Dubai builder Arabtec to be more selective in taking on work

UAE contractor Arabtec is adopting “a more selective approach to project tendering” after declaring a preliminary loss of Dh2.3 billion in 2015, which it blamed on a difficult regional construction market and a number of poorly performing projects.

Saeed Al Mehairbi, the chief executive of Arabtec, said that the company will look to ensure “new projects deliver appropriate returns and, in turn, long term shareholder value” after declaring results which suggest a further quarterly loss at the end of 2015 and a full-year revenue decline of 12 per cent to Dh7.3bn compared to Dh8.3bn in 2014.

Detailed accounts will be published next month, but a comparison with the company’s third quarter accounts show that losses attributed to the shareholders of the parent reduced to about Dh404 million during the fourth quarter of 2015, which was a 57 per cent quarter-on-quarter drop compared with the Dh945m loss declared in three months to the end of September. As a result, its shares finished 8 per cent higher on the Dubai Financial Market on Sunday at Dh1.17 per share.

Mr Al Merhaibi said that 2015 had been “a difficult year for all regional construction companies”, and that it maintaining a restructuring and cost reduction programme that has already seen many senior figures leave the business.

The company, which is building the Louvre Abu Dhabi, is also taking a more aggressive approach towards getting paid for work it has already carried out. In its statement to the Dubai Financial Market, the company said: “Due to the backdrop, the group is even more focused on maintaining its working capital position and ensuring collection of its receivables. Accordingly, all of the group’s entities are vigorously seeking full recovery of receivables due and where necessary enforcing the group’s rights where payments are not made.”

Sanyalak Manibhandhu, head of research at NBAD Securities, said that the loss declared by Arabtec was much higher than its expectations, but that revenues came in ahead of forecasts. He said that the boost in its share price was only likely to be temporary.

Over the course of the year, the company’s net assets dropped by 46 per cent, standing at Dh3.19bn at the year end compared to Dh5.96bn at the end of 2014. “They’ve suffered losses for the past five quarters,” said Mr Manibhandhu. “If they are going to be a competitor in the marketplace in the upturn, they are going to need more capital.”

The Burj Khalifa builder has previously tapped capital markets, raising Dh2.4bn in July 2013 through a rights issue.

Last month, Arabtec won a Dh2 billion job from Aldar Properties for 1,017 villas on Yas Island. It is also helping to build the new international airport in Bahrain in a US$1.1bn deal.

A new report published by management consultancy Strategy& said that the Middle East’s construction companies had experienced rapid growth over the past decade, driven by high oil prices and a fast-growing population. However, it said that they had been “caught by surprise” both by lower oil prices and geopolitical issues, and that they need to both reduce overheads and improve the quality of their management teams.

Issues that need to be addressed include a more effective management of manpower and better procurement of materials and services. A more rigorous approach to cash flow management is also required.

“All too often, mismanaged cash flows leads to missed payments, at which point suppliers stop delivering products to job sites, work halts and projects get delayed,” the report said.

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