Arabtec’s third quarter profit fell by almost a third on costs associated with a companywide restructuring that followed the departure of the former chief executive Hasan Ismaik.
The news drove Arabtec shares down 5.85 per cent in trading to Dh4.02 – 45 per cent lower than its May 14 high when shares reached Dh7.40 shortly before Mr Ismaik’s departure.
The UAE’s biggest publicly traded builder said net profit fell 32.6 per cent to Dh68 million in the three months to the end of September 2014, from Dh100.7m a year earlier.
Mr Ismaik, the architect of Arabtec’s ambitious expansion strategy the company had been following during the earlier part of the year, left Arabtec in a shock move on June 17.
That triggered a crisis in the firm’s share price in July and August it cut highly paid and new mergers and acquisitions staff as well as its chief operating officer, chief information officer and chief risk officer.
General and administrative expenses at the company in the third quarter rose 89 per cent during the period to Dh241.5m, while provision for employees’ end of service indemnity payments increased 17.8 per cent to Dh215.1m.
And with barely any new project wins announced during the quarter, Arabtec’s backlog of projects declined 9 per cent to Dh23.8 billion.
Still, revenues during the quarter rose 24 per cent to Dh2.4bn from Dh1.93bn the previous year and gross margins increased to 12.8 per cent from 12 per cent.
Arabtec said that its board of directors “emphasised the importance” of the company’s change in direction.
“We suggest the cost of redundancy played a role in the general and administrative expense margin expansion,” said Sanyalak Manibhandu, research manager at NBAD Securities.
For the first nine months of the year, Arabtec said that net profits increased 20.7 per cent to Dh309m. Revenues for the nine months increased by 37.1 per cent to Dh6.96bn.
Arabtec raised Dh2.4bn in a rights issue in June 2013 which it said at the time would be used to expand its oil and gas and affordable housing operations.
New project wins including plans to build 1 million affordable homes in Egypt came in fast, leading some to question whether the company was capable of executing all of them.
Last week the Abu Dhabi government-owned fund Aabar Investments once again became Arabtec’s largest shareholder after it bought Dh3.54bn of shares from Mr Ismaik, increasing Aabar’s stake in the company to 34.9 per cent.
“Arabtec’s working capital outlay grew for the sixth straight quarter, depleting its cash reserves and indicating the need to improve liquidity. Arabtec’s gross working capital now amounts to Dh9.9bn, up Dh2.8bn since the third quarter of 2013 and consuming most of the phase one rights issue proceeds raised last year,” said Allen Sandeep, director of research at Naeem Brokerage. “However, Aabar raising its stake in Arabtec is a welcome sign which could indirectly imply the start of a new phase.”
In a statement to the Dubai Financial Market, Arabtec added that it was “satisfied with progress” in the negotiations with the Egyptian government over its plans to build a million low-cost homes in Egypt and it still expected to start construction work this year.
lbarnard@thenational.ae
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