Dubai: As the man who took the helm of the UAE's largest contractor one day before the collapse of Lehman Brothers, Arabtec's Ziad Makhzoumi is someone who understands crisis management.
The chief financial officer not only took the job at a time when Arabtec was engaged in the UAE's most high-profile project — the Burj Khalifa — but when plenty in the industry were reluctant to accept that the financial crisis was banging on Dubai's door with fury.
As the world collapsed around Arabtec's converted-warehouse headquarters in Al Barsha, Dubai, Makhzoumi held his first board meeting.
"I said things are going to get much, much, much worse than you expect. This was my first presentation," he recalls.
"I think the signs were there [but] probably the UAE was not aware that things were going to get worse. I was, because you could see what was happening in Europe and the US and what was happening in the region."
Three years on and Arabtec remains one of the biggest employers in the country, but has certainly not put the bad headlines behind them. The company posted a 74 per cent drop in second-quarter net profit in August, while its share price has plunged more than 13 per cent since the beginning of the year. Arabtec's backlog, which includes many stalled projects in Dubai, amounts to some Dh14 billion with Dh3.8 billion still owed to the company by clients.
Then there is the ongoing concern that stalled projects, and trouble in new markets such as Egypt, are continuing to hurt the company.
But Makhzoumi points out that while net profits are clearly down, the company is in excellent shape. At a time when other contractors are going out of business, criticism of Arabtec, he says, is unfair.
Priority
"Some of the analysts are looking at the margins instead of looking at the balance sheet and my priority was always the balance sheet," he says.
"Our receivables are down, our payables are down, our cash flow has improved, our borrowings have substantially gone down. Our stocks of steel and so on have been used. To me that is more important than saying why our margin is down.
"Of course, we'd like to have a higher margin, but if there are not any projects and the market is very competitive, anybody who makes a profit should be applauded, not criticised."
The restructuring of the company which began at the end of 2008 was complex, he explains, not least because the contractor would have to shift from an environment of cash up-front and new projects, to a sharp drop of both capital and work.
"You could see that it was coming and anybody who assumed that it was not going to affect them one way or another was very naïve," he said.
"We sat down with the bankers and we said this is what we think will happen, and let's assume that it's going to be twice as bad. We had to understand whether projects would go ahead or not, be completed or not, we had to make sure that we utilised our people, equipment and assets in the most efficient way."
When the financial crisis hit, Arabtec and its subsidiaries employed 60,000 people, a figure that has been trimmed by a third over the past three years. But Makhzoumi did not believe that layoffs alone were a solution to the crisis.
"A lot of companies panicked and started firing people and cutting costs. This could be part of the solution but it means you are killing yourself as a business and you are ensuring that you don't survive in the long term," he said.
"We decided that we had a lot of good people and we had to maximise their use, this is why we aggressively went and opened new markets."
New markets included Saudi Arabia, where Arabtec entered into a highly profitable partnership with Saudi construction giant Saudi Bin Laden, and Kuwait, where the company has recently won a contract to build two colleges as part of the $1.5 billion Al Jaidah University project. Qatar, recently awarded the 2022 World Cup, is a more recent target, as is Egypt.
"I think we've reached the bottom of the cycle now, short of a disaster happening, which I think is unlikely. The intention is to invest more in project infrastructure, soft or hard, and other developments," he said.
"We're always looking at these markets and we always look for opportunities to go in. Our strategy has been from the days of the disaster in the region economically that we will go in if there is a project that will justify our business, and justify moving our assets and utilise our resources as we hit the ground," he said.
"That is what we've done in Kuwait and Saudi and this is what our subsidiaries do."
But while new projects are undoubtedly important to the future of Arabtec, there are plenty that are stalled in Dubai. Makhzoumi estimates Arabtec's backlog to be about Dh14 billion.
"There are [projects on hold]," he says.
"There were some projects that were on hold and have now been started, there were others that have been cancelled and will not happen." But he also points out that for contractors, stalled projects are potentially not as big an issue than for developers.
"If the client terminates you, they have to compensate you, and when they terminate, you move your people, so there isn't any drain on your resources. The drain on your resources is if they don't pay you on time. Or if there is a dispute or litigation, and this is not the case with most of them," he said.
"We don't have [any] projects where we didn't come to an understanding somehow. The understanding could be let's delay and go to court, or it could be let's delay and we'll see how we're going to take it forward.
"We've worked with many developers on how to find a way forward instead of taking extreme views. It can be a long and expensive project, winning a case."
On the subject of bad results, a falling stock price and a certain degree of negative press, Makhzoumi is circumspect.
"I think it is more sentiment about Dubai in the old days. In 2008, 2009 the sentiment was that Dubai was not going to recover, it was going to get worse, etc, so everybody wanted to get out of everything related to Dubai," he said.
"We are listed in Dubai.. I think that was part of it. The perception that the whole sector was having problems, that didn't help, the fact that they didn't have another benchmark to compare us with."
Makhzoumi is quick to rule out a foreign listing for the company soon.
"It's always been considered but I don't see the advantage at this stage," he said.
And in terms of the future, Makhzoumi prescribes more of the same, pointing out that Arabtec's backlog stands the company in good stead.
