Drake and Scull International (DSI), the Dubai-based contracting firm, swung into a loss during the second quarter of 2016, amid a decline in some key markets and project cancellations in Saudi Arabia.
It made a net loss of AED 207.6 million ($56.5m) during the period, compared to a AED 10.2 million profit a year ago, according to a statement posted to the Dubai Financial Market, where the company is listed.
DSI said it had seen improvements in revenue and operational performance on newly awarded projects in the UAE but a “noticeable decline” in the rest of the region.
The company said it saw a slowdown in activity in key markets like Saudi Arabia, but that this was offset by a growth in order intakes in the rail and infrastructure, as well as the oil and gas sectors, in Qatar and Iraq respectively.
DSI reported a 23% decline in half-year revenue, which stood at $498.2 million in H1 2016, as compared to $650.7 million in H1 2015. The fall in revenue was attributed to the “significant contraction and prolonged volatility in the regional construction sector, the slow progress on ongoing projects, a decline in new project awards and adjustments across key markets in the GCC”.
Khaldoun Tabari, CEO and vice chairman of Drake and Scull International, said: “Our financial results have been impacted due to the substantial provisions for project delays and cancellations over the last six months, brought on by clients principally based in Saudi Arabia. We believe that these developments reflect the considerable challenges we have been facing across the region due to a very challenging macro-economic environment.”
Khaldoun Tabari
The net loss for H1 2016 was $58.8 million, as compared to a net profit of $9.25 million for the same period last year. The loss was specifically attributed to project cancellations and additional one-off provisions taken in light of the challenges in the sector.
“The majority of these provisions emanate from Saudi Arabia, with the total impact on the bottom line amounting to $52.27 million. These cancellations were executed by clients on individual one-off projects with minimal bearing on DSI’s ability to continue operations in Saudi Arabia and other markets,” DSI said in its statement.
DSI’s ongoing projects order backlog stood at $2.55 billion as of June 30, 2016. This was in comparison to $3.60 billion in the previous year. The decline is a reflection of the adjustments carried out in Q2 2016, pertinent to project cancellations in KSA, the contractor said.
Despite the slowdown in regional project awards, DSI said that it managed to secure $155.1 million in new projects, including the $93.33 million Doha Metro Depot and Stabilising Yards contract, as well as the $61.8 million Zubair Oil Field project in Iraq.
The contractor said that it remained on track with its cost-reduction programme which will improve operational efficiency and reduce overheads. Khaldoun Tabari added that a number of measures and initiatives were being implemented to optimise DSI’s capital structure, including the sale of non-core assets to generate cash and improve liquidity.
“We are in the process of embarking on a new strategy to reposition ourselves as a leader in the market. We will also initiate fundamental changes to our group and leadership structure which will be supplemented by a reorganisation and realignment of senior management roles as part of our efforts to enhance and streamline our operative framework,” Tabari explained.
“Despite the challenges, our business remains operationally and financially robust. Due to our longstanding partnership with major international and local banks, we continue to retain strong lines of credit and secured access to funding to deliver our ongoing projects backlog. We remain committed and focused on running efficient, low-cost and sustainable and cash generating operations and are confident about the medium- and long-term prospects of the regional industry.”