Abu Dhabi Ship Building Co

1. Company Overview & Earnings Context

Abu Dhabi Ship Building PJSC (ADSB) is an ADX-listed shipbuilding and naval services company primarily engaged in the construction, maintenance, repair and overhaul of commercial and military ships and vessels. EDGE Defense Platforms & Systems owns 49.96% of the company.

H1 2026 was an unusual earnings period for ADSB. Revenue increased strongly by 28.5% YoY, but the company reported a net loss of AED 96.67 million, primarily due to an accounting adjustment related to the transfer of vessels between the existing Falaj3 contract and the new Kuwait Navy program.

2. Financial Performance Snapshot

• Revenue: AED 665.77 Million (+28.5% YoY)

• Gross Loss: AED 61.50 Million, vs. AED 34.91M gross profit

• Loss Before Tax: AED 106.22 Million, vs. AED 0.22M profit

• Net Loss: AED 96.67 Million, vs. AED 0.22M profit

• Loss Per Share: AED 0.456, vs. AED 0.001 earnings

• Operating Cash Flow: AED 635.54 Million, vs. AED 316.84M outflow

• Cash & Cash Equivalents: AED 867.31 Million

Despite the reported loss, management stated that ADSB remained profitable on an underlying basis, with revenue ahead of the comparable period last year.

3. Operating Performance & Major Programs

Revenue increased from AED 517.93 million to AED 665.77 million, supported by progress across ADSB's major naval programs.

The Angola Navy program remained an important contributor, covering three BR71 MKII 71-metre corvettes, ADSB-designed patrol boats and logistical support. The First of Class corvette was launched in March 2026, while the remaining two remained in production. ADSB also delivered 11 interceptor boats, including four delivered in July.

On the UAE Navy's Falaj3 program, ADSB completed 14 milestones and launched the Second of Class Offshore Patrol Vessel in February 2026. The Small Boats business continued construction of 19 remaining Search and Rescue boats, while MRO and Mission Systems completed 29 dockings, berthings and boat launchings.

4. Key Performance Drivers

The biggest factor affecting H1 profitability was the accounting treatment associated with ADSB's new Kuwait Navy program for eight missile boats and the existing Falaj3 contract.

Two vessels were transferred from an existing customer arrangement to the new contract. Consequently, approximately AED 727 million of previously recognised revenue was reversed, while AED 605.45 million was recognised under the new arrangement. Because the percentage of completion under the new contract was lower, cumulative recognised revenue declined while related costs remained unchanged, resulting in a significant gross loss.

Management estimates the resulting accounting adjustment at approximately AED 120 million and emphasised that the related revenue and profit have not been lost and are expected to be recognised from 2027 onwards.

Operationally, the company also faced higher material costs, delivery delays, increased freight costs, limited OEM support and recruitment and retention challenges during the period.

5. Balance Sheet, Backlog & Cash Flow

ADSB ended June 2026 with:

• Total Assets: AED 4.30 Billion

• Total Equity: AED 183.24 Million

• Total Liabilities: AED 4.12 Billion

• Bank Balances & Cash: AED 891.19 Million

• Cash & Cash Equivalents: AED 867.31 Million

• Bank Overdrafts: AED 23.88 Million

• Advances from Customers: AED 2.00 Billion

Operating cash flow improved dramatically to AED 635.54 million, compared with an AED 316.84 million outflow in H1 2025. The stronger cash position was supported by the AED 1.45 billion customer advance for the Kuwait program and approximately AED 325 million received in relation to the Angola program.

Following the signing of the AED 7 billion Kuwait Navy contract, ADSB's total contract backlog increased to more than AED 11 billion. Management expects the Kuwait program to make a significant contribution to future profitability and believes revenues over the next few years could more than double compared with last year.

6. Investor Takeaway

ADSB's H1 2026 results present a mixed headline but potentially stronger underlying picture. Revenue increased 28.5% to AED 665.77 million, while management stated that the company remained profitable on an underlying basis despite reporting an AED 96.67 million net loss.

The reported loss was primarily influenced by an approximately AED 120 million accounting adjustment linked to the transfer of vessels between contracts. Importantly, management says the associated revenue and profit have not disappeared but are expected to be recognised from 2027 onwards.

The forward order book is a major strength. ADSB now has a backlog exceeding AED 11 billion, supported by the AED 7 billion Kuwait Navy program, alongside ongoing UAE and Angola naval projects. Cash generation was also particularly strong, with operating cash flow of AED 635.54 million and cash and cash equivalents reaching AED 867.31 million.

The independent reviewer issued an unmodified conclusion, stating that nothing had come to its attention indicating that the H1 2026 interim financial information was not prepared, in all material respects, in accordance with IAS 34. Going into H2 2026, the key areas to monitor are execution of the Kuwait and Angola programs, vessel deliveries, margins, regional operating conditions, cash generation and potential new export contracts.