Cathal McElroy talks to Al Futtaim Engineering’s managing director, Dawood Bin Ozair, and S.S. Murali, the company’s acting managing director, about how the UAE-based firm has sailed effortlessly through the rough waters of the last few years
In the chaos that consumed Dubai’s construction industry in 2008, there were a few who kept their heads when many about them were losing theirs. Al Futtaim Engineering and its MEP division were among those who transcended the scramble for survival in those disconcerting days of doom and gloom.
As MEP Middle East met two of Al Futtaim’s top men at the company’s headquarters in Dubai’s Garhoud district, it soon became clear what the secret to their serenity has been.
“Our company wasn’t really affected by the economic downturn because we made more and more profits during that time,” says Dawood Bin Ozair, Al Futtaim’s managing director, as he recalls that period of turmoil and tumult in the wider industry.
“The projects that we had booked in the past continued and, luckily for us, because we did not go into the mega-mega project size, all the projects that we have booked in the recent past, none of them have been shelved. Our bookings carried on even during the crisis period and our revenue and profit did not go down to any extent that is worth mentioning.
“I wouldn’t say that the downturn has affected us badly. It may have affected us in a way that we could have grown much bigger if all those [cancelled] projects had materialised. For example, we were investigating projects in Qatar and Abu Dhabi and, had those projects survived, we would have grown much bigger.”
The company, which began as an air-conditioning business in 1974, operated what Al Futtaim’s MEP general manager, S.S. Murali, describes as a “small” MEP operation until 2004, when it graduated to a “medium-sized and large MEP contractor”.
During that time the company’s MEP division cast its net wide in terms of the types of projects it executed, covering everything from Dubai Metro’s depots, a 2000MW power plant in Fujairah, residential projects, showrooms, retail developments and hotels.
Murali describes the last eight years as a period in which the company’s MEP division has “achieved real significant growth and has gained critical mass.”
Others have, of course, experienced similar highs in that period, but have fallen on harder times in the last three to four years. Looking at how the MEP industry in general has coped since the downturn, Murali says that it gone through a process in which only the strongest, and smartest, have survived.
Referring to the recent closure of Hastie Group’s Gulf operations, but politely avoiding mention of the company by name, Murali suggests the industry is still in a phase of transition.
“In one way I think the industry is entering into a consolidation phase,” he says. “Some companies have gone bust and closed – it has happened and we are seeing it happen. Maybe some companies will merge, but other companies may also wind down and keep their operations very, very small. There are more companies available than the work that’s there in the market – that’s for sure.”
While Al Futtaim’s MEP division is still facing fierce competition, Murali is confident that the strategies being employed by some in the market are unsustainable and destined for failure.
“Quite a few companies take jobs much below what it would actually cost them for material and labour costs. We have been in partnership discussions with some companies to take projects, but it hasn’t made commercial sense at a certain stage, and we have exited those discussions,” he says.
“However, the companies who we were planning to partner with have continued – they have taken the job alone and it has been clear to us that they have taken the job at a loss,” Murali continues.
“We have lost jobs in the market by margins of 15 and 20% - somebody has taken the job that low. So there’s a serious challenge there, but we see that as a short-term challenge in the sense that it will be there for the next two to three years, because these companies can’t deliver.
Their delivery and their quality will seriously suffer, they won’t make money, and they won’t be able to continue with their business.”
Al Futtaim’s insistence on avoiding the pricing wars has been accompanied by a broad approach to project bidding, one which has provided regular business and maintained its status as one of the industry’s big players.
“Some of the major companies of 2010 would be half of our operation today because they don’t have enough projects,” Bin Ozair says. “These companies have suffered because they only waited for the major projects. In that situation, we did the right thing by not just waiting for the big projects to come; we took small projects.
“Our people are busy and I think I can say, very openly, that perhaps we are one of the only major MEP companies that is still recruiting people and not letting people go – and we are recruiting in every one of our territories. It’s very important to be flexible on what projects you take.”
This strategy is serving Al Futtaim very well. In the last year the company, as a whole, had a turnover of $190.6m and currently employs 2050 employees across the GCC. Of that figure, around 1,500 are involved in Al Futtaim’s MEP division.
Apart from the numerous MEP maintenance jobs and smaller scale projects, which make a significant contribution to the company’s coffers, Al Futtaim’s workforce is also executing major projects in the UAE and Qatar.
These include the Avenue retail development in Dubai; the 40 storey Burj Marina tower in Qatar; the IKEA outlet in Doha; and the company has just won the MEP contract for the tram depot in Dubai.
As profitable as such major projects sometimes are, Al Futtaim often looks beyond the numbers when making a decision on which projects to target.
“We look at relationships.” Murali explains. ”You can’t lose sight of the bottom line because you have to deliver that to the shareholder, but the way to do that is to build enduring relationships. We sometimes work at very low margins if it helps in building a relationship.
“You can look at hundreds of relationships in the market, potentially, but it wouldn’t work. We carry eight to ten relationships that we invest in and we do more and more jobs for the same customers because we have done a good job previously.”
Murali is also very clear on what Al Futtaim offers clients and contractors in the market. “Real value for money,” he says without hesitation. “In most of the projects that we do, we look at how efficient the MEP system is built. We offer value engineering.
“One of the common problems often found is over-capacity. Any MEP job you see now, if it’s got an install capacity of, let’s say, 4MW of electricity, it will be consuming around 2MW even at peak – 50% - 60%. If the air-conditioning offers 1000KW, it will be consuming , even at its peak, 600 – 700KW.
“Historically, in this part of the world we have overbuilt. We have put plants and MEP systems much bigger than what the building project actually requires. When we bid for a job, we look at whether it’s over-capacity, whether it’s over-spec, and draw the client’s attention to it. That then helps the customer to take a cold look at it.
“We have brought the cost down significantly in a number of projects and, as Al Futtaim is also a developer, it is much easier for us to go and press the case that the developer is putting more money where he doesn’t need to.“
The company is now actively capitalising on this “value for money” brand in the boom territories of the GCC and beyond. But Al Futtaim’s MD is keen to stress that the company is not taking its eye off the MEP market closer to home. “We will continue to strengthen our operations in the UAE because we know there is strength in the UAE and it will grow at a steady pace,” says Bin Ozair.
“But we are also very confident to do business in Saudi Arabia which is growing in a big way. We are very confident in Qatar up to 2022 and further – that area has to grow. But, while we are very, very focused in Qatar, Saudi Arabia and Egypt, we are not forgetting the UAE.”
This diverse, yet prudent, approach seems to be a recurring theme of Al Futtaim’s business strategy. Willing to take on mega projects while not forsaking the bread and butter income from small to medium-sized deals; performing full MEP fit-out jobs while also securing a multitude of maintenance and elevator contracts; moving into the regional growth areas of Saudi Arabia, Qatar and Egypt, but keeping an eye firmly on its home country where it made its name and knows the market.
Perhaps this is at the heart of why the company has been able to calmly sidestep the pitfalls of the last few years when others have fallen headlong.
Whatever it has been, the company certainly is walking and talking strong as it looks to the future. “We have a firm growth plan in the UAE, Saudi and Qatar and we will follow that plan,” says Bin Ozair.
“We have been growing by 10-15% each year in the past, even in the bad times, so we will continue to grow at that level. But we want to achieve 20-25% – and if we go to Saudi Arabia, and we do well, we will achieve 20-25%.” Given the strength of Al Futtaim’s performance in the last few years, there is no reason to doubt him.