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Depa reports FY2008 results, in line with expectations with strong revenue and profit growth

Dubai, 30 March 2009 - Depa Limited (ticker DEPA) ('Depa' or 'the Company'), one of the world's leading interior contractors, today reports its full year audited results, for the year ended 31 December 2008; seeing strong growth in revenues and profits in line with expectations.

Financial Highlights

• Net revenues up 38.9% at AED 1972.3m (2007: AED 1419.8m) with strong financial performance in line with market expectations driven by landmark projects wins

• Net profit after minority interests up 39.9% at AED 224.5m (2007: AED 160.5m) prior to adjusting for additional contingencies due to the market climate 

• Increased allocation of project contingencies by AED 30m representing an increase of 250% over the conservative average figure allocated annually to projects. Accordingly, once provisions have been accounted for, net profit growth is 21.2%

• Over AED  3.7bn in contracted backlog as of December 31st 2008

• Since period end, Depa has received orders for 17 projects coming from Morocco, Egypt, Saudi Arabia and the UAE

• Strong net cash position of AED 343.3m

• Dividends will be 35% of net profits, resulting in a one time payment of AED 0.11 per share

Strategic Highlights

• Depa's strategy of increasingly focusing on counter-cyclical industries, such as refurbishment and infrastructural work, with less dependence on hospitality, has been a major contributor to revenue and backlog growth.

• Strategy of diversifying revenue away from the UAE has reduced risk of overreliance. MENA contract income was AED 343.1m (2007: AED 225.3m) and Rest of World contract income AED 141.5m (2007 AED 37.1m)

• Depa has continued to be selective over projects it works on and the clients for which it works. Choosing to stick with reputable international companies has reduced, to a very low level, project and client concentration risk.

• Operational changes such as business streamlining, investment in new technologies, and subcontracting less work, has strengthened Depa's position during these difficult economic times.

Commenting on these strong results, Mr. Mohannad Sweid, CEO of Depa, said:

'Revenues and profits have continued to be strong and in line with our expectations for 2008. Given the current economic climate, we are proud of these results as they show the strength of the business we have built. We feel we are well placed to continue to generate significant earnings from our established key markets as well as developing new opportunities from diversified geographies and industries.'

Strategic Initiatives and Outlook

Focus on Counter-Cyclical Industries

• Infrastructure. The UAE and Dubai Governments have recently reasserted their commitments to completing infrastructure developments. Depa saw an opportunity here and has recently increased involvement in this type of work, such as the fitting out of 13 Dubai Metro stations. This has proved to be very successful, exceeding all expectations, to such an extent that Depa has decided to aggressively grow its new joint-venture, Linder-Depa, which focuses solely on infrastructure and hospital fit outs. In 2008, Depa completed AED176m in infrastructure contracts, compared to AED60m in the previous year.
• Refurbishments. Depa has recently signed and completed significant amounts of refurbishment work, such as the extensive renovation of the Al Bustan Rotana. Depa also expects several more hotels coming to them with refurbishment requests in the very near future, as hotel groups see this as more cost-efficient capital expenditure and the market size in this niche increases. Since January 1 2009, Depa has signed refurbishment contracts to the value of AED200m, indicating the extent to which Depa sees potential in this market.

Geographical Diversification

• Reducing reliance on the UAE market. Depa sees potential slowdown in some markets and continued growth in others. Accordingly, and based on the sudden shift in expectations from different markets, Depa will be re-evaluating the areas in which they are expanding their businesses, and may be consolidating business units to reflect this shift in growth expectations. 2008 saw 73% of the profits come from the UAE, compared to 79% in 2007. One of Depa's main goals for the near future is to generate approximately 40% of their revenues from outside of the UAE by 2010.
• Entering new markets as planned. 2008 saw its joint venture, Depa Design Studio, successfully win two prestigious contracts in Singapore; the Marina Bay Sands Integrated Resort and an entertainment venue at Resorts World, an all encompassing holiday resort on the popular island of Sentosa. 
• Increased holding in Jordan Wood Industries Company (JWICO). Depa is now in control of 36.4%, up by 22%, of the Jordan-based wood manufacturing specialist. This is also part of clear vertical integration strategy of acquiring manufacturing and procurement businesses, and also works towards achieving the Company's goals of being less reliant on the UAE market. 

Operations

• Streamline the business. Depa has taken the opportunity provided by the shift in the global economic climate to operationally streamline the business using annual performance reviews to determine staffing and training needs and requirements. Ultimately, experiencing an added increase in productivity and efficiency. 
• Investment in technology and information systems. In 2008, Depa began the implementation of an Enterprise Resource Planning system, which is expected to be completed and fully implemented in early 2010. This will allow an increase in economies of scale, improve control in differing geographical territories and will further enhance Depa's risk-management procedures. 
• Subcontracting approximately 80% of project values and workforce on a project. As a result, the company has a very flexible workforce and manufacturing base. An economic slow-down would therefore result in subcontracting out a lower proportion of work, and completing a higher portion using in-house resources. This ensures that Depa's capacity usage and productivity remain high and that they are in a strong position regardless of market turns.

For the full version of the annual report and the audited financial statements, please visit the NASDAQ Dubai or Depa Limited websites.

YEAR END STATEMENT

Business review 

Our Company entered a few additional market niches and geographies this year, diversifying our revenue mix even further and reducing our dependence on the UAE market and on the hospitality industry at large. On this note, our entry into South East Asia has proven successful, as has our increased focus on infrastructure within the MENA region.

Depa has experienced significant growth for the last few years, and 2008 was no exception. Our growth this year was quite momentous, both in our home country of the UAE, as well as internationally across the many geographies in which we operate - from Morocco to Singapore.  

Financial results

As Depa Ltd had an inception date of the date of share Swap transaction, the net profit of Depa United Group for the period from 1 January 2008 to 31 March 2008 of AED 5.5 million has been reported directly through the statements of changes in equity rather than the Income Statement. For the purpose of reporting of full group activity for the full year of 2008 and to facilitate Group performance comparison with similar period in 2007, the financial performance figure in this report are reported as a total of both periods.

We have achieved record revenues of AED 1,972.3 million for the year 2008 as compared with year 2007 revenues of AED 1,419.8 million. This was driven by significant growth across business units, but with notable contributions from our infrastructure projects mainly from growth in the revenue from UAE revenues increasing from AED 1,175.4 million in the year 2007 compared to AED 1,487.7 in the year 2008 and Qatar revenues increasing from AED 32.5 million in the year 2007 compared to AED 106.7 million in the year 2008 in addition to Morocco with revenues increasing from AED 55.4 million in the year 2007 compared to AED 106.4 in the year 2008. Our profits after Minority Interest also grew significantly, resulting in AED 194.5 million for the year 2008, as compared with AED 160.5 million for the year of 2007.  

Dividends

Given our Company's strong financial performance, the Board has recommended an exceptional divided of AED 0.11 per share. This is to be distributed after the AGM approval and is not indicative of future dividends that our Company will distribute. 

 

Delivering on Our Strategy 

We have always been an interiors company, focused on luxury fit-out and furniture, and have historically leaned towards hospitality as a core area of expertise. Given that interior fit-out is consistently at the end of our industry's value chain, our focus on interiors delays the potential impact of any global up-swing or down-turn on the Company by at least eighteen months, which is the time that it takes developers to complete planning and construction work up to the point when we become involved. As such, our focus on interiors allows us some time to hedge the impact of the global economic change on our Company and reposition ourselves accordingly. This has led to our significant 2008 growth of 38.9% revenues and 21.2% profits after minority interest and additional one-time contingency allowance of AED 30 million, and our strong anticipated growth in 2009 and beyond. However, given that we maintain a high level of risk-management, and due to the current global climate, we have taken an additional AED30 million in contingencies on our 2008 financials included within our project estimated costs to complete, representing an additional 250% above the average contingencies we have historically assumed in 2007. The increase in contingencies will be factored into future projects, ensuring that this is a one-time effect to mitigate project and client related risk for all projects that have already been started. 

Nine years ago, we began expanding our Company globally, with the awareness that each local market has a different 'flavor' for interiors, hence the extreme fragmentation of the industry. Accordingly, we set out to be a global, yet local, company. With this in mind, we leverage all of our centralized risk-management, reporting, corporate governance and information systems at an international level, while allowing each subsidiary to run its own operations within this framework. In 2008, we took this strategy further and expanded into two new geographical areas: Jordan and Singapore, where we have already seen success in our operations.

Delivering quality interiors has always been our core value proposition to clients and part of the strategic foundation of our Company, and as such, we have never competed on price or any other component of project delivery. In 2008, this proved fundamental to maintaining our growth and competitive advantage in the marketplace as other interior contractors began to undercut prices and bids in order to win projects and survive the downturn. In contrast, by maintaining our commitment to quality and our strong client relationships, we continue to win significant work without entering price-wars.  

We began a vertical integration strategy several years ago in order to ensure that as an interiors company, we always had a strong base of in-house suppliers in case we needed any manufacturing assistance on any project. Given that 80% of any project value is typically subcontracted outside our Group, the dependence on these in-house business units is minimal. In addition, each of these business units is mandated to generate at least 80% of their revenues from the market at large rather than from Depa-related business. However, when we find ourselves 'in need' on any project should a subcontractor or supplier be unable to meet commitments, we know that help is always available within the Group. Accordingly, we continued our vertical integration strategy in 2008 and welcomed Vedder and Paragon, amongst others, into the Group.

Strategy for 2009 and beyond 

While our core strategy remains unchanged, we have refined our focus for the next few years to adjust to the significant recent changes in the global economy. The new emphasis in our strategy, set out below, aims to leverage areas of growth while minimizing exposure to areas we believe may be impacted over the next few years. Given the counter-cyclicality of some of the businesses in which we operate, we believe that the strategy outlined below will further our Company's growth in 2009 and beyond:

• Infrastructure:  The significant growth in infrastructure fit-out in the region, and pursuant to the government commitments in the MENA and South East Asia region, has led us to launch a division in our business, Lindner Depa, which focuses solely on infrastructure and hospital fit-outs. We believe that infrastructure development is largely countercyclical and we see a significant opportunity for growth in this area over the next few years, particularly based on the initial 2008 figures for Lindner Depa, which have exceeded our expectations considerably.

• Refurbishment: Whereas in the last few years we have minimized the amount of refurbishment work we have undertaken, primarily due to the excessive demand for our services in new-build areas, we have still maintained a presence in the refurbishment market. In particular, we have recently completed the Bustan Rotana refurbishment, which was, twelve years ago, our first new-build interior fit-out project. This is an indication that the refurbishment growth cycle, which is countercyclical to economic cycles, is just beginning.

• Growth in key geographies: As a geographically diversified group of companies, we see potential slowdown in some markets and continued growth in other areas. Accordingly, and based on the sudden shift in expectations from different markets, we are re-evaluating the areas in which we operate, and consolidating business units to reflect this shift in growth expectations. As such, we believe that we are strongly positioned in the markets that remain poised to grow over the next few years.

• Streamlining the business:  We see the coming times as an opportunity to further streamline our business and experience an added increase in productivity and efficiency. In 2008, we began the implementation of an Enterprise Resource Planning system, and we expect to complete this implementation in mid-2010. This will allow us increased economies of scale, improved control in differing geographical territories, and enhanced risk-management procedures.  

Due to the substantial growth that we have seen over the last few years, and the strong position in which we are entering 2009, we will continue to generate significant earnings from our key markets. We also expect sizeable growth generated from new market areas, geographies, and the streamlining of our business, placing us in an even stronger position in 2010.  

Outlook

The Board continues to believe that the Group is well positioned to exploit further market opportunities - across geographies and market niches. Management continues to review all opportunities to deliver industry-leading margins and sustained growth, even in the difficult times ahead.

Prospects for the current financial year are in line with our expectations, and we will continue to invest in our businesses and grow our Company in 2009. We will also continue to review possible acquisitions and investments which meet our stringent criteria and fit well with our existing businesses, offering us further growth opportunities and synergies.  

Our ability to succeed in this new environment is the outcome of a strategy that encompasses vision and enhanced quality and client satisfaction. We have continued to build our brand and business in new geographic areas, expand our services to new market niches, and improve our Company to ensure that it is one of the best places to work.  

The Board believes that we are in a unique position to develop and grow our business, despite the challenges that may lie ahead.  

For the full version of the annual report and the audited financial statements, please visit the NASDAQ Dubai or Depa Limited websites.

For further inquiries, please contact:

Depa Limited

Brunswick Gulf Ltd

Rupert Young / Azadeh Varzi

ryoung@brunswickgroup.com / avarzi@brunswickgroup.com 

Tel: + 971 4 365 8260

About Depa Limited 

Depa Limited is a leading interior contracting company in the Middle East, North Africa and Southeast Asia regions. Operating principally in the luxury fit-out industry, its main areas of business cover 5 star hotels, high-end residential properties, retail outlets, yachts, as well as public sector amenities such as hospitals and airports. Depa is listed on the NASDAQ Dubai (ticker DEPA) and has Global Depositary Receipts on the regulated market for listed securities of the London Stock Exchange plc (ticker DEPA and DEPS).

The range of business activities performed by Depa comprises: 

• Interior contracting: which focuses on luxury interior fit-out services, which include installation and finishing of floors, walls, ceilings, fixed joinery, panelling, wood-works, doors and frames;

• Manufacturing: which comprises a network of factories and joineries which produce customized furniture, fixtures and equipment (FF&E);

• Procurement: which involves the procurement of supplies and materials from third parties to support and complement Depa's interior contracting and manufacturing operations as well as third party procurement contracts for specific FF&E projects. 

By integrating these services into a single package, Depa provides clients with comprehensive and customized interior contracting solutions. 

With more than 8,000 employees worldwide, the company operates through an integrated network of subsidiaries, affiliates and representative offices located in the UAE, Saudi Arabia, Qatar, Egypt, Jordan, Syria, Libya, Morocco, India, Malaysia,  Thailand, China, Singapore, UK, the Netherlands, and the United States. Through this network, Depa has successfully executed large and complex projects in over 16 countries including the Burj Al Arab Hotel (Dubai), Emirates Palace (Abu Dhabi), the Museum of Islamic Art (Doha), Four Seasons Hotels (Sharm El Sheikh & Mumbai) and Mazagan Resort (Casablanca). 

For more information, please refer to the corporate website: www.depa.com 

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