Getting tough to weather testing times
More contractors are now paying on time despite a much shorter credit facility. There are also a growing number of signed contracts, limited purchase orders (LPOs) and enquiries from the private sector, said a top official from a major testing firm in the country.
This indicates the economy is beginning to move upwards, said Mary Jane Alvero Al Mahdi, CEO of Geoscience Testing Laboratory (GTL) – the only local testing lab in the UAE – which has been the quality-auditing firm behind Burj Khalifa, The Palm Jumeirah and DIFC among other landmark projects in the UAE.
"Last year we saw 30-35 per cent drop in business but beginning January this year, we see things starting to pick up," she told Emirates Business. The company, however, still has Dh32.5 million account receivables, or 20 per cent of its annual turnover. "I cannot blame the contractors. It is a chain reaction and they are just part of a chain," she said.
Despite this, Al Mahdi is bullish that other divisions, such as the food and environment, will make up for some of the losses in construction. The company is pursuing its expansion plans in Saudi, Oman and Qatar. By the end of this year, it will open the region's largest testing lab in Dubai Industrial City.
You have built up the company from 11 people with Dh12m turnover in 1997 to 700 people and Dh150m in 2008. How has the recession hit that growth path?
From 1997 until 2000, we have been growing our net profit by 35-40 per cent year-on-year. Since then until the first eight months of 2008, we have been growing by more than 50 per cent year-on-year. But 2009 was a problem because we've got a lot of creditors who couldn't pay. And we made provisions for all account receivables more than four months old.
How much provision was made? Were you still able to end up profitable last year?
We have Dh32.5m uncollected money, cases of which are already lodged in the court. Despite this, we still had some profits but is 30-35 per cent lower than the previous years. When I was at a CEO conference in June 2008 in New York, I noticed that most people were anxious and I saw that the stock market tickers in Times Square were all red. I was relaxed then because when I left the UAE everything was still okay.
Then a CEO told me: "It hasn't reached your country but it will, for sure." By August we've seen the peak of business. Gross sales doubled from Dh16m per month to Dh32m. It started to go down after that and in January 2009, business stopped completely. I cannot blame the contractors. It is a chain reaction and they are just part of a chain. And we have the problem of getting our money back until now.
What's your contingency plan?
We were able to get some, but not in full. They reduced it with 35 per cent discount. We have to accept that otherwise we have to wait two to three years for the court's decision. We will also not write them off from our balance sheet. This is a challenge and I love challenges so I will pursue all these receivable. In addition, we are very strict now. Before we gave 120 days credit facility, now we give 90 days and if they don't pay on time, we will not go ahead with the project. We also notice that customers are now paying on time.
Which areas help compensate the downturn in construction?
Before the crisis, we have diversified into environment. We have done so because of our strategy and by divine intervention. The government has mandated that drinking water and food from supermarket and hotels must be checked for microbiological analysis. So this market is stable and growing.
How much investment have you poured into this new area?
We started buying equipment, each one costing not less than Dh500,000 during the construction boom. We will continue investing and expanding. We will open a two-story lab by the end of the year in a 135,000 sq ft land in Dubai Industrial City. That will be the biggest in the Middle East. The building costs Dh25m and we will invest more on the equipment.
Are you looking at geographical expansion as well?
Yes, we currently have six branches in the UAE. We already have regional customers and we are establishing presence in Saudi Arabia, Qatar and Oman this year.
Will you be tapping the bank or debt market to fund expansion?
No, we have no liability even from the start. Since I stepped in 2007, we only funded our expansion from retained earnings. We plough back our profits into new investments.
Are you also a shareholder of the firm?
No, I have been offered, but I declined because I feel there is a conflict of interest.
Many say 2009 is the year of recovery. Is it just a wishful thinking or is it really happening even in a battered sector such as construction?
We are the first who can notice this one because construction is a sign of development. Our lab is getting a lot of projects, but unlike before they are no longer urgent. This time, there are projects but they stretch it to four years instead of one year to save money because expedited projects command higher prices. This year, we will have lower turnover but hopefully 2011 will be much better.
PROFILE: Mary Jane Alvero Al Mahdi CEO of Geoscience Testing Laboratory
Al Ahmadi joined GTL as technical manager in 1997 after working as chief chemist with Al Futtaim Tarmac Laboratories. The 39-year-old Filipina has a Bachelor of Science in Chemical Engineering from Adamson University and has two Master's in Quality Management and Engineering Systems Management.
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