Al Anwar Holdings made headlines when it announced a 51 per cent divestment in one of its most profitable subsidiaries Sun Packaging (SPC) in November last year. A month later it made headlines again as it increased its stake in Taageer Finance Company to 33.6 per cent from 25.6 per cent, thus obtaining the majority shareholding. While periodical divestments are characteristic of an investment holding company, these ventures of Al Anwar came after nearly a year of muted activity.
At first glance the divestment of SPC, whose profits stood at RO376,951 as against a loss of RO512,198 that its other subsidiary Falcon Insurance incurred as of December 31, 2011 might seem a bit ill-timed. But Reji Joseph, Al Anwar Holdings' CEO points out that a key element of a successful business strategy is to invite other shareholders to partner in investments so that their participation enhances the value of the company and the investment. This can take a firm to the next level of growth. "Profitability alone is not the basis on which we hold onto our investments. We have been invested in SPC since 2002.
The company has turned around substantially recently and improved its revenues and margins. The company has matured and moved to the next stage of its life cycle. We also look to have a healthy churn of our investments and as a result we have introduced new shareholders and reduced our stake in the company accordingly." Al Anwar made a profit of RO348,000 from its divestment in SPC. National Investment and Finance Company bought a 31 per cent stake and Oman Brunei Investment Company a 20 per cent stake at a total consideration of RO1.44mn. This helped the group post a nine-month net profit of RO381,000 as against a net loss of RO213,000 in the corresponding period a year ago. Net profit attributable to shareholders of the parent company touched RO178,000 as against a loss of RO16,000 incurred last year.
Joseph admits that a significant increase in profits is not expected for FY2011-12 in the absence of any other major divestment being scheduled for the year. But regular profits from its operating investee companies shall continue as planned. "Having said that we will respond to opportunities to enhance shareholders value," he adds. Al Anwar's financial services and leasing arm contributes around 50 per cent towards its overall profitability. "Our main focus is on financial services and energy. Taageer has been doing very well in the recent days. We have seen a steady increase in the performance of the company, given the growth opportunities," says Joseph.
With a total equity or net worth of RO20.92mn and total investments of RO21.34mn that includes its associates Taageer Finance, Al Maha Ceramics and Voltamp Energy and its subsidiary Falcon Insurance, Al Anwar, with a few select investments, has been the most active investment holding company in Oman. Analysts say Al Anwar is faring much better compared to its peers such as Dhofar International Development and Investment Holding Company and Al Sharqiya Investment Holding Company.
Market onlookers and company executives have much to look forward to as Al Anwar's associate Taageer has consistently contributed double digit profit growth towards the holding company's overall profitability since 2010, while Al Maha Ceramics turned profitable in 2011. Its other main associate, Voltamp Energy (that has seen its nine month share of profits towards Al Anwar's bottomline drop almost 30 per cent from the year-ago levels) will see a growth in profits once its newly added capacity begins operating at optimal levels. Joseph says all this will help the group see better growth in the next few years. In the meantime, Al Anwar Holdings is eyeing value opportunities in the region while looking to strengthen its position in the GCC, but its main focus will remain on Oman where a majority of its investments lie.
Successful diversification
Al Anwar Holdings began operating as a private equity investor in the sultanate in 1994 and was set up as a joint stock company. Main shareholders are Fincorp Investment with a 30 per cent stake in the group, while a UAE trust fund Financial Services holds 16 per cent interest. Mohamed and Ahmed Al Khonji Co holds a five per cent stake while the remaining shareholders are the public.
During its early years, Al Anwar's main focus was on the industrial sector and greenfield projects, with investments ranging from power sector and oil and gas to glass, paints, computer stationery, construction, infrastructure and packaging industries. From 2005 onwards, the focus shifted towards financial services and energy sectors.
Al Anwar entered the financial services industry with the IPO of Taageer in 2005 and the setting up of Falcon Insurance the same year. The group currently holds a 33.6 per cent stake in Taageer, a 25 per cent stake in Voltamp Energy and a 32 per cent interest in Al Maha Ceramics. It also has investments spread across the GCC and India with a 3.83 per cent stake in Bahrain's Addax Bank, 0.40 per cent stake in Kuwait's Al Ritaj Investment and 12.21 per cent stake in India's Almondz Global Securities.
"Over a period we kept evolving and testing our strategy while constantly evaluating our progress. We rely on our core competencies but have the maturity to respond to market risks," says Joseph. Al Anwar is focused on active stakes and long-term investments in the financial services and energy industries. As for other industries, it exits when the investment matures. "We try to stay out of industries where we don't have any core competencies," says Joseph.
Financial Performance
Profitability for Al Anwar depends on the income generated from its subsidiaries and associates, hence the financial reporting period for the group has been adopted from April to March to provide the company with ample time to incorporate the results from its diverse investments. In the last three fiscal years, Al Anwar's main income stemmed from Voltamp Energy, SPC, Taageer Finance, Falcon Insurance and NAPCO. Profit margins have been strong for the years between 2007-2010 exhibiting consistent growth.
Sanjay Tiwari, financial controller, Al Anwar says the company reaped the benefits of its prudent investment policies when two of its investment matured during the fiscal years of 2007-08 to 2009-10. The divestment of these investments - offloading its stake in NAPCO in fiscal year 2007-08 and 2009-10 and a small divestment of Voltamp Energy after its IPO - contributed significantly to profit growth. Also, during this period, SPC saw net profit rise more than three times - from a loss of RO178,000 in 2008 to a profit of RO397,000 in 2010.
However, during FY2010-11, the impact of the global economic downturn prevented any further divestment and valuations of its investments in Bahrain and India were affected. As a result the company reported a loss during FY2010-11 despite an improved performance by its associates. Share of profits from associates increased by 33.4 per cent in FY2010-11 to RO1.43mn from a year ago, while the loss that Falcon incurred stood at 163,852 as against a profit of RO47,348 a year earlier. SPC registered a profit growth of three per cent to reach RO397,890.
From fiscal 2011-12 onwards, Taageer Finance and Al Maha's share of profits have consistently increased while that of its main subsidiary Falcon dipped, along with that of Voltamp. SPC continued to generate single digit growth in share of its profits until its divestment in November. Joseph says Al Maha's profitability improved from FY 2010-11 onwards by putting the right team in place, ramping up marketing efforts, adopting better management practices and better capacity utilisation.
In the first quarter of FY2011-12, its main subsidiary Falcon Insurance saw profits dip 72 per cent to RO55,105, while SPC reported a 70 per cent increase in profit that rose to RO128,224. In the second quarter, Al Anwar faced losses arising from investments held in Almondz and Falcon Insurance which incurred a loss of RO77,226 while that of SPC rose 11 per cent to RO259,272. For the third quarter, a profit of RO348,000 was booked against the sale of SPC that aided the company in posting a net profit attributable to shareholders of parent company of RO178,000 as against a loss of RO16,000 a year ago.
As of December 31, 2011, Taageer contributed 50 per cent towards Al Anwar's overall income, while Voltamp contributed around 30 per cent, followed by a 20 per cent contribution from Al Maha. Its total assets have shrunk 15.4 per cent as of nine months ended December 31, 2011 to RO36.5mn due to the recent divestment and losses incurred in some investments.
But analysts are positive on Al Anwar. "While the overall profitability of Al Anwar seems to keep declining, one needs to look at the increasing profit contribution of Taageer and Al Maha towards it business. Voltamp will also end up generating substantial profits once its Sohar operations kick in, hence the business model of Al Anwar is stable due to its healthy mix of investments," says an analyst.
Deciding future investmentsOne of the key concerns for Al Anwar in the market is the performance of its main subsidiary Falcon Insurance that has failed to generate high profits as SPC did. "Falcon Insurance is part of a very competitive market. Insurance is an emerging business in Oman and the market is yet to stabilise. There are far too many players for the current market. This is an under-insured market and has the lowest insurance penetration in GCC, which makes it unique. Hence there exists a huge upside. The local market must consolidate but this is not going to be easy as mergers and acquisitions in this sector is rare in the region," says Joseph.
He, however, points out that if there is an increase in the capital requirement or a mandatory requirement of listing, that will deter smaller entrants, encourage insurance companies to consolidate and create stronger institutions. With Takaful being offered there will be more on the offering and will add more interest and revenues to the overall market.
Al Anwar has positioned itself as a long-term player in the financial services and energy sectors, but Joseph says this does not mean the group is not going to look at other opportunities. Fiscal 2011-12 may not see a major turnaround, but measures to guarantee growth for the future are already underway. "Areas for improvement have been identified and we have realised our strengths and competencies. All the changes will not happen overnight nor will the results become apparent immediately.
"But there is a growing sense of confidence in the company that we are making the right decisions for the right reasons and that performance will follow," says Joseph. "The economic environment is positive with the government development plans. We are confident that Al Anwar Holdings shall benefit from this growth and we are optimistic about its future in general," adds Brig. Masoud Humaid al Harthy, chairman, Al Anwar Holdings.
With a small basket of investments and a calculated approach towards its investments, Al Anwar Holdings seems to have adopted the right focus towards attaining a good profit growth. This may well see the group emerging as one the most successful investment holding companies in the GCC.
© businesstoday 2012
