Dubai construction firms Arabtec and Drake & Scull reduce Q3 losses

Two of Dubai’s largest construction contractors, Arabtec Holding and Drake & Scull (DSI), reported narrowing third-quarter net losses on Monday after cutting costs amid a regional slowdown in infrastructure projects.

Construction companies have been struggling with a difficult industry environment as Gulf economies slow and governments restrain spending because of low oil prices, leading to projects being halted and payments being delayed.

In a sign of continuing pressures, Drake & Scull said it appointed a financial adviser in the third quarter to assist in a number of business transformation and strategic initiatives.

The unidentified adviser would help DSI to address “challenges the group is facing in its key markets”, chief financial officer Kailash Sadangi said in a bourse statement.

Recently appointed CEO Wael Allan said the company has begun a financial review of the business and that it could “necessitate difficult executive decisions”.

These could include a withdrawal from non-core markets, retrenching on civil works in Saudi Arabia and a more conservative stance on recovering certain receivables.

DSI has made significant provisions in recent quarters for non-payment of dues, including a large impairment on its Saudi business in the third quarter of last year.

This has weighed on its profitability, with the company reporting worsening earnings in nine of the preceding ten quarters.

By not repeating the large Saudi impairment from a year earlier, as well as doubling its contract revenue to Dhs868.5m ($236.5m) and continuing its “relentless” cost-cutting programme, the company managed to arrest some of the damage in the three months to Sept. 30.

DSI made a Dhs46.3m net attributable loss in the quarter, compared with Dhs877.8m a year ago and an EFG Hermes forecast for a quarterly net loss of Dhs56.41m.

ARABTEC LOSS

Arabtec also reduced losses in the third quarter, though it could not avoid an eighth consecutive quarterly loss.

The company made a net attributable loss of Dhs225.5m, according to a bourse filing, against a Dhs944.8m loss in the same period last year. EFG Hermes had forecast a net loss of Dhs83.59m.

Revenue grew by 24.8 per cent year on year to Dhs2bn while general and administrative costs were cut by 64.5 per cent, an Arabtec statement said.

Arabtec said the financial impact of discontinued operations in Saudi Arabia is expected to decrease further after recording a third-quarter loss of Dhs17m on the business, against a Dhs79m a year earlier.