Drake & Scull half year profit down 37.6%

Earnings per Share dropped to AED 0.029 compared to AED 0.044 recorded last year and EBITDA reached AED 149.9 million compared to AED 220.4 million dropping 32% YoY

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Affected by operational delays on major projects in KSA, Drake & Scull International (DSI), has reported total revenues of AED 2.353 billion and total net profit of AED 71.7 million for the first half of 2014 ended June 30th, representing a top line and bottom line decrease of 8.3 % and 37.6% respectively, compared to the first half of 2013.

Earnings per Share dropped to AED 0.029 compared to AED 0.044 recorded last year and EBITDA reached AED 149.9 million compared to AED 220.4 million dropping 32% YoY.

The decline in total revenues, EBITDA and net profit is mainly attributed to the lower contribution of the General Contracting business which dropped 5%, 2.5% and 37.1% respectively compared to last year mainly from operations in KSA. However, the engineering business contribution to the top line increased by 6.6 %.

The UAE market contribution to total revenues was sustained at AED 496.8 million while KSA recorded AED 1.14 billion, decreasing by 17.5 % compared to last year. The contribution of the Iraqi market stood at AED 128.5 million declining by 29.4% as the Zubair Field contract in southern Iraq nears completion. However, the oil & gas business will continue to contribute to the top line and bottom line growth of DSI from ongoing operations in Egypt and expected awards in southern Iraq by the end of the year, the company said.

The first half of the year showed signs of improvement in the industry and witnessed an increase in momentum with more market activity as total project awards year to date reached AED 4.6 billion across MENA, South Asia and Europe.

The general contracting, engineering and wastewater businesses constituted 11%, 35% and 5% respectively of the cumulative project awards in the first half of the year. The oil & gas business also constituted 48% with the “Carbon holding Tahrir Petrochemical complex” award in Egypt which is expected to significantly contribute to the bottom line growth and net margin growth of the company from Q1 2015 onwards.

Commenting on the results, Mukhtar Safi, CFO of DSI said, “Despite the increased momentum in market activity in the region, the first half of the year was challenging for DSI. Our revenue growth was slightly hindered and our profitability dropped year on year due to the delays on our major projects in KSA. We incurred significant cost overruns in the general contracting business in Q1 and Q2 which affected operational margins and our bottom line. However, these costs are covered by large claims which we expect our clients to approve towards the end of this year, to early next year.”

The company’s order backlog reached AED 14.27 billion representing a year on year increase of 21.7%. KSA remains the largest contributor to the backlog accounting for 30.8% followed by Egypt and the UAE each accounting for 18.7% and 17.4 % respectively as of the 30th of June 2014.

Q2 2014 revenues reached AED 1.101 billion compared to AED 1.340 billion achieved in Q2 2013 and EPS closed at AED 0.011 representing a decrease of 41% compared to the same period last year.

“The delays in approving large variations on our ongoing projects in KSA had directly impacted our working capital and revenue certification cycle and caused the Work in progress (WIP) and receivables Days to increase compared to December 31st 2013. This in turn affected our operational liquidity and caused cash flow from operations to decrease,” said Safi.

“We also expect productivity to be stagnant in Q3 2014 due the seasonality trend and the slowdown in operations during the holy month of Ramadan. Partial recovery of liquidity, operational and profitability margins is expected to materialize by end of the year as the major projects in the Engineering and General Contracting businesses pick up momentum from Q4 2014 and Q1 2015 onwards,” he added.

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