Majid Al Futtaim: Middle East's largest mall-operator sees earnings drop on pandemic closures

Revenue fell 7% after malls and cinemas faced shutdowns due to Covid-19

Majid Al Futtaim, the Middle East's largest mall-operator, said full year 2020 earnings fell 19 per cent as movement restrictions to stem the spread of Covid-19 affected revenue of the group's divisions.

The Dubai-based company's earnings before interest, tax, depreciation and amortisation (ebitda) fell to Dh3.8 billion as revenue slid 7 per cent to Dh32.6bn. The company, which operates 27 malls across the Gulf, Levant and North Africa is not publicly listed but discloses its earnings.

The retail side of the business saw "a surge" during the early days of the pandemic as did demand for electronics "where people were preparing or equipping themselves to work remotely", chief executive Alain Bejjani told The National. There was also an initial surge in demand for home gym equipment, but this subsequently subsided.

"Once you buy your laptop, your table, your camera, you're done – you're not going to get that every week."

Online sales surged 118 per cent year-on-year and were 700 per cent higher at the height of movement restrictions. The company's online grocery retail revenue broke through the Dh1bn barrier last year, or 3 per cent of total revenue.

"The pandemic has accelerated the trend. This is something we expect to be sustained and grow even further – 2021, in my opinion, we're going to be somewhere around doubling that and tripling that in 2022," Mr Bejjani said.

Overall, though, retail revenue for its Carrefour retail business was 1 per cent lower at Dh28bn while ebitda grew 14 per cent to Dh1.6bn.

The company has been building a "backbone" of digital and logistics capabilities since 2015 and either opened or converted units into 117 new fulfilment centres last year.

"It is extremely important to actually develop in-house capabilities because this is not a one-off ... this is how business is going to be going forward," Mr Bejjani said. It has invested a lot in partnerships to develop in-house capabilities and has also acquired companies.

"We definitely are open and looking always to the right opportunity to invest in or acquire new capabilities that could add to what we have," he added.

The Covid-19 pandemic led to movement restrictions that included the temporary closure of some of its properties, cinemas and entertainment centres. This led to a 24 per cent decline in revenue at its properties business to Dh3.5bn and a 21 per cent fall in ebitda to Dh2.3bn, as revenue payments from tenants were halted during closures and it extended rent relief mechanisms.

Its hotels arm witnessed a 60 per cent drop in occupancy rates as many properties were temporarily closed and demand fell due to fewer tourist arrivals.

The greatest fallout came in its Ventures division, which includes the Vox Cinemas business and entertainment centres that were closed for "prolonged" periods. Its revenue fell 49 per cent to Dh1.4bn and ebitda dropped 122 per cent to minus Dh92 million.

Majid Al Futtaim cut capital expenditure by 45 per cent last year to maintain financial discipline and paid down Dh400m of debt to end the year with net debt of Dh12.4bn.

"We are currently at 40 months, or three years-plus of liquidity ahead of us. And we also look ... at the financial landscape and make sure our obligations are smooth in order to be able to always operate in a stress-tested environment," Mr Bejjani said.

"This does not mean whenever we see an opportunity to expand we wouldn't do it – within the confines of our [BBB] credit rating," he said.

The company operates in 17 international markets employing more than 43,000 people and its retail arm is considering entry into new markets in East Africa and Central Asia, Mr Bejjani said.

It is also due to open the City Centre Al Zahia Mall in Sharjah next month and the Mall of Oman later this year and is in the "late design stages" of Mall of Saudi, a 14bn Saudi riyal ($3.7bn) project first announced in 2016.

Mr Bejjani was unable to give a timetable for its delivery but said "the tenant mix is definitely changing".

"We're very fortunate in a way that the pandemic accelerated certain trends. We're definitely re-looking and optimising and making sure the design is one that can cater even more for a broader, richer and more fulfilling customer experience," he said.

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