UAE-based Drake & Scull, a leader in the integrated design, engineering and construction sector, has reported a net loss of Dh786.9 million ($214.4 million) for 2016 compared to the previous year's loss of Dh938.8 million ($255 million).

Announcing its preliminary un-audited financial results for the fiscal year ended December 31, 2016,
Drake & Scull said its revenue for FY 2016 fell to Dh3.2 billion ($871 million) from the previous year's Dh4.2 billion.

The net loss for the period was Dh787 million, compared to a net loss of Dh939 million reported for fiscal 2015, it stated.

Against the backdrop of the significant liquidity challenges in the regional construction sector, the groups’ results for the fiscal year 2016 were impacted by major revenue reversals, profit adjustments, cost overruns, and investment impairments, emanating primarily from several disputed legacy projects in the construction business in Saudi Arabia, said the statement.

Drake & Scull pointed out that the revenue and gross profit adjustments reflected in the fiscal year were against uncertified variation orders and claims, disputed extensions of time claims, and accrued uncertified work across key projects primarily in the civil sector.
    
The adjustments diluted the revenue target of the company for the year and impacted the profitability of the group, it stated.

In the last quarter of the fiscal year 2016, the company undertook most of the revenue reversals and profit adjustments as negotiations with key distressed clients on several projects drew to closure.

The UAE and the Engineering business accounted for 23 per cent and 72 per cent of the backlog, respectively, reflecting the company’s strategic and ongoing focus on its home market and core engineering business.  
 
Drake & Scull’s new management had initiated steps for a turnaround plan with the appointment of PWC in Q4 2016.

Key parts of the turnaround plan include capital raising, de-risking the business, divestments of non-performing / distressed subsidiaries, disposal and monetisation of non-core assets, cost-cutting measures, deleveraging and capitalization of profitable business segments (engineering) to achieve a rapid improvement in financial performance, and stabilising the company in terms of acceptable levels of profitability, solvency, liquidity, and cash flow.

CEO Wael Allan said: "Today, we are announcing the initial steps to stabilize and turn around our business. The capital reduction is an important milestone in our recapitalization program and is a strategic move to improve the balance sheet and the capital structure."

“I am pleased to see that Tabarak Investment has made a commitment to our business. This is clear evidence that Drake & Scull has solid foundation and confirms our strategy of being the leading MEP contractor in the region,” he stated.

“Tabarak Investment will add great support to the new management team and will assist the company on a number of financial and operational initiatives. The fresh capital will be earmarked to pursue our growth plans in the MEP sector and to shore-up our working capital,” he added.

Allan pointed out that the recapitalisation program was imperative to the success of its turnaround plan and confident that the proposed measures will steer the company’s journey towards recovery & sustainable growth.

“I would like to reiterate that we are dedicating our efforts to regain business momentum and to restore our leadership position in the regional engineering sector. Our focus has shifted to building a clear path of sustainable growth, driven mainly by our core MEP business,” he stated.
 
Drake & Scull's objective is to renew its focus on clients with emphasis on operational excellence and selective bidding, said the top official.

"We are qualified for key opportunities in the region and we believe that we are well-positioned to conclude on some of these prospects in the MEP segment during the first half of the year," observed Allan.

"Whilst we continue to be impacted by various legacy issues, we are confident that our operations and financial position will gradually improve as 2017 unfolds," he added.-TradeArabia News Service