Drake & Scull International (DSI) shares dropped to an all-time low as the contractor revealed plans to sell assets and cut costs after posting its first quarterly loss.
DSI shares dropped 10 per cent to Dh0.414 in Dubai yesterday.
“The company has initiated a cost-cutting programme to improve operational efficiency and reduce SG&A [selling, general and administrative expenses],”DSI said.
“The company is also taking a number of measures to boost working capital, reduce debt levels and improve the capital structure by selling non-core assets to generate cash and improve liquidity.”
DSI plans to sell its real estate assets that it has had for a number of years as part of plans to boost working capital, said a spokesman for the company.
“There are no set timelines or forecast but we anticipate the first sales in the next quarter,” said the spokesman.
DSI expects to return to profitability next year to levels that were achieved at the start of 2015, the spokesman said.
The contractor posted a Dh877.8 million loss in the third quarter, compared to a Dh21.4m profit in the year-earlier period.
DSI attributed the loss to one-off provisions, and revenue and gross profit adjustments in the third quarter that reached Dh984m.
The one-off provisions are related to arbitration and legal cases in the UAE and Saudi Arabia. The revenue and gross profit adjustments are for “uncertified variations orders” and other general provisions across its major projects in the region.
“The impact of these one-off provisions and adjustments has been completely absorbed, and profitability is expected to normalise in fiscal 2016 as new projects awards pick up momentum and contribute to revenue and profit,” said DSI.
Third-quarter contract revenue dropped 65 per cent to Dh433.79m from Dh1.24 billion.
At the end of September, the company had a backlog of Dh12.35bn, with Saudi Arabia remaining the largest market with 32 per cent, followed by the UAE with 20 per cent.
“The overriding driver of growth in our view is cash-flow quality, rather than profitability,” said Mohammad Kamal, director of equity research at Dubai-based Arqaam Capital.
DSI’s cash woes come at a time of slowdown in the construction market in the energy-exporting Arabian Gulf region.
Oil prices have dropped by more than half since mid-2014 owing to an oil supply glut.
“The current challenging macroeconomic environment – characterised by weaker oil prices, a slowdown in the construction sector and a more competitive landscape – has caused developers and clients to defer payments and delay projects across DSI’s major markets,” the company said.
DSI is not the only contractor feeling the pain of a slowing construction market.
The Dubai-listed contractor Arabtec posted a Dh944.7m loss for the third quarter as it was forced to write off Dh379m of previously declared profit on “a number of challenging projects”.
“We are currently speaking to our relationship banks and looking at renegotiating some short-term debt,” said the DSI spokesman. “Our project liquidity has not been affected and we will ensure all project funding is available.”
dalsaadi@thenational.ae
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