015, total Group revenues rose by 60% to RO 142.89m and Group net profit grew by 31% to RO 37.2m, over the corresponding period in 2014. OMINVEST’s share of the Group net profits stood at RO 22.95m, compared to RO 14.51m, a growth of 58% compared to 31 December 2014. The increase in net profits was attributable to the share of profits from our subsidiaries: Oman Arab Bank (OAB) and National Life & General Insurance (NLG) and from our 8 associate companies. In addition, significant investment income, reclassification of certain financial investments and a gain due to the business combination with ONICH contributed to the growth in our profits. As a result, our Earnings per Share at the Group level increased to Baisa 52 from Baisa 39, a growth of 33% over the same period last year. Since OMINVEST issued additional shares to complete our merger with ONICH, our equity base at the Group level increased to RO 219.94m from RO 132.67m at 31 December 2014. Following the merger and as of 31 December 2015, our Book Value per share increased to Baisa 398 from Baisa 394. From a financial reporting and performance evaluation perspective, you would note that OMINVEST’s Group Consolidated Financials will provide you a much better reflection of the company’s overall performance. However, in compliance with the directives of CMA, we will continue to report our performance at the Parent level.  

Parent Company Performance:

During 2015, total revenues rose by 18.1% to RO 9.8m and net profit declined by -42.2% to RO 2.9m, over the same period in 2014. The decrease in the Parent-Level net profit was mainly due to the business restructuring that the company made during the year, reclassification of certain financial investments and one-off expenses related to the merger. The Board advocates conservative accounting practices and extra prudence in taking provisions to ensure quality of the balance sheet and keeping cushion against unexpected market shocks. Our total cash dividends from our subsidiaries, associates and financial investments increased to RO 10.01m from RO 7.32m, a growth of 22%. We expect to further enhance and diversify our dividend income. As a result of the merger, total assets of the Parent increased by 125.4% to RO 240.13m compared to RO 106.54m at 31 December 2014. Similarly, shareholders’ equity of the Parent Company rose to RO 135.05m compared to 
RO 59.91m at 31 December 2014. Book value per share at the Parent level increased to Baisa 244 from Baisa 178, a growth of 37.1%. 

Our Subsidiaries:

Oman Arab Bank (OAB), our banking subsidiary, reported a profit of RO 29.01m for the year ended 31 December 2015 compared to RO 28.40m for the same period in 2014. Profit growth was muted due to higher operating costs, which entailed investing in key people, critical systems and crucial customer service initiatives. In addition, due to difficult market conditions OAB prudently took some extra provisions, which kept a lid on profit margins. We believe that our investing in this business during the down cycle will pay-off significantly as the recovery unfolds. In terms of expanding the business, OAB increased its Loans & Advances by 21% to RO 1.52bn compared to RO 1.26bn at 31 December 2014. Customers’ deposits rose by 9.0% to RO 1.60bn compared to RO 1.47bn at 31 December 2014. The Shareholders’ funds increased by 6% to RO 226.02m compared to RO 212.86m as at 
31 December 2014. While the bank’s profit growth has slowed in this challenging environment, we remain confident about its long-term growth prospects. OAB has a strong balance sheet, an established franchise, committed shareholders, well-anchored and growing market position. We are optimistic that OAB will continue to deliver robust and steady performance, over the long term. 

National Life & General Insurance (NLG), our subsidiary in the insurance sector, reported a net insurance premium of RO 43.18m compared to RO 27.41m, a growth of 58%, signifying the underlying growth in the broader insurance sector and more importantly major gains in NLG’s market share. Net Underwriting results grew by 19% to RO 10.58m from RO 8.91m. Despite higher operating expenses to support growth and lower investment income due to weak capital market conditions – NLG’s net profit rose by 16.58% to RO 4.36m from 
RO 3.74m. It’s important to highlight here that for the year 2015, OMINVEST consolidated NLG’s results from the effective merger date of 19th August 2015 through 31 December 2015. Now on, we will be consolidating NLG’s results for the entire year. We believe that NLG’s growth prospects are strong and its recurring revenues from insurance business are stable and on a clear growth trajectory. Volatility in NLG’s Net Profit is primarily due to the fluctuations in the investment income, which we expect will smooth-out over time, as we gradually implement OMINVEST’s investment philosophy and strategy to manage NLG’s investments. NLG is already in a leading position in the Omani insurance market and growing fast in the UAE. We expect the growth momentum to accelerate in the years to follow.  

Towards the end of 2015, OMINVEST formed a new subsidiary – ONIC, SAOC – as a specialized investment vehicle to manage all Financial Investments of OMINVEST across Private Equity, Public Equities, Fixed Income and other specialized or structured investments. ONIC will have a high-quality and dedicated team to professionally manage all such investments within the investment policy framework already in effect at OMINVEST. We believe that this structure will allow greater focus and efficiency in our investment decision making process and financial reporting. It’s a pleasure to update you that we have already transferred our large and dividend paying Financial Investments to ONIC. As a result, ONIC (as our new subsidiary) will be reporting healthy profits and dividends from its very inception. We will consolidate ONIC results into OMINVEST starting 2016. In addition, OMINVEST has created a new real estate subsidiary – Oman Real Estate Investment Services “ORIS” to carry our all real estate activities including investments, advisory and project management.  

Our Associates:

Following our merger with ONICH, our portfolio of Associate companies has expanded considerably. Now, OMINVEST has 11 Associate companies with a combined value of 
RO 73.98m, up from 3 Associates with a value of RO 6.2m, as of last year. On an annual basis, our associate companies currently produce a total net profit of roughly RO 30.00m and our share in their profits stand around 7.2m. That’s a major source of new and steady income stream for OMINVEST. For the year ended December 2015, our share of profit in the Associate companies rose to RO 3.77m compared to RO 1.69m, a growth of 123.7%. Our 2015 results reflected our share of Associates’ profits from the effective merger date of 
19th August 2015 through 31st December 2015. Starting 2016, we will be accounting for our share of Associates’ profits for the entire year. We expect to further broaden our portfolio of Associate companies to enhance and diversify our income sources – ensuring steady profitability over the long term.

Macroeconomic Environment & Future Outlook:

Macroeconomic picture in Oman and GCC remains challenging, as oil prices have declined by nearly 70% from $ 115 per barrel in June 2014 to around $33 per barrel in February 2016. We believe that oil at such depressed levels is not sustainable and will inevitably stage a recovery within the next 2 years. While budget deficits are rising and liquidity has become somewhat tighter, the Omani and GCC governments have responded prudently by maintaining their spending plans to avoid material slowdown in economic growth. Until oil prices recover significantly, the business and market conditions will continue to affect performance across a number of sectors. As market conditions deteriorated suddenly and significantly, OMINVEST was prudent and pro-active in managing its financial and business affairs. As a result, your company is well positioned to respond to continued challenges in the market and also seize attractive business and investment opportunities. In view of the above developments, we are confident that a much larger and more efficient OMINVEST will play a key role in Oman’s economic growth, create job opportunities for Omani nationals, help businesses grow and attract FDI in our country.

Acknowledgements:

We would like to thank our shareholders and partners for their continued support and trust. We also take this opportunity to sincerely thank the Chairman and the leadership teams at CMA and MSM for facilitating a very conducive environment for businesses in Oman and guiding OMINVEST in its major initiatives. 

We are profoundly grateful to His Majesty Sultan Qaboos for his great vision and wise leadership for the steady growth, stability and enduring prosperity of our country.


KHALID MUHAMMAD AL ZUBAIR
CHAIRMAN