The Dubai-based contractor is reorganising operations to become leaner
Arabtec more than doubles profit amid debt consolidation and divestment drive
Dubai-listed 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 including a stake in interiors company Depa, its chief executive said.
“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 told The National on Wednesday.
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.
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, and there are no plans to enter new markets or exit any existing ones, Mr Tyrwhitt said.
The company has also been reviewing its non-core assets and investment portfolio to become leaner, and has already divested some assets in the past year.
As well as owning “immaterial” assets valued at below Dh5m, 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 asset in a special purpose vehicle with a strategic partner, and sell it once complete. “We would definitely not keep hold of this,” the chief executive said.
Arabtec also owns a 24.3 per cent stake in Depa, which fitted out the 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, though no discussions have taken place.
“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,” he said.
Arabtec hired New York investment bank Moellis & Co to assist the company in a debt refinancing plan it expects to complete before the end of the year. Like other contractors, Arabtec suffered from a three-year slump in oil prices that muted economic conditions and caused construction activity to dip. However, higher oil prices this year are prompting an uptick in building, which is boosting performance.
Arabtec reduced its net debt by Dh146m in the last quarter and continues to strive for a zero-net debt position, the chief executive said. The firm has shrunk liabilities quarter-on-quarter for the last 18 months and a syndicated loan facility by the end of this year will consolidate Arabtec’s existing loans into fewer facilities with fewer banks. “Strengthening the balance sheet remains a strategic priority going into 2019,” Mr Tyrwhitt said.
Arabtec’s backlog stood at Dh16.4bn as of 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.