Cable-maker Ducab reflects on the health of the infrastructure sector
Cable-maker Ducab reflects on the health of the infrastructure sector, and the construction industry in general. MEP Middle East speaks to MD Andrew Shaw and chairman Ahmad Bin Hassan Al Shaikh.
Why did you decide to exhibit at Hannover Messe for the first time this year?
Shaw: Our objective was to get onto an international platform. Really it was not about selling into Europe, as Hannover Messe is a global procurement fair.
What we wanted was to get our brand out there and make contact with essential customers from the rest of the world, because everyone goes to Hanover Messe. It provided a good opportunity to obtain a much broader presence.
And we picked up quite a few contacts that we are in the process of converting to sales. So it gave us excellent exposure. If you look at some of our international customers we already do business with, they were also quite pleased at seeing us projecting ourselves onto such a platform.
Al Shaikh: How does this tie in with our local strategy? To be strong locally you have to be well-known at an international level, and that is basically what we have achieved.
By exhibiting our products in a wider context, we have also engendered greater respect in the local industry and in the region. We are assuring our local investors and partners that this is a strong company with a long history and continued growth, even in the present time, given the decline in the whole region.
Our growth is going as planned. None of our announced projects have been cancelled. We are forging ahead with our announced Qatar manufacturing facility, and are establishing our representative office in Saudi Arabia, together with all the pre-planned expansion of our facilities here, and the announcement in March of the AED500 million Ducab HV joint venture. Hence exhibiting at Hannover Messe 2009 only served to underscore our strength and strategy.
Can you tell us about your latest financial results, and if you foresee your growth trend holding constant?
Al Shaikh: Our second-quarter results revealed a 30% improvement over the first three months, while June sales exceeded budget. This improvement is extremely positive. We have not yet audited Q3, but the sales output promises to be as good.
Our expectation is that we will be somewhere near last year’s output, which I believe in terms of comparison, due to the fluctuation of the copper price, should not be compared as revenue, but rather as capacity or tonnages.
Shaw: In terms of sectors contributing to the growth, everyone has talked about the impact of Qatar, Saudi Arabia and Abu Dhabi – let us say, the more buoyant economies.
What has surprised us this year is that frankly we expected a big reduction in Dubai because of the fears in the real estate market. Certainly our first-quarter results were slow. But what has been good, however, is that Dubai projects did restart round about February and March.
That helped us with the increase in the second half. Still, you have to be cautious. To be honest, if you look at next year, we need to look to the region for growth, because it is not really expected that many new projects will start in Dubai, which has reached a plateau.
And, of course, new projects take a while to come through in terms of cable demand.
Al Shaikh: By the beginning of 2010 we will see a slight increase in new projects, even in Dubai, but major projects will come from elsewhere. Most probably, as has been mentioned, Abu Dhabi will be a major contributor to future growth in the UAE, with Qatar in close second place.
How has the fluctuating copper price impacted on your results and outlook?
Al Shaikh: As I have said, tonnage is the best way to compare this year’s output against last year’s.
We believe we will be in a good stand on that level. The copper price has helped the whole industry be more cost-effective.
That is why we have seen quite a number of projects in Dubai and the rest of the region coming up again on a shorter term, combined with the fact that the total cost of construction has come down by almost 30% to 40%.
Shaw: Copper now is about US$6000/ton. At the beginning of the year it was US$3000/ton; in the middle of last year it was over US$8000/ton. I think commodity prices stabilising has taken away some of the pressure.
A lot of stockists had stockpiled hugely last year, and were really worried at the start of the year when commodity prices started dropping. So the higher copper price has helped those stocks to move again in the market, coupled with the fact that construction costs are lower. It has got things moving again.
What is the progress on your factory expansion and optimisation drive?
Shaw: We are pretty much finished, though there are a couple more machines to be installed at special cables.
It is basically a complete new facility with all-new equipment. What we have done is move equipment out of here to Abu Dhabi. So now we have a focused ‘factory-within-a-factory’ to produce building wire, which has been the focus of our streamlining, as building wire is a big copper user.
We have located our building wire facility right next door to our copper rod facility, which has reduced our costs. That project needed some new machinery, but it has mainly been relocating equipment. Of course, when you relocate you do all the required maintenance upgrades at the same time.
We are just finishing off the modifications to the Mustafa 2 factory, the one we brought into the group last year, focusing on another range of cables.
From there we have recently launched a new product, DuFlex, by utilising the extra capacity we have in Mustafa 2.
This has begun very well. Now it is all about efficiencies and taking costs out of the process. It is about being able to deliver the sort of quick response that the market needs right now, because everybody is working on very short lead times.
Underlying all of that is the lack of liquidity in the market and the fact that no one wants to carry stock, which means a quicker lead time from a factory point of view. Of course, everybody is also wanting longer credit terms, which is putting a lot of strain on the market.
I think all these factors are forcing everyone to focus on quicker service and response times which, fortunately, given our capacity and flexibility, we have been able to do. In terms of the copper-rod business, that has gone very well.
This is a new business, opened in the middle of last year. We obviously commissioned the plant making product for our own use. At the beginning of this year we really started moving towards selling copper rod and drawn copper wire.
That has been a really encouraging area of growth. It has traded off the strength of the Ducab brand name. We now have contracts in eight countries, from Africa to India, and are exporting regionally as well.
The quality perception of the Ducab brand has given us a good boost. This has been a good, strong growth story, and we see that continuing next year. The plant is running extremely well, which gives us confidence for next year for growing the business further.
So we are ideally placed on a number of points to meet the new requirements of a changing market. We are local, which allows us to respond to demand.
Plus we started our rationalisation and streamlining process early, which has given us the capability, capacity and efficiency to respond to the changing market. Yes, the market is slower than it was last year, so it has given us some opportunity for breathing space.
Al Shaikh: Essentially what we have done is differentiate our key sites into separate products. Together with this we have streamlined our logistics, supply chain and raw material supply. All of this means we now have a better production capability in terms of overall efficiency and delivery.
What is the progress on your regional expansion plans?
Al Shaikh: As I said, we are carrying through our Qatar project as announced. We have a manufacturing licence, and hopefully will be in production by the fourth quarter of 2009 or the first quarter of 2010.
What has posed some difficulty has been finding a suitable site that is big enough. We have been looking for almost nine months now. Another important element for establishing a cable manufacturing plant is electricity supply.
In terms of our Saudi Arabia office, we are increasing the staffing level there. We have already achieved good results from our presence there.
Of course, the next step will be to look at manufacturing. We are carrying out a market study at present in terms of demand and supply for the upcoming future. The Saudi market is quite buoyant.
Given the current volatile market fundamentals, the focus of growth internationally comes from three areas, namely China, the Middle East and Africa. This is really revealing to us that the Middle East is one of the growth hubs of the world at present, and we believe we are in the right place.
Shaw: We are in the infrastructure business really; and, yes, we are still in the right place. We have been very pleased with our involvement with the Dubai Metro, where we supplied a lot of high-spec fire-resistant and LSF cabling for all the stations.
We are also supplying the Green Line as that project continues. From the Burj Dubai to Yas Island – I can confidently say that, in the UAE, we have pretty much been involved with every major project.
Regional power infrastructure is a hot topic at the moment. It is certainly true that the utilities in the UAE and in the GCC as a whole are continuing their investment in infrastructure and, in some cases, even accelerating their investment.
We have every intention of being a major player here. This also ties up with the 25% stake that DEWA and ADWEA have in Ducab HV.
That is the sort of cabling that will go into the expansion of any regional grid; the urban expansion of both Abu Dhabi and Dubai will all be powered by such buried HV cables. So from an infrastructure point of view, that ongoing investment from the utilities is very good news for us, both for our existing product range, and for the newly-launched Ducab HV venture.
Ducab’s ‘Superbrand’ status seems to have affirmed both your optimism and commitment to the future of the region?
Al Shaikh: Our ‘Superbrand’ status has elevated us to the same level as the best players in the market. We can highlight this as one of the achievements of Ducab in recent years.
It is also encouragement to achieve even greater heights. In terms of optimism about the future – I am by nature optimistic. I am confident that the worst is behind us and we are into positive territory again.
Shaw: The focus in the UAE and the GCC as a whole has always been building the best-quality infrastructure and buildings.
As a ‘Superbrand’, Ducab has always been focused on being the best producer of cable in terms of quality. We are optimistic for the region bouncing back. Realistically it is going to be a continuous slow improvement through next year.
We as the construction industry have to remember what we have always done best, and what we are essentially about – and that is delivering great quality projects.
New DuFlex products from Ducab
Single- and multi-core cables have been designed for indoor wiring applications, and are suitable for use in office equipment, domestic appliances, kitchen utensils, lamps, medical devices and any type of electrical/mechanical equipment.
The conductor is made from plain annealed high-purity Class 5 copper, featuring excellent specific electrical conductivity and superior mechanical flexibility.
Ducab can supply cable with special PVC compounds suitable for continuous operating temperatures up to 105˚C.
Single-core flexible cables
- Manufactured to BS 6004
- 2.5 mm2, H07VK (450-750V)
- 35 mm2, H07V2K (450-750V)
Multi-core flexible cables
- Manufactured to BS 6500
- 1.5 mm2, H05VV-F (300-500V)
- 2.5 mm2, H05V2V2-F (300-500V)