Agility to Focus on Emerging Markets as Stocks Drop on Lawsuit

2011-06-06 10:56:11.97 GMT

By Fiona MacDonald

June 6 (Bloomberg) — Agility will focus on commercial logistics and emerging-market expansion to boost income as the Kuwaiti company fights a legal battle in the U.S. and following a 27 percent plunge in its share price this year.

“Clearly we’re in a transitional period,” Chairman and Managing Director Tarek Sultan said in an interview yesterday at the company’s headquarters in Kuwait. “This year represents a new benchmark for Agility where our results are all commercial revenue,” as it moves away from government contracts, he said.

Agility, which provides logistics services for the oil and gas industry in Iraq, made Singapore its Asia Pacific headquarters this year and expanded operations in South Korea, Malaysia and Vietnam. The company, which generated as much as 30 percent of revenue from U.S. government contracts, is targeting $220 million in earnings before interest, tax, depreciation and amortization this year, Sultan said.

The Middle East and North Africa “will be an interesting region,” while Brazil, China, India and Sub-Saharan Africa are key areas for growth, Sultan said. Agility’s investments in emerging markets and its focus on oil, gas and infrastructure industries, will help the company rebound from the loss of business with governments, he said.

Agility, first indicted in the U.S. in November 2009, is accused of overcharging the American military on a multibillion dollar contract to supply food for troops in Kuwait and Iraq. The shares have slumped 65 percent since the company was indicted. Kuwait’s benchmark index fell 9.5 percent in the same period.

‘Key Inhibitor’

“Agility’s legal case with the U.S. government is still unresolved and uncertainty over the extent of the company’s liability remains a key inhibitor for the shares and the company’s profitability outlook,” Scott Darling, an analyst at Nomura Holdings Inc. in Dubai, wrote in a report dated June 2. “A complete resolution of the legal case with no liability would likely see a temporary uptick in the shares,” Darling said.

The shares were unchanged at 380 fils in Kuwait trading today, giving the company a market valuation of 398 million dinars ($1.5 billion). Anham FCZO LLC, based in the United Arab Emirates, said last October it had started to fulfil a $2.2 billion contract to provide logistical support to U.S. troops in Iraq, Kuwait and Jordan and would take over fully from the current contractor by the end of 2010.

Agility said in November it’s in talks to resolve legal issues with the U.S. Department of Justice and there’s no guarantee a settlement will be reached. The company is still in discussions with the Department of Justice and “we do hope it will be some sort of amicable” resolution, Sultan said.

Ebitda Plan

Agility’s first-quarter profit dropped 56 percent to 7.7 million dinars, while revenue fell 21 percent to 318.5 million dinars, according to the company’s financial statement posted on Bloomberg. Logistics and freight forwarding comprised 293.5 million dinars of first-quarter revenue. First-quarter results represented “virtually 100 percent commercial logistics revenue,” Sultan said. “We’re on track thus far to meet those objectives,” he said. “In the first quarter we exceeded our expectations” of the Ebitda plan.

“In the short run it would be very difficult to replace the income or the profitability of some of the government contracts that we had,” he said. “We can replace those revenues through our commercial logistics business, and with the focus on the emerging markets, and the underlying income or profitability, although lower in the commercial business, is more sustainable and has a higher value to our shareholders.”

–Editors: Chris Peterson, Alan Purkiss