The Dubai-based contractor Drake & Scull International (DSI) reported a Dh936.8 million loss for 2015, blaming it on the “unprecedented measures” it had to take in the third quarter.
It was forced to make Dh984m in provisions relating to a contractual dispute in Saudi Arabia.
The company said that it had “normalised its profitability” following this, declaring a Dh14m fourth-quarter profit as revenue climbed by 27 per cent to Dh1.4 billion versus Dh1.1bn in the same period last year.
However, full-year revenue dropped by 11 per cent to Dh4.2bn from Dh4.8bn and despite winning Dh3bn worth of projects during 2015, its backlog fell by 18 per cent to Dh11.83bn from Dh14.4bn.
The company said that it would continue to pursue debts and legal claims, adding that it “expects a number of provisions to be reversed in the future”. It has also begun a cost-cutting drive, saying that it is committed to a “process of fiscal consolidation, discipline and austerity in light of the prevailing macroeconomic environment”.
DSI said: “Despite the current challenging market conditions, the underlying long-term outlook for the regional industry presents promising opportunities for DSI, particularly in the UAE. DSI retains its optimism about the prospects for its engineering business, which is expected to remain the key growth driver for DSI, with an additional promising potential for the rail sector in 2016.”
The company’s shares finished 2 per cent higher at Dh0.35 on the Dubai Financial Market yesterday, although they were 56 per cent lower than the Dh0.81 they were trading at 12 months ago.
The company’s stock was downgraded to “reduce” from “hold” by HSBC last week.
Allen Sandeep, head of research at the brokerage Naeem, said that it had placed its recommendation for the company under review until it produced audited results next month that clarify a number of issues.
For instance, when announcing the third-quarter results containing the large provisions, the company said that it breached the covenants of its syndicated sukuk– a US$120m facility taken out in November 2014. It was meant to notify other lenders and to arrange to remediate the breach by December 31, 2015.
It is not yet clear whether this has been done, and Mr Sandeep said his firm’s recommendation on the stock would “await progress on negotiation with lenders/refinancing options”.
He also added that it would await an update on Drake & Scull’s working capital position. The firm’s net working capital dropped by 31 per cent in the third quarter of 2015, meaning that net working capital stood at Dh2.04bn, including trade receivables of Dh5bn.
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