We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Sat 31 May 2008 04:00 AM

Font Size

- Aa +

Growing pains

Agility chairman and managing director Tarek Sultan tells Andrew White how the firm plans to expand throughout Asia and Africa, despite the pressures of the soaring oil price.

Agility chairman and managing director Tarek Sultan tells Andrew White how the firm plans to expand throughout Asia and Africa, despite the pressures of the soaring oil price.

It has been a long day but Tarek Sultan still has plenty of fight left in him.

"On a net basis our Q1 profits are down 10%, but on an operating level they are actually higher than last year," he argues as we charge across the floor of a packed conference hall, delegates scattering to our left and right.

Freight forwarding is by its very nature a low-margin business, and the rising cost of oil has impacted our business in different ways.

At well over six feet tall, it's a race to keep up with the chairman and managing director of Agility as he strides across the room - just as business rivals are finding it near-impossible to keep pace with the growth of his Kuwait-based firm.

Formerly PWC Logistics, Agility is today a global provider of end-to-end supply chain solutions, with more than 32,000 employees in 550 offices located in over 100 countries around the world.

Its three key operating units - Global Integrated Logistics (GIL), Defense & Government Services (DGS) and Investments - extend around the globe, and the company is continuing its expansion throughout 2008.

Nevertheless, Agility did see its Q1 2008 profits drop 10%, as net income fell to US$141.4m from US$157.3m for the same period last year.

The drop was the firm's second consecutive double-digit fall in earnings - it posted a 10.5% fall in Q4 profit year-on-year to US$131.6m, while full-year profit for 2007 stood at US$580.5m. However, Sultan emphasises that figures can be misleading.

"We've had increased costs because of issues in the financial markets which have been a challenge, but we've recently done a syndication to bring down the financing cost," he explains.

"Secondly, you have to take into account some non-recurring items from Q1 last year," he continues. "So if you strip those out and pick out the financing cost differential you will actually see an improvement in the top line, and the same thing with the net operating income figures."

Agility has announced plans to increase its share capital by 25% selling shares for 450 fils each to existing investors. It paid a cash dividend of 80 fils each and a 10% bonus share issue for 2007.

While Sultan will not give guidance on profit forecasts, he insists the company will touch US$7bn in revenue by the end of 2008, up from approximately US$6bn last year.

This growth should be achieved despite the rising oil price, which has exerted pressure on logistics firms around the globe.Throughout the Middle East alone, Agility operates a network of warehousing facilities and a fleet of over 3000 transportation and distribution vehicles - each of which is becoming steadily more expensive to put on the road, rail or runway.

"Freight forwarding is by its very nature a low-margin business, and the rising cost of oil has impacted our business in different ways," says Sultan.

"From an international perspective, because we are a global company, the rise in the price of oil has had a dampening effect on growth and could impact the speed of our growth in the global market sense.

"Obviously, we do consume a lot of fuel with all the aeroplanes and ships that we move around," he continues, adding that the firm has analysed the problem from an environmental perspective as well as a purely economic one.

"Anything we can do to cut down our emissions is win-win, both for our profitability and for the environment. We've invested in fuel-efficient vehicles and taken a lot of time to look at that, but there's only a certain amount that you can do with the technology that is currently available."

Yet Sultan is not oblivious to the flipside of rising fuel prices. While the increases could hamper Agility's immediate international growth prospects, Sultan admits that the firm has also benefited from the surging cost of crude.

"Because of our presence in the Middle East and in the emerging markets we have benefited from a sector perspective, as [the oil price] has created and driven growth in markets where our platform is very strong," he notes.

"At the same time, we have a large part of our business focused on oil and gas projects, so there have obviously been a number of those projects coming about, which has also been good for our business."

The region's economic boom - driven by the petrodollar - has led to rampant inflation across the Gulf. Those businesses that operate solely in nations with currencies pegged to the dollar are suffering as the greenback slides against the euro, yet Agility is an enviable position.

Not only did Kuwait depeg from the dollar to move to a basket of currencies last year, but the logistics giant anticipated the change and took a position against the removal of the peg - earning shareholders a hefty windfall in the process.

"Going forwards it's really a non-issue for us - we do business in different countries around the world, irrespective of what their currency regimes are," shrugs Sultan. "Our business is fundamentally a low-margin business and our costs are basically our customers' costs - it's all passed on.

"Everyone feels the impact of inflation but I think we have a lot of controls and programmes in place to try and reduce that pressure," he adds. "It impacts the global economy and we're not immune from that, but again it's not keeping me awake at night."So what does keep Sultan awake at night? According to the chairman and managing director, his chief priority is to continue to expand Agility's geographical reach, as well as continue to add revenue at the same pace.

"Our logistics business is growing organically at a very fast rate; our investment in infrastructure business is growing very quickly; and we're also growing and diversifying our defence and government services business," says Sultan.

Agility DGS already provides services to a diverse group of defense and government customers - including the US Defense Logistics Agency (DLA), US Army, US Navy, US Air Force, Army Air Force Exchange Service (AAFES), and the Department of State.

Earlier this year, the US Army Contracting Command Southwest Asia-Kuwait signed a US$127m five-year agreement with Agility to provide dining facilities to its forces in Kuwait.

Meanwhile Agility DGS announced that it had been chosen as one of five awardees of the Theater Wide Trucking contract by the Joint Contracting Command-Iraq.

The tenure of the contract for the five winners will be one base year with two option years, with a potential total value of up to US$450m among the five awardees.

"We're adding more contracts and becoming increasingly diversified regionally, and that's how we're looking to grow," continues Sultan, adding that the firm is also looking to expand across Asia and Africa in 2008.

In the Far East, subsidiary Trans-Link Group already offers specialised logistics services, including exhibition and event logistics, e-fulfilment and project forwarding.

Globally, the company's Transoceanic Shipping provides project logistics solutions tailored to the construction, mining, and oil and gas industries, while its GeoLogistics Corporation also offers global freight management.

"Our big expansion will come from core business growth in emerging markets of the Middle East, Africa and Asia," he says.

"There should be quite a few new project announcements before the end of the year, while we are also opening up a logistics city in Riyadh in the very near future."

This expansion will be reflected in the size of Agility's shareholder base. The firm's investor relations programme is eagerly examining attention from institutional investors across the world, and interest has been high at investor conferences.

"We have a general plan to broaden our shareholder base, but there's nothing concrete and nothing to announce," says Sultan at this stage.

"The goal of the investment relations group is to go out and find shareholders that can add value to us as we add value to them, but there's nothing specific at the moment."

Arabian Business: why we're going behind a paywall

For all the latest transport news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.