Al-Khodari’s management (Fawwaz Al-Khodari, CEO and Sohail Saeed, Finance and Reporting Manager) held a conference call to discuss 3Q16 results. Following are the main highlights from the call:   Market conditions continue to be challenging. This is on the back of reduced capital spending in the oil and gas and infrastructure sectors and continued slowdown in industry spending and capex purchases by governmental bodies   Contracting capacity reduced in Saudi Arabia, but competition continues to be strong on reduced construction activity. Management estimates the contracting business to have shrunk more than c30%, as a large number of contractors exited the market or downsized. That said, competition continued and will continue to remain strong, in management’s view, as new contract awards dropped significantly   Business Development efforts made within the private sector. Management seemed slightly more optimistic regarding the inflow of new awards in the short and medium terms, with opportunities seen in the housing, industrial and oil and gas sectors. Interestingly, management has mentioned that considerable business development efforts have been made within the private sector, in line with the government’s direction to empower the private sector, as detailed in the government’s 2030 vision. Management is also positive on its expansion into the quasi-government sector, with its recently-signed contract with Maaden   Disconnect between Saudi officials announcements on accelerated government payments and reality. Management explained that Saudi officials repeated statements regarding the payment of dues to contractors are limited to amounts approved by both consultants and by the respective ministries - only pending approval and payment by the Ministry of Housing, which is not where the bulk of the outstanding receivables are. Management confirmed that the process continued to be slow at consultant and ministry levels, which is straining the balance sheets of the contractors   Cost of funds is rising, but long-term relationships with banks give support. Management confirmed that, while the cost of borrowing is rising on higher SIBOR and increased sector challenges, Al-Khodari’s long-term relationship with banks continues to provide support to the business, with comfort that the collection delays are coming from sovereign entities, which implies collection delays rather than write-offs   Management identified risk of classification change as an impediment to sector M&As. Management stated that, while M&A transactions would make sense in the prevailing market conditions, the likelihood of a classification downgrade is high, with the associate risk prohibitively high. (Company conference call, Mai Attia, Sara Boutros)   Abdullah A. M. Al-Khodari Sons Company: SAR7.32 as of 27 October 2016, Rating: Sell, FV: SAR8.60 per share, MCap: USD109mn, ALKHODAR AB / 1330.SE