Raising the profile

Drake & Scull International CEO Khaldoun Tabari is bullish on his company’s prospects for the next 18 months. MENA Infrastructure caught up with him to find out why.

“Our expansion plans were formulated when no one else was even looking at expanding. It's about survival of the fittest, and now is the right time for us to grow”
-Khaldoun Tabari

The last 12 months have represented an important year for Drake & Scull International (DSI). A successful IPO, listing on the Dubai Financial Markets and the announcement of several key projects marked the company out as a firm with big ambitions. And now, with over 40 years’ experience in the Middle East behind it, the firm is making more moves to expand its operations in the region.

Vice Chairman and Chief Executive Officer Khaldoun Tabari recently announced Drake’s intention to spend as much as Dh500 million on new acquisitions in an effort to establish a single brand name across the entire region and increase the profile of the mechanical, electrical and plumbing industry in general. Traditionally, infrastructure projects are awarded to major construction companies as opposed to MEP contractors – something Tabari attributes to their visibility as main contractors. It is a perception he hopes to change. “Infrastructure is about supplying water, taking away sewage, and providing power and cooling. All these four critical elements are what MEP does best,” he asserts. “What is construction ultimately about? It is about providing essential services.”

And there are increasing signs that the industry agrees with him. On 16 March, DSI announced that it had won an AED596 million design-and-build contract for a 65-ton district cooling plant in Durrat Al Bahrain. Tabari says this is the company’s largest infrastructure, water and power project to date, comprising of two plants that will serve the entire Durrat Al Bahrain community. The scope of work includes pipe reticulation, an energy transfer station and all metering systems, and DSI hopes to break ground on the five-year project in September this year.

In addition to this high-profile contract, Tabari is also negotiating to acquire three GCC construction companies – a civil contracting and an MEP firm, both in Saudi Arabia, and an MEP contractor in Qatar – that will further raise the company’s profile across the Gulf. “These are exciting times,” he says. “Our expansion plans were formulated when no one else was even looking at expanding. It’s about survival of the fittest, and now is the right time for us to grow.”

INFRA. In spite of the slowdown in the economy in general and real estate in particular, opportunities in the region’s infrastructure sector remain high. What is your outlook for the infrastructure sector over the next 12-18 months?
Khaldoun Tabari. Our outlook is an optimistic one. In the UAE we can clearly see the ongoing infrastructure projects spanning the country as a whole. In Q1 the UAE government had set the highest budget in the country’s history for 2009 and a large percentage of this budget will be spent on infrastructure projects in addition to other immediate requirements such as schools, hospitals and public service buildings. As you might know, Dubai is moving ahead with its ambitious 2015 project plans while Abu Dhabi has started execution of its 2030 plans. Both projects mean there will be plenty of infrastructure work needed.

The same applies to Saudi Arabia, which has many more infrastructure projects than the UAE scheduled for the next decade. In fact, Saudi Arabia’s ongoing projects in 2009 are valued at US$409 billion and the kingdom is expecting to receive 45 million tourists by the year 2020, so there is an urgent need for infrastructure development. To this end, Saudi Arabia has set US$400 billion for infrastructure projects within the next five years.

It’s also worth mentioning that other emerging markets such as Libya, Sudan and Jordan have huge potential, especially with regard to infrastructure work. So, in spite of the economic slowdown, governments in the region are moving forward with their plans and this gives a very a positive outlook to the infrastructure sector.

INFRA. Can you tell us a bit more about the projects you are currently involved in? Are there any that you are particularly excited by?
KT. We are currently working on 35 different projects, three of which we have been awarded this year. The value of our backlogged projects from 2008 is worth over AED3 billion while the total value of current projects reaches an approximate AED6 billion. We are excited about all our projects; every single one of them adds value to our ever-growing portfolio. I am equally excited now about our six projects on the Palm Jumeirah, which have a combined value of AED1.4 billion and a total built up area of 12 million square feet. I am very keen to see these completed as each one is unique, particularly the Golden Mile project which will begin to be handed over during the second quarter of this year. Of course, the Golden Mile will be one of the many landmarks on The Palm Jumeirah. It is a mixed-use development of 860 luxury apartments in 10 waterside buildings and 220 upscale stores and restaurants; it will truly be the new hotspot in Dubai.

INFRA. You listed on the Dubai Financial Markets last month. How has the current economic situation impacted on your strategic plans?
KT. We started planning for the listing on the DFM more than two years ago. This was based on our long-term strategy that focused on diversifying our business, which at the time was mainly focused on our speciality in mechanical, electrical and plumbing (MEP). Our aim was to take advantage of the potential to be found in other complementary services in the industry such as infrastructure, water and power (IWP) and civil contracting, while at the same time broadening our geographical reach. We felt it was the right thing to do because we had nearly 40 years of experience in the sector and the accumulated technical and operational know-how and skilled man-power to capitalise on the boom that the region was experiencing.

Part of our strategy to widen our geographical reach was also to look at acquisitions across the region, though mainly in KSA and Qatar. We completed a very successful initial public offering (IPO) in July 2008 that gave us the funds to achieve our plans and to start a new chapter in the successful story of Drake & Scull.

So, to answer your question, the current economic situation hasn’t really impacted our plans and our strategy is being executed as planned. Now is the right time to grow; it’s survival of the fittest. The listing will give us the extra edge and competitive advantage to buy businesses and win infrastructure works from around the region. Opportunities exist at every stage of the cycle. We have been in the UAE since 1966 and the company has grown through many ups and downs by finding the opportunities and taking advantage of them. The current situation is offering many opportunities and DSI has the means, the vision and the resources to invest in them

INFRA. Given the current climate you’ve been bullish on the outlook for DSI, stating your intention to achieve 25 percent growth in 2009 whilst not cancelling any existing projects. How do you hope to achieve this, and why do you think you are better-placed than some of your peers to do so?
KT. The current climate is quite gloomy for some due to the lack of liquidity. However, we are financially very stable and even with the current economic slowdown we can sustain and grow our business. We have just been awarded three projects in the first quarter of 2009 and are anticipating more contracts soon. None of the 35 projects that we are currently working on have been cancelled and our progress on each site is ongoing and we are expecting to deliver them all on-time. Another important point is our diversification, which means we are no longer reliant on any one sector but can now gain strength from a variety of activities.

INFRA. Has the recent IPO helped in this regard? And what challenges and opportunities has the IPO given you in the current climate?
KT. Yes of course; we had a very successful IPO that was 101 times oversubscribed, with investors pledging more than AED124 billion, and the 55 percent of the company’s shares that were offered meant we benefited from an AED1.2 billion injection of funds. This means we are in a very good position to work through the current economic situation and take advantage of the region’s potential. The challenge will be to record profits and grow the business over this time, but I am confident we can do this given the combination of our careful planning process and the excellent team of employees working with us. As a result, we should emerge stronger.

INFRA. You’ve also stated your intention to expand further through a number of acquisitions, spending as much as Dh500 million in the process. What do these plans involve, and why are these acquisitions so important for the company?
KT. This will be a very important step for us as geographical growth is a vital part of our overall strategy. We are therefore looking at companies that have an established reputation and track record in these countries. This will ensure that our business procedures will remain well maintained and that we can enter these markets well positioned to make our mark quickly.

INFRA. Over the past 12 months, the development boom has shifted from Dubai to new markets such as Qatar and Saudi Arabia. What opportunities do these markets offer?
KT. Saudi Arabia has vast opportunities; indeed it has always been a vital market in the region due to its wealth, geographical size and economic demographics. It is now witnessing growth in many sectors, especially in manufacturing, agriculture, real estate, infrastructure, education, healthcare, banking and commerce. Furthermore, it has been doing so steadily for quite a while now, and this growth has largely protected it from the crippling effects of the wider economic crises. As such, it is an excellent place in which to grow a business.

Qatar, on the other hand, is one of the smallest countries in the region. However, it is a very strong emerging market that has considerable potential due to its high demand for infrastructure, real estate and industrial projects, especially those in the petrochemical sectors. It is estimated that Qatar will spend US$130 billion on different projects during the next five years.

INFRA. Issues like sustainability and resource efficiency have become hot topics in recent years and are increasingly influencing the way developers approach their projects. Why is this good news for a company such as DSI?
KT. DSI continuously looks for new technologies to introduce to the regional market as we recognise that there are always ways to improve. This is especially true of the responsibility we feel to safeguard the environment while also providing commercially viable solutions. So far DSI has designed, constructed and now maintains district cooling plants and networks at Jumeirah Beach Residence (the largest of its kind at time of construction), Dubai Festival City, Saudi Iron & Steel Company (Hadeed), as well as many more around the GCC.

We have also built considerable technical and commercial skills within this market and continue to invest in developing our capabilities to ensure we can offer the latest and most appropriate solutions. Last year, DSI joined the Emirates Green Building Council (Emirates GBC), a non-profit organisation formed in July 2006 with the goal of advancing green building principles aimed at protecting the environment and ensuring sustainability in the UAE.

In 2006, our commitment to improving environmental controls was demonstrated by our investment in new and innovative technologies. This resulted in establishing the Infrastructure, Water & Power operations where, among other services, we offer district cooling technology, an energy efficient solution that helps reduce the overall demand on the electrical grid and controls toxic emissions.

INFRA. What impact do you think sustainability will have on the Middle East’s construction and development sector over the next few years, and how are you implementing this thinking into the DNA of your company?
KT. The sustainability agenda is clearly becoming more important in this sector. We see it as our responsibility to recommend the most appropriate green technologies to employ and we do this by ensuring we are abreast of the latest developments. In this respect, DSI is integrating the principles of an eco-sensitive approach to its daily work practices.

INFRA. Unlike other firms in the sector that have been cutting back on staffing, DSI recently embarked on a major recruitment drive. Why do you think a downturn is a particularly good time to hire?
KT. Our recruitment drives are part of the overall company strategy and fall in line with our growth plans. I believe that Drake & Scull’s most important asset is its people. We have an excellent HR department that implements the latest techniques in employee development and that is why our staff numbers are constantly increasing. Our recent recruitment drives were initiated to fill a specific need for our growing Civil Contracting subsidiary (Gulf Technical Construction Co.), which is witnessing a growth in business, particularly in Abu Dhabi. There is also a need for our IWP operations in Sudan and Bahrain and, of course, as mentioned we are very close to embarking on new ventures in Saudi Arabia and Qatar and so we always make sure we are ready and fully equipped before any further steps are taken.

To infinity… and beyond
At 330 metres, Duabi’s Infinity Tower incorporates a high-strength, reinforced concrete column superstructure that rotates with the twisting shape to create a helix. Drake & Scull was awarded the Dh145 million contract to manage the supply, installation, testing and commissioning of complete MEP works, including the air conditioning, ventilation, plumbing and drainage, building management system, automatic fire fighting, power and lighting, telephone and data, fire alarm system, intercom system, central emergency lighting, CCTV and access control security systems, and lighting control system.

Jumeirah Beach Residence District Cooling Plant
A district cooling system (DCS) is a considerably more cost-efficient alternative to air-cooled chiller systems. It is estimated that chiller plants account for up to 60 percent of electricity usage in large buildings; with DCS, however, building owners can reduce electricity usage substantially. Additionally, there are cost savings and other benefits from reduced maintenance, enhanced efficiency and reliability, space savings, flexibility of air-conditioning load and a plant life that is twice that of traditional plants.

With a total capacity of 60,000 tons, the Jumeirah Beach Residence DCS plant is the single-largest district cooling plant in the region. Drake & Scull was awarded the complete project and succeeded in bringing the plant online on schedule. The project team was able to achieve these results with the close cooperation of the client, Dubai Properties; project managers Mace International and building services consultants, Hyder Consulting Middle East.