Drake & Scull removes CEO, narrows second quarter loss

But misses analysts' earnings forecasts on higher provisions

Drake & Scull's management shakeup follows a second-quarter loss. Rich-Joseph Facun / The National

The troubled contractor Drake & Scull International (DSI) said on Monday it had removed its chief executive as it announced a narrowing of its second-quarter loss, which still missed analysts' expectations due to higher provisions.

The board of directors decided to end the tenure of Wael Allan as the chief executive, a post he assumed in October after the long-standing chief executive Khaldoun Tabari stepped down.

Net loss attributable to equity owners in the three months ending in June reached Dh182.7 million compared with Dh207.6m in the year-earlier period. The net loss brings the company’s accumulated losses to Dh1.89 billion as of June 30.

Revenue fell 18 per cent to Dh660.3m from Dh805.5m a year earlier.

The company made Dh68m in one-off provisions and impairment charges in the second quarter.

“The provisions recorded in the quarter characterises the strategic direction of the group aimed at mitigating all contingent exposures to set a solid foundation for sustainable growth and profitability post completion of the capital restructuring programme,” the company said.

Under the programme, the company is proposing to write off 75 per cent of its shares to extinguish losses of Dh1.71bn, followed by a Dh500m capital injection by Tabarak Investments, currently the biggest investor in DSI and which is likely to own around 50 per cent of the company after the restructuring. Tabarak Investment recently also extended an interest-free loan of up to Dh100m to the company, which will be used for working capital requirements to speed up the delivery of projects.

“The results of the quarter should be viewed within the context of our turnaround plan and the capital restructuring programme and are consistent with our financial targets set out at the outset of the fiscal year,” said Feras Kalthoum, the acting chief financial officer. “Our efforts to complete the capital and debt restructuring of the group, coupled with continued balancing of our portfolio to mitigate any contingent exposure that may impact our future profitability, will soon reflect positively on our financial performance and top line targets.”

NBAD Securities had projected a net loss of Dh28m for the second quarter.

“What you can look forward to is the loss write-off and the capital increase that is going to be completed by the end of the third quarter,” said Sanyalak Manibhandu, the head of research at NBAD Securities.

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The company’s current liabilities of the company exceeded its assets by Dh1bn as of end of June, a condition that indicates “that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern”, said the auditor PwC.

Also at the end of June, trade and other receivables stood at Dh175m and the company was owed Dh1.3bn from customers.

DSI said that its sale of non-core assets, including One Palm investment in Dubai, will also help to improve the company’s liquidity.

“The funds [from the sale] along with the fresh equity infusion from Tabarak Investment will help restore the liquidity of the group, enabling DSI to successfully execute its projects backlog and improve productivity across all operating segments,” the company said.

It has an order backlog of Dh6.6bn and is in talks to win more projects, which could be announced during the second half of the year.

DSI shares closed down 3.17 per cent to Dh0.366 in Dubai yesterday.

Separately, DSI said it would elect a new Board of Directors during its upcoming General Assembly scheduled for later this year as part of its capital restructuring plan.