News Column

DSI posts 37.6% drop in H1 profit

August 11, 2014

the second quarter, DSI made a profit of Dh25.88 million in the three months to June 30. This compares with a profit of Dh43.96 million in the corresponding period of 2013.

Construction major Drake & Scull International, or DSI, on Sunday said that its net profit dropped 37.6 per cent to Dh71.7 million in the first half of 2014 from Dh114.9 million in the same 2013 period due to operational delays on major projects in Saudi Arabia.

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

For the second quarter, the company reported a 41 per cent drop in net profit, missing analyst forecasts. In the second quarter, DSI made a profit of Dh25.88 million in the three months to June 30. This compares with a profit of Dh43.96 million in the corresponding period of 2013.

In the first half, earnings per share reached Dh0.029 compared to Dh0.044 recorded in the same period last year. Earnings before interest, taxes, depreciation and amortisation, or Ebitda, reached Dh149.9 million compared to Dh220.4 million, dropping 32 per cent year-on-year.

The decline in total revenues, Ebitda and net profit recorded during the first half of the year is mainly attributed to the lower contribution of the general contracting business which dropped five per cent, 2.5 per cent and 37.1 per cent, respectively, compared to last year mainly from operations in Saudi Arabia. However, the engineering business contribution to the top line increased by 6.6 per cent, the company said in a statement.

The UAE market's contribution to total revenues was sustained at Dh496.8 million while Saudi Arabia recorded Dh1.14 billion, dropping 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.

"However, the 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 statement 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 Dh4.6 billion across the Mena, South Asia and Europe. The general contracting, engineering and waste water businesses constituted 11 per cent, 35 per cent and five per cent, respectively, of the cumulative project awards in the first half of the year."

The oil and gas business also constituted 48 per cent 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 the first quarter of 2015 onwards.

The order backlog reached Dh14.27 billion, representing a year-on-year increase of 21.7 per cent. Saudi Arabia remains 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 of June 30, 2014.

Second-quarter revenues reached Dh1.101 billion compared to Dh1.340 billion achieved in the second quarter of 2013 and EPS closed at Dh0.011 representing a decrease of 41 per cent compared to the same period last year.

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 Saudi Arabia. We incurred significant cost overruns in the general contracting business in the first quarter and second quarter, 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 Saudi Arabia had directly impacted our working capital and revenue certification cycle and caused the work in progress and receivables days to increase compared to December 31, 2013. This in turn affected our operational liquidity and caused cash flow from operations to decrease."

"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 materialise by end of the year as the major projects in the engineering and general eontracting businesses pick up momentum from Q4 2014 and Q1 2015 onwards."

"We will continue to increase our portfolio, and invest in cutting-edge technology in order to expand our global presence by venturing into new markets and creating more opportunities for development across every segment of our business."

"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," said Safi.

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Source: Khaleej Times (United Arab Emirates)

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