Nice profit. Shame about the debt
Good news: This week some of the big boys say they expect to return to profit this year. Still a wee bit of debt to worry about, but it’s a start.
January 19, 2011 5:38 by Sam Potter
Business 101: What’s more important, profit or debt? Answer: Neither – business is all about cash flow. Both profit and debt are irrelevant in the short term if your cash flow falls below or rises above a certain point.
Obviously, that’s a bit simplistic, but it came to mind when we heard two pieces of news this week. Both concerned major UAE companies, who have been through tough times but have announced that they hope to return to profit in the coming year.
Let’s start with the biggie, Dubai’s “flagship conglomerate” and all round behemoth, Dubai World. According to a Reuters report this week, the giant company expects to see recovery in its most critical businesses this year. These include ports and free trade, apparently.
“The board of directors voiced confidence in Dubai World’s ability to achieve significant recovery in critical areas … including ports, dry docks and free zones … and has strong expectation of achieving profitability goals,” the Dubai government said via a statement Monday. According to the report the budget for Dubai World and its subsidiaries was passed by the board, and it aims to “strengthen the overall financial performance and raise the efficiency of its units to achieve high profitability in the coming period.”
Second up, Aldar Properties expects a return to profit by the end of 2011, according to Dow Jones. “In the coming year, you will see that the company will be in black at net profit level for 2011 and 2012 as well,” Shafqat Malik, the company’s chief financial officer, told investors on a conference call. Aldar has posted losses for four consecutive quarters.”We don’t expect that the market will remain like this–there is a future,” said Malik.
Aw, that’s actually pretty nice. ‘There is a future.’ Kipp likes it. And you know what? It’s true. We said yesterday that all everything needs is a little time, and unless the Mayans and our blog was right, all will be healed.
But Aldar and Dubai World are of course still burdened by massive debts; Dubai World has had to reach agreement on $25 billion of liabilities, while Aldar has just been rescued by the Abu Dhabi government to the tune of $5 billion, give or take. Hence our little Business 101 nugget: Profit is all well and good, but it means nothing if you don’t look at the bigger picture, and that includes debt. And of course, that all important cash flow.
Nonetheless, for Aldar and Dubai World, a return to profit will be a welcome relief. Hopefully a little profit will mean that cash flows into the company, as opposed to out of it.