Arabtec Construction pledged to reduce costs after its losses narrowed during the second quarter of this year, the Dubai-listed company said.
Although the company posted its seventh successive quarterly loss in the three months to June 30, the net loss shrank by 74 per cent year-on-year to Dh186.4 million – down from Dh718.4m last year, Arabtec said in a statement. Revenue for the period increased by 20 per cent year-on-year to Dh2.16 billion compared with Dh1.8bn a year earlier.
Arabtec’s new work of Dh9bn so far this year, which increased its pipeline by 12 per cent year-on-year to Dh22.6bn, would “support the company to build a strong platform for growth, notwithstanding the currently challenging market conditions”, the company said.
Arabtec is now owed more than Dh1bn in long-term debt from trade debtors – up from Dh895 million at the start of the year.
Arabtec’s general and administrative expenses dropped by 43 per cent to Dh139m, which it said was a result of the “extensive and ongoing” cost reduction programme. Notes to the accounts show that executive pay and bonuses to key management personnel declined by 87 per cent year-on-year to Dh1.4m from Dh11.1m a year earlier, when a discretionary bonus of Dh6.3m was paid out.
Losses at Arabtec Saudi Arabia – the joint venture with Saudi Binladin Group and Mawrid Holdings – also significantly declined. The business declared a loss of Dh22.4m for the three months to June 30 – a 94 per cent reduction on a year earlier. Arabtec decided to exit the venture in December 2014 and placed its stake up for sale, but the climate in the kingdom’s construction sector has worsened. Arabtec Saudi Arabia’s employee numbers have declined from a peak of almost 10,000 to below 1,000. Arabtec Construction’s chief executive Raja Hani Ghanma has said it is working with partners to either arrange an exit or a winding down of the business. It will carry out future work in the kingdom through a 100 per cent-owned subsidiary.
Despite the decline in general expenses and losses from the Saudi unit, Arabtec’s direct costs only fell by Dh100m year-on-year to Dh2.1bn, which it blamed on “adverse market conditions and project performance of a select number of projects”.
It said that it was “taking measures, where possible, to ensure timely completion of projects, maximum recovery of margins and minimise delays”.
In a research note, Sanyalak Manibhandu, the head of equities research at NBAD Securities, said that although the company’s second quarter loss was significantly lower year-on-year, it was also four times the Dh46m loss declared in the first quarter of this year and considerably higher than its estimate of Dh15m.
“The margin development continues to represent a cause for concern,” he said. “The company reported 0.3 per cent GPM [gross profit margin] in the second quarter, which is a fraction of 2.3 per cent GPM in the first quarter.”
NBAD Securities has maintained its “reduce” recommendation for the stock and a target price of Dh1.02. Arabtec’s shares finished at Dh1.51, declining by 2 fils in trading following its results announcement. It has a market capitalisation of just below Dh7bn.
mfahy@thenational.ae
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