| 08 Sep 2008 |
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It's difficult to manage prices in such a hot market: Al Habtoor
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Many developers feel contractors are on top in today's market, says David Savage, Managing Director of Al Habtoor Leighton Group. "Many developers see it as a contractors' market and that contractors are on top, which is a dangerous perception," he said. "Resources are short, prices move very quickly and it is difficult to manage the process because it is such a hot market."
In 2007 Savage oversaw Leighton's merger with Al Habtoor Engineering, one of the region's leading building contractors. The group is considering expansion plans in the Mena region and tie-ups for its steel fabrication business.
Al Habtoor Leighton Group's order book currently stands at Dh24 billion. Five recently signed contracts will increase the figure to more than Dh30bn. Revenues in 2007 stood at Dh7bn.
Savage spoke to Emirates Business about establishing partnering relationships with developers so that both parties work to manage risks instead of one side saying: "It is all yours."
What effect has the 2007 merger had on your business?
Leighton's presence in the UAE had grown steadily from zero about five years ago. At the time of the merger last year Al Habtoor's business was about five to six times the size of Leighton's. Since then business has grown tremendously with the merger offering Al Habtoor shareholders Leighton's skills in major projects, civil engineering and infrastructure as well as global experience. The merger offered Leighton shareholders capacity and access into and knowledge of this market.
What is the group's year-on-year growth?
We grew about 60 per cent in 2007 and will grow by 80 to 90 per cent in 2008. We aim to get close to 100 per cent next year.
What is your market share in the UAE?
We believe we are the largest. Business in terms of volume is around 20 to 30 per cent larger than that of Arabtec and others.
What about your projects in other GCC countries?
We have quite strong businesses in Qatar six hotels in Doha and an equestrian project for the Qatar Foundation, among others. In Kuwait we are in the process of tendering. As for Saudi, we are looking at a relationship where we can be confident and deliver projects with business returns. We are looking at Turkey and European nations, too.
What are the challenges within the construction industry?
It is a very hot market and the challenges include shortage of resources, materials, escalation of prices and an understanding from developers of these issues in the market and working along with the contractors, so that both can be successful. Many of our clients are adapting to the market and we are using mechanisms, which include alliance contracts and partnering relationships because we would rather have a good partnering relationship that gives us a reasonable return than the traditional hard-headed type of contract that could make a huge return or nothing at all. We would rather know we are going to get a fair return for fair effort. There is a feeling at present that contractors are making a lot of money. It is pretty tough.
When you speak of partnering, what are your areas of focus?
The main issue with partnering and alliances is that you put all the risks on the table and decide who is best suited to deal with them. This means that both parties work to manage them instead of one side saying 'it is all yours'. The best results come out of risk management.
in Abu Dhabi and are very excited about a concept that is used in other parts of the world. In the UAE it is a first for us. Once you sign such an agreement there is no client or contractor. There is only a team doing a job where you do what is best for the project, and it could be led by a representative from the client's side. It saves a lot in resourcing because it saves duplication and the disputes and procurement are all done by the team.What is the reaction to this from your other clients?
Our clients include TDIC, Mubadala, Aldar, Nakheel, Sama Dubai and Dubai Properties. All are quite willing to work with us in a variety of partnerships. Partnerships could range from a full alliance such as the TameerTameer example - from one end of the spectrum to the other end, where they bring us early into the team and we work on all the issues, agree a target price for the contracts and progress from there. We have mechanisms where we pay fines if we don't achieve targets and benefits if we do, or we discuss and agree the risk items and put it into a contingency pool.
If there was one thing you can change in the industry what would it be?
We would like to see a bit more legislation around the labour market that can continue to improve the industry.
You are a part of BuildSafe Dubai.
We are. Safety standards in Dubai and the UAE are good but we are 100 per cent for any activity to improve safety standards as it is beneficial for the firm and the workforce.
What are your expansion plans in this market?
We are looking at continuing to grow our core businesses in the UAE and Qatar. The whole region is a growth area. The construction markets in Dubai and Abu Dhabi are booming in terms of business. In terms of quality and long-term strategy, the geographic spread will give us balance against localised market downturns. We plan to grow strategically in Mena in Saudi, Oman, Tunisia and Morocco - and generally follow partners and clients that are part of our associated businesses (see box ). We are still looking for a potential partner for our steel fabrication company in the UK, China and elsewhere. We are also looking at other associated businesses such as readymix.
Any IPOs in the offing?
There are always options in the future but at the moment the shareholders' board has not made any firm decisions. The focus right now is on delivering strong results for our shareholders.
Profile: David Savage, Managing Director of Al Habtoor Leighton Group
Savage has held senior executive roles in the construction industry in Asia for more than 20 years. He is an Associate Director of Leighton Holdings, the listed entity of Australia's largest project management and contracting group, the Leighton Group.
He joined Leighton in 1998 as Director and General Manager of Leighton Contractors (Malaysia) Sdn Bhd. In 2007 when Leighton merged with Al Habtoor Engineering, Savage took on the additional responsibility as the MD of the Al Habtoor Leighton Group.
He holds a bachelor's degree in civil engineering from Deakin University, Australia.
Associate businesses
The Al Habtoor Leighton Group was established in September 2007 following the merger of Al Habtoor Engineering with the Arabian Gulf operations of Leighton International.
Al Habtoor' Leighton Group associate businesses are:
HSSG (a tie-up with STFA) - expertise is piling/foundations
Habtoor-Specon - expertise is MEP (mechanical, electrical and plumbing)
Thiess Services Middle East (a partnership with Thiess Services) - expertise includes environmental services, facilities management, waste management, etc)
Habtoor Steel - expertise is steel fabrication
Habtoor ATCO - specialises in pre-fabricated modular buildings, labour accommodation etc
HISG (a partnership with ISG - expertise is in interior fit-out
By Sona Nambiar
© Emirates Business 24/7 2008
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