Drake & Scull International (DSI), a major engineering and construction company based in Dubai, UAE, has reported a net loss of Dh985 million ($268 million) for the third quarter compared to a net profit of Dh21.37 million ($5.81 million) for the same period last year.

A regional market leader in the integrated design, engineering and construction disciplines of general contracting, mechanical, electrical and plumbing sector, DSI said its first quarterly loss was mainly due to one-off provisions and revenue adjustments in the current challenging market conditions.

The company said its revenue for the first nine months plunged to Dh2.83 billion ($770 million) from last year's Dh3.6 billion ($979 million).

The decline is due to the more conservative approach to revenue recognition and to adjustments for uncertified variations orders and disputed extensions of time claims, it stated.

DSI said it plans to sell its non-core assets to generate cash and boost liquidity.

The Emirati firm pointed out that the current challenging macro-economic environment; characterized by weaker oil prices, a slowdown in the construction sector and a more competitive landscape had caused developers and clients to defer payments and delay projects across DSI’s major markets.

This has prompted the board to conduct a review of its projects and take a more conservative approach to its financial position.

Consequently, the company has taken a number of one-off provisions related to ongoing arbitration and legal cases in the UAE and Saudi Arabia in addition to revenue and gross profit adjustments for uncertified variations orders and disputed extensions of time claims, accrued certified work and other general provisions across several major projects in the GCC, it added.

The Dubai-based contractor said the net loss for the first nine of months was Dh951 million ($259 million) compared to a net profit of Dh97 million ($26.4 million) reported for the same period last year. The decline was mainly due to the one-off provisions and revenue and gross profit adjustments taken in the third quarter amounting to Dh984 million ($268 million).

The impact of these one-off provisions and adjustments has been completely absorbed and profitability is expected to normalize in fiscal 2016 as new projects awards pick up momentum and contribute to revenue and profit.

DSI pointed out that despite the market challenges, the business remains operationally and financially efficient. Due to longstanding partnerships with major international and local banks, the company continues to retain strong project lines of credit and access to funding to deliver ongoing projects.

The company has initiated a cost-cutting programme to improve operational efficiency and reduce SG&A.  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, it added.

Despite the challenging market environment, DSI said it had secured Dh2.4 billion ($653 million) worth of new projects year to date. The UAE, Oman and Kuwait markets had accounted for 73 per cent, 15 per cent and 12 per cent of the new awards respectively.

Commenting on the results, Khaldoun Tabari, the chief executive and vice-chairman, said: "As the current regional construction sector remains extremely challenging we have taken a pre-emptive and prudent view of our exposure related to key projects and have introduced cost efficiency measures to preserve cash and initiatives to reduce debt."

“Longer-term we remain confident about the prospects for the company. We believe that regional government diversification programs and required infrastructure investments remain a significant tailwind in the GCC and that our clients remain fully committed to funding and completing their ongoing projects,” he stated.

The engineering and general contracting businesses constituted 78 per cent and 22 per cent of total awards respectively, cementing engineering as DSI’s primary growth driver for sustainable profitability across DSI’s largest markets.

As of September 30, 2015, the company’s substantial order backlog of over 160 projects stood at Dh12.35 billion ($3.36 billion).

For DSI, said Tabari, Saudi Arabia and the UAE remain the largest markets accounting for 32 per cent and 20 per cent of the total backlog respectively.

The development of the regional rail networks, urban transportation projects in the Middle East and North Africa (Mena) region is poised to enter a period of rapid growth, he added.

Tabari revealed that around Dh5 billion ($1.36 billion) worth of rail projects were currently in the tender pipeline.

"DSI’s extensive experience with rail projects in Asia and Europe, particularly in the MEP sector, and its strategic alliances with leading global rail experts positions the company well to win a significant proportion of these projects and drive the Company’s future profitability," he added.-TradeArabia News Service