Performance of Five Specific Companies in Qatar - Example

Portfolio management. Introduction This essay is going to analyze the performance of five specific companies in Qatar and rate them based on the outcome of their status. The following will be a brief outlook about the economy and history of Qatar to understand the environment in which the companies operate. The cornerstone of Qatar’s economy is petroleum and the related products which accounts for more than 70% of the revenue to the government. It earns more than 60% of the gross domestic product and approximately 85% of the exports revenue. It has oil reserves of 15 billion barrels which are supposed to continue with its current level of output at the current levels for the coming 23 years. The returns from the oil have given Qatar a per capita return that has made it to be ranked amongst the richest country in the world. Qatar is also endowed with natural gas reserves of more than 5% of the worlds and the 3rd largest in the world. The export of natural gas is rising as the main export earner for nations of the world (Qatar - gas field awaits development, 1981). Currently, Qatar stands as the richest country in the world with its GDP registering a world breaking record of 1,156% in the seventies (The World Fact book, 2013). The table below shows the GDP and the inflation as researched by the International Monetary Fund (IMF). Year Gross Domestic Product US Dollar Exchange Inflation Index (2000=100) Per Capita Income (as % of USA) 1980 28,631 3.65 Qatari Riyals 53 266.18 1985 22,829 3.63 Qatari Riyals 64 104.82 1990 26,792 3.64 Qatari Riyals 77 67.85 1995 29,622 3.63 Qatari Riyals 85 55.75 2000 64,646 3.63 Qatari Riyals 100 86.03 2005 137,784 3.64 Qatari Riyals 115 127.05 The GDP of Qatar grew by 19.9% in 2012 as related to 2011 according to a study by the International Bank of Qatar. Companies in dealing in cement manufacturing industry. (QIG and QNCC) Qatari investors group (QSC) is based in Qatar which is a shareholding company primarily producing and distributing cement and other related goods. It works in conjunction with its subsidiaries, in seven business sections; cement, industrial, marine and aviation, contracting and engineering, investing, real estate and investment and other segments. It is also involved in exporting and importing activities and construction of factories. The products of QSC are standard white Portland cement, mineral resistant cement, and gray Portland cement. As at December 31, 2013 the firm’s subsidiaries were Al Khaliji Cement Company SPC, OIG Properties SPC, the investor SPC and International Technical and Trading Company SPC and others (Wietfeld, 2011). Ratios table excel. The Qatari cement market is the 3rd largest market for cement in the Gulf corporation council (GCC) both in the consumption and the production of cement. In ancient times, Qatar was not able to produce enough cement for to meet the big demand for the local market. Qatari Investors Group has experienced increased sales over the years making an 18% in 2013 versus 2012 hitting a high of 548.38 million Qatari in 2013 from 464.55 million Qatari in 2012. The increase in sales of cement lead to double growth rate of the company which was up to 135.6%in 2013 from 194.22 million Qatari riyals to 457.55 million Qatari riyals in 2012. This company operates different segments and not all segments experienced a growth in sales. Despite the fall in sales in other segments, the fall is very insignificant to affect the company’s growth (Wietfeld, 2011). In the year 2013 Qatari investors group finalized its financial statements revealing a net profit of 220.6 million from a low of 152.2 million in 2012and the shareholders earning per share totaled to QR 1.77 in 2013 from QR 1.22 per share in 2012. The board suggested a cash bonus of 7.5% for the shareholders from each share. This recommendation was to be looked into during the ordinary general assembly meeting in February 2014. The firm’s revenue rose to a high of QR 294.2 million representing a rise of 56.7% compared to 2012 and the total expenses comprising of the selling expenses increased by .6% to reach QR 61.9 million. This resulted to the rise in operating profits to 62.7% reaching a high of 239.1 million. Also, the net financing costs increased to QR 37.1 million while the group received profits from the investments it has in other companies worth QR 18.6 million which caused the net profits to amount to a total of 220. 6 million a rise of 44.9% from the profits from the previous year. The rise in liabilities of the company resulted to the distribution of 75 dirhams per share to the owners of the firm. The liabilities rose up to QR 334.1 million while the non-fixed liabilities are estimated at 1.1304 billion by the end of the financial year 2013 (Wietfeld, 2011). The performance of QIG is very attractive to investors because of the growth in the profits years and the recent increase in cement demand in Qatar means an upward trend in its profits. Qatar National Cement Company is engaged in the manufacturing and selling of cement and other related products. It was established in 1965 and its head quarter is located in Doha Qatar. The products include pulverized fuel ash cement, washed sand, ordinary Portland and Portland, sulfate resistant cement, hydrated and calcined lime and calcium carbonate (Michael, 2010). In the financial statements of the year 2012, Qatar National Cement indicted the firm had made a profit of QR 444.6 million in 2011 versus QR 467 million in 2010. The company’s equity per shareholder amounted to QR 9.06 in 2011 relative to QR 9.51 in 2010. The recommended distribution of the cash dividend by the managers was 60% equal to QR 6 for every share. In the near past the firm has been on a mission of setting up more plan for cement production to meet the rising demand in groundwork for the year 2022 FIFA world cup (Gawdat, 2008). Table of ratios excel. In February 2014 QNCC signed an agreement with a French firm to boost the current production capacity that will lead to the construction of QNCC’s 5th line pant of cement. The construction will commence after handing over the location of the plant to the constructor to start production after a period of 19 months and to be fully completed after 27 months. After which the Qatar’s National Cement Company’s capacity will increase to a level of 17000 tons of clinker in a day while the grinding capacity to a level of 20000 tons of cement every day (Gawdat, 2008). QNCC is 43% owned by the Qatar government was the only cement and the first company in the business of manufacturing cement in Qatar. It enjoyed monopoly status that gave it a milestone development and established itself strategically in the industry. The head start has enabled it to currently control up to 85% of the domestic cement industry. The monopoly status also enables it to act as a proxy for the growth off Qatar’s economy. Its capacity has quadrupled over the years to the present capacity of up to 3. 6 million tons per annum (Gawdat, 2008). The market for cement in Qatar is the 3rd biggest in the GCC. The cement industry has barriers of entry to the competitors because of high initial capital outlays. It is estimated that the outlay for the generation of 1 Mtpa Greenfield cement plant ranges from USD 130 million to 160 million. There is similarly a much extended period of up to 36 months before there can be any returns from the investment. The future demands for cement in the country by the private and the government investments are the major drivers for the development and growth of the cement industry. For example, there are a number of lined up development projects by the government that will be the major triggers for local demand of cement. Conferring to a report by Meed Assignments the country has an estimated 245 present and planned construction and infrastructure in the pipeline sector and have an approximated value of USD 138 billion (Gawdat, 2008). The report forecast the EBITDA to expand from 23.3% in 2008 to 25.5 % in 2009 in the margin. The 2010 prediction was 33.2% because of the lower clinker and cement imports experienced. The import in 2010 was to range between 400000- 600000 tons and no further imports onwards after 2010. The company’s dividend is predicted to grow over the years due to the significant cash flows that will lead to low debt balance sheet, and cash rich status. Qatar National Cement is trading currently at a very attractive yield of 5.4% in terms of dividend. Compared to its competitors Qatar national cement score highly in terms of scalability of operations, control of the home territory market and has gained highly in the leadership of the market in the country. However, the company faces some of the following threats that may affect greatly it operation in case any of it occurs. Cement prices in Qatar have been on the rise in the recent years from as low as QR 214 per ton in the year 2004 to QR 263 per ton in 2008. The rise is attributed to the increased demand for the cement in the country due to the developmental projects spearheaded by the government and the private sector. The continuous rise in the prices made the government intervene and set a price cap of QR 250 for every ton of cement (Pillars of Qatar national vision 2030). The sales size is projected to rise by approximately 8.3% to 5.18 million tons in the coming years due the existing strong local demand. The sales of Qatar national cement was expected to drop from the year 2010 due to the completion of the Gulf Holding company project that were to increase the supply of the cement (Rahman, 2005). Despite the company having near monopoly characteristics, this does not mean the company is in a better position to set prices because of the influence which the government has on its operations. There is a price cap put in place by the government to protect the consumers of the products. Also, there are cheap imports from the neighboring country of Saudi Arabia and Iran that affect the demand of its products thereby limiting the return gained by the company (Rahman, 2005). The increase in the efforts to expand the supply of cement in the country does not go without notice of the effects it can cause to the prices of cement in the country. The Gulf Holding’s initiatives of expanding the capacity with an additional of 1.5 Mtpa that is set to be in operation is greatly going to reduce the income for the company (Rahman, 2005). In the occasion that there occurs to be a cancelation in any of the projects put in the plan by the private sector or the government this will greatly affect negatively the returns of the Qatar national cement. Also, any technical breakdown in the machinery or shutting down any plant of the company will affect it production capacity, limiting the sale and, therefore, a reduction in revenue (Rahman, 2005). Despite the descent in the earnings of the company in the audited financial statements, things are looking up for the future if the management takes the desired opportunities. The falls in profits is not very attractive to the customers and other potential investors. Therefore basing on the analysis above of these two companies the company of choice is Qatar Investors Group. Companies in the energy industry. (Aamal, QIMC and QEWC) Aamal Company was established in 2001 operating as a private shareholding firm with limited liability in Qatar republic. It is engaged in the managing of commercial complexes and shopping centers, trading in properties leasing, machinery, cleaning materials and tools, water pipes, medical equipment, electrical equipment, pesticides, engine oils, batteries, lubricants and car tires. It was turned into a public firm in 2007 which enabled the firm to be listed on the Qatar stock exchange with a capital paid up of QR 3.45 billion making it to be amongst the biggest public shareholding firms in Qatar. The capital has increased to 6 billion over time (Michael, 2010). Table of ratios. Excel. Aamal has operations across 22 business units which are widely diversified with some having operated in Qatar for more than 40 years gaining a wide market cover. It has employed more than 2300 employees and, therefore, a role model for many countries upcoming companies in the country. The Aamal Company’s success is attributed to its outstanding strategy of identifying major growth opportunities in the region and investing in them through the deployment of capital and partnership with industry leaders for the provision of the necessary expertise. This plan has gone a lengthy way in ensuring that the Aamal Company has acquired stability, strength and taken advantage of opportunities as they appear. This is in line with Aamal’s goal of creating wealth, investment and opportunities for the people and the stakeholders to achieve the maximum results (Michael, 2010). In 2012 Aamal Company generated a revenue totaling to QAR 2,283.9 million making it one of the most fast growing and diversified company in Qatar enabling investors to experience high quality and a balanced exposure to a very remarkable story of the growing Qatar economy. The company is strategically located in Qatar presently with plans on venturing across the borders to capture a wide market. The strategy adopted focuses on 3 basic pillars involving a sustained profit growth basically to be achieved through more focus and interest in manufacturing industries and other related high growing sectors, continued growth to be realized through the diversification and innovating across the already existing businesses to gain more market control so as to maximize on its performance and lastly continued introduction and application of a clear, disciplined financial and operation principles that underlie growth initiatives that are strategic in the industry (Michael, 2010). Aamal is uniquely positioning to benefit from a robust public and the private investments in the country to meet the growing demand mostly in the infrastructure sector development in the Qatar’s transformation to the advanced and self-sufficient economy. The accolade of hosting the FIFA world cup in the year 2022 to Qatar is accelerating growth and expansion of capital investments in the country because of the initiatives to implement new development programs to meet the FIFA standards. The company has a market capitalization of QAR 8.1 billion that enable it to be listed on the Qatar exchange making it to be one of the biggest diversified company on the stock market. It has Al Faisal Holding Company as a long term shareholder offering it a strong financial backing (Michael, 2010). The balance sheet of Aamal has a strong backing with readily access to capital markets. It also has strong generation of cash flows which provide a strong future liquidity for growth. The company has exemplifies low gearing over the years. In addition, the balance sheet has a backing from the large pool of assets owned by the company (Camilla et al, 2013). The management of the firm consists of experienced and committed managers with strength in allocation of assets strategically, risk control and efficient corporate governance. They have a proven history of growing the profits, and the creation of value being driven by focus on discipline on capital and returns on capital. The management is also able to make effective and efficient decisions over a short span of time and also able to meet the deadlines. Qatar electricity and water company QEWC is involved in the generation of power and delivery of water services. It was established in 1990 and its head quarter is located in Doha Qatar. It is the owner and operator of power production and water desalination stations and it also sells electricity and water that is produced at the stations. The company accounts to roughly 68% of all the electricity production and majority of the desalinated water in the state. QEWC has a fully installed capacity of up to 2113 MW with a water desalination capacity of 105 MIGD in the year 2007 (Camilla et al, 2013). The ownership of QEWC is between the public and government where the government owns 10% Qatar petroleum, 1.5% Qatar insurance company, and 10% held by the Qatar national bank. It has a long-term pay purchase contract with Kahrama which is the sole distributor of electricity and water in the country of Qatar. It has another fixed price contract with Qatar petroleum for the supply of gas that is subject changes as per the changes in price of the natural gas. Table of ratios. Excel. Qatar Electricity and Water Company stated a net profit increase of 8.6% by quarter of 2009 that amounted to QR 143.26 million. There was a rise in the operation profits offset by the costs of finance and liquidated damages that occurred to Kahramaa. Despite the rise in the cost of sale by a 27.2% totaling to QR 332.51 million, the operating profits increased to QR 149.22 million to represent a rise of 34.7% from a low of QR 110.75 million in the previous period. The increase in the gains was attributed to the stable rise total revenue and fall in the general and administration expenses by QR 34.27 representing a fall of 17 percent in the quarter of the financial year (Camilla et al, 2013). The sales rose by 24.8% to QR 516.00 million during the period from a low of QR 413.51 million in the previous period because of a high growth in the supply of water and electricity. The income from the supply of water and electricity contributed to30.3% and 22.1% to QR 269.09 million and QR 212.77 million respectively. In the period of review the company’s value of assets increased by 43.8% to QR 13.91 billion from a low of 9.67 billion comprising of 50.9% rise in property, equipment and plant rose to QR 10.13 billion that accounted for a 72.8% of the total assets. However, the equity for the shareholders slumped by 55.7% to QR 1.45 billion from a high of 3.27 billion in the previous year due to changes in variances, in the fair value. Therefore, the group’s annualized return on equity increased to 39.6% from a 16.1% in the past period whereas, return on assets dipped to 4.1% from 5.7% in the period because the increase in acquisition of assets reduced the growth in the value of the net profits (Rahman, 2005). Over the years, the GCC has been amongst the ten top consumers of power in the world and now the nations are seeking to increase their capacity of power generation to cut on costs. Amongst the initiatives includes the GCC wide grid power project commissioned in 2010 that links the six countries of the GCC using the integrated network of electricity. Experts reported that the demands for power in the GC grew by over 6% every year. This demands a doubling of the capacity of generating power in the area for the next decade. Following the progressive increase in the infrastructure projects and industrial projects in Qatar there is a wide demand for electricity (Rahman, 2005). Qatar has an installed power capacity of 3.3GW which contributes to a 2.4% power market for the Middle East states. The domestic power demand average to 8% per year in the past five years. The report estimated that the generation of power capacity at 14% growth per annum by the year 2015 due to the QEWC’s Ras Girtas and Mesaieed projects which are predicted to raise the country’s power production capacity to 8.5MW in the year 2015 from the 5.8MW in 2009 (Al-amoodi et al. 2011). Qatar general Electricity and Water Corporation reported that the water generation capacity of Qatar rose by 300% over the past 18 years. The capacity of the country reached 187.6 million gallons every day in 2008 as compared to the 46.8 million gallons in the year 1990 while the water demand skipped to 173 million gallons in 2008 from 45.4 million gallons in 1990 representing a 281 percent growth in demand. According to Kahramaa review report, the monthly Qatar water production rose by 28 percent during the year 2007 in the same accounting period. Therefore, there is a big expansion capacity in the water industry in Qatar due to the ever rising market for the desalinated water. In 2009 kahramaa set out plans to install 99 substations in Qatar to meet the rising demand for electricity and water for a fast growing population. Of the 19 plant, 14 of them are to be wholly for bulk consumers like the factories and industries. The corporation has plans also to build a seven day strategic storage capacity for water which will include several reservoirs to total to a capacity of 19.2 million gallons. The Ras Abu Fontas which is fully owned by the Qatar Electricity and Water Company started operation in 2009 also, the Mesaieed power station of which 40% is owned by QEWC started operation in 2009. The projects are well positioned to earn the company more revenue and add value to the country’s water and electricity sector for the coming years. From this projects the QEWC ownership of the country’s electricity increased to 60% of Qatar’s 9000MWH of the electricity generation while the water generation capacity of the QEWC increased to 70% of the country’s 340 million gallons. The electricity sector of Qatar is developing basing on very high technological standards. The increasing electricity demands is met by the establishment of new power projects all through the country. The generation and the supply of the power are separated. The private sector is the producer of electricity while the Qatar Electricity and Water Corporation is responsible for the distribution the relationship that exists between the producer and the distributors of electricity is based in purchase power agreements (PPA). The generation of power in Qatar is amongst the finest in the sphere since it is based on the combined cycle gas fired technologies. The factors of conversion from gas to electricity are amongst the highest and, on the other hand, natural gas is the most environmental friendly fossil fuel that is being used for the production of electricity today. The high demand for electricity and efforts to meet the demand should not override the conservative efforts of the environment and, therefore, methods that are conscious of the environment should be adopted in the production of the electricity as opposed to those that result to pollution (Rahman, 2005). The state of Qatar relies on free market mechanism in all the sectors. The reforms in the power and electricity sector have already being stipulated. The investments in this sector are flowing as the opportunities arises. QEWC is on the stock market with other many public and private firms. However the Qatar’s energy sector is very simple because of few operations with a single mix of energy producers and distributers (Forbes, 2011). Experts are optimistic of Qatar economic growth despite the existing global financial crisis. In the year 2008 Qatar’s GDP rose by 19.6 and it is estimated to keep growing for the following years. The production of liquefied gas is set to double to more than 77 million tones which are the major growth driver of Qatar. In 2008, the water supply, electricity and gas sectors registered an expansion rate of 26.0% as compare to the previous year. Despite the unstable global conditions QEWC can reap benefits from a vibrant local economy (Rahman, 2005). The company has an advantage of being the biggest power generator in Qatar and also the producer of most of the desalinated water consumed in the country. The company also receive support from the government in the conduction of its projects enabling it to growth at a very high rate and for this drive, it is likely to be the biggest beneficiary of the investment projects planned in the sector of water and power generation. Qatar industrial manufacturing QSC (QIMC) is based in Qatar it is involved in the industrial manufacturing and other investments within or without Qatar republic alongside its subsidiaries. QIMC has share equity in 13 projects in different sectors including petrochemicals, food processing, chemicals and construction materials. It also carries out investigations on the economic feasibility of several other projects in partnership with other foreign and domestic interested parties. QIMC holds 51% investments in KLJ organic_ Qatar project to produce the chlorinated paraffin Waxes (CPW) that is to be for export. QIMC subsidiaries include national paper industries, Qatar acid company, and Qatar metal coating company, Qatar sand treatment plant and Qatar paving stones (Qatar - gas field awaits development, 1981). Table of ratios. Excel In 2013, the corporation stated a net profit of QAR 202.16 million compared to the QR 208.2 million in 2012 financial period. This was a decline in the company’s profits. However, the company’s net assets have risen to QR 1,639,468,485 which represents an increase of 7% compared to the previous year while the total company shareholders equity has increased to QR 1,409,338,531 relative to 1,307,791,730 for the year 2012whih is approximately 7% rise. The earning per share reduced to 5.11 from the previous year’s 5.26 for the same accounting period (Camilla et al, 2013). QIMC has adopted a very fundamental strategy in the achievement of its goals that it is enabling it to penetrate well in the manufacturing industry and service industry to make more profits.it is exclusively investing in economically feasible industrial projects that make use of the readily available domestic resources. It aims to maximize from the macro economic advantages from the investment activities is carrying out. The benefits are meant to spill over to the general economy by increasing employment opportunities for the country’s labor force, contribution to the local technology through its modernization and the participation in the stabilization of the balance of trade of the country and other partners (Rahman, 2005). Late April 2014 Qatar Industrial Manufacturing Company announced return of QR 46 million in contrast to 40 million for the same trading period in 2013 representing a percentage increase in of 14. The rise in the profits is as a result of the increased earnings in the associates of the firm. The earnings per share rose to QR 0.97 higher than the previous period’s QR 0.85 for the same financial period in 2013.the shareholders’ equity increased to QR 1,468 million comparing to the 2013’s of QR 1.409 million (Qatar - gas field awaits development, 1981). In the past years the QIMC has been performing well on the stock market with its share earnings, dividend earnings and equity earning showing a positive trend to the benefit of the shareholders. A company performing well on the stock market attracts more investors enabling it to acquire more investments using the resources invested (Camilla et al, 2013). Aamal Company is steadily making profits and diversifying its services to dissimilar segments of the economy enabling it to pool bigger percentage of customer that enable it to make more sales. Such performance is attractive to the investors who will heavily invest to enjoy on the returns basing on the trust shown by the large pool of customers. Comparing Aamal to the other two company in this industry under study (QEWC which has experienced a reduction in the total net profits in the past financial year, although set for improvement and QIMC made a small reduction in its profits although it has very good strategy that can enable the firm make more profits) Aamal is performing relatively better and, therefore, it is a company of choice. References. Qatar - gas field awaits development, (1981). Petroleum economist, 48(9), 375379. Wietfeld, A, (2011). Understanding Middle East gas exporting behavior. Energy journal, 32(2), 203228. Al-amoodi. A, Felton. KC, Kasim. K, whitehead. M & Kouki. K, (2011). Leveraging a common infrastructure to support Qatar’s rapid long expansion. spe projects, facilities and construction, 6(3), 145154. Forbes, D. (2011). Pearl promises a new dawn for gtl. Petroleum economist, 78(2), 2 p Camilla H., Simeon K., Hammond J. (2013). "New Qatar emir shakes up sovereign wealth fund". Financial times. Gawdat. B, (2008). Sovereign wealth funds: dangers and opportunities". International affairs 84 (6). "Pillars of Qatar national vision 2030" Rahman, H. (2005). The emergence of Qatar. Routledge Michael, B. (2010). "Privilege pulls Qatar toward unhealthy choices". New York Times. The World Fact book. 2013. CIA. Read More