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Interserve in the Middle East
December 2010
2 The Trusted Partner
UK57%
Middle East & Africa35%
Rest of World8%
The Middle East in context
The Middle East has grown to become a major driver of Interserve’s business
Contribution to Group operating profit*
* Analysis based on proportion of H1 2010 total operating profit before group services
Revenue & margin progression, 2004 – H1 2010
£0m
£50m
£100m
£150m
£200m
£250m
£300m
£350m
2004 2005 2006 2007 2008 2009* H1 2010*0%
2%
4%
6%
8%
10%
12%
Revenue Margin (profit after tax)
* Qatar tax reported at associate level from 2009 onwards, offset by lower Group tax charge
3 The Trusted Partner
Key messages - Middle East
•
We have a long & successful trading record across the region
•
Our business is well diversified, by geography & activity
•
Region provides excellent example of how Interserve is developing
•
Cash collection remains robust
•
Good potential for continued medium-term growth, albeit current activity levels are below recent highs
4 The Trusted Partner
Dubai11%
Abu Dhabi11%
Qatar57%
Saudi Arabia4%
Oman10%
Other7%
Middle East overview
Geographic exposure
Sector exposure Activity exposure
Construction53%
Services15%
Equipment hire32%
Residential10% Leisure
11%
Commercial20%Infrastructure
45%
Industrial14%
5 The Trusted Partner
Current market environment
Tendering and work-winning
•
High levels of tendering activity across the region, though speed and rate
of conversion into orders below historic highs as clients re-tender contracts• Nevertheless, future workload above levels of a year ago
Liquidity
• Level of debtors in region has reduced from early 2009 levels
•
Continuing to work closely with clients, debt recovery will remain an area
of significant focus
•
Have accommodated increased debt provisioning within strong trading
results
6 The Trusted Partner
Positive outlook
•
Good medium-term growth prospects for the region
•
Interserve is expanding both service offering & geographical
footprint to capture more of the opportunity in the region•
Support Services
•
Saudi Arabia
•
Libya
•
Expect increasing competition but margins to remain attractive
relative to levels in developed markets
The Middle East is set to remain a major driver of Interserve’s business in the future
Regional Economy in Context
8 The Trusted Partner
Economic outlook vs. rest of world
Source: Business Monitor International, Q4 2010
Real GDP Growth (%) 2007 2008 2009 2010 2011 2012 2013
Qatar 14.0 15.0 7.7 15.2 10.3 6.7 3.8UAE 5.2 7.4 -3.0 4.9 4.0 4.4 4.0Oman 7.7 13.0 1.4 3.6 2.4 2.9 2.9Saudi Arabia 3.3 5.7 0.4 2.6 2.5 2.7 3.7Oil price assumptions ($/bbl) 69 94 60 77 80 85 90
USA 2.1 0.4 -2.6 2.6 1.6 2.3 2.3Eurozone 2.7 0.7 -4.0 1.6 1.5 1.9 2.0Japan 2.3 -0.7 -5.2 2.9 0.9 1.2 1.3China 13.0 9.0 8.7 9.7 7.5 8.6 7.6World 4.1 2.1 -1.7 3.8 3.0 3.6 3.7
Fiscal Balance (% of GDP) 2007 2008 2009 2010 2011 2012 2013
Qatar 12.7 10.6 7.6 12.7 11.9 10.4 9.0UAE 9.5 8.8 -1.1 7.2 8.3 10.1 9.2Oman 0.2 1.2 -0.1 9.4 8.3 7.9 7.3Saudi Arabia 12.3 27.7 -6.2 5.0 4.2 4.8 5.2
9 The Trusted Partner
Qatar - our largest Middle East market
Construction
Engineering & fabrication services
Training
Mechanical & electrical services
Major presence for over 10 years
Equipment hire
Interserve’s businesses in Qatar
Extensive range of activities
World’s 3rd largest gas reservesHighest GDP per capita in world
10 The Trusted Partner10 The Trusted Partner
Qatar economic drivers
•
Oil & gas sector contributes c. 60% of GDP―
Heavy investment to increase LNG production expected through to 2012―
Forward LNG production pre-sold through long-term contracts (i.e. demand-led investment)―
Support & maintenance of infrastructure required beyond this
•
Government investment in infrastructure as part of Qatar National Vision 2030―
State-funded infrastructure projects (port, airport, rail system, utilities & water systems etc)―
Development of education & science sectors as hubs for region (e.g. Education City)
•
Strong fiscal position, large balance of payments surpluses expected to persist―
2010/2011 Budget based on $55/bbl oil price, so surplus now likely in 2010/2011 even after allowing for record level of government spending (targeting completion of
major infrastructure projects)
Qatar LNG production 2006 2007 2008 2009 2010 2011
Million tonnes per annum
RasGas 16.0 20.7 20.7 28.5 36.3 36.3
QatarGas 9.9 9.9 9.9 25.5 33.3 41.1
Total 25.9 30.6 30.6 54.0 69.6 77.4
11 The Trusted Partner11 The Trusted Partner
Qatar – major project examplesProject Title Client Approx.
ValueApprox.
Timetable
National Rail System Qatar Railways Development Company US$ 17bn na
New Doha International Airport Civil Aviation Authority US$ 9bn 2005 –
2014
New Doha Port Higher Committee for the Coordination & Pursuance Executive Council
US$ 7bn 2010 –
2014
(Phase 1)
Lusail Development Lusail Real Estate Development Company US$ 5.5bn 2011 –
2018
Heart of Doha Dohaland US$ 5.5bn 2010 –
2016
The Pearl Qatar United Development Company US$ 5bn 2006 –
2012
Ras Girtas Power & Water Plant Ras Girtas Company US$ 3.8bn 2009 –
2011
Al Wa’ab City Nasser Bin Khaled & Sons Holding Company US$ 3.2bn 2006 –
2011
Entertainment City Abu Dhabi Investment House US$ 3bn 2010 –
2015
Doha Metro Ministry of Communications & Transport US$ 3bn 2011 –
2015
Qatar –
Bahrain Causeway Public Works Authority US$ 4bn 2010 -
2015
Source: BMI Qatar Infrastructure Report Q4 2010, Construction Week
12 The Trusted Partner
UAE economic drivers
•
Economic outlook stabilising: rebound in oil prices set to see UAE return to growth in 2010 after contraction in 2009, and expect balanced
budget
in 2010. Oil price remains most important growth driver
•
Sept 10 announcement that Dubai World has reached an agreement with creditors to restructure its debt was a welcome development, but
much
debt restructuring still to be completed (e.g. Nakheel
sukuk
bond
issuance still awaited) and confidence remains fragile in Dubai
•
Nevertheless, economic activity in Dubai appears to have troughed, though likely to be many years before returns to prior levels
•
Abu Dhabi now main engine for growth given it enjoys 90% of the UAE’s
oil wealth, though emirate keen to avoid becoming another Dubai and is taking a more conservative approach to its development
13 The Trusted Partner
Oman economic drivers
•
2010: Govt had forecast a budget deficit of RO 800m forecast, c.
3% of
GDP, for 2010 but set to turn in a surplus on higher than budgeted oil price (budget estimate was US$50/barrel)
•
2011: Budget based on oil price of US$55/barrel, government investment set to rise 11% yoy
in 2011 (after record year of investment
in 2010)
•
Economy highly dependent on oil production and prices –
oil production
comprises c. 70% of national income –
so government keen to diversify
economy, providing impetus to spending on power, transport & tourism
Construction
15 The Trusted Partner
Oil & Gas
26%
Utilities
34%
Industrial
12%
Commercial
17%
Residential
11%
15 The Trusted Partner
Qatar - Gulf Contracting
•
Based in Doha, JV established in 1996 with Al Darwish United, one of Qatar’s major construction companies since its formation in 1976 (Interserve 49%: Al Darwish 51%)
•
Principally operates as building and civil engineering contractor to large blue-chip international clients, plus:―
Designs & manufactures market leading “Spacemaker”
prefabricated buildings.―
Al Manjara joinery carries out fit-outs for banks, hotels and palace.
―
Also Interior Fit-Outs division called Interspace.
•
No of employees: c. 8,000
•
Revenues: c. QAR 1.4bn
Key Customers:
• Siemens• Nakilat• Areva• Qatar Airways• Marubeni• Punj
Lloyd• Trags• HSBC
Turnover by Activity
16 The Trusted Partner
Leisure
27%
Infrastructure
6%
Industrial
24%
Transport
2%
Retail
14%
Commercial
26%
Residential
1%
UAE - Khansaheb Civil Engineering JV
•
Khansaheb Civil Engineering was the first engineering contractor in the UAE, founded in 1935 and based in Dubai. Interserve been in partnership with Khansaheb since 1981 (Interserve 45%: Khansaheb 55%)
•
Key clients include:―
Majid Al Futtaim ―
Easa
Al Gurg ―
Ducab―
TDIC
•
Also delivering FM contracts, leveraging UK expertise and local knowledge/contacts
•
Moving into Abu Dhabi, market with significant potential, though taking time to pick up
•
No of employees: c. 7,500
•
Revenues: c. AED 1.2bn
Turnover by Activity
17 The Trusted Partner
Leisure
20%
Oil & Gas
14%
Industrial
18%
Government
16%
Commercial
24%
Residential
8%
Oman - Douglas OHI JV
•
Based in Oman, a JV established in 1981 with Oman Holdings International (Interserve 49%: OHI 51%)
•
Expertise in oilfield activities, power station & water desalination projects
•
Key customers:―
Renaissance Services ―
Occidental ―
Ministry of Justice―
Al Hosn
Investments
•
No of employees c. 3,900
•
Revenue: c. RO 50m
Turnover by Activity
Services
19 The Trusted Partner
Serving the vast, growing Middle East petrochemical industryQatar
•
World’s 3rd
largest natural gas reserves (330
year reserve life), world’s leading LNG
producer
•
Gas production set to rise from 107bcm to 180
bcm
pa from 2009 to 2019
Oman
•
Govt
targeting increase in oil production from
870k b/d in 2010 to 1m b/d in 2015
Abu Dhabi
•
Geographic expansion opportunity
•
Oil production to rise from 2.65mn b/d to
3.5mn b/d from 2009 to 2019, alongside
increase in gas production from 50bcm pa to
120bcm pa over same period
20 The Trusted Partner20 The Trusted Partner
Qatar - Madina Group
•
Madina Group formed in 1997, Interserve took 49% stake June 2007
•
Operates through four subsidiaries:―
Madina WLL –
design, engineering & fabrication services
―
Qatar International Safety Centre ―
Qatar Inspection Services―
Severn Glocon –
sale & R&M of control valves
•
Principal markets: oil & gas, engineering process industry
•
Service provision: 50% new build, 50% R&M
•
No of employees: c. 1,400
•
Revenues: c. QAR 265m
Key Customers:
• Maersk• ExxonMobil• Shell• RasGas• Qatar Petroleum• Oryx
Turnover by Activity
Offshore
71%
Gas
18%
Other
6%Petrochemical
5%
21 The Trusted Partner
Contract example - Qatar Shell GTL project
Shell’s largest GTL project in the world at Ras Laffan, Qatar
•
5 year, £30m services contract
•
The provision of qualified personnel to deliver training
programs for the Shell Pearl GTL Project
•
Managing a purpose-built & fully resourced central training
facility
•
Programs cover health, safety, vocational environment &
management training
•
100,000+ personnel passed through the training centre to-date
•
Subsequently added infrastructure maintenance contract
•
Opportunity to grow with major international client
22 The Trusted Partner
Oil & Gas
8%
Infrastructure
23%
Industrial
3%
Transport
6%
Banking
36%
Commercial
4%
Residential
20%
22 The Trusted Partner
Qatar - How United Services
•
49% Interserve: 51% Al Darwish United
•
Principal business is provision of mechanical & electrical services to the construction industry, including provision of new build, maintenance and post contract support.
•
Principal markets: banking, infrastructure, residential
•
No of employees: c. 1,000
•
Revenues: c. QAR 120m
Key Customers:
• Gulf Contracting• ExxonMobil• Qatar Cool• HSBC• Salam Industries
Turnover by Activity
23 The Trusted Partner
HSE
52%DDC
25%
BLL
10%
Other
13%
Oman – OTI
•
Based in Oman, OTI provides professional training and consultancy services and was established in 1992. The joint acquisition by OHI and Interserve was completed in June 2010 (Interserve 49%: OHI 51%)
•
OTI currently specialises in:―
Health, Safety & the Environment (HSE)―
Business, Leadership & Language (BLL)―
Defensive Driving Courses (DCC)
•
Key customers:―
Galfar
Engineering ―
Oman LNG―
Ministry of Education―
Petroleum Development of Oman
•
No of employees c. 40
•
Revenue: c. RO 1m
Turnover by Activity
24 The Trusted Partner
Middle East FM market
• Less mature market
• Relationship development
• Limited competition
• Attractive margins
8%
14%
20%
16%
42% Secured
Bidding
Pre‐qualify
Pipeline
Long‐term
Middle East FM opportunity pipeline £300m total life
25 The Trusted Partner
Middle East Support Services – Our USP
Local Partner Associate Companies•
Infrastructure•
20,000 employees• Reputation•
Local Relationships/Understanding
Equipment Services
27 The Trusted Partner
RMD Kwikform Middle East
•
Over 30 years trading in the region
•
Provides formwork, falsework and access solutions to contractors
•
Estimated market shares: Oman 29%, Bahrain 34%, Qatar 14%, UAE 7%
• Saudi Arabia start-up in 2H 2009
• No of employees: c. 350
• Revenue: c. £70m
28 The Trusted Partner
Saudi Arabia – growth opportunity
Capital:
RiyadhPopulation:
28.69mGDP:
c. $500bnGDP Growth:
c.4%
Rationale for Entry•
Growth market•
Oligopoly•
Old fashioned products & services•
Poor service levels
Al Mutlaq Group•
Established 1954•
RMD Kwikform’s sponsor in Saudi Arabia•
Operates in a variety of sectors including real estate, retail and manufacturing
General•
Company registered 2H 2009•
Sponsor: Badr Al Mutlaq Group
Saudi Arabia
29 The Trusted Partner
Saudi Arabia economic drivers
Major Growth Drivers•
Demographics –
around 66% of the population is less than 25 years old•
Eastern Province:―
Oil-related work
•
Central Province:―
Government―
Education ―
Residential developments
•
Western Province:―
Islamic tourism & associated hotels/hospitality―
Airport, roads
Expansionary fiscal policy•
On back of recovering oil prices in 2010 government now expecting a budget surplus in 2010 and has subsequently approved a record budget for government investment in 2010/11•
The Ninth Development Plan for the Kingdom of Saudi Arabia, announced in August 2010, sets out to invest SAR1,444bn (US$385bn) between 2010 and 2014•
Main focus of government investment is infrastructure, particularly transport (railways, airports & ports) & independent water and power plants (IWPP’s)
30 The Trusted Partner
Key messages - Middle East
•
We have a long & successful trading record across the region
•
Our business is well diversified, by geography & activity
•
Region provides excellent example of how Interserve is developing
•
Cash collection remains robust
•
Good potential for continued medium-term growth, albeit current activity levels are below recent highs
