Arabtec net falls more than 80% for third quarter
UAE contractor sees effect of slump as expansion plans continue
Arabtec Holding saw profits for the third quarter fall more than 80% as project cancellations and a struggling property market weighed on the UAE’s biggest builder.
Profits for the period stood at AED41 million, down from the AED209 million posted a year earlier, according to its latest financial statement to the Dubai bourse, as revenues for the period fell 22% to AED1.277 billion despite a decrease in direct costs.
Nine-month profits were almost half that of last year, at AED342 million against the AED602 million posted last year, with revenues for the January-to-September period falling 26% to AED4.1 billion.
A slump in the construction market in UAE overall has caused Arabtec – which contains Arabtec Construction – to expand into other regions to compete for contracts.
Last month analysts at the Bank of America-Merrill Lynch gave a ‘neutral’ rating on Arabtec shares due to theexpected slowdown in projects and money inflows and near-term growth prospects.
“Despite our positive medium-term outlook on the US$2 trillion MENA construction and infrastructure sectors, we expect a continued slowdown in Arabtec’s geographical diversification as delays in receivables collection and new awards impede management’s expansion plans. Margin contraction risk and a scaling-down or cancellation of the Okhta Centre project is largely priced in, in our view,” a client report said.
“The lack of a clear timeframe for positive catalysts drive our neutral rating on what we think is otherwise a solid franchise.”
Last month its Saudi Arabian arm announced it had won an SR5 billion contract from Saudi Binladen to build 5,000 villas for Saudi Binladin Group in the Eastern Province.
Thomas Barry, CEO, told an audience at the ConstructionWeek conference in Abu Dhabi last month that the company would be focusing on expansion for 2011, including into the Levant region and North Africa.
"Some may be a bit slow to come to fruition, and margins will be tight because of competition from other local contractors looking for work there.
"But our major focus will be Saudi Arabia. They'll be spending around $400 billion over the next few years to improve residential areas, hospitals, schools, rail.
"The Egypt and Syrian markets will also be important for us. There are some big projects in Damascus. In Egypt they tend to carry out some large projects, so those will be big targets for us as well."
The builder of the Burj Khalifa has said that its plans to build a tower for Gazprom in St Petersburg in Russia was still on track despite resident opposition to the project earlier this year.
Working capital management remains the chief cause of near-term risk, according to the bank, and is a subject climbing the agenda at the company.
“Working capital is rarely a top priority for operating managers, but at times like these, it should be a high priority on the corporate agenda,” Ziad Makhzoumi told CW earlier this year.