Al-Khodari’s management (Fawwaz Al-Khodari, CEO and Sohail Saeed, Finance and Reporting Manager) held a conference call to discuss 2Q16 results. Following are the main highlights from the call:
• ST outlook: Tough conditions to continue; MT: optimistic The prevailing market challenges are set to continue in the short term, in management’s view, with a cut in contract awards (on reduced capital spending by government and private sector), weak bidding and slow receivables collection. This has reflected negatively on revenue and profitability margins and is expected to continue to do so. Management sees room for further negative variation orders (in the size of at least c5% of the remaining work on ongoing projects). This is in addition to reduced new bids and slower execution. The potential positive impact from the Saudi National Transformation Programme (NTP) will be seen in early 2017, according to management, which is when the outlook will start to improve gradually.
• Opportunities lie in 2030 Vision, White Land Tax, reduced contracting capacity Management stated that 2030 Vision brings in many opportunities for the company, particularly with its focus on: i) growing the number pilgrims, which would require significant spending in infrastructure and accommodation; and ii) the drive to meet the housing needs in the Kingdom. The positive impact for White Land Tax is expected to start to show in 2017, as unutilised land exchange hands and their development starts, according to management. Management stated that the contracting capacity in Saudi Arabia has receded significantly over the past year, which creates opportunities for the ‘surviving’ entities (including Al-Khodari).
• Shift in company strategy still ongoing Al-Khodari has adopted a new strategy in 2014, whereby it attempted to diversify away from ‘strictly-government’ business to include business from quasi-government entities (been so far mostly Maaden). Management sees opportunities with Aramco, given the reduced contracting capacity in the oil segment. Under the new strategy, Al-Khodari is targeting well-established clients, who would offer uncompromised margins with steady cash flows. Another pillar of the strategy was “Leaner Al-Khodari program”, which successfully brought in SAR14.5mn in SG&A savings in 1H16. More measures are in place to contain costs further. Management mentioned that the previously-announced rights issue is not cancelled, but rather shelved, until market conditions allow for a re-launch.

Mai Attia
Sara Boutros