Dubai's Arabtec to outsource more services to cut overheads

Chief executive says more functions can be automated or more efficiently provided by third parties.

People walk past the Arabtec headquarters in Abu Dhabi June 25, 2014.

People walk past the Arabtec headquarters in Abu Dhabi June 25, 2014.

Dubai-based construction firm Arabtec Holding is planning to outsource a range of functions it currently carries out in-house, in a bid to further cut overheads, according to the company’s chief executive.

"The business plan is under preparation for next year and the main focus going forward is about productivity and efficiency," Hamish Tyrwhitt, who has been at the helm of the company since November 2016, said in a telephone interview with Zawya on Wednesday.

"What do we mean by that? It's focussing on our key markets, rightsizing the business, looking at what are the things we can outsource that traditionally we have done internally."

Tyrwhitt said that Arabtec had developed a range of internal functions over the years, doing everything from processing visas and arranging travel to establishing its own camps and running catering.

"We're a construction company. Our employees should be contractors. But a huge number of our people are providing services to us - and it's not just us, it's across the industry."

By way of example, he said the company used to employ its own drivers to ferry packages but now private sector courier services are widely available.

He also said efficiencies can be achieved by automating some processes.

Earlier on Wednesday, Arabtec, which has been listed on the Dubai Financial market since 2005, reported a net profit attributable to shareholders of 17.8 million UAE dirhams ($4.8 million) in the three months to September 30, compared with a 225.5 million UAE dirhams loss in the same period last year.

Revenue increased by 5.6 percent to 2.1 billion UAE dirhams. In the nine-month period since the start of the year, the company has made a net profit attributable to shareholders of 75.3 million UAE dirhams, compared with a 458.3 million UAE dirhams loss last year. Year-to-date revenue is 3.2 percent higher at 6.35 billion dirhams.

However, the company has used up 1.5 billion UAE dirhams in cash flow from operations so far this year, which is equivalent to the amount raised via a rights issue that took place as part of a capital restructuring that completed in June.

"That was always going to be the case," Tyrwhitt explained, stating that the purpose of the rights issue was to fund existing projects and the company's future pipeline. "There was a lot of cash we owed out into the marketplace," he said.

He pointed to an increase in receivables - up to 5.11 billion UAE dirhams, from 4.29 billion UAE dirhams at the end of last year - as evidence that more work had been done, which is likely to once invoices due are settled.

"All of that shows a greater confidence in the company," he argued. "People are awarding us work, but also we're rebuilding and regaining the support of the supply chain."

Offloading furniture

The company also announced on Wednesday that it had disposed of its 14.6 percent stake in furniture maker Jordan Wood Industries. Arabtec Holding bought the stake in 2013 for 11.1 million UAE dirhams, but disposed of it for 3.4 million UAE dirhams, declaring a book loss of 2.5 million UAE dirhams on the disposal.

Tyrwhitt said that Arabtec would focus on its three core businesses - Arabtec Construction, oil and gas specialist Target and mechanical, electrical and plumbing contractor EFECO - which between them comprise 98 percent of the company's current backlog of 16.8 billion UAE dirhams.

Nishit Lakhotia, an analyst and head of research at Bahrain-based Securities and Investment Corporation, said that the fact that Arabtec once again declared a profit - for its third quarter in a row, after a run of nine straight quarterly losses - showed that it had stabilised.

"Now, we'll see how the next phase goes in terms of where the company will head with its strategy of making the organisation leaner and possibly improving profitability going forward," he told Zawya in a telephone interview.

He said that the large negative cash flow experienced by the company during the first nine months showed that Arabtec is still operating in a tough market.

"The cash conversion cycle is still pretty elongated. They need to start getting paid for all of this work."

© ZAWYA 2017

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