Agility shares fall more than 5 per cent to a six-week low on unconfirmed reports of massive layoffs.
Investors cut Agility shares as it cuts jobs
Investors often see mass layoffs as good news because it indicates a company is cutting costs, but they punished the Kuwaiti firm Agility yesterday when local papers reported it had taken hundreds of workers off the payroll. Agility shares dropped more than 5 per cent yesterday, falling to a six-week low. There were unconfirmed reports that the total number of layoffs could reach the thousands.
Kareem Murad, a logistics analyst at Shuaa Capital in Dubai, said the cutbacks were necessary, but hardly solved the company's problems. Agility, the largest logistics company in the Middle East and the top food supplier to the US military, was indicted last November by the US department of defence for allegedly overcharging more than US$60 million in its $8.5 billion worth of food contracts for troops in Iraq, Kuwait and Jordan.
"Agility won't be awarded any new contracts until the dispute is resolved," Mr Murad said. The company will have to rely on existing contracts for income but its biggest contract - a $16.6bn deal over five years to feed US troops in Iraq - expires at the end of this year. Agility was also dismissed from a joint venture with Dyncorp in Afghanistan, further reducing revenues. The company's share price has declined 48 per cent since the dispute with the US government began.
There is no indication that the case will be resolved soon, although investors briefly bid the shares up a few weeks ago on rumours that an out-of-court settlement was likely. The job cuts demonstrate the company is taking its cashflow issues seriously. A further effort could be made to better leverage the two companies Agility bought several years ago but never fully integrated, Mr Murad said. Until it does, "there's a dark cloud around it".
Shares in Agility closed yesterday at 560 Kuwaiti fils. firstname.lastname@example.org