Orascom Construction PLC (EGS95001C011.CA) Earnings Call Transcript & Summary

Good afternoon and good morning, everyone. I would like to welcome you to the Orascom Construction H1 2025 results call. This is Hesham Halaby IR VP. We're joined by Osama Bishai, our CEO; and Reham Beltagy, our CFO. We'll start with a brief introduction, and then we'll switch over to Q&A afterwards. Osama, please, you may proceed.

Good afternoon, everybody. Welcome to our first half 2025 result call. First, I would like to emphasize that we have been following our strategy and our plan for the last few years. And I believe that we are bearing fruits for that as we speak. The main -- I mean, if we look at the -- on the construction side, the Middle East we are going ahead with diversification as indicated. We have secured 3 giga power plant in Saudi, and that increases the share of the Middle East vis-a-vis the rest of the backlog to end -- improves the geographical diversification that we would like to achieve. In addition to that, it is alongside the center of excellence of our performance, which is the power generation work where we have demonstrated in several occasions, our ability to perform such large-sized power generation plant in Egypt and elsewhere. As far as the U.S. is concerned, again, we have our focus on excelling performance on data centers have paid [ full ] that in a joint venture with another U.S. partner, we have been able to secure mega data center, what they call hyper scale data center where our share is close to $1 billion and that just has started towards the end of the second quarter of this year, which again, demonstrate our performance are excellent on that front. And both the construction in the Middle East and the U.S. are showing positive financial results, and Reham will be sharing with you details of that in a while. As far as our concessions are concerned, first of all, we have delivered our second wind farm. The total 650 megawatts. It was in 2 portions. 6 months ahead of schedule, which not only creates an early 6 months of commercial operation or revenue, it also enhances our ARR as a shareholder. On the front of Wave, progress on the EPC is steady. We are progressing as planned. Still our target as our contract stipulates that we deliver treated water to the oil wells for ADNOC in June next year. And that will create in 2027, a normalized, let's say, results or revenues from the concessions to the level that we have indicated before. In addition to that, we have started beginning of this year, the wind briefings for a 900-megawatt wind farm and our target really is to achieve financial close towards the second quarter of next year. On the other hand, BESIX has been progressing positively. Their backlog has been also increasing to a healthy level and has been giving us positive results compared to last year. I think one of the main events that we have seen in the first half is also the closure of 2 major legal disputes in Saudi and the Sidra Hospital and without a major impact on our balance sheet. And really that would allow us to progress without any concerns about unknown factors for the near future. And due to that, we have took the initiative of issuing a dividend in August prior to the issuing of results because we felt that we are confident that we can make a dividend to our shareholders and bring back value as promised. Last but not least, based on our shareholders' request, we have got their approval to migrate from the NASDAQ Dubai Stock Exchange to Abu Dhabi Stock Exchange. This has been progressing very well. And actually within the next 48 hours, we will be issuing the exact date for stopping the trading on the NASDAQ and starting the ADX trading without any impact on the Egyptian listing. Now I would leave the space to Reham to maybe go through the numbers and then go through Q&A.

Thank you, Osama. Going through the numbers and the results for Q2 of this year. Our consolidated backlog of $9.6 billion, led by strong new awards in USA for quarter 2 of this year for an amount of $1.8 billion, primarily data center project. Our consolidated revenue reported $1.1 billion for the second quarter 2025 outperforming second quarter of 2024 by 55.9%. H1 2025 revenue represents an increase of 32.4% year-on-year. MEA quarter 2 2025 revenue doubled year-on-year, attributed to the accelerated progress of high-profile projects from the existing backlog across all major sectors. USA Q2 2025 operations witnessed a consistent growth of 21% year-on-year driven by higher contribution from newly awarded data center projects and other industrial and aviation projects. Quarter 2 2025 EBITDA of the group recorded $85.2 million (sic) [ $85.3 million ] at a margin of 7.7% compared to USD 37.7 million in quarter 2 of last year at a margin of 5.3%. Quarter 2 2025 EBITDA growth is driven by stronger operational performance and net gain of $22 million relating to favorable settlement of a claim to an airport project in KSA as well as the arbitral award on the Sidra hospital projects in Qatar. Excluding this net gain, adjusted EBITDA, we still report an increase of 67.9% year-on-year at a margin of 5.7%. Adjusted MEA margin would also be in 7.6% in quarter 2 2025. H1 2025 EBITDA reached a total of $139.4 million for the group at 7.1% margin compared to $68 million for H1 2024 at a margin of 4.6%. Excluding previously mentioned net gains, adjusted EBITDA margin for H1 2025 will be 6%, still ahead of H1 2024. Adjusted MEA margin would also be 8.3% in H1 of 2025. BESIX contributed $9.9 million in quarter 2 2025 to the group's net profit compared to $7.8 million in quarter 2 last year. Fully -- first half year of 2025. BESIX total contribution amounted to $13.2 million compared to $8.3 million same period last year. Our concessions across wind farms and wastewater treatments accounted for 10% of total net profit in H1 of 2025, highlighting our recent success and the early start of our 650-megawatt wind farm in H1 and the growing role of this segment in our long-term strategy. Our subsidiaries across building materials, equipment, services and facility management accounted for 12% of our net profit for H1 2025. Group net profit increased by 198% to $57.6 million in quarter 2 of this year. This also included $22 million gain that we mentioned earlier. Excluding this, adjusted net profit increased 84.5% to USD 35.6 million at the 3.2% margin compared to $19.3 million at a 2.7% margin in Q2 of 2024. Net profit in H1 2025 increased 26.5% year-on-year to $82.7 million in H1 2025. Adjusted net profit of the group stood at a healthy $60.7 million and a margin of 3.1% compared to $65.4 million in H1 of 2024. On the balance sheet side, equity accounted entities amounted to $521.4 million, the majority of which is BESIX for $446 million. Group's total equity increased to $754.4 million as of June 2025, from $647.5 million earlier this year primarily driven by net profit for the period. Trade and other receivables increased to USD 2.1 billion compared to December '24 level of $1.4 billion. This reflects progress on advance payment to suppliers and subcontractors on our large-scale projects in MEA, we also collected some of these receivables in 2025. Trade and other payables balance increased to $1.9 billion compared to December level of $1.5 billion. Gross debt stood at $392.3 million for June 2025 compared to $313 million in December of 2024. The group also continues to preserve a healthy net cash position of $675.9 million on a net cash basis in June 2025 compared to $728 million as of closing December 2024. Thank you all. And we now can open the Q&A session.

[Operator Instructions] I'll hand over the call to the management to read the questions from the webcast.

Thank you. We received our first question. congrats on a strong set of results. Can you please elaborate on the rationale for migrating to ADX and ADGM? And should we anticipate any change in stock liquidity?

Thank you. First of all, we need to acknowledge a few things. We have been 10 years on NASDAQ now and our business really is in Abu Dhabi. I mean we have Wave, actually the pipeline that we expect in the future also is related to the Abu Dhabi area. So we believe that we have been doing that for a while. So we felt that it is more appropriate for us to move to Abu Dhabi. On the other hand, we hope that once we move to Abu Dhabi that there will be more liquidity available in -- on the ADX compared to the NASDAQ. NASDAQ, I think everybody is aware that there are very limited companies that are traded and it became more of a debt stock exchange rather than a normal one. So we felt that it's more appropriate to move there. And we felt also that the status quo doesn't really serve us well and serve our shareholders. Plus the fact that some of our main shareholders have strong ties in Abu Dhabi, and that could also help us in January.

Our next question is, given the company's solid cash position, should we expect additional dividends in H2 2025?

What we really need to do, first of all, we are assessing that as we speak. We had to -- due to the fact that we have completed 6 months early, the wind farm, we had to inject our equity after construction completion actually at the end of Q2. So we have injected almost $50 million of equity in our concession. Having said that, we are currently assessing our cash flow and our obligations on the operation level. And also, we are assessing also addressing the overdraft that we have in -- on our balance sheet and based on that, we will announce our plan for future dividends.

Our next question is what level of contribution should we expect from the concessions portfolio in 2026 and 2027 in terms of net profit?

I think what we really should look for is 2027 as 2027 will probably have a normalized year for the Wave project. So we should really look at a range of $15 million to $20 million annually. And the reason I'm saying a range because, obviously, we need also to acknowledge that on the wind farm, we are subject to the weather factor as sometimes we see months where we have much lower wind generation due to the current situation. So that's why there is -- it is a range. It's not like, let's say, water plant where we are generating 0.5 million cubic meters per day.

Our next question is, can you please tell us the tenor of new projects in the U.S. And do we have new guidance for 2025?

The tenor of large-scale data centers, you're looking at a global 2 years tenure probably with some intermediate milestones as it is not only 1 building, it's like few buildings that will be delivered alongside. But we're looking at 2 years on the big size data center. On the small-sized data centers, we are always looking at the 8 to 12 months or 14 months, give or take, depending on the size of that. The guidance, I mean, we are seeing improvements on the U.S. We are also working on enhancing our bottom line by having control on the electrical works, particularly on the data centers. So I think we can maintain the guidance of what we have achieved in the first half of this year.

Our next question is congrats on an excellent set of numbers. Please, can you break down the net gain of the $22 million for the legal cases. I understand the awards of $28 million once against the JV, which OC has a 45% in. How does this and the KSA award reconciled to $22 million gain on the income statement?

So basically, we have the settlement on the Saudi case award, which gives us a positive of $35 million and then we have a negative provisioning for our portion of the Sidra which is $13 million. So the delta difference between the $35 million and the $15 million is the $22 million positive.

And the next question is related to this. Congrats on the strong results. On Sidra, is this now considered a closed issue? Can you confirm that there is no cash flow impact with the settlement?

Well, the -- as mentioned in the press release that the tribunal decision on our liability is very clear. But the decision on costs and interest rates will be determined by end of October. I think that the end result will not really be material as far as we are concerned. So it won't really have a major impact on our cash flow but again, the final numbers should be clear, let's say, end of October, sometime in November.

And another question on this. Could you please clarify where the $22 million gain from legal cases reflected in the P&L?

So it's basically in the SG&A line.

Our next question, moving on to backlog. What is the expected backlog burn rate?

Well, actually, we have always said in the Middle East, we are looking at 18 to 24 month burn rate on average with the exception of the power plant because that's a 4-year contract duration. In the U.S., in general, it's 10 to 14 months with the exception of the large size data centers that I have indicated, it's a 2-year contract.

We received another question regarding dividends, but that has been answered. Our next question, given the recovery of BESIX, should we expect a return to historical dividend payment of around $20 million to $30 million from BESIX to Orascom?

I mean, I think that's the plan for 2026. But again, we have to yet see the final results and see that. But that's the expectation.

And on BESIX as well. Has any progress been made in the potential sale or unbundling of noncore assets from BESIX?

I mean, that's a discussion that has -- it's always ongoing with our partners in BESIX. And again, we don't want to unbundle any asset at a discount. I mean, at this moment, we are enjoying a healthy balance sheet. So there is no need for us to go and dispose of any asset that is not properly valued.

These are all the questions received so far. We'll give a couple more moment for any more questions to be received. Case operator, please let us know if any have been received through the phone line.

No questions from the phone line.

Well, thank you very much. We are -- I know still, we're still at the end of the summer. So we leave everybody to go back to whatever they're doing. And we'll meet again when we have our Q3 results sometime in November.

Apologies, Osama before we go, we received 1 question. Please talk through the very large increase in revenue.

Well, that's a normal symptom. If you recall, last year, we have received a lot of advances for a lot of projects that have started. I mean, like the Metro Line 4 in Egypt, Aboukir Metro in Alexanderia Egypt, the high-speed, the Wave project. So basically, that's a reflection of us performing the amount of work that we have signed last year. And that will continue to do so and this is what we have to do. I mean it's not a matter of -- it's like a surprise. It is just basically, we are trying to perform on schedule as planned for our clients. Well, thank you again, and looking forward to meet again in November. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.