Profit declines again for Orascom in Egypt



Quarterly profits at Orascom Construction Industries fell by almost one third as the cost of projects in Algeria and the United States weighed on earnings.

The Egyptian company, a star performer on the Cairo stock exchange this year, is often described as a contractor but makes most of its money from fertilizer sales.

But Orascom's latest quarterly numbers are disappointing. Quarterly revenues fell 8.5 per cent to US$1.3 billion compared with the same period last year.

The company's quarterly net income fell even faster, decreasing 27.7 per cent to $119.4 million during the same period, a third consecutive quarter of decline.

"During the quarter net income was impacted by a high effective tax rate due to higher contribution from our European operations," said Nassef Sawiris, Orascom's chairman and chief executive.

He added the company was yet to see any benefits from projects in Algeria and the United States on which Orascom is still booking start-up costs.

But earnings from continuing operations "were a bit on the light side", said Loic Pelichet, a financial analyst at NBK Capital. The construction company's backlog also disappointed, he added.

Orascom is betting heavily on the US with a $1.4bn greenfield fertilizer production plant in Iowa. The drought experienced in the Midwest this summer should also provide a catalyst for increased sales of fertilizers, the company hopes.

For investors, who have seen the company's shares rise 43.2 per cent this year to 288.05 Egyptian pounds per share, it may be time to take profits. Orascom's shares rose 1.3 per cent yesterday.

The company's meteoric rise represented much of the gains made year-to-date by the EGX30 benchmark, but had little further to run, Mr Pelichet added,

"[The stock is] starting to look fairly valued," he said.

"There's not a huge amount of upside left."

Orascom expects to split its fertilizer and construction arms, with the demerger expected during the fourth quarter.

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