Management Discussion and Analysis

SICO reported a consolidated net profit attributable to shareholders of BD 6.4 million (USD 17 million) in 2021, an increase of 116% from the BD 3.0 million (USD 7.8 million) recorded at year-end 2020. This bottom-line expansion was driven by a year-on-year increase of 70% in SICO’s net operating income, which booked BD 17.7 million for 2021. SICO’s financial performance for the year was driven by a broad-based operational expansion witnessed across the Bank’s divisions, which successfully leveraged the recovery in regional markets to drive business growth. SICO recorded a total comprehensive income of BD 7.1 million (USD 18.8 million) for 2021, an increase of 142% from the BD 2.9 million (USD 7.7 million) booked one year previously. Earnings per share amounted to 15.96 Bahraini fils per share for 2021, up by nearly double from the 8.00 Bahraini fils per share recorded for 2020.

I. Appropriations

SICO’s Board of Directors has recommended a dividend of 8% of the share capital, (5% cash dividends and 3% stock dividends) aggregating to BD 3.4 million (USD 9.02 million), equivalent to 8 Bahraini fils per share, subject to the approval of the Central Bank of Bahrain and the General Assembly. The amount proposed by the Board of Directors for 2021 marked an increase from the cash dividend of 5 fils per share distributed for 2020, up by 3% as a proportion of SICO’s share capital.

II. Asset Management

SICO’s assets under management (AUM) increased substantially during the year. On a gross basis (including leverage), SICO’s total AUM increased by 80% to USD 4.5 billion in 2021 compared to the USD 2.5 billion recorded on 31 December 2020. On a net basis (excluding leverage), total AUM increased by 76% to USD 4.1 billion in 2021, compared to the USD 2.3 billion recorded on 31 December 2020. This increase reflects the recovery in regional capital markets during the year, the addition of new client mandates, the introduction of new products, as well as the consolidation of AUM at SICO Capital following its acquisition in March, which has expanded SICO’s exposure to KSA’s dynamic real estate market. Rapid growth in AUM during 2021 further reflects the asset management team’s consistent strong performance.

SICO’s flagship Khaleej Equity Fund booked returns of 37.6% for 2021, maintaining its place as one of the best-performing GCC-focused funds.

By year-end 2021, the Khaleej Equity Fund had yielded a five-year gross return of 133.3%, outperforming the benchmark by 74.2% and ranking it the best-performing GCC fund over the period. Meanwhile, SICO’s Kingdom Equity Fund, which invests in Saudi-listed equities, generated a return of 36.7% for the year, markedly outperforming the wider market. The Kingdom Equity fund has achieved a five-year annualized gross return of 20%, significantly exceeding the annualized benchmark return of 13.9% for the period.

SICO’s Fixed Income Fund fared exceptionally well in 2021, closing the year at 1.5% ahead of the Bloomberg GCC Bond Index, which increased by 1.2% in 2021, driven by the solid recovery in GCC fixed income activity that began during the second half of the year. Several of SICO’s discretionary fixed income funds have also significantly outperformed benchmark indices in 2021, placing SICO Asset Management as the best-performing fund manager in the MENA sukuk space.

Management fees booked BD 4.2 million in 2021, up from BD 3 million one year previously, and performance fees also increased to BD 3.6 million in 2021, up from BD 69 thousand in 2020.

III. Brokerage

SICO Brokerage leveraged the recovery in GCC markets, the vibrancy in primary markets, and the uptick in IPO activity during 2021 to further develop its product portfolio and expand its client base, drive strong performance for the year. SICO Brokerage maintained its first-place ranking on the BHB for the twenty-third consecutive year, with its market share of traded value coming in at 59.6% in 2021 against 56% one year previously.

Operating across both the equity and fixed income spaces, SICO offers brokerage services out of Bahrain and through its fully owned subsidiary SICO Financial Brokerage (SFB), based in Abu Dhabi, UAE. SFB continued to expand SICO’s presence in the UAE market during 2021, while the acquisition of SICO Capital in KSA has given SICO a foothold in the Kingdom’s brokerage market.

SICO Brokerage’s fixed income operation recorded transaction volumes of USD 2.3 billion in 2021, reflecting an increase of 65% against the USD 1.4 billion booked in 2020 driving strong performance for the year. SICO Brokerage’s new Global Markets division completed its first full year of operations, providing clients with access to international stocks, bonds, ETFs, options, and other liquid tradeable asset classes spanning more than 33 countries and over 135 exchanges. SICO LIVE Global, the division’s international trading platform, continued to drive business in 2021, providing diversified and direct exposure to a variety of international asset classes.

IV. Investment Banking and Real Estate

SICO Investment Banking continued to consolidate the Bank’s position as an adviser of choice and a regional leader in the provision of innovative value-added services and solutions. The investment banking team continued to handle a large volume of complex, multiyear advisory mandates for clients in a diverse number of sectors. Additionally, SICO Investment Banking continued to deepen its market dominance as an adviser of choice on high-profile Bahraini deals.

The year saw SICO Investment Banking continue to execute its mandate as financial adviser to Mumtalakat Holding Company on the merger of the company’s wholly-owned subsidiary, General Poultry Company, with Delmon Holding Company, a landmark transaction in the Bahraini poultry industry. Meanwhile, 2021 saw SICO Investment Banking act as the receiving and delisting agent for Investcorp, a global investor manager, in its delisting from the BHB, a mandate involving a high level of coordination and cooperation with several regional and global entities.

The diligence and expertise of SICO’s investment banking team was on full display during SICO’s acquisition of SICO Capital in KSA early in 2021. SICO Investment Banking was involved in the structuring and closing of this landmark transaction, seamlessly executing its role and helping establish a major presence for SICO in one of the region’s largest and most dynamic markets.

V. Proprietary Investments

SICO’s proprietary investments are classed under three components: fair value through profit or loss (FVTPL), fair value through other comprehensive income (FVOCI), and amortized cost (AC). Proprietary investments generated net investment income of BD 4.4 million in 2021 against BD 2.2 million one year previously, with continued positive results helping insulate SICO from prospective market volatility. Strong performance of proprietary investments reflects SICO’s strategic allocation of funds, along with tactical hedges and derivative purchases.

VI. Treasury

Despite a significant decrease in global interest rates in 2021 as central banks sought to loosen monetary conditions, SICO’s Treasury Division successfully continued to ensure the liquidity of the Bank’s balance sheet. Treasury booked net interest income of BD 1.8 million in 2021, an increase of 27% from the BD 1.4 million booked one year previously. FX income contributed BD 760 thousand to overall Treasury income for the year, which stood at BD 1.43 million. The strength and liquidity of SICO’s balance sheet was evident in the Bank’s capital adequacy ratio of 57.7% booked at year-end 2021.

VII. Market Making

SICO continued to distinguish itself as the BHB’s leading market maker in 2021, continuing to provide liquidity for large listed companies in its home market. SICO registered a participation rate of approximately 52% of the total traded value in the Bourse, down from 56% one year previously. The Bank’s signature market making fund, the Bahrain Liquidity Fund (BLF), represented 34% of the total average daily traded volume (ADTV) on the BHB, generating an annual return of 11.4% in 2021. SICO received regulatory renewals for most of market making mandates in the Bahraini market. The Bank recorded total market making income of BD 459 thousand in 2021, down from BD 501 thousand in 2020.