DSI trims losses after ‘relentless’ cost cuts
Dubai contractor posts net loss of $22m in third quarter compared to the $268m reported a year ago
Drake & Scull International (DSI), the Dubai-based construction firm, has posted a net loss of $22.05 million for the third quarter of 2016, a major improvement on 2015’s net loss of $268.1 million for the same time period, the company said in a statement on Monday.
The contracting giant generated revenues of $236.5 million, an increase from the $118.1 million registered during the same time period last year. However, net debt for the company increased to $598.9 million from $517.2 million, while the order backlog reduced to $2.39 billion from $3.34 billion.
According to the figures released by DSI, the 9-month 2016 financial highlights showed that revenue generated was $735.1 million, as compared to the $762.3 million posted in 9M 2015. Net loss reduced significantly as well, during that period – from $258.9 million to $80.86 million in 2016.
The company also registered a negative operating cash flow of $82.49 million versus a negative $93.65 million for 9M 2015.
“During the past six months we have embarked on a thorough and detailed review to identify risks and opportunities,” said Wael Allan, CEO of Drake and Scull International.
“We have concluded a series of new management appointments which are critical to the continuity of the business and we have established a performance driven and strong culture with emphasis on cost reduction while maintaining client focus and performance excellence.
“Concurrently, we have introduced additional corporate governance and compliance policies to foster a culture of ownership, accountability and operational rigour.”
Wael Allan
Allan added that the company was able to maintain revenues for two consecutive quarters, while also decreasing expenditure.
“We maintained our revenues for the two consecutive quarters and continued to decrease our expenditure through our relentless cost-cutting programme. Our order backlog is slowly moving towards a higher-value, higher-margin portfolio of projects with a focused geographical diversification, predominately in the UAE. Our disciplined approach over the past six months is shaping a leaner, more adaptable company,” he asserted.
The third quarter 2016 losses were a reflection of the prolonged weakness of the construction sector in markets like Saudi Arabia and Qatar, DSI said. To a lesser extent, the broader GCC and Middle East regions also contributed to the decline, it added.
Furthermore, the results also highlighted the operational delays faced by certain ongoing projects, and a slower backlog execution in Saudi Arabia and the Levant region. This has resulted in cost overruns, particularly in the civil sector.
“Despite achieving progress in our home market the UAE, the prolonged market headwinds and economic uncertainties, especially in what previously was one of our core markets (Saudi Arabia), has made us realise that it is time to be bold and engage in a real transformation,” Allan said.
“We have commenced our financial review to assess our working capital and funding requirements with respect to our individual business units and the company as a whole. The outcome will necessitate difficult executive decisions.
“These may include divestments in non-core geographies, retrenching on civil works mainly in Saudi Arabia as well as taking a more conservative stance on the recoverability of certain receivables across the business. This initiative is a stepping-stone towards the full transformation of DSI. The company will emerge to start the 2017 financial year with a healthier balance sheet and better prospects to tender for new projects with clear strategy to return to profitability,” Allan said.
The company continues to pursue an aggressive cost cutting strategy, with third quarter core SG&A, before accounting for provisions, reduced by $2.99 million, a decline of 16% year-on-year. The first nine months of 2016, SG&A was reduced by a total of $11.70 million, a decline of 19% year-on-year.
In the third quarter of this year, the management of DSI also appointed a financial advisor to assist the company on a number of business, transformation and strategic initiatives, said Kailash Sadangi, CFO of DSI.
“The appointment of the financial advisor to assist the Company on a number of business transformation and strategic initiatives; to address the current market challenges the Group is facing in its key markets is a timely move in preparation for a stronger future for Drake & Scull,” he asserted.
