|
|
 ARABIAN INTERNATIONAL
CONSTRUCTION - AIC
Manager:
Mr. Mohamed Metwalli
Interview.
Contact:
Office Building
Corniche El Nil
Maadi
P.O. Box 1266
Cairo
Tel : (20) 2 524-6379
Voice : (20) 2 524.4666 (ext. 190 or 329)
Fax: (20) 2 526.3131
E-mail : aic@mailcity.com
E-mail : aic@ritsec1.com.eg |
Strategy
 1/ Company Background
Arabian International Construction is the leading private sector services company in Egypt . AIC’s success story is built on the strong foundation of a well defined strategy, market niche positioning, professional management, superior service quality and acquisition program. The company’s aim has been and will continue to be "Maximizing Shareholder Value ". Arabian International Construction was established in 1987, as a corporation, under law 159/1981. It's authorized capital is
1 billion LE, and the nominal capital is 100 million.
Maximizing Shareholder Value
Maximizing the shareholder value is AIC’s main corporate goal . To achieve this, the company has been redesigning its corporate performance measurement system and has recently migrated to a value based management system that links strategic objectives of its SBU’S to micro value drivers to operating level performance measures. The whole program also ties a percentage of executive to total shareholder return or Economic Value Added (EVA).
Arabian International construction is proud to be
The main Egyptian Contractor for the Ministry of Electricity
The only Egyptian Construction Company to construct a major dam on the Nile (Esna Dam)
The only Egyptian Construction Company to construct a Syphone under the Suez Canal
The only Egyptian Construction Company to do the civil work of a Thermal Power Station (Sidi Krir Power Plant)
The only Egyptian Construction Company to build the off-shore package of a Thermal Power Station (Eyoun Mousa Power Plant)
The only Egyptian Contruction Company to construct building for the American University in Cairo (Maadi Doormitory)
Strategic Goal
AIC aims at being one of the leading construction service organizations in the MENA region as well as Sub-Saharan Africa. Currently, AIC is engaged in a number of projects in Libya, Kuwait, Dubai, Uganda, and Saudi Arabia.
2/ Arabian International Group Subsidiaries & Affiliates
Arabian International Group (AIG) includes 6 diversified companies ; working hand-in-hand, in the construction, business development , mechanical
& electromechanical installation , real estate development , and manufacturing cement blocks & tiles sectors covering the Middle East and Africa.
1. Arabian International Construction
AIC’s aims to maximize the shareholder value. The company is experiencing a phase of accelerated organic growth, which is clearly demonstrated by the ballooning of its annual backlog, turnover and net profit figures during the past three years.
AIC’s spectrum of services covers a variety of construction related services including project development, engineering, construction, operation, maintenance and financing. AIC’s business development direction is sup-divided into five Strategic Business Units, namely: power, water & environment, buildings, industrial, and Oil & Gas. The listed below are some of the projects that AIC had been awarded .
Milestone projects in the Power SBU are offshore facilities of the Eyoun Mousa Power Station, Sidi Krir Power Station, and the Salloum Power Station.
Milestone projects in the Water & Environment SBU are Toshka pumping station, New Esna Dam, and the Suez Canal Siphon.
Milestone projects in the Building SBU are Hilton Plaza, Hilton Nour, Operoi Hurghada Resort, Holiday Inn Resort-Sharm EL Sheikh.
Milesone projects in the Industrial SBU Mandarin Koueider factory, and Silos & Mills. The oil & Gas SBU is a new to be developed.
2. Arabian international for Architectural production (AIA-TOBLAT)
AIC established AIA in 1995. It is incorporated under LAW
159/1981. AIAP is among the leading manufacturers of cement bricks, tiles, aluminum windows, and steel structure. It produces the only internationally certified cement bricks in Egypt. AIC holds 78% of its shares, while the original founders hold 22%. TOPLAT enjoys a monopoly in the Egyptian market. Its backorders stand at 8 month, and has achieved a profitability of LE 2million in 1997, 30% higher than projected. TOPLAT main clients are some of the leading construction companies such as the Orascom group, Sami Saad construction, Dorrah construction, and Siag group in addition to other construction companies.
TOBLAT has recently added numerous sales accounts to its extensive work pipline. It is expected to officially inaugurate its new factory at "ATAKA" to cater for the increasing market demand for its products.
TOBLAT enjoy a 5 years corporate tax holiday and is estimating a turnover of LE 11 million with an estimated net profit margin of 25-30% for 1997.
3. MISR Co. for Mechanical & Electromechanical Projects (Kahromika)
Since AIC has a significant participation in the Economy Reform Programs, specially the Privatization Programm and after its capital increase in July
1997, AIC has acquired a 51% stake in Kahromica-one million and twenty thousand shares. The transaction was worth 76 million LE.
Kahromica is the leading industrial electromechanical contractor in the Middle East, the company that was responsible for the installation of 40% of the Egyptian power grid as well as the installation of a number of power plants.
4. Global Infrastructure Company (GIC)
In anticipation of the increasing demand for project-financing activity in the region, GLOBAL Infrastructure was established in 1997, as a project finance company to handle BOOT projects in the fields of power, gas, and water. Currently, GLOBAL is bidding for water treatment plants worth US$ 195 m and power plants in the region of US$
515m on a BOOT basis. GLOBAL is in the final stage of signing for the Ugandan power plant. AIC will be benefit considerably as management decided to enter as a sole contractor for civil works worth US& 400 m.
GIC is a project financing company for Infrastructure projects, water and power. A number of project invitations to build privately owned power plants (on a BOOT basis) within Egypt and Africa have already been qouted and are under study.
GIC is involved in negotiating a power purchase agreement for the Kalagala power plant, Kampala, Uganda. The 350 MW power plant involves the construction of a hydroelectric power dam at an estimated investment cost of US$ 500 million and (BOOT) basis). For this purpose AIC set up AIC Uganda incorporated to pursue construction works related to this project as well as other projects in Uganda.
There is a promising market in Egypt requiring such project-financing products, where GIC has just been awarded a contract to install a 50 MW power plant for Misr Cement Company on a BOOT basis for 25 years.
5. Arabian International for Real Estate (AIRE)
AIRE is a real estate development, own and manage lands all over Egypt.
6. Arabian International for Investment & Development (AIID)
AIID is a subsidiary company to AIRE. It was established in 1996 under investment law 23 for 1989, which was amended to become law 8 for 1998. AIDD established itself in the Egyptian real estate development market as a company with a futuristic vision. AIID is responsible for real state development and project implementation. AIID is currently developing 3 malls in prime locations. Talaat Harb Mall, El Amir Mall and Babylon Mall with an aggressive and well-targeted marketing campaign.
3/ Shareholding Structure & Stock Performance
AIC has been traded in the Egyptian stock Exchanges since September
1997; its current market cap runs around LE 450 million. Increased supply has led AIC to exercise stock liquidity. This was done through a stock split that was achieved by drawing from its retained earnings and additional paid-in the company's outstanding shares to 20 million.
"AIC is the best performer among activity traded stock", quoted by EFG-Hermes. EFG stated on their research notes that the explosive growth in revenues, earnings and backlog of AIC expected top 30% over next few years. AIC competes directly with international construction companies for large local projects with a good cost advantage over competitors. Expansion into several Arab and African countries expected over next two years. Less reliance on tourism sector with infrastructure projects replacing tourism as the main business activity. Logistics management likely to be management's biggest challenge in coming few years. Company never took significant advantage of double tax exemption loophole which coupled with high growth rates, will serve to minimize the effect of the closure of the loophole on earning.
"AIC remains one of our top picks in the construction sector in Egypt", quoted by Fleming Mansour Research. Fleming stated on their research on AIC, that AIC's aggressive corporate culture should make it one of the most successful players in the region. AIC's backlog is better than expected by the end of the third quarter of
1998, consolidated backlog was LE 1.7 billion. Management expects the increase of backlog by the end of 1998 to exceed LE 2.0 billion.
4/ Quality Orientation
AIC acquired the ISO 9002 certification in 1996 making it the first general contracting company in the Middle East to acquire such a certification. Furthermore, the company designed and implemented a more comprehensive Total Quality Management (TQM) Program. The above, in addition to deep rooted partnerships and alliance with multinational contractors, enable AIC to significantly enhance its know-how infrastructure and consistently deliver superior quality to its internal and external clients matched with reputable multinationals.
Top of page
INTERVIEW WITH
Mr. MOHAMED METWALLI
CEO OF ARABIAN INTERNATIONAL CONSTRUCTION
Sunday 21 February 1998
1/Q: Could you give our readers the 10-year success story of AIC?
AIC was nationalized in the early 1960’s. When we started again as a private company in 1987, we practically had no business. In 1988, our turnover was around L.E. 8 million. Again, very little. But in 1989, we hit the beginning of our road. We got the largest civil contract ever awarded to an Egyptian Company. It was an L.E. 180 million contract to build a hydropower station in Essna, about 100 km. South of Luxor on the Nile. We made some decent profits. As I said in the 1960’s, our construction industry as a whole was nationalized. The private construction did not pick up until
1981-1982. So, even though construction is a very mature industry worldwide, it is still an emerging industry in Egypt. This was due to some laws that put some tough restriction on the industry. Anyway, after we finished the Essna Hydroelectric power station, we gained a strong reputation. Still, that was not enough. 50% of the market was dominated by the public sector construction companies, which gave quality standards that were not good. The other 50% was dominated by international companies. So, we tried to find a niche as sub-contractors for international companies who had powerful networks. They were very wealthy and they knew everyone in the international company scene by name. All we had paid in capital was L.E. 1 million, which meant $300,000. That made us a much smaller company in size and capital compared to our competitors. The clients who did not want to go to rich private sector companies went to Arab Contractors, the leading Public Sector Company at the time.
|
Construction is a service and it is not like manufacturing. Public Sector Companies do not provide impeccable or good services. So, clients had to go to big international companies to get good service. That meant they had to pay very steep premiums. People did not really need all the services that were offered them by international companies. We came in and said we could help. There were 8 families that had international partners and controlled the local market. What we thought of, was Lexus
– Mercedes example. We promised to provide 100% of the quality that you would expect from big companies like Bechtel for instance. However, we would give 90% of the services that they offered. And here comes the edge. We asked for 60% of the price. People compared the missing 10% in the service with the 40% deduction in price and the lower price won. There was a big gap in the market and most of the clients liked the 40% discount. As I said, they did not need all the services that were offered by the big companies.
AIC was established by 5 engineers. Today, the average age in the company is 31 years. So, it is a young company. We have more than 7 international joint ventures. In the construction industry, you are judged by how professional you are. However, when these professionals came to manage their companies, they did not manage them as modern corporations but as Engineering companies. So, the construction segment stayed away from professional management and was run more like engineering offices with no particular culture or any of the sophisticated systems of a corporation. When we started, we were the same as everybody else and could not find a consultant who specialized in the construction industry to tell us how to structure the company; and we could not afford the fees anyway. So, we set the company ourselves. We started with the matrix system. We had 5 strategic business units and 13 functional departments. Departments in the construction industry are very functional: human resources department, transportation department, stores and inventory departments that handle materials, etc… we had one department for the material at the beginning that was responsible for buying and transporting the material. Usually, companies will have 14 forms for the handling of material. At AIC, we have only one form. Of course, this would not be possible without having computers. You should know that all the big construction companies think of computers as advanced calculators. We took computer science in high school. All the international companies outside the construction industry realize the importance of computer. Construction companies seem to be living in the dark ages. We always refer to the management and not the engineers who execute the different projects.
We were the first ISO certified Construction Company in the Middle East. We are making sure that we do not have a lot of waste and that we do not make mistakes so the work is not repeated. That is how we are able to compete with the international names. The way most of those companies operated was by repeating their work until they got it right.
Q/2 Could you give us the basic figures of the company?
In 1998, we had a turnover of L.E. 590 million, 40% of which are profits. Net profit after taxes was L.E. 43.9million. In 1997, the turnover was L.E. 123 million and net profit after taxes was 8 million. We double our figures every year and hopefully this year we will do the same. We do not care very much about revenues. We only care about our net profit after taxes and cash flows. We have a value based management system. Our EVA is 9 for this year. We have stock option programs: AIC and Al Ahram Beverages. I think that they have 8 or 9 people on the stock option program. We have 172 people on the stock option program.
Q/3 Are you planning to list the company on the stock exchange?
We invested L.E. 1 million in the company. An investment banker told us that the company is worth L.E. 300 million. So, we went public. After 10years, the L.E. 1 million is worth L.E. 360million today. This company was originally established for the development of other companies. We never thought that we could repeat what we have done in7 or 8 other countries and we are already targeting them. In Kuwait the market is segmented, except for the power industry, which targets the entire market. We do not go to a country where we have to re-segment the market and know which segment we will target. S, we went to Kuwait and identified the power business because it has 100% international companies. There are no local companies in that business. The power base is about $4 billion per annum. It is shrinking by 5-6%. When we got there, we got a contract for $45 million and another for $18million in one year. So, we were not affected by the shrinkage. We were not big enough to care about macro investments. So, we believe that we can repeat what we have done in Egypt. Internally, we have a model of what the new construction companies should be like.
Q/4 In which sectors do you see your future growth in the coming years? What is your strategy to increase your market share?
In order to compete with big companies, we specialize in large-scale infrastructure projects for which a very high level of management is required to coordinate work on all the different sites. At present, we are working on the largest pump station. We are working on the project as a joint venture with Caverner and Hitachi. Hitachi only supplies the pump and the motors. Caverner is doing the channel from the lake to the pump station and we provide all the other supplies ourselves. We are doing 100% of the pump station. We are doing 4 tunnels that transport drinking water under the Suez Canal to the Sinai. These projects are usually in the domain of the international companies and rarely done by local ones. The other thing that the big companies do is high quality building. At present, we are building 7 five star hotels, including a Sheraton, Hilton, Oberoi, and a Holiday Inn, that will be finished in 3 years. In Egypt, the 9060 formula works very well. We are going outside Egypt with that.
We have 2 process for planning: strategic planning that involves 60 people and future planning which involves 9 people.
We are the only company on the stock exchange that has a female chairperson. Out of the second middle management of 27 people, we have 8 female employees and 13 non-Egyptians. So, we have quite a corporate culture at AIC. We base the selection criteria in the interview on corporate culture. We have a survey twice a year and updates once a year. We have 60 people that are involved.
The latter strategy is called future planning which means having to estimate and predict what the market will be like 3 or 4 years from now. Then, you have to equip yourself to be ready. We call this fighting for opportunity share.
We do both kinds of planning. I would also say that there have been a lot of changes. I would claim that we are closing the 90% gap. Last year we bought a new computer system and software, which cost us $700,000 in compact discs. Then, we had $1.5 million for implementation. This was a lot of money for us. Nevertheless, when we did that, we were the 41st company worldwide and the first in Egypt to incorporate this new computer software.
The highest paid of our employees are the resources staff. We have a logistics employee that we hired from outside the industry. We also have corporate finance staff. We focus on more valuable things, which is why we do not compete on the prices of cubic meters.
Q/5 Would you be interested in further alliances / partnerships to increase your business?
No. We only need those companies that qualify for the jobs in the construction industry. It is important for the track record of the company. For the projects that we got, we could not qualify on our own. However, we established an M&A department last year and did 4 acquisitions. This year we will do the first acquisition outside Egypt. We have identified a European company. We have tow strategies: organic and M&A.
Q/7 How would you be interested to attract foreign investors to your company?
We had the best stock performance in 1997 and 1998 according to EFG-Hermes and CIIC, even though we have only been listed for 4 months. We doubled every year and 0in 1999 we were up to 25% in less than 45 days. I believe that the average P/E in Egypt is 9. We are trading at a P/E f22. I own 56% of the company. Out of the 44% that are traded, 80% is owned by international institutions like Lazar, Morgan Stanley, Merrill Lynch and Goldman Sashes. We have more that double the average of the P/E in Egypt. So, I think that investors treat our stock as growth stocks and not only construction stocks. The average P/E for construction companies in Egypt is 7. I do not focus very much on the stocks, but we do road shows every year.
We are under-leveraged. Our debt to equity is 0.7:1. In the construction industry it is usually 2:1 or 3:1. We also have a ROE of 40%. So, I think we will resort to debt in order to finance our acquisitions.
9/Q: What will the impact of the construction boom be on the Egyptian economy?
Actually, this worries me a lot. Typically, governments stimulate the economic activity be construction. Construction activities are labor intensive but the skill of the labor is at the bottom of the ladder. So, the boom will attract a lot of workers but their skills will not be adequate except for construction. When the boom ends, these people will have nothing else to do.
We have a target that by the year 2000, 50% of our turnover will come from outside Egypt. We also have a target that by the year 2003, maximum 25% of our turnover will come from our operations inside Egypt. The reason is that the Egyptian pound is under a lot of pressure. We already have 10% of our revenue dollar-based and we want to increase it. Our biggest competitor in Egypt is ABB Egypt, of which 52% is owned by Egyptians and 48% by ABB, out of the traded portion. Out of the traded portion we are 80% owned by international institutions. Out of the 6000 workers, they have 2 non-Egyptians, an American and one German. On the other hand, half of our management team are non-Egyptians.
With the new telecommunications technology, we can access the capital markets everywhere. The Uganda project was for $240 million. It was a hydro power station on a BOT basis. All the debt and equity for the project were raised from outside Egypt. We did not use a single Egyptian bank. Egypt was the market for us until last year. Now, we have subsidiaries in Kuwait and Libya.
10/Q: Could you give us your personal background?
I was born in 1960. I finished high school in 1978. I got my Bachelor’s degree in Civil Engineering from Texas University. My GPA was 3.92 out of
4.0. I got my Executive MBA from Stanford in 1995. Meanwhile, I worked in the biggest American contractor in Texas. I returned to Egypt in 1985 and established this company in
1987.
11/Q: What is your most satisfying personal achievement?
My family owns 9 companies and AIC is the smallest. We used to own 5% of CIB, 15% of CIIC but we liquidated them. Our biggest company is the real estate company.
12/Q: What will your final message to our readers be?
A lot of investors will come to Egypt with a pre-formed idea about emerging markets’ companies. They should forget it. Who cares about the location of the head office. There are a lot of companies that will act individually and different from the market. In 1998, the Egyptian market shrank 39% while the stock market went up 100%. They should look at companies as individual entities.
|
© World INvestment NEws, 1998.
This is the electronic edition of the special country report on Egypt published in FORBES Magazine,
May 31st issue.
Developed by AgenciaE.Tv |
|
|
| |
| | | |
|
EGYPT
