Beginning of the end of the earnings battle

Latest results from the UAE’s largest corporates show familiar trends, with the emirates’ leading energy companies benefiting from both increased production and rising commodity prices, the telecom sector showing the impact of market growth as well as increased competition, while results from companies in the financial and property sectors continue to show the impact of global financial crisis. Perhaps one change is the first signs of recovery from some of these companies that the said crisis may be coming to an end. That’s not to say that many property and financial entities don’t face an uphill climb before they come anywhere close to pre-crisis levels.

The sector that rarely disappoints, come the results season, is energy. Abu Dhabi National Energy Company (Taqa), the state-run utility, posted a 83 per cent increase in net profit for the first three quarters of the year, achieved on a 21 per cent rise on revenues, as the company benefited from a more positive commodity pricing environment, together with higher oil and gas production. Revenue and net income amounted to Dh15.1 billion and Dh1.3 billion respectively. Oil prices have risen to $77 (Dh282) dollars per barrel at the end of the third quarter of this year from $68.2 a year previously, while natural gas rose to $4.24 per million btu from $3.44 over the same period.

Dana Gas, the Middle East's largest regional private sector natural gas company, also announced strong growth in revenue, up 37 per cent at Dh1.2 billion for the nine-month period. The improvement reflects strong production growth, notably from Dana’s operations in Egypt and in the Kurdistan region of Iraq, where production from the Khor Mor field has increased. Gross profit rose by nearly 70 per cent to Dh520 million, benefiting from lower costs.

A sector producing a more mixed bag of results is property, where even the slightest positive sign is a welcome relief after the past two years.

Emaar, the UAE’s largest property developer by market value, is looking to new areas of operations to drive recovery. Revenue for the first nine months of the year amounted to Dh8.3 billion, a rise of 53 per cent over the corresponding period in 2009. The advance was scaled back at the gross profit level with higher costs, up 80 per cent. The strong improvement in net profit to Dh2.2 billion as against a loss of Dh393 million reflected the Dh1.8 billion loss from discontinued operations and impairments included in results in the previous nine-month period.

According to the company’s statement, the figures were supported by strong recurring income from its hospitality and shopping malls. Also on the theme of diversifying revenue, Emaar is focusing on international expansion. Projects were completed in Syria, Turkey and Pakistan, with others in Saudi Arabia, Jordan, Egypt and India due to be completed in coming months, according to the results statement. Currently, more than 80 per cent of revenue is generated in Dubai, but Emaar’s Chairman, Mohammad Al Abbar recently stated that the group plans to generate 50 per cent of its income outside its domestic market in the next few years.

On the domestic front, the developer reported that about 45 per cent of total units in the world’s tallest tower, Burj Khalifa, had been handed over to customers by the end of the third quarter.

Despite the fact that it is Dubai that suffered the sharpest retreat in property prices, reportedly falling 50 per cent as against 30 per cent in Abu Dhabi, the spotlight is now in fact on Abu Dhabi’s property companies.

Aldar, Abu Dhabi’s largest property developer and the company responsible for the Yas Marina Formula One circuit, reported a loss of Dh1.5 billion in the first nine months of this year. According to the company statement, the deficit was “primarily due to lower gains from fair valuation of investment properties, provisions for bad debts and lower property sales recognised”. Aldar is reported to be in talks with the Abu Dhabi government about its funding requirements. The group, which is 19 per cent owned by Mubadala, a government-owned investment company, anticipated that a framework will be concluded before the end of the year.

The emirate’s second-largest property developer, Sorouh Real Estate, reported a fall in three quarters’ revenue of nearly 63 per cent to Dh991 million. Net income for the period was down 54 per cent, at Dh215 million. The results statement included upbeat remarks by Abubaker Seddiq Al Khouri, Sorouh’s Managing Director, saying that “cost control and project delivery, combined with our relationship with the government of Abu Dhabi, position us well for the future”. Having raised significant funding, the company is well capitalised to benefit as liquidity improves, he ventured.

Back in Dubai, Deyaar Development, part-owned by the Dubai Islamic Bank, posted a net loss of Dh525 million for the nine-month period, compared to a Dh48 million profit in the same period last year. Revenues for the period halved to Dh339 million. The company attributed the negative results to impairment and write-offs of Dh178 million.

Two companies whose difficulties have been very much linked to credit crisis are Amlak and Tamweel, once the UAE’s two largest mortgage companies. Shares of the two companies were suspended in November 2008 after the federal government began work on a plan to merge the two companies, although the merger was called off.
Amlak, which is being reorganised by the UAE government, reported its first quarterly profit this year as it set aside less money to cover bad loans. Net income was Dh5.4 million in the third quarter, compared with a Dh46.2 million loss a year earlier. Impairment charges for loans and investments in the period declined to Dh17.7 million from Dh44.1 million. Net profit for the nine-month period was Dh1.4 million, as against a loss in the same period of Dh181 million.

Tamweel returned to profit, recording net income of Dh17.9 million in the first three quarters of the year, as against a loss of Dh65 million in the corresponding period. Results benefited from a reduction in impairment provisions – down from Dh194 million to Dh137 million. In September Dubai Islamic Bank (DIB) acquired a controlling 57.3 per cent stake in the company. Tamweel recently announced that it has resumed financing, a move which has been described as a boost to the local real-estate market. Beginning earlier this month, Tamweel said it would offer up to 80 per cent financing of the current value of finished residential properties in Dubai and Abu Dhabi.

More positive news came from Shuaa Capital. The UAE’s largest investment bank reported a significantly smaller net loss in the nine-month period, down to Dh36.9 million, from a Dh383 million loss in the corresponding period last year. This improvement came despite difficult trading conditions. According to data compiled by Bloomberg, Dubai’s DFM General Index fell 21 per cent this year to end-September, while daily volumes dropped 65 per cent to 161 million compared with the year-earlier period. Notably, the third quarter showed the group’s first quarterly profit (albeit small at Dh180,000) for some time, as the group restructured and focused on its fee-generating business.

The results were accompanied by an upbeat statement from Sameer Al Ansair, Shuaa’s chief executive, in which he stated that the results are “clear proof that the company’s turnaround is on track …our balance sheet is strong, de-risked and underleveraged. Our excellent liquidity position will allow us to reinvest and focus on the growth of our core businesses, most of which have recorded profits this quarter.”

Dubai Financial Market’s (DFM) financial results also show the consequence of falling trading volumes, with trading commission fees down by more than 50 per cent. Net profit for the nine months to September 2010 amounted to Dh73.2 million, as against Dh258 million in the corresponding period last year. Results were also impacted by the inclusion of Nasdaq Dubai’s results in its accounts.

Earlier this year DFM bought Nasdaq OMX's one-third stake in its sister bourse, with the two markets switching to a single trading platform and synchronising opening hours in a bid to bolster declining turnover.

This consolidation is nearly complete, chief executive Essa Kazim said in the accompanying statement, also noting positively that “we have seen a gradual improvement in investors' sentiment and a renewed attention from foreign investors triggered by some encouraging developments such as the recent inclusion of UAE markets in the FTSE Global Index”.

The 15.2 per cent jump of the DFM General Index during the third quarter “places DFM amongst the best-performing leading financial markets globally," he added.

Dubai Investments, the largest investment company listed on the DFM exchange, reported net profit of Dh715.2 million, a 17.6 per cent drop in the nine-month period, on revenue which fell by nearly 7 per cent to Dh2.5 billion. Despite the difficult conditions, the company reported that the annualised return on share capital achieved for the period is 26 per cent. Khalid Bin Kalban, Managing Director and CEO said, "Market conditions gradually continue to improve and positive developments specifically in UAE and GCC provide a promising outlook."

Within the telecommunications sector the increasingly competitive environment rather than the global or regional economic environment was a key factor impacting results.

The Abu Dhabi-based Emirates Telecommunications Corporation (etisalat) reported a 18 per cent fall in nine-month net profit to Dh5.6 billion. Revenue for the period slipped marginally to Dh23.3 billion. Nasser Bin Obood, acting CEO, commented on the “multiple financial and operational costs during this period to carry out the deployment of the fibre optics network”. Operating expenses as a percentage of total revenue rose to 56 per cent as against 44 per cent in the previous period.

Although the UAE makes up about 86 per cent of etisalat’s sales, the company offers telecommunications services in 18 countries in the Middle East, Africa and Asia. Its international presence could be further extended by the possible acquisition of a stake in Kuwaiti company Zain.

Meanwhile, key competitor du, the Dubai-based Emirates Integrated Telecommunications Company, saw strong growth in its net profit – up nearly 150 per cent to Dh398 million – achieved on revenue which increased by 32 per cent to Dh5 billion for the three-quarter period. The company had reached a market share in the UAE of 37 per cent at the end of August, a ratio expected by the company to increase marginally further by year-end.