Mr. Wael Allan
Chief Executive Officer

Dear Valued Shareholders,

The fiscal year 2016 marked a very challenging period for DSI that tested our resolve in addressing liquidity and operational challenges across our key markets. Nonetheless, a positive outcome was our strategic decision to refocus on our core business and primary markets.

Over the past three years, our growth strategy was driven by diversifying our projects portfolio outside the UAE and into regional and international markets. We have particularly focused on our growth in KSA, which in turn, had substantial impact on the liquidity and profitability of the Group. Moving forward, our strategy is to focus on client retention, excellence in projects delivery and operational efficiency to reposition DSI as the preferred MEP service provider in our core markets.

Our strategy is to scale back on our regional presence in the general contracting sector and shift our investments and resources to leverage our MEP capabilities to reinforce our leadership position in the UAE market. To achieve this, we will pivot back to the UAE as our principal market and will remain selectively active in other GCC countries as they remain a future growth market for DSI.

To deliver on the new strategy, a detailed operational assessment was initiated in 2016 and will progress throughout 2017. The assessment includes projects commercial performance review, cost analysis, and market analysis. The output of the initial assessment resulted in significant costs reduction as we continue to rebalance our portfolio and retrench on civil works and exit non-core geographies. Our short term strategy is to improve liquidity, enhance our working capital and reduce our debt levels. We are also concurrently assessing and pursuing various measures to enhance our capital structure.

In tandem with the operational assessment, we have appointed a financial advisor in 2016 to assist the company on a number of business transformation and strategic initiatives to address current challenges, which the Group is facing across key markets. This is a timely move for DSI to prepare for a stronger future.

Additionally, we have concluded a series of key management appointments at both corporate and subsidiary levels throughout 2016. The new executive management team is backed by a proven global track record in the industry with diverse knowledge and experience and an understanding of the global corporate governance required to lead a publicly listed company. In 2017, we will continue to review and optimize our organizational structure by merging and integrating core functions wherever possible and reduce our overheads to improve our bottom line performance.

Financially, the group performance for FY 2016 was impacted by major revenue reversals, profit adjustments and impairment charges arising primarily from the civil sector in the KSA. As a result, our top line target for the year was diluted and our revenue and net loss were AED 3.2 billion and AED 815 million, compared to AED 4.2 billion and AED 939 million for fiscal 2015.

Despite the regional slowdown in construction activities, our order backlog remains healthy and stood at AED 8.1 billion as of Q4 2016 .The UAE and the Engineering businesses accounted for 23% and 71% of the backlog reflecting our renewed focus on key clients in the UAE market in the MEP segment.

Our project bids in 2016 were strategically reduced, while we alternatively emphasized operational improvement of our ongoing projects. Albeit a decline in project awards momentum, we have managed to secure AED 815 million worth of new work across the GCC. We believe that the demand for our MEP engineering services remains strong and we are qualified for key opportunities in the region and are well-positioned to secure some of these prospects in the MEP segment in 2017.

Overall, our immediate priority in 2017 is to stabilize the business and complete the rotation and disposal of our non-core assets and divestments to generate cash. As we do so, we shall identify inefficiencies, fix productivity bottlenecks, resolve legacy issues, and more importantly, motivate our people, who are the reason behind our company’s resilience and unwavering optimism.

We have already implemented several measures to foster a stronger sense of ownership, accountability and excellence to make the company leaner, efficient and more disciplined.

Our long term strategy is to be the preferred construction management company through the implementation of best practices in construction management. The aim is to grow within the EPCM value chain by bridging the gap from clients between design and construction management. Furthermore, as procurement is core to our business, a redesigned and improved procurement process is implemented.

As part of our recapitalization program, we also hope to gain the Shareholders and Emirates Securities and Commodities Authority’s approval for a 50% capital reduction to facilitate additional equity as we work with Tabarak Investment to inject AED 500 million of new capital in DSI. This fresh capital will enable us to reinforce our working capital and implement our growth plans in the MEP sector.

We will talk more about DSI’s capital restructuring plan and agree on our growth trajectory for 2017 during our Annual General Meeting in April. Meanwhile, we will aggressively continue to execute our turnaround strategy and undertake key business transformations and strategic initiatives in collaboration with our stakeholders.

Lastly, I would like to reassure all our shareholders that the new management team is fully dedicated and geared to prepare a new phase of financial & operational recovery. We now have a clear path forward that is beneficial to all our stakeholders. I would also like to emphasize that we should treat growth more as an outcome rather than an objective. By laying the proper operational and organizational foundations and doing the right things first, we will position the company better for sustainable growth.