Orascom Construction PLC ($ORAS)

Good afternoon and good morning, everyone. Welcome to Orascom Construction's Q1 2026 Results Call. This is Hesham Halaby, Investor Relations VP. We're also joined by Osama Bishai, our CEO; and Reham Beltagy, our CFO. As usual, we will start with an overview from Osama and Reham, followed by a Q&A session. Osama, I turn the line over to you.

Thank you, Hesham. Good morning, good afternoon, everybody. We have delivered another strong quarter as far as not only results, but also our new awards and backlog. We have reached the $9.4 billion mark of current backlog. And obviously, our bottom line has exceeded $50 million per quarter as far as net profit is concerned. We're seeing a robust business growth in our U.S. business line that is backed by the strong growth in data center business. Also, we have seen a growth in our infrastructure backlog in the Middle East by 2 projects, one in the Emirates and in Saudi. We are very excited about our current backlog and the quality and the expectations of the bottom line. But we are also mindful of the current situation in the Middle East as far as the conflict is concerned and what imposes (sic) [ impacts ] of threats due to the force majeure and the consequences of such force majeure. We are working very closely with our clients and our partners in order to address the force majeure issues and also mitigate the impacts and address any cost impact. And I have to say that our clients have been very cooperative in that regard, and everybody really realizes that the current situation is quite challenging as far as the supply chain, shipping, insurance, and potential inflation in countries affected by that conflict. But we will continue to address that, and we will probably incorporate any impact of that force majeure in our numbers, if applicable. Having said that, we are quite optimistic about 2026 as far as our backlog and quality of contracts and our expectations with the exception of the impact of the force majeure. On the concession side, we have secured the power purchase agreement for our new 900 megawatts. We have already started early works, and we expect that we achieve financial close, if not end of quarter 3, to be beginning of quarter 4. I will allow Reham to go ahead and share with you in detail our numbers, and then we will address any questions or any queries after that. Thank you very much.

Thank you, Osama. Hello, everyone. Our highlights for our Q1 2026 results reflect, like Osama mentioned, a strong backlog of $9.4 billion and new awards for a total of $1.9 billion across Egypt, UAE, KSA and U.S.A. Group revenue increased 73.2% to $1.47 billion. Revenue growth was across MEA, U.S.A., demonstrating a diversified geographical footprint that mitigates regional concentration risk. MEA revenue grew by 43.6%, reflecting the rapid conversion of our high-quality backlog into realized revenue, while U.S.A. revenue increased 120%, boosted by the contribution of newly awarded data center projects. Group EBITDA doubled year-on-year to $108.3 million with higher EBITDA margin of 7.4% in Q1 of this year compared to 6.4% of Q1 of 2025, reflecting the group's strong operational leverage. EBITDA for MEA region grew 63.4% to $76.8 million with margin increasing to 10.3% from 9.1% same quarter last year, while EBITDA for the U.S. grew 343.7% to $31.5 million with margin increasing to 4.4%, up from 2.2% in quarter 1 of last year as well. BESIX's total contribution for the quarter amounts to $4.9 million of net profit this quarter compared to $3.3 million same quarter last year. Our investments and subsidiaries in building materials, equipment services and facility management contributes 8.2% of our total group net income, providing diversification benefit that effectively offset the seasonal volatility within our concessions portfolio. We also received $3.7 million of cash distribution from our concessions portfolio during the quarter. Robust revenue and profitability growth contributed to doubling group net profit to $53.4 million with margins increasing to 3.6% for Q1 2026 compared to 3% for Q1 of 2025. On the balance sheet side, equity accounted entities amounted to $530.5 million, the majority of which is BESIX investment for a total of $460.5 million. The group's total equity increased to $927.6 million as of March of 2026, up from $900.7 million as of closing of December 2025, primarily driven by net profit for the period. Trade and other receivables slightly increased to $2 billion compared to December level of $1.9 billion due to strong progress and billing in MEA projects. Trade and other payables, on the other hand, reached $2.2 billion, which is the same level as December 2025. Gross debt stood at $330.5 million closing March compared to $314.9 million closing of December 2025. Finally, the group maintained a robust liquidity position, ending the quarter with $875.4 million in net cash and generating an operating cash flow of $26.2 million. A portion of the group's cash has been reclassified to an investment in financial assets for a total of $138.4 million. Adjusting the group cash with this amount would result in a net cash of $1.013 billion. So thank you all for listening in, and I now hand the call back to Hesham for Q&A.

Thank you, Reham. Jehan, would you please provide us the instructions to ask questions.

[Operator Instructions] And Hesham, at this time, there are currently no questions on the phone lines.

So our first question, backlog grew this quarter despite the regional situation. Should we expect growth to continue this year? And do you expect this to come more from the Middle East or the U.S.?

Can you repeat that again, Hesham, sorry?

Backlog grew this quarter despite the regional situation. Should we expect growth to continue this year? And do you expect this to come more from the Middle East or the U.S.?

Actually, there are a few projects in the Middle East that are still in the pipeline, and we haven't seen those projects slow down yet. But we haven't seen new projects come in the pipeline, which makes a lot of sense. So we believe that either we will maintain the same levels in the Middle East and the U.S., or if there is further growth, it will be coming from the U.S. due to the continuous expansion in the data center space.

Our next question. Well done on a good set of results. A couple of questions, please. Do you think EBITDA margins can be maintained at current levels? Or do you expect moderation in the future? If you expect lower levels, what would be the reasonable long-term levels per region?

I think we can -- we believe that if it wasn't for the current conflict, we can maintain the current levels. We have yet to assess the impact of the conflict, particularly on the U.S. -- sorry, on the Middle East business. We have provisions in our contracts, on certain contracts to be compensated due to the force majeure, but not on our entire portfolio. So if there will be any lowering of that level, it will be due to the current conflict impact.

Our next question, what is the $140 million investment in financial assets?

So this $140 million is an investment in a fund under an LP structure. Basically, the objective is to earn higher yield on this cash on a short-term basis until it's mobilized in further investment opportunities that arises in the future.

Our next question. Can you provide an update on the transaction with OCI N.V.?

Well, at this moment, we are not aware of any new development. We understand that OCI is progressing through its processes addressing the minority concerns. There is nothing specific that we can provide at this moment. We will probably hear from OCI maybe towards mid of June due to the fact that they had a Board recently, and they have an AGM beginning of June to address the 2025 results. So we will be hearing from them. At this moment, it is exactly what we have reported in the last call.

Our next question. Congratulations on the results. Could you please elaborate on Orascom's competitive positioning in the GCC following recent geopolitical tensions and heightened risk around the Strait of Hormuz? To what extent could this environment support Orascom's relative positioning versus Chinese and Asian contractors, particularly in terms of bidding dynamics, pricing discipline, contract terms and target margin?

Well, I believe we are competitive. I mean, basically, the contract that we have signed in the UAE that is part of our new backlog, which, unfortunately, we are not yet permitted to announce, has been a competitive bidding and part of the competition were Chinese. So we believe that whether before or after the conflict, we are a competitive player in the GCC market. As far as the conflict is concerned, we feel even that would give us a little bit more edge due to the fact that we are one of the very few players in Saudi and in the Emirates, where we did not need to evacuate our personnel. We continue to work every single day. And I think this will give us not only a competitive edge, but also will give us some goodwill for the next short term. And I think that the issue with the logistics and shipping might give us some edge due to the fact that we can ship things to Jeddah and do some inland transportation, but it would not be as effective as the fact that we are originally competitive.

Our next question is on BESIX. BESIX EBITDA margin remained subdued at 1.6% for 2 consecutive quarters. Could you provide more color on the drivers behind the margin compression, including whether this is seasonal, and how we should think about the margin trajectory in Q2 2026 and over the remainder of the year?

Let me put certain facts on the table. Number one, BESIX has a robust backlog, which I think should give us more comfort towards the future, not necessarily by quarter, but towards the entire 2026 and even better for 2027. I think that also, they have been affected by certain inflation and certain project completion numbers that really affected their bottom line. The other thing is that BESIX do not report projects unless they reach a certain level of cost to completion, which does not improve the EBITDA margins, especially under the new projects. But having said that, what we're seeing is a very robust business in Australia. We have a very good backlog ahead of us. We believe that, that will start showing results towards the end of this year and beginning of 2027.

Next question. Can you walk us through the evolution of your data center business in the U.S. and how you see this evolving moving forward?

We have started working on data centers as old as 2017 and 2018. This was started when Microsoft, one of our clients, started building data centers in Des Moines, Iowa, where this is technically the backyard of our U.S. operation, Weitz, in the U.S. As this went on, I think we have delivered and we have demonstrated a few things. First of all, quality delivery; second, timely delivery; third, within budget. And these are 3 main issues that are a key for success in that field due to the fact that clients are very adamant on the cost and the quality and the timely delivery. And also, I mean, last but not least, health and safety. Over the last 2 to 3 years, the data center market has evolved to go to mega data centers when you're talking about campuses with probably 200 and 300 megawatts each. And automatically, we have been selected by not only the hyperscalers such as Microsoft or Google or Amazon, but also developers such as QTS and Vantage, they have been looking for resources in order to support their schedules. And this is really where our data center business exponentially grew. Obviously, we fully understand that this is a business that has a certain lifespan. We have been always expecting that this will be much shorter than it is now. But what we're seeing in the market is that the AI phenomenon has impacted the data center business in a different way. And there is quite a rush of even doing more data centers. From our side, I think the evolution that we have today is we are working technically with everybody, with developers and hyperscalers. And I think that the market will probably adjust itself and either the developers or the hyperscalers are the ones who are going to sustain the market conditions and will continue. And since we are working with both, we believe we have maybe a longer lifespan on the data center. But I think anybody's guess is as good as mine. I mean, I don't know how long this phenomenon will stay. But I think it's an opportunity for our U.S. business. And I think also this opportunity could also give us a head start for other opportunities for similar data center businesses. Not only in the U.S., but in other places, it will help our BESIX business in Europe. And by the way, the BESIX subsidiary in Australia are currently doing data centers in Australia. So I think this business will continue for a while in the whole world. It might not be growing exponentially as it is right now, but it will continue for a while, because we believe that AI is fueling the need for additional data centers all over the world.

Our next question. The results announcement includes a new water project in Saudi Arabia. What kind of opportunities are you seeing in this sector and other infrastructure sectors in the region?

Well, we believe that water is a key sector in the region. And I think we have addressed that. I think in 2018 and 2019, we said that we have focused on power generation and now water is becoming our new target, because we believe that water and water treatment and water desalination is a very principal sector for the lifeline in all regions we're working in. I think that the Saudi project has also an interesting feature. It's industrial water treatment, which is technically a new field for us. I mean we have done sewage treatment. We have done water treatment and desalination. Industrial treatment is important, because it will give us access to industrial sector plus oil and gas. So we believe that today, our experience covers the entire spectrum of water and will give us access to most of the projects in the region. We are seeing a pipeline in the Emirates, in Saudi, and obviously, in Egypt. And we will continue monitoring that to look for, let's say, the quality opportunities that we need to follow.

Our next question. Could you please provide more details on the $140 million investment in the fund, specifically on the rationale? Is it an investment in a money market fund until OC has better investment opportunities? Or is it a matter of timing in the context of the construction activity time lines? If it's the former, why not distribute that amount to shareholders instead?

Okay. I think we addressed that in the previous question. And obviously, I want to reiterate that this will provide us with a higher yield than the normal interest rate. Second, that's correct. When we see an opportunity for OC to invest this money, as Reham mentioned, it's on the short term. Last but not least, we have indicated, when we made the results of year-end, that due to the current discussions we are having with OCI, we are unable to make any profit distribution in the form of dividends unless this agreement is either null and void or we complete the combination and then the new combined entity makes a decision to make dividends. But at this moment, in order to maintain the split or the current combination ratio, we are unable to make any further dividends.

That concludes the questions received on the webcast. Jehan, can you confirm any received by phone?

There are currently no phone questions, Hesham.

Okay. Thank you. Osama, I turn it back to you for closing remarks.

Well, again, thank you very much for attending the call. And again, we're looking forward to August where we announce our quarter 2 results. Thank you so much.

This concludes today's conference call. You may now disconnect.