Congratulations and heartfelt thanks to you all

December 03, 2008

To : All Shareholders

The last time I wrote to you, in July this year, I sounded a warning bell of impending disorder in the financial markets and the possible consequences for our businesses. Your response to my suggestions for defensive actions was immediate, positive and effective beyond my expectations. The net effect has been that our businesses have not suffered at all in terms of profitability and we are on course for the best half-year in the Group’s history. This sort of performance reinforces my strong belief in the efficacy of our hands-on, family system of management and confirms me in my conviction that our family team has truly outstanding resources in talent, dedication and cohesion, sufficient to face any challenge and yet prosper. My congratulations and heartfelt thanks to you all.


The main thrust of our defence has been attack, a direct offensive on cash leakage, and that should continue to be our aim. Sound business science and good sense will see us through these troubled times and they indicate clearly that the answer lies in cash-flow conservation. Your initial steps have already proven that to be true; cancellation of the dividend, suspension of non-essential apex, annulment of new projects have already paid off handsomely. There is, of course, more to be done but I know it takes time. We have to launch a serious offensive on our receivables and inventories, cut deeper into our expense base and bring our leverage down to levels more appropriate to the times. These offensives are a further essential tactic of defence because there could be worse to come. 


Oil prices being low and still falling, with no clear direction for the future, adds to all the other uncertainties. It is evident, however, that if there is no appreciable increase in the near future we could see a slowdown in the rate of infrastructural development. The knock-on effects will be felt hardest in the construction industry but we shall all suffer in the end. Our decision to stay out of construction and real estate as primary player might have seemed short-sighted a year ago but it is fully justified now.


We have a good grasp on our knowledge of our own markets and the potential risks from down streaming of the construction woes. We have become watchful for the effects on our own customers as the ancillary chain reaction takes effect, ready to clamp down on credit lines. There are, however, events outside the UAE which could still injure our prospects if we are not prepared. To explain what I mean, let me divert for a bit into my present view of the wider world.


One last thought, if I may, which strikes a more optimistic note. The discrediting of unrestrained capitalism, which most people felt to be morally indefensible, could give way to a new blue-print for national economies, at least in the West. A socially conscious system which sustains vital industries, protects important communities and recognizes important regional interests could very well emerge and, in many respects, is already happening as an unintended consequence. This could be the silver lining to the dark cloud which is hanging over us and could result in a more people-friendly society. 
In my experience, a worst case strategy is a sound defence. High inflation, volatile currency exchange rates, tight credit, soaring interest rates, mass bankruptcies, are all potential unintended consequences of a massive and sudden increase in money supply and they are all threats to our businesses against which we need to be on red alert. Let us strive to lean and mean until the eye of this storm has passed and then we shall be ready to take advantage of a new wave of opportunities.



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