What the year-end financial results say about the UAE economy

Opinion: Year-end corporate results paint a mixed picture for the real estate, retail and leisure sectors in the country, writes Suresh Vaidhyanathan, financial expert
The year-end results also highlighted some successful turnaround stories – from companies that seemed to be in a perennial cycle of losses.
By Suresh Vaidhyanathan
Sun 04 Mar 2018 12:14 PM

We’re fully in the midst of corporate year-end results. As the numbers for 2017 start emanating from the listed corporates, the expectations are that the trends may not be positive for all. In the landscape of growing challenges, lacking a unified trend, the results seem dispersed all across the spectrum – in the business of real estate and retail.

Emaar stole the limelight with its earnings reflecting the strength of its land bank, strategic partnerships and retail assets in Dubai. Emaar Properties reported an eight percent growth in net profits in 2017 to AED5.69bn.

Emaar’s retail arm that runs, among others, the world’s most visited destination retail infrastructure, reported a healthy profit of AED2bn in 2017 on revenues of AED3.63bn – a neat growth in net profit of 11 percent from the previous year.

The Dubai Mall attracted 80 million visitors during the year, acting as a vital catalyst for the retail industry in Dubai. Emaar’s stated growth plans in capacity creation and access to key locations is likely to stimulate revenue growth in the medium term. Emaar Development had a stellar run with the numbers with net profit surging to AED2.74bn, up 30 percent from the previous year.

Battling downward trends

Net profits at Abu Dhabi’s Aldar were down at AED2bn in 2017 from AED2.8bn the previous year – owing largely to a one-off revaluation charge. Underlying gross profit (from operational activities) did increase by 34 percent and future growth in revenues is anticipated from more destination development projects, increased focus on the mid-market and efficient asset management.

The other major off-plan player, Damac, recorded a 25 percent profit drop in 2017 while revenues increased by four percent, indicating a reduction in margins. The reduction was attributed to international projects, with domestic margins still strong at 52 percent. Booked sales increased to AED7.5bn at year-end.

Union Properties (UP) is still trying to turn its fortunes around and the company lost AED2.3bn in 2017, with a big fall in shareholder equity to AED2.60bn from AED5bn. Having bought UP’s stake in Emicool for AED500m, parent company Dubai Investments is mulling an IPO for it later this year. Judicious use of this liquidity (proceeds of Emicool sale) in revenue generating projects will bode well for UP.

Reeling from the closure of loss-making outlets, DFM-listed retailer Marka reported massive drops in revenues and profits of 68 percent and 44 percent, respectively. Marka needs to get its act together in establishing a viable portfolio of retail assets in a highly competitive market environment.

Positive news came from Emirates Real Estate Investment Trust. Driven by rental income growth, the year-end portfolio value at rose to $860m, up by an impressive 14.20 percent from the previous year. Its gearing ratio was well within stipulated limits at 42 percent.

More fun on the horizon?

On the other hand, DXB Entertainments endured a challenging 2017, reportedly drawing only a third of its expected visitors for the year (6.7 million). The company recorded a net loss of AED1.10bn largely on the back of unabsorbed depreciation and interest arising from the huge investments.

Worldwide, however, such facilities take years to mature and hopefully DXB’s prime assets (the Middle East’s first Legoland theme park and parks based on Bollywood and Hollywood films) will attract more footfall through intensive marketing. Interesting days ahead for the management of DXBE – with a need to improve across all performance parameters; backed by commensurate capital and debt support.

Relevantly, Dubai recorded a total of 15.79 million tourists in 2017, an increase of 6.2 percent from 2016. As reported by STR, the average hotel occupancy in Dubai was 86.4 percent in January – the first January RevPAR increase since 2014. Both indicators are good signs for retail and leisure projects in the city, coupled with a welcome slowdown in supply growth. With visas on arrival, the Russians and the Chinese may travel more into the UAE, enhancing prospects for hospitality and leisure.

Turnaround stars

The year-end results also highlighted some successful turnaround stories – from companies that seemed to be in a perennial cycle of losses.

Regional construction giant Arabtec seem to have turned the corner finally, after some turbulent times that led to a capital restructuring. The company recently chose to extinguish AED4.6bn of accumulated losses. In 2017, the company made a net profit of AED123m, against a loss of AED3.4bn in the previous year. With increasing order book and margins, it does seem the positive trend is sustainable. As part of the turnaround strategy Arabtec had also decided to dispose non-core assets and increase focus on key geographies.

In another turnaround, Shuaa Capital turned to profit in 2017 with AED74m as net profit, also the highest full year profit since 2007. If the company can sustain the 22 percent growth in revenues recorded in the last quarter of 2017, the shareholders can look forward to a healthy future for the business in the coming years.

However, continued losses seem to still be hampering recovery efforts at Drake and Skull International (DSI) with s net loss in 2017 of AED1.39bn. With a comparative increase in losses from the previous year and negative revenue growth, things still seem hazy on the future prospects.

The consolation could be the profit recorded in the last quarter of 2017 – it should be seen if this trend is sustained over the current year. As part of turnaround efforts, DSI also reduced capital financing by 75 percent, increased capital and restructured its debt.

Investors in the UAE’s stock markets will closely watch the trends in the coming quarters before perhaps triggering any major investment action.

Suresh Vaidhyanathan, financial expert

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