GOING UP

Oman 2014 | REAL ESTATE & CONSTRUCTION | INTERVIEW

TBY talks to Youssef Shammas, Managing Partner at Target, on the history of Omani construction, the effects of the Arab Spring, and future growth strategies.

Youssef Shammas
BIOGRAPHY
Youssef Shammas has over 45 years of experience in the construction industry. He has been active in Oman since 1972, and was a Founder of Target. He also managed the Oman and Bahrain operations of the Consolidated Contractors Company (CCC) for 20 years. In addition to contracting, he is also involved in various business and philanthropic ventures in the Middle East and the US. Shammas also holds has a degree in Civil Engineering from the American University of Beirut.

What is the background of Target's involvement in the Omani construction sector?

Target was started in 1976 as a small construction company, carrying out minor building projects. In the 1970s and 1980s, civil projects were primarily buildings, as the market demanded accommodation and offices. Road projects were also in demand and important because the country had to be linked up in order to assist its development. In those days, there was not a lot of demand for infrastructure projects such as water and sewage. However, since the late 1990s, this has changed, and such projects are vital to the country's development. Target stayed abreast of this trend, and such projects comprise of a large portion of our portfolio. While we continue to execute building projects, the infrastructure segment provides us with better returns. Constructing a building is relatively more straightforward than carrying out an infrastructure project, as the latter is more complex and requires a more rigorous and diligent approach in order to complete the job. A reflection of this is the tendering picture: one can almost always see many more bidders for buildings than for a water or sewage project.

How has Target grown in the infrastructure construction sector?

Our growth is a combination of market opportunities, and also our ability to make good on our commitments. We do not believe in growth for growth's sake, but in managed growth. We are not obsessed with numbers, be it the number of employees or the value of projects. Target might grow to double the size we are today, but this would not have necessarily result in better returns or performances. We place much more emphasis on making the best use of our resources, such as our workforce. Also, our key focus is on ensuring excellent project delivery and quality, and, therefore, a good relationship with our clients. An important point to mention is that we also price our bids realistically, and this, along with our technical credentials, maintains our credibility in the market. We are now moving into bigger and more complex projects that can further improve our reputation and competence.

What is the composition of your current portfolio?

Currently, around 80% of our active projects are in the water sector. These projects are in urban and rural areas, and the client is the Public Authority for Electricity and Water. The rest of our portfolio consists of buildings, the Diwan (Royal Court Affairs), and Petroleum Development Oman as clients.

“ We have a healthy project backlog and are optimistic for the future. "

How has competition in the construction sector evolved in recent years?

While the construction sector in Oman is large, competition today is very high, and particularly so in buildings and roads. While our bidding approach is selective in general, we are more stringent when we bid for a building project. Due to there being a lower number of bidders for infrastructure projects, one has a better chance of succeeding. Over the past few years, several companies from outside Oman have attempted to enter the sector, but very few have succeeded.


How did the Arab Spring affect Oman's business environment?

From a business perspective, an effect of the Arab Spring appeared to be a slowdown in the launch of tenders, as well as a slowdown in the awarding of projects. The payment of client dues takes longer than it used to, which affects our cash flow and operations. However, I am confident that this is only a temporary phase.

Where do you see the growth opportunities for Target?

Almost 95% of Target's contracts are with the public sector. I do not like working with the private sector. The cash incentive behind working with the private sector is neither sufficiently strong nor sufficiently reliable. I believe this country still needs a lot of development projects. The government, under the leadership of His Majesty, is sensible and is taking a pragmatic approach to projects. The Arabs actually have big plans with water and electricity transmission development projects. They are building strategic reservoirs for emergency water supplies. This presents us with a huge opportunity. Wherever we can bid on our own, we do so. In the past, we have lost a couple of jobs because we did not want to go on our own, but we are now much stronger. Our core operations are in the civil construction sector, and we intend for this to be our bread and butter. To complement this, we have begun to branch out into the electromechanical field, as well as metal fabrication, joinery, and earthworks.

What is your outlook for Target?

Our hands are full for the coming two years. We are still pricing and doing estimates, but we are concentrating on our major projects. Financially, we are very strong compared to our size. We have exceptionally strong liquidity. Our current ratio is around 1.8-1.9, which is very strong. We keep money in our company, and we distribute profits at a rate of around 30% or 40% every year. We started with around OMR5 million, and today we have OMR15 million-OMR20 million. We can now jump to OMR30 million on our own. Slowly but surely, we will make it. I am happy to be cautious in my approach. One day my son will take over, and I want him to be involved from now on. We have a healthy project backlog and are optimistic for the future. By continuing to build up our experience and reputation, we aim to bid for larger and more complex projects. Also, we expect success in our diversification efforts. Overall, we are confident of continuing to play a positive role in assisting Oman in its development.