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www.bakertillykuwait.com
An independent member of Baker Tilly International, a member of the Forum of Firms
BUSINESS VALUATION REPORT
National Petroleum Services Co. K.S.C.P.
As at 30 September 2016
Submitted to:
National Petroleum Services Co. K.S.C.P.
State of Kuwait
February 2017
2An independent member of Baker Tilly International, member of the Forum of Firms
TABLE OF CONTENTS DISCLAIMER
1 EXECUTIVE SUMMARY
2 THE ASSIGNMENT
2.1 About National Petroleum Services Co. K.S.C.P (the ‘Offeree’)
2.2 About Qurain Petrochemical Industries Company K.S.C.P (the ‘Offeror’)
3 CAPITAL MARKETS AUTHORITY’S REGULATIONS
3.1 Applicable to Qurain Petrochemical Industries Company K.S.C.P (the ‘Offeror’)
3.2 Applicable to National Petroleum Services Co. K.S.C.P (the ‘Offeree’)
4 NAPESCO’S VALUATION
4.1 Fair Value of Equity as at 30 September 2016
4.2 Conclusion
APPENDIX 1
APPENDIX 2
3An independent member of Baker Tilly International, member of the Forum of Firms
DISCLAIMER
The underlying valuation report is provided under the appointment of Baker Tilly Kuwait Consulting and Training W.L.L, hereinafter referred
to as “BTK” or the “Valuer”, by the management of National Petroleum Services Co. K.S.C.P, hereinafter referred to as the “Company” or
“NAPESCO” or the “Offeree”, and for the purpose of determining the Company’s fair value as of 30 September 2016. This report is strictly
confidential and is given on the understanding that it is not communicated, in whole or part, to any third party without BTK’s prior written consent.
BTK, their officers, directors, shareholders, partners, agents, employees, accountants, attorneys and advisers make no representation or
warranty, expressed or implied, as to the accuracy or completeness of the information contained in this report. BTK, their officers, directors,
shareholders, partners, agents, employees, accountants, attorneys and advisers expressly disclaim any and all liability for, or based on, or
relating to any information, including, without limitation, any information contained in, or errors in or omissions from the report, or based on or
relating to the use of this report by NAPESCO.
This valuation and its report have been prepared in accordance with the Professional Standards of the National Association of Certified
Valuation Analysts, and we have performed the procedures which we believe to be appropriate to the requirements of this engagement given the
timeframe allowed in completing this work.
This report includes information based on management information provided by the Company.
This report also includes certain statements, estimates and projections with respect to the anticipated future performance of the Company. Such
projections are based on various assumptions made by the management. Those projections will usually be different from the actual result of the
Company, where various events and circumstances may happen and affect the business performance resulting material differences.
Our valuation takes into account risk factors identified during the discussion with management and our understanding of the industry through our
estimation of the discount factor to the projected cash flows of the Company for the period 01 October 2016 – 31 December 2021.
4An independent member of Baker Tilly International, member of the Forum of Firms
1- EXECUTIVE SUMMARY 1. EXECUTIVE SUMMARY
NAPESCO is a Kuwaiti public shareholding company mainly involved in providing upstream oil field services and downstream and energy
services. The Company is listed in the Kuwaiti stock exchange since 2003 and its current stock price is 820 fils (as at 07 February 2017).
On 05th June 2016, Qurain Petrochemical Industries Company K.S.C.P, hereinafter referred to as “QPIC” or the “offeror”, acquired
30.4% of NAPESCO shares through direct and indirect ownership. On 14 December 2016, QPIC increased its proportion of direct and
indirect shareholding in NAPESCO to 50.53%. As per articles 3.6.1 and 3.6.2 of Module 9, Chapter 3 of the Capital Markets Authority,
hereinafter referred to as “CMA”, bylaws of law No. 7 of 2010, the Controller of a Listed Company may sell or purchase shares of such
company with a specific range of the company’s capital, in accordance with the following percentages:
± 2% semi-annually for ownerships over 30% to 50%.
± 5% semi-annually for ownerships over 50% to 100%.
However, QPIC has exceeded the specified range by increasing its stake from 30.4% to 50.53% of NAPESCO’s capital. Thus in line with
article 3.6.6 of Module 9 of the CMA bylaws, QPIC has to provide a Mandatory Acquisition Offer to the remaining shareholders of the
Company who are within the same category of shares in compliance with the regulations (Article 74 of Law No. 7 of 2010) of the CMA.
Thus, in order to determine the reasonability of the ‘Mandatory Acquisition Offer’ provided by QPIC to the remaining shareholders, the
Company requires a business valuation to be conducted to determine the fair value of the Company’s share in line with applicable CMA
regulations. Hence, NAPESCO invited BTK to conduct a business valuation and determine the fair value of the Company as at 30
September 2016.
In fulfilling the scope of the engagement, we initially conducted an analysis of the Company’s historical financial information as well as
expected future contracts and determined indicators that would assist us in developing independent financial projections of the Company
during 01 October 2016 – 31 December 2021. We adopted a conservative approach in forecasting the expected financial performance of
the Company.
Further, we decided to adopt the Discounted Cash Flow Methodology and Guideline Public Comparable method in determining the fair
value of the Company. The Discounted Cash Flow method discounts expected future free cash inflows and terminal value to present
values based on a scientifically estimated discount rate in order to determine the fair value. On the other hand, the Guideline Public
Comparable method utilizes ratios of comparable companies listed on a stock exchange to determine the fair value.
In concluding our valuation, we weighed the results obtained from both the Discounted Cash Flow method and the Guideline Public
Comparable method at 50% each based on relevancy of the situation and concluded the Fair Value of the Company as at 30 September
2016.
5An independent member of Baker Tilly International, member of the Forum of Firms
1- EXECUTIVE SUMMARY
In our opinion, and in light of the valuation results
and financial assumptions mentioned in the
underlying valuation report, the fair market value for
100% equity interest of NAPESCO is
KD 90,206,073 as at 30 September 2016,
distributed on 57,609,510 shares.
The fair market value of NAPESCO’s share is
KD 1.565 as at 30 September 2016.
The market price of NAPESCO’s share is KD 0.770
as at 30 September 2016.
Hence, as at 30 September 2016, the Fair Market
Value of NAPESCO is at a premium when
compared to its market price in Kuwait Stock
Exchange.
96,620,577
83,791,569
90,206,073
Discounted CashFlows
Guideline PublicComparable
Fair Market Value
Fair Market Value of NAPESCO as at 30 September 2016 according to Valuation MethodsValues in Kuwaiti Dinar
6An independent member of Baker Tilly International, member of the Forum of Firms
2.1 ABOUT NATIONAL PETROLEUM SERVICES CO. K.S.C.P (THE OFFEREE)
2.1.1 Incorporation
NAPESCO was incorporated on 03 January 1993.
2.1.2 Listing
NAPESCO was listed on the Kuwaiti Stock Exchange on 18 October 2003.
2.1.3 Capital
The authorized, issued and fully paid up capital of the Company is KD 5,760,951 which consists of 57,609,510 shares of 100 fils each.
2.1.4 Registered Office
The registered office of the Company is located at Shuaiba West Industrial Area, Block 3, Street 6, Plot 76, Mina Abdullah, State
of Kuwait.
2. THE ASSIGNMENT
7An independent member of Baker Tilly International, member of the Forum of Firms
2.1.5 Current Shareholders
According to Kuwait Stock Exchange website (as at 08 February 2017), the major shareholders of the company are
as follows :
Shareholder Holding TypePercentage of Holding
%
Afnan International Group Holding Co. & Others Direct & Indirect 12.832
Habib Hassan Jowhar Hayat Direct 8.823
Qurain Petrochemical Industries and Group (United Oil Projects Company,
Qurain Plastics Industries Company, Qurain Basic Materials Industries
Company)
Direct and Indirect 50.53
8An independent member of Baker Tilly International, member of the Forum of Firms
2.1.6 Activities
The licensed activities of the Company are as follows:
1. Performing all support services for wells drilling, repairing and preparation for production as well as wells maintenance
related services.
2. Establishing industrial firms for the purpose of manufacturing and producing the equipment's and materials necessary for
achieving such objectives after obtaining the approval of the competent authorities.
3. Importing and owning machines, tools and materials necessary for achieving its objectives.
4. Owning lands and real estate necessary for establishing its entities and equipment's.
5. Importing and exporting chemicals necessary for the execution of the works stated in item no. (1) above.
6. Concluding agreements and obtaining privileges which it deems necessary for the achieving its objectives.
7. Possessing the needed patents, and trademarks.
8. Obtaining and granting agencies in respect of the Company's business.
9. Conducting studies, queries and researches relevant to the Parent Company's objectives. The Company may practice all of
the above mentioned activities inside or outside the State of Kuwait. The Company may also have an interest or participate
in any way with entities practicing activities similar to its own or which may assist it in achieving its objectives inside or
outside the state of Kuwait, or may acquire those entities or have them affiliated to it.
9An independent member of Baker Tilly International, member of the Forum of Firms
780
204
820
900
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100
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600
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6
NAPESCO Share Price Historical PerformanceValues in Kuwaiti Fils
2.1.7 Share Performance in the Kuwait Stock Exchange
Highest share price 30 January 2017
Lowest share price 01 July 2010
Share price at listing 18 September 2004
Latest share price 07 February 2017
10An independent member of Baker Tilly International, member of the Forum of Firms
2.2.1 Incorporation
QPIC was incorporated on 10 November 2004.
2.2.2 Listing
QPIC was listed on the Kuwaiti Stock Exchange on 09 July 2007.
2.2.3 Capital
The authorized, issued and paid up capital of the Company is KD 109,919,258 which consists of 1,099,192,576 shares of 100 fils each.
2.2.4 Registered Office
The registered office of the Company is located at Khaled Bin Al-Waleed St., KIPCO Tower, 26th Floor, Sharq, State of Kuwait,
2.2.5 Current Shareholders
According to Kuwait Stock Exchange website (as at 08 February 2017), the major shareholders of the company are as follows:
2.2 ABOUT QURAIN PETROCHEMICAL INDUSTRIES COMPANY K.S.C.P (THE OFFEROR)
Shareholder Holding Type Percentage of Holding %
Petrochemical Industries Company Direct 10
United Industries Co. & Group (Kuwait National
Industrial Projects Company)Indirect 29.53
11An independent member of Baker Tilly International, member of the Forum of Firms
2.2.6 Activities
The licensed activities of QPIC are as follows:
1. To manufacture all types of chemical and petrochemical materials and any other derivatives
2. To sell, purchase, supply, distribute. export and store these materials and participate in all the activities relating to the same
including the establishment and lease of the necessary services.
3. To participate in Equate Petrochemical Company K.S.C. (Closed), Kuwait Aromatics Company K.S.C. (Closed}, Kuwait
Styrene Company K.S.C. (Closed) and Kuwait Olefins Company K.S.C. (Closed).
4. To contribute in industrial companies ns well as finance, manage and trade in its shares.
5. To develop industrial and craft zones and projects launched by the State or private sector.
6. To establish industrial projects or contribute therein after obtaining the necessary approvals from the Public Authority for
Industry and the concerned authorities.
12An independent member of Baker Tilly International, member of the Forum of Firms
3. CAPITAL MARKET AUTHORITY REGULATION
3.1 Applicable to Qurain Petrochemical Industries Company K.S.C.P (the Offeror)
As per the CMA Executive Bylaws (Module 7 – Chapter 3 – Mergers and Acquisitions) the articles applicable to QPIC include the
following:
Article 3.6.1: Scope of Application
A Controller may sell or purchase Shares of a Listed Company without being obliged to submit an Acquisition Offer in accordance with
provisions of Article (74) of the Law provided that the following provisions shall be taken into consideration.
Article 3.6.2: Permitted Percentage of Sale or Purchase
The Controller of a Listed Company may sell or purchase Shares of such company with a specific range of the company’s capital, in
accordance with the following percentages:
• ± 2% semi-annually for ownerships over 30% to 50%.
• ± 5% semi-annually for ownerships over 50% to 100%.
Article 3.6.6: Exceeding the Permitted Percentage of Purchase
In the event of exceeding the permitted percentage of purchase, or in the event that the percentage of ownership decreased to become
less than 30% of the Listed Company’s Shares but then increased again over such percentage, the Controller shall be obliged to submit
a Mandatory Acquisition Offer in accordance with the provisions of Article (3-6-2) of Module 7.
Article 3.5.2: A Mandatory Acquisition Offer shall be a cash offer equivalent to the highest price of the following:
a. The weighted average of the daily price in the Exchange of the Offeree company through the six months preceding the date
of disclosing the Mandatory Acquisition Offer; and this price shall be calculated by the Exchange; or
b. The highest price paid by the Offeror, any Person whether Subsidiary or person with whom they are Acting in Concert with it
during the six months preceding the date of disclosing the Mandatory Acquisition Offer
13An independent member of Baker Tilly International, member of the Forum of Firms
3.2 Applicable to National Petroleum Services Co. K.S.C.P (the Offeree)
Article 75 of Law No. 7 of 2010 of the Capital Market Authority is applicable to the Offeree and stipulates the below:
“An Issuer whose Securities are the subject of an acquisition shall, within seven business days from receipt of the offer, submit a
response to the Authority stating its opinion and recommendations to the shareholders.”
14An independent member of Baker Tilly International, member of the Forum of Firms
4.1 Fair Value of Equity as at 30 September 2016
4. NAPESCO’S VALUATION
The following tabulation shows that the value of a 100% equity interest of NAPESCO as at 30 September 2016 is KD 96,620,577 (Ninety
Six Million Six Hundred and Twenty Thousand Five Hundred and Seventy Seven Kuwaiti Dinar) based on adopting the DCF approach.
4.1.1 Fair Value Based on DCF Method (cont'd)
Years Free Cash Flows Terminal Value Total Discount Factor After Discounting
3 Months ended 31 Dec 2016 623,791 - 623,791 0.988711 616,749
2017 9,796,834 - 9,796,834 0.944815 9,256,194
2018 10,131,821 - 10,131,821 0.902868 9,147,693
2019 10,405,721 - 10,405,721 0.862783 8,977,876
2020 10,679,850 10,679,850 0.824478 8,805,296
2021 2,209,417 61,204,354 63,413,771 0.787873 49,961,994
Enterprice Value 86,765,802
Adjustments 9,854,775
Equity Value 96,620,577
Source: NAPESCO Management Information and Baker Tilly Kuwait Estimates.
15An independent member of Baker Tilly International, member of the Forum of Firms
Multiple Trailing PE
PE multiple of the Kuwaiti Stock Market as at 30 September
2016 15.60
Less: Companies specific discount – 20% -3.12
Adopted Multiple 12.48
Determination of Fair Market Value
Adopted Multiple 12.48
Earnings for the period ended September 2016* 6,714,068
Fair Market Value 83,791,569
Thus the Fair Market value was determined at KD 83.7 M
4.1.2 Fair Value Based on Guideline Public Comparable Method
Source: Kuwait Stock Exchange and Baker Tilly Kuwait Estimates.
16An independent member of Baker Tilly International, member of the Forum of Firms
1- EXECUTIVE SUMMARY
4.2 Conclusion
The following table shows the valuation approaches with their corresponding weights and values:
Approach Method Equity Value Weights Weighted Value
Income Approach Discounted Cash Flow Method 96,620,577 50% 48,310,288
Market Approach Guideline Public Comparable Method 83,791,569 50% 41,895,784
Fair Market Value of NAPESCO as at 30 September 2016 90,206,073
17An independent member of Baker Tilly International, member of the Forum of Firms
1- EXECUTIVE SUMMARY
In our opinion, and in light of the valuation results
and financial assumptions mentioned in the
underlying valuation report, the fair market value for
100% equity interest of NAPESCO is
KD 90,206,073 as at 30 September 2016,
distributed on 57,609,510 shares.
The fair market value of NAPESCO’s share is
KD 1.565 as at 30 September 2016.
The market price of NAPESCO’s share is KD 0.770
as at 30 September 2016.
Hence, as at 30 September 2016, the Fair Market
Value of NAPESCO is at a premium when
compared to its market price in Kuwait Stock
Exchange.
96,620,577
83,791,569
90,206,073
Discounted CashFlows
Guideline PublicComparable
Fair Market Value
Fair Market Value of NAPESCO as at 30 September 2016 according to Valuation MethodsValues in Kuwaiti Dinar
18An independent member of Baker Tilly International, member of the Forum of Firms
Historical Statement of Income
APPENDIX 1
All Figures in Kuwaiti
Dinar Except if Indicated
Otherwise.
30-Sep-16 2015 2014 2013 2012 2011
KD % KD % KD % KD % KD % KD %
Revenue 19,800,301 100% 19,609,382 100% 16,065,962 100% 14,803,852 100% 11,630,357 100% 16,377,366 100%
Cost of revenue (12,730,952) -64% (13,112,396) -67% (11,132,332) -69% (10,544,169) -71% 8,080,082) -69% (12,862,941) -79%
Gross Profit 7,069,349 36% 6,496,986 33% 4,933,630 31% 4,259,683 29% 3,550,275 31% 3,514,425 21%
Other income 100,605 1% 52,511 0% 333,737 2% 87,069 1% 104,041 1% 124,556 1%
Impairment of property, plant
and equipment (116,145) -1% (665,857) -3% - 0% - 0% - 0% - 0%
Gain on sale of property, plant
and equipment 3,711 0%
Net investment income 196,583 1% 1,624,358 8% 115,854 1% 57,383 0% 2,231 0% (5,708) 0%
Administrative expenses (1,198,997) -6% (1,478,564) -8% (1,754,002) -11% (1,287,243) -9% (1,247,659) -11% (1,092,933) -7%
Provision for doubtful debts - 0% - 0% - 0% (102,667) -1% - 0% - 0%
Interest Income - 0% - 0% - 0% - 0% 4,902 0% 11,806 0%
Finance Charges - 0% - 0% - 0% - 0% (26,795) 0% (75,339) 0%
Profit for the year before
contribution to KFAS, Zakat,
NLST and Directors
remuneration 6,055,106 31% 6,029,434 31% 3,629,219 23% 3,014,225 20% 2,386,995 21% 2,476,807 15%
Provision for KFAS (54,500) 0% (54,500) 0% (33,829) 0% (27,128) 0% (21,483) 0% (21,749) 0%
Provision for NLST (151,390) -1% (151,389) -1% (99,222) -1% (79,798) -1% (64,826) -1% (60,165) 0%
Provision for Zakat (63,616) 0% (60,556) 0% (39,689) 0% (31,919) 0% (25,930) 0% (24,493) 0%
Provision for Directors
remuneration (58,500) 0% (78,000) 0% (64,000) 0% (64,000) 0% (48,000) 0% (32,000) 0%
Profit for the year 5,727,100 29% 5,684,989 29% 3,392,479 21% 2,811,380 19% 2,226,756 19% 2,338,400 14%
19An independent member of Baker Tilly International, member of the Forum of Firms
1- EXECUTIVE SUMMARY
Historical Statement of Financial Position
APPENDIX 2
All Figures in Kuwaiti Dinar
Except if Indicated Otherwise.
30-Sep-16 2015 2014 2013 2012 2011
KD % KD % KD % KD % KD % KD %
ASSETS
Non current assets
Property, plant and equipment 8,367,545 26% 9,047,928 35% 7,886,533 35% 8,691,154 43% 6,963,988 39% 7,792,971 44%
Intangible Assets 16,524 0% 66,658 0% 114,277 1% - 0% - 0% - 0%
Financial Assets available for sale 49,766 0% 43,814 0% 49,701 0% 415,201 2% 499,850 3% 176,647 1%
8,433,835 26% 9,158,400 35% 8,050,511 36% 9,106,355 45% 7,463,838 42% 7,969,618 45%
Current Assets
Inventories 2,706,939 8% 3,069,190 12% 2,211,409 10% 1,645,301 8% 1,623,835 9% 1,544,191 9%
Accounts receivable 8,070,180 25% 5,541,628 21% 5,439,881 24% 3,690,138 18% 2,406,670 13% 2,305,405 13%
Prepayment and other receivables 893,662 3% 346,129 1% 982,540 4% 1,100,943 5% 597,644 3% 332,945 2%
Financial assets at fair value through
profit or loss 2,396,954 7% 141,245 1% 1,675,094 7% 1,687,628 8% 1,634,857 9% 1,632,351 9%
Bank balances, deposits and cash 9,891,933 31% 7,891,236 30% 4,196,919 19% 3,196,493 16% 4,165,550 23% 3,880,436 22%
23,959,668 74% 16,989,428 65% 14,505,843 64% 11,320,503 55% 10,428,556 58% 9,695,328 55%
TOTAL ASSETS 32,393,502 100% 26,147,828 100% 22,556,354 100% 20,426,858 100% 17,892,394 100% 17,664,946 100%
20An independent member of Baker Tilly International, member of the Forum of Firms
1- EXECUTIVE SUMMARY
All Figures in Kuwaiti Dinar
Except if Indicated Otherwise.
30-Sep-16 2015 2014 2013 2012 2011
KD % KD % KD % KD % KD % KD %
EQUITY AND LIABILITIES
Equity
Share Capital 5,760,951 18% 5,760,951 22% 5,760,951 26% 5,760,951 28% 5,760,951 32% 5,486,620 31%
Share premium 3,310,705 10% 3,310,705 13% 3,310,705 15% 3,310,705 16% 3,310,705 19% 3,310,705 19%
Treasury Shares (585,062) -2% (585,062) -2% (585,062) -3% (585,062) -3% (868,811) -5% (868,811) -5%
Treasury Shares reserve 33,825 0% 33,825 0% 33,825 0% 33,825 0% - 0% - 0%
Statutory reserve 3,541,472 11% 2,723,364 10% 2,120,691 9% 1,757,769 9% 1,456,346 8% 1,217,647 7%
Voluntary reserve 3,541,472 11% 2,723,364 10% 2,120,691 9% 1,757,769 9% 1,456,346 8% 1,217,647 7%
Foreign currency translation reserve 5,643 0% 5,643 0% - 0% - 0% - 0% - 0%
Cumulative changes in fair value 21,214 0% 15,182 0% 20,767 0% 50,706 0% 24,288 0% 15,844 0%
Retained earnings 9,142,301 28% 6,414,335 25% 4,454,228 20% 3,745,126 18% 3,177,104 18% 3,014,245 17%
Equity attributable to equity
holders of the Parent Company 24,772,520 76% 20,402,307 78% 17,236,796 76% 15,831,789 78% 14,316,929 80% 13,393,897 76%
Non-controlling interests 58,037 0% 49,843 0% - 0% - 0% - 0% - 0%
Total equity 24,830,557 77% 20,452,150 78% 17,236,796 76% 15,831,789 78% 14,316,929 80% 13,393,897 76%
Liabilities
Non-current liabilities
Employee end of service indemnity 1,591,972 5% 1,416,260 5% 1,131,646 5% 860,604 4% 725,666 4% 569,696 3%
Current liability
Term Loans - 0% - 0% - 0% - 0% - 0% 1,569,571 9%
Accounts payable and accruals 5,970,973 18% 4,279,418 16% 4,187,912 19% 3,734,465 18% 2,849,799 16% 2,131,782 12%
5,970,973 18% 4,279,418 16% 4,187,912 19% 3,734,465 18% 2,849,799 16% 3,701,353 21%
Total liabilities 7,562,945 23% 5,695,678 22% 5,319,558 24% 4,595,069 22% 3,575,465 20% 4,271,049 24%
TOTAL EQUITY AND LIABILITIES 32,393,502 100% 26,147,828 100% 22,556,354 100% 20,426,858 100% 17,892,394 100% 17,664,946 100%