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28 March 2024

GCC contractors' backlog up as Q3 contracts drop

Image via Shutterstock

Published
By Waheed Abbas

UAE construction contractors Arabtec and Drake & Scull have the largest order backlog in the GCC by the end of Q3 2014, according to a new report.

Order backlog of GCC contractors increased despite drop in the value of contracts awarded in the third quarter of this year, Kuwait-based Global Investment House in its third-quarter update on GCC construction contractors.

The total value of projects awarded to the GCC contractors dropped 37.3 per cent to $800 million (Dh2.9 billion) in Q3 2014 compared to $1.3bn (Dh4.77bn) in the same quarter last year. On a quarter-on-quarter (qoq) basis, projects awarded decreased 50.5 per cent.

Global said order backlog of GCC contractors rose 4.8 per cent year-on-year to $12.7bn (Dh46.6bn) in the last quarter.

UAE contractors Arabtec and Drake & Scull International (DSI) dragged down the value of the sector’s total project awards.

Arabtec’s project awards fell to $300m (Dh1.1bn) in Q3 2014 from $600m (Dh2.2bn) in the same quarter of 2013, while those of DSI declined to $369m (Dh1.35bn) in Q3 2014 from $414m (Dh1.5bn) in the corresponding period of 2013.

UAE contractors had the largest order backlog, led by Arabtec and DSI, which accounted for 51 per cent and 33 per cent of the sector’s backlog, respectively.

The overall GCC projects market totalled $2.49 trillion at the end of September 2014 with Saudi Arabia maintaining its leadership position.

Profitability

Profits of GCC contractors dropped 21.4 per cent YoY to $35m in Q3 2014 from $45m in Q3 2013, mainly due to lower profits of DSI, Arabtec, and Nass Corp., Global added.

DSI’s profits fell 10 per cent yoy, while those of Arabtec and Nass Corp declined 31.9 per cent yoy and 39.2 per cent yoy, respectively.

However, heavyweight AKS reported a strong profit growth of 23.1 per cent yoy. On a quarter-on-quarter basis, sector profits fell 16.6 per cent, mainly due to profits of Arabtec and DSI declining 33 and 17.4 per cent, respectively.

The construction sector’s gross margin stood at 10.8 per cent in Q3 2014, down from 11.4 per cent in Q3 2013. On a qoq basis, gross margin contracted from 11.3 per cent in Q2 2014. Operating margin contracted to 3.1 per cent in Q3 2014 from 4.4 per cent in the same month last year.

“This trend supports our view that the sector would continue to record margin decline in the near term due to high construction costs and stiff competition, before starting to improve,” said Hettish Karmani, Senior Manager, Research, at Global Investment House.