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

Good afternoon, and good morning to everyone joining us today. Welcome to Orascom Construction's 9 Months 2025 Results Call. This is Hesham Halaby, VP of Investor Relations. We're joined by Osama Bishai, our CEO; and Reham Beltagy, our CFO. We will begin with remarks from Osama and Reham and open the line for Q&A. I'll now turn the line over to Osama.

Thank you, Hesham. Hello, everybody. Good morning and good afternoon. We are here to share with you our 9 months results for 2025. I think the -- other than the numbers, I think the most important event that we had is that the museum that we built was opened a couple of weeks ago. So we are quite excited and proud of that. And I hope you guys have the time to come over and visit. Going back to the results, I think what we have demonstrated so far is the company's ability to be flexible and adjust its compass towards the right target and the right business. We have indicated in the past, like in 2015 and 2016 that we're moving into the water. We said that a couple of years ago that we would like to see Egypt to become 30%, 40% of our backlog. And actually, this is happening as we speak. And I think the bright story that we currently have is the fact that we have started working on data centers in 2018. And our U.S. subsidiary, Weitz is well positioned to grow exponentially on the back of the data center business and to deliver results on the top line and the bottom line to the whole group on the back of data center business. And we have been able also to diversify our client base from being working for 1 single client to become working for quite a few as we speak right now. Going back, we have a healthy backlog as of September 30, which is almost $8.6 billion. We are demonstrating higher revenue, which reflects the execution or progress on the project sites across all the geographic jurisdiction. And also, we are -- as we have always indicated that we are focusing on higher quality projects that will generate better returns, and that's very clear from our 9 months results. One also major event, now I can't remember whether it was done in Q3 or after that. I think it's in Q3. We have finished our 650-megawatt concession, the EPC portion 6 months early than scheduled, which generates an additional 6 months of revenue, improving our IRR and improving the results and probably -- we'll probably make an earlier dividend to the investment company and the shareholders, hopefully before year-end. And we are currently right now doing our wind assessment for a 900-megawatt, and we will obviously keep our shareholders updated on the progress there. Across the board, all the business units are performing. I mean, obviously, it is a lot of project controls. It's a lot of challenges. It's a daily target that we are doing. But I think the results of this 9 months demonstrate the success of the whole team across our geographical areas, how they are performing. I would like to leave the floor to Reham to go through the numbers, and maybe we have more time to do Q&A after that.

Hello, everyone. So going through our Q3 results. Like Osama highlighted, our backlog increased 8.3% year-on-year to $8.6 billion in closing of this quarter. New awards, on the other hand, grew by 44.2% year-on-year to $3.7 billion for the 9 months of 2025. On the revenue, revenue has increased 74.8% year-on-year to $1.5 billion in Q3 of 2025 and 47.8% year-on-year to $3.4 billion for the 9 months of 2025. MEA quarter 3 revenue doubled year-on-year, driven by accelerated progress of high-profile projects from existing backlog across all major sectors. USA Q3 '25 operations also witnessed a steady growth of 33.8% year-on-year, driven by high contribution of newly awarded data center projects and other industrial and aviation projects. In quarter 3 of 2025, EBITDA increased 89.7% year-on-year to USD 84.6 million, reflecting a margin of 5.7% from 5.3% in Q3 of last year. The increase in Q3 2025 EBITDA is driven by improved operational performance across both MEA and USA. 9 months 2025 EBITDA reached $224 million at 6.5% margin compared to $112.6 million for the 9 months of 2024 at a margin of 4.9%. Nine months 2025 EBITDA includes a $22 million net gain related to overall favorable settlement of legal cases that took place in quarter 2 of 2025. Excluding this one-off, 9 months adjusted EBITDA increased 79.4% year-on-year to $202 million, reflecting a margin of 6%, well ahead of 9 months of 2024. Adjusted MEA margins would also reach 7.9% for 9 months of 2025. In quarter 3 of 2025, BESIX added USD 8.7 million to the group's net profit, up from $5 million in quarter 3 of 2024. The total contribution of BESIX for the 9 months 2025 reached $21.9 million compared to $13.3 million same period last year. For our concessions across wind farms and wastewater treatment contributed 7.9% of total net profit in 9 months of 2025, highlighting the early commissioning of the 650-megawatt wind farm in Egypt that Osama flagged earlier. Our subsidiaries across building materials, equipment services and facility management accounted for 10.9% of net profit for the first 9 months of 2025. In terms of net profit for Q3 2025, it increased 2.3x compared to Q3 of 2024, reaching $50.6 million with a margin of 3.4% compared to a margin of 2.6% in Q3 of 2024. Nine months 2025 adjusted net profit, excluding the $22 million gains mentioned before, increased $27.9 million year-on-year to $111.3 million compared to $87 million for the 9 months of 2024. Now moving on, on the balance sheet side. Our equity accounted investees amounted to $537 million. This is majorly denominated by BESIX for $457.7 million and also $51 million related to our wind investments. The group total equity increased to $782.2 million closing September 2025 from $647.5 million a year earlier, primarily driven by net profit for the period. Trade and other receivables increased to $2 billion compared to December 2024 level of $1.4 billion, reflecting the growth in revenue and progress on billings and advanced payments to suppliers and subcontractors on our large projects in the MEA region. Trade and other payable balance increased to $2 billion compared to December 2024 level of $1.5 billion, reflecting again the increased volume of work. Our gross debt stood at $450.7 million as of closing of September 2025 compared to December 2024 level of $313 million. However, it is worth highlighting that the gross debt was reduced by $160 million during the month of October of 2025. The group generated healthy operating cash flow this quarter, maintaining a net cash position of $839 million closing September compared to $728 million in December and $676 million for quarter 2 of 2025. And I now hand back the call to John to open the Q&A session. Thank you.

[Operator Instructions] At this time, we have no questions on the phone lines. I will turn it over to Hesham to address questions on the webcast.

Thank you, John. Our first question comes in. Congratulations on a solid set of results. What is the normal run rate in terms of top line and bottom line going forward given that Q3 numbers were much higher than previous quarters?

I think that in general, every quarter, we have a snapshot of certain projects that outperform and others do not. But in general, we will probably be looking at maybe $1.1 billion to $1.2 million per quarter moving forward, annualized to be like $4.8 billion to $5 billion, give or take. And obviously, we expect a better return on the EBITDA level, both on the MEA and the U.S. geographical region.

Our next question, would you consider expanding your concession portfolio through venturing into owning and operating data centers? If so, can you give some color on investment size and location?

Well, I have to say that data centers have no lack of developers and no lack of cash, particularly in the U.S. So I mean that's -- I mean, I would say, never say never. But at the moment, I don't think that on the concession side, we are needed in a place like the U.S. because there are mega players, whether from the development side or from the hyperscalers. We're happy to create value by being a contractor. And obviously, if there is an opportunity that would create shareholders' value and that would create reoccurring decent returns, we will definitely not opposed to jumping on.

Our next question. Congratulations on an excellent set of numbers. Can you please talk through the revenue growth increase?

Well, the revenue growth is simply reflecting the backlog that we currently have and the performance that we are seeing across all our regions. I mean, the power work in Saudi, the concession in the Emirates. Obviously, the data center story in the U.S. not only is reflecting size, but also reflecting speed. The schedules that are mandated by our clients and developers on the data centers are quite challenging, and that generates a higher level of revenues on a quarterly basis. This is why, I mean, I just said that we expect a run rate of $1.2 billion a quarter. But obviously, we're looking at that as -- on an average. I mean, we will always be seeing months that are showing much higher results and months that are showing lower ones.

Our next question, can you provide the project pipeline for 2026 and further periods? And will it be majorly from which geography?

I mean, obviously, I'm not going to share the pipeline in public like that. But having said that, we're seeing a healthy pipeline on the data center space in the U.S. We're seeing infrastructure in the Middle East also as a potential pipeline. We are focusing on water and power in the Middle East region. And obviously, data centers will continue to be a bright spot at least for the near future in the U.S.

Our next question, what was the reason for the huge increase in other income?

So basically, there are 2 main components to that. One of them is sale of scrap and old equipment and the other one is a management fee for one of -- on one of our projects?

Our next question. Congratulations on the strong results. Could you please share your outlook on expected award activity in Egypt for 2026 and beyond the 950-megawatt wind project?

Well, Egypt, we are -- we will be very selective moving forward as we have been, by the way, for the last 2 years. We have been focused on foreign funded projects. We believe that our 900-megawatt is a potential opportunity where we will be not only the developer with our partners, but also the EPC contractor for the balance of plant. So that's a target for us. We will be looking at selected projects such as the developer from Abu Dhabi Modon in Ras al-Hikma, maybe some particular infrastructure projects that are foreign funded. But we believe that our activity in 2026 will be much more robust outside Egypt than inside Egypt.

The next question, could you provide your view on your cash position, including the level of cash you expect to maintain going forward?

Okay. First, it's a nice problem to have. So let's look at it this way. I would like to say maybe a few comments on that. Number one, generally, contractors would like to maintain a sizable cash because, number one, they are operational cash. They support the operation, particularly that we are generating $1.2 billion of revenue on a quarterly basis. Number two, it gives us the capacity to sign large-sized contracts because our clients see that we have the bandwidth or the depth, the financial depth to be able to intervene if there are challenges on any project, particularly in the U.S. and the large-sized projects such in the data center space. But having said that, we believe that the level of free cash flow could be in the neighborhood of $150 million, give or take, plus or minus at this moment.

Our next question is, do you have a plan for any sustainable dividend policy for future periods? And are the EBITDA margins is expected to remain in the same level in Q4 compared to Q3?

I mean, obviously, we will -- we expect to have a sustainable dividend policy moving forward. Obviously, that policy will be kind of fine-tuned when the combination takes place with OCI because then it will not be OC alone at this stage. Having said that, we expect our EBITDA margin to be much higher than it was the years before. I mean we're looking at 7.5%, give or take, for the MEA region and 3%, again, plus or minus for the U.S.

We have a couple of questions regarding the same topic. Can you explain the rationale for the proposed merger with OCI? And any update on guidance on date for release of the terms of the proposed merger?

The rationale basically is that we will be able to access a war chest that would allow us to write larger checks for our infrastructure investments moving forward. And that would give us also the bandwidth to go beyond the Middle East and to go to robust places such as -- the robust markets such as the U.S. So this will give us that, plus the fact that there is a fine group of colleagues that will be joining that will be a great enhancement to our ability to invest and look at expansion plans outside the construction scheme. As far as the time line, we are currently expecting the due diligence reports, the fair value reports. And once this comes in, then a lot of things will be falling into place, discussions with OCI, looking at our Board, our shareholders and stuff like that. But at this moment, we are on a waiting mode for our advisers to give us their reports.

And along with the time line on announcing the terms, how long will it take to complete the merger once the terms are announced?

We believe that it will not take that long. I mean I think that once the -- both shareholders approve that on both sides, I mean, we're talking maybe 6 weeks, give or take or more, but it's not like it's a 6-month period. But we still have to go through the drill of Board, shareholders, general assembly, regulators and stuff like that.

Our next question, Egypt recently announced plans to establish 3 data centers. Will Orascom be participating as a contractor for these data centers?

I mean, obviously, if it's a valid opportunity for our construction group, we will look at it very seriously. Not only that we are well positioned for that, but we have way advanced expertise compared to the rest of the market in that space. We have been working with the top-notch data centers developers in the U.S. We have the technical expertise. We have technical superiority. We have up-to-date technologies. So I think that any developer of data centers would definitely should be talking to us, among others, obviously.

So far, we've completed the question received via webcast. John, did you receive any by phone?

At this time, we still have no questions on the phone lines. I'll turn it over to management for closing remarks.

Well, thank you very much. I hope we were able to respond not very vaguely to some of the questions here. But we'll keep you posted with our developments on the combination effort. And we are looking forward to provide next year our 2025 results. We're quite bullish on our future. And let's keep our fingers crossed. Thank you so much.

Ladies and gentlemen, this concludes today's conference call. We would like to thank you for your participation. You may now disconnect your lines. Have a pleasant day.