Results are in

Ben Roberts , August 16th, 2010

Following CW’s stock stars analysis in June, the magazine has followed 16 major listed companies in construction that had disclosed their half-year results at deadline.

Though the last six months has seen the launch of many new projects in this year’s financial powerhouses – in particular Abu Dhabi and Saudi Arabia – it is clear that the GCC construction industry’s health can only really be gauged when companies are seeing the numbers in black and white on their balance sheets; whether through materials sales, contract revenue or a return on a project under development.

Developers

The last half-year has been dominated by the financial restructuring of Nakheel and with it an overall caution from a number of developers.

Deyaar, for example, in June walked away from the opportunity to manage the Skycourts residential project after a two-year association with the development. A quieter market for new buildings has also brought a renewed drive to complete projects.

Damac Properties, a private company, has pledged to deliver many of the projects launched two and three years ago and is aiming for a handover of 4,000 units by the end of this year.

Al Mazaya Holding
Gross profit: AED55.32 million
Net profit: AED32.6 million (down from AED128.7 million)
Sales highlight: Al Mazaya has management teams in Dubai and Kuwait and offices all over the GCC. Projects include Health Care City and nine plots in the Downtown Jebel Ali development in Dubai and the Seven Zones Design Centre in Kuwait – which is complete with 75% rented out - and the Clover Medical Centre. It also has three towers in Riyadh.

Emaar Properties
Gross profit: AED2.324 billion
Net profit: AED1.562 billion
Sales highlight: The company has 24% of properties in the Burj Khalifa, the world’s tallest tower and a project critical to the company’s success in its home market. Emaar recorded an increase in revenue for the second quarter of 37% compared to the previous period in 2009. Mohamed Alabbar, chief executive, pointed to the growing diversification of the business, “with an increasing share from the rental and hospitality operations”.

United Developments Company (UDC)
Gross profit: QR288.187 million
Net profit/operating profit: QR353.25 million
Sales highlight: Doha-based United Developments Company’s biggest project by far is the Pearl Qatar, of which the Pearl Qatar Company is a wholly-owned subsidiary of UDC. The work in progress was valued at QR3.59 billion in the company’s last financial statement. The value of its assets that are considered work-in-progress increased from QR2.764 million to QR3.593 million. Net profits were 96.5% attributable to the owners of the company; 3.5% to the non-controlling interests. Its non-current assets have risen since the end of last year, from 4.856 million to QR5.273 million.

Aldar Properties PSJC
Gross profit: n/a
Net loss: AED789.5 million
Sales highlight: The company has seen a significant dip in sales in the last half-year, which has resulted in revenues falling by more than a half compared to the same period last year, from AED1,068.1 million to AED427 million. However, it has increased investment in investment in projects under construction since the end of last year, from AED17.9 million to AED21.225 billion and says it has apparently secured more than AED1.5 billion of additional financing. It is hopeful that the end of this year will open the floodgates of income following the completion and handover of several key developments.

Contractors
Arabtec Holdings
Gross profit: AED436.6 million
Net profit: AED301.7 million
Sales highlight: The company’s revenue for the first half has decreased by more than AED1 billion from AED3.9 billion to AED2.8 billion, even though its direct costs seem to have declined by a similar proportion.

National Marine Dredging Company
Gross profit: AED296.164 million (up from AED195.634 million in 2009)
Net profit: AED296.355 million
Sales highlight: NMDC’s contract revenue increased since the half-year last year, from AED532.2 million to AED950.3 million. Its net profits include its operating profit, which was AED288.2, up from AED188.9. The net profit is up on the AED195.747 in the first half of last year, which saw AED188.747 in operating profits.

Next: Materials

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Materials
Materials suppliers have almost certainly seen a reduction in price for their products, generally through the ongoing dip in construction projects in their home countries, in particular those in the UAE. Some companies, such as Saudi Cable Company, have signed big contracts recently with Saudi Electricity Company, the state-owned power giant, and have also seen revenue from the manufacture of its own copper.

Cement suppliers, as highlighted in the finance pages of the last issue, have experienced a mixed year so far, though analysts point out that this is dependent on your country of domicile. Qatar National Cement, for example, has a near monopoly on cement production in the country.

It has also reduced the amount of cement it is importing, which also cuts the overall cost of sales, and has boosted home-grown production. Companies in Saudi Arabia, Qatar and Oman have the advantage over UAE counterparts in receiving energy subsidies from their respective governments.

Steel suppliers have also experienced a difficult market, with some suppliers in the UAE reporting losses on steel imported and then sold locally by as much as AED200 a tonne. However, other suppliers, such as Zamil Steel, have been testing the production lines of new plants.

Southern Province Cement Company
Gross Profits: SR712.2 million (down from SR723.7 million in 2009)
Net profits: SR375 million (down from 412.3 million in 2009)
Sales highlight: The first half saw sales of SR586.61, down from the SR870.8 million posted for the first half of 2009. Net profits for the first quarter of this year fell 5.3% on what it called the “lower sale incentives” and the effects of the import ban that has been in place since mid-2008. The export ban itself, imposed on the back of high international prices for cement and a threat to local supply, has led to a saturation in the market and thus a decline in prices.

Cement & Gypsum Products
Gross loss: OR131,601 (against a gross profit of OR479,971 in 2009)
Net loss: OR298,971 (2009 profit: OR356,339)
Sales highlight: The only company of the list to suffer a gross loss, turnover was more than half that of last year, from OR1.34 million down to OR565,114. It attributed the fall in sales to a limbo period between the completing projects and preparing for upcoming projects.

Qatar National Cement
Gross profits: QR258 million (up QR87 million)
Net profits: QR256.7 million (up 1.3% from QR253.3 million last year)
Sales highlight: The company saw a 32.6% fall in revenues, which was cushioned by a fall in the cost of sales by more than half to QR328 million – an unusual result among its cement rivals. This was due to the introduction of its fourth plant last year, which meant it no longer needed to import cement to meet local demands, it said in the financial results. Rajat Bagchi at NBK Capital described the results as “very solid numbers”, and pointed out that the company had grown greatly in the last few years from a capacity of around 1.5 million tonne of cement to around 5.5-6 million today. “The company was making a loss on the imported cement as there is a price cap in the country of QR250 per tonne,” he added. “That loss would have now vanished as it is making more of its own.”

Gulf Cement Company
Gross profits: AED302.4 million
Net profits: AED37.36 million
Sales highlight: Its statement shows a great increase in its exports, from AED7.4 million for the first six months last year to AED115.7 million this year, though this part is as yet unaudited, though the firm also saw an 11.9% increase in these sales’ cost.

Oman Cement Company
Gross profit: OR13 million (up from OR12.2 million)
Net profit: OR18.285 million (up from 11.178 – 63% up)
Sales highlight: Cement sales dropped to 919,314 MTS from just over OR1.1 million MTS. The company imported more clinker and cement this year to respectively keep its production up and meet local demand. This year the company has received more than OR7 million in compensation from the government. Imports are expected to decline, though the management highlighted the “stiff competition” from rivals. NBK Capital highlighted a drop in clinker imports fell 44.3% when comparing the second quarter of this year and that of 2009. A doubling of clinker production should lead to increased margins (forecasted at 46% for 2010), a “strong free cash flow” linked to its listed shares, and a strong investment portfolio were the four reasons given for the company becoming NBK Capital’s ‘top pick’.

Raysut Cement Company
Gross profit: OR34.4 million (down 30.5% on last year)
Net profit: n/a
Sales Highlight: During the first half of 2010, total revenue was down 30.5% to OR34.4 million, excluding the government reimbursement, compared to last year. Rajat Bagchi at NBK Capital points out that the decline in total revenue was mainly due to a 46% drop in domestic revenue to OR10.7 million. Domestic cement volumes decreased by 40.4% to 364,000 tonnes during the second quarter, which according to management was due to the increased competition from the UAE.

Oman Cable Industry Company
Gross profits: OR8.248 m (2009: 5.107m)
Net profit: OR4.024 million (2009: OR1,006 m)
Sales highlight: Sales reached OR91.5 million this year, up from OR75.9 million in the first half of 2009, up 20.4%. The company says the Oman market continues to be positive, with international sales “slowly recovering”. The company is enhancing its production capacity. Earlier this year the board approved US$15 million for the expansion of its high-voltage cable production.

Saudi Basic Industries Corporation (SABIC)
Gross profit: SR24.05 billion
Net profit: SR10.45 billion
Sales Highlight: SABIC – although perhaps more well-known internationally as a top producer of fertilizers and chemicals – is one of the Middle East’s biggest steel suppliers. Its increase in profits has been attributed by the company to “the increased production and sales volumes with the new capacity coming on-stream at SHARQ, YANSAB and the joint-venture with Sinopec in China,” it said. “Additionally, the improved pricing environment for most of the products had a positive bearing on the consolidated financial performance.”

Ras Al Khaimah Company for White Cement & Construction Materials
Gross profit: AED49.607 million (unaudited - down from AED48.9 million last year)
Net profit: AED28.39 million (down from AED50.15 million last year)
Sales highlight: Though the company saw a 14% increase in sales compared to the first six months of last year, from AED141 million to AED160 million, an increase in the cost of sales ate away at gross profits. Net profits succumbed to higher administrative costs and adjustments in its securities portfolio. Perhaps unusually, the company saw its biggest sales increase in the UAE – by just over AED11 million – against an increase in sales for the rest of the GCC of AED8 million.

Al Anwar Ceramics Company
Gross profit: OR9.185 million (up from 4,203,641 last year)
Net profit: OR2.822 million (up from 2.601 million in 2009)
Sales highlight: Al Anwar Ceramics produced 5.124 million metres2 of tiles, signifying a 5% increase over the previous year. All three production lines are operating at peak capacity, the company stated, adding that it has been able to reduce its prices based on greater efficiencies. Gross sales revenue during the period increased by 9% to OR9.185 million. “We are encouraged by our sales in Oman where we continue to be market leaders,” it said.

Sharjah Cement & Industrial Development
Gross profit: AED26.921 million (down from AED129.369 million, H1 2009)
Net profit: AED20.6 million (down from AED103.787 million last year)
Sales highlight: AED312.553 million was down from AED560.295 for the six months last year. The company’s turnover has dropped almost 44% due to what it calls the “substantial reduction in market price for cement”. This fall has been rapid, seeing a net loss for the second quarter of AED3.268 million compared to a Q2 profit in 2009 of AED52.4 million. Management added that both local and international stock markets have further deteriorated – “the company’s portfolio was impaired,” it said.