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

Good afternoon. Welcome to Orascom Construction's Q1 2025 Results Call. We're joined today by Osama Bishai, our CEO; and Reham Beltagy, our CFO. We will start with an overview of our latest developments and financial results by Osama and Reham, followed by Q&A. [Operator Instructions] Thank you for joining us today. I will now hand the line to Osama.

Thank you, Hesham. Good afternoon, everybody, and good morning, whoever is in the U.S. Let me give you like a brief highlight, and then I'll leave the floor to Reham to walk you through the numbers. This quarter, we have almost $850 million of revenues with an EBITDA of more than $50 million and a net profit $25 million for Q1. And we have a consolidated backlog of $8.7 billion. That's for OC alone, while if we add 50% of our share in BESIX, that will go up to maybe almost $13 billion. For Q1, we have a consolidated new awards of $1.6 billion added to the -- to our backlog. In general, we have a consistent progress, and we are still focusing on operational excellence. We're focusing on what we have committed to on geographical expansion and also on strict project controls and strict capital allocation. On the construction side, the construction business is progressing well. The U.S., obviously, in Q1, like every year, the challenge of the weather and the winter season has always been like that. So we always have a much lighter Q1 compared to the rest of the year, but we believe that the budget and the targets for Q1 -- for the 2025 will be achieved. As far as the MENA region, I think it performed. But I think the most significant event for us in Q1 is the signature of the power plant in Saudi Arabia because that confirms, number one, our strategy for diversification onto the geographical area. Confirms our leadership in the power sector because actually, this is a 3 gigawatt power plant. This is very much similar to what we have built in Egypt. Actually, the ones that we built in Egypt, each one was a 4.8 gigawatt. So we believe that we are progressing in the right direction, not only as geographical diversification, but also from a market -- from a sector perspective. And in the U.S., they continue to progress on data centers, on the industrial part, working with industrial developers in the technology industry. On the concessions, again, we are consistent in our progress, particularly in the wind. We have delivered 6 months ahead of schedule, our 500 megawatts. Our 150 megawatts, which is the expansion for that will be -- the target is to be completed by end of June. So we have a 6-month early achievement in early revenues in that concession. And as far as our main project in the Emirates, Wave, is progressing in a steady fashion, and we're quite confident of the targets in mid-2026. Last but not least, BESIX has delivered a steady and healthy backlog. And also, they have delivered bottom line results. We believe that this year will be much better than last year, but they are -- their trajectory is on the right track. I would like to leave the floor for Reham to go specifically in the detailed numbers, and then we'll be ready to receive your Q&A.

Thank you, Osama. Good morning, everyone. Going through our Q1 2025 results. And as Osama has highlighted, consolidated backlog reached $8.7 billion, boosted by a $1.6 billion of new awards led by the 3 gigawatt KSA power plant. Consolidated revenue increased 10.6% year-on-year to USD 847.6 million in Q1 of this year. MEA revenue increased by 44.2%, driven by the execution of our large-scale projects in Egypt and the UAE. U.S.A. revenue, on the other hand, experienced a temporary decline of 19.1%, primarily reflecting the timing lag in signing new contracts with recovery expected in second half of this year as pipeline conversion progresses. Group EBITDA increased by 43.1% year-on-year to $54.1 million, and EBITDA margin increased to 6.4% in quarter 1 of 2025, driven by our performance in the MEA region. EBITDA in the MEA region increased 82.2% year-on-year to $47 million, while EBITDA margin grew to 9.1%. EBITDA margin in the U.S. stood at 2.2% for this quarter. BESIX contributed a total of $3.3 million to net profit in quarter 1 of this year compared to $0.5 million in quarter 1 of 2024. Our concessions across wind farms and wastewater treatment accounted for 15% of total net profit in Q1 2025, highlighting our recent success in the early start of the 650-megawatt wind farm in Egypt and growing role of this segment in our long-term strategy. Our subsidiaries across building materials, equipment services and facility management accounting -- accounted for roughly 10% of Q1 2025 net profit. Net profit for the group stood at a healthy $25.1 million at a margin of 3%. Compared to a snapshot of last year in quarter 1 of 2024, this marked a 45% decrease year-on-year; however, net profit of Q1 2024 included an above average level of net financing gain of $45.8 million that reflected the devaluation of the Egyptian pound that took place in March of 2024. Excluding this impact, net profit in Q1 of this year would have reported increased compared to Q1 of last year. On the balance sheet side, equity accounted investees amounted for $467.6 million, the majority of which is BESIX investments for $430 million. The group's total equity increased to $681.8 million as of March 2025 from $647.5 million earlier, primarily driven by the net profit for the period. Trade and other receivables increased to $1.7 billion compared to December 2024 level of $1.4 billion, attributed to strong progress and billings in MEA projects. Trade and other payables balance of $1.5 billion, the same level as December 2024. Gross debt stood at $343.7 million as of March closing compared to $313 million for December 2024 closing. We continue to preserve a net cash position. Thank you for listening in. And now we are ready to start Q&A.

[Operator Instructions] We don't have any questions as of the moment. I'd now like to hand back to the management team of Orascom for final remarks.

So we started receiving questions now over webcast. The first question is, any update on dividend, and Sidra?

We have not heard yet anything from the trade union of Sidra. We are expecting that to happen, let's say, either within Q2 or at the beginning of Q3. We would rather address the issue of the dividends once we get feedback on Sidra. But nevertheless, it is our intention that to maintain the same policy that we always have, which is an interim dividend twice a year, provided that there is no unexpected outcome or situation.

Our next question, congratulations on another set of results. Just wanted to ask about the growth and margins for the MEA region.

We have indicated several times that we have been focused on quality contracts. And what we believe is that we started showing some of that results. The results of Q1 is a mixture between an improvement in the bottom line of some of the new projects and completion of some other projects. So I think we will be maintaining this level moving forward.

Our next question, how do you see the outlook for margins in GCC compared to Egypt?

Actually, that's a question that is very difficult to answer because GCC, it's always dependent on which sector, are you in infrastructure? Are you in buildings? Is this -- you're working with the private sector or you're working with the government? So we can't speak about that. But I think that on the GCC, inflation, at least in the country is pretty much curbed. We don't expect to see spikes of inflation or unexpectations due to the currency fluctuation like we see like in Egypt, for example. But nevertheless, I think it's a matter of market segments. And what we're trying to do actually is to focus on areas where we have an edge and we'll be able to provide good return to our shareholders. [Technical Difficulty]

Please standby, as we're awaiting the speakers to be reconnected. Again, be on standby, as we are awaiting for the speakers to be reconnected.

Thank you, everyone, for your patience. We -- our line dropped. We will repeat the last question, and we will take it from there. Our upcoming question, could you please provide us with guidance for the U.S. business regarding execution, margins and awards?

I'm not sure at what point we were dropped off, so I'm going to answer the question again. Basically, like we said, Q1 performance for the U.S. does not affect our full year outlook given that in Q1, the U.S. was at a point where a lot of projects were closed out and some delay happened in converting committed projects into our backlog. We've already seen the pickup of that in quarter 2. And the committed projects are now -- will continue to convert through quarter 2 and quarter 3. And as a result, we expect to remain with our guidance level, which we have reflected earlier, which is a margin for the group of 7% and for the U.S. of around 3% at the EBITDA level.

We have 2 questions by one of the participants. The first is, what would be a worst-case scenario for Sidra? And the second is, do you think in the near future, Orascom's Egypt exposure could drop below 50% of backlog and revenues?

First of all, it's very difficult to assess a worst-case scenario for Sidra. If we would have known that we would have actually disclosed it way back. So there are like hundreds of permutations and combinations that we cannot really determine, which one is which. Going on Egypt's backlog, I think it is not a matter of Egypt's backlog going down or going up. Basically, we are a contractor that pursues good business that not only capitalizes on the edge and the capabilities within the company, but also the fact that we are also seeking value for our shareholders. I would like to remind some of the people here that there was a time in 2006 where the majority of the backlog of Orascom and it was OCI, at the time, was in Algeria. So we, as a general contractor, pursuing infrastructure work and pursuing regional business, we will always focus on good quality projects and we'll always focus on geographical diversification. We don't know how much or what's the size of good quality projects that will be released to the market in Egypt in the next 4 to 5 years. Egypt is our backyard. This is where we have our main edge. So we will continue focusing on good quality projects in Egypt. I mean we have -- we are, let's say, very close to closing the Magdi Yacoub Hospital. We just finished the GEM. So we are working on the Metro different lines. So that will continue. To determine a size of backlog Egypt versus other countries, it is very difficult. But what I would like to confirm is that we would like to have healthy diversification in order to mitigate the cyclicality of the construction business. [Technical Difficulty]

We're trying reconnect the speaker line.

Our next question is, can you provide us with EBITDA margin for the construction business alone in MEA for the quarter?

I think it's very clear.

Q1...

Go ahead, Reham.

Q1 -- yes. Q1, 2025.