Problems getting paid for work on Burj Khalifa are weighing on Depa's bottom line.
Claim over Burj Khalifa to hit Depa's bottom line
A problem with being paid for work on the world tallest building is weighing on Depa's bottom line.
Net profits will be "significantly impacted" due to the unresolved claim for the Burj Khalifa work, the Dubai interior contracting company announced yesterday.
Depa's balance sheet remains strong despite the claim and "challenging markets in 2010", the company said ahead of publishing its annual report.
"Being at the end of the construction cycle, we have felt the impact of the economic downturn later than other areas of the construction industry," said Mohannad Sweid, the chief executive of Depa.
"However, our selective high-quality projects and clients show that we are well positioned and that revenues and profits will be underpinned in 2011 and 2012."
The company has previously stated it could take between one and three years to resolve the dispute with Burj Khalifa.
It has not disclosed the amount of the claim.
The company has not specified the target of the claim but said last year it was not against Emaar Properties, the developer of the Burj Khalifa.
The dispute is over expenses caused by a two-year delay in completing the project, Noor Sweid, the managing director of strategy at Depa, said last August.
The company installing curtain walls in the tower went bankrupt, delaying construction, Ms Sweid said.
"That delayed absolutely everybody," she said.
Depa stock was recently upgraded by Alembic HC Securities, which cited the company's ability to diversify its project portfolio. Only 20 per cent of its business is in Dubai, compared with 84 per cent in 2006, said Majed Azzam, an analyst with Alembic.
The company's diversification plan included paying Dh295 million (US$80.3m) to acquire Design Studio, an interiors company based in Singapore, last August.
Depa also announced new deals in Malaysia, Angola and Syria. The deal in Syria is a Dh72m contract for the fit-out and furnishing of the Yasmeen Rotana Hotel in Damascus.
The company also won a Dh104m deal to fit out the International Petroleum Investment Company headquarters in Abu Dhabi.
Not only has the diversification enabled the company "to weather the economic downturn, it has placed us well in future growth markets, like South East Asia and has decreased our exposure to the current regional unrest", Mr Sweid said.
The company's backlog of contracts was worth Dh2.2 billion at the end of last year compared with Dh2.1bn at the end of 2009, the company said yesterday.
Last year Depa was asking sub-contractors on Ferrari World to take a 10 per cent discount for their work on the project.
But Depa faces less exposure to unpaid bills than other contractors, Mr Azzam said.
"We do believe there will be some issues here and there, but it won't be massive," he said. "They've already collected a lot of cash on work already done."
Depa describes itself as the "world's largest interior contractor". It specialises in fit-outs for luxury hotels, yachts, apartments and other facilities.
The company's contracts cross over into different sectors, with 51 per cent coming from hospitality projects, 26 per cent from residential developments and 9 per cent from infrastructure, Alembic reported. It said Depa's fundamentals were strong with a "solid liquidity position".
Depa reported a net loss of Dh103.6m for the first six months of last year, after a profit of Dh92m for the period in 2009.
Its shares closed unchanged yesterday at 65 US cents, down from a recent high of 76 cents on November 10.