MANAGING FAILURES
A LIFE EXPERIENCE
By Mohan Valrani
Senior Vice Chairman and Managing Director
Al Shirawi Group of Companies
Black Swan Event
These are events that come as a surprise and have a major
impact on a country, organization or an individual.
positive or negative.
It can be
Al Shirawi Group faced crisis starting from 1980 almost year after year due to external
circumstances which affected the overall business. The events that impacted the
performance were:
The Causes of the Failure
1980 – Outbreak of Iraq-Iran War
The first bomb fell on our Construction site in Basra and we lost 10 of our important
employees. None of our 5000 odd employees in Iraq wanted to continue hence had to
be repatriated. A major blow to one of our largest Construction Project in Iraq.
1980- We lost our Chief of Construction for Iraq Projects, who suddenly died of heart
attack due to external pressures which seriously affected the morale of the employees
across the Group.
I received this information in New York. I was sitting in Sloane Kettering hospital for
the treatment of my uncle’s malignancy, who was also a shareholder.
1981 – Detaining of Al Shirawi Cargo Ships
6 Bulk Cargo Ships owned by the Group carrying bulk cement to
Basra were detained and could not discharge or leave, even after
33 years, they are still there with no solution in sight. A major
financial blow.
Banks stopped Al Shirawi Group’s Facilities
Due to near continuous crisis faced by the Group, facilities given
by 43 Banks to Al Shirawi Group worldwide were choked leaving
the top management with no choice but to review, rethink the
future course of actions .
KPMG’s report on Al Shirawi’s Financial status
“Because of the significance of the matters referred to above, we
are unable to form an opinion whether the consolidated financial
statements present fairly the financial position of the Group
at
30th June 1986 and the results of its operations for the year then
ended in accordance with International Accounting Standards.”
KPMG’s report on the Al Shirawi Group’s financial position from
1986 to 1993.
Al Shirawi’s Equity wiped off
In the space of one financial year, the Al Shirawi Group went from
a positive equity of 52.6 Million Dirhams for the year ending March
1985 to a negative net worth of 71.12 Million Dirhams for the year
ending March 1986. Group had a loss of 50.7 Million Dirhams in
Saudi Arabia, 33.85 Million Dirhams in Iraq, 5 Million Dirhams in
West Africa apart from losses in the UAE.
1984 – Default of the Nigerian Government
The Nigerian government decided to refinance the uninsured trade
arrears by issuing promissory notes. Thus the uninsured trade
arrears worth $4.8 billion were refinanced by promissory notes
between 1984 and 1988 with a maturity period of 6 years and an
interest rate of LIBOR plus 1%. These payments against the
promissory notes were further rescheduled in 1988 for a further 22
years.
1986 – The Crash of the Oil prices
The Oil prices started falling and by 1985-86 fell from $ 23.29 to
$ 9.85
per barrel affecting all
Construction projects of the
Government in which the Group had a major stake in UAE, Oman,
Saudi and Iraq.
1987 – The Saudi Arabian Crisis
The Group suffered major losses due to enormous
delay in payments for Projects secured by the Group.
5000 odd employees in Saudi had to be repatriated.
1990 – Iraq’s occupation of Kuwait
Yet another crisis of Iraq’s occupation of Kuwait
brought shock waves in the Gulf.
Limited Choices at hand
I being the Senior Vice Chairman and Managing Director of the Group and at the
helm of all affairs and fully responsible for the ultimate results was left with two
choices :

Being expatriate, just run away from crises and take the flight out and be
free

As an experienced professional, to take up the challenge and steer the
Group out of this difficult situation.
I chose the second one even though I realized that it was a herculean task and will
take mammoth collective effort to achieve this but I was determined to take this
challenge.
Everyday, we had to face new challengers and fight a new battle, but our focus
was on winning the war.
Master plan of recovery
A master plan was drawn up with the help of a high
powered Task Force and step by step, brick by brick
actions were implemented to bring in a recovery plan
which
ultimately
discipline
and
brought
productivity
Companies in the Group.
in
systems,
across
all
financial
the
26
In Retrospect
•
Looking back in retrospect from 1987 to 1997 the recovery was achieved year
after year and when we settled debts of all the 43 Banks by 1997, the Group
had a positive cash position. From 1997, major investments have been made.
•
We have so far invested a total of Dh 3.00 billion in Fixed Assets and upgrading
of Plant and machinery, to become one of the largest Industrial Group in UAE in
the private Sector. We have had 6 million sq. ft.
of land, and as per the
Government regulations we are allowed to construct 50% which is 3 million sq.
ft. This has already been done.
•
In the last 18 months, we have additionally acquired 5 million sq. ft. with a plan
to invest another 2.0 billion dirhams in the next 5 years. Group Policy is not to
indulge in any low margin business, but to focus on high value addition.
Case Study
I am proud that our Group’s turnaround is
case study in a major Business School.
Group turnaround”,
a
real
“Al Shirawi
a Case Study was prepared by
my son Mr Navin Valrani when he pursued his MBA
from London Business School.
He got A+ and
successfully completed his MBA with distinction.
2008 – Crisis
Our Experience of 1986 crisis helped us to take
proactive steps in the year 2006-2007 during the
peak of the boom.
MY LETTERS TO SHAREHOLDERS
Sl. No.
Date
Theme
REAL ESTATE DEVELOPMENT - THE COOLING OF
THE SOUP, LIQUIDITY,
Remarks
CRACKS CAN BE SEEN IN THE REAL
ESTATE
MARKET.
BOOM
IS
UNSUSTAINABLE BEYOND THE CURRENT
PIPELINE OF PROJECTS. THERE IS EARLY
SIGN OF LIQUIDITY CRUNCH IN THE
MARKET
1
05/06/2005
2
01/01/2006
STOCK
AND
PROPERTY
MARKETS
ARE
DUBAI STOCK AND PROPERTY MARKETS VIS-À-VIS GROUP
UNREASONABLY HIGH. BALOONING PRICESS OF THE
PERFORMANCE
MARKETS ARE UNHEALTHY, CORRECTION IS DUE.
3
22/06/2006
CHANCE FAVOURS THE PREPARED MIND
LOCAL MARKETS, THREAT OF INFLATION AND
CRACKS IN THE LOCAL MARKET
4
13/12/2006
HEALTH OF THE GROUP
GREED IS BEGINNING TO GET A BAD NAME,
ECONOMY IS OVERHEATING
ECONOMY OVERHEATED AND WILL CORRECT
IMMINENT COLLAPSE, MAJOR CORRECTION
OVERDUE, SUPPLY IS MUCH HIGHER THAN
DEMAND
5
15/07/2008
MY LETTERS TO SHAREHOLDERS
Sl. No.
Date
6
03/12/2008
STRATEGY DURING RECESSION TIME
DELEVERAGING BOOKING LOSS IS BETTER THAN
HOLDING STOCK UNNECESSARILY, REAL ECONOMY
WILL FURTHER CORRECT
7
30/12/2008
DOWNSIZING
SIZE MATTERS, REDUCE EXTERNAL DEPENDENCY,
HEADCOUNT REDUCTIONS, COST REDUCTIONS
FUNDING RISKS
REAL ESTATE MARKET WILL BE FLAT, LIQUIDITY WILL
BE TIGHT.
MANY COMPANIES WILL FACE
DIFFICULTIES, INTEREST RATES WILL BE HIGH AND
MANY COMPANIES WILL FACE BANKRUPTCY,
PROPERTY AND LOCAL MARKET WILL REMAIN FLAT
ALL SHAREHOLDERS
ECONOMY REACHED MORE OR LESS BOTTOM AND IT
WILL BE FLAT.
INCREASE MARGIN TAKE
COMPETITIVE
ADVANTAGE
OF
GROUP
FUNDAMENTALS, BUT DON'T BE COMPLACENT.
CONCENTRATE IN THE AREAS OF SALES AND
RECEIVABLES AND EXPANSION.
8
9
05/02/2009
14/02/2010
Theme
Remarks
Management Philosophy
of Al Shirawi Group
FINANCIAL RATIOS
BENCHMARK
ACTUALS AS ON
30-06-2014
NET FIXED ASSETS SHOULD NOT EXCEED
NETWORTH
(Fixed Assets / Net worth)
1:1
0.81
TOTAL LEVERAGE
(Total Liability / Net worth)
1:1
0.76
FINANCIAL GEARING
(Financial debt / Net worth)
Less than or equal to 0.60
0.31
MANAGEMENT PHILOSOPHY OF
AL SHIRAWI GROUP
1.
Succession Plan implemented
2.
Corporate Governance
3.
Transparency – web based portals
4.
Open door policy
5.
Speed in Decision Making
6.
Delegation of authority with responsibility
7.
Strong Internal Audit
8.
Checklist Culture
9.
Competitive interest rates and low
financial fees –
Cost of borrowing 1.15% p.a. without collateral
securities and personal guarantees
10.
Management Information Systems – keep it simple
11.
IT – Heavy investment in IT & retraining
12.
Investing in Human Resources
- 150 MBAs, 400
Engineers, 20 CAs and 20 CPAs
13.
Staff turn over ratio less than 5% – Total employees
strength 8,500.
FUTURE
Our view on future investments in Dubai
Going forward, we have a vertical view as far as investments are
concerned.
Do not forget that a strong balance sheet is very
important. Uncertainty and volatility is the nature of not only for
Dubai, but also the entire world.
DUBAI
1.
Infrastructure
2.
Middle East base for rest, recreation and leisure activities
3.
Middle East base for various operation of large number of
companies
4.
Base for Rich and famous from GCC, India, Iran, Pakistan,
Afghanistan, CIS European Countries (Tax free heaven)
5.
Base for rich GCC Nationals to settle and educate their children.
6.
Dubai has no competition
7.
Dubai is a city, not a country. It will not be able to accommodate
the world.
8.
Knowledge based
9.
Health care, Aviation
• My presentation has put all the blame on Black swan.
• Am I evading the responsibility?
• Who do you think has made maximum mistakes?
• Who do you think responsible for failures?
MISTAKES
• Heavily leveraged Balance Sheet
• Geographical diversification. We had offices and businesses
in Japan (Tokyo), Hong Kong, Singapore, Iran (Tehran),
UAE (Abu Dhabi, Dubai, Sharjah), Oman (Muscat &
Salalah), Iraq (Baghdad & Basra), Saudi Arabia (Dammam,
Riyadh, Jizan, Tabuk), London, Geneva, Nigeria (Logos, Port
Harcourt)
• Weak Management Information systems
• Manual Accounting,
• Weak Internal Audit
• If we would have had a strong balance sheet, we would have
been a better off and survived a crisis like what we did in
2009. We came out much stronger and better than before.
• Prosperity is sustained on the bedrock of values.
• Merit
• Learning mode
“Winners never quit and
quitters never win”