Shares of Arabtec fell 5.3 per cent on Sunday after the contractor posted heavy losses, the third quarter of losses in a row, because of “a number of poorly performing projects”.
The Dubai-listed builder swung to a second-quarter loss of Dh996.4 million from a profit of Dh113.5m in the year-earlier period. Arabtec shares, which closed at Dh2.11 on Sunday, are down 24.3 per cent for the year.
For the first half of the year, the company incurred a net loss of Dh1.3 billion, compared with a profit of Dh265m in the same period last year.
Arabtec said it was “taking corrective action in response to these legacy issues”.
The company announced a new round of restructuring last month, which led to the departures of several top executives. They include Iyad Abdul Rahim, the chief financial officer, Yazan Hatamleh, the chief human resources and administrative officer, and Wassel Al Fakhoury, the general counsel and chief compliance officer.
Arabtec’s financial statements indicate that the contractor – which has announced plans to sell several of its business interests in Saudi Arabia including its equity in Arabtec Saudi Arabia, Arabtec Construction Machinery, Saudi Austrian Arabian Ready Mix and Efeco Saudi Arabia – posted big losses within these businesses ahead of their potential sale.
Under its accounting rules, these are now classed as “discontinued operations”, and Arabtec declared a loss of Dh352.5m for the three months to June because of a revenue loss of Dh149.8m.
However, Arabtec said the benefits of its restructuring would begin to show in its fourth-quarter results this year and continue into next year as it reduces its cost base.
The builder said it had a strong backlog of projects worth more than Dh20.2bn and “the necessary talent, support and other resources in place to deliver the projects on time, with highest quality and safety”.
Mohamed Al Rumaithi, Arabtec’s chairman, said: “The restructuring process, management changes, and the adoption of more conservative policies show Arabtec is on track to enhance its position within the industry, and to enable the company to perform in the currently challenging environment.”
Mohammad Kamal, the director of research at Arqaam Capital, described Arabtec’s latest results as “a negative read in the context of three quarters of disappointing numbers”. He said: “Cost proliferation and a slowdown in execution, relative to the size of its order book, have impacted profit and loss heavily. The structural changes being put in place will likely require time to bear fruit. Overall, it is likely that the business will miss consensus full-year earnings expectations.”
Market conditions for contracting companies remained tough, Mr Kamal said, noting that Dubai-listed contractor Drake & Scull posted weaker results this month.
“The macro environment at hand will continue to pressure sector earnings and cash flows,” he said.
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