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

Good day, everyone, and welcome to the Orascom Construction First half 2024 Results Conference call. [Operator Instructions] Thank you. I'd now like to hand the call over to Osama Bishai, CEO. Please go ahead.

Good afternoon, good morning, everyone. Well, I hope everybody had a good summer. For the H1 results for 2024, we have been progressing in a steady manner on all our fronts on the construction side. We have achieved a revenue of $1.477 billion on both the MENA and the U.S. side. We have improved our EBITDA and bottom line as a KPI to our business. On the construction side, we are going to complete the first phase of our 500-megawatt wind farm ahead of schedule, and it should be operational in Q4 this year, which is between 2 to 3 months ahead of schedule. And the second phase will be done by early summer next year, which is, again, 2 to 3 months ahead of schedule. On our other construction, which is with the EPC work has been progressing such sectors to ourselves and we are progressing well, and we believe that we are on the right track there. On the U.S. side, we're quite happy with the current backlog achieved by the U.S. business and the results of the U.S. business. We're still expanding in the data center space and also in the aviation space, and we're improving our bottom line figures. On the BESIX side, BESIX maintained a positive outlook, and we're quite happy with the progress on BESIX so far and also the current backlog. Last but not least, we have made the dividend last week as promised and we will continue our policy of a 2-year dividend per year based on our results. So that we don't waste a lot of time, I will hand over to Reham to give you a flavor of the numbers, and then we'll open the floor for Q&A.

Thank you, Osama. Good morning. Good afternoon, everyone. Going through our second quarter results for 2024. As Osama mentioned, our consolidated backlog is sustained at $77 billion. This is on the back of new award for quarter 2 for a total of $1 billion that has split 72% just in the U.S. and the delta EMEA. Revenue for the group decreased 6.3% year-on-year to $711 million in quarter 2 of 2024. Excluding the devaluation effect, revenue we have reported a slight increase of around 4.4% year-on-year. MEA Revenue decreased by 29% year-on-year mainly due to the EGP devaluation, the completion of existing project. As we ramp up our large infrastructure projects in Egypt, we already secured [indiscernible]. USA operations witnessed a consistent block of 27.8% year-on-year driven by a higher contribution from newly awarded data center projects and other industrial and aviation projects. Adjusted EBITDA increased 65.2% year-on-year to $37 million in quarter 2 of 2024 and 29.4% year-on-year to USD 74.8 million in the first half of 2024. Adjusted EBITDA in H1, 2024 excludes one-off expenses of $7.5 million in Q1 and the $0.7 million being in Q2 2024 related to the divestment of building material subsidiary. Similarly, adjusted EBITDA in H1 of 2023 includes $92.9 million of net gain related to one-off expenses and divestments that occurred within the building material subsidiary. Adjusted EBITDA margin for MEA operation improved to 8% in quarter 2 of this year and 7.5% in H1 2024. The group's performance in the U.S. continue to improve, reflecting EBITDA growth of 83.9% year-on-year for quarter 2 and 83% year-on-year for H1 of this year and an EBITDA margin drop of 2.9% in quarter 2 and H1 of 2024. Adjusted net income attributable to shareholders achieved 10.7% year-on-year to $18.6 million in quarter 2 of 2024, while increasing 13.7% year-on-year to $64.7 million for H1 2024 at a 4.4% margin compared to 3.6% margin in H1 last year. Consistent growth adjusted EBITDA, adjusted net income in H1 2024 excludes $0.7 million gain in Q2 2024 related to the divestment of building material subsidiary. Adjusted net income in H1 excludes $41.8 million net gain in quarter 2 of 2023 related to one-off expense and divestment of the building material subsidiary. In quarter 2 of 2024, BESIX contributed positively to reprice profitability with an amount of $7.8 million, 20% higher compared to Q2 of 2023. H1 2024 contribution from BESIX amounted to $8.3 million compared with $6.4 same period last year. Our investments and subsidiaries in building materials, equipment services, facility management and concessions accounted for 51% of the group's net income for H1 of 2024. Net income for this segment was driven by equipment services as well as our steel fabrication subsidiaries. On the balance sheet side, equity accounted in BESIX amounted to $450 million, majority of which is BESIX investment of $415.6 million. The group's total equity decreased to $674 million as of June 2024, primarily impacted by further reduction of reserves as a result of the currency translation differences of the group subsidiaries operating in Egypt and by the dividend repaid and distributed to shareholders of $20.9 million. These were partially upward by net profits for the period. In May 2024, the Board of Directors and shareholders approved a dividend of $0.2 per share, totaling $22 million, which has been already paid on August 21, 2024 post quarter [indiscernible]. For the group working capital, first half 2024, cash flow from operations reached $247.9 million due to some production and level of advances received in quarter 1 of the [indiscernible]. Quarter 2 2024 reported cash outflow of $54.2 million from operations, mainly related to high progress on [indiscernible]. Trade and other receivables slightly declined to $1.29 billion compared to December level of $1.3 billion impacted by the EGP devaluation and backed by strong focus and billing in both MEA and [indiscernible]. Trade and other balances balance is $1.14 billion, down from $1.44 billion at December '23 as a result of the EGP devaluation compensated by the advances received for newly awarded project. Our gross debt stood at $238.7 million as of June 30 lower than December closing level of [indiscernible]. The group is preserving a healthy net cash position of $454.5 million from [indiscernible] $456.8 million as of closing December 2023. Thank you for...thank you, and we now open the Q&A session.

[Operator Instructions]

We've received our first question. How much was the new 500-megawatt wind farm add to EBITDA once online?

The 500 megawatt, our ownership there is 25%. We don't consolidate the numbers. So it will appear on our balance sheet as a net profit or a dividend. And obviously, since we are operating 50%, which is the Phase 1 250 this year, and the other 250 next year. So the numbers are not clear whether -- because also it depends on how strong is the wind and the seasons and all that. But it won't be affecting our EBITDA number, it will be affecting our net income margin.

Our next question, any new awards or sign up new orders from Ras El Hekma or is this too early?

I think Ras El Hekma, this is too early to be discussed. The fact of the matter is -- I mean, like any developer, they have to develop on master plan, get it approved, go through the process, designate the first phase. So I think it's too early. I would say that reel activities on Ras El Hekma will be first half of next year or even beyond that.

Our next question, are there plans to sell BESIX soon?

To answer that, I think anything is for sale for the right price, but we believe BESIX has a lot of upside potential at this moment. And I think it's too early to discuss that.

A similar question. Is there any update on material divestments, which could further unlock shareholder value?

I mean, we are obviously looking all over the place within our portfolio to see how can we unlock shareholders' value. Like what we've done last year, obviously, once we have something that is concrete, we will definitely share with our shareholders on the market.

Is there any guidance on the second half of 2024 earnings and EBITDA margin?

I think we'll continue our trajectory as we have done for the first half, we might even do better. What I think is important to realize -- and number one, the trajectory of the U.S. is very clear. And number two, on the MENA, particularly Egypt, there is also a timing issue because we have a lot of -- most of our contracts has an adjustment formula where timing becomes when is this recorded, when is this paid, as timing becomes a factor there. But on the -- but generally speaking, we are continuing the same trajectory like we had, and we believe that we can do that.

The next comment. Very strong results from the U.S. Is there any consideration to sell this business?

Again, I mean, anything is for sale for the right price. But I think the U.S. is -- has been progressing well. They have been able to consider risk management in the right manner. They focused on the right market segments, which has been able to give us the results we're seeing. I think the most important thing that we are focusing on is to have this as a sustainable model for a few quarters ahead of us.

Our next question, is there any update on the legal case with Qatar foundation on the construction of Sidra Medical and Research center?

Unfortunately, there is no additional feedback from last quarter.

Our next question, can you provide more color on the improvements in EBITDA margins in the Middle East and Africa segments? And where you expect them in the second half of 2024?

As we mentioned, we believe that we have continued to improve, particularly on the EBITDA. But again, we are -- we have to move from a quarter to the other due to the price adjustments that we have due to the inflation. So I think once this stabilized, maybe we can reach the previous numbers that we can increase our numbers even to the double-digit level. But so far, I think our guidance to maintain at the current numbers, and we will improve on it.

Our next question asked specifically on the top line guidance and where we expect that to go on 2025?

Well, we are not as much focused on the top line because basically, I think what we'd like to do is improve the bottom line. But having said that, we have a lot of new contracts in hand that has started in the last 6 months or even before. And I believe that our focus is to continue cranking execution and billing as much as we can to start eroding our backlog. We can see maybe an improvement on the MENA region, but the improvement could be affected if the Egyptian pound against the foreign currency is affected whether on -- whether slightly or in a different way. On the U.S., I think we are continuing our growth as we are. We are, again, very cautious about unnecessary growth because we would like to maintain management of risk there so that we protect and preserve the current results that we have.

The next question is somewhat related. Do you see improvements in the execution rate in Egypt?