Orascom Construction PLC (ORAS) Earnings Call Transcript & Summary

Good afternoon and good morning, everyone. Welcome to Orascom Construction's H1 2026 Results Call. This is Hesham El Halaby, Investor Relations, VP. We're also joined by Osama Bishai, our CEO; and Reham Beltagy, our CFO. As usual, we'll start with an overview from Osama and Reham, followed by a Q&A session. Osama, I'll turn the line over to you.

Thank you, Hesham. Good morning and good afternoon, everybody. We're apologizing we had to bring you in the midst of August to have this call. Quickly to give you some highlights of our H1 results or Q2 results. Number one, we are still managing and mitigating the impact of the geopolitical events in the region. It is still an ongoing event. We're still addressing some of the concerns on supply chain, shipping lines, particularly to the east side of Saudi and to the Emirates. And obviously, it has a global impact on some of the building material prices. But so far, we believe that there's ongoing healthy discussions with our clients, and we are mitigating that impact on a lot of our projects that we are dealing with. So this is one of the issues that we are addressing almost on a weekly basis and strategizing how to mitigate that on the long term. And obviously, we're hopeful that this issue disappears this year. On the other hand, we are extremely excited to announce the size of our backlog. We are $10.9 billion backlog, consolidated backlog, at the end of June 30. The buildup of that backlog is due to both regions, the MEA region and the U.S. On the U.S., we are benefiting from the growth and the exponential move on data centers in the U.S. And we are well positioned there. We are receiving our fair share of data center awards. And we're seeing that like an ongoing exercise that is, I would say, growing over the next 6 to 12 months. On the other hand, strategically, in the MEA region, we are still also benefiting from not only what we have executed in the past, but also our position on strategic projects like the connection between Tunisia and Italy. This is obviously based on our successful execution for the connection between Egypt and Saudi. Our wind development program, we have been awarded the EPC for the 900 megawatts in Egypt. We are also getting additional water projects and power work in the Middle East. This decent backlog that we have also gives us more confidence of not only our -- what we have been saying about the quality of backlog and the quality of the returns, but also would allow us even to be more selective over the next period, especially that we have yet to see the impact of the geopolitical events in the Middle East. We believe that will trigger some infrastructure projects that will become strategic and critical, particularly in Saudi and the Emirates. And we believe we are well positioned, at least, again, to take some of our fair share there. As far as our bottom line and results, we hit an EBITDA of $200 million for the first half, which is a great milestone. And we have achieved more than $100 million of net profit for the whole Group. We're seeing also that the U.S. is improving its KPIs. So we believe that we will continue to expect an improvement in the EBITDA or net profit on our U.S. business. I think one of the challenges we have, which is a timing issue, is that we have a higher negative cash flow on our Egyptian operation. And actually, it's on the back of some particular real estate work in Egypt, where we are progressing much faster than concluding our contractual arrangements and receiving the payments, which we believe this will be mitigated over the next 2 quarters. The other issue is, obviously, our 900 megawatts. We continue to expand our wind farm business. We have started with a limited notice to proceed on the 900 megawatts. We concluded our EPC. We believe that we will achieve FC during this year and we will achieve generating power within 24 months. I would leave the mic to Reham to walk you through the numbers, and then we will open the floor for the Q&A. Thank you so much.

Thanks, Osama. Good afternoon, good morning, everyone, and thank you for joining us today. Growth across all operating segments has driven yet another strong quarter for our Group. Just briefly recapping on backlog figures that Osama has previously highlighted. Our consolidated backlog increased 13.9% year-on-year to USD 10.9 billion, led by strong new awards in quarter 2 of roughly $2.95 billion, with the U.S. accounting for 69% share and the delta is Middle East-based. Our quarter 2 2026 revenue increased 36.2% to $1.5 billion and the H1 2026 revenue increased by 32.3%. In quarter 2 of 2026, Group revenue growth was strong across regions, with MEA rising 19% year-on-year, supported by rapid backlog conversion, while U.S. revenue increased 59.5% boosted by contributions from newly-awarded data center projects. Quarter 2 2026 Group EBITDA increased 46.5% to $92.6 million, compared to quarter 2 2025 adjusted EBITDA of $63.2 million. Quarter 2 2026 EBITDA margin accordingly increased to 6.1%, up from 5.7% in Q2 of last year, on the back of higher margin in the U.S.A. Adjusted Q2 2025 EBITDA of $63.2 million just mentioned basically excludes a $22 million one-off gain that was related to favorable settlement to a claim in Saudi as well as the tribunal award for Sidra Medical project in Qatar. Our H1 2026 EBITDA reached $200.9 million, compared to adjusted EBITDA for first half of 2025 of $117.4 million, with a margin of 6.7% compared to 6% of last year, reflecting higher margins in both regions, MEA and U.S.A. In quarter 2 of 2026, BESIX contributed $1.7 million to the Group's net profit, compared to $9.9 million in quarter 2 of last year. For the first half of 2026, BESIX total contribution amounted to $6.6 million, compared to $13.2 million for the same period last year. Also important to highlight that in quarter 2 of this year, we have received a EUR 10 million dividend from BESIX for our 50% share. Our investments and subsidiaries in building materials, equipment services and facility management constituted 6.9% of our Group's net income, providing diversification benefits. During H1 of 2026, we also received distributions of $6.1 million from our operational concessions. We expect this figure to increase in accordance with our previous guidance as our concessions are under -- currently under development begin operations. Q2 of 2026 net profit increased by 73.9% year-on-year to $61.9 million. Net profit margin also increased to 4.1%, up from 3.2% last year. Our H1 2026 net profit nearly doubled year-on-year to $115.3 million at a margin of 3.9%, compared to a margin of 3.1% for the first half of 2025, demonstrating our robust operational efficiency. Now moving on to balance sheet and cash flow. Equity accounted investees amounted to a total of $521 million, of which BESIX is our largest investment for $451.2 million. Our Group's total equity crossed the $1 billion mark as of closing June 2026, up from $900.7 million in December of 2025, primarily driven by our net profitability for the period. Trade and other receivables slightly increased to $2.2 billion, compared to December 2025 level of $1.9 billion, attributed to strong project execution [ and billing in ] MEA projects. Trade and other payables, on the other hand, balance reached $2.2 billion, maintaining the same level as December 2025 closing. Our gross debt stood at $499 million as of June 2026, compared to $314.9 million in December 2025. Working capital deployment to accelerate backlog execution in Egypt resulted in temporary negative operating cash flow of $54.5 million in H1 of this year and higher debt levels. Nevertheless, the Group maintains a healthy enough cash position, ending with a net cash position of $731 million -- of net cash, and $870 million if we adjusted to -- by the $139.4 million investment in financial assets that we had closing of H1 of this year. Thank you for listening in, and we are now ready to open our Q&A session.

[Operator Instructions] We have a text-based question. Hesham, I will turn the call to you.

The U.S. business has scaled rapidly and you referenced the growth of the data center project. Are you increasingly seeing opportunities to expand both with existing data center clients and to larger scopes of work?

Well, today, on the data center space, what we're seeing is probably a few features that's working in our favor. Number one, the size of each contract is growing dramatically. So instead of that a campus has data centers with a value of $500 million or even $700 million, today we're looking at campuses of values of $2 billion and more. So that's also -- that's part of the growth. The other feature that we have successfully added is the fact that today we are working with most of the hyperscalers and a couple of the developers, which basically gives us, number one, the diversity, and allows us to grow as far as the backlog or the revenues. We continue to monitor that carefully because there is very little visibility of how long this would be sustained. I mean, are we talking a horizon of -- we can see a horizon of at least 3 years ahead of us. Are we talking about 3 years or are we talking about another 5 to 8 years? So that's really a question that we have yet to see. We didn't know how it would grow, and we started working on data centers in 2016 and 2018. But today, it is a big chunk of our U.S. business. And we feel that we are well positioned to continue to grow there, as long as the AI or the tech industry is continuing to invest in that. We believe also that the next play will be power, and we are trying to position ourselves in a good way in that space.

Our next question, do we expect the impact of conflict and disruptions on EBITDA margin in the coming quarters?

I don't believe that there will be an impact on the EBITDA margin. But obviously, the conflict has a lot of unknowns in it. So far, we believe that we can maintain our current levels. We have, most in our contracts, some risks and contingencies. We are also discussing with our clients some of the cost impact, compensation. So our initial thought is that we will be able to maintain our current levels. But this is a situation where nobody can guarantee what will happen over the next 6 months.

Our next question, could you clarify the reason behind the major year-on-year drop in concession income?

Actually, that is -- we believe it's a onetime off due to the fact that there has been a drop in the wind speed on the Gulf of Suez that affected negatively the power output, reflecting this change.

Our next question. Share of associates income during Q1 and Q2 2026 is below historical run rate. How should we look at this line item for the next several quarters and into 2027? Can we expect a recovery?

This is for -- again, this share of associates is also our equity investments, including our wind projects that Osama referred to. Typically, the revenue is dependent on the wind speed and, ultimately, the production. And as a result, with lower wind readings, the contributions are lower. And typically, the second half of the year, the wind speed is typically higher than the first half of the year, for the locations our wind farms are geographically.

Our next question, looking at the current project pipeline, where do you see the biggest opportunities over the next 12 to 18 months?

That's a good question. We believe on the U.S. side, data centers will continue to be an opportunity of growth and value creation in the U.S. As I just alluded a few minutes ago, we believe also the power associated with data centers could be another space that could have a pipeline of opportunities. Going back to the Middle East, obviously, on the Egypt side, Ras El Hekma is a potential pipeline. We can see the pipeline coming. And obviously, the client is investing a lot in Ras El Hekma, and that will be part of our growth in Egypt. On the other hand, we believe that, particularly in UAE and Saudi, there will be 2 things. We believe power and water is our pipeline there, plus the fact that there will be some fast-track emergency projects that will pop up due to the geopolitical events that will be adopted by both governments, and we feel that a lot of them will be associated with the infrastructure projects. And we believe that we have a good position to get a reasonable share in this particular event.

[Operator Instructions] Turning back to you, Hesham.

Thank you. Do you expect the strong momentum in U.S. EBITDA margins to continue due to the data center projects? Or do you expect margins to normalize back towards the historical 3% to 4% range?

We expect to improve on that due to the fact that we have this electrical installation arm that enhances our productivity on the data centers and also enhances our bottom line due to the fact that we are adding an additional activity with a higher margin in the mix. So we believe that there is a tendency to improve on the current margins, and that will continue depending on how much we self-perform on the electrical side and the data centers, which is obviously also curtailed by resources and availability of electricians and staff and all that, which is getting to be a tight market due to this explosion in data centers in the U.S.

Our next question, what would be the stand-alone profit before tax margins on data center contracts?