Pundits looking at global economic indicators of the past year have every right to be anxious. Central Banks led by the FED are trying to fine tune that delicate balance between keeping inflation in check by raising interest rates and avoiding recession. At SICO we have not been immune to the market turbulence of 2022, and we are well aware of the risks ahead, but we are also of the belief that its not all doom and gloom. Looking back on our overall performance for the past year, we still believe that our region and our business are resilient, and we are approaching the months ahead with equal measures of caution and optimism.

If we look at our 2022 results, we can see that it has been a year of two fortunes. On the one hand, we saw our fee income take a very minor dip of 5% year-on-year due to lower performance fees, we still managed to achieve a new gross AUM milestone of USD 4.8 bn, and our other interest income saw solid growth of 43% year-on-year on the back of further expansion in our leveraged asset management mandates. All very commendable achievements given the suboptimal market conditions that we experienced during the year.

On the other hand, the turbulent global market conditions that characterized much of 2022 led to a massive slide in equities and bonds that negatively impacted our investment income resulting in a 76% year-on-year decline. Despite the daunting set of challenges that we were faced with, our core business lines still managed to deliver a solid performance which helped us to offset the lower investment income and register reasonable levels of profitability while still creating new opportunities that leverage our strengths as a business.

But before we delve down into the details of our financial and operational performance in 2022, I would like to reflect on an important change that we have undergone during the past year. After 20 plus years at our old premises, SICO has relocated to a new home in Bahrain’s iconic World Trade Center (BWTC). Our new offices at BWTC are not only more modern, spacious, and environmentally friendly, they are more befitting of where we are today and where we want to be tomorrow as a regional investment bank.

On the pages of this report, we wanted to give you a glimpse of SICO’s new state-of-the-art headquarters. The modern, energy-efficient design and open workspaces are more conducive to the team spirit and collaborative work ethic that SICO embodies. The move is also indicative of the long-term investments that we are making in our business, not only in aesthetics and additional space, but also in systems and people. Along with the move to a new physical space we have upgraded and introduced new systems that are enabling us to serve our clients better and scale the business across geographies. Being able to provide a higher quality work environment for the current and future employees of SICO is also, in my opinion, one of the biggest wins of the past year.

All the changes that we have made in the past year are closely aligned with our strategy to grow and expand the businesses across our three geographies, Bahrain, Saudi Arabia and the UAE. One of our biggest achievements in 2022 has been the completion of the transaction to acquire the remaining 27.29% stake that was held by Bank Muscat in SICO Capital, our fully owned subsidiary in KSA. The completion of this deal, that was originally structured in 2020, gives us a strong

competitive advantage as a regional market player in the GCC’s largest market. In 2022 we have made good progress on integration between the teams in Bahrain and SICO Capital in Riyadh but becoming fully integrated takes time, so it’s still a work in progress. We did however, double our headcount and initiate a new custody and fund administration line of business in Saudi Arabia. Our ‘SICO Money Market Fund’ won the Best Performing Investment Fund Award in the category of Murabaha and Liquidity Funds with assets less than one billion riyals during 2022, while our ‘Gulf Dividend Growth Fund’ won the Best Performing Investment Fund Award in the Gulf Equity Funds category. The growth prospects for all our lines of business in KSA are extremely promising and we look forward to exploring them further in the coming year.

Market Background

2022 was a year that was characterized by aggressive interest rate hikes, supply-side disruptions, military conflict, and Brent prices that fluctuated between USD 75-140. It was one of the worst years for fixed income as the Fed embarked on an aggressive hiking cycle raising its rates by 4.25% to tame record inflation as commodity prices spiraled out of control post covid-recovery and further exacerbated by the Russian invasion of Ukraine. Overall GCC fixed income markets were down 10.9% as high duration and investment grade papers sold off.

All of these market conditions led to a historic year of losses with global stocks and bond losing approximately USD 30 tn in value. Stocks measured in the MSCI All-World index experienced their largest annual loss since 2008 while global corporate and sovereign debt lost USD 9.6 tn in value.

Buoyed by strong oil prices, most countries in the GCC were in a relatively better position than their peers in 2022 ending the year with a fiscal surplus that will allow them to move full speed ahead with national projects, create new jobs for their citizens, diversify their economies away from oil and propel their gradual transition to renewable energy sources. We are confident in the GCC’s ability to not only avoid recession but to achieve double the growth that is currently forecasted globally with Saudi Arabia and the UAE both taking the lead.

Operational Review

Given the prevailing market conditions, our strength and agility as a business were really put to the test in 2022, and I’m pleased to report that we delivered commendable results across the board that stand as a testament to the success of SICO’s diversified operational strategy and its leading market position.

Throughout the year we continued to execute on our strategic objectives as outlined in our Vision 2025 which focuses on both organic and inorganic growth opportunities across our asset management, investment banking, brokerage, and custody & fund administration lines of business as we continue to work to introduce new products and services. Today we have established a platform, SICO LIVE Global, that allows clients to trade international stocks, ETFs, bonds, and mutual funds across more than 25 regional and global markets.

The asset management division delivered a strong performance and maintained its regional leadership position with a 6% increase in gross AUMs and 2% increase in net AUM to USD 4.8 bn in gross AUM and USD 4.2 bn in net AUM at year-end 2022. Our key funds continued to consistently outperform their respective benchmarks with SICO’s flagship Khaleej Equity Fund outperforming the S&P Pan Arab Benchmark by 7.7% on a gross returns basis in 2022. The fixed income team’s performance and ability to navigate volatility also helped them stay ahead in 2022 with their flagship conventional fixed income fund outperforming the Bloomberg GCC Bond index by 6.9%.

We have also further diversified our institutional client base and our AUM which now includes components of equities, a significant and material component of fixed income, money market and real estate. This diversification adds further stability to an asset management business that is being consistently recognized as one of the strongest in the region. In 2022, SICO was named one of Forbes Middle East Top 30 Asset Management Companies in the Middle East and Bahrain’s Asset Manager of the Year by the Global Investor Group MENA. Our award-winning Fixed Income team also received accolades as Best Sukuk Manager and the SICO Fixed Income Fund was named best performing GCC Bond Fund in 2022.

SICO’s highly experienced investment banking team continued to lead the market in Bahrain. For the third consecutive year we were recognized as Best Investment Bank in Bahrain by Global Finance. One deal that we were particularly proud of this year was the successful completion of the cross-border acquisition of 100% of Ahli United Bank (AUB) by Kuwait Finance House (KFH). SICO investment banking was mandated as the Bahrain receiving agent, execution advisor, and cross-listing advisor for this historic deal that was three years in the making. It’s now down in the record books as the 3rd largest banking acquisition in GCC history that has created the region’s 6th largest bank and the 2nd largest Islamic lender in terms of asset size with USD 115 billion in assets. The offer received acceptances representing 97.273% of AUB’s shares, far exceeding expectations and surpassing KFH’s minimum condition of 90%.

More recently, the investment banking division was also mandated as an advisor for Bahrain Family Leisure Company B.S.C (BFLC) on a potential M&A deal with DGC Hospitality & Partners– a deal that will create a powerful F&B player in the Bahraini market. The team also advised Al Jazeera Tourism Company (AJTC) on the execution of a sale and purchase agreement for 100% of Novotel Al Dana Resort to Gulf Hotels Group. Both mandates are critical to the development of Bahrain’s burgeoning hospitality sector and as always, we are proud to play a role in the growth of our national economy.

Brokerage activities were slightly lower in the face of market volatility, lower turnover and lack of liquidity but SICO Brokerage retained its ranking as the number one broker on the Bahrain Bourse for the twenty-fourth consecutive year. Our online trading platform SICO LIVE was revamped and enhanced introducing new functionality including eKYC onboarding. Our brokerage services are backed by SICO’s top-notch Research that clients have come to trust as a leading source of information on companies and markets in the region. The valuable insight that our proprietary research provides has become increasingly important during times of uncertainty. In 2022, SICO’s Top-20 Picks newsletter, which lists the GCC’s top 20 stocks, has consistently outperformed its benchmark, the S&P GCC Index, generating a cumulative return of 152% since its launch in 2017. We are also proud to announce that

we have launched a new Research mobile app which will increase the accessibility of our research to our growing base of clients across the region.

SICO’s Bahrain flagship fund, The Bahrain Liquidity Fund (BLF), represented 36% of the total traded value on the Bahrain Bourse in 2022. Given the decrease in the overall liquidly on the Bourse, the increased participation rate of the Fund highlights its importance during volatile times.

Our securities and fund administration business line has made great strides during 2022. Not only have we introduced a new full range of custody and fund administration services to the Saudi market, but we have also enhanced the existing service offering in Bahrain through SICO Funds Services (SFS). The automated solutions that we are providing allow investment managers to outsource their administrative overheads and enhance efficiencies.

These solutions are a part of our overall digitalization drive and the adoption of new digital solutions that will allow us to run all our operations more efficiently, provide better access to data, and ultimately offer better services to our clients. As we move to upgrade our digital infrastructure, cybersecurity has become vital to the safety and continuity of operations.

Having a cybersecurity operations center with 24/7 monitoring of all SICO’s systems to ensure that we are protected against any potential threats, is a milestone achieved in 2022, which will be further reinforced going forward.

ESG

Examining and measuring our ‘impact’ is key for us going forward; the impact of our operations on the environment, the impact of our programs on the community and the impact of SICO as an employer on our people. We want to ensure that we are achieving the maximum positive impact on all fronts.

On the environmental front our crowning achievement for the year was the publication of our first greenhouse gas (GHG) emissions report to measure the amount of carbon SICO and its subsidiaries emit as part of day-to-day operations. We take deep pride in being one of the first businesses in Bahrain to issue a report of this nature that will serve as the base line for us to to measure and monitor our impact and reduce our carbon footprint. As climate change continues to be a central issue on both government and business agendas, it is crucial that we step up our efforts to become a greener business.

Social responsibility is something that we have always taken seriously. There is a story behind everything we do which is why we carefully select each and every project and initiative that we support to make sure that our efforts are achieving the maximum benefit for our stakeholders. We believe that it’s not just about the amount of money that we contribute but about the sustainability of an initiative and the multiplier effect that it can have on our communities.

Our people are the backbone of our organization, and we want to ensure that they are well-treated, well-trained, and well-rewarded. We pride ourselves on being a diverse, equal opportunity workplace that attracts and retains top regional talent. We also make an effort to develop talent internally and externally by partnering with entities that provide practical skills training for our people as well as for youth, and particularly women in our community who remain underrepresented in the financial sector.

The Year Ahead

I believe that the year ahead will be challenging but one that still holds a great deal of promise for businesses that can deliver value. With all the talk of recession, we have not yet seen that materialize into reality, neither regionally nor globally. While Europe has some significant challenges, the numbers coming out of the US are still positive in terms of both economic growth and employment.

Fourth quarter growth figures from the US were better than expected with 2.9% GDP growth, a strong job market and slightly lower rates of inflation which could lead the FED to ease the rate hikes. Of course, the picture is not all rosy, we are still seeing big companies in tech and finance layoff thousands of workers, consumer spending has gotten weaker, and it remains to be seen whether or not the US market will remain resilient.

From our perspective at SICO, we are well positioned to create value in 2023. Even if the worstcase scenario transpires and we do enter into a period of recession, we are preparing ourselves for a moderate to low growth environment. I don’t believe that anyone should prepare for a severe scenario because that will simply result in zero risks and things will come to a standstill. Businesses should have contingency plans but for now it should be business as usual with some measure of caution when it comes to very risky assets.

Today both the government and the private sector have an excellent opportunity to do things better and faster while oil prices are up. Both public and private business have learned their lesson and are no longer taking high oil prices for granted. They are executing on their plans within this relatively vibrant environment. While interest rates remain high, we do have liquidity in the system, the diversification of our economies continues, and government private sector partnership is key for long-term projects that will have a positive impact on the economy.

We look forward to what’s to come in the new year and are hopeful that the worst is behind us. Regardless of what 2023 has to offer, we are ready to tackle the challenges and embrace the opportunities. With a strong IPO pipeline, pro-business government reforms, and high oil prices that are expected to continue on the back of the OPEC+ agreement, we remain bullish on Saudi Arabia and expect that a large chunk of our business growth going forward will come from the Kingdom.

I would like to thank everyone that has helped us on our journey to becoming a regional investment bank, with particular thanks and gratitude to our Chairman, Shaikh Abdullah bin Khalifa Al Khalifa, and to the entire Board of SICO. Your steadfast support and dedication are a true asset to our business and one of the key pillars of our success.

We would not be where we are today without the trust of our clients, shareholders, and partners, as well as the Central Bank of Bahrain and the Bahrain Bourse. We are truly fortunate to operate within such a reputable and supportive community of stakeholders. And to the SICO team, I am privileged to work alongside each and every one of you. I would like to express my utmost gratitude for your hard work, dedication and most of all to the ingenuity that you have demonstrated day in and day out. It is what has gotten us through the pandemic and the market turbulence, and it is what will help us reach our goals.

Najla M. Al Shirawi