Scott Mcculloch is editor of Families in Business.
Rising oil prices and a construction boom aren't the only reasons CCC Group's balance sheets are shaping up nicely. Scott McCulloch discovers how a committed loyalty to an expanding workforce and a strong international network are driving the business forward
How do you grow a small family business into a $3 billion behemoth with operations spanning 44 countries in just 54 years? "We try not to interfere with the locals," explains Samer Khoury (pictured) effacingly. As executive vice president of Consolidated Contractor Group – CCC, as the multinational is better known – he strongly believes his company gets more bang for the buck when it shares, complements partners, and gives the locals their piece of action. "If there is a contractor in Saudi Arabia that does something, I would rather let them do it. We try to differentiate ourselves, do things that the local contractors cannot do – so we are complementary." The CCC philosophy, Khoury says emphatically, is to share the market and to form partnerships wherever possible. "So if I make a buck, you make buck." For example, the company has long abandoned its building and road construction projects in Saudi Arabia to focus on oil and gas projects. "I leave the locals to take their piece of pie."
With revenue steadily moving skyward and a backlog of orders, CCC is the undisputed construction king of the Middle East and is acknowledged as the region's most geographically diverse contractor. Group revenue in 2004 (comprising revenue from contracts of $1.55 billion) soared to $2.14 billion, broadly on the back of recovering oil prices. Revenue has grown steadily for the past five years and is showing no signs of slowing. "This year (2005) we will hit $2.5 billion and next year $3 billion," says Khoury.
The Athens-based company has profited handsomely from the oil-price driven recovery over the past five years. So how much does Palestine-born Khoury attribute oil prices to his company's good fortune? "All of it," he says. All? "Well, I would say the vast majority."
Construction may be CCC's bread and butter but the oil and gas sector, especially gas, has become a watchword in recent years. Khoury says several countries in the Middle East are shifting towards gas as a primary source of energy to meet domestic consumption needs. Oil, he predicts, will be chiefly for export. "Let us be clear, gas is the long term." Indeed, CCC has played a prominent role in several oil and gas sector projects. Its $1.2 billion Karachaganak gas development project in Kazakhstan concluded last year. "CCC Oil & Gas had a great year in 2004 by virtue of higher oil prices," Said Khoury, Samer's father and chairman," stated dryly in the company's annual report. Considering oil hit a record $70 a barrel last August, Khoury believes group revenue could hit $3.5 billion this year.
So far, 2006 is shaping up nicely as CCC begins work on its $450 million engineering, procurement and construction project in the United Arab Emirates. It is the first phase of a 32-month job to expand the federation's Habshan gas complex with US partner Fluor Corp. Two separate projects – a $350 million refinery job in Saudi Arabia and a $400 million gas train project in Qatar – will further swell the group's bulging order books. Last September, Al-Khafji awarded a $100 million contract to CCC for the expansion of its crude onshore production facilities in the Divided Zone. The two-year project management and detailed design engineering, procurement and construction and commissioning contract includes the supply and installation of facilities to reduce water content, among a clutch of other technical aspects. "Saudi Arabia has realised that they want to replace all their [domestic] power requirements with gas," explains Khoury. "All of their energy requirements, instead of relying on oil they will rely on gas. This way they will have oil for export and gas for their domestic power requirements."
That is good news for CCC which, on balance, has led a somewhat charmed existence in the turbulent Arab region. The Middle East's biggest contractor marked its golden jubilee in 2002. But much has changed at CCC since 1952. Its workforce stands at 70,000, including 7,000 permanent employees. Today, it is involved in everything from overhauling oil refineries in Oman and seawater cooling systems in Qatar to participating in the development of a $724 million shopping complex in Dubai. Its clients include privately held engineering giant Bechtel of the US, Paris-based engineering group Technip and Chiyoda, one of Japan's biggest contracting and project management concerns. "CCC's core business will remain construction," insists Khoury, who was once appointed by Yasser Arafat, the former Palestinian Authority leader, to direct the territory's $1.36 billion investment fund. He has a knack for making money. So how does he run operations for a group sprawling into 44 countries? "We have created individual divisions or small subsidiaries within CCC that can handle [non-core] business. They are on their own and they have their own profit centres."
Kamel Husseini, a spokesman for the Palestinian Authority's investment fund, calls CCC a "Palestinian icon" largely because of its role in keeping Palestine's first power plant – a $150 million 140-megawatt project – from going off the rails. When Enron, a shareholder in the project, collapsed in 2001, CCC stepped in to buy its stake, as well as coax engineers from Paris-based Alstom SA to stay on despite flare-ups in the long-running Israeli-Palestine conflict.
Recent projects include the expansion of the Ras Laffan Industrial City (RLIC) seawater cooling system in Qatar. The award was valued at just over $100 million. More lucrative, however, is CCC's mega project with Dutco Balfour Beatty to build the Dubai Mall, the world's largest shopping centre which, when complete next year, will attract a staggering 50,000 shoppers at peak.
Despite its size and global reach, CCC is still very much a family business. Two of its three founders, Khoury's father Said and his cousin Hassib Sabbagh, own the company. Although five sons from the two families effectively run the company, their fathers are still involved. Not so long ago, there was a time when CCC entertained aspirations of doubling revenue in ten years. No longer. "I think we'll see growth of $2 billion to $3 billion in 2005 and 2006 and in the next five to six years it will stabilise and we'll see where we are," Khoury predicts. "It's dangerous when you grow so fast." By December this year, Khoury expects the number to reach an eye-popping 100,000, with permanent members of staff soaring to 11,000. He warns: "Employees need to be trained to fit our culture, we have a way of doing things."
That "way" was instilled from the founding generation. Khoury talks warmly of his father's insistence of retaining the work force "even in a downturn". He believes it is what differentiates CCC from other companies. "We are a family company and we treat our people as a family. If next year there are no jobs, we won't fire them. We will try to put them somewhere else."
Even Iraq, one of the group's "biggest mistakes"– holds a tiny band of CCC workers, albeit a shadow of its former glory. The company had an extensive operation in the Gulf state before 1990. But, against the advice of the board, Khoury says he took on a five-month subcontract from Fluor to overhaul power lines in Baghdad. CCC completed the job but lost five workers in the process. Khoury concedes it was a nightmare scenario. "It is difficult if it's a person who you know or who is close to us. Somebody has to go and tell his children. That's what wakes me up at night. I am the first to know, so whenever my mobile rings in the middle of the night I just hope it's not bad news."
Iraq was an expensive gamble. "I think our biggest mistake was when we went to Iraq we brought people from outside, but we used Iraqis [too]. I'm not saying nothing would have happened to them, but Iraqis probably know better."
Recruiting skilled indigenous workers is an important aspect of CCC's philosophy. "You have to appear local," explains Khoury. "You cannot go to Saudi Arabia and appear with an American or European flag or a Western attitude. We adapt ourselves because most of our staff are Arabs, so they blend in. When in Saudi Arabia we try to employ 20-30% of our officers locally."
At a glance CCC's seemingly stratospheric headcount looks a case worthy of cost cutting hit squads turned loose at a company like General Motors. But can bloating the payroll of permanent workers by 40% really be a sound strategy for 2006? Khoury considers the immediate past and his chronic headache of sourcing skilled workers and proper equipment. "In the past two years our sales have doubled. We had $2 billion in revenue this year (2005) and next year it will be almost $3 billion. That means in four years we will triple. If I didn't have enough core staff available from within our group I would not be able to do that."
CCC's 'problems' are enviable. With more than 8,000 pieces of machinery on its books – worth $300 million – the group is the Middle East's largest user of construction equipment in terms of ownership and rental. But the construction boom has been bittersweet, bringing both opportunity and procurement headaches. "The problem now is that everyone is looking for equipment," he says. "If I go out to buy 100 cranes, you can't get them for 12 months." Which is why the company's procurement soldiers are fanning out as far as China and Indonesia to lay their hands on kit. "What are my nightmares? [Getting] people and construction equipment." The bad dream, though enduring, is not without resolution thanks to CCC's international clout. "I think we have a better chance than others because we have a network. We have global agreements for cranes and wheel-loaders."
Despite having a presence in 44 countries spread over four continents and subsidiaries in the US, Europe and the UK, CCC's core market remains the Middle East and North Africa generating about 80% of total revenue. The group's current growth strategy is three-pronged and involves building on its existing strengths. While construction will remain a core business, particularly in the field of large-scale oil and gas projects, CCC is ramping up its engineering and procurement capabilities to take advantage of so-called EPC (engineering, procurement and construction) opportunities.
Meanwhile, to counter the cyclical nature of the construction sector Khoury says CCC will continue to move aggressively into development. That division, run by Wael Khoury, has built up interests in telecoms, oil, gas, water and power, with stakes in Yemeni GSM operator Sabaphon, Yemeni oil blocks 44 and 45, the Al-Samra wastewater scheme in Jordan and IPP, its independent power project in Gaza.
"We currently have a 140 megawatt plant in Gaza," he notes. "In addition, we just signed a letter of intent in Yemen for a 400 megawatt power plant." Beyond that is the group's $150 million joint venture in Jordan. "It's basically a sewage treatment plant." CCC will build it, complete it this year and then operate it for 25 years. "So you own it, you operate it for 25 years, make the revenue out of it and then you give it back to the government."
CCC is also adopting a shrewd if not novel approach to growing its development portfolio. It recently captured a 5% stake in a Saudi Oger company called Saraya, Aqaba set up to raise cash for a $600 million five-start hotel complex in the Red Sea port city of Aqabah. Saudi Oger, the main contractor for the beachfront resort, will provide key technical expertise to develop a mammoth man-made lagoon for the hotel complex.