Arabtec steering into open waters and out of trouble

To an extent, management is owning up to the blinkered approach of the past, when the focus was growth at any cost as previous management trumpeted a vision of global domination before the end of the decade.

At the start of this year I wrote about the hammering Arabtec's share price had taken over the previous six months amid management and board upheavals, and concluded that the lesson from the saga was that, on balance, an open approach offers more gain than pain.

Yesterday, the construction company reported losses for the fourth straight quarter totalling about Dh2 billion over the whole period. In a statement, the construction company said that the most recent loss – and biggest so far – in the third quarter was the result of its “balanced approach to revenue, cost and profit recognition”.

In the third quarter, Arabtec reversed Dh379 million of previously recognised claims – or earnings – and took Dh136m of provisions against receivables that added to its operational expenses. That must have been hard to swallow for management, which remains fairly optimistic about growing Arabtec’s Dh18.7bn backlog in what it describes as a “very challenging” regional construction market.

To an extent, however, they are owning up to the blinkered approach of the past, when the focus was growth at any cost as previous management trumpeted a vision of global domination before the end of the decade.

Accounting practices in the construction sector – worldwide – can at the best of times be opaque, but given the nature of project work they can also drift towards the downright criminal. It takes a strong hand to ensure that accounting of costs and revenue doesn’t get too far ahead of the reality on the job.

In Arabtec's case, management now appears to be steering a truer course and, although there may be more pain to come in the short term, the open approach will pay off for investors and customers in the long run.

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