Aldar Properties PJSC: A Benchmark Company

Overview
The current report is aimed at analyzing Aldar’s financial statements and
its comparison to figures of the chosen benchmark company, namely Emaar
Properties PJSC. The analysis part of the report covers the profitability, liquidity,
management efficiency, and debt effectiveness of the company. In order to
describe the mentioned four areas of the company in a holistic and concise
manner, horizontal, vertical, trend, and ratio analyses will be used.
Aldar Properties PJSC is one of the leading developers of real estate in
Abu Dhabi. The company is one of the most recognized real estate developers
in the United Arab Emirates and the wider Middle East region.
The company was founded in 2005. The company continues to design and
build the high-qualitative real estate in Abu Dhabi and other regions of the
United Arab Emirates. The company’s stocks are traded on the Abu Dhabi
Securities Exchange. According to Aldar’s official website, its vision is to “be the
most trusted and recognized real estate lifestyle developer in Abu Dhabi and
beyond” (About Aldar 2019). On the other hand, the company’s mission is to
maximize the value of its stakeholders by creating a qualitative real estate.
In addition, Aldar is focused on following its values, including team spirit,
ambition, commitment, diversity. Team spirit emphasizes the company’s trust in
each employee and is aimed at achieving great results done together. Ambition
is one of the most important preconditions of any success. Therefore, the
company tries to be accountable and be responsible for all its actions. Diversity
implies the company’s respect for different opinions, cultures, and people.
Economic and Market Overview
The United Arab Emirates is a country with high rates of economic growth,
due to rich natural resources and its previous development. For example, the
country’s GDP average growth rate was 5.2% during 2011-2015. However, the
rate of GDP growth dropped to 3% in 2016 and 0.5% in 2017. During the last
year, the country’s GDP raised by 1.7%. As it is evident from these data, rate of
the country’s economic growth is much lesser, than it was before 2016. As it is
known, the country’s GDP may be computed by summarizing the total
expenditures of all economic subjects, or total income of the same subjects.
Thus, declining the rates of economic growth indicates lesser rates of income
per capita growth. In such a situation, the demand of all economic subjects
decreases.
The dynamics of the UAE’s GDP per capita only approves the made
above conclusion. The country’s GDP per capita increased from 40276 in 2015
to $41045 in 2016, but it declined to $40819 in 2017 and $40782 in 2018. The
unemployment rate within the country also showed a negative dynamics, since
it raised from 1.64% in 2016 to 2.57% in 2018.
1

The country’s budget was also faced with the slowing down of the economic
growth. The budget surplus of 10.4% in 2013 changed to 5% in 2014. Since
2015, there was a budget deficit. “The United Arab Emirates recorded a
Government Budget deficit equal to 1.80 percent of the country's Gross
Domestic Product in 2018” (United Arab Emirates Government Budget 2019).
The country’s debt to GDP ratio also showed a negative trend, since it
increased from 15.5% in 2014 to 18.6% in 2018. However, despite negative
dynamics, this value of this indicator is much lesser than the critical 60%.
However, we expect a positive trend, due to increasing of the ADX General
since the beginning of 2016 year. Since July 2014, the UAE’s real estate price
index dropped by 32%.
The SWOT analysis is a procedure for expert diagnostics of the
environment, which allows describing the main trends of its development,
formulating the basic hypotheses about the prospects of the organization, and
determining the field of alternative directions for its further development.
Analyzing Aldar’s internal and external environment, its SWOT-analysis is
presented below.
Aldar’s SWOT-analysis
Strengths Weaknesses
- Good geographical location
- Modern technology of building
- Flexible competitive rates
- HQ real estate
- Young skilled staff
- Reserve for skilled personnel
- Significant dependence on the
domestic market
- Insufficient advertising policy of the
company
- Little time in the market
Opportunities Threats
- Self-assembling
- Warranty service
- After-sales service
- Improvement of the client's
requirements to the quality of living
spaces
- Ability to regulate the price policy
- Implementation of various tools for
product promotion
- Taxation system and risk of currency
exchange rate’s fluctuations
- A high degree of competition from
large companies
- Limited company’s profitability
- Limited company’s financial
resources
- Declining the UAE’s GDP growth
rates and real estate market
2

Financial analysis
Horizontal analysis
Horizontal analysis is a tool used to analyze the company’s financial
report. Horizontal analysis focuses on calculating the growth rates of many
indicators this knowledge creates an opportunity to analyze the financial reports
in dynamics.
According to numbers provided in 1, Aldar’s total revenue increased only
by 1.715 in 2018 as compared to the previous year. It should be also
emphasized that the company’s revenue was fluctuating at around AED 6200
million. On the other hand, the cost of revenue increased more than the
revenue indicating that the company’s net income, as well as its efficiency and
profitability, decreased.
This decrease in the company’s net income by 7.5% in 2018 as compared to
the 2017 fiscal year only proves the previously made assumption.
As it is seen in the calculations provided in table 1, Aldar’s total assets and
current assets increased by 5.9% and 6.0%, respectively. On the other hand,
cash and its equivalents dropped in 2018 as compared to 2017 by 27.1%,
implying the worsened structure of the company’s liquid assets. Taking into
account the fact that Aldar’s current assets increased by 6% in 2018 as
compared to the prior year and its current liabilities declined by 31.3%, the
company’s general liquidity increased.
As it is also seen, Aldar’s total liabilities increased more than the total
shareholder’s equity thus indicating the worsened capital structure. In addition,
the net cash generated by operational activity became negative in 2018, while
net cash from investing activity increased from AED -1718,7 million in 2017 to
AED 792,2 million in 2018. Declined earnings per share indicate the lower
investment attractiveness of the company.
To conclude, despite the fact that most company’s indicators presented in
table 1 increased, the company’s net income declined. Meanwhile, the capital
structure worsened in 2018 as compared to 2017.
Vertical analysis
Vertical analysis is a tool used to analyze the structure of the company’s
financial statements.
3

The percentage of cash and its equivalents declined from 18.9% in 2017
to 13.0% in 2018. It is not a good trend since the cash and its equivalents are
the most liquid assets of any company. The percentage of receivables and
current assets did not change during this period.
On the other hand, the percentage of accounts payables declined a bit
from 14.8% in 2017 to 14.2% in 2018. The percentage of current liabilities
declined roughly by 10%. It can be considered a positive trend since a larger
percentage of the company’s capital goes to long-term liabilities. Declining the
percentage of shareholders’ equity by 1% cannot be considered a good trend.
On the other hand, the percentage of total liabilities increased almost by 1%.
Trend analysis
On the one hand, Aldar’s total revenue declined by 4.04% in 2018 as
compared to 2014, while its net income decreased by 18.1% for the same
period. On the other hand, Emaar’s total revenue increased by 158.7%, while its
net income - by 144.7%. In addition, Aldar’s earnings per share and other
indicators declined in 2018 as compared to 2014, while Emaar’s indicators
increased.
Chart No. 1: Financial Position
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0
10000
20000
30000
40000
50000
ALDAR
Total Assets
Total shareholders'
equity
Total Liabilities
million AED
20142015201620172018
0
20000
40000
60000
80000
100000
120000
EMAAR
Total Assets
Total Liabilities
Total Stockholder
Equity
million AED