Galfar has a lengthy track record of executing large and complex projects in Oman, whether as main contractor, subcontractor or joint venture partner. Its strong contacts with the Muscat government – giving it the reputation as Oman’s favourite contractor – have paid dividends over the years, and the company’s project pipeline is still strong in spite of rising competition.
The company has benefited from the ongoing expansion in Oman’s construction sector. In 2008, the construction sector contributed RO1.1bn ($2.8bn) to Oman’s gross domestic product (GDP) – 4.8 per cent of the total and an increase of 44 per cent over its contribution in 2007.
Galfar won some big contracts in 2009, including a RO40m ($105m) contract to build Ras al-Hadd airport, south of Muscat. However, in an increasingly competitive regional contracting market, the company is finding it harder to source work. Its favoured status among government departments could be eroded, as is evidenced by some recent contract awards.
Galfar has missed out on some key contracts, such as that for Muscat International Airport, which in May last year was awarded to a joint venture of Turkey’s TAV Construction and Athens-based Consolidated Contractors International Company.
In 2009, Galfar’s net profits disappointed. A 63.8 per cent decline in third quarter profits – the most recent announced results – to RO1.25m ($3.2m), fell short of analysts’ expectations, as profitability from contracts and operations declined.
Although raw material costs declined by an average 30 per cent in 2009, Galfar’s strategy of hedging its material costs in advance have prevented the company from taking advantage of lower costs.
Meanwhile, some of its biggest ongoing projects, such as the Muscat Expressway, are taking longer to complete than anticipated. Another vulnerability is its significant exposure to one major client, PDO, upon which much of Galfar’s future revenue flow depends.
Galfar’s big challenge now is to compete more effectively on both price and quality with new market entrants. The next 12 months will reveal how successful Galfar will be in this direction.