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

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Orascom Construction 9M 2024 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Osama Bishai, our Chief Executive Officer. You may begin.

Thank you. Good afternoon, everybody. We are pleased to be here today to announce our 9 months results 2024. Basically, I will provide an overall picture and then Reham, our CFO, will give you the details of the numbers. Basically, we have been progressing in a steady manner all over our activities, mainly on the construction side, different geographical diversified locations we have and on the concessions. Regarding the concessions, we are happy to see the progress of our wave projects in UAE with ADNOC progressing on the EPC level in a steady [indiscernible]. We're not seeing any delays or any concerns as far as the progress of the project is concerned. On the concessions on the wind in Egypt. We have progressed in a great way. The 500 megawatts that is currently under construction. We have already completed the Phase 1, which is 250 megawatt. And currently, we are running the reliability test, where we hope we complete that by the end of the month, and this means that we are ready 4 months ahead of schedule. In addition to that, we have succeeded to sign with the Egyptian government and add-on 150 megawatts on the same site, where we are going to expand the 500-megawatt to become 650, making it probably the largest in Africa as far as wind farms are concerned. Again, our target is to have the 150 megawatts operational by next summer. On the construction side, we are having a healthy backlog. It's $8 billion between the U.S. and the Middle East. And we are progressing well as far as our bottom line numbers, the EBITDA and the net profit. On the business -- on the U.S. business, again, it's progressing in a healthy manner. Our backlog is healthy in the U.S. And we are, as we have indicated before, focused on data centers, the aviation sector where we are able to improve our bottom line. Last but not least, BESIX has maintained positive trajectory, healthy backlog, and we believe that BESIX will be continuing -- we'll be delivering the expected results by end of the year and obviously better for 2025. One -- 2 important issues. We are heading confidently to -- in our diversification. And soon, we will be having projects in the region to continue our strategy to diversify the MENA region not to be dependent only on Egypt. The other thing is that it's our intention to -- before year-end, we will announce a dividend to be paid to the shareholders in January 2025. Now I leave the floor to Reham so that she can walk you through the numbers.

Thank you, Osama. Good afternoon, all. First, I would like to take you through highlights of year-to-date group results, our consolidated backlog marked the $8 billion mark sustained by strong new awards of $2.6 billion year-to-date 2024, with EMEA, USA split of new awards of 53% to 47%. Quality backlog and operational excellence, allowing margin enhancement across the group with an adjusted EBITDA margins for 9 months of 2024 of 5.1% compared to 3.8% in the same period last year. On net income margin as well for the first 9 months of 2024, margin recorded 3.7% compared to 3.1% same period last year as well. Lastly, cash flow from operations for year-to-date 2024 marked $245 million of positive cash inflow compared to a negative of $90.7 million for the first 9 months of 2023. And now focusing on our Q3 results for 2024. Revenue reported a 5.1% increase year-on-year to $842.5 million in quarter 3. Excluding the deval fact, the revenue would have witnessed 17.2% increased year-on-year to USD 959 million, driven by stronger operational improvement in both EMEA and U.S. Excluding deval effect, EMEA revenue increased 11% year-on-year for quarter 3 of this year on the back of contribution from newly awarded projects. U.S. operations also a gain stable growth of 24.8% year-on-year, driven by higher contribution for newly awarded projects, mainly data centers, industrial and aviation. Adjusted EBITDA of the group recorded 34.7% year-on-year to $44.6 million in quarter 3 of 2024 and 31.4% year-on-year for $119 million for 9 months of 2024. Adjusted EBITDA margins for EMEA operation increased to 7.2% in quarter 3 of this year and 7.4% for 9 months of this year. The group's performance in the U.S. continued to improve, reflecting EBITDA growth of approximately 80% year-on-year in quarter 3 of 2024 and 81.7% year-on-year for the 9 months of 2024. EBITDA margin growth to 3.6% and 3.2% in Q3 and 9 months of 2024 respective. The group's net income attributable to shareholders increased 34.2% year-on-year to $21.6 million in quarter 3 and 18.2% year-on-year to $86.3 million in 9 months of 2024 at 3.7% margin compared to 3.1% margin for the 9 months of 2023. Net income contribution from BESIX increased to $5 million compared to 1 in quarter 3 2023. Nine months 2024 contribution from BESIX totaled $15.3 million compared to $7.4 million for same period last year. Our investments and subsidiaries in building material, equipment services, facility management and concessions account to 2 close to 32% of group's net income in 9 months -- the first 9 months of 2024. Net income for this segment was driven by equipment services and steel fabrication subsidiaries. Our steel fabrication subsidiary continues to grow its export position and supplying projects in U.S.A., Europe, Africa and UAE. Looking on our balance sheet. Equity accounted and fees amount to $462.8 million, majority of which were $430 million at BESIX. The group's total equity decreased to $667.6 million as of 30th of September 2024, still at a healthy level, but primarily impacted by further reduction of reserves as a result of currency translation differences at the group subsidiary operating in Egypt, and by the dividend distributed to [indiscernible] quarters earlier of $42.9 million. This was partially absorbed by our profitability for the period. On a working capital level, our 9 month 2024 cash flow from operating activities recorded $254 million, as alluded to earlier, due to strong collections and advances received in quarter 1 of this year as well as gradual improvement in our collection leading to cash inflows from operations in quarter 3 of 2024 for an ounce of $6.3 million. Trade and other receivables increased USD 1.6 billion compared to December level of $1.3 billion generated from strong progress on projects and billings, EMEA and U.S.A. Trade and other payables balance and advances remains at par and close to December 2023 level of USD 1.4 billion as a result of EGP devaluation compensated by advances received for the newly awarded projects. Our gross debt stood at $299 million closing September 2024, ahead of December level of $249.8 million. The group is preserving a healthy net cash position of $419 million compared to $446 million in December of 2023. So we are now open for the Q&A session. Thanks everyone.

[Operator Instructions] There are no phone questions at this time.

We'll start receiving questions on the webcast. Our first question, any update on the [ CASA ] foundation lead case?

Well, so far, no. As we have indicated before, that the expectations that we'll get feedback in Q1 next year.

Our next question, could you please share the outlook for backlog additions in 2025 plus guidance on top and bottom line for full year 2024 and 2025?

We are expected to replenish the, let's say, the backlog that we are eroding every quarter. We think we will be, give or take, at the same level by end of the year, and we'll maintain that, give or take, 10% in 2025. On the top line, I think we will -- we believe we'll have the same level or maybe even grow somewhere between 5% to 10%. And on the bottom line, I think we are working diligently to continue to improve the levels of EBITDA and net profit. And I think we are getting in that direction. Obviously, there are a lot of considerations to whether there will be another devaluation in Egypt or not. So it's very difficult to pinpoint something very specific, but I think we're confident that our bottom line will continue to improve.

Our next question, congratulations on the results. Can you please explain where the FX loss and the comprehensive income is coming from? Is this expected to reoccur again in Q4?

When this is a function of the cash balances that we -- in foreign currency that are related to our balance sheet. And basically, this is the foreign currency translation differences, that's the put into our reserves.

Our next question...

Sorry, Hesham, as a follow-up, it will depend on the movement between EGP versus dollar and euro, which is substantially the currencies of our foreign currency cash at operations level.

Our next question, congratulations on the results. Can you shed some light on the proposed dividends?

We are maintaining the same level of dividends that we have processed in 2024, and it will be, again, our expectations is to have an interim dividend in January and another 1 summer next year.

Can you please elaborate on your comments that you are looking to diversify the backlog?

We are -- our strategy has been, over the last couple of years, is to continue to grow but also diversified geographical dependency of the group to be not only particularly on the MENA region to be not only on Egypt alone. We believe we are on the right track that we will probably have by end of '25 and increased backlog in the MENA including Egypt, and we'll have a better split between Egypt, the U.S. and, let's say, the GCC [indiscernible].

Our next question, can you shed some light on the outlook for new awards in the U.S. and Ras El Hekma?