Posted on February 28, 2018

the Board of Directors of Aamal Company Q.P.S.C. (“Aamal”), one of the Gulf region’s fastest growing diversified companies, today announces the financial results for the year ended 31 December 2017

Financial Highlights

  • Total revenue down 43.3% to QAR 1,604.2m (2016: QAR 2,829.1m), primarily due to the reclassification of two business entities within the Industrial Manufacturing division from subsidiaries to joint ventures, with a consequent change in their accounting presentation
  • Gross profit down 20.2% to QAR 545.6m (2016: QAR 683.4m)
  • Net profit before share of net profits of associates and joint ventures accounted for using the equity method and fair value gains on investment properties (“net underlying profit”) down 15.7% to QAR 421.0m (2016: QAR 499.2m)
  • Net underlying profit margins have increased by 8.7 percentage points to 26.3% (2016: 17.6%)
  • Share of net profits from associates and joint ventures accounted for using the equity method increased 69.4% to QAR 102.0m (2016: QAR 60.2m)
  • There were no fair value gains on investment properties during 2017 (2016: QAR 0.9m)
  • Total Company net profit1 down 6.6% to QAR 523.1m (2016: 560.2m), with net profit attributable to Aamal equity holders up 8.4% to QAR 500.9m (2016: QAR 462.3m)
  • Reported earnings per share increased 9.6% to QAR 0.80 (2016: QAR 0.73)
  • Net capital expenditure down 16.8% to QAR 106.5m (2016: 128.0m), reflecting fluctuations in contractor billing profiles that are milestone-based
  • Net positive cash position of QAR 113.1m (30 June 2017: net positive cash of QAR 134.7m)

1  Total Company net profit is before the deduction of net profit attributable to non-controlling interests

H.E. Sheikh Faisal Bin Qassim Al Thani, Chairman of Aamal Company Q.P.S.C., commented: “While the continuing blockade by a number of neighboring Gulf countries has undoubtedly created some challenging headwinds, I am very proud to say that Qatar as a nation is successfully navigating through them. I believe this is testimony not only to the resilience of the Qatari economy but also to the strong and clear leadership that our national government provides as we strive to achieve the holistic goals set out in the Qatar National Vision, including diversification of the economy. I must also mention the resourcefulness of the Qatari people in meeting these challenges head on, as they did in previously demanding times including the global slump post-2007 and the oil price lows of early 2016.

“It gives me very great pleasure also to report that Aamal has been at the forefront here, managing to grow its earnings per share by almost 10% over the year with annual net profits attributable to Aamal shareholders now exceeding QAR 500m (QAR 500.9m), which in the current climate is a very impressive result indeed. I should also add that these are probably the most relevant indicators of performance as some year- on-year comparatives are now not on a true like-for-like basis (revenue in particular) due to the change in the accounting presentation of a couple of business entities during the year, thereby rendering them largely meaningless. People should be made aware that the effects of this change will remain valid until after Q4 2018, by which time they will have reversed out.

“Aamal has always been noted for its practicality and decisiveness, and no better is this demonstrated than by how rapidly we moved to help establish alternative supply chains in the face of the continuing embargo against Qatar. This resilience is also borne out by the diversity of our business model, so that if one sector is experiencing a tightening in general business conditions for example, there will be others that are able to more than compensate.

“Allied to this is Aamal’s strong financial position and cash generation which means that should we identify a potential value-creating opportunity, we are able to act quickly, often giving us a competitive advantage over our peers. An excellent example of this is the decision we announced in early January to proceed with three major new industrial projects which will be the first of their kind in Qatar, having applied for the necessary approvals in 2017. Not surprisingly, we are also the partner of choice for those international blue-chip names looking to enter the Qatari market for the first time.

“As such, I am looking forward to reporting sustained growth, along with improvements in our operational performance, as we continue to seek attractive opportunities. I am also pleased to announce that Board of Directors has recommended a cash dividend QAR 0.60 a share (equivalent to 6% of paid-up share capital), subject to the approval at the Annual General Assembly Meeting which is due to take place on April 22, 2018.”

BREAKDOWN BY SEGMENT

(nb. there may be slight differences due to rounding)

REVENUE

QAR m

2017

2016

Change %

Industrial Manufacturing

582.2

1,811.7

(67.9)%

Trading and Distribution

633.3

649.9

(2.5)%

Property

320.9

317.9

+1.0%

Managed Services

95.3

97.4

(2.2)%

less: inter-divisional revenue

27.6

47.7

(42.1)%

TOTAL

1,604.2

2,829.1

(43.3)%

NET PROFIT

QAR m

2017

2016

Change %

Industrial Manufacturing

167.8

210.4

(20.2)%

Trading and Distribution

116.2

119.8

(3.0)%

Property1

268.1

258.4

+3.8%

Fair value gains on investment properties

0.0

0.9

(100.0)%

Managed Services

7.0

9.8

(28.1)%

less: Head Office costs

36.1

39.0

(7.5)%

TOTAL

523.1

560.2

(6.6)%

1 before fair value gains on investment properties

SEGMENTAL REVIEW

(nb. there may be slight differences due to rounding)

INDUSTRIAL MANUFACTURING

QAR m

2017

2016

Change %

Revenue

582.2

1,811.7

(67.9)%

Net profit - fully consolidated activities

71.2

156.5

(54.5)%

Net underlying profit margin %

12.2%

8.6%

+3.6 ppts

Share of net profit of associates and joint ventures accounted for using the equity method

96.6

53.9

+79.2%

Total net profit

167.8

210.4

(20.2)%

It is important when looking at these figures to be fully aware that that year-on-year comparisons have been distorted by an accounting change that took place during the year. From 1 April 2017, two business entities within the Industrial Manufacturing segment (Senyar Industries and Advanced Pipes and Casts Industries) were no longer treated as subsidiaries, but as joint ventures such that

their results are now reflected on an equity method basis rather than on a line-by-line full method basis. What this means in practice is that the revenues from these entities is no longer included in Aamal’s total revenue (the major factor behind this recorded 67.9% drop), but rather Aamal’s share of their net profits is now included as a single line item entitled “Share of net profit of associates and joint ventures accounted for using the equity method” on the Statement of Comprehensive Income (hence its recorded 79.2% rise).

On an overall basis, total net profit for the segment fell by 20.2%. This predominantly reflects the delays we have encountered in sourcing raw materials as a consequence of the continuing blockade of Qatar, which we have largely now rectified by sourcing alternative supplies and supply routes, along with expansion of our warehouse storage facilities that gives us greater flexibility in fulfilling customer orders on time. Notwithstanding this, there have been some positive developments in terms of the rolling out of new products and expansion of production capacity within the cables, cement and readymix concrete space in response to demand, thereby broadening both our customer appeal and service quality.

Furthermore, mindful of the need for Qatar to become more self-sufficient, we were very pleased to announce in early January 2018 the decision to launch three major new industrial projects for the production of aluminium, copper and drums through our Senyar Industries joint venture, having applied for the necessary approvals in 2017. These projects are currently greenfield sites and we expect the factories to become operational by the end of this year and next. As well as fitting in with Qatar’s vision of industrial diversification, these facilities will mean that we will have an integrated cycle for cable manufacturing and will be the first of their kind in Qatar, thereby giving us a competitive advantage and helping to underpin future growth.

TRADING AND DISTRIBUTION

QAR m

2017

2016

Change %

Revenue

633.3

649.9

(2.5)%

Net profit

116.2

119.8

(3.0)%

Net profit margin %

18.3%

18.4%

(0.1) ppts

Revenue for the Trading and Distribution segment fell marginally, by 2.5% year-on-year, which allied with a slight (0.1%) decline in margins, led to a 3.0% drop in net profits. Ebn Sina Medical, the largest business within this segment and the leading pharmaceutical distribution company in Qatar, saw an increase in its sales as it secured a number of new agreements with leading international companies. Furthermore, we have successfully established alternative sources of supply that bypass the current blockading countries, expanded our domestic warehousing capacity and automated many of our internal processes.

Aamal Medical, the leading supplier of medical equipment in Qatar, witnessed a drop in sales but a rise in margins leading to overall growth in profits. This is part of its strategy to leverage off its strong market position by acquiring the rights to leading international brands, usually on an exclusive basis, that tend to be higher margin and often at the expense of existing lower margin business. Evidently, this seems to be working. Looking ahead in the near term, Aamal Medical is intending to consolidate and strengthen its market presence further by moving into new specialisms

(including sterilization equipment and technology (CSSD) and cardiology), and evaluating potential new acquisitions such as bidding for new hospital turnkey projects. 2017 was a busy time for Aamal Trading and Distribution (“ATD”), a third business in this segment and which is the leading distributor of automotive products within Qatar. During the year, ATD expanded its operations by opening two “First Stop” automotive centers that cater to the majority of car owners’ everyday needs, along with introducing “Dial a Tire Service” and launching Qatar’s first Bridgestone Fleet Point Center.

PROPERTY

QAR m

2017

2016

Change %

Revenue

320.9

317.9

+1.0%

Net profit - fully consolidated activities

262.6

252.1

+4.2%

Net underlying profit margin %

81.8%

79.3%

+2.5 ppts

Share of net profit of associates and joint ventures accounted for using the equity method

5.5

6.3

(13.3)%

Net profit*

268.1

258.4

+3.8%

* before fair value gains on investment properties

Net profits for the Property segment rose by 3.8% to QAR 268.1m, primarily attributable to an increase in the underlying margin to 81.8% compared to the previous year. Against the general backdrop of an increasingly competitive Qatari retail sector, due in part to the coming onstream of a number of new shopping centers, this is a very positive performance indeed which underscores the enduring strength and quality of our portfolio. City Center Doha (CCD) remains the premier shopping mall in the country, supported by virtue of both its size and prime location in the heart of the West Bay area of Doha, which is widely considered to be the city’s central business district and with a high density of both residential towers and hotels. This is not to say that we will rest on our laurels of course and we continue to invest in CCD to ensure that its premier status is maintained. Phase 2 of the redevelopment works at CCD that will significantly expand both the retail space and number of outlets is due to complete later this year, on time and within budget.

Both revenue and net profit rose for the year too at Aamal Real Estate, which is our residential and retail property subsidiary that excludes CCD. We are keen to expand in this space and continue to seek value-creating opportunities; as such, we were pleased to announce in early 2018 the purchase of three residential compounds comprising 24 villas and two buildings comprising 20 apartment units, all located in prime Doha locations, for which we are currently completing the ownership transfer process. Furthermore, construction that began on a 63 residential apartment building in 2017 is due for completion in the third quarter of this year: again, on time and within budget.

MANAGED SERVICES

QAR m

2017

2016

Change %

Revenue

95.3

97.4

(2.2)%

Net profit

7.0

9.8

(28.1)%

Net profit margin %

7.3%

10.1%

(2.8) ppts

Although revenues fell marginally year-on-year, a contraction in margins led to a 28.1% drop in net profit. The primary driver behind this was an expected reduction in activity at Aamal Travel following the strategic decision to restrict sales to be on a cash-only basis in order to minimise bad debt impairment risks, along with the ongoing blockade of Qatar that has lowered demand for travel services within the Gulf region. In terms of the latter however, we are starting to see encouraging signs of recovery, both domestically as ‘staycations’ grow in popularity with Qatari residents and with international visitors as the Qatar Tourism Authority continues to promote the country’s tourist credentials along with greater flexibility around entry visas.

ECCO Gulf, our business processing outsourcing specialist, helped to offset a weaker revenue contribution from Aamal Travel by managing to expand its existing activities within the banking and government sectors and enter new sectors including retail and technology. Scale in terms of cost to serve and the breadth of service offering is growing in importance as a key success factor within this industry and it is our strong intention to both consolidate and grow our current leadership position.

Aamal Services, our housekeeping business that primarily serves the business sector, despite recording largely flat revenues, more than doubled its net profit contribution – a result of our push to improve our business mix through the targeting of newer and higher value contracts.

SUMMARY AND OUTLOOK

H.E. Sheikh Mohamed Bin Faisal Al Thani, Vice-Chairman and Managing Director of Aamal Q.P.S.C., commented: “Aamal has performed very well in an environment that can only be described as challenging. To manage to grow earnings by 9.6% bears witness not only to the resilience of our business model in withstanding these challenges but also to our ability to seek out opportunities, allied with the financial resources required to act on them decisively should potential value be identified.

“I look forward with much confidence as Aamal goes from strength to strength.”

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