Agility's profits drop after losing logistics contracts

The company lost an $8.5 billion contract with the US Army following fraud allegations.

The loss of a multibillion-dollar contract with the US government was responsible for a major decline in earnings at Agility, as the region's biggest logistics company reported a 66 per cent drop in third-quarter profits.

The company, based in Kuwait, is the region's largest logistics firm. It lost lucrative contracts to supply food to US troops in Kuwait, Iraq and Jordanafter an indictment against it was issued last year.

The company was accused of overcharging the US government for the supply contracts. After the allegation of fraud, Agility lost its position as the main logistics supplier to the US army in the Gulf. Contracts with the US government reportedly contributed up to 35 per cent of Agility's annual revenues.

In April, the Dubai logistics company Anham was awarded a US$2.2 billion (Dh8.08bn) contract to handle the work after the US government replaced Agility. The US army's contracts with Agility were worth a reported $8.5bn.

The company and the US authorities are in discussions over the dispute. According to a report issued in September, a US magistrate said US prosecutors failed to follow the correct procedures when they indicted the Kuwaiti company. The magistrate said Agility was not properly notified about the charges made against it.

Agility's net income for the third quarter fell to 13.89 million dinars (Dh181.5m), from 40.6m dinars in the same quarter last year. Revenue declined to 405.9m dinars, from 413.6m dinars a year earlier.

"One segment of Agility's business has disappeared, which is the US army contracts, so that is why we are seeing comparable decline in the quarter," said Yazan Abdeen, a fund manager at ING Investment Management in Dubai.

The share price of Agility, which is listed on the Kuwait Stock Exchange, fell by 5.5 per cent in the month leading up to the earnings statement. The stock fell by 3.7 per cent last Thursday alone, closing at 510 fils.

"This expected decrease in profitability and revenue is attributable to the challenges facing Agility's defence and government services business," the company said in a statement quoted by Bloomberg.

"Major US government contracts wind down and the company is unable to replace them with new government business due to the legal case with the US government," the statement added.

Tarek Sultan, the chairman of Agility, said "although we anticipate continued challenges through the middle of 2011, we believe that we will emerge as a stronger and more flexible company".

Next year would be "difficult", Mr Sultan was reported as saying last month. The company is expected to be seeking private-sector contracts following the loss of business from the government sector.

Mr Abdeen said Agility would look east as it sought to increase its profits and replace lost business. "The company has become more active in initiating new streams of revenues. They have a very talented management," he said.

"Their new direction now is to raise money from Asia and I would expect Agility's new focus will offset the loss of business from the US army."

*with reporting from Hadeel al Sayegh