Drake & Scull H1 profit drops 37.6% to Dh71.7m

Drake & Scull International (DSI) on Sunday said its net profit dropped in the first half of 2014 due to operational delays on major projects in Saudi Arabia.

Consolidated net profit stood at Dh71.7 million in H1 2014 compared to  Dh114.9 million in H1 2013, representing a 37.6 per cent decrease.

The company also announced 8.3 per cent decline in revenues to Dh2.353 billion.

Earnings per share reached Dh0.029 in H1 2014 compared to Dh0.044 recorded in the same period last year.

Earnings before interest, taxes, depreciation and amortization (EBITDA) reached Dh149.9 million compared to Dh220.4 million, dropping 32 per cent year-on-year.

The company blamed decline in revenues, EBITDA and profit during the first half of the year to lower contribution of the general contracting business which dropped 5 per cent, 2.5 per cent and 37.1 per cent, respectively mainly from operations in Saudi Arabia.

However, the engineering business contribution to the top line increased 6.6 per cent.

The UAE market contribution to total revenues was stable at Dh496.8 million while Saudi recorded Dh1.14 billion, a drop of 17.5 per cent compared to last year.

The contribution of the Iraqi market stood at Dh128.5 million, declining by 29.4 per cent as the Zubair Field contract in southern Iraq nears completion.

Oil and 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 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 Dh4.6 billion across Mena, South Asia and Europe.

The order backlog reached Dh14.27 billion, representing a year-on-year increase of 21.7 per cent. Saudi Arabia remained the largest contributor to the backlog accounting for 30.8 per cent followed by Egypt and the UAE each accounting for 18.7 per cent and 17.4 per cent respectively as of the 30th of June 2014.

Its Q2 net profit fell to Dh26.1 million compared to Dh52.2 million recorded in Q2 2013 while revenues dipped to Dh1.101 billion compared to Dh1.340 billion.

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 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. "

Safi said: “We also expect productivity to be stagnant in Q3 2014 due the seasonality trend and the slowdown in operations during the wholly month of Ramadan. Partial recovery of liquidity, operational and profitability margins is expected to materialise 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.

“We remain optimistic on the prospects of the second half of the year across all our markets and we expect to compensate for the shortfalls incurred in Q1 and Q2 as we are well geared to boost our operations and to recover our claims with strong emphasis on improving liquidity and profitability.”

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