Two years on from a restructuring brought on by a high-profile corporate scandal, jeweller Damas is back in the profits and going global
Damas is back. At least, that’s the message coming loud and clear from the century-old jeweller.
After a turbulent few years caused by a high-profile trading scandal involving members of its founding family, the Dubai-based company is on a path of reinvention.
It has new owners in Qatar’s Mannai Corporation and Egyptian investment bank EFG Hermes, a new vision to take its operations global and a fresh executive to drive it there.
“We’ve been kind of silent for two years,” Damas CEO Anan Fakhreddin admits, sitting in the boardroom of its lavish headquarters in Jumeirah Lake Towers.
“In reality we were examining each and every aspect of our business model. We knew that Damas had a lot of potential and we wanted really to unlock more potential for the business, so we did a lot of research ourselves, we also brought in some consultants to help us understand where else and what else can we do.”
Mid-last month it announced that it had a “new vision” and ambitious expansion plan to match.
On the cards are 34 new stores in the GCC before the end of the second half of next year — of which 28 will be in the UAE (Dubai, Fujairah and Abu Dhabi) and six in Saudi — to add to its portfolio of 297 stores.
The regional expansion will be mostly Damas-branded stores, but after opening the first Graff Diamonds in Saudi Arabia, Fakhreddin says it is on the hunt for more opportunities for the international brands it represents in the Middle East such as Folli Follie, Parmigiani and Mikimoto.
“For us it’s more or less an automatic decision within the GCC, which is our core market — as soon as we have identified a good location, it’s a matter of building the shop and getting the business started. It’s more or less an ‘every day’ decision for us,” he says.
However, not every day has been the decision to take the Damas name to the international stage. Following the root-and-branch review of the company, the expansion of the business outside the GCC — where most of its stores are located — was a key recommendation.
“What we have in mind is something that will take us into the core fashion centres in the world and the core jewellery markets in the world,” Fakhreddin, who took over as CEO in May 2010 after a stint on its board, explains.
Article continued on next page...
He refers to the $300bn global luxury market, dominated by the US, China and India, as well as key European countries like Italy and France.
“Obviously all these markets are being considered by Damas. We believe that we have the credentials to become a global player. Consumer research confirms that, business feasibility analysis confirms that,” Fakhreddin says.
Damas is already working on building business cases for the global expansion ahead of further announcements in early 2014. It has global growth targets, but Fakhreddin declines to give details until a final decision is made.
However, asked when he wanted the first international store to open, he says: “I think ASAP is the criteria. Everything in Damas nowadays is ASAP.”
To understand the urgency, a recap of the company’s recent history is perhaps best. Founded in 1907 in Syria, Damas operated as a family-owned company for most of its existence until July 2008 when it put 28 percent of its shares on the Dubai stock exchange in an initial public offering.
It raised $270.6m to fund its then-expansion plans. However, not 15 months later it all came crashing down when it emerged the company’s founding brothers — Tawfique Abdullah, Tawhid Abdullah and Tamjid Abdullah — chairman, CEO and director, respectively — had made unauthorised withdrawals in gold and cash to the tune of AED614m ($167.17m).
Call it naivety to market-reporting requirements, which the brothers at one stage claimed, or a gross failure in corporate governance — which was the conclusion drawn by the regulator — the fallout was significant. CEO Tawhid Abdullah was forced to resign and the brothers, in the toughest ruling yet by the Dubai Financial Services Authority (DFSA), were ordered to repay $165m, fined a total of $3m and banned from the board of any Dubai International Financial Centre company for ten years.
Faced with a giant hole in its books, in 2011 Damas announced that a restructuring deal worth $872m had been signed with its 25 lenders, as well as a cascade agreement whereby the three brothers would repay the owed amount over an agreed period through asset sales.
In April last year, Damas International Limited (DIL) was acquired by the Mannai-EFG Hermes consortium (the companies own 66 percent and 19 percent of DIL respectively) in a $445m cash bid. Two months later it delisted from the stock market.
Today, Damas represents some 41 international jewellery and watch brands, of which the likes of Graff Diamonds and Folli Follie have standalone stores. Since January 2012, Damas has also held a 51 percent stake in iconic US jeweller Tiffany & Co’s UAE operations, which comes on top of a 51 percent stake in the UAE arms of both Paspaley Pearl Jewellery and Roberto Coin Middle East. Damas is also a joint venture partner with Indian jewellery giant Gitanjali in D’damas and owns Saudi joint venture Damas Saudi Arabia Company.
Article continued on next page...
So does Damas want to be a global name of the calibre of Tiffany & Co? Fakhreddin is bullish. “What we want to be is a brand that delivers mystique, glamour to a wider range of audience, built on a 100-year-old success story,” he says. “That’s who we really want to be. Our core foundations of the brand are obviously [that] we are 100 years old [and] we have managed to build a huge amount of consumer confidence. Today, a Damas invoice equals, or at least this is what consumers and consumer research tells us, it’s as good as a jewellery certificate.
“That component is still very active in our DNA. We pride ourself in our ability to build excellence in terms of jewellery design and manufacturing and we want to bring all that to a larger audience.”
As part of the Damas restructuring it is taking on a two-store format retail strategy, a new logo and remodelled stores. High-end shops will be branded under the Damas name, while its mid-segment offering will be Damas Collections.
Despite targeting the high-end market, Fakhreddin dismisses any conflict with its other luxury brand assets such as Tiffany & Co, saying competition was “good and healthy”.
He also doesn’t rule out further acquisitions as part of the international expansion. “All options are on the table when it comes to securing more market share, especially in the new markets that we are looking at,” he says. “In some of these markets acquisitions might be the way for us to secure that presence and that market share. Some other markets, it might be us going direct and setting up our own branches direct. I think the answer will be decided case by case.”
But what it won’t do is diversify beyond jewellery. “We are a jeweller full stop. The diversification is being achieved now through exploiting the new product categories within jewellery and through also exploiting new markets,” he says.
Fakhreddin will not say how much of the company’s debt remains, but confirms it has fully repaid some lenders, and renegotiated finance under working capital arrangements with others.
“The whole issue of restructuring is history, it’s over with,” he says. “One of the first things that we did, which was one of the things that really helped us also restructure the whole business, was renegotiate the whole deal with some of the banks. Some of the banks are totally out of the picture, with full repayment, some of them decided to stay under working capital arrangements. But, the whole financial restructuring era is finished, it’s done.”
Damas’ delisting also means it no longer publicly reports its financials. However, Mannai’s 2012 annual report reveals DIL made a QR184.25m ($50.6m) net profit between the date of acquisition in April 2012 to December 31 last year. Significantly, the turnaround comes just two years after Damas posted an AED2bn ($545m) loss for the 2010 financial year.
Takeover bid documents say that the three brothers were to retain a 15 percent stake in the company in a deal nutted out with creditors.
Article continued on next page...
Asked about their involvement, Fakhreddin told Arabian Business in May 2011 that the company relied heavily on “their knowledge and history of things to basically run the business”.
Today, he is less forthcoming, but confirms they had no management role with the company or shares in DIL, though had “some stake” at “a different level” of the business.
Fakhreddin, who previously worked as managing director Middle East and Turkey at the World Gold Council, admits it was easier to restructure without the extra burden of meeting stock market demands.
“After all the issues that the company went through, what we really wanted was some peace with ourselves to focus on the core business without having to worry too much about the rest of the variables,” he says. “Get the business model right, fix the business and then start growing the business again, which is exactly where we are today.”
However, it has not ruled out relisting. “Not in the near future, but I’m sure that at one point in the future we will be rethinking about going back to the stock market,” he says.
He also adds that the company has radically ramped up its corporate governance, and although it has delisted, it is still a DFSA-regulated company. It has also head-hunted talent from across the globe, with the retail director brought in from the UK, the CFO is Belgian with a strong background in the watch industry and the COO is British-Swiss with 20 years experience in the Swiss watch industry.
“That’s the calibre of people that we are recruiting now. We brought the best talent available to our business,” Fakhreddin says.
Fakhreddin expects strong returns for the company to continue, saying the expansion plans are set to be funded from “existing resources”. “The last two years were phenomenal for Damas, our sales are very healthy and most importantly our profitability. I think 2013 will be one of the best years ever… in the history of Damas in terms of net profit,” he says.
It is a position backed up by the World Gold Council, with figures showing the GCC gold jewellery market grew by 8 percent between 2005 and 2011, driven by a preference for gold and diamonds as a means for growing wealth, as a fashion statement, and regional population growth. The GCC accounts for 7 and 9 percent of global demand for gold and diamond jewellery, respectively.
Fakhreddin says Mannai brought to the equation a lot of confidence in Damas. “The fact that we have a very strong ownership structure now allowed us also to bring in fresh talent and allowed us to enjoy certain benefits when it comes to our… creditworthiness in the market,” he says. “All of that helped us in the beginning, but in reality it all only reflects the strength of the business model of Damas.”
Is Mannai keen to try new things? “I think they’re keen to see us grow and bring them a better return on investment,” he says. “That’s the priority.”