By Sean Cronin
Drake & Scull International CEO Khaldoun Al Tabari can’t see an end to the regional building boom.
As Drake & Scull International prepares to list its shares in Dubai, Sean Cronin meets CEO Khaldoun Al Tabari to discover why he can’t see an end to the regional building boom.
“We are living in a contractor’s paradise,” says Khaldoun Al Tabari on the eve of his company’s US$325m share sale.
With a forward order book worth about US$654m, the description is fitting for Drake & Scull International, which installs wires, pipes and cables in skyscrapers and industrial buildings across the UAE.
Now the company that he has led since 1998 is selling shares to the public as it aims to tap surging demand for mechanical and electrical services from the Gulf’s US$1.5 trillion construction industry. About one third of that is spent on the type of services that companies like Drake & Scull International provide — which is one reason why Al Tabari likes to describe the market as a paradise.
“It wasn’t like that six months ago when contractors were taking on projects at what they thought were good margins and were then hit by steel and cement price hikes,” says the fast talking Al Tabari. “Now we hedge our bets and immediately place orders with our suppliers when the contract is awarded. A major part of the electro-mechanical business is your ability to control your procurement.”
Al Tabari has been working in the industry for nearly four decades and remembers jogging around the Drake & Scull building as a student in Colorado in the early 1970s.
The name stuck with him and after graduating he went on to work with the company in the Gulf on several major projects, including a contract to install a network of 18 radar stations and underground command centres in Saudi Arabia in the mid-80s, that would later come into use in the 1990 Gulf War.
Al Tabari has a lot of energy about him which must be an advantage for someone running a business in the UAE’s fast-paced construction industry.
Drake & Scull International is one of the region’s relatively small group of major contractors capable of bidding for the increasing number of large electrical and mechanical contracts that are emerging across the Gulf, fuelled by record oil prices that have encouraged Gulf states to invest heavily in infrastructure.
The contractor aims to sell around 1.2 million shares to the public, representing about 55% of the company in an offer that closes on July 17.
Investors will be eyeing the company’s net profit growth that has been running at 37.6% — more than double its revenue growth — which reflects improving margins, despite surging raw material costs that have hit the construction industry in the first half of 2008.
Rising orders means that the company will need to add another 2000 workers to its existing workforce of 12,000. Drake & Scull International will use the funds generated by the share sale to fund acquisitions that will allow it to expand its operations throughout the region, while also adding new units within the mechanical and electrical supply chain where it sees value.
He says that as long as the oil price remains strong, orders will remain strong.
“We’re very well positioned to capitalise on the growth we are seeing, provided this keeps going — and we believe it will, for at least another five or six years in the case of the UAE, and for 10 or 15 years in the Gulf. I don’t see an end if the price of oil keeps going the same way,” Al Tabari says.
Neither does he believe that the region is over-building when the anticipated population growth within the Gulf is taken into consideration.
“People look at all these buildings and ask if they are going to be occupied and we always count on the influx of Europeans and Asians to live here. But if you look at the composition of the local society, especially in Saudi Arabia where there is 20 million people and where the average family probably has four or five kids — there will be huge growth here,” he says.
Until now, Drake & Scull International has generated most of its orders from its home market of Dubai, where its projects have included the district cooling systems of Dubai Festival City and Jumeirah Beach Residence, and the building systems of the Dubai Police headquarters and Indigo Tower. Al Tabari hopes to invest the funds raised from the share sale in expanding in less mature construction markets elsewhere in the Gulf — particularly in Saudi Arabia, Qatar and Kuwait. Closer to home, he plans to ramp up orders in Abu Dhabi.
While the company is best known for its electrical services work on buildings around Dubai, Drake & Scull International also generates a large proportion of revenues from building district cooling plants and water treatment works, and it is in these areas that the company sees most potential for the future.
“As you go up the value chain, there are fewer contractors competing for that work so you can achieve better margins and that is where we sit,” he says. “The kicker is the EPC (engineering, procurement, construction) contracts where there is more risk and better return. This is district cooling, water treatment and sewage treatment. These are huge contracts, which is where the money is and where we want to be.”For all the latest construction 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.