ARABTEC OUTLOOK OPTIMISTIC AS PROFIT INCREASES

The contractor is refinancing debt and reviewing non-core assets

Dubai contractor Arabtec Holding expects to grow its profit again in 2019 as it completes a debt refinancing by the end of this year and weighs divestment of non-core assets, its chief executive said.

Arabtec’s profit more than doubled year-on-year in the third quarter to Dh181 million thanks to project wins and an ongoing reorganisation to achieve cost efficiencies and a sharper focus. Revenue grew 12.7 per cent to Dh7.2bn during the period.

“All the characteristics that drove our quarter-on-quarter profit growth [this year] continue to be there and we’ve not reached the point where we’ve created the sustainable model we’d like. So given everything we’re doing, you’d expect continued growth,” Arabtec’s chief executive Hamish Tyrwhitt said yesterday.

For the foreseeable future, Arabtec is concentrating on the UAE – which accounts for 80 per cent of its business – Saudi Arabia, Bahrain, Kuwait and Egypt. There are no plans to enter new markets or exit existing ones, Mr Tyrwhitt said.

The company has also been reviewing its non-core assets and investment portfolio to become leaner, and has divested some assets in the past year.

As well as owning “immaterial” assets valued at below Dh5 million, such as labour camps, warehouses and plant yards, Arabtec owns a large block of commercial land close to Sheikh Zayed Road in Dubai.

It plans to develop this land in a special purpose vehicle with a strategic partner, and sell it once complete.

“We would definitely not keep hold of this,” Mr Tyrwhitt said.

Arabtec also owns a 24.3 per cent stake in Depa, which fitted out Burj Khalifa.

While the investment is not being “held for sale” – the accountancy term used when an asset is for sale – “Depa is an investible, liquid asset that is generating returns and paying good dividends” so there may be an opportunity to sell, said Mr Tyrwhitt, who is also Depa’s chief executive.

The board may wish to buy it, although no discussions have taken place, he said.

“The message is quite clear that we are a general contractor, not a speculative developer. We accumulated assets through acquisitions, and in a perfect world we wouldn’t have them, we’d focus on our core competencies,” Mr Tyrwhitt said.

Arabtec hired New York investment bank Moellis & Company to assist in a debt refinancing plan it expects to complete before the end of the year.

Along with other contractors, Arabtec suffered from a years-long slump in oil prices that muted economic conditions and caused construction activity to dwindle. However, higher oil prices this year are prompting an uptick.

Arabtec reduced its net debt by Dh146m in the last quarter and continues to strive for a zero-net debt position, Mr Tyrwhitt said.

The company reduced liabilities quarter-on-quarter for the past 18 months and a syndicated loan facility by the end of this year will consolidate its existing loans into fewer facilities with fewer banks.

Arabtec’s backlog stood at Dh16.4 billion as of the end of September, including a Dh3.2bn award by Adnoc LNG to a consortium including Arabtec, and a Dh155m contract from Dubai Municipality for drainage works.

The company will continue to seek opportunities in the residential, social and urban infrastructure sectors.

“We are taking a more thoughtful approach to our pipeline of opportunities, by bidding less and winning more.

“This has meant the quality of our backlog has improved and revenue has increased,” Mr Tyrwhitt said.

We are taking a more thoughtful approach to our pipeline of opportunities, by bidding less and winning more