Public Warehousing Co. Update. - content.argaam.com.s3 ...content.argaam.com.s3-external-3.amazonaws.com/d6794a19-1ea7-… · logistics solutions, including third party and fourth

Reuters Code:WARE.KW

Listing:Kuwait Stock Exchange

CMP:KD2.800

January, 2006

BUY

The Public Warehousing Company - KSC

Investment Update

The Public Warehousing Company - KSC 1

Global Research - Kuwait

Kuw

ait

Omar M. El-Quqa, CFAExecutive Vice [email protected] No:(965) 2400551 Ext.104

Shailesh Dash, CFAHead of [email protected] No:(965) 2400551 Ext.196

Amit TripathySenior Financial [email protected] No:(965) 2400551 Ext.269

Raghu SarmaFinancial [email protected] No:(965) 2400551 Ext.273

Dinker G. Mattam, CFAFinancial [email protected] No:(965) 2400551 Ext 254

Investment Summary

• The Public Warehousing Company - KSC (PWC) is the market leader in the logistics industry in the region. We had initiated coverage of the company in June 2001, with a ‘BUY’ recommendation.

• In that report, we had projected revenues of KD20.3mn, KD25.1mn and KD25.7mn, and net profit of KD7.0mn, KD8.8mn and KD9.8mn in 2001, 2002 and 2003 respectively. Asagainst these projections, the company registered sales of KD16.3mn, KD15.0mn and KD44.0mn, and net profit of KD7.3mn, KD9.8mn and KD39.0mn in the three respectiveyears. The year 2004 saw the company’s revenues jump to KD143.6mn and net profitrocket to KD98.5mn.

• The first three quarters of 2005 saw the company register revenues of KD242.2mn, morethan double the amount of KD98.3mn in the corresponding period of 2004; the net profitof KD115.0mn was up 67.6% over KD68.6mn in the first three quarters of 2004. The EPSfor the period was 177 fils, as against 109 fils in the corresponding period of 2004.

• The company has been in the news over the past many months. It has rapidly expanded its presence across all the countries in the GCC, besides venturing out to a few other countries in the Middle East. It has been awarded the high-value Prime Vendor contract for supplying subsistence items to the US armed forces in the Arabian Gulf region for fiveyears starting from 2006. Besides, the company has made major acquisitions in recent months. It has recently acquired Singapore-based Trans-Link Group, and US-based Transoceanic Shipping Co. and GeoLogistics Corporation.

• The consistently good performance of the company and its recent acquisitions are the triggers for this research update on the company.

Global Research - Kuwait Global Investment House

2 The Public Warehousing Company - KSC

• PWC enjoys advantages of excellent strategic location and low rental rates on its land holdings. It has proven ability to leverage technology to enhance its internal efficienciesand has invested in and customized its warehouse management software to efficientlymanage its warehouses.

• The company has moved up the value chain by offering value-added services to its clients. From a provider of warehousing facilities, it has gradually diversified to providing totallogistics solutions, including third party and fourth party logistics (3PL and 4PL) services, to its customers.

• The prime vendor contracts won by the company for supplying subsistence items to the US armed forces in the Arabian Gulf region have been its key growth drivers in recent years.

• It has brought about further value-add to its logistics solutions domain, with its foray into customs revenue enhancement solutions and e-commerce, etc. In the post-WTO world, the company could increasingly find a broader market for these solutions around theworld.

• Through its recent acquisitions, the company has positioned itself to provide integrated logistics services across niche segments across the globe. Indeed, the company is transforming itself into a major global logistics player.

• The management of PWC has shown the dynamism, innovativeness and proactiveness to catch emerging industry trends early and turn them into innovative and profitable businessopportunities for the company much before its competitors. This has led to the company constantly moving up the value chain and providing enhanced value to its shareholders and stakeholders alike.

• The company has consistently paid dividends in the past. It has also been rewarding its shareholders with stock dividends year after year over the last three years.

• We have arrived at a weighted average share value of KD4.211 per share for the company, and recommend a ‘BUY’ on the stock at its current price levels.


3The Public Warehousing Company - KSC

16001400120011001000800600400200

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5.004.504.003.503.002.502.001.501.000.500.00

General Services PWC

Jan-

03

Apr

-03

Jul-0

3

Oct

-03

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

Indi

ces

PWC

Sha

re P

rice

(KD

)

Table 1 : Investment Indicators for PWC Price in KD as on

January 14, 2006

Shares in

Issue (Nos.)

Market Capitalization

(KD billion)

52-week Price* Range in fils

High Low

2.800 689,615,750 1.9 6.750 2.580

YearOperating Profit

(KDs ‘000)

Net Profit

(KDs ‘000)

EPS

(fils)

BookValue

(fils)

RoAE

(%)

P/E

(X)

P/BV

(X)2007 (F) 221,674 248,289 365 1349 30.2 7.7 2.12006 (F) 214,199 231,612 340 1064 37.0 8.2 2.62005 (E) 137,449 148,879 219 775 40.8 13.2 3.72004 81,093 98,502 236 488 62.2 11.7 5.72003 26,087 38,994 112 327 40.3 10.8 3.7

Source : PWC & ’Global’ Research. * Price not adjusted for bonuses and rights. Historical P/E & P/BV multiples pertain to respective year-end prices, while those for future years are based on market price in the Kuwait Stock Exchange as on January 14, 2006.

Chart1: Performance of PWCvs. Global’s Indices

Stock price adjusted for all bonuses and rights during 2003-2005.



Company Background

The Public Warehousing Company - KSC (PWC) is the market leader in the logistics industry in the Middle East. The company was established in 1979, with its core activities consisting of mobilization, construction, management and leasing of all types of warehouses and warehousing goods under customs supervision both inside and outside of the custom areas in Kuwait. From these beginnings, the company moved rapidly up the value chain by offering value-added services to its clients. From a provider of warehousing facilities, it quickly diversified into providing total logistics solutions, including third party and fourthparty logistics (3PL and 4PL) services, to its customers. It brought about further value-add to its logistics solutions domain, with its foray into customs revenue enhancement solutions. PWC’s customers span a wide range of industries, including apparel and footwear, automotive, consumer and industrial electronics, consumer packaged goods, engineering and construction, events and entertainment, food and grocery, government and military, healthcare and pharmaceutical, and oil and petrochemicals. In 2004, the total revenue of the company was KD143.6mn with net profit of KD98.5mn, having grown at a CAGR of 74%and 93% respectively since 2000.

The company has adopted both organic as well as inorganic growth strategies to grow its logistics business, which has grown at a CAGR of 241% since 2000 to become its major business segment (contributing over 85% of its total revenues in 2004, up from about 6% in 2000). It has rapidly expanded its presence across all the countries in the GCC, besides venturing out to a few other countries in the Middle East. Besides, the company has made major acquisitions in recent months. It has recently acquired Singapore-based Trans-Link Group, and US-based Transoceanic Shipping Co. and GeoLogistics Corporation. With these acquisitions, the company’s global network has now expanded to more than 450 offices located in over one hundred countries spread across six continents. Through theseacquisitions, the company has now positioned itself to provide integrated logistics services across niche segments across the globe. Indeed, the company is transforming itself into a major global logistics player.

Among the prominent shareholders in the company are the National Real Estate Company (NREC), with a 25% stake and the Public Institution for Social Security (PIFSS), with a 10% stake.

The company’s shares are listed on the Kuwait Stock Exchange (KSE), where they enjoy good liquidity. The average daily volume traded of the stock was 1.7 million shares, with a stock turnover of 61%, over the last one year. The current market price of the stock is 2.800, with a 52-week high/low of KD6.750/KD2.580. The company is also listing on the Dubai Financial Market soon, which should enhance its liquidity further.



Performance Review of PWC

The company has four main business segments:

1. Facilities Management2. Logistics3. Customs Solutions4. Value-Added Services

The Company’s performance, including the recent developments, in each of the above four business segments is as under:

Facilities Management

Standard servicesAt the end of October 2005, the company had a total of about 10 million sq. mtr. of land in Kuwait . The company constructs and manages warehouses on its land to offer 2PL and 3PL services to a wide range of clientele. The company enjoys excellent strategic locational advantages, like proximity to the main arterial roads, and main industrial, business and commerce centres of the city.

The company has restricted its property management services mostly to Kuwait, yet over the last two years it has purchased and leased land in other countries, to operate under this segment. In the other countries, the Company has also aimed for providing supply chain management services, which are more value-added, with high returns ratios.

This segment is the cash cow for the company and has been its main driver for growth in the past; is expected to remain so in the coming years too.

Tailor-made solutionsThe company has been able to net many reputed multinational corporations as clients for providing customized warehousing solutions. Some of the big names with the company at the end of October 2005 included Nestle, Americana, Schlumberger, Ford-PDI, Centrepoint, Supreme and Defense Logistics Agency (DLA, USA), etc. The company continued to lease out its warehouses on long-term leases of 5-20 years, with guaranteed area of lease. This segment of its operations is currently based solely in Kuwait.

Warehousing contract with NestlePWC has a long-term warehousing leasing agreement with Nestle, which involves designing, construction, and leasing with equipment of a modern logistics center to Nestle, catering to Nestle’s ever-growing logistics and business needs.

Warehousing contract with Midas FurniturePWC and Midas Furniture have a long-term warehousing agreement in place. Under the agreement, PWC has designed, built, equipped and leased to Midas a modern logistics center that caters to their ever-growing logistics and business needs.



Warehousing & distribution contracts with cooperatives in KuwaitPWC has logistics solutions arrangements with almost all the big cooperatives in Kuwait. This allows the cooperatives to convert their existing under-utilized storage space into revenue generating projects.

Mall managementPWC’s Al Khaima mall has very high occupancy levels. The company also manages two sites in Jahra and Sulaibiya crafts area for Kuwait Investment Authority. It has a mall in Fahaheel, Kuwait, called the Fahaheel Crafts Area, which contains leasable spaces for low-middle end small businesses.

Ground handling services at Kuwait AirportPWC has partnered with Bahrain Airport Services (BAS), one of the leading airport handling companies in the Arabian Gulf region, which is recognized for its high levels of service in the region, to win a long-term contract for ground and cargo handling at the Kuwait International Airport. The JV, called National Aviation Services (NAS), has a 95% shareholding by PWC, the remaining 5% being held by BAS.

Through this contract, NAS’ ground handling team is expected to deliver a host of services ranging from traffic services, transfer desk, load control, VIP Lounge, aircraft waste disposal,cargo terminal & other services at the Kuwait International Airport. Kuwait International Airport was being managed by Kuwait Airways, before NAS started managing certain parts of the Airport in late-October 2003. Along with its numerous ground-handling services, the company is also working to provide a state-of-the-art storage area for cargo, as well as a large fleet of trucks, which are crucial assets for cargo operations. At present, the company’sclients include KLM (from November 2003), the cargo airline Kalita (from December 2003), British Airways (from January 2004) and Air Lanka. Besides, it also handles the occasional military cargo and the seasonal Haj traffic.

Acquisition in Kuwait Metal The company has acquired a 51.4% stake in Metal & Recycling Company (MRC) (formerly, Kuwait Metal Collecting & Shredding Co.), a company listed on Kuwait Stock Exchange.

Proposed Logistics CityThe company plans to optimize the land available with it for its logistics business. It plans to open a Logistics City in Mina Abdullah, on the outskirts of Kuwait, by the first half of 2006.It is expected to contain warehouses, truck yards to accommodate a large fleet of trucks,workshops for the trucks, housing complex for the drivers, etc.

Segment Financial PerformanceThis segment is fully concentrated in the Middle East, specifically in Kuwait. It has contributedabout 12% to the consolidated revenues of PWC in 2004.

Logistics

Expansion across geographiesThe company has already expanded into many geographies, besides Kuwait, in this segment, viz., Bahrain, the UAE (Dubai), Qatar, Lebanon, Oman, Iraq, Saudi Arabia, Jordan and Turkey. This expansion will surely boost the revenues in this segment.



Prominent ContractsSome of the prominent contracts that PWC has under its belt in this business segment are:

Prime Vendor Contracts with US Armed Forces The business from the US armed forces is the main business driver for the company in its logistics business segment. The company has been chosen as a prime vendor by the Defense Supply Center, Philadelphia, to provide subsistence to the military forces. The company was also selected by Defense Logistics Agency (DLA) for providing turnkey supply chain solutions to the US Army, Navy, Marines, and Air Force operating in the Arabian Gulf region. The execution of these contracts leverages PWC’s technology and logistics capabilities. As a prime vendor, it procures food items from approved vendors in the US and elsewhere into Kuwait and routes them to the US armed forces stationed in various countries in the region.

The current Prime Vendor contract (PV-1) ended in the middle of December 2005. Under the contract, subsistence items were supplied by the company to armed forces stationed in Kuwait, Iraq, Bahrain and Qatar.

The second Prime Vendor contract (PV-2) is expected to run for five years from December2005, after the PV-1 lapses, assuming troops continue to be stationed in Iraq during the period. Under the contract, subsistence items will be supplied by the company to armed forces stationed in Kuwait, Iraq, Jordan and Turkey. The amount actually booked in any year will depend on the type of supplies made, number of troops served, location of the troops, etc.

PCO ContractThe company also has a contract with Project Contracting Office (PCO) for $100mn for oneyear, extended every 6 months, for the management of a warehouse in Iraq.

Heavy Equipment Transport ContractThe company has also won a contract, called HL-6, with the US Defense Department to transport heavy transport equipment for US-led armed forces in the Middle East for five yearscommencing on September 15, 2005 for an estimated $1.1bn for the entire period of fiveyears, and extendible by four years after that period.

SOMO ContractThe company are sub-contractors for SOMO Co. through Geotec for transportation of 1.5 million litres of fuel per day with the contract period being 3 months, to be renewed subject to the renewal of the contract between Geotec and SOMO.

Warehouse Management for DLAThe company has a contract worth $36mn per year for 5 years for 3PL warehouse management for the DLA in Mina Abdullah. The existing contract was between August 1, 2004 and August 31, 2005. The new contract runs for 5 years starting from September 1, 2005.

Contract with SamsoniteThe contract with Samsonite is for three years beginning on May 01, 2005. Under the contract, the company is responsible for the end-to-end supply chain management for Samsonite (from the manufacturers in Asia to the Middle East for storage and then re-distribution to their customers).



Contract with KNPCThe company has an agreement with Kuwait National Petroleum Corporation (KNPC) for 3PL and 4PL services. The contract value is KD1mn per year, renewable every year. The company transports the fuel and manages the inventory for KNPC under the contract.

JV with DnataDnata does ground handling of all cargo that comes into Dubai airport. It partnered with PWC Logistics to develop air cargo logistics within the GCC. The JV with Dnata covers the business that comes under airway bills; freight forwarded goods are not a part of this JV. The amount invested in the JV is AED8.6mn.

Miscellaneous ContractsTransport Contract with EQUATE

The Company has an on-going 5-year overland transportation contract, which commenced from early-2002, with EQUATE Petrochemical Company. The scope of the contract is for the transportation on full trailer loads of palletized Polyethylene pallets from Kuwait to almost every country in the Arabian Peninsula, including Bahrain, Qatar, Saudi Arabia, Syria, Jordan and Lebanon. Under the terms of the contract, PWC manages both a dedicated and a spot fleet of trucks to transport the ever growing shipments of EQUATE.

The Bahrain supply chain venture

PWC has a 50:50 joint venture with Bahrain-based Jawad Business Group (JBG), a Pan-Gulf well-diversified organization, formed in 2002. The JV, called PWC Global Logistics BahrainBSC(c), has established a logistics, warehousing and supply chain facility in Bahrain. The company is expected to serve the logistics needs of the local Bahraini and Eastern Saudi Province with its state-of-the-art facilities.

The UAE logistics venture

PWC acquired certain assets of Dubai-based Maritime and Mercantile International LLC (MMI) in 2003. The strategic relationship provides logistics services to the MMI group. MMI’s customer’s include Philips, Epson, Ferrero, Highland Spring, Reckitt Benckiser, Baskin Robbins, GlaxoSmithKline, Carrefour, The Hilton, Spinneys & Dubai Duty Free, to name a few.

Freight management and logistics support for SpL Foods

PWC Logistics’ agreement with SpL Food Service includes procurement of specialized food items and housekeeping products for use by hotel trade; logistics services to cover freight, customs and clearance formalities; product care and preparation, and delivery. The agreement currently serves the markets of the six GCC countries and could be expanded as required.

Strategic partnership with Tristar Transport

PWC has an 80% stake in Tristar Transport, UAE. The partnership reinforces PWC’s position as the leading provider of high-quality ‘fluid logistics’ and ‘wet stock distribution’ services,with an excellent health and safety track record. The company provides opportunities for maximum customer fulfillment potential for regional companies in the construction andpetrochemical industries.



Ventures in other Middle-East countries

In Qatar, the Company has an 18,000 sq. mtr. logistics facility. It has also established PWC Logistics, a 50:50 JV with W J Towell Co. LLC, Oman, to provide fully-integrated supply chain solutions in that country. The company’s Jordan logistics facility has 100,000 sq. mtr. area. The company has also set up a fuel transportation facility in Turkey.

Segment Financial PerformanceThis segment too is fully concentrated in the Middle East. It has contributed about 85% to the consolidated revenues of PWC in 2004.

Customs Solutions

MicroClearMicroClear is a world-class enterprise solution for the customs’ sector on Microsoft’s .NET platform. The solution has been developed by PWC, in partnership with its subsidiary Inspection & Control Services (ICS) – a Washington DC-based provider of customs mordernisation and related decision support solutions, and Microsoft Consulting Services. The package was launched in late-2001.

Among PWC’s clients for MicroClear is China Customs, one of the world’s largest customs organizations with more than 400 customs locations throughout the country. Another client is the Central Board of Revenue (CBR) of the Government of Pakistan.

Contract with Kuwait CustomsThe contract with Kuwait Customs is being executed by the company’s subsidiary Global Clearinghouse Systems (GCS) and is for a 25-year term. The revenues from this contract are expected to come in from 2005, and are likely to rise each subsequent year till 2029. The contract involves developing IT solutions on the MicroClear platform for automating and modernizing the entire customs area at the Kuwait ports and airport and training the personnel to utilize the MicroClear platform.

Segment Financial PerformanceIt has contributed about 1% to the consolidated revenues of PWC in 2004.

Value-Added Services

The company offers miscellaneous value added services, such as trade finance, e-commerce,consultancy services and equipment supplies to its clients under this business segment.

Segment Financial PerformanceIt has contributed about 2% to the consolidated revenues of PWC in 2004.

Geographies-wise Financial Performance

In terms of different geographies where the company is currently present, the company earns close to 99% of its overall revenue from the Middle East region.



Chart 2: PWC - Geographical Distrbution of Business in 2004

Source: Company’s Annual Report 2004.

Key Performance Drivers

The key performance drivers for the company in the recent years have been as under:

• The prime vendor contract with the US armed forces in Iraq has been the company’s mainstay in recent years. This contract has single-handedly boosted the share of the logistics business segment in the overall revenues of the company from 12.5% in 2002 to 85.3% in 2004.

• The company has prime land locations for its warehouses. This helps it attract reputed companies into its warehousing business.

• The company is technology-savvy and has invested in state-of-the-art software and other sophisticated gadgets to manage its warehouses and logistics businesses.

Chart 3: PWC - Segment-wise Distribution of Business in 2002 & 2004

Source: Company’s Annual Reports.

Middle East98.53%

America0.61%

Europe0.03%

Africa0.83%

Other Segments87%

Logistics13%

2002

Logistics85%

Other Segments15%

2004



The Logistics Industry

Logistics – Global Industry Snapshot

The size of the global logistics industry was estimated at $3.43 trillion in 2005. The size of the US logistics industry was estimated at $900 billion in that year, almost double the size of the high-tech industry, or more than 10% of the US gross domestic product. The size of the US contract logistics’ industry was estimated at $46 billion, with an average annual growth rate of between 10-15% each year.

It has been estimated that US companies spend about $4 billion a year on inventory interest, $8 billion on taxes, obsolescence, depreciation and insurance pertaining to inventory, and $2 billion on warehousing. Such large amounts spent on inventory management, warehousing and taxes brings out the importance of having an efficient supply chain in place. The totallogistics activities are said to make up 15-20% of finished product costs.

Nearly 75% of US manufacturers and suppliers are estimated to be either using or considering a contract logistics service, and that figure is expected to only go higher in the years ahead.

The UK logistics sector is worth £55 billion ($98 billion) to the economy. Over 70% of UK freight is believed to be carried by 3PL companies.

An increasing number of companies are believed to view logistics as a core competency and a key competitive advantage. A large number of companies across the world are known to have successfully outsourced some part of their logistics operations.

New Initiatives in Logistics

Among new initiatives in logistics, real-time visibility to orders, inventory and shipments enables companies to be more responsive to customer delivery requirements while cutting inventory levels. Collaboration drives relationships between suppliers, customers and even competitors to share information and physical networks. This collaboration leads to industry wide lower inventory, lower costs and better customer service. Global network manager services aid companies who need to manage multiple outsourced partners with common reporting processes and metrics. As companies outsource functions from purchasing, to inventory management to logistics execution, management of multiple partners requires more expertise.

The Future of Logistics

Manufacturers, retailers, distributors and internet commerce firms are likely to battle it out tomaintain position and valid business models as the lines begin to blur and disintermediation occurs. This could conclude with a re-integration process as successful new models emerge, as only the fittest and most adaptable will overcome this period of truly revolutionary changesin the business world.



Firms which previously outsourced regionally are likely to move toward global scale operations. These firms could seek partners who can provide one system and uniformprocesses around the world to leverage the efficiencies of their global network and best servetheir global customers. Turnkey supply chain management outsourcing expands beyond logistics and warehouse management to other functions such as order entry, purchasing, and inventory ownership. Companies strive for an integrated approach to further outsourcing as they drive down costs.

Logistics Companies – Future Growth DriversIncreasing focus by businesses on core business activities could continue to lead to the outsourcing of non-core business activities, such as warehousing and logistics, among others, to logistics services providers. An increasing tendency to resort to globalized business models, wherein more inventories are likely to be outsourced from across the globe, make efficient warehousing and logistics facilities critical to the businesses. Adoption of newmanufacturing practices, such as ‘just-in-time’, which require leaner inventory levels and more efficient supply chain management, also add to the significance of specialized logisticsservices providers.

Logistics Companies – Growth by Mergers & Acquisitions

Over the past decade the global logistics industry has witnessed substantial consolidation, which has resulted in the emergence of several multibillion-dollar logistics players, offering extensive and integrated services. In addition to this, the liberalization of European transport and postal markets have led to the former local monopolies attempting to diversify their revenues stream.

Mergers & Acquisitions (M&A) have been a widely chosen method to consolidate. Deutsche Post World Net’s (DPWN) acquisition of DHL, for example, has led to the diversification of itsoperations from a postal services provider to a full logistics services provider. DPWN has also recently completed its acquisition of the UK-based logistics company Exel plc, creating the largest logistics company in the world. Similarly, Deutsche Bahn’s acquisition of Stinnes (Schenker) in 2002 increased its freight forwarding ability tremendously. Likewise, Kuehne+Nagel’s recent acquisition of ACR Logistics strengthens the former’s contract logistics capabilities.

Besides M&A, strategic alliances and joint ventures too have been used by the industry as a means to consolidate. Results of several M&A deals completed in the logistics industry suggest that M&A driven growth may generate a rapid increase in revenues due to benefitsof an enhanced network. However, this positive effect seems to be hard to replicate in the growth of profitability.

Logistics - Global Comparisons

Among the global logistics services giants are Stinnes, Exel, Kuehne+Nagel, Ryder, C H Robinson and CNF. Almost all the top companies are integrated logistics services providers, offering a range of logistics solutions as part of their operations. Most of these companies operate in developed, saturated and highly competitive markets, which is reflected in theirlow revenue and profit growth and low profit margins.

Some of the top global logistics industry players compare as follows:



Table 2 : Logistics Industry - Global Majors

Name of Company Based In Main Business2004

Revenues

2004

IncomeStinnes AG * Germany Freight forwarding, transport

services & warehouse management

16,914 ---

Exel plc # UK Logistics, freight management 12,019 128 Kuehne & Nagel International AG Switzerland Freight forwarding, transportation,

customs brokerage

8,058 213

Panalpina World Transport (Holding)

Ltd.

Switzerland Freight forwarding and logistics

services

5,407 98

Ryder System USA Supply chain solutions 5,150 216 C H Robinson Worldwide USA 3PL provider 4,342 137 CNF Inc. USA Freight forwarding, trucking,

logistics

3,712 (116)

Canadian Pacific Railway Canada Railroad freight, inter-modal

services

3,253 344

J B Hunt Transport Services USA Freight transportation, inter-modal

services

2,786 146

EGL Inc. USA Freight forwarding, logistics

services

2,741 51

Total 64,382 1,217 Source: Hoovers. * Stinnes is a subsidiary of Deutsche Bahn.

All figures in $mn. # Exel has been acquired by Deutsche Post in 2005.

Logistics in GCC Countries

There is substantial movement in food stuffs and other consumables in GCC countries, as a result of both imports from outside as well as trade within the GCC countries. Besides these, consumer durables, industrial goods, commodities and construction materials too are traded heavily.

Four of the major listed logistics industry players in the GCC region are based in Kuwait. They are Public Warehousing Company, Transport and Warehousing Group, Kuwait Gulf-Link Transport and Refrigeration Industries Company. All these companies offer services in specific segments of logistics industry, with PWC, the biggest among its peers in theregion, having taken steps towards offering integrated logistics services. Most of the other logistics-related companies in GCC are either private or government-owned. Many of these companies have been promoted by trading and express courier companies.



Table 3 : Logistics Industry - GCC Majors

Name of Company Based In Main Business2004

Revenues

2004

IncomePublic Warehousing Company Kuwait Logistics, warehousing, freight management,

customs solutions

491 337

Saudi Public Transport Company Saudi Arabia Inter/intra-city, Gulf & international public

bus transport, contract & charter services

160 16

Transport & Warehousing Group Kuwait Port management, equipment leasing,

commercial transport, aviation, and

warehousing

114 60

Kuwait Gulf Link Transport Kuwait Transport, stevedoring, cleaning, technical &

manpower services

87 24

Refrigeration Industries

Company

Kuwait Cold storage, & manufacturing, installation

& maintenance of air conditioning units

61 17

Saudi Land Transport Company Saudi Arabia Transport services & cold storage facilities 13 12 Gulf Warehousing Company * Qatar Warehousing, freight forwarding & transport

services

2 1

Total 927 466 Source: Company Annual Reports, Zawya. * Company established in March 2004.

All figures in $mn.

Besides the higher realizations, lower operating costs and higher investment income contribute to healthier profit margins for the logistics companies in GCC. As against this,the global majors operate in saturated and highly competitive markets, leading to wafer thin profit margins.

Outlook for Logistics Industry in GCCThe purchasing power of the GCC markets is high, with high disposable incomes in most of these countries. The resultant high demand has positive implications for reliable logistics services in the region. Outsourcing is expected to continue to be the main driver for the growth in warehousing and logistics industries across the GCC. High growth is expected from food, beverage and grocery; paper and related products; retail/general merchandise; pharmaceuticals; computers/high-tech; and automotive and transport equipment industries in the near future. Besides these, Iraq reconstruction is a potential business opportunity for logistics companies in the region.



Growth Strategy of PWC

The company has adopted both organic as well as inorganic growth strategies in the logistics business – its major business segment (over 85% of its total revenues in 2004). For example, while in Bahrain, it has entered into a JV with the Jawad Group, in the UAE, it has taken the acquisitions route (acquiring the assets of MMI Logistics). The company has also established JVs in Oman, Qatar, Saudi Arabia and UAE, to complete its coverage of the entire GCC region.

The company looks for quality management, strong market position, key service offerings, geographical reach, tangible synergies and cross-selling opportunities as the strategic criteria for its acquisitions.

PWC has identified integrated logistics services as its new growth driver in the coming years.As a part of this strategy, it has resorted to acquisitions to establish its presence throughout the supply chain, to be able to provide end-to-end supply chain solutions in select niche business segments on a global level, with a focus on the GCC region. Towards this end, the company has recently acquired Singapore-based Trans-Link Group, and US-based Transoceanic Shipping Co. and GeoLogistics Corporation.

Trans-Link – Specialists in Freight Forwarding & Event Logistics ManagementTrans-Link Group is a world-wide logistics service provider with international offices inAsia, South Africa and Latin America. The Group’s forte lies in specialized logistics and supply chain management services in the areas of exhibition and event logistics, e-fulfillmentand project forwarding. PWC has acquired 100% shareholding in the company for about for KD9.4mn ($32mn). The acquisition was internally funded.

Trans-Link has recently acquired Exposervice, Australia’s largest provider of onsite and logistics services to the exhibitions industry.

Transoceanic – Specialists in Project Freight Segment Transoceanic Shipping is an international freight forwarding and logistics management company, specializing in the ‘project freight’ sector. With offices throughout the world,the company is capable of meeting the logistics requirements of such industry sectors as engineering, process construction, civil construction, government services, energy services and mining. PWC has acquired 100% shareholding in the company for KD9.9mn ($34mn). The acquisition was internally funded.

GeoLogistics – Specialists in Container & General Freight ForwardingGeoLogistics Corporation has an extensive network of operations in nearly 100 countries around the world. It offers its customers a broad range of freight management and customized solutions. PWC has acquired 100% shareholding in the company for $454mn (KD133mn) on a cash/debt-free basis.

The key strengths of the three acquired companies points to the broad course that PWC has charted for itself for the years ahead. The three companies together bring in specialised logistics, project freight, freight management and customised solutions expertise to the table,



complementing PWC’s existing strengths in 3PL management and supply chain management solutions. Superimposing the strengths of the combined entity on PWC’s already established footprint across the entire GCC, as well as in other countries such as Lebanon, Iraq, Jordan and Turkey in the region, the company’s revenues and profits now look set to be driven byintegrated logistics services in the coming years. The company has, thus, taken its first stepsto de-risk its business model from being overly dependent on the armed forces contracts in Iraq.

Chart 4 : Growth Strategy of PWC

Kuwait

Enter new Geographics:Asia-Trans-Link Group, Feb 2005

America-Transoceanic Shipping Co., Apr 2005Global-GeoLogistics, Sep 2005

Additional Regional Markets

Jordan, LebanonSaudi Arabia, Turkey, Oman, Iraq

Qatar, BahrainUAE



Future Growth Drivers for PWC

The company has begun its strategic moves into providing integrated logistics services. Under the strategy, the company plans to turn into a provider of solutions across all services – warehousing, transportation, freight forwarding, supply chain management, etc. – in the Arabian Gulf region. Simultaneously, it plans to establish verticals in niche business segments. Some of the verticals currently identified by it include:

• Government & Military Services • Oil & Gas • Retail, Wholesale, FMCG & Fashion • Exhibition Logistics• Pharma, Auto, High Tech & other verticals

The company sees a huge potential in all of the above segments.

The company is likely to continue to benefit from its new 5-year Prime Vendor contract inIraq. However, there is a high probability of Iraq returning to normalcy sooner than later, with a newly elected civilian government in place in the country. This, in turn, could lead to expeditious withdrawal of the US armed forces from that country in the coming years. But PWC could benefit equally or more from the surge in reconstruction and rebuilding work thatcould follow once normalcy returns to the country.

With a resurgence in the economies in the entire GCC region and beyond in the Middle East, driven by budget surpluses spurred by booming oil prices, opening up of the economies to private sector participation, and heavy investments planned/announced across industries, there is indeed a high potential seen in the project forwarding segment. For example, investments estimated at $250bn across a range of industries have been announced in the GCC region. Freight could be estimated at an average of about 2.5%-5% of these investments. A heavy movement of project components are expected in power, water desalination, oil & gas, petrochemicals, and cement industries, to name a few. Besides, the company could also benefit in this segment from project investments taking place in various countries across theglobe. Growth is currently seen, for example, from the Asia-Pacific region – mainly, fromChina and India. Freight in project forwarding segment is considered more time- and quality-sensitive than cost-sensitive, meaning that the need to meet time deadlines is the top-most priority, costs being way down the priorities. And it is here that PWC, post its acquisition of Transoceanic Shipping, could play a major role. The oil & gas vertical could focus, among others, on inventory management contracts (on the lines of the one with KNPC), rentals from warehouses/trucks, and transporting of oil & gas. The company could focus in this segment on the Arabian Gulf region and Russia.

The company is also keen to offer its expertise in moving time-sensitive cargoes pertaining to exhibitions and events in the region. This vertical could cater to trade shows, exhibitions and events all across Asia-Pacific (e.g., in Hong Kong, China and Singapore), and in the GCC region.PWC’s new acquisition – Trans-Link – is a specialized freight forwarder in the event logistics domain. The company boasts of a good international network to accommodate the transfer of exhibits, instruments or props from one destination to another, promptly and in good shape.



There could be other verticals covering MNCs and Retail segments too. The company aims to offer 3PL and 4PL services to an increasing number of MNCs (besides its existing clients Nestle, P&G, Schlumberger, Unilever, etc.), and local companies, which are aiming to make it big globally, e.g., the Al-Shaya Group, etc. Similarly, the retail revolution that is sweeping the region, supported and sustained by a high population growth, a spurt in the purchasing power, growing investment in malls across the region, and the arrival of more and more international brands and designer boutiques into the region, could also augur well for the company’s integrated logistics business going forward.

PWC is likely to benefit from the winds of change sweeping global business and trade.Acquisition of Trans-Link Group and Geologistics which have a dominant position in Asia gives PWC access to South-East Asian, Indian Suncontinent and the Chinese markets. With China emerging as a global supplier of goods across the spectrum, Trans-Link is likely to be in a strong position to corner a good chunk of the freight market for goods emanating from China. GeoLogistics Corporation, which has a network of operations in over 100 countries around the world, could only be expected to give the Trans-Link cargo a farther and wider reach. Merchandise from China, Indian Subcontinent and other South-East Asian countries, for example, could be trans-shipped from Dubai, which is expected to emerge as a major trans-shipment port in the GCC region, into Europe and North Africa either by sea or by air. Similarly, sizeable project freight is expected to emanate from South Korea, China and Japan in the East, as also from Europe and the US in the West for the on-going projects in the GCC and Middle East regions. PWC’s recent acquisitions of Trans-Link, Transoceanic, GeoLogistics and its JV with Dnata ensure that the company has a presence across this entire supply chain.

Chart 5 : PWC - Moving towards Integrated Logistics Services

We project that the integrated logistics business will drive PWC’s revenues and profits goingforward, contributing an increasing share to the total revenues and profits. Revenues fromarmed forces contracts are also likely to continue to contribute to the company’s revenues and profits going forward. We expect that any decline in this business in the medium-termdue to troop reductions in Iraq could be offset to a large extent by a simultaneous increase in PWC’s logistics business in that country. Overall, though, the share of the company’s Iraq-based business in its overall business is likely to gradually decline with time. Among other businesses, the company’s customs solutions business, which has evolved around its MicroClear platform, is highly profitable as the MicroClear is almost totally depreciated.

Real Estate/PMD

Integrated Logistics Outsourcing

Freight Forwarding

Transportation

Warehousing



Financial Performance of PWC

Financial Performance of PWC in 2004

Income The company’s operational revenues grew to KD143.6mn for the year ended December 2004, a rise of 226.1% from KD44.0mn in the previous year. Revenues from logistics services was the mainstay of the company, with a share of 85.3% in the total operational revenues during the year. The revenue mix saw a near-reversal from what prevailed in 2002. In 2002, facilities management constituted 78.6% and logistics revenues 12.5% of the year’s revenues. But, in 2004, facilities management’s contribution declined to 11.8% while the share of logistics revenues simultaneously rose to 85.3% of the year’s revenues. The overall contribution from these two main business segments has increased over the two year period, on the back of a significant improvement in the logistics revenues during 2002-‘04.

Revenues from facilities management for the year, at KD16.9mn, were 19.0% higher than KD14.2mn recorded in the preceding year. This is believed to be on the back of an increase in the leasable land area with the company and a higher occupancy rate. The revenues from this segment rose at a CAGR of 19.8% during 2002-‘04. Despite the increase, however, the contribution of facilities management to the overall revenue pie of the company has been declining over the previous two years, on the back of a steep increase in the revenues from the logistics services.

Chart 6: PWC - Revenue Streams

Source: Company’s Annual Reports.

The logistics services registered a growth of 358.7% in 2004 over 2003, on the heels of a rise of 1324.2% in 2003 over 2002 – rising from KD1.9mn in 2002, to KD26.7mn in 2003, and to KD122.4mn in 2004 at a CAGR of 708.3% during 2002-‘04. This phenomenal growth in the revenues from this business segment has been possible due to the Prime Vendor contract awarded to the company by the Defense Logistics Agency (DLA), US, for supplying subsistence items to the US armed forces stationed in the Arabian Gulf region.

140

120

100

80

60

40

20

0

2002 2004

Facilities Management Logistics Customs Solutions Value-Added Services

KD

mn



Revenues from other segments, viz., customs solutions and value-added services, at KD4.2mn, were 35.4% higher than KD3.1mn recorded in the preceding year. The revenues from this segment rose at a CAGR of 78.4% during 2002-’04. Despite the increase, however, the contribution of these two business segments to the overall revenues of the company has been declining over the previous two years – from 8.8% in 2002 down to 3.0% in 2004.

The net non-operating income during the year of KD21.7mn was 50.5% higher than KD14.4mn in the previous year, owing mainly to a revaluation of investment properties leading to a gain in their value by KD22.2mn during the year, up by 49.3% from KD14.9mn in 2003. Besides, other income , interest and investment income too saw a rise in 2004 over the previous year.

ExpenditureThe salaries and employees’ benefits almost trebled during the year – from KD8.2mn in 2003to KD24.0mn in 2004 – even as the staff strength went up by over 130.0% during the period – from 1,858 employees at the end of 2003 to over 4,300 employees at the end of 2004. As a percentage of the operational revenues, though, the staff expenses declined – from 18.7% in 2003 to 16.7% in 2004.

Professional and legal fees increased by 1128.4% from KD0.7mn in 2003 to KD8.3mn in 2004 primarily due to the increase in operating income and the expansion plans of the company. As a percentage of the operational revenues, these expenses increased from 1.5% in 2003 to 5.8% in 2004.

Provisions for doubtful debts increased by 1011.8% from KD0.3mn in 2003 to KD3.2mn in 2004. These provisions pertain to the company’s customs solutions segment. The company has executed contracts, among others, in Argentina and Kenya in the past in this segment. However, in view of the likelihood of the company not receiving the outstanding dues from them due to weak economic conditions prevailing in these countries, the company has reportedly written these dues off.

There was also a provision for impairment of goodwill of KD5.3mn in 2004 (nil in 2003), on account of the writing down of the carrying amount of goodwill arising on the acquisition of ICS Incorporation Limited (United Kingdom). The estimate of the recoverable amount was based on the cash generating unit’s value in use.

Other general & administrative expenses, which include miscellaneous maintenance expenditure, saw a rise of 276.3% to reach KD10.5mn in 2004 from KD2.8mn in the preceding year. As a percentage of the operational revenues, these expenses increased from 6.4% in 2003 to 7.3% in 2004.

The overall cost of operations of KD62.5mn in 2004 was higher by 248.4% than KD17.9mn in 2003. As a percentage of the total revenues, the cost of operations were 43.5% in 2004, higher than 40.7% in the preceding year.

Operating ProfitsAt the operating level, the operating profit went up by 210.9% to KD81.1mn in 2004 fromKD26.1mn in 2003. As a result of a higher increase in the operating expenses, the operating profit margin declined to 56.5% in 2004 from 59.3% in 2003.



Net ProfitThe net profit of the company went up by 152.6% to KD98.5mn in 2004 from KD39.0mnin 2003, aided by increases both in the operating and non-operating incomes in 2004, after netting off higher amounts of minority interest and other statutory dues during the year. The net profit margin declined from 88.6% in 2003 to 68.6% in 2004. The EPS rose by 152.1% to237fils in 2004 from 94fils in 2003.

Profitability RatiosThe return on average assets went up to 35.7% in 2004 from 29.8% in 2003, following the healthy rise in the net profit during the year. Simultaneously, the return on average equity sawa rise to 62.2% from 40.3%.

DividendsThe company paid a 45% bonus and 30% cash dividend in 2004, with a dividend payout ratio of 12.7%. In 2003, the company had proposed a 25% cash dividend and a 20% bonus with a dividend payout ratio of 22.2%. The payout ratio declined in 2004 on the back of a 152.6% jump in the net profit during the year. The company has rewarded its shareholderswith bonuses continuously since 2002, announcing stock dividend of 10%, 20% and 45% in 2002, 2003 and 2004 respectively.

Assets and Liabilities StructureThe asset structure of the company has changed over the last two years in tune with the expanding business of the company. The high growth of 226.1% in the operational revenues of the company in 2004 saw a simultaneous rise in its total assets of KD209.4mn or 122.1%. While the current assets rose by 172.7% during the year, accounts receivable witnessed a rise of KD41.3mn or 160.0%, and inventories went up by KD43.0mn or 180.3% during the year. Investment properties rose by KD38.0mn or 50.5%, primarily on the back of transfer from projects in progress, as well as a change in their fair value during the year. The net fixedassets more than trebled in 2004, rising by KD39.3mn or 205.2% on the back of acquisition of various assets by the parent and its various subsidiaries.

On the liabilities side, the accounts payable rose by KD71.3mn or 258.3% during the year, in step with the expanding business of the company. The company drew the second and third tranches of its bond issue in 2004, taking the outstanding amount of bonds at the end of the year to KD22.1mn. Besides this, the company had long-term loans of KD11.7mn, up by KD8.4mn or 258.7%, and short-term loans of KD35.0mn, up by KD21.0mn or 149.4%, on its books at the end of 2004. The owners’ equity rose during the year by KD89.7mn or 78.9%.

Iraq Compensation ClaimThe company had filed a claim of KD5.72mn in respect of losses suffered as a result of theIraqi invasion and occupation of Kuwait in 1990. Out of this claim, an amount of KD2.13mn has been approved by UNCC, Geneva. An amount of KD228,636 has been received in 2004, while an amount of KD115,579 was received during 2003. The balance amount is likely to be settled as and when funds become available. However, the expected upside in the EPS from this settlement is negligible.



Contingent Liabilities & Capital CommitmentsThe Group has contingent liabilities and capital commitments as at the end of December 2004 of KD38.3mn, up 16.1% from KD33.0mn in the previous year. The increase in the amount is primarily on account of a jump of 748.5% in the letters of guarantee to KD19.8mn in 2004 from KD2.3mn in 2003. The capital commitments, on the other hand, have seen a decline of 39.8% to KD18.3mn during the year.

The company, however, has a few ongoing legal disputes with some of its stakeholders, the most important among them being with one of its former business partners. This dispute, if settled against the company, could lead to an additional liability for the company. However, it has not made a provision for the amount as the court rulings so far have been in its favour.

Financial Performance in the First Three Quarters of 2005

The company had revenues of KD242.2mn in the first three quarters of 2005, up 146.4%year-on-year. While the rental revenues increased by 66.7% to KD17.5mn, logistics revenues increased by 75.3% to KD147.1mn during the period year-on-year. Operating profit duringthe period of KD100.5mn was up 44.8% year-on-year. Salaries & employee benefits were up256.1%, whereas general & administrative expenses were up 200.0% during the period. The company’s net profit during the period of KD115.0mn was up 67.6% year-on-year.

There was an increase in the accounts receivable while the inventories marginally declined at the end of the first three quarters of 2005, in line with the business expansion duringthe period. While the accounts receivable increased to KD192.6mn, inventories were at KD65.1mn at the end of the period. The average receivable-days increased to 146 days at the end of the period, from 118 days at the end of 2004, while the average inventory-days more than halved to 127 days at the end of the period, from 265 days at the end of 2004. Short-term investments at the end of the first three quarters of 2005 of KD2.8mn were up from KD1.6mnat the end of the year 2004. Investments available for sale of KD1.9mn were marginally up from the end of 2004. Investments in associates stood at KD7.6mn, up from KD0.8mn at the end of 2004. There was a huge increase in investment properties at the end of the first threequarters 2005, standing at KD202.4mn, up 78.4% from the end of 2004. The total assets of the company at KD1.0bn were up 163.4% from the end of 2004.

The accounts payable went up by 77.1% to KD175.3mn at the end of the first three quartersof 2005. The average payable-days declined to 264 days at the end of the period, from 370 days at the end of 2004. Short-term loans stood at KD29.8mn, while the long-term loans stood at KD166.7mn, thanks to the long-term debt raised by the company for its acquisition of GeoLogistics during the period. Bonds worth KD29.4mn were outstanding at the end of the period, up 33.0% from the end of 2004. With this, the company has fully drawn all the tranches of its 2003 bonds issue. The paid-up equity rose to KD69.0mn at the end of the period, thanks to the 45% stock dividend declared for 2004 and a 16.64% rights issue comprising 71 million shares.



Risk Factors

The company could be faced with the following risks:

• Any adverse developments on the geo-political front in GCC could disturb the future business plans of the company and could have an adverse impact on its future earnings potential.

• The possibility, however remote, of the big co-operatives in Kuwait getting together to set up their own warehousing and logistics business to rival PWC’s could also be a risk for the company.

• There is a risk of payment defaults and foreign exchange losses to the company from its customs solutions business in future too, thereby, making it provide larger amounts for doubtful debts, going forward. However, these amounts could be insignificant in thecontext of the overall revenues of the company.

• The ongoing legal disputes, if settled unfavorably for the company, could impact its profitability going forward.

Legal Disputes

The 2004 Annual Report of PWC mentions the following legal disputes in which the company is currently involved:

A dispute had arisen between Public Warehousing Company K S C (PWC) and Kamal Mustaffa Al-Sultan Company (KMSC) with respect to a partnership agreement dated July 30, 2002, for the purpose of bidding for the provision of services to the U S Government (the Prime Vendor Services Contract). The partnership agreement provided for the preparation of all infrastructure and assets required for that purpose. KMSC had filed claims againstPWC with respect to the above-mentioned partnership alleging that the financial rewardsarising from the Prime Vendor Contract accrue to the partnership and consequently KMSC is entitled to its share of the rewards. PWC, in turn, has submitted all evidences to the Execution Department in proof of the partnership not having any funds, assets or properties and the eventual non-existence of the partnership, as a consequence of the partners not providing any capital contributions to the partnership. PWC also filed a case requesting nullifying ofthe partnership agreement and delegation of an expert to assess the compensation to which the PWC may be entitled. The court then issued its ruling in which the arbitration clause in the partnership agreement was nullified and the case taken under its jurisdiction. The courtdelegated an expert to assess the damages arising from the non-satisfaction of the partnership commitments. The case is still under review in the Department of Experts and the court. Whilst PWC’s legal consulting firms consider it probable for the company to win the case,the final outcome of this case cannot presently be predicted.

KMSC had also filed a case against PWC requesting receivership over the partnership.However, the case was rejected by the Court of First Instance. Subsequently, the Court of Appeal issued a verdict reversing the ruling issued by the Court of First Instance and appointed a team of official receivers to administer the funds, assets and properties of the



partnership (not those of PWC). The ongoing legal proceedings also included a case filed byKMSC against certain executives of PWC, in which the case was lost. PWC has also appealed against the ruling in which official receivers were appointed as discussed above, seekingcessation of official receivership, but this case was rejected by the Court of Summary Appeal.PWC’s external legal consulting firms advised that the partnership agreement had expired onJanuary 1, 2003, i.e., before PWC was awarded the Prime Vendor Services Contract by the U S Government and as a result the partnership agreement is considered void and of no force or effect. They also advised that the official receivership over the partnership agreement hasno financial impact on PWC or any of its projects.

Based on the foregoing interpretation and the legal opinion of external legal consulting firms,the firms have advised PWC not to provide any amount in respect of the claim or negotiateany settlement with KMSC, and, accordingly, no provision has been made in the consolidated financial statements of PWC.

KMSC also submitted a request to the Reconciliation, Arbitration & Registration Committee of Kuwait Chamber of Commerce & Industry. The Arbitrator issued his decision to withold arbitration procedures until the court issues its final ruling in the case.

In addition to the above, the company is involved in various claims and legal proceedings, including employee compensation and contractor disputes. The in-house legal counsel of the Group believes that such claims are baseless and will not have a material adverse effect on the financial statements of PWC.



Valuation & Recommendation

Earnings Outlook

We have made the following assumptions in our earnings projections for the company till 2008:

1. The projections for 2005 have been made based on the financial results for the first three quartersof the year, assuming a continuation of the growth momentum seen during the period.

2. Revenues accruing to the company as a result of its acquisition of the three companies – Trans-Link, Transoceanic and GeoLogistics – have been taken for the appropriate period during the year.

3. From 2006 onwards, revenues for the full year have been assumed to accrue to the company from the above three acquisitions.

4. Revenue streams from all other existing contracts in the logistics segment have been factored into the projections.

5. Among the operating expenses, expenses under all account heads have been projected for 2006, as also for the subsequent years, keeping in mind the three acquired companies.

6. The operating profit margin is projected to decline every year from 2005 due to freightforwarding costs post the acquisition of the three foreign companies by PWC. The freight forwarding business is known to be a low margin business. Globally, the operating margins in this business are estimated at about 4%. We have, however, projected a gradual tapering of freight forwarding costs in later years, under an assumption of increased synergies among the Group companies.

7. Depreciation has been assumed at 10% on the new fixed assets acquired in 2005.

8. Capital expenditure of KD20mn has been assumed every year between 2006 and 2008.

9. It has been assumed that the company will make no new acquisitions during 2006-’08.

10. Average cost of debt has been assumed as follows: an average coupon of 4.5% on the outstanding bonds; and an average rate of Libor+100bp on the outstanding loans. Libor has been assumed to firm up by 75bp in 2006, 50bp in 2007 and 25bp in 2008.

11. Other income, interest income and investment income have been assumed at appropriate levels each year.

12. A good part of the surplus cash in any year is assumed to be invested both in long-term and short-term investments.

13. Cash dividend rate is assumed to go up from 50% in 2005 to 115% in 2008, with the corresponding payout ratio increasing from 23% to 30%.

14. Transfers to statutory reserves have been assumed at 10% of the net profit every year.



The corresponding movements in the net profit, ratios, earnings per share and book value pershare have been shown in the Table below.

Table 4 : PWC - Earnings and Valuation Ratios 2002 2003 2004 2005 (E) 2006 (P) 2007 (P) 2008 (P)

Net Profit (KDmn) 9.8 39.0 98.5 148.9 231.6 248.3 265.5 OPM (%) 50.2 59.3 56.5 27.8 20.6 20.1 20.3 NPM (%) 65.4 88.6 68.6 30.1 22.2 22.6 23.1 ROAA (%) 11.3 29.8 35.7 21.8 21.0 18.6 17.1 ROAE (%) 12.6 40.3 62.2 40.8 37.0 30.2 26.1 EPS (fils) 28 112 236 219 340 365 390 BVPS (fils) 253 327 488 775 1,064 1,349 1,639

Source: Global Research.

Valuation

DCF Method In order to compute the cost of equity for the Discounted Cash Flow (DCF) method, we have used the Capital Asset Pricing Model (CAPM). The following assumptions have been made in order to arrive at the DCF value of PWC.

1. A risk-free rate of 6.0% has been assumed.

2. An equity risk premium of 6.0% has been assumed.

3. Beta, based on the previous 60 months’ returns, is 1.435.

4. The cost of equity derived from the above assumptions using the Capital Asset Pricing Model (CAPM) is 14.6%.

5. The cost of debt has been assumed at 7.0%, in anticipation of a further firming up ofinterest rates going forward.

6. Based on the above assumptions, the Weighted Average Cost of Capital (WACC) works out to 12.4%.

7. Terminal growth rate of 4.0% has been assumed, keeping in mind the potential growth for the company over the long-term.

Based on our future earnings projections and the above assumptions for DCF computations, the DCF value of PWC is KD3.660 per share.



Table 5 : DCF Valuation of PWC 2005 (P) 2006 (P) 2007 (P) 2008 (P)

Years (No.) 0.02 1.02 2.02 3.02 Free Cash Flow (151.2) 201.1 219.3 228.9 Discount Factors 1.00 0.89 0.79 0.70 WACC 12.4%Discounted Cash Flows (150.9) 178.5 173.1 160.7 Terminal Growth Rate 4.0%Terminal Value 2,827.2 PV of Primary Value 361.5 PV of Terminal Value 1,985.4 Company Value 2,346.9 Cash 187.2 (At end of Sep 2005)Investments 215.8 (At end of Sep 2005)Debt 225.9 (At end of Sep 2005)Equity Value 2,523.9 No. of shares outstanding 689.6 Per Share Value (KD) 3.660

Source: Global Research

All figures in KDmn, unless stated otherwise.

Sensitivity Analysis

A sensitivity analysis for different estimated long-run future growth rates and cost of capital is provided as below. The table provides estimated fair values for PWC’s shares based on a range of varying inputs. The shaded area at the center shows the most probable range of alternatives.

Table 6 : Sensitivity Analysis of PWC Terminal Growth Rate

Cost

of

Capital

2% 3% 4% 5% 6%10.4% 3.789 4.224 4.794 5.575 6.709 11.4% 3.387 3.723 4.150 4.711 5.477 12.4% 3.062 3.329 3.660 4.079 4.629 13.4% 2.795 3.011 3.273 3.598 4.010 14.4% 2.570 2.749 2.961 3.219 3.538


Peer Comparison MethodThe peer group valuation is performed to compare the intrinsic value of PWC arrived at using the DCF calculation. In order to value PWC using this method, we have used the weighted average price-to-earnings (P/E) multiple for a basket of comparable companies. The price-earnings multiple of a stock is a reflection of various factors, such as the expectedprofitability of the company, its growth potential as perceived by the market, predictabilityand sustainability of its revenues, the quality of its earnings and the quality of its management, among others.

To arrive at the peer-set P/E multiple, we have computed the weighted average P/E of two sets of listed logistics companies, based on their current market prices and projected earnings for 2005. The first is a sample of major global companies in the logistics industry. The weightedP/E for these companies is 18.9.



Table 7 :Global Logistics Industry Majors - Weighted Average P/E

Name of Company Based in2005 (P)

Income ($mn)

CMP

($)

M-Cap

($mn)CNF Inc. USA 204.6 55.6 2,908.3 Ryder System USA 224.1 41.0 2,631.1 C H Robinson Worldwide USA 193.6 36.5 6,248.3 Canadian Pacific Railway Canada 494.3 40.8 6,422.6 J B Hunt Transport Services USA 189.2 23.0 3,554.1 EGL Inc. USA 39.8 36.1 1,418.1 Kuehne & Nagel International AG Switzerland 225.4 276.9 6,545.6 Panalpina World Transport (Holding) Ltd. Switzerland 106.8 76.0 1,921.0 Total 1,677.7 31,649.1 Sector P/E 18.9

Source: Hoovers, Euroland , Company Websites.

CMP as on January 13, 2006.

The second is a sample of major logistics companies in the GCC region. The weighted P/E for these companies is 15.8.

Table 8 : GCC Logistics Industry Majors - Weighted Average P/E

Name of Company Based in2005 (P)

Income ($mn)

CMP

($)

M-Cap

($mn)Gulf Warehousing Company Qatar 3.1 11.0 131.9 Kuwait and Gulf Link Transport Company Kuwait 62.2 5.1 689.5 Public Warehousing Company Kuwait 509.8 9.6 6,612.4 Refrigeration Industries Company Kuwait 15.9 2.8 209.5 Saudi Land Transport Company Saudi Arabia 3.8 112.9 406.5 Saudi Public Transport Company Saudi Arabia 32.9 90.0 1,799.6 Transport and Warehousing Group Kuwait 41.6 8.4 752.6 Total 669.4 10,602.0 Sector P/E 15.8

Source: Company Interim Financial Statements, Zawya.

CMP as on January 14, 2006.

PWC admittedly is much smaller in size vis-a-vis its global counterparts, and therefore, may not get the benefits of the latter’s size, global presence, brand equity and stock liquidity. Onthe other hand, it is operating in emerging markets, and has the benefits of higher returnsand higher growth. Since the company has already taken its decisive steps in the direction of expanding its operations globally, we opine that it can be given the benefit of the higherP/E multiple commanded by the global majors. On the basis of the weighted average P/E for the sample of global logistics majors and PWC’s projected 2006 earnings, therefore, the company’s stock valuation comes to KD6.418 per share.

However, as the price-earnings multiple varies with time and is dependent on several factors, such as market sentiment and other qualitative factors, we have provided a lower weightage of 20% to the peer valuation method and 80% weightage to the value arrived at using the DCF method.



Weighted Average Share ValueThe value of PWC’s shares derived from the weighted average of the DCF and peer comparison methods is KD4.211 per share. The stock currently trades at KD2.800 on the KSE, which implies that the weighted average value of PWC’s shares is at a premium of 50.4% to the share’s current market price. At their current price, PWC’s shares have a P/E multiple of 11.9x the 2004 earnings, and forward multiples of 12.8x and 8.2x the estimated 2005 and 2006 earnings respectively. We, therefore, recommend a ‘BUY’ on the PWC stock at its prevailing price levels.

Table 9 : Weighted Average Share Value of PWC

WeightageFair Value

(in KD per share)As per DCF Method 80% 3.660 As per P/E Multiple 20% 6.418 Weighted Average Value 4.211


Recommendation

The company has evolved from a property mangement company to a 3PL/4PL logistics services provider. Its revenues, in recent years, have been driven by contracts from the US armed forces stationed in Iraq and other GCC countries. But, the company is making attempts to de-risk its business model against over-dependance on Iraq-based revenues, and has taken steps to diversify its future revenue streams. As a part of this startegy, it has recently acquired three specialized logistics companies with global reach. The company is targeting niche business segments for its emerging integrated logistics services segment, which is expected to pivot around the new acquisitions as well as its already established logistics network in the region. The company is also listing on the Dubai Financial Market soon, which should enhance its liquidity further. Our weighted average share valuation of PWC indicates a good upside from its current price levels. Therefore, we recommend a ‘BUY’ on the stock.



Annexure

The Evolution of Logistics Industry

Logistics is the process of strategically managing the procurement, movement and storage of materials, parts, and finished inventory (and the related information flows) through anorganisation and its marketing channels in such a way that current and future profitability aremaximised through the cost-effective fulfillment of orders.

Logistics as a discipline began within the military and has evolved from the military’s need of spare-parts supply. In fact, the word logistics comes from loger, the ancient French term for a soldier’s barracks building or quarters. But it is now widely accepted to include activities like purchasing, transport, warehousing, organizing and planning of these activities. In business, logistics may have either internal focus, or external focus covering the flow from originatingsupplier to end-user. Logistics involves optimizing the distribution of freight and freight-flow information from manufacturer to consumer. The industry uses advanced informationsystems and expertise to reduce inventories, cut transportation costs, speed delivery and improve customer service.

There are two fundamentally different forms of logistics. One optimizes a steady flow ofmaterial through a network of transport links and storage nodes. The other coordinates a sequence of resources to carry out a project.

Logistics became a topic for discussion in the business world in the 1960’s and 1970’s and rose to prominence in the 1980’s. It was truly in the 1990’s; however, that logistics began to garner the appreciation it deserved. In the 21st century and beyond, the creation of a sleek, flexible and effective supply and value chains will define the success or failure oforganizations and perhaps even entire business types.

Third-Party Logistics (3PL)

The origins of 3PL can be traced to military forces developing the first logistics systemsfor managing and deploying large volumes of supplies and troops. US businesses firstestablished logistics as stand-alone divisions for transportation and manufacturing. As the walls between divisions gradually broke down, a new logistics approach evolved to help tie together the supply chain, or in other words, the entire movement and storage of freight. New distribution patterns emerged as markets demanded greater speed to consumers, creating distribution sites closer to consumers, just-in-time manufacturing and more comprehensive, precise supply chain management.

Companies during the middle and latter part of the 1990s discovered the benefits of hiringoutside, or third party, logistics experts to manage the total flow of products, from rawmaterials to finished goods. They also saw the value of providing strategic business counsel,enabling companies to become more efficient, competitive and to focus on their own corecompetencies. The industry benefited from its rapid and growing acceptance as a professionin recent years due to proven results from specialized technologies, engineering expertise and proven operational results.



Supply Chain Management (SCM)

Supply Chain Management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose of satisfying customer requirements as efficiently as possible. Supply chain management spans all movement and storage of rawmaterials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.

Some experts distinguish supply chain management and logistics management, while others consider the terms to be interchangeable. From the point of view of an enterprise, the scope of supply chain management is usually bounded on the supply side by the supplier’s suppliers and on the customer side by the customer’s customers.

Logistics Solutions

Some of services offered as part of logistics solutions today are:

Transportation ManagementThis leverages carrier networks put in place by the logistics companies. The service provides visibility and flexibility that increase responsiveness to customers and increase on timelydelivery. An array of multi-modal carriers has come to be increasingly utilized to meet the service and cost requirements of the customer.

Some services offered in this segment are:

• Order Aggregation• Carrier Management and Route Selection• Multi-Modal Rating and Execution• Routing Compliance• Visibility• Merge-In-Transit• Continuous Moves• Fleet, Container and Yard Management

Warehouse ManagementCompanies are offered a competitive supply chain weapon through cost control, visibility and responsiveness. Reductions of 30-50% in time spent on forklift, clerical and inventory activities have often been seen, with near-100% inventory accuracy, reducing costs and increasing the ability to meet customer order requirements. Every client has unique needs based upon their market requirements and manufacturing constraints. Warehouse strategies are designed with each client to optimize the overall supply chain efficiency.


• Warehouse Facilities• Warehouse Procedures and Metrics• Cross-Docking• Inventory Management Programs• Warehouse Management



Supply Chain Management (SCM)Supply chain management is the combination of art and science that goes into improving the way a company finds the resources it needs to make a product or service, manufactures thatproduct or service and delivers it to customers. The following are five basic components ofsupply chain management:

• Management of suppliers• Strategic management of resources• Manufacturing scheduling• Delivery logistics• Management of reverse logistics

Value-Added ServicesA variety of value-added services have evolved to enhance and compliment the core transportation and warehouse management logistics services. These value added services facilitate strategies to lower finished goods inventories by postponing final assembly andlabeling until customer orders are received.


• Postponement or localization • De-trash and recycle • Assembly and packaging services • Inventory management • Material supply programs • Bundling/unbundling • Kitting • Configuration• Labeling • Return inspection • Planning management



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CASH FLOW The Public Warehousing Company - KSC Amount in Kuwaiti Dinars 2002 2003 2004 2005 (P) 2006 (P) 2007 (P) 2008 (P)Operating ActivitiesNet profit for the year (before KFAS & BOD) 10,221,489 40,509,766 102,802,715 160,597,789 251,232,652 269,323,212 287,983,356 Adjustments for:Depreciation and amortization 1,086,564 2,940,041 7,611,526 21,487,255 31,465,551 34,731,297 37,506,426 Investment income 619,523 283,843 (560,733) (1,090,917) (7,250,000) (13,225,000) (19,987,500)Interest income (30,032) (37,240) (215,737) (1,575,419) (429,777) (218,737) (212,102)Interest expense 24,484 358,498 2,219,457 4,765,209 8,843,609 6,238,550 5,689,644 Provision for staff indemnity 31,858 205,828 542,576 5,998,959 1,131,689 1,214,339 1,283,084 Gain on sale of fixed assets (10,508) - - - - - - Provision for doubtful debts 101,022 284,000 3,157,370 - - - - Change in fair value of investment properties (7,930,996) (14,877,073) (22,205,452) (24,169,664) (34,358,313) (35,089,341) (34,165,937)Impairment losses of fixed assets 1,755,172 - - - - - - Provision for impairment of accounts receivable 2,643,803 - - - - - - Impairment losses of other assets 323,277 - - - - - - Goodwill - - - (157,007,068) - - - Provision for impairment of goodwill - - 5,277,789 - - - - Foreign currency translation adjustment - - - (29,096) - - - Other income - - - (1,077,796) (3,839,027) (5,355,028) (5,630,667)Interest received 60,168 37,240 215,737 - - - - Interest paid (24,484) (358,498) (2,219,457) - - - - Income tax paid (83,610) - (435,614) (1,500,000) (1,615,939) (1,727,900)Remuneration paid to Board of Directors (35,000) (35,000) (49,000) (140,000) (140,000) (140,000) (140,000)Payment to KFAS (131,092) (142,993) (215,526) (1,391,363) (2,166,965) (2,322,897) (2,483,830)NLST paid (166,847) (286,187) (14,689) (2,859,240) (4,454,077) (4,774,796) (5,105,801)Extraordinary income - 115,579 228,636 198,230 - - - Operating profit before working capital changes 8,454,791 28,997,804 96,575,212 3,271,266 238,535,341 248,765,659 263,008,771 (Increase)/Decrease in net accounts receivable (495,545) (18,997,128) (44,438,680) (144,775,096) (73,339,252) (40,579,037) (36,939,344)(Increase)/Decrease in inventories - (22,363,465) (43,041,360) (7,973,302) (27,050,123) (8,888,833) (7,330,706)(Increase)/Decrease in other assets (320,958) (6,041,244) (2,677,691) (37,041,817) (8,383,053) (3,168,030) (2,685,943)Increase/(Decrease) in accounts payable & other

credit balances (427,459) 20,797,968 70,323,695 93,830,047 90,361,481 42,090,781 31,733,522

Increase/(Decrease) in Other Non-Current Liabilities - - - 19,948,756 997,438 1,047,310 1,099,675 Net cash from Operating Activities 7,210,829 2,393,935 76,741,176 (72,740,145) 221,121,831 239,267,849 248,885,976 Investment ActivitiesNet paid for purchase of investments - - (20,000,000) (20,000,000) (25,000,000) (15,000,000)Investment in Associates - - - (7,255,288) (400,375) (420,394) (441,413)Paid for purchase of subsidiary (3,405,499) (3,808,870) (133,939) - - - - Paid for purchase of fixed assets (298,051) (4,631,396) (32,218,189) (78,479,532) (20,000,000) (20,000,000) (20,000,000)Payment for projects in progress (5,547,006) (9,505,027) (64,569,256) - - - - Paid for purchase of investment properties - (220,797) - (85,090,519) (11,133,530) (13,408,122) (15,832,995)Proceeds from sale of fixed assets 25,440 42,506 - - - - - Proceeds from sale of investment properties 612,715 572,826 - - - - - Purchase of investments available for sale (226,554) (1,391,381) (15,179) (76,632,431) (70,000,000) (124,000,000) (106,500,000)Purchase of investment in joint venture - (352,478) (32,339) (50,360) (51,809) (54,400) (57,120)Proceeds from sale of joint venture - 500,000 - - - - - Other income - - - 1,077,796 3,839,027 5,355,028 5,630,667 Investment Income - - - 1,090,917 7,250,000 13,225,000 19,987,500 Interest income - - - 1,575,419 429,777 218,737 212,102 Net cash from Investment Activities (8,838,955) (18,794,617) (96,968,902) (263,763,999) (110,066,910) (164,084,150) (132,001,260)Financing ActivitiesEquity capital issued - - - 7,100,001 - - - Equity capital premium - - - 152,650,000 - - - Cash dividend to shareholders (5,571,923) (4,627,418) (8,561,029) (11,234,465) (30,635,653) (49,017,045) (61,271,306)Proceeds from long-term loan 3,250,000 - 153,163,827 (46,547,000) (20,438,000) (20,438,000)Proceeds from short-term loan - 14,036,217 29,377,727 (5,210,373) (29,794,758) - - Proceeds from issue of bonds - 7,198,275 14,916,523 7,336,246 - - (29,453,660)Paid for purchase of treasury shares - - - (15,507,125) - - - Proceds from sale of Treasury Shares - - - 42,825,441 - - - Interest expense - - - (4,765,209) (8,843,609) (6,238,550) (5,689,644)Net cash from Financing Activities (2,321,923) 16,607,074 35,733,221 326,358,342 (115,821,020) (75,693,595) (116,852,610)Net change in cash and cash equivalents (3,950,049) 206,392 15,505,495 (10,145,802) (4,766,099) (509,895) 32,106 Opening balance of cash & cash equivalents 6,139,227 2,189,178 2,395,570 17,901,065 7,755,263 2,989,163 2,479,268 Closing balance of cash & cash equivalents 2,189,178 2,395,570 17,901,065 7,755,263 2,989,163 2,479,268 2,511,374



RATIOS The Public Warehousing Company - KSC Unit 2002 2003 2004 2005 (P) 2006 (P) 2007 (P) 2008 (P)

LIQUIDITY RATIOSCurrent Ratio X 1.4 1.3 1.2 1.6 1.6 1.6 1.6 Quick Ratio X 1.2 0.6 0.6 1.0 1.1 1.1 1.2 Cash Flow from Operations Ratio X 1.2 0.7 0.7 0.0 0.8 0.7 0.7 Inventory Stock days --- 243 265 72 39 44 46 Receivables Outstanding days 177 133 118 103 87 101 109 Length of Operating Cycle days --- 376 383 175 126 145 155 Payables Outstanding days 231 331 370 149 105 126 136 Length of Cash Cycle days --- 45 14 26 21 19 19

PROFITABILITY RATIOSTotal Asset Turnover X 0.2 0.3 0.5 0.7 0.9 0.8 0.7 Total Net Fixed Asset Turnover X 4.9 3.9 3.7 4.9 7.5 8.4 9.7 Equity Turnover X 0.2 0.5 0.9 1.4 1.7 1.3 1.1 Operating Margin % 50.2 59.3 56.5 27.8 20.6 20.1 20.3 Net Profit Margin % 65.4 88.6 68.6 30.1 22.2 22.6 23.1 Return on Average Assets % 11.3 29.8 35.7 21.8 21.0 18.6 17.1 Return on Average Equity % 12.6 40.3 62.2 40.8 37.0 30.2 26.1

ACTIVITY RATIOSInventory Turnover Ratio X --- 1.5 1.4 5.0 9.4 8.3 8.0 Debtor turnover Ratio X 2.1 2.7 3.1 3.5 4.2 3.6 3.3 Creditors Turnover Ratio X 1.6 1.1 1.0 2.4 3.5 2.9 2.7

LEVERAGE RATIOLong term Debt / Equity X 0.0 0.1 0.2 0.4 0.2 0.1 0.1 Cash from Operations to Total Liability X 0.8 0.5 0.5 0.0 0.5 0.5 0.5 Capital Expenditure Ratio X 1.4 2.0 1.0 0.0 7.7 7.4 7.3 Total Debt / Assets X 0.1 0.3 0.5 0.5 0.4 0.4 0.3

RATIOS USED FOR VALUATIONEarnings per share (EPS) fils 28 112 236 219 340 365 390 Book Value Per Share fils 253 327 488 775 1,064 1,349 1,639 Dividend Payout % 48.3 22.2 12.7 22.9 23.5 27.4 29.5 Dividend Yield % 4.7 1.2 0.9 1.0 1.8 2.9 3.6 Market Price (End of Year) KD 0.380 1.220 2.760 2.900 2.800 2.800 2.800 P/E X 13.5 10.8 11.7 13.2 8.2 7.7 7.2P/BV X 1.5 3.7 5.7 3.7 2.6 2.1 1.7

* Market price for 2006 and subsequent years as per closing price on KSE on January 14, 2006.

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The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure.

1. Global Investment House did not receive and will not receive any compensation from the company or anyone else for the preparation of this report.

2. The company being researched holds more than 5% stake in Global Investment House.3. Global Investment House makes a market in securities issued by this company.4. Global Investment House acts as a corporate broker or sponsor to this company.5. The author of or an individual who assisted in the preparation of this report (or a member of his/her

household) has a direct ownership position in securities issued by this company.6. An employee of Global Investment House serves on the board of directors of this company.7. Within the past year , Global Investment House has managed or co-managed a public offering for

this company, for which it received fees.8. Global Investment House has received compensation from this company for the provision of

investment banking or financial advisory services within the past year.9. Global Investment House expects to receive or intends to seek compensation for investment banking

services from this company in the next three month.10. Please see special footnote below for other relevant disclosures.

This material was produced by Global Investment House KSCC (‘Global’),a firm regulated by the CentralBank of Kuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time,to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities (‘securities’), perform services for or solicitbusiness from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients.Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. Accordingly, norepresentation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgement. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or ommission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document.Opinions and estimates constitute our judgment and are subject to change without prior notice.Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person.Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. By accepting this report you agree to be bound by the foregoing limitations.

Disclosure Checklist

Public Warehousing Company - KSC

Company Recommendation Ticker Price Disclosure

BUY WARE.KW KD2.800 1, 10

Global Research: Equity Ratings Definitions

Buy

Hold

Reduce

Sell

Global rating Definition

Fair value of the stock is >10% from the current market price

Fair value of the stock is between +10% and -10% from the current market price

Fair value of the stock is between -10% and -20% from the current market price

Fair value of the stock is < -20% from the current market price

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