Turnaround in fortunes for UAE’s Shuaa Capital

Shuaa Capital, the UAE's oldest investment bank, has turned in a full-year profit for the first time since 2008, as cost-cutting and strategy changes take effect against the background of a more benign economic climate in the Emirates.

Shuaa made a net profit attributable to shareholders of Dh2.8 million in 2013, compared with a loss of Dh59m in 2012. Revenues for the year surged 44 per cent to Dh198m. All revenue-generating business divisions were profitable in the year, and contributed to what the company called “this strong performance”.

Posting the small but significant profit for 2013 gave a further boost to the shares, which have risen 80 per cent in value over the past year as Dubai has consolidated its economic recovery. They closed at Dh1.05 on the Dubai Financial Market, up 4 per cent on the day, on healthy volume of 13.9 million shares traded.

Shuaa, 48 per cent owned by Dubai Holding, has undergone a transformation over the past five years, since it was hit hard by the fallout from the global economic crisis.

Sheikh Maktoum bin Hasher Al Maktoum was appointed executive chairman in 2012 and has implemented a strategic change of direction.

“We reached our financial targets thanks to a relentless team effort and improved market conditions, which have accelerated revenue growth across our core businesses. This, together with continued rigorous cost control has produced this significant result and marks the turning point for the company,” he said in a statement.

“The 2013 results clearly demonstrate the success of our strategic transformation. Shuaa has now reached a new level in terms of balance sheet strength, risk profile and profitability,” he added.

In a telephone interview with The National, Sheikh Maktoum explained the reasons for the turnaround in profitability: "We had the right cost discipline and were ahead of the market in terms of compensation structure.

“We have moved to reward based on performance. We streamlined operations to the 10th degree without risking the operations of the company.

“Running an investment bank is a bit like running a football club. You cannot bring in a lot of new talent and expect them all to work together on the first day,” he added. Sheikh Maktoum used to be chairman of the Al Nasr SC football club in Dubai.

“Now we have the capacity for growth in the right economic climate. But it’s an ongoing process. We’re constantly trying to improve, and we have enacted a cultural change at Shuaa.”

“The 2012 strategy shift was based on the imperative to increase recurring revenue, and to make profits even in downward markets. The focus was credit markets and lending to small to medium enterprises.

“In the first nine months of last year, we grew the loan book aggressively, in tight credit markets. We got amazing yields on these loans. Now credit is easier, but the strategy remains the same: to grow revenue and keep tight control of costs.”

There has been speculation that Shuaa might consider an initial public offering for Gulf Finance Corporation, its credit business. “We’ve been growing GFC fast. We need to show growth before we think about taking it public, so that’s one for the future,” he said.

Revenues increased sharply in the fourth quarter, up 153 per cent at Dh63m, and there was a Dh24.8m turnaround in the quarter to profits of Dh3.8m.

Shuaa reported total assets of Dh1.5 billion at the end of 2013, an increase of Dh116m compared with the end of 2012.

“In line with its forecast for 2013 and its plans to grow its lending business by redeploying balance sheet and increasing liabilities, cash declined by Dh234m to Dh189m and liabilities increased to Dh377m from Dh269m. Shuaa’s leverage ratio at year-end 2013 was 0.23 times equity,” the company statement said.

fkane@thenational.ae