Drake & Scull reports 23% revenue fall in H1 2016

DSI’s ongoing projects order backlog stood at $(AED9.37bn) as of 30 June 2016, as compared to $(AED13.24bn) in H1 2015

Khaldoun Tabari, CEO and vice chairman of DSI.
Khaldoun Tabari, CEO and vice chairman of DSI.

Contracting giant Drake & Scull International (DSI) reported its financial results for the first half of the fiscal year ending 30 June, 2016.

DSI reported a year-on-year decline of 23% in revenue, which stood at $490m (AED1.8bn) in H1 2016 as compared to $650m (AED2.39bn) achieved in H1 2015. The fall in revenue is due 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.

The net loss for H1 2016 was $59m (AED216m) as compared to a net profit of $9.2m (AED34m) in H1 2015. The loss is specifically attributable to project cancellations and additional one-off provisions taken in light of the challenges in the sector.

A majority of these provisions emanate from Saudi Arabia, with the total impact on the bottom line amounting to $52.2m (AED192m). 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’s ongoing projects order backlog stood at $2.5bn (AED9.37bn) as of 30 June 2016, as compared to $3.6bn (AED13.24bn) in H1 2015. The decline in the projects’ backlog reflects the adjustments carried out in Q2 2016 pertinent to project cancellations in KSA.

Despite the slowdown in the regional project awards, DSI managed to secure $155m (AED570m) worth of new project awards year to date including the $93.3m (AED343m) Doha Metro Depot and Stabilising Yards contract as well as the $62m (AED227m) Zubair Oil Field project in Iraq.

These key wins further reinforce the company’s strategic decision to concentrate on sector-specific, core engineering projects with high operating margins.

Operational progress in Q2 2016 continued to follow the trends observed in Q1 2016, with a noted improvement in revenue and operational performance on newly awarded projects within the core UAE market and a noticeable decline in the rest of the region.

Furthermore, a growing order intake in the Rail & Infrastructure as well as Oil & Gas divisions in Qatar and Iraq respectively has helped offset a slowdown in activity in key markets such as Saudi Arabia.

DSI has also remained on track with its cost-reduction programme which will improve operational efficiency and reduce overheads.

The company has implemented a number of measures and initiatives to optimise its capital structure, including the sale of non-core assets to generate cash and improve liquidity. The cost-reduction programme is progressing on schedule and is expected to realise significant cost savings by the end of 2016.

Commenting on the results, Khaldoun Tabari, CEO and vice chairman of DSI, 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.

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 reorganization and realignment of senior management roles as part of our efforts to enhance and streamline our operative framework."

He continued: "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.”

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