Drake & Scull feels the pinch in Saudi Arabia

Drake & Scull said it expected a better final three months of the year after second quarter profits fell 41 per cent, hit by execution delays at its projects in Saudi Arabia.

The company earned profits of Dh25.88 million in the period, down from Dh43.96 million a year earlier.

Analysts polled by Bloomberg expected that the company would record revenues of 44 million.

The company’s share price fell 4.2 per cent yesterday, closing at Dh1.37.

Revenue dropped to Dh 1.1 billion from Dh 1.34 billion in the previous year – a decline of 18 per cent, as revenues from the company’s Iraq and Saudi Arabian operations fell.

The company earned Dh1.14bn in Saudi Arabia in the first six months of the year, down 17.5 per cent compared to the previous year, and Dh128.5 million from its Iraqi operations, down 29.4 per cent against the first six months of 2013.

By business segment, revenues from engineering increased, but both civil and oil & gas revenues decreased significantly.

Drake & Scull’s cash position deteriorated, as delays in Saudi Arabia meant the amount of outstanding payments grew.

The company’s backlog has grown to Dh14.27 billion – roughly three times its 2013 revenues. Just under a third of its forthcoming projects are based in Saudi Arabia, with 19 per cent coming from Egypt, and 17 per cent from the UAE.

Just under half of the company’s contract awards in the first six months of the year came from the oil & gas sector, where margins are high.

A research note from Shuaa Capital called the results a “disappointing set of numbers”.

“With today’s disappointing results in the bag, the company has now had its third consecutive quarterly earnings miss coupled with 2013 dividend disappointment,” Shuaa said.

“We expect the market to react negatively to this set of results in light of recent [stock price] gains.”

Mukhtar Safi, the company’s chief financial officer, said that “despite the increased momentum in market activity in the region, the first half of the year was challenging for DSI”.

“Our revenue growth was slightly hindered and our profitability dropped year on year due to the delays on our major projects in KSA,” he said.

Mr Safi predicted that the third quarter of the year would not see significant improvements.

“We expect productivity to be stagnant in the third quarter of 2014, due the seasonality trend and the slowdown in operations during the holy month of Ramadan,” he said.

“Partial recovery of liquidity, operational and profitability margins is expected to materialise by end of the year.”

* with agencies

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