Dubai builder Arabtec reports surprise first-quarter loss from construction slowdown

Chairman said in a statement that the Dh279m loss would not affect performance of the company and capacity to move ahead with its order backlog.

Arabtec did not say which projects or countries had been hit by contract revisions. Silvia Razgova / The National

A slowdown in the construction sector and lower oil prices led the UAE’s largest listed contractor Arabtec to swing into the red and report a surprise Dh279.8 million first-quarter loss.

Company shares plummeted 9.8 per cent in early trading yesterday before recovering ing in the afternoon to close 3.53 per cent down at Dh2.42 after Arabtec reported the loss, which compared with a Dh137.9m profit a year earlier.

The results, which missed analysts’ expectations, mark the second consecutive loss Arabtec has reported after the company announced a Dh94.4m loss for the final three months of last year.

Global Investment House had forecast Arabtec would make a quarterly profit of Dh95 million, while SICO Bahrain had estimated a profit of Dh20.2 million, Reuters said.

It came on a slight increase in revenue, which grew to Dh1.79 billion, up from Dh1.78bn reported for the first three months of last year.

But company costs ballooned to Dh1.93bn, up 28.6 per cent from Dh1.50bn last year. Arabtec blamed the spiralling costs on its own “conservative accounting”, which it said it was adopting because of the tough economic conditions it was facing.

The company said this was because of clients implementing contract clauses, downscaling and re-prioritising projects to control costs as a result of falling oil prices and “economic and political circumstances in the region”.

Arabtec did not say what projects or countries had been hit by contract revisions.

However, according to the analysis company Meed, contractors including Arabtec have been asked by the master developer TDIC to submit revised offers to build both the Guggenheim and the Zayed National Museum on Saadiyat Island in Abu Dhabi after original bids were submitted in August last year and November 2013, respectively. “The construction sector in general and Arabtec in particular are affected by low returns from commercial positions accrued on projects with developers, which has prompted us to adopt a more conservative policy in announcing our projects’ profits and issuing our financial results,” said Mohammed Thani Murshed Al Rumaithi, Arabtec’s new chairman.

“We are intensively following up the collection and negotiating on such commercial rights arising from the variation 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 company said that the loss would not affect Arabtec’s capacity to work on its ambitious backlog of projects, with a further Dh1.7bn of projects awarded during the first three months of the year.

However, analysts disagreed.

"As it stands looking at the existing liquidity, Arabtec don't have the firepower to complete all of its current backlog if the company started work on all of the projects," said Allen Sandeep, the research director at Naeem Brokerage.

“However, we believe they could probably raise the money quite easily.”

According to Meed, Arabtec and the Turkish contractor TAV bid against Consolidated Contractors Company, Ed Zueblin and Six Construct to build the Guggenheim, while the company was bidding against El Seif Engineering Contracting, Constructora San Jose and Six Construct to build the Zayed National Museum.

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