Dubai: Arabtec Holding, the Dubai-listed construction company, reported on Thursday its first quarter of profitability after nine consecutive quarters of loss-making, as the company attempts to restructure and turn around performance.
Arabtec recorded Dh17.6 million in net profit for the first quarter of 2017, marking a jump from the Dh46 million in losses recorded in the same quarter last year.
The company’s revenues rose by nearly 11 per cent year-on-year to reach Dh2.17 billion in the first quarter of the year.
“While this is another step towards the turnaround of the group, there is still a lot more work to be done. The initial step reinforces our commitment to returning Arabtec to profitability and solidifies our strategic road map to achieving sustainability,” Hamish Tyrwhitt, Arabtec’s group chief executive officer, said in a statement.
He added that Arabtec is making “key operational improvements” through risk management, which has already resulted in an increase in gross profit margins. It is also working on resolving legacy issues and collecting receivables, Tyrwhitt said.
Arabtec, which as of December 31, 2016 had around Dh4.6 billion in accumulated losses, is currently readying to launch its recapitalisation programme, which includes a Dh1.5 billion rights issue followed by capital reduction.
Investor sentiment
Despite Arabtec’s turnaround plan and its financial results, the figures released on Thursday failed to improve investor sentiment, with Arabtec’s share prices going up just 1.59 per cent at the close on Thursday on the Dubai bourse. Prices ended the day at Dh0.83, still below the Dh1 mark at which the company will launch the rights issue.
“I think the market is looking at the capital increase, and a lot of people are saying it is something they can’t support. Shares for the rights issue will be at Dh1 whereas the market price is below Dh1, so people are saying, ‘Why should we subscribe to the capital increase?’ That’s what’s putting pressure on the market price despite the results,” said Sanyalaksna Manibhandu, director of research at the National Bank of Abu Dhabi Securities.
The rights issue to raise capital will launch on May 15, and has been fully committed by Aabar Investments, Arabtec’s largest shareholder. It will be followed by a capital reduction exercise that will extinguish the company’s accumulated losses.
Support
Discussing outlook, Manibhandu said: “I think they will need to sustain [profitability from the first quarter]. There’s no point in doing this and then come back with a big loss in the second quarter, so I think they will have to gradually improve where they are, and they’ve got some levers to do that with.”
He cited support from Aabar and the Abu Dhabi government as levers that Arabtec can use to ensure it continues to deliver profits in the next quarters.
As part of Arabtec’s turnaround plan, the company will dispose of non-core investments and focus on core competencies and key geographies. It also plans to secure an annual backlog of new projects of at least Dh8 billion to Dh9 billion from 2018.
Arabtec recently said it expects to see consistent growth in net profit and improved cash flow generation from 2019.
