Emaar Industries and Investments (EII) is raking in profits in only its third year of operations, mainly thanks to a growing list of acquisitions.
EII – which is 40 per cent owned by the region's biggest real estate developer by market value, Emaar Properties, and 12 per cent by Zabeel Investments – saw a 122 per cent rise in profits in 2007.
Chief Executive Officer Dr Ahmad Khayyat, in an exclusive interview with Emirates Business, says he expects profits to double again by the end of this year and hopes to have an asset portfolio of at least Dh5 billion by 2010.
The company, which has been on a shopping spree for the past two years, is now ready to build its own projects and is starting with three industrial projects worth Dh400 million. And EII is looking at expansion opportunities not only in the UAE but also in the Middle East, North Africa and Asia.
Does EII intend to add more subsidiaries to its portfolio by the year-end?
We have 12 subsidiaries plus two other investments, making a total of 14. Our stakes in these investments vary – we have a controlling interest in some and a minority interest in others. Any decision to increase this number depends on the proposals and the amount of money we would have to invest.
Your portfolios include Multiforms, Mammut Building Systems, Caparol, Starwood Industries, Haseeb Rasoul, Advanced Composites, Specialised Metal Systems, Emirates Jewellery Manufacturing Company, Emiratex, Dynergy Technologies, United Arab Chemicals Carriers and Depa United Group. So what are the two other investments?
I cannot name the companies or specific projects due to confidentiality agreements.
You have mainly been acquiring existing companies.
Mostly yes, this is what we've been doing for the past two years and continue to do. But instead of using the term 'acquiring' we think the idea here is partnering with existing entities that have a good potential for growth. The objective is not just to acquire. We identify small businesses that carry a lot of potential then we partner with them and take them to the second level.
You are zeroing in on small and medium industries – why is that? And in the long term will you be embarking on large-scale projects as well?
We are very much interested in small and medium industries as there is an added value and opportunity there. When it comes to much larger projects, many entities in the market are already playing this role and continue to do so.
Are you considering launching greenfield industrial projects?
After establishing a good track record and building up our staff we are now looking at three greenfield projects involving petroleum products, basic metal supply materials and industrial infrastructure development.
What is their status and which companies are you speaking to?
The petroleum project is in the downstream business and we are talking to a UAE company, and we are speaking to a company in Egypt regarding the basic metal supply project. We can't talk about the company involved in industrial development but it is in the Gulf Co-operation Council region. We're at an advanced stage and are finalising the feasibility studies and shortly we will be considering the monetary arrangements and looking for financial institutions.
When will these project feasibility studies be completed?
Hopefully those for the petroleum and metal projects will be completed before September. We see a continuous flow of investment opportunities so besides these three projects we also intend to make smaller investments. Currently six or seven are under investigation and I'm hoping another two smaller investments will be realised by the end of the year.
Your investment in building and construction materials is related to what your largest stakeholder – Emaar – offers. But what's the rationale behind investing in the petroleum sector?
Investing in petroleum products is part of our strategy to diversify. We don't want to be perceived only as a subsidiary of the Emaar group that focuses purely on construction and building materials. The petroleum and oil sector is very important because it's a growing market and a lucrative industry too.
How much are you allocating for your three greenfield projects? Do you have other expansion projects in the pipeline?
We are going to invest Dh400m in the three projects and Dh300m in expanding existing investments. But of course the structure is totally different – once we acquire a company it has to look after itself. So every subsidiary has to undertake expansion out of its own budget.
What other sectors are you looking at?
We continue to look for opportunities in fast moving consumer goods but at this time we are not working on a specific opportunity. This is one of the main sectors we cover in addition to building and construction materials, pharmaceuticals, metal and engineering and downstream petrochemicals. We have not yet really invested in the pharmaceutical sector but we keep looking.
How are you going to finance your new ventures?
When you have projects like these, 30 to 40 per cent is usually financed by shareholders and the remaining 60 to 70 per cent is financed by market instruments.
Is going public one of the long-term goals of your company?
It's not on the table now but things could change. For now we are cash-rich and going public doesn't add much to our business. We have a good reputation with the banks and are able to finance all our expansion projects either directly or through market instruments. So we don't really feel going public can create much more value.
What are your company's short- to medium-term goal?
We want to position ourselves as a leading investment vehicle with our activities focused on the GCC. By 2010 our asset portfolio should reach at least Dh5bn – we continue to be on track for that, particularly if you look at our performance in 2007, our second year of operations.
So how much growth did you achieve last year and what are your expectations for this year?
Our group profit increased to Dh129m from Dh58m in 2006 and we expect to double this figure to Dh260m this year. The company's individual profit climbed to Dh69m from Dh36m and we expect this to grow to Dh180m in 2008. As regards revenues, they have grown to just over Dh1bn from Dh630m in 2006 and we expect to have Dh1.6bn this year. Total assets and investment in 2007 reached Dh1.4bn and Dh132m, respectively.
How do you find the market these days? Is the rapid growth something to be worried about?
In terms of opportunities, yes it's buoyant and it's promising. But at the same time we have increasing costs so one has to be very smart in managing expectations as well as the increasing pricing of raw materials.
Does the high cost of operations and raw materials hurt your bottom line?
Definitely, as sometimes you are taken by surprise. I would say it affects our profitability by 10 per cent, which is nothing compared to the increase in prices. I'm happy about the performance of our subsidiaries because they have taken a conscious approach towards obtaining materials at preferential prices.
Which countries in the region are you looking at and are you planning to invest in Asia?
In addition to the GCC we are looking at Algeria, Morocco and Egypt. We see a boom coming because there is a growing need for these countries to support their economic growth over the next few years. In Asia we are looking at India, Pakistan, Indonesia and Malaysia. There is nothing solid now but there are activities we could do there.
PROFILE: Dr Ahmad Khayyat, CEO Emaar Industries and Investments
Dr Ahmad Khayyat has more than two decades of experience working on various aspects of project initiation, development and management, particularly in the manufacturing sector.
He was previously general manager of Dubai Invesment Park and was on the boards of companies owned by Dubai Investments. He has served as a senior consultant at the Gulf Organisation for Industrial Consulting where he led a team of researchers in pre-investment studies, market research, financial and technical appraisal, project development and promotion, consultancy and energy planning studies.
Dr Khayyat holds a PhD and a BSc (Honours) in chemical engineering from the University of Aston, Birmingham, UK. He was assistant professor and later chairman of the chemical engineering department at the Univeristy of Jordan.
He is a member of several regional and international think tanks including the American Institution of Chemical Engineers, the UK Institute of Chemical Engineers and Jordan's Association of Engineers.