business & human rights - presented by cynthia corby mcls, … · 2016-05-31 · qatar lusail...

Presented by Cynthia Corby

Presented by Cynthia Corby

MCLS, May 2016

Regional economic outlook

GCC Powers of Construction 2016 – The funding equation

Bahrain 3.4 3.2

Oman 4.4 2.8

Qatar 4.7 4.9

Saudi

Arabia3.4 2.2

UAE 3.0 2.4

Kuwait 1.2 2.5

Egypt 4.2 4.2

Libya -6.1 2.0

Jordan 2.9 3.7

Iran 0.8 4.4

Iraq 0.0 7.1

ANNUAL GDP GROWTH (%)

2015 2016

• Real GDP growth in the GCC projected to slowdown to

2.7% in 2016, compared to 3.2% and 3.4% in 2015 and

2014, respectively.

• $165bn contracts awarded in 2015 in the GCC. Estimated

to decrease to $140bn in 2016.

• Decline in governments income - Need to diversify fiscal

income streams and prioritise spending

• Structural reforms and revenue measures (taxation and

subsidy cuts).

• Alternative funding solutions needed (PPPs, project

bonds, BOT)

• Private sector involvement

• Tough year ahead for contractors (fewer contract awards,

slower decisions, strained cash flow).

Source: IMF, Oct 2015

164,807

170,550

161,328

118,408

133,210

139,182

149,536

127,107

2015

2014

2013

2012

2011

2010

2009

2008

Drivers of the project growth in 2016 and beyond

• Diversification of the gulf economies. Enhance non-oil industries, achieve sustainability.

• Continued public spending on projects to not undermine future growth.

• Demographic pressure posing infrastructure requirements.

Job creation for a young labor force expected to drastically grow

Residential, healthcare, commercial and hospitality infrastructure

Energy and water infrastructure (stable sectors)

• Localised drivers – World Cup and Expo

• Recent announcement that GCC Countries have initiatives in place to unify GCC on political, economic, social and defense fronts.

Source: MEED Projects

Total GCC Contract Awards 2008 – 2015 ($m)

MEED forecast for 2016: $140bn


Projects market performance in 2015

3,201

31,543

13,624

29,294

49,782

37,363

1,921

27,390

13710

28,851

58,952

42,540

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Bahrain Kuwait Oman Qatar KSA UAE

Value of awards by GCC country in 2015 ($m)

2015 Actual 2015 Forecast

• GCC project awards

forecasted for 2015 was

$172bn (which would’ve

been the largest on record)

• $165bn is the total value of

contracts awarded in 2015

• Kuwait outperformed

expectations

• Saudi and the UAE showed

a slowdown

• Qatar was in line with

expectations - major

infrastructure investments in

road and rail

Source: MEED projects


Saudi Arabia 1,022,968

UAE 861,400

Qatar 277,830

Kuwait 256,714

Oman 187,316

Bahrain 71,956

Value of projects in pre-execution and execution


Net sum of pre-execution and execution project values ($m)

2,020,530Pre-execution

657,654Execution

Construction 256,345

Power 67,905

Transport 165,275

Industrial 16,952

Oil 74,897

Gas 35,637

Water 25,377

Chemical 15,266

• GCC projects pipeline of $2 trillion. Construction

(52%) and transport (19%) the leading sectors.

Power, the third largest sector with 11%.

• KSA is the biggest projects market in the region with

$767bn. Construction, transport and power the

three biggest sectors by value in the country.

• The UAE with $706bn continues its plans to

become a global financial centre, aviation and

tourism hub.

• Qatar in the third place with $174bn continues to

build towards the World Cup 2022 and QNV 2030

• Oman has its focus on rail infrastructure. The

largest project is the national railway budgeted at

$15,6bn.

• The public sector dominates Kuwait’s construction

market. The larger schemes planned are rail and

road projects.

• In Bahrain, the biggest project is the international

airport expansion that will increase its capacity to

13.5 million passengers annually.

Projects pipeline

59

169

143

174

767

706

0

100

200

300

400

500

600

700

800

Bahrain Kuwait Oman Qatar SaudiArabia

UAE

Value of planned projects ($bn)

Source: MEED projects


Saudi Arabia

King Abdullah Economic City 93

Saudi housing project 68

Jeddah Economic City 30

Jizan Economic City 30

Largest projects underway Budget ($bn)

2.2% Projected GDP growth in 2016

$660bn Saudi Arabia financial reserves

$103 2015 budget breakeven oil price

2.2% Inflation rate in 2015

April 2016 Vision 2030 reforms announced

Transport21%

Construction48%

Gas2%

Oil5%

Water3%

Power18%

Industrial2%

Chemical1%


USD USD

256 767

billion billionValue of Value of

projects underway planned projects

UAE

Transport20%

Construction46%

Gas2%

Oil1%

Water3% Power

18%

Industrial2%

Chemical8%


$77bn UAE financial reserves

$73 Budget breakeven oil price

3.3% Inflation rate in 2015

AED 46,1bn Dubai’s budget for 2016

Dubailand 146.8

Mohammed bin Rashid City 55

Dubai South 55

Barakah nuclear power plant 40

Largest projects underway Budget ($bn)USD USD

154 689




Qatar

Lusail development 45

Qatar integrated rail project 40

Asghal Expresway programme 20

Hamad International Airport expansion 15.5

Largest projects underway Budget ($bn)USD USD

103 174




$210bn Qatar financial reserves

$59 2015 budget breakeven oil price

$12.8bn Forecasted budget deficit in 2016

$81,603 GDP per capita in 2015

Transport34%

Construction

45%

Gas5%

Oil8%

Water4% Power

2% Industrial1%

Chemical1%


This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the

“Deloitte network”) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any loss

whatsoever sustained by any person who relies on this communication.

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their

related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide

services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network

of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they

need to address their most complex business challenges. Deloitte’s more than 200,000 professionals are committed to becoming the standard of excellence.

About Deloitte & Touche (M.E.)

Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is the first Arab professional services firm established in the Middle

East region with uninterrupted presence since 1926.

Deloitte is among the region’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through 26 offices in 15 countries

with more than 3,000 partners, directors and staff. It is a Tier 1 Tax advisor in the GCC region since 2010 (according to the International Tax Review World Tax

Rankings). It has received numerous awards in the last few years which include Best Employer in the Middle East, best consulting firm, and the Middle East

Training & Development Excellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW).

© 2016 Deloitte & Touche (M.E.). All rights reserved.

http://www.deloitte.com/about

Contracting in The Middle East –

Contracting Challenges in uncertain times

Ben Hughes

Director

Capital Projects, Middle East

Contact: [email protected]

© 2016 Deloitte Corporate Finance Limited. All rights reserved


2016 Forecast

Major external factors

• Continuing low global oil prices impacting revenues

• Political and social unrest in some MENA countries

• Sluggish financial performance in many major markets around the world

• Reduction in investors from regions such as Russian and China

• Fragile economic confidence globally

• Uncertainty in local markets

• Challenges to government spending and programmes

• Cash cycle timing



2016 Forecast

What are the impacts?

• Margin erosion, or negative cash flow

• High fixed cost base, including personnel and property

• Increasing variations and claims

• Increasing risk transfer from Clients to Contractors

• Importance of correct contractual knowledge and administration

• Increasing complexity of ‘difficult matters’ and alternative negotiation models

• Lack of visibility on time and cost to complete

• Reluctance of projects to report objective bad news or early warnings!

• Disconnect between head office, regions and projects



2016 Forecast

What we are seeing across the GCC….

• Tender prices dropping further (and so are margins)

• Onerous levels of risk placed on the Contractor

• Slowing awards impacting on ‘advance payment’ culture for funding

• Growing claims and variations – uncertified, but assumed to be “bankable”

• Delay in payment and increasing “on account payments”

• Cash flow delayed (256 days av.) or stopping altogether

• Supply chain disputes

• Disconnect of the “reality” when reporting

• Increasing risk of business failure


•

Typical ‘Uncertain Market’ Dynamics

Key symptom areas

15© 2016 Deloitte Corporate Finance Limited. All rights reserved

Need for a proven

toolkit to optimise

performance of a

project / portfolio

Pressure on

margins / ROI

Increasing

project

variations

Paid when

paid strategy

and erroneous

contracts

Contingency

drawdown

Irregular

projected

cash flows

Rise of

potential

project

disputes

Supply chain

failure

Understand

contingent

liabilities?

Need to take

provisions

Volatile or

unreliable site

reporting

Project

schedule / time

variance

Cost to

complete

variances

Imbalance

between

receivables and

payments

Project

pipeline and

funding

Improved

commercial

strategy

Work out solutions

Emergency

Intervention and

turnaround

Case Study:

EPC Contractor

“But this could equally be a

Developer, Government Agency

or General / Civils Contractor”

The situation

• An Abu Dhabi/UAE based, family-owned EPC contractor, specialising in power and water projects, was experiencing a period of sustained operational and financial underperformance.

• Despite adequate project financing, the extent of margin erosion from poor operational delivery, coupled with a high fixed cost base, resulted in negative cash flow for the Company.

• In order to remain in operation, the resultant funding requirements were bridged via a number of substantial equity injections by the Shareholder.

• Faced with increasingly challenging market conditions, the Company required support to limit further losses and turnaround performance in order to limit any additional equity injections from the Shareholder.

UAE based EPC contractor

Case study – technical & financial support

17

Negative cash

flow

“Red flags”

Project delivery

failure

Challenging

market

conditions

Shareholder

equity injections

Contracting

High fixed cost

baseMargin erosion

Sustained

under-

performance


Our approach

PHASE 1 – DIAGNOSTIC ASSESSMENT

• Undertook a diagnostic review to identify the root causes of underperformance, not just the symptoms.

• Considered both operational and financial aspects in parallel, at the project sites and head office.

• Concluded our findings over a focused period of three weeks.



18

Lack of

individual

accountability

Key issues

Operations and

Finance

disconnection

Capability

deficiencies

Poor quality

information

Indecision

Demotivated

employee base

Widespread

inefficiencies

Ineffective

policies and

procedures

OUTPUTS

• Brief, Deloitte branded, PowerPoint style report, summarising our findings.

• Implementation roadmap detailing priority activities, resource requirements and estimated timescale.


Our approach



19

OUTPUTS

Activity Company

programme

Revised

programme

Variance in

Weeks

Mobilisation Works Complete 30.03.15 30.03.15 0

Engineering Works Complete 06.09.15 30.08.15 1

Procurement Works Complete 06.11.15 31.10.16 1

Construction Works Complete 27.10.15 18.01.16 (12)

Final Completion 26.12.15 20.03.16 (12)

Revised construction programme with realistic milestones

Apr-15, 293.55 May-15, 293.55 Jun-15, 293.55

Jun-15, 374.3

Apr-15, 344.58

May-15, 348.45 Jun-15, 356.02

240.00

260.00

280.00

300.00

320.00

340.00

360.00

380.00

Apr-15 May-15 Jun-15

Mill

ion

s (A

ED)

Final Budget PMO Gross FCAC Site Gross FCAC

Revised cost to complete estimate based on accurate data and stage of completion assessment

Monthly project status reporting

Fourteen day look forward

activity planner

Recovery programme to reduce

overruns

Risk and opportunity register


Our approach



20

OUTPUTS

200

220

240

260

280

300

0

5

10

15

Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15

Mill

ion

s (A

ED)

Mill

ion

s (A

ED)

PMO Forecast per Month Site Forecast per Month

Actual Received per Month PMO Forecast Cummulative

Site Forecast Cummulative Actual Received Cummulative

Improved invoicing accuracy based on reliable forecasts and construction programme

(200,000)

(150,000)

(100,000)

(50,000)

-

50,000

100,000

150,000

AED

m

Cash flow forecast to completion

Total inflows Total outflows Closing cash Closing cash inc. AED 50m claimSource: Management inf ormation

Accurate cash flow forecast through to project completion

Weekly, all party invoicing

meetings

Thirteen week, short term cash

flow forecast

Medium term, Company business

plan and Shareholder return

analysis

Claims and contract

management strategy


Our value impacts



21

Focused on most

critical issues

Wins

Rapid “buy-in” from

Company personnel

Integrated team of

finance and

operational

professionals

Robust project

reporting

Considered trusted

members of the team

Improved operational

management and

control

Transparency of cash

position

Flexibility and

adaptability in

approach

Strategic options for

the ShareholderHeadcount reduction

Successful claims

position

Streamlined

operating structure

and procedures



2016 Forecast

Summary thoughts to leave with you…

• Build resilience and accuracy into your business reporting

• Embed clear processes and controls to mitigate risk and drive best performance

• Administer the contract correctly from the outset – entitlement and notices

• Deal with ‘difficult matters’ as a priority – don’t ignore “problems”

• Be vigilant on cash flow management and updates

• Focus on supporting communication and clear reporting

• Reduce the “distance” between head office, regions and projects

• Be prepatred to step in / intervene to arrest issues

• Take competitive advantage of the market – there is huge opportunity!


This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the

“Deloitte network”) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any loss

whatsoever sustained by any person who relies on this communication.

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their

related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide

services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network

of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they

need to address their most complex business challenges. Deloitte’s more than 200,000 professionals are committed to becoming the standard of excellence.

About Deloitte & Touche (M.E.)

Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is the first Arab professional services firm established in the Middle

East region with uninterrupted presence since 1926.

Deloitte is among the region’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through 26 offices in 15 countries

with more than 3,000 partners, directors and staff. It is a Tier 1 Tax advisor in the GCC region since 2010 (according to the International Tax Review World Tax

Rankings). It has received numerous awards in the last few years which include Best Employer in the Middle East, best consulting firm, and the Middle East

Training & Development Excellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW).

© 2016 Deloitte & Touche (M.E.). All rights reserved.

http://www.deloitte.com/about

business & human rights - presented by cynthia corby mcls, … · 2016-05-31 · qatar lusail...

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