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Business ReviewKASB Group
In 1991, Khadim Ali Shah Bukhari and Company was established as the fi rst public limited brokerage company in Pakistan and was listed on the Karachi Stock Exchange. In 1993, in recognition of the group’s prominence in the domestic fi nancial market, Merrill Lynch, one of the world’s leading investment banks, entered into a partnership with the group in the areas of research and investment banking.
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In 1955, Khadim Ali Shah Bukhari and Company was established as a cotton trading fi rm. Th e fi rm ventured into securities trading in 1958 and has since evolved into Pakistan’s leading fi nancial services institution with investments in a commercial bank, an asset management company, a housing fi nance company and an investment banking / securities trading fi rm.
In 2002, Khadim Ali Shah Bukhari and Company acquired Platinum Bank. In 2003, the merger with Platinum Bank was com-pleted (renamed to KASB Bank) and KASB Securities was setup as a 100% subsidiary of bank handling the investment banking and securities trading business for the group.
In 2005, the group setup KASB Funds, as a 100% subsidiary of KASB Bank to expand the asset management business. In 2006, Merrill Lynch Investment Managers took up an equity stake in the asset management business.
In 2007, the group restructured itself with the formation of KASB Capital as the holding company for KASB Securities and KASB Funds. KASB Capital, which also includes investment banking services, has also launched a new Principal Investments division which will allow it to use its own capital to invest in businesses. KASB Capital successfully raised PKR 2 billion (US$ 33 million) through a private placement of equity to GLG Emerging Markets Special Situations Fund, Tikehau Asia and Liberty Harbor whereby the investors will collectively take a 35% stake in KASB Capital Limited.
Khadim Ali Shah Bukhari establishes cotton trading fi rm
KASB ventures into securities trading
KASB establishes Pakistan’s fi rst public limited Brokerage
Merrill Lynch partners with KASB for research and investment banking in Pakistan
KASB acquires Platinum Bank (later named KASB Bank)
KASB enters the asset management business with KASB Funds
Merrill Lynch acquires an equity stake in KASB Funds
Th e Group creates KASB Capital as a holding company for KASB Securities and KASB Funds
Business ReviewKASB Group of Companies
To be Pakistan’s fi nancial services fi rm of choice, recognized for our in-depth knowledge of industries and markets, our domestic and international network, and valued for our ability to identify, structure and deliver innovative products and services.
Vision
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Contents
CONTENTS
LEADERSHIP 6
ENGINEERED FOR EXCELLENCE 20
WHAT WE DO... 22
...AS A COMPANY 24
...AS A COMMUNITY 26
UNLOCKING VALUE 28
GROUP PERFORMANCE 38
KASB ANSWERS YOUR QUESTIONS 44
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Leadership
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Nasir Ali Shah BukhariChairman, KASB Group
ASB has come a long way from its roots as a cotton brokerage and securities trading fi rm in the last fi ve decades,
to become a diversifi ed fi nancial services conglomerate today. I take this opportunity to thank all those who have been a part of the KASB family, past and present, for their hard work and dedication in making our success a reality. I would also like to express my gratitude to all our clients, who have over the years placed their trust in us.
KASB has always been at the forefront of Pakistan’s capital markets and we are greatly humbled by our successes. We have begun to reap the benefi ts of a massive corporate restructuring of KASB Group that began in 2007 with new capital infl ow into our busi-ness from leading international investors: GLG Partners, Liberty Harbor (Goldman Sachs), and Tikehau Capital. As part of this restructuring, the banking and non-bank-ing fi nancial services were separated. KASB Capital Limited was formed as the non-
banking fi nancial entity of KASB Group and the holding company for our brokerage and asset management businesses.
Our partnership with Merrill Lynch and BlackRock has helped us to evolve into an innovative organization. By leveraging on our partners’ expertise, we are able to provide world class products and solutions to our domestic and international clientele. Today, the regional economies of the Gulf and Asia off er tremendous growth opportu-nities for dynamic fi nancial institutions. We are looking forward to being a part of this growth to serve our clients in the region and reap superior profi ts for all stakeholder benefi ts.
We believe the past is gone, the future is now and the talent age is upon us. Our young and talented team at KASB is adequately powered to face the challenges that lie ahead.
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Th e past is gone, the future is now and the talent age is upon us and KASB is ready to face the challenges that lie ahead.
“Acquire excellence to achieve admiration of the world”B
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... At a Glance
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Leadership in Commercial Banking
Powered by our talented workforce, diligently serving our growing client base, KASB Bank’s future is bright and promising.
BEHIND THE SCENES AT KASB BANK HEADQUARTERS
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t KASB Bank we are driven to off er a comprehensive set of fi nancial services
to a broad based clientele, with our em-ployees relentlessly following our mantra that customer satisfaction and service qual-ity are the key diff erentiating factors that set us apart. As I refl ect upon another year of progress at KASB Bank, I am privileged to highlight the tremendous eff orts under-taken this year to prepare the Bank for an aggressive growth strategy for the future.
In 2007, KASB Bank developed eff ective control mechanisms (i.e. risk manage-ment, internal control and internal audit), invested heavily in its core banking system and designed strategic business relation-ships, including new consumer products. Th e Bank’s investments in these segments not only enabled it to achieve an entity rating upgrade, but also boosted customer confi dence as refl ected by a 78% increase in advances and 56% increase in deposits compared to the last fi scal year. We have also appointed an external consultant to assist in implementing an eff ective internal control framework (COSO) that will facilitate compliance with industry level best practices.
In line with our commitment to providing our customers with maximum product
off erings, KASB launched its personal loans scheme, KASB Cash Asaan. Th e Bank’s future strength is further powered by the successful merger of KASB Bank with International Housing Finance Limited (IHFL) that was completed in November 2007. Th e merger greeted our clients with a housing fi nance product off ering unmatched fl exibility to customers, KASB Ghar Asaan. We also inaugurated our inter-net banking facilities, providing customers the ease of tracking their accounts at their own comfort.
KASB Bank has defi ned an aggressive strategy for 2008. We plan to extend our branch network with 38 new branches across Pakistan. Our product off ering will also be expanded to include wealth management services and the relaunch of our Business Flex product. Our substantial stake in the newly created entity, KASB Capital, formed as a result of a restruc-turing of the KASB Group, will further support our future gains in the form of dividend income and appreciation of the value of the investment. Powered by our talented workforce, diligently serving our growing client base, KASB Bank’s future is bright and promising. I look forward to another year of bringing the best fi nancial solutions to you, our clientele.
Muneer KamalPresident & Chief Executive Offi cer, KASB Bank
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Leadership in Investment Banking
Th e diverse backgrounds of our team members, spanning from fi nance to engineering to political science, allow us to formulate unique business opportunities with each team member bringing with them a distinctive skill set.
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ith the passing of another year, KASB has further solidifi ed its position as
the leading investment bank in Pakistan, with our powerful brand name remaining synonymous with industry expertise. Our ability to provide our clients with custom-made fi nancial solutions, furnishing their individual business needs, has strengthened us in an increasingly competitive market. In 2007, we continued to expand our business portfolio with notable transactions including the GDR issue of UBL and the acquisition of Paktel by China Mobile.
Our continuing collaboration with our international partners, Merrill Lynch, has provided us with unparalleled access to global resources, as our teams continue to work closely with each other in the local and international arena. We are proud to highlight KASB’s leading role in attracting foreign interest in Pakistan, as we brought in over USD 1 billion in FDI (over 20% of total FDI) in 2007.
KASB’s unwavering client focus lies at the foundation of our success as our team relent-lessly devotes itself to providing each client with the most optimizing solutions. Th e diverse backgrounds of our team members, spanning from fi nance to engineering to po-litical science, allow us to formulate unique business opportunities with each team
member bringing with them a distinctive skill set. Our experience and dedication has been rewarded by numerous accolades year after year, and 2007 has been no diff erent. In 2007, KASB Capital received the CFA Institute Award for Best Corporate Finance House of the Year and the Euromoney Award for Pakistan Investment Bank of the Year.
In 2007, KASB Capital was formed as a separate non-banking fi nancial entity, as part of KASB Group’s restructuring strategy. KASB Capital has been formed as the invest-ment banking and principal investments arm of KASB Group. Th is year we also launched our Principal Investments division as part of our strategy to leverage our extensive domestic network to identify premium transactions and provide superior returns in investments. KASB has already initiated this area of growth with strong collaborative interest from international investors.
As we continue to deliver fi rst rate services we are cognizant of the changing business environment in Pakistan. Increasing exposure of local companies to global industry leaders has cultivated a more demanding clientele whose expectations we continue to try to surpass. With our past bearing a refl ection of our future, we are excited and ready to overcome the challenges that lie ahead.
Farid MasoodManaging Director, KASB Capital
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Leadership in Securities
As one of the largest brokers in Pakistan, our ability to provide the most superior services in the industry is made possible by our most valued asset, our skilled and talented team.
THE TRADING FLOOR AT KASB SECURITIES
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he year 2007 proved to be another pros-perous year for KASB Securities as we
aggressively pursued our vision of providing an entire continuum of brokerage and research services to our valued clients.
Th is year will mark our fi fteenth year of collaboration with Merrill Lynch, which has provided us with supreme global resources. With growing competition from new entrants, KASB continues to have a dominant share in foreign institution trades, maintaining relations with international fund managers through our annual Pakistan investor forums held in association with Merrill Lynch in London and Singapore since 2006.
With KASB planning to set up operations in the Middle East, KASB Securities will benefi t from untapped potential in interna-tional standard coverage focused on GCC equity markets. It will also provide us with relationship building opportunities with fund managers in the Middle East to attract trade orders through KASB in Pakistan. We also plan to expand our domestic operations in the fast developing cities of northern Pakistan.
Today, our online trading platform, KASB Direct accounts for about 80% of the elec-tronic trading volume on the KSE owing to its superiority in technology and KASB’s strong consumer base. Our dedication to providing the most up to date facilities does
not falter, as KASB Direct has recently been revamped with plans in place to launch it with an aggressive marketing plan to tap into growing computer literacy and capital markets awareness. For this purpose, a highly competent marketing team has been assembled along with technological up-gradation plans.
As one of the largest brokers in Pakistan, our ability to provide the most superior services in the industry is made possible by our most valued asset, our skilled and tal-ented team. It is their experience and hard work that drives KASB Securities forward year after year and is recognizable by the accolades that we continued to receive. We are the proud recipients of the Asiamoney Awards for Best Local Brokerage (2007) and Best Analyst (2005-2007) and the CFA Institute Award for Best Research Analyst (2005-2007) and Best Brokerage (2007 Runner Up).
We are pursuing an aggressive growth strategy for the future, which includes expanding our research coverage to include small to mid cap companies. In 2008 we plan to list the company on the Karachi Stock Exchange to bring positive value to the Group and bring the company under greater and more transparent corporate gov-ernance standards. Moving ahead, we are well equipped to maintain our commitment to our clients in bringing them the most eff ective solutions in the market.
Farrukh SabzwariChief Executive Offi cer, KASB Securities
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Leadership in Asset Management
Our visions are built upon our strengths which include an experienced management team with extensive exposure to the local market, complemented by our international relationships.
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ince its inception in 2005 KASB Funds has provided an array of investment and
savings solutions to a broad investor base that ranges from retail investors to high net worth individuals and from pension funds to corporations and institutions. Working with our international partners, BlackRock Merrill Lynch Investment Managers (Back-Rock MLIM), our business has grown exponentially with Assets Under Manage-ment of over PKR 10 billion in 2007 (PKR 1.7 billion in 2006).
With a clear vision of providing excellence through an innovative product off ering, we launched the KASB Stock Market Fund and the KASB Balanced Fund in 2007, providing our clients with the fl exibility to choose the product that best suits their need. Our success in the last year has been achieved by our relentless dedication to delivering on the promises we have made to our clients. KASB Funds was assigned an asset manager rating of AM3+, refl ecting the company’s strong risk management capacity, exemplary Group credentials and the technical collaboration and equity partnership with an asset manager of in-
ternational standing (BlackRock MLIM). Th e performance of KASB Liquid Fund resulted in a 5-star rating by the Pakistan Credit Rating Agency (PACRA) in 2007.
As we grow towards becoming the fund managers of choice, our deep understand-ing of the industry will drive us forward. At present, the industry remains under pen-etrated, with AUM of USD 5.7 billion for a population of approximately 163 million. With robust economic growth leading to increased liquidity, we stand ready to cap-ture the market. Our visions are built upon our strengths which include an experienced management team with extensive exposure to the local market, complemented by our international relationships.
Having nationwide access through the 35 branches of KASB Bank, we are prepared to leverage off the opportunity we will get through the expanding branch network, as KASB Bank prepares to enlarge its network in the coming year. At KASB Funds, we are geared to exploit our strengths to relent-lessly serve our clients and this year has provided a glimpse of our future successes.
Naz KhanChief Executive Offi cer, KASB Funds
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ith increasing acquisitions in the domestic fi nancial sector, a continued privatization commitment by the GoP and the steady growth of the Karachi Stock
Exchange, Pakistan has emerged as a favored investment des-tination for foreign investors. Alongside the economic boom in Pakistan, KASB has evolved to become the largest domes-tic investment bank with access to a vast local network, and an expansive international investor base through its alliance with Merrill Lynch. Recognition of our strength came in the form of a USD 33 million equity investment by three lead-ing international funds managed by Goldman Sachs, GLG Partners LP and Tikehau Capital. Th is investment initiated
a restructuring of KASB and its Group Companies, to better position them in the domestic market.
As part of the restructuring, all non-banking fi nancial businesses of KASB Group have been separated from the Bank. Th is has resulted in the formation of KASB Capital Limited, a non-banking fi nancial conglomerate, with KASB Bank acquiring a stake in the newly created entity. Under the new structure, KASB Capital is the holding company of KASB Securities Limited, the Group’s securities, trading and research business, and KASB Funds Limited, KASB’s asset management arm. Th is restructuring will allow us to
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Engineered for Excellence
Moving forward in 2008 and beyond, we have ambitious plans for the group, some of which we have already started implementing.
First and foremost, the strategy focuses on creating shareholder value and raising funds through the capital market listings of our entities;
KASB Capital is divesting 24% of KASB ¤Securities in June 2008, through an off er for sale on KSE KASB Bank will divest part of its holding ¤of KASB Capital through an off er for sale on KSE in the second half of 2008
Both these events will raise KASB over USD 50 million that will be deployed in growth areas of principal investments and wealth management.
Second, we plan to leverage our books and move from pure agency business to an ef-fective mix of agency business and market making with superior risk management procedure in place. Finally, the group will expand outside Pakistan, starting with the investment banking and principal invest-ment businesses.
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reinforce our leading market position in Pakistan and best position the franchise to take advantage of new opportuni-ties in the domestic market.
KASB Capital’s goal is to create a leading investment com-pany embodying the necessary working functions required for providing comprehensive investment banking, broker-age, investment advisory and asset management solutions to a regional and global client base. Further, our Principal Investments division will generate superior returns to sup-port further growth of our other businesses. By maximizing established relationships with key domestic and renowned international clients, KASB investment banking division has maintained its dominant role in bringing value addition
to Pakistan’s premier companies. KASB Securities’ online trading platform, KASB Direct targets the market at large, better positioning it to capture a broader level of interest in Pakistan’s capital markets. In our Asset Management divi-sion, numerous capitalization opportunities opened from leveraging relationships with existing Securities Trading and Investment Banking clients, and at the same time, accessing a broader distribution network through KASB Bank and BlackRock MLIM. In the formation of KASB Capital, KASB Bank has acquired a stake in a strong and profi table company, thereby benefi ting the Group at large. We are excited to have positioned our companies in a manner that optimizes their ability to leverage off of each other’s strengths as we gear ourselves for an even more promising future.
27.5%
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BlackRock
KASB FundsKASB Capital
KASB Bank
KASB Securities
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Showcasing Pakistan is a skill we have mastered with expertise due to our strong understanding of domestic markets and an enviable network both locally and globally. Leveraging our strengths has enabled us to link various markets players and attract signifi cant investment into the country.
Today, we are proud to boast that we are the only domestic group to be affi liated with an international bulge bracket fi rm, Merrill Lynch International and are amongst the select few local institutions with a balanced business platform, off ering a complete spread of fi nancial services.
What We Do...
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...As a Company
In order to succeed in our business we must anticipate and then exceed our clients’ expectations. In a rapidly changing world that is not easy – we must make sure that we understand the industries of our clients, the markets that they operate in, and the challenges that they face. We are able to do this by putting all the resources of our fi rm and of our partners to work everyday for our clients.
We are proud of the fact that we have for years received recognition for our performance by winning numerous awards. Th ough the standards we have set in the past have always been high, we continue to set performance benchmarks to strive towards perfection. In the end, the greatest reward for our performance is earning the respect and satisfaction of our client – and of course their contin-ued relationship.
We can only succeed in becoming the fi nancial services fi rm of choice, if we work together across all our businesses with a single purpose – delivering sig-nifi cant value to the client. Performing as one team is hard work, often putting aside our own diff erences and focusing on sharing our wealth of experience and knowledge to come up with innovative solutions for our clients.
Our reputation is built on a tradition of trust – a trust by our clients that we will rise to challenges put before us, a trust in our ability and the ability of our colleagues, and a trust that we will protect at all costs our reputation and that of our clients. Achieving this level of trust is not easy and requires perfor-mance, everyday and in everything we do, with the highest degree of integrity.
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We focus our strengths on our clients and performance, ensuring at the same time that a culture of integrity and teamwork form the basis of all our activities. Over a span of fi fty years, any organization under the umbrella of KASB has not only shown a dedication to honesty and fair play, but has been rewarded for its principles through increased recognition in the global market and highly acclaimed awards for its successes.
ASB is proud to be one of the most diverse fi nancial groups in Pakistan, off er-
ing a wide spread of fi nancial solutions from helping to fulfi ll the dream of building a fi rst home through a mortgage loan to arranging fi nancing for the construction of a large scale industrial facility. We off er advisory services, tailor-made solutions and innovative prod-ucts to companies, institutional clients and the government as well as retail services to our diverse clientele. KASB has developed as a one-stop fi nancial service provider; from commercial banking to asset management, research to investment banking, KASB off ers it all. Furthermore, each Group company can leverage on each other to distribute their products and services.
Our 50 years of banking experience have provided us with a fi rm foundation that allows us to constantly look ahead and anticipate the needs of our clients in an increasingly demanding industry. Our new
structure provides a strong platform from which the Group can create synergies within itself to enhance revenue growth, increase effi ciency and prepare us for the challenges faced by our clients and our companies.
Having established ourselves as a leading fi nancial conglomerate in Pakistan, our opinions are given high value and weight as they challenge the country’s economic and social policies. As leaders in our fi eld, we are always asked to present our comments on policies related to fi nancial markets and investments. Th e country’s policy makers ask our management to participate and debate in dialogues concerning Pakistan’s economic well being, and suggest the ways in which we can continue to propel Pakistan’s growth momentum forward. When we speak, our opinions make a diff erence not only to our company, but to our society as a whole; that is a marker of our leadership.
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KASB’s interest and concern for solving social issues has led us to be actively involved in an exchange of views and ideas with clients, media, competitors, regu-lators, government representatives and international bodies.
he way we interact with society has an impact on our business and on our reputation. As a fi rm and as individuals
we strive to give back by contributing our time and resources by reinforcing a culture of interest and concern in social issues. Social welfare eff orts by our organisation are at the forefront led by an unmoved commitment to monetary contributions and volunteer work by our sponsors and employees. After an initial donation of over PKR 48 million by the KASB Foundation and our employees for earthquake relief eff orts in the Northern Areas in 2005, we have incessantly continued to support the relief work through constant monetary contributions and personal on-the-ground volunteer work by members of the KASB family. Our research and representation in media discussions regularly cover an indepth understanding of current economic
issues, future outlook and potential solu-tions, challenging the country’s economic and social policies.
We recognize that our youth are the bear-ers and shapers of our future. As such, we actively sponsor sports and cultural activities that help in the development of the young generation. After launching the KASB Premier Football League in 2003, we actively continue to be the lead sponsor of the league through the joint eff orts of the KASB community and the Karachi United Football Club. Today, the KASB Football League has grown into a leading professional football club of the city. KASB also actively supports higher education institutions such as LUMS, recognizing the integral importance of educating our children to develop and equip them to lead us ahead.
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... As a Community
At KASB, we welcome our obligations to our community, considering these com-mitments to be essential components of our business culture and identity and as promises to our nation.
We believe that sponsoring sports events provides our youth with healthy avenues of entertainment, building the spirit of sportsmanship and developing the es-sential teamwork skills that will support them at their workplaces as well.
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Th e focused and structured way in which we approach our business actively contributes to the growth, development and value creation of our clients.
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Unlocking Value
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Today, the Internet is a very real part in the lives of many and KASB has developed a well-designed plan across the Group to provide a range of online services, providing clients higher accessibility at their own convenience.
n our quest to become more innovative, optimize business performance and
provide our clients with the most accessible services, we have leveraged a powerful asset: technology. Today, the Internet is a very real part in the lives of many and KASB has developed a well-designed plan across the Group to provide a range of online services, providing clients higher accessibility at their own convenience.
Our latest innovation, KASB Direct, an online trading platform is at the forefront of technological advances and holds the market leader position among other online trading platforms in Pakistan. KASB Direct is Pakistan’s fastest online trading system providing real time instant access to retail investors across Pakistan and expatriates
globally. KASB Bank provides Online Banking services to its account holders, enabling them to manage their accounts at any time and off ers clients the ease of paying their bills online through the Bill Asaan scheme. Th e bank has a large ATM network spread across Pakistan, giving customers the ease to withdraw money at any time, anywhere.
KASB employees are also equipped with the latest state-of-the-art equipment to maximize productivity and effi ciency. Our ability to maintain our leading position in an increasingly competitive environment relies on our capability to continuously in-novate as we maintain our commitment to strengthen our technological base.
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Expanding Technological Tools
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Creating Value Across Sectors
Years of experience have helped develop our expertise across sectors spanning from Telecommunications, Fi-nancial Services and Oil and Gas, among others, with our advisory services extended to industry leaders.
s one of the leading fi nancial conglom-erates in Pakistan, we deliver a compre-
hensive range of fi nancial solutions to all our clients. Years of experience have helped develop our expertise across sectors span-ning from Telecommunications, Financial Services and Oil and Gas, among others.
Our understanding of key sectors is un-paralleled in the market with our advisory services extended to industry leaders. In 2007, KASB Capital and Co-advisors Merrill Lynch International successfully executed China Mobile’s acquisition of Paktel, a landmark transaction which was China Mobile’s fi rst international acquisi-tion. Together we continued to exert our dominance in the fi nancial services fi eld with the successful GDR off ering of United Bank Limited of USD 650 million on the London Stock Exchange. Th e off ering
attracted a demand of USD 2.5 billion, the largest bookbuild for a Pakistani international off ering. Our exceptional reputation in the Oil and Gas sector has made us a ‘partner by choice’ for leading corporations such as Oil and Gas Develop-ment Corporation and Pakistan Petroleum Limited. KASB is also an equity investor in New Horizon Exploration and Production Limited, a newly formed exploration and production company in the Pakistan Oil and Gas sector.
Our award winning research team provides extensive coverage of these core sectors. KASB provides joint research coverage with Merrill Lynch as well as KASB standalone reports. With our combined expertise across business segments, we continue to strengthen our ability to create value across sectors.
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Th e synergies of the KASB/Merrill Lynch relationship have attracted international capital to Pakistan through strategic & portfolio investments, debt and equity capital issuance. Additionally, KASB and Merrill Lynch have jointly published research, sponsored international roadshows and investor conferences, while executing international corporate fi nance transactions for Pakistan’s corporations and the Government of Pakistan.
n our era of globalization, economic growth is no longer restricted by the
barriers of national boundaries, as global markets become more open and capital crosses borders with ease. Th e speed of growth in the Middle East is particularly spectacular with the World Bank estimating that the MENA region will grow by 5.4% in 2008. In this environment, KASB is embarking on its international expansion plan and we are extending our operations to the Middle East in 2008.
In the international arena, we maintain our commitment to attracting foreign invest-ment into Pakistan through our investor forums, held in association with our partners Merrill Lynch in Singapore and London since 2006. Th ese forums showcase Pakistan’s leading corporates to investors overseas. Our partnership with Merrill Lynch enables us to leverage their network
of over 56,000 professionals worldwide and gives us unmatched access to one of the largest international distribution networks, including corporations with an appetite for emerging markets.
As we take our business abroad, we continue to raise the bar domestically by expanding our network across Pakistan. In 2008, KASB Bank will open 38 new branches throughout the country and KASB Funds plans to launch two new funds. Our extensive domestic spread al-lows our diff erent business areas to leverage each other. For example, KASB Funds is able to extend its reach by off ering its products through all branches of the bank. Similarly, each of our businesses have de-veloped strong relationships with industry leaders and these relationships spread across the Group, leading to growth in all Group companies.
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Leveraging a Domestic and Regional Network
Attracting A Top-Tier Talent Pool36
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Our employees are the face of KASB, interacting with our clients and customers at every level. From the sales staff that greets our customers at every bank branch to the senior management that interacts with leading global institutions, we have hand picked and retained the best and the brightest to be a part of the KASB family.
hroughout history, talented individuals have risen above man-made boundaries
to redefi ne the limits of what is considered possible in their times. Magnifi cent struc-tures in our own country, such as the Lahore Fort and the Badshahi Mosque, are glaring testimonials of the ground breaking achieve-ments that are attainable through collective human eff ort. At KASB, we believe that people make a diff erence. Our employees are the face of KASB, interacting with our clients and customers at every level. From the sales staff that greets our customers at every bank branch to the senior management that interacts with leading global institutions, we have hand picked and retained the best and the brightest to be a part of the KASB family.
We have revamped our Human Resource division, outsourcing these services from a leading HR consultancy fi rm, streamlining
our standards to bring them in line with multinational organizations. Our team mem-bers are the most talented in the industry and have been recruited from leading edu-cational institutions across the globe, such as Cambridge University, the University of Pennsylvania, Northwestern University and the Lahore University of Management Sci-ences (LUMS). Not only do we recruit the fi nest, but we pay special attention to their professional development through training courses, both domestically and internation-ally. Th rough our affi liation with Merrill Lynch, each year a select group of employees is sent to Merrill Lynch training programs in London, Hong Kong or Singapore. Our employees also benefi t from regular training programs at LUMS throughout the year. At KASB, we have taken HR to the next level as we challenge the boundaries of our own times.
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ver the years, KASB Group has made immense progress in transforming itself
from a brokerage fi rm to a leading fi nancial conglomerate, off ering a wide array of fi nancial services. Today, the Group has assets of over PKR 47 billion in commercial banking, securities trading, investment banking, asset management and principle investments.
As a part of our strategy of becoming the fi nancial services fi rm of choice, we undertook a signifi cant restructuring of our Group that separated the non-banking fi nancial business of KASB Group from KASB Bank, resulting in the formation of KASB Capital Limited. KASB Capital has successfully raised PKR 2 billion (USD 33 million) through a private placement of equity to three leading international investors (insert names). Under the terms of the placement, these investors have taken a 35% stake in KASB Capital, the holding company of KASB Funds Limited and KASB Securities Limited. Th e Bank divested its stake in KASB Securities (100%) of PKR 300 million and KASB Funds (30%) of PKR 30 million, and sold the stake to KASB Capital for PKR 680 million. Th e Bank also invested in 68 mil-
lion shares of KASB Capital Limited which translates in a 27.5% shareholding of the newly created entity.
With the grouping of KASB Securities and KASB Funds under the KASB Capital umbrella and the fi nancial strength of KASB Bank and other Group companies/investments such as New Horizon E&P Limited and International Housing Finance Limited, KASB Group now boasts tre-mendous fi nancial muscle to initiate great strides of growth. With a larger asset base of over PKR 47 billion, we expect to realize a higher return on assets as our market value has increased signifi cantly. At present, one of our Group companies, KASB Bank is listed on the Karachi Stock Exchange with a market capitalization of PKR 7.6 billion. In 2008 we also plan to list KASB Securities and KASB Capital, increasing our access to the fast growing capital markets.
Each of our companies has aggressively welcomed the new year and we are ideally prepared to maintain our position as mar-ket leaders in each of our businesses.
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Group Performance
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2007 – 08
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Commercial Banking Performance
2007 HIGHLIGHTS
44.5% increase in bottom line of the Bank ¤Growth of 78% in advances ¤Growth of 56% in deposits ¤Increase in assets of 54% over the last year ¤Merger with International Housing Finance Limited (IHFL) ¤Invested in a 27.5% shareholding in the newly created entity, KASB Capital, ¤formed as a result of the restructuring of KASB Group
MAJOR 2007 ACCOMPLISHMENTS
Developed proper control mechanisms, invested in core banking systems, ¤designed new productsLaunched two new consumer products Cash Asaan and Ghar Assan ¤Assigned medium to long term entity rating by PACRA of A- (A minus) and ¤short term rating of A290% increase in headcount from 694 to 1,320 ¤
2008 AND BEYONDSTRATEGY
Expansion of branch network and product offering ¤Continue to improve technological edge to increase customer accessibility ¤Cross sell services with other Group companies ¤Leverage the opportunities created by the merger with IHFL ¤Establish wealth management and create a niche as an upscale bank ¤
TACTICSRaise capital through a partial sale of its stake in KASB Capital ¤Expand branch network through 38 new branches ¤Introduce new consumer sales centers ¤Expand internet ATM network and internet banking services ¤Cross sell, not only with KASB Bank customers but with KASB Funds, KASB ¤Direct and KASB Investment BankingExpand product offering, including Cash Asaan- revolving term deposit (13 ¤month, 18 month and 2 year)Re-invent branches with wealth management floors and an up-market look ¤and feel
2005A
19,103
2006A
26,539
2007A HY08E
40,891
54,380
ASSET BASE (PKR MILLION)
ADVANCES AND DEPOSITS (PKR MILLION)
2005A 2006A
10,7
39
14,8
28
14,5
13
21,2
76
2007A HY08E
ADVANCES DEPOSITS
25,1
43
33,1
32
36,3
20
44,1
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Investment Banking & Principal Investments Performance
2007 HIGHLIGHTS
KASB Capital was formed as the non-banking financial arm of KASB Group, ¤serving as the holding company of KASB Securities and KASB FundsAchieved 81% growth in investment banking revenues ¤Significant increase of 226% in advisory revenues ¤Increase of 47% in ECM revenues ¤56% of revenue was generated from equity capital market (ECM) ¤44% of revenue generation was attributed to advisory services ¤
MAJOR 2007 ACCOMPLISHMENTS
Closed a number of major transactions including: ¤USD 650 million GDR offering of United Bank Limited ¤USD 460 million acquisition of Paktel by China Mobile ¤USD 100 million restructuring and private placement for KASB Capital ¤
Received CFA Award for Best Corporate Finance House of the Year, 2007 ¤Setup of the Principal Investments business headquartered in the ME ¤
Closure of pending transactions, acquisitions in Pakistan’s food and ¤agricultural sector, Pakistan’s oil and gas sector and a Middle East paints business
2008 AND BEYONDSTRATEGY
Maintain steady pipeline of investment banking transactions ¤Increase regional presence through expansion in the Middle East ¤Set up of the Principal Investments business ¤
TACTICSSteady deal pipeline for the year including: ¤
USD 109 million GDR offering of Lucky Cement ¤USD 900 million sale of minority interest in Muslim Commercial Bank ¤Restructuring and capital raising for Beaconhouse ¤
Expansion of KASB Capital’s reach in regional markets in the form of KASB ¤Capital InternationalSet up of the Principal Investments business including acquisitions in Paki- ¤stan’s food and agricultural sector and regional industrial sectorListing of KASB Securities through a sale of minority stake by KASB Capital ¤Listing of KASB Capital through a sale by KASB Bank ¤
181,720176,200
2005A*
48,540
2006A*
100,300
2007A HY08E
REVENUE (PKR ‘000)
* Note: Since KASB Capital is a newly formed entity, these figures refer only to investment banking revenues
* HY08E includes investment banking and treasury
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Capital Market Performance
2005A
356
2006A
582
2007A HY08E
687
350
REVENUE (PKR MILLION)
*Note: 2005, 2006 are performa figures
2005A
8,209
2006A
9,764
2007A HY08E
10,852
11,162
NUMBER OF CLIENTS
2007 HIGHLIGHTS
Revenue growth of 35% with a market share of 5.9% ¤94% of the total revenue generated from equity trading platform (pure ¤agency business)3% of total revenue generated from the sales of marketable securities ¤EBITDA margins remained stable at 54% ¤
MAJOR 2007 ACCOMPLISHMENTS
Received Asiamoney Award for Best Local Brokerage, 2007 ¤Received Asiamoney Award for Best Research Analyst, 2007 ¤Received CFA Association award for Best Equity Research Analyst, 2007 ¤Initiated coverage on Power and Oil Marketing sectors ¤Actively covered 35 individual companies ¤
2008 AND BEYONDSTRATEGY
Expand research coverage ¤Increase client interaction and profitability ¤Develop research and sales teams ¤Maintain market leader position among online trading platforms in Pakistan ¤Increase use of own book to generate revenues ¤
TACTICSCoverage expansion to include more mid and small-cap companies ¤Improve profitability through superior stock selection and timing ¤Organize local and international marketing road shows to improve client ¤interactionUndertake regular training sessions and workshops for the personal develop- ¤ment of research and sales teamsExpand reach of KASB Direct to maintain supremacy in online trading ¤Listing on the KSE to promote greater corporate governance and attract a ¤diversified investor baseAllot funds to outside manager (KASB Capital) to manage proprietary book ¤for Securities
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Asset Management Performance
2007 HIGHLIGHTS
Exponential growth of 539% in Assets Under Management from PKR 1.71 bn ¤in 2006 to PKR 10.93 bn in 2007Revenue growth of 512% from USD 0.2 mn in 2006 to USD 1.5 mn in 2007 ¤86% of revenue generated from KASB Liquid Fund which had an annualized ¤return of 10.52%9% of revenue generated from KASB Stock Fund which had an absolute ¤return of 18.24%Investment income contributed 4% to revenue ¤
MAJOR 2007 ACCOMPLISHMENTS
Launched the KASB Stock Market Fund ¤Launched the KASB Balanced Fund with an IPO size of over PKR 1 bn ¤5 star rating assigned to KASB Liquid Fund based on exceptional perfor- ¤mance by Pakistan Credit Rating Agency KASB Funds Limited assigned asset manager rating of AM3+, reflecting com- ¤pany’s strong performance and future potentialStandard Chartered Bank and Citibank started distributing KASB funds ¤
2008 AND BEYONDSTRATEGY
Increase AUM by expanding presence in the largely untapped market ¤Increase product offerings ¤Improve sales network ¤Expand reach of KASB Funds across Pakistan ¤
TACTICSLaunch products with Standard Chartered Bank and Citibank ¤Launch of KASB Islamic Income Fund ¤Launch of KASB Voluntary Pension Scheme ¤Restructuring of Sales Department ¤Expansion of reach in Pakistan through new offices in Islamabad and Lahore ¤
2005A
NA
2006A
14,609
2007A HY08E
HY08E
89,280 87,500
12.00
REVENUE (PKR ‘000)
2005A
NA
2006A
1.71
2007A
10.93
AUM (PKR MILLION)
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KASB Answers Your Questions
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Q1: You have talked about the benefi ts of more fully integrating KASB’s businesses. What are the opportunities that you see there?
KASB is the leader in investment banking, brokerage, research, and asset management in Pakistan. With a growing branch network of the Bank we now have the power to deliver our vision.
“Imagine a successful businessman from Sialkot walks into a KASB Wealth Management offi ce there to meet with a Merrill Lynch trained wealth manager. He has come to discuss how to plan for his children’s future and where he should invest. After carefully hearing his needs, the wealth manager introduces him to the balanced and money market funds of KASB Funds. He also suggests setting up a trust fund and invests some money into our regional real estate fund and our Asia private equity fund, both managed out of Bahrain.
As the businessman sorts out his personal side of the equation, the wealth manager inquires how his business is doing. Th e businessman smiles and says that he is doing well but some of his friends have done better. Th ey took their companies public and are now sailing the world on their yachts. Th e wealth manager goes into the offi ce and returns with the profi le of the KASB Investment Banking group accompanied by a few case studies showing how we have helped businesses grow from family owned businesses to corporations. Th e busi-nessman is engaged and a meeting is arranged. Th e investment banker will fl y in and meet with the businessman next week. Before the meeting, the investment banker has already lined up a potential strategic partner who will invest into the fi rm and together they will launch an IPO in a year.
As he walks out of the offi ce, the wealth manager runs after him. He hands him an enve-lope containing the brokerage account opening form and a pre-approved KASB Platinum card. All in a days work thinks the wealth manager as he heads out to a fancy party of a client he helped last year.”
We now have all the parts to deliver such a solution to our clients. It’s all being imple-mented.
Q2: Margins in the Retail Brokerage busi-ness have been shrinking across the industry. How is the securities business going to ad-dress the issue and continue to grow?
Th e Retail pie overall for the market in general is very small. A lot of people club retail with prop book presence, and the latter is very signifi cant while the former is miniscule in its presence on the KSE. We would assume that going forward, over the next few years, the retail pie will grow and all broking companies catering to this mass will also benefi t. At KASB, we are on a mission to do exactly that. As the largest pure agency broker on the KSE, we feel it is also our responsibility to change the mindsets of the average retail investor and make the KSE an accepted investment destination. While we would agree that commissions in this segment will continue to shrink and will remain under pressure, the increase in turnover will more than benefi t. Th e future in Pakistan, like in more developed markets, is online broking. KASB Direct, KASB Group’s online initiative, continues to be the leading online umbrella in the country and boasts of the lowest commissions in the industry.
Th e KASB online research portal also gives customers access to our award winning fun-damental and technical research and with the touch of a button can help investors make informed decisions on any sector of stock that falls within the KASB covered universe. Th e real challenge in a developing country like ours is the education of people towards a riskier asset class like equities. So while we would prefer to see the low touch online model work here too, given the need to educate and change mindsets, this requires some high touch customer contact and hand holding. Over the next few years, KASB would continue to use its strength in online broking to break into new markets across the GCC while continuing to spend time and resource on its existing strength in Pakistan. A few retail outlets that act as a high touch contact point for initial training and access to the online umbrella are also on the cards.
Q3: You have previously talked about the im-portance of technology in this business. What are KASB’s highest priorities in this area?
Technology and the need to be ahead in this space is one of the highest priorities at KASB. Management continues to focus in this direction and our capex plans over the next three years are aimed at retaining our lead in this space. While the online broking platform via KASB Direct and the research portal are a step in that direction, we are also looking at other ways to remain ahead. Our relationship with Merrill Lynch gives us a huge edge over competing brokers on the street and Merrill is undertaking some very exciting options in the online institutional space in the region. Technology is the best way to increase reach and while management is fully cognizant of the impending pressure on margins/commissions as a result, we strongly believe in the need to increase access which will transpire into increased turnover in days to come.
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Q4: More global and local players are setting up Investment Banking businesses in Paki-stan. How will you deal with the increased competition?
Succeeding in investment banking has traditionally been about relationships, credentials and the ability to eff ectively execute. As the economy has grown in Pakistan, we have seen the investment banking industry evolve and many fi rms have been able to win business because of the strength of their balance sheets, especially on the debt side.
We, along with our joint venture partners Merrill Lynch, have been successfully executing deals in Pakistan for a long time and have the track record to prove it. As new players try to enter the market, they will and have, driven down their fees in order to compete. In our areas of strength, which are raising capital through equity and equity linked products as well as mergers and acquisition advisory, we believe that we will be able to remain ahead of the competition owing to our history of delivering superior results for clients. Th e overall value of our advice and world class execution capabilities has far exceeded the fees that we have charged.
Th at said, we are now able to utilize our balance sheet strength as well. Firstly, we have started our principal investment business and now have the ability to invest with our clients where we believe we can add value. Secondly, we have increased our underwriting capabili-ties on both the debt and equity sides which complements our ability to distribute to both local and internal investors.
Apart from increasing our capabilities in our traditional areas, we have continued to strengthen our human resource pool and have given them access to Merrill Lynch both by providing training and by working alongside senior members with global expertise. All in all, we should not only remain ahead of the competition, but also expand our services and markets in the future as we strive to maintain our position as the number one player in the market.
Q5: Th e bank has been, for some time, lag-ging behind its peers. How is KASB going to close the gap and what makes you think KASB can be competitive in the commercial banking business?
KASB Bank brought in a new management team at the end of November 2005 and since then the Bank has experienced a major transformation into becoming a viable and vibrant fi nancial institution. In the last two years, the Bank focused on laying the foundation for an aggressive growth strategy. In this time period, KASB Bank has been able to develop the following: proper control mechanisms (risk management, internal control, internal audit); acquire sophisticated core banking software, Misys equation; build a core management team of quality professionals; relaunch itself with a new corporate identity and increase awareness of the brand, creating an image of a vibrant, progressive and growing bank; improve liquidity by expanding and diversifying the deposit base and making it more cost effi cient; strengthen human resource infrastructure; and building of asset and capital structure.
Th e Bank also undertook the strategic acquisition of IHFL which resulted in incremental assets of over PKR 700 million and increased the capital by PKR 585 million. Th is merger is expected to unleash synergies benefi ts in terms of product range expansion and franchise value expansion.
Th e enormous growth in the last two years is clearly exemplifi ed by the following: 156% growth in deposits, 171% growth in advances, 140% growth in total assets and 146% growth in total equity. In 2007, we have also succeeded in achieving operating profi t before provisions of PKR 300 million as compared to a loss of PKR 7 million in 2005.
Q6: KASB Bank’s share price has underper-formed many of its peers in recent years. Why should investors stay with KASB Bank, given its past performance?
Th e share price of KASB Bank has not moved in line with the market, due to the fact that the shares are closely held with a very minimal market fl oat. Over the past year the average daily traded volume was 30,000 shares. With the foundation for growth well set, we are now prepared to take aggressive development initiatives that we expect will be refl ected in our stock performance. In the last two years, we have focused on laying the groundwork for our aggressive growth strategy for the future. We have invested in Information Technology, set in place Systems and Controls, invested in Human Resources and will continue to strengthen these aspects of our business. In these two years, our complete focus was on establishing these systems and there was little focus on developing the business itself. Now we are progressing forward and the Bank is making operating profi ts despite stringent controls on the risk, compliance, audit and internal control side of the business.
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Q7: KASB’s asset management business has shown tremendous growth in the last year. However, the gap between KASB on the top fi ve players remains the same. How do you plan to narrow that gap?
Th e asset management business grew rapidly last year to end in the top ten rankings within a year and half of launching its fi rst fund. However, even with the tremendous growth we remain very cognizant of the journey ahead and our strategy to narrow this gap is three-fold.
First, we will double our product off ering during the year, going from 3 to 6 funds. Th is will allow us to build AUM strength by tapping into the diff erent market niches. With an adequate platter of funds, it will allow the company to position itself as an investment solu-tion provider with savings and investment schemes rather than mutual fund units.
Second, we will strengthen our distribution footprint through the development of an in-house corporate and retail sales team to be based in all the major cities pan-Pakistan. To support the sales eff ort, KASB Funds will open offi ces in Lahore and Islamabad, and embark upon an aggressive marketing campaign to brand the company. In addition, sales executives will operate through every KASB Bank branch. Within an existing branch network of 35 branches increasing to 73 before year end, KASB Funds will be available in 15 cities of the country through KASB Bank.
Finally, KASB Funds will draw on its uniqueness to diff erentiate itself from the crowd. Its distinctiveness lies in its relationships. We will pull together our domestic distribution relationships and our ability to access international markets through BlackRock to provide products with appeal to wealth management clients. With our three-pronged approach we are geared to actively capture the market in the future.
Q8: Merrill Lynch has not taken a stake in KASB. Why? Are there any plans for Mer-rill Lynch to take a stake in KASB?
Merrill Lynch, through its asset management arm, Blackrock, has a small stake in our asset management arm, with the option to increase it signifi cantly. Additionally, we have signed new joint venture and cooperations agreements with Merrill Lynch for investment banking (KASB Capital), brokerage and research (KASB Securities) and asset management (KASB Funds). Th ese agreements integrate the organizations even further with the implementa-tion of a seamless trading platform, access to global databases, access to training facilities and joint marketing to name a few. Over the next few years, you will see some of these strategies rolled out. From our side we are very happy with the relationship and as far as equity stake is concerned, we are glad to wait as we create signifi cant value for our current shareholders.
Q9: How has the recent political events aff ected business? Do you think that the markets will rebound in 2008?
Recent political events have led to short term instability. While business have not been impacted in a big way, one can assume that a lot of potential investors continue to look for the political dust to completely settle before further capital commitments are made to the country. In terms of the broking space, the international pool of investors is not growing at the pace one would have liked and that has been a direct fallout from the political events that began with the sacking of Chief Justice in March last year. In our recent interactions with some of the money managers abroad, while the general level of interest in the Pakistan opportunity remains high, some concern on how the new government handles the weak-ening macro fundamentals and continues to take the economic reform process forward continues to remain high on the agenda.
In terms of the current year and how markets will play the remainder of 2008, a few outstanding politically motivated decisions i.e judges issue, President Musharraf ’s future etc continue to be a dampener on sentiment. Pakistan is entering into a very tough phase where exogenous factors such as oil prices and the continuing commodity boom are now impacting infl ation and have gradually led to a worsening of the macro picture overall. How the government handles infl ation and deals with the need to slow monetary growth without impacting overall growth in the economy will be interesting to see. Delays in privatization, divestments and GDR issues that help raise much needed foreign capital is not helping either. Neither is concern on a State Bank circular requiring banks to reduce exposure to the equity space and threat of a potential introduction of Capital Gains Tax in the next few years. Th e remainder of 2008 will remain volatile and one needs to remain very selective in their stock picks. Remain in oil (benefi ts from rising oil prices), fertilizer, a few selective banks and play the power shortage with projects that are in expansion mode like Hubco and Kapco.48
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KASB Bank LimitedBusiness & Finance Centre,I.I. Chundrigar Road, Karachi, Pakistan
Tel: (92-21) 244 6772-77Fax: (92-21) 244 6828/ 65
KASB Capital Limited5th Floor, Trade CentreI.I. Chundrigar Road,Karachi, Pakistan KASB Funds LimitedTel: (92-21)111 535 535Fax: (92-21) 263 9188
KASB Securities LimitedTel: (92-21) 111 222 000 Fax: (92-21) 263 0202
KASB Investment Banking GroupTel: (92-21) 111 535 535Fax: (92-21) 221 1853
www.kasb.com
