Saudi’s Khodari Q1 Net Up On Auction But Operating Profit Plunges

Major Saudi Arabian construction firm Abdullah A. M. Al-Khodari Sons said on Sunday that its net profit for the first quarter of this year jumped 78 per cent on the back of earnings from an auction of plant and machinery.

Net profit rose to 32.63 million riyals ($8.7 million) from 18.28 million riyals a year earlier. The machinery auction brought in 41.3 million of income.

Operating profit plunged 96 per cent to 1.02 million riyals, however, partly because of reforms to Saudi Arabia’s labour market which have made it more expensive to hire foreign workers. Work permit costs to the company increased by 13.2 million riyals.

Profit was also hurt by an increase in depreciation costs as the company deployed equipment for newly awarded projects worth 1.5 billion riyals, a 31 percent rise in manpower costs mainly due to a ramp-up of labour-intensive cleaning projects, and a 69 per cent leap in financing charges as the company enlarged its funding base to meet its contract backlog.

Chief executive Fawwaz Al-Khodari said in an interview earlier this month that he expected the labour reforms to keep weighing on the company’s bottom line for a few more years, but the situation would start improving in the second half of 2014.