Aramex in acquisition mode with expectations of higher profits

Aramex is eyeing up to three new takeovers this year as part of its plans to expand in Mena, sub-Saharan Africa and Asia.

Aramex is benefiting from the oil price slump, which could translate into a 5 to 10 per cent lower operating costs. Silvia Razgova / The National

Aramex expects profit this year to rise by at least 10 per cent and to make up to three acquisitions as the delivery firm grows its domestic and global operations.

The Dubai-listed Aramex posted an increase of 17 per cent in fourth quarter net profit to Dh89.4 million from the year-earlier period. Full-year net profit jumped 15 per cent to Dh318.4 million, a tenth year of record annual profits, the company said in a statement.

The chief executive Hussein Hachem said that a 2015 profit growth in the range of 10 per cent would be “good enough”.

He said: “We have to look and see. We would like to see what is happening to the euro. We would like to see what is happening to the oil price.”

The euro has fallen 17 per cent against the dollar since last May, while oil prices have more than halved since reaching around US$115 per barrel in June.

Aramex, which made two acquisitions last year, is eyeing up to three new takeovers this year as part of its plans to expand in the Middle East, North Africa, sub-Saharan Africa and Asia, the chief executive said. It acquired PostNet South Africa for $16.5m and Australia's Mail Call Couriers for $26m.

“Probably we will do an average of two to three [acquisitions] per year. It all depends on the size of acquisition we are doing,” said Mr Hachem. “Doing more than that is a bit tough. We need to digest, we need to integrate.”

Aramex has the appetite for bigger acquisitions and plans to borrow more this year than last year to help finance such takeovers.

“You will probably see us doing a few million-dollar acquisitions and if anything interesting or exciting comes our way that is of $50m, $70m, $80m or $100m acquisition, we will not rule it out,” said the chief financial officer Bashar Obeid.

He added that the firm, which borrowed $50m last year, could tap as much as $400m, to finance potential acquisitions.

“We are taking a ticket of $150m which we will take from a consortium of local banks probably in the next week or 10 days. Banks have showed appetite to lend us up to $300m or $400m that is readily available if we want to,” said Mr Obeid.

“Our debt to equity ratio today is barely at 8 per cent. It’s extremely low. The more borrowing that we tap into the higher the return on equity, which is something that we are keen on doing, but at the same time we have to link it to proper acquisitions.”

The $150m is a five-year facility, he added.

Aramex wants to expand in countries such as Nigeria, Kenya and South Africa. It is currently present in 18 African markets and has nine target markets. It is expanding through acquisitions, joint ventures and franchise agreements.

It expects to generate more revenue from its non-Middle East operations as it grows in Africa and Asia. Currently revenue in the Middle East generates about 50 per cent of its total revenues.

Aramex is benefiting from the oil price slump, which could translate into a 5 to 10 per cent lower operating costs. Government spending in the Gulf region is expected to continue despite the oil price rout, signalling confidence in the region.

“On a positive note as well, a decrease in the price of oil will increase manufacturing, so we will see a benefit in Asia. We will see a benefit in Europe,” said Mr Hachem. “A reduction of freight cost will be good to the business.”

Increased online shopping helped to lift international express revenues by 18 per cent in the fourth quarter from a year-earlier period. Domestic express revenues also rose 26 per cent in the fourth quarter from a year-earlier period.

“E-commerce is growing about 30 per cent within Aramex year-on-year and we expect a similar number of growth throughout the next couple of years if not more,” said Iyad Kamal, the chief operating officer.

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