FIC Annual Report 2013

His HighnessSheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah

Crown Prince

His Highness Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah

Amir of the State of Kuwait

FIC Annual Report 2013

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CONTENTS

Mission StatementBoard of Directors’ Report Group Strategic Investments Economic ReportReport of Fatwa And Shari’a Supervisory BoardAuditor’s ReportConsolidated Income StatementConsolidated Statement of Comprehensive IncomeConsolidated Statement of Financial PositionConsolidated Statement of Changes In EquityConsolidated Cash Flow Statement Notes To The Consolidated Financial Statements

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FIC Annual Report 2013

BOARD MEMBERS

Marzouk Fajhan Al MutairiMember

Ahmad Abdulgadir Mohammad Member

Bader Ali Abdulla BenaianMember

Khalifa Abdulla Al-Ajeel Vice Chairman

Bader Mohammad Al QattanChairman

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FIC Annual Report 2013

Uphold Stakeholder,s interests by being a Professionally Managed Financial Institution offering Shari

,a Compliant Investment Products and Services to Local and Regional Clients

MISSION STATEMENT

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FATWA AND SHARI’A SUPERVISORY BOARD

Sheikh Dr. Ali Mohyiddeen Al-QaradaghiChairman

Sheikh Dr. Essa Zaki ShaqraMember

Sheikh Dr. Abdulaziz Khalefa Al-QassarMember

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FIC Annual Report 2013

EXECUTIVE MANAGEMENT

Tareq A. Al-AdsaniDeputy C.E.O

Omar Salem Al-MutawaaDeputy C.E.O

Mohamed Ajami AbdulbakiGeneral Legal Consultant

Eisa A Al Weggian C.E.O

Ahamed Nawal SaheedVice President - Business Development

& Real Estate Investment

Fawaz AL-AyyarVice President - Asset Management

Mohammad G. AL-Ghaith Vice President- Direct Investment

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FIC Annual Report 2013

Board of Directors’ Report

In the name of Allah Almighty

Praise be to Allah and blessings & peace be upon our Prophet, his family and all his companions.

Dear shareholders,In the course of year 2013 in line with the Company’s business plan and its strategy, the Company completed restructuring of its assets to provide an acceptable segmental and geographical distribution of investments as well as exits from non income-generating assets. The Company partially exited from Marwa International Real Estate Company, as well as from the Securities House Fund. Based on the approval received from the funds’ investors, the Company also finalized liquidation of its remaining investment fund, as the market conditions were not favorable to continue with its investments, The Company increased its shareholding in First Education Company from 16.5% to 21.32% through swapping of Companies’ assets. Your Company also reduced the financing by 8% through a cash payment and a settlement against assets.

As part of its strategy to increase the asset under management business segment, the Company successfully placed with investors a real estate development project with a medium term exit opportunity during the first half of year 2013. The Company also successfully placed another real estate investment comprising a land area of forty three thousand square meters in Saudi Arabia, which is expected to achieve its investment goals with attractive returns for investors Allah willing.

As part of the strategic plan of the Company towards enhancing the performance of Associate Companies, First Education Company carried out internal restructuring of the Company and updating of policies and procedures. It established a nursery school in the United Arab Emirates, and its investments in the educational sector achieved good growth and positive financial results.

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The Company conducted various structural enhancements of its Associate companies in conjunction with the management towards improving cash flows, increasing revenue and managing its expenses efficiently to reach sustained positive cash flow.

Arkan Al-Kuwait Real Estate recorded good profits as a result of a combination of the growth of rental income and new construction of properties and rental thereof.

As part of the Company’s efforts to comply with the corporate governance regulations issued in June 2013 by the Capital Markets Authority, the Company has taken steps to comply with eleven regulations. Your Company also prepared the required amendments to the Company’s Articles of Association in accordance with the new companies law and instructions for corporate governance which will be submitted to the extra-ordinary General Assembly meeing. A consultancy firm was engaged to assist in the implementation of the corporate governance regulations, which has to be achieved within the time frame set by the Capital Markets Authority.

As for the strategic plans for 2014, the Company will be focusing on selected major exits towards achieving geographical and segmental diversification of the investment portfolio. The Company will also be taking steps to increase in funds under management, reduce the remaining financing of the Company, reaching full compliance with Corporate Governance regulations issued by the Capital Markets Authority, staff training and the improvement in administrative functions and the organization structure in line with the Companies’ strategic objectives.

Our financial results on 31 December 2013 are as follows:

2013 2012 Change %

Net Profit (KD million) 0.2 2.9 -93%Revenue (KD million) 5.5 8.2 -33%Expenses (KD Million) 5.1 5.1 0%Total assets (KD million) 144 147 -2%Return on Assets 0.1% 2%Return on Equity 0.21% 3.15%Earnings per share (fils) 0.33 4.50Distributions of bonus shares - -Cash Dividend - -

Capital increase - -

Based on these results, the Board of Directors has submitted a recommendation to the General Assembly not to distribute dividends for the financial year ended 31/12/2013.

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FIC Annual Report 2013

Finally, we extend our sincere thanks and gratitude to all governmental authorities for their support and assistance extended to the Company and we ask Allah Almighty to continue the blessings of security and safety to our beloved country Kuwait under the leadership of His Highness the Emir, Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, and the Crown Prince His Highness Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah. We also would like to thank the Company’s clients and shareholders for the confidence extended to us, thank the respected members of the Sharia Supervisory Board for their blessed efforts. The Board of Directors expresses sincere appreciation to the staff of your Company for their dedicated efforts towards achieving the Company’s goals.

May Allah bless your deeds,

Bader Mohammed Al-Qattan

Chairman of the Board

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Real Estate Sector

GROUP STRATEGIC INVESTMENTS

Country of Incorporation : Kingdom of Saudi Arabia Capital : SAR 2,000 million FIC contribution % : 10.25 %Nature of business : Real estate development and investment in Kingdom of Saudi Arabia.

Al Muttahed Company

Country of Incorporation : OmanCapital : OR 20,515,000 million FIC contribution % : 37.40 %Nature of business : Real estate development and investment in Oman.

Taameer Investment Company

Country of Incorporation : Kuwait Capital : KD 22,780,044 million FIC contribution % : 29.06%Nature of business : Real estate development and investment in Kuwait and Arabian Gulf region.

Arkan Al-Kuwait Real Estate Company

Financial Sector

Country of Incorporation : Kingdom of Saudi Arabia Capital : SAR 60 million FIC contribution % : 40.00 %Nature of business : Provide Islamic financial and investment services as well as asset management in the Kingdom of Saudi Arabia.

Adeem Capital

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FIC Annual Report 2013

Energy Sector

Asian Petroleum Company

First Education Company

Country of Incorporation : Kuwait Capital : KD 0.2 millionFIC contribution % : 66.6 %Nature of business : Oil field, Services, Supply & Construction.

Country of Incorporation : Kuwait Capital : KD 15 millionFIC contribution % : 21.32 %Nature of business : Investment in the Education sector.

Country of Incorporation : Kuwait Capital : KD 20,962,500 millionFIC contribution % : 20.46 %Nature of business : Drilling & Exploration.

Burgan Well Drilling Company

First Energy Resources CompanyCountry of Incorporation : Kuwait Capital : KD 21,650,000 million (50% paid up)FIC contribution % : 33.21 %Nature of business : Investment company in the energy, oil and gas sector.

Education Sector

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THE ECONOMIC REPORT

KUWAITAccording to IMF, Kuwait’s economy is projected to grow by 0.8% in 2013, down from 6.2% in 2012. Strong consumer spending helped ensure economic growth in Kuwait this past year, although a slowdown in the energy sector meant the rise in GDP was modest. Despite the continued strength in the consumer sector, inflation remained low through 2013 averaging 2.6% in 2013 and expected to grow to 3% in 2014. This was in spite of a pickup in housing rent pressures, which were more or less offset by decelerating inflation in the food segments.

Consumers provided an important boost to the economy in 2013, which is attributable to the increase wage rises that came into effect in 2013 and the increase in employment levels, with most jobs coming through the public sector.

Kuwait averaged oil output of around 2.8 m bpd in 2013, slightly off its maximum capacity of 3m bpd. The government has said it intends to lift production to 3.15 m bpd by 2015, a step on the path towards 4m bpd by 2020. As of end of 2013, Kuwait oil was trading at $107.42 per barrel. As demand wakens and non-OPEC supply continues to rise, it is expected that OPEC to cut output in order to balance the market and keep the prices close to $100 pb.

Kuwait Stock Exchange showed positive performance in 2013. The index started the year with strong and steady uptrend which was sustained until end of May where it touched 8,451 point, the highest level since December 2008. However the market tended to move sideways afterwards and ended the year at 7,459 points, 27% higher than the levels at the beginning of the year.

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FIC Annual Report 2013

The government has been slow to realize its $107 billion five-year National Development Plan approved in 2010, but there were signs in late 2013 that a few important projects were moving forward. Expansion of Kuwait International Airport is also moving forward, that will include the construction of a $3 bn, 130,000 sq.mt new terminals, while a further $3bn is earmarked for a runaway expansion. Mina Abudlla and Mina Al Ahamadi refineries are expected to be upgraded to increase their output to around 800,000/ bpd. Further, the construction of Al Zour North Power Project, a 1500MW gas-fuelled power plant and associated water desalinization facility is also expected to commence.

High oil prices, large fiscal and trade surpluses, and the government’s vast financial reserves continue to provide a positive near term backdrop for the Kuwaiti economy. The consumer sector remains an important growth driver, but there are signs that growth may be softening a little. Consumer credit growth has come off its peak, though remains strong, employment growth has eased, and the impacts of earlier increases in wages and benefits may be fading. Whilst, Kuwait’s fiscal balance remains healthy, the IMF has indicated that it could deteriorate within few years due to rising rate of spending, especially on subsidies and social support that could push the budget into deficit by 2018, with the gap between expenditure and revenue widening over subsequent years.

The budget is set to record another huge surplus in FY 2013/14, at 22% of GDP. This is slightly down from 25% of GDP recorded a year earlier.

Kuwait GDP is expected to grow by 2.6% in 2014 (0.8% in 2013) supported by resilient oil production, ongoing recovery in the non-oil sector, strong public and private investment in infrastructure projects. Further growth is underpinned by the expansion of fiscal policy in the form of contributions and debt relief programs introduced by the government, which will boost private consumption going forward. According to estimates, Kuwait non-oil sector growth is likely to rebound from 4.6% in 2013 to 5.2% in 2014 on the back of further recovery in the manufacturing, construction and real estate sectors following strong government capital expenditure budget allocation. However, year 2014 could see a degree of uncertainty hanging over the Kuwaiti economy, with issues beyond its control, such as global oil prices, which is set to have a very direct impact on rates of growth and revenue. As it will take some time for the full effect of the government’s investment program to be felt, expansion could be somewhat constrained for 2014, just as expenditure is set to rise, which may put pressure on the government to tighten its welfare expanse.

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GCC ECONOMY AND OUTLOOK

GCC is expected to record a GDP growth of 3% in 2013 and is expected to sustain at 4% in 2014 driven largely by social spending, initiation of infrastructure projects and large scale subsidies amidst unrest in neighboring nations. Increasing oil production elsewhere and easing of sanctions in Iran is further expected to put downward pressures on global oil price. With most GCC nations holding back their investments to ramp up production capacity, oil-based real GDP growth is expected to decline from 5.4% in 2012 to 4% in 2013. Real GCC non-oil GDP growth is forecast at around 5.5% in 2014 0.5% points higher than in 2013

Inflation across the GCC region could be pushed higher by a combination of solid growth and rising pressures on housing. However inflation in GCC is expected to rise only marginally from 2013 levels, as commodity prices, especially food, are relatively benign.

Although oil prices held up well in 2013, continued strong growth in non-OPEC supplies and a potential rise in output from OPCE members Iran, Iraq and Libya are expected to loosen oil fundamentals in 2014. Key GCC OPEC members – led by Saudi Arabia – are forecast to cut oil output from current elevated levels early in 2014, in order to balance the market. Real oil sector GDP is therefore seen declining 2% in 2014 pushing overall GDP growth down to 3%.

GCC Equity Markets had a phenomenal year with most markets registering double digit gains in 2013. Performance of GCC markets was on par with developed markets and better than emerging markets. The S&P GCC Composite index closed at 118.6, gaining 24.4% in 2013. The highlight of 2013 was the MSCI upgrade of UAE and Qatar to Emerging Market status, which is expect to take effect in Q2 of 2014, with UAE accounting for 4% and Qatar accounting for 0.45% of the index. Dubai index produced excellent returns of a 107.7% and Abu Dhabi index registered strong gain of 63.1%. Robust earnings growth on the back of healthy rebound in real estate

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FIC Annual Report 2013

markets and revival of business confidence sustained the rally. Qatar index returned 24% in 2013. Saudi Arabia ended the year with a 31% gain. Oman and Bahrain recorded healthy gains in the range of 17% to 18%. In Kuwait, while KSE price index delivered a gain of 27% Kuwait weighted index returned 8.4%.

Introduction of mortgage law in Saud Arabia and market friendly initiatives taken by CMA and the review of subsidies program in Kuwait to rationalize expenditures and ensure sustainability of fiscal policy for the long-term were significant positive developments.

Amid significant oil price uncertainty, upside and downside risks are broadly balanced for the GCC. On the downside, the most important risk stems from the possibility of excess supply in the global oil market. A combination of weak global oil demand growth and strong supply growth from unconventional sources in the non-OPEC countries could reduce demand for OPEC oil, whilst OPEC capacity is set to grow by approximately 2 million barrels per day during the same period, and three-quarters of this increase is expected to come from MENA.

A faster recovery in the United States could bring forward the end of quantitative easing, which could cause a larger and more prolonged tightening of global financial conditions than expected. As a result, emerging markets may experience exchange rate and financial market overshooting, and their economic outlook may weaken. The overall effect on global demand— and, hence, on oil prices—would be uncertain, though plausible scenarios suggest that it is likely to be small.

Against the backdrop of an uncertain oil revenue outlook and declining fiscal buffers, GCC countries are attempting to diversify their economies away from oil. GCC countries have made significant efforts in this direction. However, the record in fostering self-propelled private sector activities through state-led capital spending has been at best mixed because of fundamental difficulties governments face in picking winning sustainable private sector projects that are likely to create growth and jobs in the future.

Without a significant acceleration of non-oil economic activity and comprehensive labor market reforms, not enough jobs will be created in the medium term for the rapidly growing population. Labor markets are heavily segmented in the GCC countries. Public employment is dominated by nationals, while most jobs in the private sector are held by expatriates. As a result, even robust non-oil GDP growth in the GCC does not promptly lead to a commensurate increase in private sector jobs for nationals

The decline in oil revenues and rising government expenditure will reduce the GDP’s aggregate fiscal surplus to 7% of GDP from 10% in 2013. Whilst this is still very strong by international standards, GCC countries could pay growing attention to the sustainability of the fiscal positions going forward which could translate into slower growth in overall spending than before, and tighter curbs on current spending. Ongoing shale gas revolution in US, slowdown in commodity cycle and sluggish global outlook presents immense challenges for GCC region which has been

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excessively reliant on oil receipts to fund their economy in the long term. However, the growth prospects in the GCC remain favorable, supported by high oil prices, a steady flow of government development spending and in some countries an increasingly buoyant private sector.

GLOBAL ECONCOMY AND OUTLOOK

Global activity and world trade picked up in the second half of 2013 and the demand in advanced economies expanded broadly due to higher inventory demand. Financial conditions in advanced economies have eased since the second half of 2013 with little change since the announcement by the U.S. Federal Reserve in December that it will begin tapering its quantitative easing measures. In emerging market economies, however, financial conditions have remained tighter following the U.S. tapering announcements in May 2013, notwithstanding fairly resilient capital flows. Equity prices have not fully recovered, many sovereign bond yields have edged up, and some currencies have been under pressure. In emerging market economies, an export rebound was the main driver behind better activity in the second half of 2013, while domestic demand generally remained subdued, except in China.

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FIC Annual Report 2013

In year 2013, Global GDP was 3%, slightly below 3.1% recorded in year 2012. Activity is expected to improve further in 2014–15, largely on account of recovery in the advanced economies. Global growth is projected to be slightly higher in 2014, at around 3.7%, rising to 3.9% in 2015. In many emerging market and developing economies, stronger external demand from advanced economies is expected to lift growth, although domestic weaknesses remain a concern.

Growth in the United States is expected to be 2.8% in 2014, up from 1.9% in 2013. The pickup in 2014 will be carried by domestic demand, supported in part by a reduction in the fiscal drag as a result of the budget agreement

The Euro Area recorded a GDP growth of -0.4% in 2013 a slight improvement from -0.7% in 2012 and is turning the corner from recession to recovery. Growth is projected to strengthen to 1% in 2014 and 1.4% in 2015, but the recovery will be uneven. The pickup in GDP will generally be more modest in economies under stress, despite some upward revisions including in Spain. High debt, both public and private, and financial fragmentation will hold back domestic demand, while exports should further contribute to growth.In the United Kingdom has been buoyed by easier credit conditions and increased confidence recorded a GDP growth of 1.7% in 2013 an increase from 1.45% in 2012. Growth is expected to average 2¼% in 2014–15, but economic slack will remain high.

Japan recorded a GDP growth of 1.7% in 2013, an increase from 0.3% in 2012 and, growth is expected to slow more gradually in 2014-2015. Temporary fiscal stimulus should partly offset the drag from the consumption tax increase in early 2014. As a result, annual growth is expected to remain broadly unchanged at 1.7% in 2014, given carryover effects, before moderating to 1% in 2015.

Overall, growth in emerging market and developing economies recorded a GDP growth of 4.7% in 2013 a slight decrease from 4.9% in 2012 and is expected to increase to 5.1% in 2014. Growth in China rebounded strongly in the second half of 2013 and the GDP growth is expected to be largely unchanged at 7.7% in 2014, due largely to acceleration in investment. This surge is expected to be temporary, in part because of policy measures aimed at slowing credit growth and raising the cost of capital. Growth is thus expected to moderate slightly to around 7.5% in 2014–15. Growth in India picked up after a higher export growth and is expected to firm further on stronger structural policies supporting investment. Many other emerging markets and developing economies have started to benefit from stronger external demand in advanced economies and

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China. In many, however, domestic demand has remained weaker than expected. This reflects to varying degrees, tighter financial conditions and policy stances since mid-2013, as well as policy or political uncertainty. Middle East and North Africa region grew by 2.4% in 2013, a decline from 4% in 2012 resulting in the disruptions in regional countries caused by the political

Downside risks remain including risks to activity associated with very low inflation in advanced economies, especially the euro area with inflation likely to remain below target for some time, longer-term inflation expectations might drift down. In emerging market economies, increased financial market and capital flow volatility remain a concern given that the Fed will start tapering in early 2014. The responses to the related December announcement have been relatively muted in most economies. Nevertheless, portfolio shifts and some capital outflows are likely with Fed tapering. When combined with domestic weaknesses, the result could be sharper capital outflows and exchange rate adjustments

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FIC Annual Report 2013

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FIC Annual Report 2013

REPORT OF FATWA AND SHARI’A BOARD

Praise be to Allah, the Lord of the Universe and Prayers and Peace upon the Messenger of Allah who was sent as Blessing to the world, Mohammad may Prayers and Peace be upon him, his family, his companions and his followers until the Day of Judgment.

We, the Fatwa and Shari’a Board of First Investment Company (“the Company”), state hereby that we have reviewed the principles followed and the contracts pertaining to the transactions and deals made by the Company during the year ended 31st December, 2013, have exercised our control duties as a preview to expressing our opinion on whether the Company has complied with the dictates and principles of Islamic Shari’a Law to specific edicts, decisions and guidelines issued by our board.

It is our view that:1. The contracts, operations and transactions concluded by the Company during the year ended 31st December, 2013, which we have reviewed, were carried out in conformity with the dictates and principles of Islamic Shari’a Law.

2. The distributions of profits and encumbrances of losses against the investment accounts conform with our approved principles which conform with the dictates and principles of the Islamic Shari’a Law.

We hereby take this opportunity to express our appreciation and thanks to the management of the Company for its kind cooperation to our board, as well as the shareholders and other parties dealing with the Company.

We pray to Allah Almighty to bless their efforts and dedication to serve the Islamic economy, and develop our nation in ways that shall yield benefits to all parties involved.

Note: Zakat amount per share is : 1.97 fils, and it is payable on shareholder.

Sheikh Dr. Ali Mohyiddeen Al-QaradaghiChairman

Sheikh Dr. Essa Zaki ShaqraMember

Sheikh Dr. Abdulaziz Khalefa Al-QassarMember

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