Gavin Davids sits down for an exclusive interview with Ziad Makhzoumi, the strategic consultant tasked with guiding Drake & Scull International through a troubled transition and back into the light
Midway through August this year, Drake & Scull International released its financial results for the second quarter of 2017, which showed that it had reduced its net losses by 12% to $54.1 million, compared to the $61.5 million posted during the same period in 2016. Meanwhile, revenues for the quarter stood at $179.6 million compared to the $219.4 million recorded for the same period last year, a statement released by the company said.
In addition, the contractor added that its capital restructuring programme was “steaming ahead on schedule, and is set to be concluded by the end of Q3 2017”, with Feras Kalthoum, acting CFO at DSI, pointing out that the results of the quarter should be viewed in context of the company’s turnaround plan and the capital restructuring programme.
“Our efforts to complete the capital and debt restructuring of the group, coupled with continued balancing of our portfolio to mitigate any contingent exposure that may impact our future profitability, will soon reflect positively on our financial performance and top-line targets,” he explains.
“The year 2017 will continue to be a transitional year for DSI as we proceed with the execution of our turnaround plan. Our efforts to streamline our operations and restore our financial position will enable us to set a solid foundation for sustainable growth,” adds Mohammed Atatreh, the new managing director of DSI.
One surprising consequence of this transition and mitigation focus was the removal of Wael Allan as CEO of DSI. Having spent less than a year in the post, the announcement of his departure came in the midst of a reshuffle of the board, with several board members – including executive vice chairman Khaldoun Al Tabari – resigning from their posts.
These developments came in the wake of Tabarak Investment coming on board to inject new capital into the business, with the firm acquiring a majority stake in DSI while also extending an interest-free loan of up to $27.2 million.
As a result, Abdulla Atatreh, the vice chairman and managing director of Tabarak Investment, was appointed as chairman of the DSI board, while Ahmed Saeed Al Hamiri and Abdulla Fareed Algurg were elected as vice chairman and board member respectively. At the executive level, Mohammed Atatreh was appointed as DSI’s new managing director, along with a host of other appointments.
While there has been a sea change in management at board and executive level, the primary objectives of the company have not changed, with the emphasis very much on the restructuring of the company and the recovery of its financial position.
To achieve those aims, the board has brought in Ziad Makhzoumi, CEO of Prime Strategy Consulting Group, to serve as a key advisor in the formulation of the company’s strategy going forward, and the restructuring process. As part of his role, Makhzoumi will work with the entire management team of DSI to assess, evaluate and drive the company forward.
“I’ll work with the whole team to assess what is there, what is missing and what is needed to take it forward,” he tells Big Project ME in an exclusive interview at DSI’s offices in Dubai Production City. “Restructuring of this scale, of a company the size of DSI, will be a transition process. For each phase, you need different skill sets. We are putting together a team of internal and external resources that are highly qualified, passionate, open-minded and cooperative.”
Acknowledging that the present circumstances are difficult for the company, Makhzoumi points out that with Tabarak Investment as a majority shareholder, he remains confident that the overall vision and strategy of the board will show results in quick time.
“We are a public company, and hence we have a higher level of disclosure as we’re accountable to our shareholders. We are in the process of ensuring we get our balance sheet, compliance and governance right. That means having the right strategy, financing, marketing and project selection in place. The operational risk on the business side must be minimised, and there are numerous aspects that we need to consider in order to obtain the correct result,” he stresses.
“The strategy going forward is to focus on what makes sense in the short term, while also preparing for what makes sense in the medium and long term, such as defining what we need in terms of resources – whether it’s people, strategy, skills, funding, etc.
“We went into this company knowing that it faced substantial financial issues, but we also believe that this is a company that has a lot of value and potential. We believe that we’re the right team together, both internally and externally. We have a lot of talent inside the company, and we have a lot of talent outside as well. I’m one of the people leading the change, advising how to do it in an integrated manner. We believe that, probably by next year, we’ll be able to turn the company around,” Makhzoumi asserts.
To enact that change and turn the company around, Makhzoumi will be able to draw on his considerable experience and knowledge. This isn’t the first time he has had to step into a challenging situation and take control.
In 2008, he was asked to go in and restructure Arabtec. The contracting giant was in a bad state back then as it reeled from the impact of the global market collapse. With banks going belly-up, construction in dire straits, developers disappearing and a stalled market, Makhzoumi was faced an incredible challenge, one that he thinks was more complicated and severe than the one facing him at DSI.
“These situations are like being at war. You have to start your own war room, and you’re at war internally and externally because people are panicking, resources aren’t available and there is zero certainty, so you don’t know what will happen next,” he says.
“We sat down in 2008 with the then board at Arabtec and said, ‘We’re at war. Things are going to get substantially worse, so we need to define what each of us can do very quickly.’ The aim was to define the damage, contain it, repair it and move forwards.
“We had to start by defining what resources were missing from financial, managerial, systems and processes. When things are very good, you can probably get away with not having everything calibrated completely. When things are bad, you have to be more careful as to how you integrate things and ensure you don’t miss anything,” he insists.
“In 2008, from a financial point of view, the emphasis was on the balance sheet and not on the P&L. We knew that the market was bad, that the margins were eroding and that the banks were not lending. But in the case of DSI, it was an MEP company that ventured into other areas it probably should not have entered.
“However, as with any business of this magnitude, the focus needs to be on the balance sheet rather than the P&L. We know the margins are not there. We need to make the company fit and healthy once again. The first step in treating someone that is not well is to make them healthier, and only then can you make them fit,” he asserts bullishly.
To that end, Makhzoumi says his first priority is to get everyone at DSI pulling together in the right direction, formulating a clear and focused strategy built around the company’s strengths and capabilities.
“The whole company, in my view, did not have a clear strategy. It was not managing its business very well, and that was reflected in the financial results. This is public knowledge. There are lots of theories as to why it happened, but to me this is a company that has a history and a future, and it can be turned around, while also ensuring that whatever went wrong will not ever happen again.
“There is a construction arm and there is a MEP arm [of DSI]. If you look at the future of MEP, I think that specialist contractors are now coming more into play. You are either an expert or a general contractor. If you look at big companies such as Bechtel and Parsons, they outsource and manage. It is the same with Apple – its business is to design and integrate.
“Therefore, the role of the specialist contractor is becoming more and more important. There aren’t many good MEP players in the market. The question is: How do you take the business model we have developed into new areas? We are in residential, civil and social infrastructure, and oil & gas. How can you go into other areas where you can build on your expertise?
“In the process of looking at everything we do well, we need to focus on this aspect and do it better and more profitably as a specialist company.”
Since DSI already has a presence in many areas, there are many commonalities with the potential for integration, says Makhzoumi. Looking at the geographical areas DSI operates in, he pinpoints Saudi Arabia as a market with a lot of potential, both in the MEP sector and in general contracting.
With the Kingdom undergoing considerable social and economic restructuring, he predicts that decision-makers will become more open-minded and appreciative of quality work, rather than just the bottom line.
“I don’t think we can compete on the scale of the major local contractors like Bin Laden or CCC, but we will definitely bid for what makes sense. We will take a commercial, long-term view. In the short term, the focus remains on the balance sheet,” he says.
Furthermore, Makhzoumi points out that the UAE offers tremendous opportunities for contractors willing to explore their options, with Dubai itself offering major opportunities thanks to mega events like Expo 2020.
“Just go around any street in Dubai, Abu Dhabi or Sharjah, there’s construction everywhere. Somebody must go in and fit those projects out. You can’t just get a small contractor to do it, you need somebody who is qualified, certified and capable on these projects.
“And then we have projects that are specifically pressed for time, like for Expo 2020. If you look at all the projects in Dubai South, in the 2020 area, they’re all projects that somebody has to do and the advantage is that they’re restricted in terms of time. We should be one of the contractors [on those projects], and we’re getting work from that,” he points out.
“Having said that, we see more immediate work coming up in the UAE. However, we will not be adventurous and go into markets and take on projects just for the sake of doing so. We are going to be professionally cautious and commercially astute as to which markets and sectors we want to be in.”
As the interview wraps up, Makhzoumi returns to the challenge ahead, reasserting that the focus has to be on positioning the company for future success, while also restructuring its balance sheet.
“Those run hand in hand,” he insists. “It is not an option to first do one and then the other, because there is insufficient time. I hope, and we believe, that we will see better results next year. Again, it’s a function of a lot of things happening in the ongoing process of getting the organisation healthy again.”
“At the end of the day it is a matter of service, and it’s about service both internally and externally. If you look at many companies, there is a lack of communication and commonality, and a lack of buy-in. This is not a good thing for a company with projects in many disciplines.
“If you look at any operation, there needs to be clarity and accountability. This is more so when you are a public company, governed by strict rules and regulations. We are accountable to every shareholder,” he states emphatically, bringing the interview to a close.