The cost of moving technical equipment such as cranes and towers from the UAE to Saudi Arabia bit deep into Arabtec Construction in the first half of the year and helped to push one of the Emirates' biggest construction companies into the red.
Arabtec surprised the market by reporting a net loss of Dh11.5 million (US$3.1m), compared with a predicted profit of Dh75.5m. The company said that was due to what it called administrative costs, which rose 62 per cent to Dh154.2m.
Arabtec said the loss was due to costs associated with its continuing strategic move to relocate construction equipment and staff away from Abu Dhabi and Dubai.
The company is working on Saudi Binladin Group's plan to build 5,000 villas in Al Hasa, Princess Nora bint Abdur Rahman University in Riyadh, the King Abdulaziz International Airport passenger terminal and the King Saud bin Abdulaziz University for Health Sciences.
"We see this loss as part of an ongoing move on the part of Arabtec to diversify the geographic project base," said Saleem Khokhar, the head of equities at NBAD's asset management group. "We expect the strategy to have some impact on profits in Q3, too, but to a lesser degree. Analysts have been caught off guard by this as they have been unsure which quarter the hit would fall into."
However, although there were no financial writedowns in the results, other analysts were more sceptical about the figures. They put the losses down to a move by the company's new board to make more provisions for troubled projects.
In May, Khadem Al Qubaisi, the chairman of Aabar, was appointed the Arabtec chairman after Aabar built up its stake in the company to become its largest shareholder.
Arabtec disclosed in its quarterly results it had suspended a project in Syria as a result of the uprising there, without giving financial details of the impact.
"The group management has taken proactive measures by entering into negotiations with its Syrian client in order to realise its assets and ensure that any exposure on its financial statements is covered," Arabtec said.
"While it is difficult to quantify the effect of these events on the future financial statements, the significance of this impact will depend on the extent and the length [of time] these events and their effect will last".
The conflict in Syria "will not materially affect the group's financial position or performance in the future", Arabtec added.
"I believe Arabtec's new board have taken a different view from the previous one on some of the projects on hand of the company and may have revised the provisions or costing for some of them," said Mohammed Ali Yasin, the managing director of Abu Dhabi Financial Services.
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