KUWAIT: Net profit at Agility more than halved in the first quarter and the Gulf’s biggest logistics provider said future earnings would suffer from legal costs and lost contracts following fraud charges.
The firm, formerly Public Warehousing Co. K.S.C. (PWC), has been accused of overcharging the US Army over 41 months under contracts to supply $8.5 billion of food to troops in Iraq, Kuwait and Jordan.
If convicted, prosecutors say the company faces a fine of twice the gains it realized or twice the loss to the United States.
Agility says it is in talks with the US government to settle the fraud charges, but there is no guarantee an agreement can reached.
The firm was suspended from bidding on new contracts last November last year.
Last month, Agility said it had been replaced as the main supplier to the US military in Kuwait and Iraq.
"Agility is likely to face declining profitability over the course of the next four quarters, as a result of major US government contracts winding down in Iraq, recovery from the global recession, and the financial impact of the legal dispute with the US government," the firm said on Sunday.
Agility added that 2010 will be the final option year for US government contracts, which have contributed up to 35 percent to the firm’s annual revenues.
"A big part of the group’s business comes from its contracts with the US government and a long suspension could have a critical effect on the group’s business with the government," Agility’s auditors said in the bourse statement.
The firm’s total assets came in at AED846 million at the end of the first quarter, with shareholders equity at AED971.4 million.
Net profit in the three months to March 31 was AED17.59 million ($60.72 million), compared with 37 million in the same period a year earlier, Agility said.
"The results were not shocking but we did not expect the decline in profit to be this steep," said Naser Al-Nafisi, general manager of Al Joman Center for Economic Consultancy in Kuwait.
Nafisi said the firm’s decision not to book provisions against any potential settlement with the US government could lead the firm to post losses in the coming quarters.
The firm did not book provisions in the first quarter, the auditors said.