Drake & Scull International PJSC (DSI), a regional market leader in the integrated design, engineering and construction disciplines of General Contracting, Mechanical, Electrical and Plumbing (MEP), Water and Power, Rail and Oil and Gas today reported its financial results for the first nine months of the fiscal year ended 30 September 2015.
The current challenging macro-economic environment; characterized by weaker oil prices, a slowdown in the construction sector and a more competitive landscape has caused developers and clients to defer payments and delay projects across DSI’s major markets.
This has prompted the Board to conduct a review of its projects and take a more conservative approach to its financial position. Consequently, the Company has taken a number of one-off provisions related to ongoing arbitration and legal cases in the UAE and KSA in addition to revenue and gross profit adjustments for uncertified variations orders and disputed extensions of time claims, accrued certified work and other general provisions across several major projects in the GCC.
The Company reported AED 2.83 billion in revenue for the first nine months of the year compared to AED 3.60 billion reported during the same period in 2014. The decline is due to the more conservative approach to revenue recognition and to adjustments for uncertified variations orders and disputed extensions of time claims.
The net loss for the first nine of months of 2015 was AED 951 million compared to a net profit of AED 97 million reported for the same period last year. The decline was mainly due to the one-off provisions and revenue and gross profit adjustments taken in the third quarter amounting to AED 984 million. The impact of these one-off provisions and adjustments has been completely absorbed and profitability is expected to normalize in fiscal 2016 as new projects awards pick up momentum and contribute to revenue and profit.
Despite the market challenges, the business remains operationally and financially efficient. Due to longstanding partnerships with major international and local banks, the Company continues to retain strong project lines of credit and access to funding to deliver ongoing projects.
The Company has initiated a cost-cutting programme to improve operational efficiency and reduce SG&A. The company is also taking a number of measures to boost working capital, reduce debt levels and improve the capital structure by selling non-core assets to generate cash and improve liquidity.
DSI has successfully been awarded AED 2.4 billion worth of new projects year to date, despite the challenging market environment. The UAE, Oman and Kuwait markets accounted for 73%, 15% and 12% of the new awards respectively. The Engineering and General Contracting businesses constituted 78% and 22% of total awards respectively, cementing Engineering as DSI’s primary growth driver for sustainable profitability across DSI’s largest markets.
As of 30 September 2015, the Company’s substantial order backlog of over 160 projects stood at AED 12.35 billion. KSA and the UAE remain the largest markets for DSI, accounting for 32% and 20% of the total backlog respectively.
The development of the regional rail networks, urban transportation projects in the MENA region is poised to enter a period of rapid growth. Around AED 5 billion worth of rail projects are currently in the tender pipeline and DSI’s extensive experience with rail projects in Asia and Europe, particularly in MEP, and its strategic alliances with leading global rail experts positions the Company well to win a significant proportion of these projects and drive the Company’s future profitability.
Commenting on the results, Khaldoun Tabari, CEO and Vice-Chairman of Drake & Scull International PJSC, said: “As the current regional construction sector remains extremely challenging we have taken a pre-emptive and prudent view of our exposure related to key projects and have introduced cost efficiency measures to preserve cash and initiatives to reduce debt.”
“Longer-term we remain confident about the prospects for the Company. We believe that regional government diversification programs and required infrastructure investments remain a significant tailwind in the GCC and that our clients remain fully committed to funding and completing their ongoing projects,” he added.