Arup cautious after crisis in Dubai

Arup, the engineering conglomerate, is warning that there is still pain to come in many of its markets, although it has been protected against the worst of the contraction in the global construction industry by its spread of work across a wide range of disciplines and regions.

The UK-based, privately held engineering group is exposed to the turmoil in Dubai’s foundering building market, exacerbated by Dubai World’s recent debt restructuring.

The group has worked for the struggling emirate holding company and is still owed payments for some projects. Arup reported a 4 per cent fall in pre-tax profits for the last financial year to March, from £50.3m to £48m, largely due to higher staffing costs, while revenue rose a robust 22 per cent to £888.7m.

Philip Dilley, Arup’s recently appointed chairman, said the primary concern was making sure the company can ride out the fallow patch in building.

“Not having to answer to shareholders who want to see their investments paying out means we can look at the long term and focus on what matters most to us; doing quality work,” said Mr Dilley.

The group said it was shifting its focus from new buildings into infrastructure work to help maintain a good forward order book.

Arup’s ownership structure – equity is held in trust and profit distributed among 10,000 employees – means the group is unable to tap the stock markets and instead maintains a healthy level of cash in the bank. At the year end, net cash was £125.6m, up from £103.8m the year before.

Mr Dilley said the cash reserves allowed Arup to reinvest in the business and make small acquisitions.

“What we don’t want to do is take on a lot of debt, or spend a lot of our cash cushion to buy up other companies and expand our position in the market,” said Mr Dilley.

Arup, which is responsible for many of the world’s most recognisable buildings, including Bilbao’s Guggenheim, London’s Gherkin and the Birdcage Olympic stadium in Beijing, has, like most of its rivals, suffered during the past 18 months.

So far during the recession Arup has cut 500 of its 10,000 workers as new commissions have fallen and construction companies feel the squeeze from lower government spending.

Some analysts also worry that Arup’s focus on highly specialised, one-off big building projects left the group particularly exposed to the dwindling future levels of private investment in construction.