Arabtec on right track back to profitability

The head of Arabtec’s construction unit said the company is “on the right track” to profit­ability despite posting its eighth successive quarterly loss yesterday.

Arabtec Construction chief executive Raja Ghanma told The National: “We had a lot of excess fat, for want of a better word. We are trying to make it a lean, clean company that functions efficiently and I think we are on the right track.

“If you take the numbers on the new projects, for instance, without the legacy projects, [they] are looking good.”

Accounts released by parent Arabtec Holding show that its net loss stood at Dh225.5 million for the third quarter, a 76 per cent drop on the Dh944.8m it lost a year earlier.

General and administrative costs from continuing operations were 64.5 per cent lower at Dh107m during the quarter, but overall costs of Dh2.15 billion meant that the company still declared a loss despite a 25 per cent increase in revenue to Dh2bn.

Mr Ghanma acknowledged that the restructuring which began following the departure of the former chief executive of the group’s holding company, Hasan Ismaik, in mid-2014, still has some way to go.

“You have to do those things through a period of time. It has to be done gradually to ensure that your operations continue to function smoothly.

“Our [selling, general and administrative expenses] has dropped significantly. It will continue to drop. We are taking measures to ensure that we operate with the least possible requirements which add to our overheads,” he said.

“In that respect, I am pretty confident that the company will return to profitability sooner rather than later, but on the question of when it will happen, it’s very difficult for me to predict because it depends on when we close all of those legacy projects we have been hurting from.”

He argued that the reduction in costs it has achieved, along with improved profitability on contracts signed in late 2015/early 2016, meant that he expected its improving prospects to start feeding through to its fin­ancials in the near future.

New projects won during that period include a Dh4bn joint venture deal with Turkey’s TAV (with Arabtec’s share worth Dh2.5bn) to build a new terminal at Bahrain International Airport, a Dh1.7bn contract to build 1,100 villas for Emiratis in Fujairah and a Dh2bn deal to build 1,037 villas for Aldar Properties at Yas Island.

“The returns on those will start making a mark on our numbers in 2017,” he said.

Arabtec Holding’s shares finished trading yesterday 2.27 per cent lower at Dh1.29 per share.

Sanyalak Manibhandu, the head of research at NBAD Securities, described the results as “disappointing”.

He had anticipated that the company might have made a profit at gross operating level, forecasting an overall loss of about Dh115m, but its gross profit margin swung back to minus 7.6 per cent during the period, compared with a positive margin of 0.3 per cent during the second quarter.

“At some point it will get better, but it was disappointing that they didn’t make a better show of it in the third quarter,” he said.

Arabtec is still facing issues outside the UAE, including a shareholder dispute in Qatar and the joint venture in Saudi Arabia with Saudi Binladin Group which it has been looking to divest since late 2014. During the third quarter, accounts show that this business declared a loss of Dh16.9m from negative revenues of Dh19.5m. Contractors in the kingdom have been caught up in a cash crisis owing to the freezing of payments by government.

Mr Ghanma said it remains in discussions with SBG but no decision has been reached over its fate. He added that Arabtec is “working on strengthening its presence in Saudi Arabia” through its own, wholly-owned business units.

mfahy@thenational.ae

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