Orascom's second-quarter profit falls but backlog rises on new contracts

Chief executive says business is benefitting from turnaround efforts in the US

Egypt’s Orascom Construction signed approximately $335m of new contracts in the Middle East during the first quarter of 2020. Dana Smillie / The National

Egyptian contractor Orascom Construction reported a 38 per cent fall in net profit for the second quarter of the year, despite a 5 per cent increase in revenue and winning more contracts.

The company reported a net profit to shareholders of $31.3 million on revenue of $790.1m (Dh114.9m) for the period, and said new awards increased by 42 per cent year-on-year to $1.4 billion. When its 50 per cent share of fellow contractor Besix is included, contracts grew 22 per cent to $2.4bn. Its backlog grew 9 per cent to $4.6bn, or by 19 per cent to $7.3bn on including its Besix share.

The backlog growth was "driven by quality new awards in the Middle East and the United States", said chief executive Osama Bishai in a statement to Nasdaq Dubai, where the company's shares are listed.

"Among these projects are the largest water treatment plant in Egypt, roads and infrastructure work in Egypt and data centre projects in the US. This current backlog level comfortably provides us with sufficient revenue and profitability as we continue to pursue an exciting project pipeline across existing and new markets," Mr Bishai said.

For the six-month period, the company reported a 25 per cent fall in net profit to shareholders of $61.5m on largely flat revenue of $1.5bn, due to higher financing costs in Egypt. A breakdown of its revenue by geography for the half year showed 71.5 per cent of revenue was generated in its home market, 25.3 per cent in the US, 1.7 per cent in the UAE, 1.5 per cent in Saudi Arabia and the remainder in other Mena markets.

Mr Bishai said the company is benefiting from turnaround efforts in its US operations, which began last year. Although the company's US unit still lost money at a net profit level for the six-month period, the size of this loss shrunk by 88 per cent to $1.1m and its earnings before interest, tax, depreciation and amortisation (ebitda) turned positive to $2.2m, compared to a $6.1m loss in the same period last year. Orascom's US segment also reported the highest quarterly order intake since the third quarter of 2016.

Earlier this month, the company announced it was part of a consortium that had agreed to a $4.5bn deal to design, build, finance and operate two new, fully automated monorail lines in Cairo, alongside Arab Contractors and train maker Bombardier Transportation. Orascom is building the infrastructure and civil works, including the stations, guideways and depots.

"Our share of this contract is close to $900m and includes operation and maintenance for 30 years, highlighting our strategy to develop recurring income lines alongside our core EPC [engineering, procurement and contracting] business," Mr Bishai said.