AL-ENMA'A REAL ESTATE COMPANY K.S.C.P
Ratio Analysis for the years ended 31 October 2015, 2014, and 2013.
9 February 2016
Background
Al-Enma'a Real Estate Company K.S.C.P. (hereinafter referred to as the
“Parent Company” is a Kuwaiti public shareholding company registered and incorporated in
the state of Kuwait. The Parent Company is a subsidiary of Kuwait Finance House K.S.C.P.
(hereinafter referred to as the “Ultimate Parent Company”).
The Parent Company and its subsidiaries (collectively the “Group”) prepare its financial
statements in accordance with International Financial Reporting Standards (“IFRS”) issued
by the International Accounting Standards Board (“IASB”).
The company is listed on the Kuwait Stock Exchange ("KSE").
The Parent Company is engaged in real estate activities include contracting, management
and maintenance of real estate. The Parent Company undertakes contracts to construct
buildings and to carry out real estate, commercial, residential, industrial and touristic
projects as well as security of public and private real estate, and the transportation of funds
and precious metals, in addition to maintenance of mechanical and electrical spare parts
and building materials. Surplus funds are invested in direct equity investments, real estate
and equity portfolios managed by specialist managers, both local and foreign.
Introduction
The management of Al-Enma'a Real Estate Company K.S.C.P (“Al-Enma’a” or “we” or “us” or
the “Management”), have prepared financial ratios analysis for the years ended 31 October
2015, 31 October 2014, and 31 October 2013 to outline the enhancements / improvements
occurring in the business in the aforementioned years.
This presentation outlines the following:
v Comparison for major ratios throughout the past three years (i.e. 31 October 2015, 31
October 2014 and 31 October 2013);
v Highlighting the major ratios computed for the years ended 31 October 2015, 31 October
2014 and 31 October 2013;
v Benchmarking with similar listed real estate entities major ratios; and
v Outlining the enhancement / improvement reasons behind the financial ratios for the years
ended 31 October 2015, 31 October 2014 and 31 October 2013.
Liquidity Ratio Analysis
Net Working Capital
Current & Quick Ratios
4,000,000
1.20
2,000,000
1.00
2015
(2,000,000)
2014
2013
Net Working
Capital
0.80
Current
Ratio
0.60
Quick
Ratio
(4,000,000)
0.40
(6,000,000)
0.20
(8,000,000)
0.00
2015
(10,000,000)
Analysis Justification
•
•
•
2014
2013
The net working capital shows a deterioration in 2014 followed by an improvement in 2015. The drop in working capital in 2014 is mainly
due to the new Murabaha facilities obtained during the period, for a total value of KD 4,482K, these facilities were obtained from Boubyan
Bank and Ahli United Bank.
Current assets grew by 6%, while current liabilities increased by 12% in 2014, which illustrates the decrease in working capital, along with
current and quick ratios for 2014 because of the spending in Sabah Al Ahmed project as a result of accelerating percentage of completion
of Sabah Al Ahmad project.
The improvement in net working capital and liquidity ratios in 2015 is due to the rise in amount due from customers and accounts
receivables for an amount of KD 9M due to the work in process progress relating to Subah Al Ahmad housing city construction project
leading to such increase in amount due from customers. In addition, Al Enma’a partially settled an amount of KD 3 million for Murabaha
payable obtained from KFH Bahrain.
Inventory Analysis and Account Receivable
Days Sales Outstanding Justification:
Days Sales & Inventory
Outstanding
Days Sales Outstanding
Days Inventory Outstanding
254
2013
72
238
2014
68
218
2015
54
The days sales outstanding demonstrates improvement in collecting
receivables across the periods by reduction in the number of days
outstanding. The revenue from maintenance contract services
rendered grew by KD 3.07M for contracts related to the Ministry of
Health (“MoH”) (percentage of completion in 2014 for two services
contracts rendered to the MoH were AlAdan Hospital at 19% &
Mental Health at 52% compared with 5% & 18% in 2013). The
increase in accounts receivable turnover is due to the revenue
increase in 2014 by 21% compared with 2013, while the average
receivables of 2014 & 2013 rose by only 13% compared with the
average receivables of 2013 & 2012.
In 2015, days sales outstanding shows improvement compared to
2014 due to an increase in revenue of KD 8m, which is mainly due
to the contribution of KD 9M revenue earned from construction
services in 2015 compared to 2014.
The days inventory and sales outstanding illustrates growth in
utilization (decrease in number of days) across the periods (from
2013 to 2015). The fall in the inventory days in from 72 to 68 days
in 2014 and from 68 to 54 in 2015, is mainly due to the increase in
utilization of the company's inventory for supplying the
subcontractor of Sabah Al Ahmed Project due to the increase in
percentage of completion for this project from 19% in 2013 , 48% in
2014, and 88% in 2015.
Assets Turnover Analysis
Assets Turnover
0.50
0.45
0.40
0.35
0.30
0.25
Asset Turnover
0.20
0.15
0.10
0.05
2015
2014
2013
Assets Turnover Justification:
Assets turnover shows a steady improvement throughout the periods. The ratio increased during the period from 2013 to 2015 because the
percentage increase in revenue (numerator) is higher than the percentage increase in assets (denominator). The major reason for the
increase in revenue in 2014 compared to 2013 is due to the increase in maintenance contract services rendered for contracts related to the
MoH, amounting to KD 3.07M, (percentage of completion in 2014 for two services contracts rendered to the MoH are 19% & 52% compared
with 5% & 18% in 2013).
In 2015, revenue rose by KD 8M compared to 2014, which mainly consists of the growth of the revenue earned from construction contracts.
The construction contracts increased in revenue from Subah Al Ahmed project by KD 4.11M due to achieving percentage of completion of
88% in 2015 compared to 40% in 2014.
Assets Turnover Analysis (cont’d)
Debt to Assets
0.3
22.5%
0.2
23.1%
18.8%
Total Debt to Assets Ratio
0.1
0
2015
2014
2013
Debt to Assets Justification:
Both debt and assets increased in 2014, however, the increase in total debt (numerator ) by 10% is higher than the percentage increase in
total assets (denominator by 7%). The increase in total debt is due to the same reason as the decrease in net working capital; the new
Murabaha s obtained for a total amount of KD 4,482k to fund the purchase of 3 investment properties located in Mahboula.
The decline in total debt to asset in 2015 is mainly due to the partial settlement of the Murabaha payables due to KFH (Kuwait) and KFH
(Bahrain) with amounts of KD 1.86 M and KD 3 M, respectively.
Debt to Equity Analysis
Debt to Equity
90%
80%
38.6%
70%
36.1%
Debt to Equity Justification:
38%
Debt to equity ratio illustrates a minor increase in debt in 2014
followed by a decline in 2015. In 2014 debt grew by 10% due to
the new Murabaha obtained for a total amount of KD 4,482k to
finance the purchase of 3 investment properties located in
Mahboula while equity rose by only 5% due to the increase in
retained earnings resulting from net profit earned during the
period.
60%
28.6%
50%
40%
40%
The 10% drop in debt to equity in 2015 is mainly due to the
partial settlement of Murabaha payables to KFH (Kuwait) and
KFH Bahrain of KD 1.86 M and KD 3 M, respectively.
30%
30%
20%
10%
0%
2015
Debt to Equity Ratio
2014
2013
Long Term Debt to Equity
Profitability Analysis
Gross and Net Profit Margin Justification:
Gross margin declined over the years 2014 and 2015 mainly
due to the increase in cost of sales from Sabah Al Ahmad
project that resulted in a negative gross margin for
construction activities. The gross profit margin also dropped
by 2% from real estate services due to the sale of Baitak Real
estate Portfolio 1 and Baitak Real estate Portfolio 2 by the
Ultimate Parent Company, which used to be managed by Al
Enma’a, hence the drop in the real estate services by 2%.
Profitability
12%
8.33%
The negative performance from the abovementioned
operation reduced the total gross margin by 4% and net
margin by 0.31% for the fiscal year 2014.
10%
In 2014, the final verdict of the court related to the Turkish
Steel legal case was in favor of the company, which increased
other income by KD 1.8M. The profit margin of 2014 would
have been 3.67% rather than 8.04% in the event the gain was
realized. In 2015, gross margin dropped by 1.3% mainly due to
higher losses incurred from Sabah Al Ahmad project and
decline in sales from ready-mix cement factory in 2015
compared with 2014.
6%
Net profit margin grew by 0.76% in 2015 compared with 2014
due to due to an increase of KD 2.2M in realized gain on sale
of available for sale assets (Baitak Fund with a carrying value
amounting to KD 2.02M has been disposed during the period
for cash proceeds of KD 4.2M resulting in realized gain of KD
2.2M) and KD 1.4M gain on sale of investment properties
(Arad land for KD 1.27 M, however the net effect of Arad Land
is approx KD 110k since Al Enma’a recorded revaluation loss of
KD 1.17 M and Khiran villa for KD 83K).
12.38%
14%
8%
6.99%
8.80%
8.04%
8.36%
4%
2%
0%
2015
2014
2013
Net Profit Margin
Gross Profit Margin
Return on Assets & Equity
Return on Assets & Equity
7%
6%
5%
Return on Assets & Return on Equity justification:
Return on assets (ROA) and return on equity (ROE) have shown
marginal improvement throughout the period. Earnings in 2014 grew
by 16% compared with 2013 leading to an improvement in both ROA
& ROE in 2014, which is due to reducing losses in share of results of
associates (KD -83k in 2014 compared with KD -1.5m in 2013) along
with gains obtained from winning Turkish Steel legal case (KD 1.8M).
Average assets and equity rose by 7% and 5% respectively. The
increase in assets is due to the additions in investment properties
(Busaitin Land KD 2.3M, and Arad Land KD 4.4M) and additions of
lands under development. The average equity of 2014 & 2013 is
higher than the average equity of 2013& 2012 because the company
had a net loss of KD 1.6M in 2012, which had a negative effect on the
2013 & 2012 average equity.
4%
Earnings in 2015 grew by 30% compared with 2014 leading to an
improvement in both ROA & ROE in 2015, which is due to KD 1.4M
gain on sale of investment properties and due to an increase of KD
2.2M in realized gain on sale of available for sale financial assets .
3%
2%
1%
0%
2015
2014
2013
Return on
Assets
Return on
Equity
Average assets and equity rose by 3% and 6% respectively. The
average assets of 2015 & 2014 is higher than the average assets of
2014 & 2013 due to having low total assets in 2013, which is lowering
the average balance of 2014 & 2013 assets leaving the average of
2015 & 2014 higher while 2014 stand alone total assets is the highest
compared with all periods. The average equity of 2015 & 2014 is
higher than the average equity of 2014 & 2013 because the company
had higher earnings and retained most of the earnings contributing
(KD 4.5M in other comprehensive income) to retained earnings, and
therefore; growing 2015 total equity.
DuPont Return on Equity (ROE)
DuPont ROE
Profit Margin
Asset
Turnover
Financial
Leverage
Return on
Equity
2013
8.36%
0.36
1.68
5.04%
2014
8.04%
0.41
1.71
5.59%
2015
8.80%
0.47
1.66
6.88%
The DuPont decomposition allows us to identify the firm’s performance drivers to potentially expose effects of weaker
operations that are being masked by the effects of stronger operations.
The decomposition of the DuPont ROE reveals that this is the result of an increase in profit margin and an improvement in asset
turnover, offset by a decrease in the degree of financial leverage. Note that the increase in the profit margin and increase in
asset turnover, in addition to the decrease in financial leverage ratios indicates that the impact of leverage have decreased,
whereas an increase in profit margin and asset turnover indicates that revenue and assets grew throughout the period.
Benchmarking to similar listed real estate companies
COMPARISON OF MAJOR FINANCIAL RATIOS
1.60
1.40
1.20
Percentage
1.00
Al Enma
Mabanee
0.80
Salhiya
Tijaria
0.60
Mushrif RE
Sokouk Holding
0.40
0.20
Quick Ratio
(0.20)
Return on assets
Debt to Equity
Net profit margin
Conclusion
We have analyzed the Parent Company’s performance arising from the financial ratios study performed by the
management, as a result, we have noticed the following:
Ø The current ratio increased from 0.78 to 0.79 from 31 October 2013 to 31 October 2014 and continued
increasing till it reached 1.05 at the end of 31 October 2015.
Ø The quick ratio decreased from 0.75 to 0.68 from 31 October 2013 to 31 October 2014 and increased
through the year till reached 0.96 at the end of 31 October 2015.
Ø The inventory turn over increased from 5.1 to 5.4 from 31 October 2013 to 31 October 2014 and increased
through the year till reached 6.8 at the end of 31 October 2015.
Ø The account receivable turn over increased from 1.4 to 1.5 from 31 October 2013 to 31 October 2014 and
slight increase till reached 1.7 at the end of 31 October 2015.
Ø The asset turn over ratio increased from 0.36 to 0.41 from 31 October 2013 to 31 October 2014 and
increased to 0.47 at the end of 31 October 2015.
Ø The debt to equity increased from 38% to 40% from 31 October 2013 to 31 October 2014 and returning to
its normal trend by decreasing to 30% at the end of 31 October 2015.
Ø The return on asset increased from 3.01% to 3.28% from 31 October 2013 to 31 October 2014 and
continued its increase until it reached 4.14% at the end of 31 October 2015.
Conclusion (cont’d)
Ø The return on equity increased from 5.04% to 5.59% from 31 October 2013 to 31 October 2014 and
continued increasing till it reached 6.88% at the end of 31 October 2015.
Ø The net profit margin decrease from 8.36% to 8.04% from 31 October 2013 to 31 October 2014 and
returned to increase through the year till reached 8.80% at the end of 31 October 2015.
It is evident from the abovementioned, that the Parent Company has maintained progressive improvement
resulting from the change in the business activities and business plan. The effect is shown in the continuous
increase in the financial ratios of the Parent Company for the year ended 31 October 2015 as compared to 31
October 2014 and 31 October 2013.