Saudi delays hit Drake & Scull as profits slide

Net profit for the first quarter of the year stood at Dh45.7 million, the plumbing and engineering contractor reported – a 27.1 per cent drop compared with the same period the previous year.

Profits at the Dubai-listed mechanical engineering and plumbing contractor Drake & Scull International (DSI) fell by more than a quarter in the first three months of 2014 as project delays in Saudi Arabia bit into its bottom line, the company said.

Net profit for the first quarter stood at Dh45.7 million, a 27.1 per cent drop compared with the same period the previous year when, it reported profits of Dh62.7m.

The company reported Dh1.25 billion in revenues for the period, a 2 per cent increase on the same period the previous year but 5 per cent lower than the previous quarter.

Retail investors reacted negatively to the news and DSI shares fell 3.87 per cent in trading yesterday to close at Dh1.71 each.

Saudi Arabia, which represents 53 per cent of DSI’s revenues during the quarter, began a clampdown on illegal workers last year, doubling its costs of employing local workers.

Drake & Scull did not say which projects had been delayed but it assured investors that the problems were temporary.

“Q1 witnessed a slowdown in our general contracting business in Saudi Arabia due to unforeseen delays in two major projects which are not recurring and we expect our portability margins in this sector to improve in the second quarter of 2014,” said Mukhtar Safi, DSI’s chief finance officer.

In March DSI said that it would not be recommending a dividend for 2013, despite announcing a 61 per cent rise in net profits. Shortly afterwards Khaldoun Tabari, the company chief executive, said that the decision was made to avoid “putting a strain on the balance sheet” as the company finds its way out of the financial crisis.

Analysts pointed to the company’s gross margins, which increased from 6.7 per cent at the end of 2013 to 9.6 per cent during the period, but remain relatively low by industry standards.

“The company’s first-quarter results make for slightly disappointing reading,” said Loic Pelichet, an assistant vice president at NBK Capital. “The gross margins in the previous quarter were affected by labour issues in Saudi Arabia and some margin restatement on the restart of suspended contracts in the UAE. Overall we find these results mildly on the low side, especially from the perspective of gross margins.”

DSI said it won Dh1.1bn of new contracts in the first quarter. The UAE accounted for 49 per cent of the new project awards, while Saudi Arabia accounted for 31 per cent.

The company added that its order backlog rose to Dh12.2bn representing a year on year increase of 35.8 per cent.

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Published: May 12, 2014 04:00 AM


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