Managing Risks in Uncertain Times

2

A Family Business and SME Perspective

Panel Session

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OUR MODERATOR

Mr. Loutfi K. Echhade, CMA,CFM, CPA, CFF, CIA, CCSA, CFSA, CISA Financial and consulting advisor, HNW Family Business, MENA at EY

OUR PANELISTS

Nabil Nazer Chief Investment Officer,

Al Sulaiman Group

Abdur Rahim Ghulam Nabi Senior Advisor to Assistant Director General

Finance, Commercial, Customer Relations Division and Innovation & Future Unit

Dubai Airport Freezone Authority

Bashar Saidi, Head of Finance, Group Operations & NAWAT, Group Finance | FAB

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AGENDA 5

1. Family Business around the World and in the Middle East

2. Key Challenges for Continuity and Sustainability

3. Family Business Conflicts

4. Key Risks

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What do we mean by “Family

Business”?

“An enterprise where an entrepreneur and/or family members influence the firm; by their participation, ownership, control, strategic preferences, dynastic will, and the culture and values they impart.”

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Family Businesses around the world….

...an epitome of lasting success

Some of the world’s most successful companies are family businesses !!

Americas • Wal-Mart • Ford • Cargill • Koch • CEMEX

Asia • Toyota • Samsung • Tata • LG • Hyundai • Doosan • Reliance

Europe • Peugeot • LVMH • Arcelor • Mittal

Australia • News Corporation • BGC • VISY • RAMSAY

• IKEA • BMW Group • Bosch • SHWARTZ • H&M

MENA • Kanoo • Zamil • Alfutaim • Abdullatif Jameel • Alghanim

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What have they done Differently

They have sustained across generations and have governance structures that have strong involvement of members of founding family What have these family businesses done different …..their success mantra:

► Prudence in investing capital ► Retention of companies through bull and bear markets ► Long term development of talent ► Focus on core business ► Maintenance of strong and enduring values ► Emphasis on long term performance over quarterly gains

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Global Family Business Statistics

► Family businesses generate an estimated 70% of the global GDP ► 30% of UK GDP is generated by family businesses with a combined turnover of £1.1 trillion and £ 82 billion in taxes ► In the US, an estimated $ 41 trillion will transfer from one generation to the next over the next two decades ► 55% of the wealthiest 100 billionaires are family business leaders or owners ► About 30% of the companies in the capital market are family businesses

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Family Businesses in MENA

► Over 80% of businesses in MENA are family owned. They contribute 60% of GDP

► 90% have family members in the board

► 4% have performance evaluation mechanism

► About 60% of family businesses are in the 1st and 2nd generation

► Less than 14% have formed well documented governance frameworks such as family constitution (charter) and 27% are in progress

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Family Businesses in MENA (Cont.)

► 50% state professionalizing the business is a key challenge ( 43% globally) ► 53% claim alignment between family and business strategy ( 69% globally) ►91% of family businesses have no succession planning ► 48% claim the need for continuous innovation ►25% have active gender equality ►35% believe their business is prepared for data breach or cyber attack

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Oldest Family Businesses in the World

1. Kongo Gumi – Japan • Established in 578 • Generation: 48th

• Activities: Construction, Osaka Castle and Buddha Temple

2. Hoshi Ryokan – Japan • Established in 718 • Generation: 46th

• Activities: Construction and Operation of Hotels

3. Chateau de Goulain – France • Established 1000 • Generation: 30th

• Activities: ownership and management of museums

Key Challenges for Family Firms

External and Internal challenges for Family Firms in the coming years

Key Challenges

for Family firms

Current economic slowdown

Increased competition: Regional & Global

Political and Regulatory Risks

New Technologies

Ext

erna

l Pre

ssur

es

Inte

rnal

Pre

ssur

es

Transfer of company control to the next generation

Increased pressure to grow the business

Typical family business needs to grow at 18% each year to maintain the same level of wealth across generations

Greater difficulty in maintaining control over the business

As shareholders become more in number, centralized control over business strategy and decision making becomes more difficult

Transfer of power to the next generation primarily creates 2 key challenges:

Family business Multiple roles of actors in family firms

Tagiuri & Davis model (1982) 1. Family, non-owners, non-managers 2. Non-family, non-manager owners 3. Managers only 4. Family owners 5. Owners & managers 6. Non-owner, family managers 7. Family owner, managers Systems move from higher to lower degrees of overlap as business grows and family members mature

Building the ‘immortal’ family business

To remain successful, key executives need to understand the key challenges that are unique to the family business

Structuring family involvement

Sustaining family values

Sound management of family wealth Viable growth plans

Continued commitment to the Family

Continued commitment to the Family Business

BU

SIN

ESS

FAMILY

Strong governance mechanisms

Dynamic business portfolio

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Top 10 Risks Facing Family Business

1. Developing a succession plan or exit strategy 2. Grooming the next generation of leadership 3. Political and economic instability 4. Government policy, regulations, and cost of

compliance 5. Access to capital and financing 6. Finding and keeping qualified staff 7. Generating more revenue 8. Innovation 9. Keeping up with technology 10.Tax burdens and complexity

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Thank you.

Managing Risks in Uncertain Times

18

A Family Business and SME Perspective

Panel Session

OUR PANELIST

Nabil Nazer Chief Investment Officer,

Al Sulaiman Group

2

Real Estate

Financial & InvestmentServicesRetail & Consumer

3

Single Business Entity

Combination of Businesses

Family Managed Group

Independently Managed Group

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Managing Risks in Uncertain Times

1

A Family Business and SME Perspective

Panel Session

OUR PANELIST

Bashar Saidi, Head of Finance, Group Operations & NAWAT, Group Finance | FAB

3

This is an anxious time for organizations who must navigate the stormy waters of both funding and delivering positive results to survive in this increasingly uncertain world.

How can organizations plan for, address and manage risk in an environment that is ever-changing?

Organizations in general are facing operational risk that includes the possibility of not achieving targets, reputational damage and/or wastage or misuse of resources due to several challenges and risks.

Assessment of potential risks and developing a plan to mitigate risks helps organizations achieve their goals and function optimally so that they can effectively manage funding and be resilient when dealing with a changing environment

CHANGING ENVIRONMENT, RISKS AND CHALLENGES

WHY SMEs AND FAMILY BUSINESSES?

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Family Businesses contributing 60% to GDP

and employing over 80% of the workforce in the Middle East

SMEs contribute 40% of Dubai’s GDP, count for 95% of the total enterprise population and

employ around 42% of Dubai’s workforce

Information based on Middle East Family Business Survey 2016 by PWC and Dubai SMEs Report - Department of Economic Development

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▸Internal - Succession planning

issues - Increase in number of

shareholders - Conflicts of interest - Communication - Perceptions and

expectations

▸ External - Economic Slowdown - Increase level of

competition: Local, regional and global

- Cash flow and funding cons tra ints

- New and advanced technologies

- Political and regulatory

CHALLENGES AND MAJOR RISKS

Organizations, SMEs and Family Businesses, are facing two major types of risks and challenges:

WHAT’S GOING WRONG

6 Managing these risks and challenges should be a key priority for these organizations but many do not do it well. The reasons organizations fall short include: Poor capacity within the organization

Lack of clarity about where the responsibility lies for risk management

Risk management is not embedded in the day-to-day activities

The risk management plan is not used as a tool for discussing the

organization’s attitude towards the risks or the effectiveness of risk mitigation activities.

A lack of incentive to manage risk

High costs associated with managing risk

Lack of consistency between initial identification of risks and subsequent mitigation activities to manage those risks.

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ASSESSING THE STATE AND CHARACTERISTICS

To address these challenges we need to assess the state and the characteristics of these organizations based on the following areas: Degree of International Orientation (International Business Operations)

Prevalence of Innovation

Level of IT Adoption

Degree of Human Capital Orientation

Degree of Corporate Governance Orientation

Scalability Potential (Capacity Utilization and Fixed Costs)

Level of Access to Finance (Source of Finance to Commence a business,

source of Finance for business operations and expansion and Type of Finance accessed by organizations)

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WHAT STAGE IS YOUR BUSINESS AT?

Recognizing which stage your business is at is crucial to know what information and support systems you need in place to

manage it successfully.

Your CMA is one of the most important elements in putting in place a workable effective control system for your business and providing you with financial information and advice to

help you take the right decision

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WHAT STAGE IS YOUR BUSINESS AT?

If you are still in the start-up phase, 1 to 3 years, typically you are: A one man band Under capitalized No financial reserves to fall back on Inexperienced in being in business Trying to cope with everything Still establishing a place in the market

If you are in the 3 to 5 year stage, typically you are: Learning how to manage employees effectively Learning to delegate, which most business owners really struggle with Coping with rising overhead costs Overtrading, where your business grows quicker than your profits Doing crisis management If you are in business between 5 to 10 years, typically you are: Financing expansion and growth Trying to maintain competitiveness Controlling a growing business Struggling with indecision on the future path of the business

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RECOMMENDATIONS AND INSIGHTS

Refine and review your business plan for the changed environment…Plan for emergency

Review your cost structures for savings and prioritize your expenses

Improve your productivity and cash flow Prospect for new clients but also strengthen relationships and get direct with existing

customers. Do not forget to build your online presence Take care of your employees and give them an education

Adopt appropriate risk management strategies and create your robust governance and

control framework

Seek funding but do not fully rely on external debt. Work out the equation

Do your Succession Planning: Failing to plan is planning to fail. Get experience outside the family firm, Strengthen the role of the Board, Broaden the decision-making process, Develop a strategic plan for the medium term and Clarify what the retiring generation will do

Diversify your wealth

Make it professional in the Family Business

Communicate your decisions after a process of consultation and discussion. Do not dictate because you are the owner

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ACCESS TO FINANCE - SMEs

Majority of SMEs (80%) had used their personal money /savings / equity as the primary source of finance to start a business

Businesses largely tend to re-invest business profits, rather than resorting to bank finance to expand business operations

Only 23% of SMEs have accessed bank finance in the last five years (compared to 25% of firms in the MENA region, 45% in South Asia, 57% in Eastern Europe). In comparison, around 56% of SMEs indicated a need for bank finance for their business operations

*Source (Dubai SMEs Report – Department of Economic Development)

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ACCESS TO FINANCE - SMEs

One of the major challenges for SMEs is the funding constraints and the access to finance

Financial Institutions are currently aware of the importance of this sector and the necessity to nurture it to contribute to the local economies, increase their profits and being partners in success with these SMEs. Based on this, several bank started many initiatives to support SMEs and youth projects

Financial Institutions are governed by strict policies and procedures and they have to be compliant with the rules and regulations to protect the interests of their stakeholders

SMEs on the other hand are seeking funding by moving to other sources of financing, such as Venture Capitalists and Angel Investors, which is considered as a lost opportunity for the Financial Institutions

Financial Institutions needs to adopt creative strategies and initiatives, build a trust factor and offer these businesses creative tailored products that helps them to start up and grow their businesses

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Thank you.

Managing Risks in Uncertain Times

1

A Family Business and SME Perspective

Panel Session

OUR PANELIST

Abdur Rahim Ghulam Nabi Senior Advisor to Assistant Director General

Finance, Commercial, Customer Relations Division and Innovation & Future Unit

Dubai Airport Freezone Authority

KALHOUR GROUP OF COMPANIES

KALHOUR GROUP OF

COMPANIES

KEY FACTS

ESTABLISHED

1981 COMPANIES

5

CLIENTS

1000+

COUNTRIES

30 QUALITY

ISO DIGITAL

ERP

KALHOUR TRADING

PIPING INTERNATIONAL

KALHOUR OILFIELD

EQUIPMENTS

ROAD MASTER

EQUIPMENT

STEEL CRAFT

KALHOUR GROUP OF

COMPANIES

FATHER

GROUP CHAIRMAN

SON

KALHOUR TRADING

ELDEST SON

ROAD MASTER

SON

KALHOUR OILFIELD

YOUNGEST SON

STEEL CRAFT

GOVERNANCE STRUCTURE

KALHOUR GROUP OF

COMPANIES

RISKS

CONFLICT

LEGACY

CONTINUITY

KALHOUR GROUP OF

COMPANIES

RISKS

CONFLICT

LEGACY

CONTINUITY

CORPORATE CULTURE

PLANNING

KALHOUR GROUP OF

COMPANIES

RISKS

CONFLICT

SUCCESSION

CONTINUITY

CORPORATE CULTURE

PLANNING

HABIBI BUSINESS

THANK YOU KALHOUR GROUP OF

COMPANIES

20

Q&A Session