Tom Barry: ‘The UAE is coming out of recession as we speak’

If you work in Dubai, you’ll be used to seeing the name Arabtec plastered all over the city’s building sites. If you don’t, you might have heard the name in connection with a certain labour camp, whose horrendous conditions were exposed in a BBC documentary in April.

But for anyone unfamiliar with Arabtec, it is the UAE’s biggest contractor – its 52,000-strong workforce dwarfing names like Al-Futtaim Carillion, which has about half as many UAE staff. It went public in 2004, has no majority shareholder, and it has had a hand in most of the UAE’s best known projects, including the world’s tallest tower, the Burj Dubai, the Burj al Arab hotel in Dubai and Abu Dhabi’s Emirates Palace.

The contractor may not always have had favourable press coverage, but ask industry insiders about it and the reaction is one of respect. One consultant says: “They’re no-nonsense; they come in and get the job done.” This solid reputation has been built up over the 35 years since the firm was founded in Dubai, which makes it an established player in a city where everything seems to be new.

Tom Barry, Arabtec’s chief executive, has been with the company from day one and is similarly respected and straightforward. Now that the construction sector is showing signs of revival in the UAE, Barry is one of the people best placed to forecast what will happen next.

Despite working for a listed company in a state not best known for its transparency, the genial 62-year-old Irishman is happy to go on record saying what he thinks. A civil engineer by trade, and a graduate of University College Dublin, Barry began his career in Scunthorpe as a site engineer with Sir Robert McAlpine. There he met Riad Kamal, a Jordanian engineer with a plan to set up a contractor to take advantage of the UAE’s boom. It was 1975 when a 28-year-old Barry followed Kamal out to Dubai. He has been there ever since.

Today he works at Arabtec’s HQ, which is a low-rise building in an unremarkable trading estate behind Mall of the Emirates. It feels more like a site hut than the nerve centre of one of the most powerful firms in the UAE.

“Lets face it,” says Barry with a wry smile, “Dubai’s construction market is never going to be what it was. The demand is not there and people don’t have the money to invest in foreign properties or go on holidays.”

Arabtec’s results, announced last week, bear witness to how tough the past year has been for the £1.3bn-turnover firm. Profit was down 35% in the third quarter of 2009 compared with the same period in 2008. It made a net profit of £27m for the quarter, against £37m the previous year, which was slightly worse than analysts’ expectations. Revenue fell 27% to £276m. It follows similarly poor results for the second quarter of 2009, when net profit fell by a third to £57m.

But Barry says things will improve from now on. The results for 2009 should show at least £108m in net profit with a margin of about 8.5%. Barry says: “The fourth quarter will be slightly better than the third because of the Abu Dhabi projects coming on line.” In 2010, he expects to see a top line of about £1.2bn.

Indeed, as Building reported last week, Arabtec is beginning to win new projects in the UAE, chief among them the Nation Towers, a £266m scheme in Abu Dhabi. It is also winning contracts that had been shelved, including a 1,000-villa scheme for Sheikh Mohammed bin Rashid Housing.

But Barry adds that the volume and pace of construction in the UAE will never return to the levels seen during the boom. Certainly, clients are driving harder bargains, with contractors facing 15% lower margins and performance bonds of up to 40%. Clients also want to pay over longer periods. “We’re looking at 60 to 90 days,” says Barry. And they want to pay less or even nothing upfront. “It makes it difficult to take a project on because you can’t get loans to cover this,” he says.

The payment of outstanding fees remains a problem, too. Arabtec said in March it was owed about £500m by developers in the UAE. The situation has not improved much since, says Barry. “We try to use our connections to influence clients. Riad [Kamal, Arabtec’s chairman] and myself are meeting them all the time. We keep on pegging away and using all means possible but it’s pretty stressful.”

Kamal has a certain amount of sway because he is from the region and is well known. But when established companies like Arabtec have a hard time getting their fees in, you know the recovery still has a long way to go. The protracted talks are resulting in new schedules of payments, but Arabtec will not agree to discount its fees. A further complication is that Arabtec is taking on new projects with developers that owe it money.

Like contractors everywhere, Barry is stuck between clients and suppliers. He nods towards several large piles of paper on his desk. “All that is cash flow-related.” Does he have subcontractors camping out here in the office? “There is an element of that, yes.” He says he wants to support them. “We are often paying them as soon as we get paid – and even when we’ve not been paid. We have to juggle what we’re doing all the time.”

Another thorny issue is Arabtec’s labour camps, where most of its 52,000 staff live. The Panorama documentary exposing shocking conditions in an Arabtec camp, including apparently faulty sewerage and drainage, was, he insists, an “unfair representation”. “They filmed a temporary camp that was half open. There was also a high water table and it had been raining. Okay, some of it was not how it should have been and we took measures to address that straight after the documentary. But we run about 20 camps and we have won awards for some of them.”

He adds that he does not believe Arabtec suffered as a result. “One client did ask to visit our camps, but we welcomed that and he was happy with what he saw.”

It’s clear that Arabtec is close to its clients. Relations have been strained with some, but not irretrievably, and Barry is confident Arabtec will get paid. “The clients will sort themselves out. We’re agreeing payment plans with many of them on a project by project basis, and we’re getting there.”

Once those plans are signed off, banks will be happier to lend again. But this alone is not enough to tackle the new economic reality in the UAE, which is why Arabtec is diversifying globally. It is putting this plan into action with remarkable speed. It opened in Saudi in March this year, less than six months after the downturn in the UAE, by forming a joint venture with CPC Service Group, a subsidiary of the Saudi Bin Laden Group. Barry wants to derive £600m of Arabtec’s turnover from the country in just two years’ time. It is building the £324m Lamar Towers in Jeddah and it is chasing the same revenue in Qatar, where it is building the 1.25 million m2 Al Wa’ab City.

Arabtec is also working in Russia, where it is building the controversial Gazprom tower, Pakistan, Syria and Jordan; it is bidding for contracts in Algeria and Egypt, and considering Libya and Morocco.

When a man with the experience of Tom Barry says Dubai will never return to what it was and that it is time to start working in other parts of the world, it counts for a lot. Thankfully, so does his view that everyone in the UAE will get paid …