Face-to-face: Burak Kizilhan
Last year's takeover by Imtech has strengthened AE Arma-Elektropanc
Having been bolstered by last year’s majority share takeover by Dutch firm Imtech, AE Arma-Elektropanç’s Burak Kizilhan explains why the contractor is now among the foremost forces in the region
In March 2012, the formation of an alliance between Turkey-based AE Arma-Elektropanç (AE) and Dutch firm Imtech created a truly international MEP giant. Amalgamating two well-established, reputable and successful firms with collective operations in 44 countries over 5 continents, the majority share takeover by Imtech presumably sounded much like a warning shot to the rest of the industry – especially those in AE’s sphere of operations.
Burak Kizilhan, AE’s business development manager for MENA, says that the deal has undeniably placed AE among the global elite in its field, but that both companies have benefitted significantly. “We’ve become one of the largest MEP contractors in the world with a combined workforce of 29,000 employees and a turnover of €5.1bn ($6.7bn),” he says.
“The deal was mutually beneficial for both of us. The markup of projects in many of the territories we operate is getting larger and larger day by day, and we are extremely busy financially and operationally. We needed to have a partner to maximise our potential.
Imtech knew that we are very active in the Middle East, CIS (Commonwealth of Independent States formed after the breakup of the Soviet Union) countries and North Africa and that’s the reason we came to the agreement.”
With Imtech’s backing Kizilhan now sees a wealth of opportunity opening up in Africa, India and the rest of southern Asia in the coming years, which AE now has the resources to pursue.
But for now, the Middle East (where it has had a base in Dubai since 2003) is of greater interest. AE plans to add to its offices in Dubai, Abu Dhabi, Qatar and Lebanon by setting up operations in Kuwait by the end of this year and Saudi Arabia next year.
The contractor hopes to build regionally on the foundation it has laid in the UAE, where it is currently delivering the MEP works on the Bab Al-Qasr hotel and service apartments project, as well as work on the Al Shobub private school – both in Abu Dhabi.
These should add further lustre to a UAE portfolio which includes the Shoreline Apartments project on Dubai’s Palm Jumeirah and the five-star Rixos and Jumeirah Zabeel Palace hotels (also on the Palm).
Kizilhan says that AE, with fresh resources in its arsenal, will now look to upcoming mega projects in the UAE to grow its share of the market and firmly establish itself as one of the country’s major players. “We are waiting for mega projects because we are an A+ MEP company.
There is still competition for such projects, but not as much as for medium-sized. With mega projects valued at AED 1bn ($272.3m) to AED 2bn, other considerations come into play such as financial strength. There is the bid bond, performance bond, retention bond – if you say 10% for each and 30% in total, it will be around AED 300m ($81.7m) for a AED 1bn project.
That’s a lot of money for B-sized MEP companies and even a big number for A-sized companies. That’s the reason why we can easily show our strength for the mega projects – financially, managerially and operationally. We hope that we see mega projects coming through the UAE in the next year where we can show this strength.”
As Kizilhan intimates, part of the reason for this fresh emphasis on larger and more easily secured projects is AE’s frustration with the current state of the mid-sized project market.
He says that the glut of contractors it has attracted, and the non-existent profit margins which have resulted, have led to difficult questions being asked in its UAE offices and by management at HQ.
“We had a meeting with our board of directors and they were asking why we hadn’t won any projects in the region for the last nine months. The only reason we could offer was that companies were signing the projects at dry cost. We had to examine how these companies could afford to take on the projects, and we studied for two or three days, but we couldn’t find an answer.”
He adds that the pricing war is an ongoing one as, just a matter of weeks ago, AE was denied the signing of a major project in the UAE by a company which, he and his colleagues are sure, took the project on with no prospect of profit.
Nevertheless, Kizilhan says senior management has been sympathetic and the company as a whole is reluctant to engage in a bidding war which could see it imperil its financial position or its A+ contractor status.
Although this pricing war of attrition has confounded and exasperated the tendering team at AE of late, they have certainly not eased up in their bid to secure work.
According to Kizilhan, the company has been pricing almost $3.5bn (AED 12.8bn) of tenders over the last four months across the region and is aiming to secure 8 to 11% of this work from the second half of 2013 into next year.
Qatar is understandably among these targets but, Kizilhan says, the company has found competition there to be “even higher” than in the UAE.
While AE is currently without a project in the bubbling Gulf state, he is certain that it is only a matter of time before this is rectified, and predicts business elsewhere in the Gulf will make up the majority of AE’s regional revenues in the coming years.
“In the next five years, Qatar will boom – will have to boom,” he says. “In three years time, we reckon that AE’s turnover in the Middle East will be made up of 40% from Qatar, 30% from Saudi Arabia if we get established there next year, and the rest from Dubai and Abu Dhabi.”
Kizilhan’s confidence in AE’s future in the region is further fuelled by the opportunities for diversification which the partnership with Imtech has provided. He says that, where previously AE was a more traditional MEP contractor, it now has the expertise and resources to move into some of the region’s more lucrative electro-mechanical markets.
“In recent years we have only been chasing buildings projects, but since Imtech’s involvement we are now tendering for oil and gas projects, and infrastructure projects. AE is now prequalified for a majority of oil and gas projects and the only thing that is missing now is a job.
As soon as we get one project, we are sure that with Imtech’s capabilities and our presence in the Middle East, we will be one of the leading oil and gas MEP companies. That’s our goal.”
Experience in the field
A major weapon in AE’s assault on the Qatar market is both it and Imtech’s impressive portfolio of stadium work, which it is hoped will position the company among the favourites for contracts on the country’s upcoming 2022 FIFA World Cup projects. Between the pair, they have completed 12 stadiums across Europe in the last ten years.
These include such world famous venues as London’s 2012 Olympic Stadium, Arsenal F.C.’s Emirates Stadium, Berlin’s Olympic Stadium, and the National Stadium in Warsaw which held the opening game of the European Football Championships in 2012.
Kizilhan says that, with this experience and expertise, the company hopes to get at least two projects when the Qatar contracts are awarded, but that there is stiff competition provided by contractors from other parts of the world.
“There is a lot of Korean companies at this level as well which have done many prestigious stadium projects in Asia,” he says. “But if you talk about stadiums in Europe and the Middle East, then we are one of the top three MEP companies.”
With talk of Qatar requiring air conditioned stadiums in order to keep both players and spectators sufficiently cool during the games, MEP could well be an even greater component of the projects planned than usual.
Kizilhan says that the company already has a team in Germany working on such a contingency, but that whatever design is finally decided upon, AE is ready to deliver.
“Such a design does not seem logical if the stadiums have to be open like FIFA demand – and energy saving is a priority. But if they want to do so, we are a contracting company and not designers, so we have to do it.”