Face to face: Wael Allan, Drake & Scull Int’l

After narrowing its net loss by $40.6m in 2016, Wael Allan says that Drake & Scull International (DSI) will spend 2017 redressing all remaining legacy issues, and refocussing on its core business of MEP

INTERVIEWS, MEP, Projects, 2017, Civil construction contracts, Construction Week, Core business, Drake & Scull, Drake & Scull Int’l, Financial, General contracting bids, Gulf Technical Construction Company (GTCC), Interview, Legacy issues, Restructure, Uae, Wael allan

It’s been a difficult few years for Drake & Scull International (DSI). After recording a strong financial performance in 2013 – a period that brought with it year-on-year net profit growth of 61% – the contractor has seen its profits dwindle and, ultimately, turn to losses. In fact, the company has been operating in the red for the past two financial years.

But the situation is not as bleak as it may first appear. While DSI recorded a net loss of $214.4m (AED787.5m) in 2016, this figure was significantly narrower than the $255m (AED936.6m) deficit reported during the previous year. The contractor may not be out of the woods yet, but it seems to be heading in the right direction.

When Wael Allan, chief executive officer of DSI, sits down to speak with Construction Week, he begins by pointing out that publicly listed companies have no choice but to conduct their financial affairs under the spotlight. To assume that the challenges facing the Middle East’s privately held construction firms are any less grave, he argues, would be naïve.

“People remark that DSI is always in the news,” says Allan. “The thing is, very few contractors or mechanical, electrical, and plumbing (MEP) service providers are publicly listed companies. We are in a unique position because the market – and our shareholders – must be regularly updated [with regards to DSI’s performance].

“Many other construction companies are in similar positions [to DSI], or even worse,” he adds. “However, being privately held, they don’t receive as much publicity – either negative or positive.”

Allan joined DSI as chief operating officer in April 2016, after resigning from his position as CEO of Arcadis Middle East. In October of last year, following a six-month succession-planning process, he became CEO of the 22,000-strong contractor, replacing former CEO and vice chairman, Khaldoun Tabari.

Allan’s mandate – to transform the contractor’s fortunes – is simple to understand, if not to realise. Nevertheless, he says his team has not only identified the primary factors that contributed to DSI’s troubles, but that they have also gone some way towards redressing these issues.

“The current market situation – the low oil price and general sentiment – has obviously affected DSI,” he explains. “Not only market conditions, but also the fact that I think the company has grown very quickly in the past three to four years. This has certainly put some pressure on our systems and the way we execute jobs. However, in my opinion, DSI is fundamentally a sound business.

“In times of distress, it’s important to remain adaptable. We need to go back to basics by focussing on our core businesses and geographies, and being selective in terms of the projects we pursue. These factors will be key to DSI’s long-term sustainability. We have a really simple vision: to be number one in our home markets’ MEP sectors.”

In short, Allan’s strategy is to simplify DSI’s regional operations, and play to the contractor’s traditional strengths. He notes: “We’ve tried to stabilise the business, focussing on completing existing projects to the satisfaction of our clients, and ensuring that we get paid for the services we provide. Liquidity has been a key issue for us. We’ve taken steps to improve our working capital, and to identify different ways of preserving cash. We’ve optimised our collection, invoicing, and cost-cutting procedures.

“It’s also important for us to be highly selective when it comes to the opportunities that we pursue in the future. This will involve [drawing back] from certain geographies and returning to our home markets.”

As part of this strategy, Allan plans to limit certain offerings to the UAE. He reveals: “DSI will no longer offer civil or general contracting services outside of the Emirates. From now on, we will limit these activities to the UAE through our subsidiary, Gulf Technical Construction Company (GTCC).

“Saudi Arabia and Qatar remain home markets for DSI,” he clarifies. “However, we will not submit any further general contracting bids in these geographies, choosing instead to focus on our MEP-related activities.

“In markets like Saudi Arabia, general contracting is extremely competitive. We’ve seen what has happened to businesses like Saudi Binladin Group (SBG), Saudi Oger, and others. There is pressure on prices, and [general contracting] really isn’t DSI’s core competency in those countries.

“The UAE is also a very competitive market in this respect, but DSI has invested enough in its general contracting capability in the Emirates [to succeed]. It’s our back yard, and our clients are extremely satisfied with GTCC’s performance.”

DSI’s strategy to withdraw its civil and general contracting services from non-UAE markets is, in part, intended to prevent the company from becoming embroiled in potentially damaging bidding wars.

“Nowadays, we tend not to bid on jobs for which there are large numbers of competitors,” says Allan. “At the end of the day, we have to spend time and money bidding on projects, so it’s important for us to select jobs on which we can make a difference. We don’t usually bid on tenders for which there are [more than 10] bidders.”

This strategy, says Allan, has left DSI well placed in terms of further improving its financial situation. He tells Construction Week that the losses recorded in 2016 were largely the result of historic challenges, and not reflective of the contractor’s current performance.

“I think that what you are seeing, in terms of losses declared, are legacy issues outside of the UAE,” he elaborates. “For instance, we had a number of projects cancelled in Saudi Arabia, and we’ve had some protracted disputes in both the kingdom and Qatar. But in 2016, we improved significantly. The underlying performance of DSI, and its profitability, are sound.”

Indeed, DSI’s project portfolio would suggest that this is more than mere public relations bluster. It is providing MEP services for a range of high-profile projects in the Emirates, including Louvre Abu Dhabi, UAE Presidential Palace, The Address Residence Fountain Views, and Al Habtoor City. Through GTCC, it is also delivering full general contracting services for Nakheel’s The Pointe on Palm Jumeirah.

In Saudi Arabia, DSI is providing MEP services for Phase 3 of the Makkah Jabal Omar development. In Qatar, it has completed MEP works for Mall of Qatar, and is conducting similar activities on Msheireb.

Allan says that he is also confident about the prospects of the Makkah Metro project, for which DSI is part of the preferred consortium. He explains: “This development is still on the books. The latest we’ve heard is that Makkah Metro has ministerial council approval, so we’re very excited about that.”

DSI’s project pipeline also looks to be in good shape. “Our backlog stands at approximately $2.18bn (AED8bn), and our annual burn rate is in the region of $820m (AED3bn),” Allan explains. “That means we have a backlog of just over two years, and that’s without new [contract] wins.”

While unwilling to comment on when DSI is likely to return to profit, Allan is confident that the firm is close to resolving its remaining legacy issues.

“I don’t really want to put any time stipulation on [the company’s return to profitability], for obvious reasons,” he tells Construction Week. “But what I can tell you is that we are improving our productivity and profitability. Our aims for 2017 are to close all remaining legacy issues, win a number of projects that we feel are key to our long-term sustainability, and execute those projects to double-digit profitability.

“So, in 2018, DSI will be moving forward with its true underlying performance.”

Allan’s chances of achieving this ambitious turnaround received a significant shot in the arm earlier this month when UAE-based Tabarak Investment agreed terms to inject $136.1m (AED500m) into DSI. Although the plan still requires shareholder and regulatory approval, he believes that the additional capital will expedite both the contractor’s recovery and its future growth.

“Tabarak represents a strategic investor for DSI,” Allan comments. “It not only brings in financial support, but it will also [help to inform] our operations. Tabarak has supported the restructuring of a number of companies that were in distress, and I feel that their past experience in this arena will be of great benefit to DSI.

“Moreover, I am keen to ensure that [this money] is spent on fresh opportunities. A [long-term approach] will be necessary in order to make DSI a sustainable business.”

Revisiting his contention that the contractor’s business is, fundamentally, healthy, Allan concludes: “DSI really is a great place to work. It’s a company with a history of more than a century. This is one of the few highly intrapreneurial organisations that I’ve come across, and I want to combine this intrapreneurship – and the legacy of Khaldoun Tabari – with operational robustness.

“I think that once we do that, DSI will be one of the few MEP contractors in the Middle East that can really serve the industry well. What’s more, I think that we are uniquely positioned to become the number-one MEP provider in all of our home markets.”

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