Dubai developer Damac sees 94% drop in profit

View from Damac hills overlooking Trump golf course and club. Such prestige projects have not prevented a large drop in Damac’s profits. (Shutterstock)
Updated 15 May 2019
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Dubai developer Damac sees 94% drop in profit

DUBAI: The Dubai-listed property developer Damac Properties reported a 94 percent drop in first-quarter net profit on Wednesday, its smallest since going public in 2015.
Damac, owner and operator of the only Trump-branded golf club in the Middle East, said its net profit in the first three months of the year fell to 31.1 million dirhams ($8.47 million) from 483.9 million dirhams in the same period a year earlier.
That compared with a forecast of 270 million dirhams by EFG Hermes.
Revenue fell 53 percent to 896.4 million dirhams.
Damac shares fell 2.2 percent in afternoon trade, reversing early gains. The stock is down nearly 40 percent this year compared to a 2.3 percent gain in the Dubai index.
Dubai property prices have fallen since a mid-2014 peak, hurt by weaker oil prices and muted sales.

 

S&P Global Ratings expects the downturn to continue this year, with residential property prices falling another 5-10 percent due to a continued gap between supply and demand, before steadying in 2020.
Analysts warned the company was likely to continue facing challenges in the coming months with strong competition and the need to conserve additional cash for debt repayments.
The company’s off-plan sales — for properties not yet completed — looked weaker than those of its main rival, Emaar Development, said Ayub Ansari, an analyst at Bahrain’s SICO. That indicated the competitor’s growing dominance in the Dubai off-plan market, he said.
The company reported booked sales of 1.2 billion dirhams ($327 million) in the first quarter of 2019, down 26 percent from a year earlier.
Damac pointed to debt payments in tough market conditions — it paid back $272 million in sukuk, or Islamic bonds, in April and $125 million in September last year — as a sign of its health.
“In a period of six months, amid difficult market conditions, we paid back $400 million of debt ... That is a strong statement,” said Amr Aboushaban, Damac’s head of investor relations.
The company had 1.8 billion dirhams in free cash at the end of the first quarter.
Damac did not pay a dividend in 2018 to keep cash for its debt repayment and an analyst warned the property firm could continue with the same policy in the coming year.
“We see zero catalysts for Damac over the next 3 years, as the company will likely reserve all cash to repay its 2022/23 sukuk,” Mohamad Haidar, an analyst at Arqaam Capital said in a note. “We expect Damac not to pay dividends until all sukuks are repaid.”
As of the end of March, the company had around 4.3 billion dirhams in outstanding sukuk and 693 million dirhams in bank debt.

FASTFACTS

$327 m

Damac’s booked property sales in the first quarter of 2019, down 26 percent from a year earlier.


BMW picks insider Zipse as CEO to catch up with rivals

Oliver Zipse
Updated 20 July 2019
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BMW picks insider Zipse as CEO to catch up with rivals

  • German giant has lost ground to Mercedes-Benz and Tesla as tech steps up

FRANKFURT: BMW has named Oliver Zipse as its new CEO, continuing the German carmaker’s tradition of promoting production chiefs to the top job even as the auto industry expands into new areas such as technology and services.
Hailing Zipse’s “decisive” leadership style, BMW hopes the 55-year-old can help it win back its edge in electric cars and the premium market  from rival Mercedes-Benz.
But some analysts questioned whether Zipse was the right choice with new fields such as software and services like car-sharing becoming increasingly important.
“What is intriguing is the cultural bias to appoint the head of production. It works sometimes but ... being good at building cars is not a defining edge the way it was 20 years ago,” said Jefferies analyst Philippe Houchois.
Current CEO Harald Krueger, and former chiefs Norbert Reithofer, Bernd Pischetsrieder and Joachim Milberg were all former production heads.
Zipse joined BMW as a trainee in 1991 and served as head of brand and product strategies and boss of BMW’s Oxford plant in England before joining the board.
He will become chief executive on Aug. 16, taking over from Krueger who said he would not be available for a second term.
“With Oliver Zipse, a decisive strategic and analytical leader will assume the Chair of the Board of Management of BMW. He will provide fresh momentum in shaping  the future,” said Reithofer.
Zipse helped expand BMW’s efficient production network in Hungary, China and the US, in a move that delivered industry-leading profit margins.
Under Krueger, BMW was overtaken in 2016 by Mercedes-Benz as the best-selling luxury car brand.
It also had an early lead over US  rival Tesla in electric cars, but scaled back ambitions after its i3 model failed to sell large numbers.
Reithofer initially championed Krueger’s low-key consensus-seeking leadership, but pressured him to roll out electric vehicles more aggressively, forcing Krueger to skip the Paris Motor Show in 2016 to reevaluate BMW’s electric strategy.
Krueger’s reluctance to push low-margin electric vehicles led to an exodus of talented electric vehicle experts, including Christian Senger, now Volkswagen’s (VW) board member responsible for software, and Audi’s Markus Duesmann, who is seen as a future CEO of the company.
Both were poached by VW CEO Herbert Diess, a former BMW board member responsible for research who was himself passed over for BMW’s top job in 2015.
VW has since pushed a radical 80 billion euro ($90 billion) electric car mass production strategy, and a sweeping alliance with Ford.

Other skills
“A CEO needs to have an idea for how mobility will evolve in the future. This goes far beyond optimising an existing business,” said Carsten Breitfeld, chief executive of China-based ICONIQ motors, and former BMW engineer. “He needs to build teams, attract talent, and promote a culture oriented along consumer electronics and internet dynamics.”
German manufacturers have dominated the high-performance market for decades, but analysts warn shifts towards sophisticated technology and software is opening the door to new challengers.
“Tesla has a lead of three to four years in areas like software and electronics. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.
Germany’s Auto Motor und Sport car magazine, normally quick to champion German manufacturers, this week ran a cover questioning BMW’s future.
“Production expertise is important, but if you want to avoid ending up being a hardware provider for Google or Apple, you need to have the ability to move up the food chain into data and software,” a former BMW board member said.