Mumtalakat 2017 Annual Report

Our
Investments

Our Portfolio

We hold stakes in over 60 companies across 13 countries in various sectors. Our portfolio is valued at US $8.5 billion and our total consolidated assets are valued at US $15.4 billion.

OUR INVESTMENT SECTORS

AVIATION

Our aviation portfolio includes FAI Aviation Group, Gulf Air and Bahrain Airport Company.

For new investments, we focus on expanding our exposure to different facets of the aviation ecosystem from aerospace manufacturers and aircraft lessors to airport operators or service providers that operate in different regions than our current portfolio.

PORTFOLIO UPDATES

In the first quarter of 2017, we made our first international investment in aviation, acquiring a significant minority stake of FAI Aviation Group, a leading global provider of mission-critical aviation services, offering fixed-wing air ambulance, special missions, charter and aircraft management as well as full MRO services.

This year we also consolidated our local aviation portfolio under a single umbrella, the Gulf Air Group Holding Company. This allows us to improve the coordination amongst the various entities within the group and have a unified growth strategy for our current Bahrain-based aviation portfolio in order to enhance the contribution of the aviation sector to Bahrain’s economy and maximise stakeholder value.

We also invested in the 4th largest airport in Russia and only operating airport in St. Petersburg through our investment in Northern Capital Gateway, the operator of Pulkovo Airport. The investment was made through our co-investment programme with RDIF. The airport, which caters for approximately 16 million passengers annually, was significantly modernised in recent years to become one of the leading airports in Russia. Furthermore, Northern Capital Gateway holds concession rights over a new recently built terminal in addition to other infrastructure within the Airport.

CONSUMER

We seek opportunities in sub-sectors that are well positioned to benefit from the key macro trends impacting consumers including technological changes and social trends. Our team continues to actively pursue investments in its target sub-sectors globally and build partnerships with firms seeking to serve the Arabian Gulf and global markets through new ventures in Bahrain. That’s why we set-up two new companies in Bahrain this year.

PORTFOLIO UPDATES

Deriving its name from the Arabic term for auction, we established Mazad, a new company responsible for conducting and organising auctions in collaboration with internationally renowned auction houses. With operations that began on the successful auction of license plate numbers, Mazad’s new and innovative approach promises stable growth and revenues.

Mumtalakat established the Bahrain Institute for Pearls and Gemstones (DANAT), a company responsible for third party verification services and scientific research for natural pearls and gemstones, with the aim of becoming the world’s preferred partner for natural pearl and gemstone third party verification services.

Education

We believe that investments in education are both commercially attractive and essential for the long-term development of human capital both locally and globally. We recognise the importance of providing high calibre education at primary, secondary and tertiary education levels and the need for partnerships in developing offerings in the space.

PORTFOLIO UPDATES

Gulf Aviation Academy achieved 100% utilisation across its flight simulators in 2017, leading us to support the company’s growth ambitions and finance a new simulator.

Food & Agriculture

The demand for food and agriculture continues to grow as populations grow. Our focus on value creation within our portfolio means that we aim to modernise existing facilities, expand production capacity and introduce downstream products to improve profitability.

PORTFOLIO UPDATES

We supported the Bahrain-based General Poultry Company in developing a comprehensive growth plan focused on increasing capacity of local egg production and expanding into value added products targeting key corporate accounts

Through our co-investment programme with RDIF, we acquired a stake in PhosAgro, one of the largest producers of phosphate-based fertilisers in the world and the largest producer in Europe. PhosAgro is the world’s largest producer of high-grade phosphate rock and the second largest producer (excluding China) of Diammonium Phosphate and Monoammonium Phosphate. It is Russia’s only producer of feed monocalcium phosphate and nepheline concentrate.

FINANCIAL SERVICES

The global financial sector continues to record reasonable growth rates and as the sector becomes more competitive, service providers continue to introduce more innovative solutions as well as cross-sector products.  The rise of digital technology has altered the landscape of the financial services sector, and as FinTech is becoming more of a core enabler in the sector, it is also raising new risks regarding transaction security.

At Mumtalakat, we continue to seek investment opportunities in the financial services sector with a focus on growing the portfolio through implementing value-add initiatives for existing portfolio companies and by making new investments in financial institutions, ancillary financial service providers as well as FinTech solutions.

PORTFOLIO UPDATES

Arcapita acquired a portfolio of income-generating logistics assets in Dubai, UAE, for a total transaction value of approximately US $150 million. This transaction, brings the value of Arcapita’s UAE logistics portfolio to US $250 million. The new portfolio will be comprised of up to 10 warehousing facilities occupying a total built-up area in excess of 1.2 million square feet, primarily in Dubai Investments Park.

General Services

The global economy has been upended by a number of new trends including advances in technology, changes in customer behaviour and developments in resource use, which have pushed companies across all industries to look for new ways to become more efficient and competitive. Companies operating in the business services sector cater to those needs – providing innovative solutions in vital administrative, logistics, or human capital functions.

Our team continues to look at pioneering companies in the business services sector in both developed and emerging markets as demand for business services grows.

PORTFOLIO UPDATES

We sold part of our stake in PRO Unlimited, a US-based leading software-enabled services company that provides skilled workforce management solutions. The decision to re-invest in the company was made given the historical growth trajectory of PRO Unlimited.

We first acquired a stake in PRO Unlimited in partnership with Investcorp in October 2014. Under the consortium, PRO Unlimited witnessed extensive growth driven by investments in developing the product offering and in sales efforts. This led to a significant growth in revenues (net revenue grew by almost 40% over the period) and a doubling of EBITDA.

In partnership with Arcapita, we acquired a significant majority stake in NAS United Healthcare Services, an independent third-party administrator that provides healthcare benefits management to insurance providers and large self-funded institutions in the Arabian Gulf region. As the insurance sector in the region is poised to grow, investing in a third-party administration service allows us to capture growth in the sector, while minimising underwriting risk. NAS offers its customers solutions to support them in becoming more competitive through more robust policy administration, efficient claims processing, access to broader networks of healthcare providers, data processing and cost-saving IT solutions.

Healthcare

Our healthcare investment strategy focuses on commercially viable opportunities in the healthcare sphere that capitalise on the current key trends in the industry: soaring costs, the growing need for more efficiency and a surge in demand by an ageing population burdened with chronic disease. We are particularly focused on two main sub-sectors, healthcare services and pharmaceutical and medical devices in the Arabian Gulf region, North America and Europe.

PORTFOLIO UPDATES

The Arab Company for Drug Industries & Medical Appliances (ACDIMA) a pan-Arab shareholding company, reported growing revenues and announced their plans to open pharmaceutical manufacturing factories in Equatorial Guinea, Tanzania and Kazakhstan.

KOS Group, a leading Italian healthcare group, and the most recent investment which was acquired in late 2016, has been outperforming budgets and expectations. KOS Group is continuing to expand both their domestic and international footprint and are looking at opportunities in Bahrain, Saudi Arabia and the wider Arabian Gulf region.

Industrial manufacturing

Our surroundings and standards of living have changed drastically over the years due to changes and progress in industrial manufacturing. That is why we invest in assets like Aluminium Bahrain (Alba) and Gulf Aluminium Rolling Mill Company (GARMCO) as well as the international automotive and technology giant, McLaren. With Alba and GARMCO being part of our portfolio, Bahrain has good fundamentals to build and expand on the aluminium sector, be it locally or through international investments.

PORTFOLIO UPDATES

McLaren companies (including McLaren Applied Technologies and McLaren Automotive Company) were consolidated under one entity, McLaren Group Limited. Our industrial manufacturing team executed the issuance of £564 million (US $764 million) of senior secured notes and the proceeds were utilised in the re-organisation of shareholder and corporate structures as well as to fund future expansions. The team managed to support the formation of the streamlined parent entity by working with other shareholders in the group and restructuring the equity ownership. The consolidation of McLaren will provide us with more time to focus on business issues, reduce complexity and costs and simplify the reporting structure.

Mueller Middle East was established in 2016 as a Joint Venture between Mumtalakat, Mueller Industries and Cayan Venture. The project – the first copper tube manufacturing facility in Bahrain – is on schedule with its construction plans and the hiring of staff commenced during the year for both administrative and production works. The plant is expected to commence production in February 2018 and is currently accepting pilot orders from customers for the first quarter of 2018. The official opening ceremony will take place in March 2018.

The Alba Line 6 Project, involving an addition of a sixth production line, is well underway. The Project, costing US$ 3 billion, will add an annual production capacity of 540,000 tonnes, bringing total production capacity to around 1.5 million tonnes per year as well as creating over 600 direct jobs. The Front-End Engineering Design (FEED) study for the project was completed in the first quarter of 2017 and construction commenced in the second quarter of 2017. The project is expected to produce its “First Hot Metal” in January 2019, rendering ALBA as the world’s largest single-site aluminium smelter.

We acquired a stake in Polyus, the largest gold producer in Russia and among the top 10 gold producers in the world. The company has the second largest gold reserve in the world and has one of the lowest cost profiles globally. The investment was made via our co-investment agreement with RDIF.

In August 2017 Mumtalakat completed an exit from ALROSA, a Russian partially state-owned diamond mining company and one of the world leaders in diamond exploration, mining, sales of rough diamonds and diamond manufacturing. ALROSA accounts for 99% of all rough diamonds produced in the Russian Federation. The company’s share in the global diamond output is 27%. ALROSA has sufficient proven reserves enabling it to maintain the current level of diamond production for not less than 30 years. ALROSA’s shares are traded on the Moscow Exchange.

Logistics

There has been a rapid change in freight and cargo related transportation. As the demand for logistics services continues to grow, so does our interest in logistics companies. Our investment strategy in the logistics sector is focused on developing wider exposure to the sector with a focus on freight and logistics services, especially those that provide added value. Other sub-sectors are considered on an opportunistic basis. Going forward, we aim to source investments that will develop sector coverage of land-based logistics and improve the overall geographic diversification of investments.

PORTFOLIO UPDATES

In 2017, United Arab Shipping Company (UASC) completed a merger with Hapag-Lloyd. With 230 vessels and a shared fleet capacity of approximately 1.6 million TEU, Hapag-Lloyd will become the fifth-largest liner shipping company in the world.

Through our co-investment programme with RDIF, we invested in the largest pipeline company in the world, Transneft. The company is a Russian state-owned transportation company operating the Russian oil and oil-product trunk pipelines network.

We also acquired a stake in Global Trucks through RDIF. Globaltruck is a leading Full Truck Load (FTL) trucking operator in Russia. It is the largest FTL trucking operator in Urals and Siberia and the second largest FTL operators in Russia, as measured by average fleet size. In addition to providing freight forwarding services, the company’s key business is domestic and international FTL long-haul transportation of cargoes.

Real Estate and Tourism

The real estate and tourism sector represent 20.3% of our portfolio. Investing in this sector can improve people’s lives as it enhances living spaces, facilities and associated infrastructure, which ultimately drives further economic growth.

PORTFOLIO UPDATES

Mumtalakat, in partnership with Arcapita and its investors, acquired Dubai Industrial Portfolio (ARC Logistics) which consists of a portfolio of light industrial warehouse assets in Dubai Investment Park and Jabal Ali Free Zone, United Arab Emirates. Covering an area of over 93,000 sqm, ARC Logistics is comprised of long-term and short-term leases to high quality international tenants such as Premier Composite Technologies, a leading supplier and manufacturer of advanced composite components – notably used in the clock tower in Mecca, Saudi Arabia and Apple’s carbon fibre roof in Cupertino and the Airbus A380 flap track fairing.

Al Sahel Resort, a joint venture between Mumtalakat and Sama Dubai, commenced structural work for the 207 room 5-star hotel. The flagship resort is located on the southwest coastal region of Bahrain and spans a land area of 712,000 sqm. The resort, which is expected to open its doors by the end of 2020, will contain a sports club, convention centre and restaurants as well as access to an exclusive beachfront.

Southern Area Development Company and Southern Tourism Company (STC) commenced a merger process which is expected to be completed in 2018. The merger will streamline and create synergies between the two companies. STC plays a prominent role in developing the maritime transport sector in Hawar Islands as well as raising its overall profile. It continues to attract tourists while promoting sustainable environmental friendly eco-tourism.

Durrat Marina, a joint venture partnership between Mumtalakat, Kuwait Finance House and Inovest established to partially develop and sell premier marina and waterfront real estate properties in the southern region of the Kingdom, transferred 20% of its stake to Mumtalakat as part of Durrat Khaleej Al Bahrain’s asset distribution. Durrat Marina falls on three reclaimed islands with a total land area of 477,000 sqm surrounding a marina basin and separates the main land with a water canal. It is designed to provide a luxury mixed-use residential and commercial marina lifestyle with an urban living surrounding.

Telecommunications, Media and Technology (TMT)

With the rising demand for technology including smart devices and faster internet speed, we are looking to identify and invest in technology companies with attractive sustainable growth opportunities and that are financially viable.

Our TMT investment strategy has evolved over the past few years with a current focus on buy-out and growth capital investments, evaluating each opportunity independently.

PORTFOLIO UPDATES

Bahrain Telecommunications Company (Batelco), Bahrain’s leading telecommunications and digital solutions provider, completed an initiative aimed at extending its global network reach to Singapore, recognised as a leading hub in the Asia Pacific (APAC) region.


Batelco Group, which operates across 14 countries, appointed Mohamed Bubshait as Batelco Bahrain’s new Chief Executive Officer to lead its evolution as the leading digital solutions provider in the Kingdom of Bahrain.


Batelco received a number of awards in 2017, including the Best Cisco Channel Partner in Bahrain Award and the Best Growth Initiative of the Year.