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

Thank you for standing by, and welcome to the Orascom Construction First Quarter 2023 Results Conference Call. [Operator Instructions] Finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Mr. Osama Bishai, CEO, to begin the conference. Mr. Bishai, over to you.

Thank you. Good morning and good afternoon, everybody. First, my apologies that we had to change the time of the call due to some business considerations that were not planned ahead. So my apologies for that. In review of Q1 2023, I think if we look at the numbers, we have achieved a revenue of $800 million for the quarter with an EBITDA of $35.5 million and net profits of $36 million for Q1, with a net cash position of $159 million. I think the details of the numbers will be shared with my colleague, Reham. We have a solid backlog. We have also a solid revenue in foreign currency. I mean, we were quite -- we feel that we have a robust, let's say, outlook as far as we're concerned. But I think more importantly that I would like to share with the market and our investors and our shareholders is the fact that we are having a strategy that we followed all the time from a steady execution, focus on market sectors, such as our decision [ 2 ] years ago to focus on water and the related, let's say, construction and technology and related [ BIT ]. We have also focused on creating value for the shareholders. Everybody was adamant about share buyback. We have been pushing back so as not to affect the liquidity in Egypt, but we -- in due course, we have executed our strategy to improve or to create value for the company and the shareholders. We had a lot of subsequent events to the quarter that has been announced. Basically, we did a buyback for 5.5% of the shares in NASDAQ Dubai, not affecting the liquidity in Egypt. We believe it was a fair price for the shareholders and the company. We have also demonstrated that Orascom Construction has untapped value that could be monetized. We have divested our share in the chemical business -- construction chemical business part of the ticker takeover of that business, which created -- which we sold, let's say, our share for almost $58 million as a gross value, which reflects the technically -- let's say, a little bit closer -- and more than 15% of our market cap, which demonstrated the fact that there is an untapped value in Orascom construction, where -- which we always believed in. Last but not least, and I think is a key development, we have focused as management to diversify our exposure in the Middle East to much better transactions, not only where we have recurring revenues, but also to create greenfield construction outside of Egypt from bankable client and credit [ will decline ], which is the water treatment, the seawater treatment project that we have concluded with ADNOC 2 weeks ago. These events, I think a lot of credit goes to the entire team of Orascom Construction, where we are following a strategy without hesitation, knowing that this is the right track to be able to perform and create returns to the shareholders. Obviously, there is also another issue, is our involvement in the . We have announced in Q4 last year that we have started the initial preconstruction activities for the 500 megawatts, where we are both shareholders and EPC contractor. And we have also achieved the -- reached financial close, which, again, not only will continue our path for creating recurring revenues and recurring income but also create an opportunity 100% U.S. dollar denominated for the construction division. So we are extremely satisfied with our path so far. We will continue to do that. We believe we have a healthy pipeline of both -- opportunities both on the concession side and the construction side and with diversity. We also have opportunities in Egypt. We have -- we are pursuing certain internationally financed contract. So we are very bullish about the future. We are also meeting our challenges. I mean obviously, there are challenges in Egypt, which is the potential devaluation, the fluctuation in the market, the economic situation of Egypt. But our strategy of -- on the Egyptian side is to focus on internationally financed projects for the government, where the international institutions are -- continue to fund these projects, irrelevant of the current economic situation, very much similar to like the [ museum ], like the Metro program and stuff like that. So we will continue doing so. We are very, very confident that we will continue to bring value to the shareholders. But particularly for the quarter, I would invite Reham to step in and share with you the numbers and the details of Q1 2022. Please, Reham.

Thank you, Osama. Good morning, good afternoon to all. First, we'll take you at a high level for Q1 of 2023. Our consolidated backlog sustained at the level of $5.5 billion, driven by -- from new awards with an increased 39% year-on-year to USD 858 million, split [ 50%-50% ] in Egypt and the balance in USA. Further into [Indiscernible], in Jan of 2023, had an impact on Q1 2023 income statement due to an average exchange rate of 28.9 for the quarter compared to 16.3 for quarter 1 2022. Nonetheless, MEA margins are stable compared to Q1 2022 levels. Group revenue declined 17.8% year-on-year, resulting from EGP devaluation, diluting Egypt revenue by around $335 million. Excluding deval effect, the group would have showed a growth of 16.4% year-on-year. Group portfolio of subsidiaries across building materials, facility management and equipment services continues to record strong performance, recording a double-digit EBITDA and net income margins contributing 22% of year-to-date March 2023 net income. Cash outflow from operations for Q1 2023 reached $65.9 million, mainly due to high progress in new projects, partially compensated by strong collections and showing a material improvement when compared to same period in previous years. And now, we move to a more thorough analysis of Q1 results. Excluding EGP devaluation effect, MEA operations recorded an increase of 5.7% year-on-year, mainly driven by high progress and interest, construction projects awarded in 2022. Revenue in the U.S. increased 49.6% year-on-year on the back of strong execution and high backlog. Consolidated Q1 2023 EBITDA marked $35.5 million compared to $50.3 million Q1 2022, generating a margin of 4.4% compared to 5.1% in Q1 of last year, mainly impacted by MEA's lower contribution as a result of the EGP deval. MEA EBITDA margin stood at 6.4% for Q1 of this year, in line with Q1 last year level of 6.5%. U.S.A., on the other hand, witnessed increase in EBITDA margin to 1.9% this quarter, up from 0.8% same quarter last year. [ EBITDA ] at dollar value increased 3.3x year-on-year. Consolidated Q1 2023 net income and its related margins increased from $13.1 million at 1.3% margin to USD 36.1 million at 4.5% margin year-on-year. Net income movements can be attributed to [ V6 ] net income slightly negative of $0.1 million for Q1 versus a negative of $11 million for Q1 of last year. Positive net financing income of $20.6 million compared to net financing costs of $3.5 million last year, mostly driven by our favorable foreign currency net asset position in each. During the quarter, we saw an FX gain of $28.4 million compared to an FX loss of 0.3 same quarter last year. These were slightly offset by higher finance costs as a result of higher overdraft balance to finance Egypt's operations, coupled with higher interest rates as a result of the rising interest rate flat. On the balance sheet side, equity accounted industries recorded $462.8 million, the majority of which is [ V6 ] $419.4 million. The group total equity decreased to $665 million as of closing Q1 2023, primarily impacted by further reduction of reserves as a result of currency translation differences of the group's subsidiaries operating in Egypt and by the dividend declared and paid to shareholders of $21.6 million. These were partially absorbed by the net profit for the period. On the group working capital level, paid and other receivables stood at $1.1 billion, lower by $149.4 million compared to December 2022 levels, while contracts work in progress decreased by $92 million to reach $650 million. Trade and other payables balance declined from $1.44 billion as of December, closing of last to $1.16 billion for Q1 closing. These movements are driven by progress on billing, collection, payments to suppliers and subcontractors and FX movements. Advances trust to $690 million as of closing of March 2023. Excluding deval impact, the balance would increase by 51.6 million compared to December '22 level as a result of new awards in Egypt. Gross debt stood at $302 million as of March closing, higher than December level of $212 million, but lower than March -- of the closing of March 2022 of USD 382 million. The group is maintaining a healthy net cash position of $159 million compared to $37 million same quarter last year, evidencing a material improvement when compared to same period in previous years, given historical seasonal trends and collections. Thank you. And now we open the Q&A session.

[Operator Instructions] There are currently no questions standing by on the phone. I'd like to hand over to Hesham Halaby for webcast questions.

Thank you, Paul. We haven't received any questions yet.

We'll do a final call for any phone questions. [Operator instructions] There are no questions at this time. I would like to hand the call back over to Mr. Osama Bishai for closing remarks.

Well, thank you again. Our apologies that we had to change the time of the call. Please feel free to send...

Osama, we received one question now from Jonathan Milan. What is the updated guidance toward current EGP levels and EGP-USD at [ 40 ] level?

Well, I think this is -- it's a very theoretical question. I mean, obviously, that's -- some iterations we're doing that. But it is very much dependent on timing, if this happens now or a couple of months from now or end of this year or beginning of next year. So giving you any guidance today, it will not -- shouldn't be a cold guidance that should be called speculation. So unfortunately, the sensitivities of the timing of that devaluation is the key, and it's happening. Obviously, it will -- there are two considerations. It will -- there will be a consideration of the -- because we report in U.S. dollars, so there will be some decrease in our revenues and our Egyptian pound-based contracts as far as their bottom line. But on the other hand, there will be an upside because of the foreign currency that we have on balance and that the fact that we are trying to constantly naturally hedge our Egyptian pound by maintaining our dollar reserves. So it is very difficult to give any guidance at the moment.