Breaking into new markets
Drake and Scull International CEO Khaldoun Tabari speaks to The Big Project about the firm’s expectations of 20-25% revenue growth in the Middle East within five years, opportunities in India, its troubles penetrating the Libyan market and reveals plans to expand into the drinking-water sector
?More than three years ago, Drake & Scull embarked on a mission to go public, fuelling the company’s growth that continues, even in today’s challenging market. The firm’s CEO Khaldoun Tabari says crucial to Drake & Scull International ’s success has been its diversification into new market geographies globally and in different sectors.
“When we established the company in Kuwait in 2006, we had no competition there and secured US $40-50 million worth of projects very quickly. The same happened in Qatar, Bahrain and then in Saudi Arabia, which is not an easy market,” recalls Tabari.
“For growth to happen, you have to take risks, initiative and leadership, this applies to whatever market you’re in. “You also have to become culturally integrated. Once you’ve put the plan in place, you must execute it — there is no turning back.”
Having identified further opportunities in MENA and India, Tabari says Drake & Scull is eyeing 20-25% growth over the next four-to-five years, with a view to entering India and new markets in North Africa.
Speaking exclusively to The Big Project on the sidelines of The Big 5 conference last month, he said: “When we say 20-25%, that covers the whole MENA region where we’re now fully developed and consolidating all the acquisitions we have made, we have organically grown in some areas, but now is the time when we take all of that and build on it.
I believe that civil [engineering] has a lot of competition. It is very aggressively marketed, the margins are not there and the spread for us would be too thin”
“North Africa is fantastic, there are a lot of opportunities there, but you have to understand the markets culturally.”
New kid on the block
The firm has witnessed the challenges of entering new territory first hand in its expansion into Libya, where Tabari says it has “invested a lot of money and tendered projects extensively without any success”.
Tabari reveals that the firm has come close to winning contracts in Libya on occasion when it has been the lowest bidder, but the project has then been retendered.
“Libya is quite a difficult market; I’m sure anyone else working in Libya will tell you the same. The decision process is very difficult.”
However, he remains positive about the country’s future potential and believes the market will account for a proportion of Drake & Scull’s growth in North Africa.
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$32.67m
Drake and Scull International reported its net profit for the first nine months of 2010
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“While we’ve been quoting and have been unsuccessful, we believe imminently that we will get some work in Libya. The opportunities are tremendous. The Turkish contractors have had a very good position in the Libyan market, they’re closer.
“The Chinese have also done a very good job there, but our experiences in the Middle East, especially in Dubai, are valuable. We can take that story and spread it around to new areas we intend to work in. The know-how Drake & Scull has gained is an asset that few have.”
In terms of sectors, Tabari revealed the firm’s expansion plans to focus on infrastructure, “basically water treatment, sewage treatment and power”, as well as its core business MEP.
Furthermore, Tabari said he “could not rule out” the possibility of more acquisitions in the region, and hinted at the firm’s plans to enter the drinking-water sector.
“We’re looking at integrating our offering with other services in the same field so if we’re visiting a client and they need something else; we can offer it.
“I’ll give you a hint, we are currently in the sewage-treatment business, but we’re not in the drinking-water sector so it would be very easy for us to be in the drinking-water segment. That’s the situation.”
Selective about sectors
Tabari was adamant that the civil engineering sector would not be an integral part of the firm’s growth plans in new markets.
We are in the sewage treatment business, but we’re not in the drinking water sector — so it would be very easy for us to be in the drinkingwater segment”
“I believe that civil [engineering] has a lot of competition. It is very aggressively marketed, the margins are not there and the spread for us would be too thin. We concentrate on Saudi Arabia and the UAE because we’ve been here from the beginning.”
However, during the conference Tabari explained that the group’s diversification into civil engineering was an important part of its original growth agenda.
“In small markets you must find different ways to generate revenue. In Bahrain you’d have to look at more than one business stream for example, where as in Saudi Arabia you can thrive on one.
Commenting on the firm’s two recent acquisitions in Saudi Arabia, he added: “The first acquisition we’re quite happy with and we’re looking to increase our penetration in Saudi Arabia. As for the second acquisition, we are now on the verge of completing this as we have signed the contract, but we haven’t got control of the company yet. This is going to take another two to four weeks as first we do the due diligence legally and financially, then we will exchange a sales purchase agreement then after that comes the integration.
“Every acquisition takes time; some European acquisitions take two years because you’re marrying two different companies.”
When asked what advice he would give to construction firms looking to expand into new markets in the New Year, Tabari replied: “Hire as much local talent as you possibly can and integrate that within the organisation, do not look like an outsider; look like an insider working in their country — that’s what we’ve done in Saudi Arabia.”
He adds: “There will always be difficulties in penetrating local markets because of the local competition, and you may have to price yourself the same as a local contractor to get the work.”
To be successful, Tabari says contractors must be lean, clear about their mission and operate as a team.
Drake & Scull International reported AED 432 million in revenue and net profit of AED 34 million for the third quarter ending 30 September 2010 — yielding an accumulated revenue of AED 1.2 billion and AED 121 million net profit in the first nine months of this year.
