Dubai’s Drake & Scull profits fall in third quarter

The 16 per cent fall was attributed to Dh25 million worth of provisions for an arbitration award that went against the company during the quarter, for a legacy contract in the UAE.

DSI’s quarterly revenues rose 24.6 per cent to Dh1.24 billion. Rich-Joseph Facun / The National

Drake & Scull International (DSI) reported a 16 per cent fall in third quarter profit, dragged down by a drop in revenues in the key market of Saudi Arabia and a legal row over a UAE project.

The contractor reported profits of Dh25.2 million for the three months to September, compared with Dh30m in the same period last year.

The fall was attributed to Dh25m worth of provisions for an arbitration award that went against the company during the quarter, for a legacy contract in the UAE.

DSI said that it intended to pursue its claims, which relate to an unnamed power and water contract, either via a new arbitration or through the Dubai Courts.

DSI’s quarterly revenues rose 24.6 per cent to Dh1.24 billion, driven by 120 per cent year-on- year growth in UAE revenue. However revenues from Saudi Arabia dropped by 13 per cent compared with the same period last year, in the face of execution delays to projects in the kingdom.

The company’s shares, listed on the Dubai Financial Market, closed down 2.7 per cent at Dh1.08 on the news.

The company said that it won Dh5.4bn worth of contracts during the first nine months of the year across the Middle East, India and Europe.

The total order backlog grew 24.5 per cent to a record figure of Dh15.3bn at the end of September, with Saudi Arabia accounting for 35 per cent of the backlog.

However the company’s cash flow remains weak, with operating cash outflow standing at Dh202 million for the third quarter, compared with Dh385m in the second quarter, in the face of the Saudi project delays.

DSI’s chief financial officer Mukhtar Safi described the cash flow as stretched, and would remain so “until we finalise our negotiations on the large claim and variations orders with some of our major clients in KSA”.

He added: “Our teams in KSA achieved major milestones and received payment reassurances towards the completion of this challenging project by Q2 2015.”

The company had blamed execution delays at the Dh1.5bn Lamar Project and the Dh1.1bn Jabal Omar Development in Saudi Arabia for a 41 per cent fall in profits during the second quarter.

“Overall, we find these results a mixed set,” according to a research note from NBK Capital. “The company’s profitability improved sequentially. However, the cash flow situation remains a concern at this point.”

Yesterday, DSI also announced the issuance of a $120m private placement sukuk, the first sukuk based on Murabaha trades of Sharia-compliant certificates on the Nasdaq Dubai Murabaha Platform.

“The proceeds of the transaction will be mainly used to capitalise our businesses in our leading market in the KSA and in our emerging markets such as India and Egypt,” said Mr Safi.

“We will also be targeting a small-cap acquisition to complement our oil and gas division in the GCC, as well as refinancing part of our short-term borrowings on the balance sheet.”