Drake & Scull International stock dropped to a four-month low yesterday as first-quarter profits sank 18 per cent on finance and contract costs.
Rising costs hit Drake & Scull's bottom line
Drake & Scull International (DSI) stock dropped to a four-month low yesterday as first-quarter profits sank 18 per cent on finance and contract costs.
Profit for the first three months of the year fell to Dh37.6 million (US$10.2m) from Dh45.9m a year earlier, the construction company said in a filing to the Dubai Financial Market.
Investors were left disappointed after the company, which specialises in mechanical and electrical contracting, was unable to convert top-line sales growth of 20 per cent to improved profitability. That was because costs incurred by the contractor surged by about Dh123m over the year as it absorbed higher funding outlays linked to recent acquisitions.
"The overall margins reflect the momentum of execution on some projects along with additional finance costs as a result of the acquisition funding," said Osama Hamdan, the DSI chief financial officer.
Last year the contractor paid 128m Saudi riyals (Dh125.3m) to buy the International Center for Contracting Company in Saudi Arabia, its second contractor purchase in the kingdom. DSI has been expanding rapidly in the region to counter the declining activity in the UAE, which accounts for about 29 per cent of its order backlog, according to a report last November from Rasmala, a Dubai investment bank.
The company's order backlog was worth about Dh7.7 billion at the end of March - an increase of about 3 per cent on the same period a year earlier. Now it plans to focus on keeping a lid on costs and boosting margins.
"The company is on track in achieving its growth objective for the year and is poised for considerable expansion in North Africa and Asia," said Khaldoun Tabari, the DSI chief executive.
"We have seen our revenues increase and this is attributed to our sustained backlog and to the timely execution of the projects on hand. Expansion into rail is under way and the company is currently prequalifying for major bids across the GCC."
The stock fell 3.5 per cent to 79 fils yesterday, its lowest closing price since January 23.
iPad users can follow our twitterfeed via Flipboard - just search for Ind_Insights on the app.