Dubai: Arabtec, the largest construction firm in Dubai, has given investors and the wider construction industry a bit of a shock by reporting a loss of Dh315.31 million in the first three months of the year, as against a Dh156.56 million profit for the same period in 2014.
Of particular concern is that losses from continuing operations amounted to Dh293.21 million, compared with a profit tally of Dh121.08 million a year ago.
On the revenue side, there was a marginal gain, to Dh1.79 billion from Dh1.78 billion. But offsetting that is the spike in the construction giant’s direct costs — Dh1.93 billion against Dh1.5 billion in Q1-2014. This has been attributed to the high cost of projects.
Losses stemming from discontinued operations were Dh28.14 million, from the profits of Dh30.75 million in the first quarter of 2015.
The loss attributable to shareholders is Dh279.82 million, while it had a profit of Dh137.88 million in first-quarter 2014. But the company, in a statement, emphasised that the first-quarter losses will not in any way impact its backlog nor come in the way of its medium-term prospects.
To reiterate the point, Arabtec confirmed it had bagged contracts valued at Dh1.7 billion plus in the first three months.
In the statement, the newly installed Chairman of Arabtec Holding, Mohammad Thani Murshed Al Rumaithi, said: “The construction sector in general and Arabtec in particular are affected by low returns from commercial positions accrued on its projects with developers, which has prompted us to adopt a more conservative policy in announcing our projects’ profits and issuing our financial results.
“We are intensively following up the collection and negotiating on such commercial rights arising from the variation (in) orders and claims to the projects’ execution.
“However, in order not to face risk and market volatility, and as a commitment to the principles of transparency with our shareholders and investors, we have been conservative in preparing the financial results.”
The Chairman’s statement attests to the liquidity tightness that has seeped into the local construction sector. Arabtec’s statement notes that the industry is witness to ‘significant pressure due to the economic and political circumstances in the region. This has prompted developers to reprioritize projects and control costs, in addition to the negative implications on the spending levels in the region as a result of lower oil prices, which all in turn had adversely affected the Company’s profits.’
Meanwhile, industry sources suggest that Arabtec is scaling up its exposure in markets such as Saudi Arabia and should be doing so shortly in Egypt too, where its role was recently reaffirmed for the $40 billion housing development programme. “Strictly from the pipeline of announced projects Arabtec is involved in, the company’s medium-term operations look extremely secure,” said Sameer Lakhani, Managing Director at Global Capital Partners. “From sites in Dubai to even in places like the King Abdullah Economic City in Saudi Arabia, there are a lot of signs put up bearing the company’s name — the visibility is very much there.
“But the market would like to see more concrete information emerging about the status on the individual projects, principally on the cash flow generation.”