Ducab’s Saudi expansion plans held back by regulatory issues

In spite of the increase in the price of copper and global economic recession, Ducab Chairman, Ahmad Al Shaikh, describes 2010 as “an exceptional year” for the company. Valeria Camerino caught up with Colin McKay, Ducab General Manager, Sales & Marketing to find out why.

The company, which was established in 1979 as a joint venture between British BICC cables and the Dubai government, reported an AED3.6 billion in 2010 turnover, a 51% increase over the previous year and a 47% growth in copper rod capacity.

Out of this amount, cable and wire sales accounted for AED2.2 billion, while copper rod sales amounted to nearly AED1.4 billion.

Despite fierce competition from the Saudi market and margin pressures, UAE market share ranged between 33% and 50%, depending on the cable segment. Significant areas of growth included utilities, which recorded a 22% turnover increase and the oil & gas sector, which grew by 143% over 2009.

The increase was partly due to an AED110 million contract to supply cables for an oil pipeline running from Abu Dhabi to the Fujairah coast.

Commenting on Ducab’s future growth strategy, Al Shaikh expected a further 15% sales increase in 2011, in spite of copper price increase and the global downturn.

Ducab General Manager, Sales & Marketing, ColinMcKay pointed out that one of the reasons why copper increase hasn’t affected the company sales, is that the GCC region is “a conservative market” where copper cables are preferred to those made of other materials such as plastics or aluminium.

However, some sectors, including utilities, are gradually introducing alternatives to copper.

The Ducab Chairman attributed the company’s success to its expansion into new sectors and markets within the Middle East, Europe, Africa, and Asia, as well as the addition of eight new product ranges to the company’s portfolio. Cost and efficiency improvement contributed, too, with savings of AED17 million achieved through operational efficiencies and cost optimisation initiatives.

In 2010, Ducab repaid AED182 million-worth loans and pre-paid AED100 million, which accounts for 35% of the company’s borrowing capacity.

The company also made an AED50 million dividend payout to its shareholders and increased shareholders equity by AED100 million by the end of 2010.

Al Shaikh also updated the audience on the developments of Ducab HV.

The AED500 million high-voltage cable manufacturing facility, due to be fully operating by the end of the year, is a joint venture with Dubai Electricity and Water Authority (DEWA) and Abu Dhabi Water and Electricity Authority (ADWEA), which hold a 25% equal stake in the project.

“This exciting project is nearing completion and will be the major addition to the product range this year; catapulting Ducab to the next level with Extra High Voltage cable systems up to 400kV produced in a world class facility here in the UAE,” Al Shaikh said.

Ducab HV division will manufacture cables with a voltage rating of 66kV and above, replacing some of the current imports, McKay explained.

Last year, the UAE accounted for 65 to 70% of Ducab’s cable manufacturing business, while the remaining 30% was exported globally.

Within its role as a copper supplier, figures were reversed, with only 40% of the volumes sold to the domestic market against 60% international sales.

“In 2007, exports only amounted to 10% of our total production,” he pointed out.

In addition to looking at making cables in northern Africa and in India, where it obtains much of its copper and sells the finished product, Ducab has also carried out a feasibility study for the construction of a cable production facility in Saudi Arabia.

Currently, the company only has a sales office in the Kingdom, in the city of Dammam, in the Eastern Province, but the set up of a factory would help it better serve the Saudi construction market, which is expected to grow fast over the coming years, as a result of the recently announced government housing grants.

Saudi King Abdullah bin Abdul-Aziz Al Saud, Custodian of the Two Holy Mosques, pledged to increase spending on housing by SR55 billion (US$15 billion) to relieve the country’s home shortage.

Furthermore, the new facility would enable Ducab to expand into the Saudi oil and gas sector, which is currently dominated by local cablemakers.

However, Al Shaikh revealed that some regulatory issues needed to be overcome before going ahead with the project.

“The feasibility studies have been rejected by the board due to certain issues,” he said. “There are certain rules and regulations we have been trying to overcome, and we are examining what can be done about these regulations. Have we taken a firm decision? Not yet.”

He added that, due to confidentiality agreements, the company couldn’t disclose the name of the potential site and the partner they had considered.

At a regional level, the GCC Railway project represents “a very exciting opportunity” for the cable maker, which also supplied cables to Dubai Metro, as Ducab Managing Director, Andrew Shaw pointed out.

The company is also tendering for the supply of cables for the GCC interconnected grid, said McKay.

“We are looking at areas within the GCC where cable is coming into the region from non GCC sources such as the GCC interconnected grid,” he added.

To increase its market share, the company has to fight competition from some international players, such as Nexans and Prysmian, which are currently the main exporters of underground cables to the region.

“We are also in the process of pre-qualifying our cables for the new nuclear power stations to be built in the UAE,” McKay said. “However, the exact cable specification that will be used has yet to be finalised.”

Though he hints at the possibility of providing rubber cables to be used outside the nuclear power stations’containment area.

The company is also looking at investment opportunities outside the region, such as acquisitions or greenfields in different spots worldwide. “We are open to any proposal, ”Al Shaikh said.

In the Middle East, some of these projects have been put on hold due to the political situation.

McKay explains, at present the company can only supply cables to countries complying with British standards.

This, however, limits its market reach. This is why the cable maker is obtaining third-party certification confirming compliance with French standards which will enable it to operate in French standard-compliant regions, namely northern Africa.

Al Shaikh emphasised that the company doesn’t take part in any project as a minor partner, but only as a major shareholder. “We are not investors,” he pointed out. “We are a cable producer. We know our business.”

The Ducab Chairman was also keen to show the company’s commitment towards the country’s emiratisation strategy.

“In spite of the crisis, we increased the number of employees from 880 in 2009 to nearly 1,000 in 2010,” Al Shaikh said.

Approximately 44% of Ducab higher management, 14% of the white collars and three per cent of blue collars are UAE nationals, which the company intends to train and develop across the various functions of the business.

Ducab cables & copper products are currently sold in over 40 countries worldwide across Middle East, Europe, Africa and Far East Asia.