Profit at the Dubai-based contractor Drake & Scull fell by 76 per cent year-on-year for the second quarter to Dh6 million, despite a16 per cent jump in revenue to Dh1.3 billion.
Figures for the first six months of 2015 show a 52 per cent decline in net profit to Dh34 million from Dh71m a year earlier, although revenue grew by 2 per cent to Dh2.4bn.
The company said the drop in profit was due to “delays and cost overruns on projects across several markets”.
Khaldoun Tabari, chief executive and vice chairman of Drake & Scull International, said: “We have met our top-line target for the first half of the year, however, we continue to face pressure on our margins as a result of the delays on several projects. “Despite the bearish business sentiment across the sector, we’ve started Q3 on a positive note with Dh305m worth of new projects in Kuwait, and we remain focused on improving our operational efficiency and increased focus on collections across all markets.”
The company secured Dh1.4bn of new projects during the first six months of the year, bringing the total size of its backlog to Dh13.2bn – a slight decline on the Dh14.3bn at the same period last year.
Notes to the accounts also said it has incurred Dh818m of costs on one contract as a result of change in orders and extra expenses that have yet to be agreed and approved by its client.
If the amount approved by its client is 22 per cent lower than the money it has already spent, its gross profit for 2015 could fall by Dh176m.
If the amount approved is even lower, Drake & Scull could declare a loss on the project after its year-end.
The project is understood to be the King Abdullah Petroleum Studies & Research Centre – a 2bn Saudi riyal (Dh1.96bn) research centre it is building in Riyadh for Saudi Aramco.
Nishit Lakhotia, head of research at Bahrain-based Securities & Investment Company, said that Drake & Scull needs to finish the work.
“Until then, there will continue to be a strain on its cash flows and its balance sheet. They’ve done a lot of work for which they haven’t been paid.
“In June, they were in the market to raise a perpetual sukuk of $150m-$200m and had appointed bankers, but I believe the transaction did not go through, possibly due to investors becoming risk-averse thanks to the turmoil relating to Grexit.”
He said that despite the weak earnings, which were below analysts’ expectations, its reported revenue increase was heartening.
mfahy@thenational.ae
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