Orascom returns to profit but equity weakens due to currency shifts

A firmer grip on costs helped Orascom Construction move back into the black in 2016, with the company declaring a net profit of US$48.7 million last year, compared with a loss of $347.8m a year earlier.

However, its balance sheet still took a hit from currency movements following the devaluation of the Egyptian pound, meaning that it suffered a total comprehensive loss (after currency movements) of $214.4m. This led to a 46 per cent decline in the company’s net equity position to $302.4m.

Egypt-headquartered Orascom Construction, whose shares are listed on Nasdaq Dubai, grew revenue by almost 4 per cent during the year, and its chief executive, Osama Bishai, said that its Middle East and North Africa division “built on its robust performance” achieved in the previous year, but its bottom line was hit by the poor performance of its US division.

That was because of delays to the Iowa Fertilizer project – a large, new $2bn fertilizer factory built for its former parent company, OCI, which finally began production last week.

A summary income statement prepared for shareholders found that its US operations lost $246.5m, although this was a 53 per cent reduction on the $523.2m lost in the same period a year earlier.

Its Mena operation, meanwhile, grew its net income by more than 31 per cent to $231m. The company generated 53 per cent of revenue from the region last year, with the bulk (47 per cent of total revenue) earned in Egypt.

“Operationally in Egypt, we continue to make excellent progress on our large infrastructure projects and have already surpassed the execution record we set last year for the fast-track execution of power projects,” Mr Bishai said.

The company’s backlog of projects dropped by 21 per cent over the course of the year to $5.26bn by year-end, although it said that 15 per cent of this decline was due to the change in value, in US dollar terms, of projects denominated in Egyptian pounds. The amount of new awards won by the company dropped by 23 per cent year-on-year to $3.75bn.

About 62.6 per cent of its backlog is for Middle East-related work, and 53 per cent of this total, is in Egypt.

However, the company also said that it has benefited from the “resilient” performance of contractor Besix – in which it has a 50 per cent stake.

“Not only did it record its strongest-ever set of net results but it has also secured new committed work both in the Middle East and Europe in 2017,” Mr Bishai said.

Recent contracts won by Besix include a joint venture with Orascom for the deep infrastructure works for Dubai’s Expo 2020 site and a contract secured last year to build a new wastewater treatment plant in Jebel Ali.

A study published last week by BMI Research indicated that Egypt’s domestic contractors may face greater competition in the coming years, as its “challenging macroeconomic environment” will lead its cash-strapped government to rely much more heavily on foreign investment to fund infrastructure.

“Mirroring growing bilateral ties, we expect countries like China and Russia in particular to emerge as key financiers of Egyptian infrastructure assets and, subsequently, for Chinese and Russian construction companies to thereby increase their market share,” it said.


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