Depa weighs up unit sales in review as CEO considers new acquisitions

The contractor has also moved back into profit on significant improvement in margins.

Depa said its profit turnaround could be chalked up to a growth in its margins, which more than doubled. Delores Johnson / The National

Depa could sell some business units as part of a strategic review, its chief executive has revealed.

But it could also involve acquisitions to help grow more profitable lines, according to chief executive Hamish Tyrwhitt.

“Depa doesn’t need to sell anything,” he said. “We’re not a desperate seller to raise cash. We’re in the business of growing this business, not just selling its parts.”

He said that a decision on which divisions of the company it would grow and what could be divested would be based on “where we believe shareholders are going to get the best and most sustainable returns”.

“This is a strategic management company. Where do we add value? By determining where to allocate the resources on our balance sheet. If we pour fertilizer on something is it going to grow and yield better returns?”

The contractor is responsible for the interiors of some of Dubai’s highest-profile buildings including Burj Khalifa and the W Hotel.

Mr Tyrwhitt said the contractor had completed the first of a three-stage process to return the company to profitability and growth, which is similar to the one being undertaken at Arabtec, where he is also chief executive.

“It’s rebuilding the foundations, putting in place the team, resolving legacies and just getting the ship in order. Now, at Depa, we’re entering into the phase where we’re moving to a performance culture, and part of that is forensically examining all of the components of the business to see how they contribute.”

Depa yesterday reported a net profit of Dh45.5 million for 2016, which was a significant turnaround from the Dh265.5m loss declared in the same period a year earlier.

Although turnover only grew by 5 per cent to Dh1.73bn (2015: Dh1.64bn), gross margin more than doubled to 19 per cent of sales. Cash generation also increased by 123 per cent to Dh278.1m.

The company also reported a significant improvement on the collection of legacy debts, bringing in about Dh116m of contracts to arbitration.

Mohammad Kamal, an analyst with Arqaam Capital, said that in the context of the ongoing restructuring, its 2016 numbers could largely be seen as positive.

“Margins look to have rebounded strongly from a low base. ROE [return on equity)]still looks weak – around 5 per cent in 2018, but that is acceptable as the business is clawing back up to normalised margins and business volumes – something that they haven’t experienced in a number of years,” he said.

He also highlighted the ompany’s efforts in cleaning up legacy rreceivables

“The company has indicated that it has made strong progress and expects full resolution in 2017. I think we could infer that guidance has been reliable in recent quarters, given the step up in investor interaction, and that Depa’s targets for 2017 are achievable”.

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