Earnings Call: Q1 2025

May 28, 2025

Summary

Q1 revenue rose 10.6% and EBITDA 43.1%, with $1.6B in new awards and an $8.7B backlog. U.S. weakness was attributed to timing, while MEA growth drove margins; full-year EBITDA margin guidance remains 7%.

Welcome to Orascom Construction Q1 2025 results call. We are joined today by Osama Sham, our CEO, and Reham ElBeltagy, our CFO. We will start with an overview of our latest developments and financial results by Osama and Reham, followed by Q&A. For online participants, you will be able to ask your questions through the webcast. For participants by phone, you may ask a question by pressing star followed by one on your telephone keypad. Thank you for joining us today. I will now hand the line to Osama. Thank you, Sham. Good afternoon, everybody, and good morning whoever is in the U.S. Let me give you a brief highlight, and then I will leave the floor for Reham to walk you through the numbers. This quarter, we have almost $850 million of revenue with an EBITDA of more than $50 million and a net profit, $25 million for Q1. We have a consolidated backlog of $8.7 billion. That is 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 our backlog. In general, we have a consistent progress, and we are still focusing on operational excellence. We are 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. We always have a much lighter Q1 compared to the rest of the year. But we believe that the budget and the targets for 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 gigawatts 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. We believe that we are progressing in the right direction, not only as geographical diversification, but also from a sector perspective. 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 six months ahead of schedule, our 500 megawatt. Our 150 megawatt, which is the expansion for that, the target is to be completed by end of June. So we have a six-month early achievement in early revenues in that concession. As far as our main project in the Emirates, Wave, it is progressing in a steady fashion, and we are quite confident of the targets, in mid-2026. Last but not least, BESIX has delivered a steady and healthy backlog. Also, they have delivered bottom-line results. We believe that this year will be much better than last year. 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 will be ready to receive your Q&A. Thank you, Osama. Good morning, everyone. Going through our Q1 2025 results, as Osama has highlighted, consolidated backlog reached $8.7 billion, boosted by a $1.6 billion of new awards, led by the 3 gigawatts KSA power plant. Consolidated revenue increased 10.6% year-on-year to US$847.6 million in Q1 of this year. MENA revenue increased by 44.2%, driven by the execution of our large-scale projects in Egypt and the UAE. USA revenue, on the other hand, experienced a temporary decline of 19.1%, primarily reflecting the timing lag in signing new contracts. 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 Q1 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 Q1 of this year, compared to $0.5 million in Q1 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 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 Q1 of 2024, this marks 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 an increase compared to Q1 of last year. On the balance sheet side, equity accounted investments amounted for $457.6 million, the majority of which is BESIX investment, or $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 $315 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. Open the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. We will pause for a brief moment to wait for the questions to come in. Again, if you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. We don't have any questions as of the moment. I'd now like to hand back to the management team for Orascom for final remarks. We started receiving questions now over WhatsApp. The first question is, any update on dividends and Sidra? We have not heard yet anything from the board meeting on 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. Nevertheless, it is our intention that maintain the same policy that we always have, which is an interim dividend twice a year, provided that there is no unexpected outcome of Sidra. 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. 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 on completion of some other projects. I think we will be maintaining this level moving forward. The 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? You're working with the private sector, or you're working with the government. 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 in Egypt, for example. Nevertheless, I think it's a matter of market segment. What we're trying to do, actually, is to focus on areas where we have an edge, and we're able to provide good return to our shareholders. Hello? Stand by as we wait for the speakers to get reconnected. Again, be on standby as we are waiting for the speakers to be reconnected. Thank you. Thank you everyone for your patience. 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 executions, margins, and awards? I am not sure at what point we were dropped off, so I am 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 have already seen the pickup of that in quarter 2. And the committed projects 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 two 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. There are 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, it was OCI at the time, was in Algeria. 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 geographic 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 4-5 years. Egypt is our backyard. This is where we have our main edge, so we will continue focusing on good quality projects in Egypt. We are, let's say, very close to closing the Magdi Yacoub Global Heart Centre. We just finished the GEM. We are working on the metro of different lines. That will continue. To determine a size of the backlog, Egypt versus other countries, it is very difficult. 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. We're trying to reconnect the speaker line. Thank you. Laurent, our next question is: Can you provide us with EBITDA margin for the construction business alone in MENA for the quarter? I think it is very clear. Q1. Go ahead. Q1. Yeah. Q1 2025, the construction margins are actually ahead of the 7% guidance that we gave on a stand-alone basis. Our next question: Are you expecting any awards from Ras El Hekma this year? Well, actually, we are working currently in Ras El Hekma. We are doing several infrastructure activities. We are also working on a small hotel. The whole issue is that due to the fact that Ras El Hekma or Modon are working on fast-track open book basis, it is very difficult to put a volume on that except towards the end. We will probably be able to give better guidance on the size and the volume by end of Q2, because a lot of these activities will be determined as far as value and when it will be complete. Our next question: Could we have an idea for BESIX's end-of-year bottom line contribution, given the strong numbers in Q1 2025? We believe that BESIX is on trajectory to return back to its original numbers that they used to deliver in the past. But I think for this year, we will probably maybe look at 60% or 70% of that, not 100%. So maybe we are looking at the bottom line of somewhere between €40 million to €50 million gross consolidated. Our next question. Q1 2025 cash flow from operations was lower than the one reported in Q4 2024. Should we expect a rebound to the strong collection or Q1 2025 working capital is the normalized level? Well, our working capital is at a healthy level. Q1 is always lower in terms of cash flow from operations than the other quarters of the year, especially that for December closing some cash out is a bit delayed or pooled, where also some quite aggressive efforts are done on the receiving or cash insight. Still we expect a good cash flow for 2025. I would like to add to what Mariam is saying, it is very difficult to look on a quarter by quarter. We are not selling a steady product where we are selling 200 boxes every quarter. We are performing design build, complicated construction projects, infrastructure, where every quarter has its own nature. Whether this quarter will have newly awarded projects and will have advances. The other quarter will have advances to the subcontractors, so the cash goes down. I think it is always more indicative that we look either a year by year or a year to year time of approach to see the entire cycle of the construction business. Our next question, do you see more contract awards in Saudi Arabia? Yes, we are still pursuing opportunities in the Saudi market. As we have mentioned several times before, we are only focusing on, let's say, critical infrastructure projects similar to the power plants that we have just signed. We are very much focused on the power sector and also the water sector at this moment. I think we believe that we will be successful in having some of that pipeline get awarded to us. Our next question, does the company plan to book any provisions ahead of the final ruling related to Sidra? I think we have mentioned that. Go ahead, Mariam. Yeah. I was just going to refer that, at this point, we already have a cushion or a provision, which is actually the liquidated guarantees at the time ahead of starting the arbitration. This is the cushion or the buffer that we have in our financials for Sidra. We believe our balance sheet is at a healthy level as well as the income statement. Our next question. I understand that the current $1 billion cash position is essential for the business, but what would you say is considered excess cash? This is a good question. Not a very easy one to answer. Again, you have to assess our cash levels or our net cash position, which is ultimately the $700 million with our working capital requirements, adjusting for the cash items that is already paid. We believe that we are well positioned and further breakdowns cannot be shared at this point. Yeah. We have another question that's very similar, but we'll ask it because obviously it came through the webcast. What will be a normal cash balance after adjusting for working capital, legal claims, equity contributions for the concessions portfolio? Which ultimately, more or less, again, we have a good cash position. Our working capital, given the size of our business, is in line with a business of our size. Our net cash position cannot be assessed on a stand-alone basis, but it's again, on an ongoing working capital requirements of the group, depending where we are at this point. To add to what Reham just mentioned, again, we would like to put the big picture for everyone. We have been awarded a number of projects in a relatively short period of time, and that was associated with an advance payment that were paid to us in different occasions. That also contributed to the cash. I believe that as we progress in the execution and we are able to generate the results that we have, we will be able to more accurately respond to really, what is the excess cash and all that. Plus the fact that we have obligations as far as our equity contribution to the concessions in summer this year, the second half of this year at the wind, and the second half of next year for wind. Again, I think our assessment of cash will be much clearer as far as what we expect. Again, we know how much we need to spend in order to execute our projects, and there is no doubt about that. But in order to determine the exact excess cash, it is something that we would like to determine once we have reasonable progress on the new projects that we just started. We received no further questions. Thank you, Reham, and thank you, Oussama. I turn the line back to you. Well, thank you for joining us on this call. We will be joining again towards the end of August when we will have the first half ready to be released. And we are quite actually bullish on the continuation of our steady progress.