Arabtec profile: Rising from the Ashes

Ziad Makhzoumi, Arabtec CFO
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He is the CFO of the biggest construction firm in the UAE, and he has an answer for everything. Ziad Makhzoumi, CFO of Arabtec, talks to Construction Week about Nakheel payments, the Aabar deal, the BBC Panorama scandal and the company’s plans for expansion.

It would be fair to say that 2009-2010 was a tough year for Arabtec. Dubai’s construction industry bore the brunt of the worldwide recession and contractors across the board were left to grapple with a dramatic decline in new business and cancelled projects. But this was just the beginning for Arabtec.

Dragged into a scandal about the state of its labour camps and forced to make provisions due to non-payments from struggling developer Nakheel, the firm faced a number of additional and unexpected hurdles.

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“Towards the end of 2008 was when the whole market started changing,” Ziad Makhzoumi, Arabtec’s Chief Financial Officer explains. “There was a lot of uncertainty about what was going to happen to lots of projects that were technically awarded to the contractors in general, but were either suspended, cancelled or re-tendered in some cases.

“And you know, in construction, you’re not taking on a four-week project, you’re taking on a three or four-year project, and there is usually a lag time of about two quarters between signing a contract and seeing the revenue on your balance sheet.” That said, Ziad Makhzoumi remains extremely confident and positive about the future. In fact, with his sights set on a number of new markets and ventures, there is no room for pessimism, and his Q1 figures are the ideal starting point.

“If you compare our first quarter [financial results] of 2009 with the first quarter of 2010,” he says, “the net profits in 2010 were down 17%, but the net margin went up from 8.634% to 8.675%. That’s because we are operating in new markets. If you compare the last quarter of 2009 with the first quarter of 2010, the results improved from a loss of AED 16.8 million to a profit of AED 134.5 million for the two consecutive quarters.”

So how did Q4 2009 compare with Q1 of 2010? “We did not make a loss in Q1 of 2010, but we showed a loss in Q4 2009. When we finalised our accounts we thought it was very important and prudent that we take provisions when it came to certain projects, due to rumors we were hearing in the market that certain developers were expecting a discount on receivables, or to re-schedule a payment. From an accounting point of view, you have to assume that you are going to receive less.”

Preparing for the worst, incidentally, is one of the things that Makhzoumi is good at. While remaining optimistic, he is open-minded about the market turning at any time, and thus, he was only slightly surprised to be awarded two new projects in Dubai worth a massive combined total of AED 1.3 billion in the first quarter of 2010 alone.

“The problem,” he explains, “is that the market is continually changing, and there are so many shocks to the system that you cannot predict it. We’re still going through a phase of adjustment now. It is difficult to predict on a quarterly basis what else can go wrong, what new projects will come up and start.”

Indeed, one thing that Arabtec could not have prepared for was the scandal broken by the BBC’s Panorama programme last April, about the poor living conditions at one of its labour camps. Having secretly filmed workers at their accommodation, the BBC claimed the camps were filthy and overcrowded. Though Arabtec officials hit back at the documentary’s accusations, the question remains: has it affected the firm’s reputation?

“I don’t think it has to be honest. The BBC, in my view, raised an issue that should have been addressed in a different way. It was presented from a very biased point of view, in Hollywood style, it was not necessarily factual, but circumstantial. And after the BBC programme we did bring in other media who saw for themselves that most of the claims were exaggerated.”

The camp in question has since been closed down, and according to Makhzoumi, his company continues to do its best to ensure that any issues within labour camps are dealt with as quickly as possible.

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