Dubai builder Arabtec suffers first loss since 2009
Net loss is 11.6 mln dirhams; Revenue 1.3 bln dirhams vs 1.2 bln yr-ago; Gross margins drop 9.9 percent year on year; Shares close down 4 pct on Dubai bourse
August 9, 2012 10:30 by Reuters
Dubai-based Arabtec, the UAE’s biggest builder by market value, posted its first loss since the emirate’s property collapse and debt crisis in 2009, as profit margins declined and costs rose.
The builder looked to have navigated two years of market doldrums safely by shifting its focus away from Dubai to more resilient markets such as Saudi Arabia and Qatar.
In June, a consortium Arabtec is part of won a $2.9 billion contract to build a terminal at Abu Dhabi’s international airport, signalling that more lucrative contracts from the oil-rich emirate may come Arabtec’s way.
But a second-quarter net loss of 11.6 million dirhams ($3.16 million) fell short of an average of analysts’ forecasts in a Reuters poll for a 78 million profit. The loss compared with profit of 29 million dirhams in the same period in 2011.
Analysts pointed to declining margins to explain the shortfall, with some suggesting the increasing exposure to Saudi Arabia and costs associated with the airport project may have weighed on the results.
“We … believe that higher-than-expected KSA (kingdom of Saudi Arabia) project execution might have led to the lower profitability in the quarter,” analyst Jan Pawel Hasman at investment bank EFG Hermes said in a note.
Profit margins are traditionally low for contracts in Saudi Arabia. Arabtec, whose Saudi projects are slowly starting up after initial delays, said its gross margins fell 9.9 percent year on year.
Hasman said the Abu Dhabi contract, one of the largest ever secured by Arabtec, may have added to expenses.
“While the company’s cash flow statement gives no indication of excessive provisioning, we initially believe that the surge in selling, general and administrative expenses (SG&A) may have been related to the Abu Dhabi Midfield terminal contract preparation,” said the note.
Contract costs rose to 1.2 billion dirhams from 1 billion and administrative expenses jumped 62 percent to 154 million.
Arabtec shares – which have more than doubled in value this year as Abu Dhabi investment firm Aabar built a 21.6 percent stake in the builder – closed 4 percent lower on the Dubai bourse.
Arabtec is expected to secure more contracts from the UAE’s wealthy capital. The Dubai firm also named Aabar’s Khadem Al Qubaisi as chairman in May, a sign of the investment firm’s growing influence in the company.
Aabar, which owns stakes in high-profile companies such as German carmaker Daimler and commodities trader Glencore, dropped a $1.7 billion bid for a 70 percent stake in Arabtec two years ago.
($1 = 3.6730 UAE dirhams)
(Editing by Jon Loades-Carter)