UAE. Depa Limited, one of the world’s largest interior contractors today reported results for the six months ended 30 June 2011.

• Net profit of AED 48m (H1 2010: loss of AED 103.7m)
• Excluding MENA region, revenues up 42.9% to AED 297.5m (H1 2010: AED 208.2m).  Overall revenues down 11.4% to AED 748.9m (H1 2010: AED 845.5m).
• Backlog increased to AED 2.3bn (H12010: AED 2.15bn). Backlog increased by an additional AED 420m as of 20 August 2011 to AED 2.72bn
• Geographical and sector diversification efforts a success:
 21% of backlog from UAE (30% H2 2010)
 20% of backlog related to infrastructure and government-funded projects, up from 8% in H2 2010
• Significant recent contract wins include:
 AED 222m for King Abdullah Petroleum Studies & Research Centre, Riyadh, Saudi Arabia
 AED 180m for Baku Flame Tower, Azerbaijan
 AED 113m for the Mumbai International Airport, India

Mr Mohannad Sweid, CEO of Depa, commented: “Overall performance was strong on many fronts. Our successful diversification strategy reduced the impact of the global macroeconomic and regional geo-political environment on our results and backlog growth.

Encouragingly, we are witnessing large and mega-projects that were originally delayed finally coming on-stream.  We recently signed a AED 222 million contract for work at the King Abdullah Petroleum Studies & Research Centre in Riyadh and we anticipate signing other delayed projects in the latter half of 2011 and on-going into 2012.

The Company continues to diversify internationally and this will underpin financial performance and backlog growth and allow Depa to capitalize on the market’s momentum in the near future.”

Financial highlights
Revenues for the first half were AED 748.9 million, as compared with AED 845.5 million in the same period in 2010. This 11.4% drop in H1 revenues is due to delayed starts and slow progress on certain projects in the MENA region, especially in countries currently facing political turmoil. Excluding the MENA region, the Company’s revenues rose by 42.9% to AED 297.5 million (H1 2010: AED 208.2 million), which highlights the success of the Company’s diversification strategy.

Profit for the period was AED 48 million as compared with a loss of AED 103.7 million in H1 2010 (following the outstanding Burj Khalifa claim).  Contract profit margin was 20.4% compared to -3.3% in H1 2010.

As of 30 June 2011, the Company’s backlog stood at AED 2.3 billion, and had increased by a further AED 420 million as of 20 August 2011. Over the course of 2011, the Company has won a total value of AED 1.47 billion of new projects, resulting in 24% backlog growth.  The UAE now represents only 21% of backlog, down from 30% at FY 2010, MENA is up to 30% from 28% at FY 2010 and the rest of world rose to 49% from 42% at the end of 2010.

Following two years of stagnating backlog as a result of delayed projects and more stringent project selection requirements, the Company is beginning to witness backlog growth as some anticipated large and mega-projects, as well as many other projects, have begun to come on stream in the GCC and as increased diversification efforts have started to bear fruit.  For example, we recently signed for interior contracting work at the King Abdullah Petroleum Studies and Research Center in Saudi Arabia. This AED 222 million contract for Depa will see the Company work on all architectural finishes of the Zaha Hadid-designed project. Depa had originally anticipated signing this contract in late 2010.

Diversification strategy
The results of the Company’s diversification strategy, outside its home market of the UAE, have become increasingly apparent over the last few years.

We have seen continued significant revenue stream from Asian projects, with the wider region and in particular South East Asia, continuing to play an important role in the Company’s revenue stream.  AED 231.3 million, representing 30.9% of the Company’s H1 2011 revenues, were attributed to work in the Far East as compared with AED 120.5 million, 14.3%, in the same period in 2010.  The strengthening of this part of the world in Depa’s revenue stream, through Depa Design Studio as well as Design Studio exemplifies the success of the management’s horizontal expansion strategy.

Azerbaijan and Saudi Arabia have both proven to be significant contributors to revenue and backlog in H12011. The Company saw 100% growth in revenues and 564% growth in backlog from Azerbaijan specifically, with projects underway including Port Baku, Baku Flame Tower and JW Marriot. With regard to Saudi Arabia, the scope of work for interior contracting is picking up, with projects comprising King Abdullah Petroleum Studies and Research Center, Al Turki Business Park and Princess Noor University.

In terms of market segmentation, the Company has experienced significant increases in both infrastructure and government-funded projects such as hospitals and medical centres as well as airports.  Depa recently begun work on Mumbai’s international airport, valued at AED112.8 million.  Overall these sectors now account for 20% of backlog compared to 8% on 31 December 2010.

As we noted in our July trading statement we had originally anticipated meeting 2009 revenue and profits, but the delay in signing regional projects due to the uncertainty caused by the Arab Spring has had a notable impact on full year expectations this year as project start dates were moved out.  Although we have seen a few of these projects signed since the period end, we maintain our revised forecast for fiscal year 2011.

Looking forward, based on our understanding of the current market trends, we continue to expect large project wins in the GCC region over the coming year as momentum begins to pick up and projects near the interior contracting scope of work. We believe that a second growth run, namely in government-related spending in the GCC and CIS countries may be the around the corner, allowing us to leverage our already-existing operations to further grow in these markets.   We also look to continue to sign an increasing number of projects in Asia, as well as augment our portfolio in Europe.

The full set of Results can be found on Depa’s website