Agility set for earnings fall on US lawsuit

Logistics giant sees EBITDA target at 25% decline from previous year.


Kuwait’s Agility, the Gulf’s largest logistics provider by market value, may see its earnings fall by around 25 percent this year as it fights a legal battle with the US government over fraud allegations.

“We have an EBITDA [earnings before interest, taxes, depreciation, and amortization] target of $220m for this year and we feel confident we are going to meet that,” Tarek Sultan, chairman and managing director, said in an interview in Kuwait on Monday.

Agility saw EBITDA of KD80m ($292m) for 2010, representing a year-on-year decline of 63 percent. Its 2011 target marks a further decrease of 24.6 percent.

First indicted in the US in November 2009, Agility is accused of overcharging the American military on an $8.5bn contract to supply food for troops in Kuwait and Iraq.

The case has led to a sharp contraction in revenue from the firm’s defence and government services (DGS) sector, which typically offers higher returns than the commercial logistics sector.

DGS revenues fell from 44 percent of total earnings in 2009 to around 25 percent last year.

Company shares have slumped 65 percent since Agility was indicted.

The logistics firm said in November it’s in talks to resolve legal issues with the US Department of Justice and there’s no guarantee a settlement will be reached.

“[Agility is] still interested in resolving the dispute amicably… but if we can’t we are fully prepared to defend ourselves legally,” Sultan said.

“You don’t executive projects of that size and contracts of that complexity without working very closely with your customer and we clearly worked closely with our customer over a six or seven year period. Even General Petraeus [of the US Army] said our company did miracles in Iraq.

“The French Logistics Agency approved our business practices, the way we conducted our business and basically everything, our prices, our suppliers, everything.”

Agility is looking to commercial logistics and an increase in business in emerging markets to boost revenues, Sultan said, but is unlikely to look to acquisitions to grow its footprint.

Nearly two thirds of the company’s business is generated outside the Middle East, with operations in 120 countries.

“Clearly the interesting markets are the emerging markets, areas like oil and gas, chemical logistics, pharmaceuticals. These are areas where we have core competencies,” Sultan said.

“Brazil, Russia and China, which are all very big into oil and gas industries, are where we see growth.”

While the company has strong capital reserves, Sultan said it was “not looking to acquire any more companies” but is “looking to just grow our business organically.”

Agility’s first-quarter profit dropped 56 percent to KD7.7m, while revenue fell 21 percent to KD318.5m. Logistics and freight forwarding comprised KD293.5m of quarterly revenue.

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