Galfar Engineering & Contracting Services 9M'08 results overview

As a result, the stock price took a severe beating as it tumbled to OR0.735.

Thus, the company conducted an investor meet on 5 November 2008, in order to rest anxiety of investors.


Results Highlights -
- Sluggish Contract Income Despite of adding new contracts worth OR156.4m in its kitty, Galfar shows a deceleration in contract income growth in Q3'08 at 32.4% y-o-y compared to 51.4% and 40% in Q1'08 and Q2'08 respectively.

2.96% q-o-q growth in Q3'08, reflects a complete trend reversal as against the declining q-o-q growth in first two quarters.

After winning the contract worth RO 156.7mn in Q1'08, there was a halt in getting new projects in Q2'08.

Thus the addition of new contracts in Q3'08 completely justifies 2.96% q-o-q growth.

- Mounting contract cost eating margins
Contract cost rose 41.2% y-o-y (5.65% q-o-q) in Q3'08 at OR80m.

As a percentage of contract income, contract cost reached its new high at 92.5% in Q3'08, thereby eroding the gross margins by 572bps (from 13.2% in Q3'07 to 7.5% in Q3'08).

The key reason for sudden shoot up in contract cost is jump in material cost and sub contracting cost, which together represents 59% of total contract cost.