Orascom Construction PLC (ORAS) Earnings Call Transcript & Summary

Good afternoon and good morning, everyone. Welcome to the Orascom Construction Full Year 2025 Results Call. This is Hesham Halaby, Investor Relations VP. We are also joined by Osama Bishai, our CEO; and Reham Beltagy, our CFO. We'll start with opening remarks followed by a Q&A session afterwards. I'll now hand over the line to Osama.

Thank you, Hesham. Good afternoon, everybody. There is no dull movement, I have to say. But anyway, for last year or 2025, it's obvious we have delivered a very strong performance on the overall year, highlighted by a healthy backlog, healthy revenue. We have delivered the bottom line with the same levels that we have indicated almost a year ago, which reflects the effort that was done on the selection of our projects plus the focus on operational excellence and the governance and controls. Also on the concession side, we have delivered the wind concessions earlier, they started kicking in on the revenue towards the last quarter of the year. And obviously, everybody has seen the announcement that we've signed the PPA for the 900-megawatt continuing growing our concession portfolio. We cannot be oblivious of the current geopolitical situation. There is physically a war on the other side of the Middle East. It will have an impact on the supply chain. It will have an impact on certain price levels. I have to say that I'm very appreciative of our team. Our team, Enwave and Abu Dhabi has been working almost every day continuing to work through the -- with the challenges of shipping and supply chain and some delays. The same goes for the power plant in Saudi so I think it has not affected, let's say, in a big way, the efficiency and performance so far. But obviously, we are assessing the long-term impact of these events. We are covered in most of our contracts, if not all, with very clear force majeure clause that protects the company vis-a-vis delays and certain level of costs, particularly during -- due to war or civil unrest. So -- and we are really collaborating closely with our clients in a partnership fashion so that we are managing this jointly to be able to continue to perform. And also until we reach the level where we can say that this force majeure event has -- is complete. We don't believe that the force majeure event once the war ended, it will be done because we believe there will be some consequential impact going beyond the current dispute. Having -- and we're happy to respond to any queries in that regard. I expect that a lot of questions will be directed towards this issue. On the other hand, we are very proud of our U.S. operation. They have grown exponentially compared to last year. Our success in the strategy towards data center is paying off. Number one, we have been adamant on excellent performance. Number two, we have created an ability to do elect -- to self-perform electrical works through the partnership with a specialized partner that has created an improvement in the bottom line. And also it has created an edge vis-a-vis other contractors in the data center space. So we believe that this strategy is paying back our backlog in data center is growing. We have -- the U.S. 40% of its revenue is derived from data center and we believe that more than 40% of the current backlog is attributed to data center for the U.S. And I would say that the team in the U.S. have succeeded to create a diversification and the portfolio of clients between hyperscalers and developers, which creates, let's say, a spread of the risk of whether a developer could stop the work or not. But what we believe is that the data center story is still in full throttle in the U.S. And we can see a very healthy pipeline as we speak. Going back to our performance. We are proud to say that our strategy to diversify our concentration has been paying back while Egypt is growing and performing well, we are growing outside of Egypt in order to have a balanced portfolio of business between different geographical location. So we're seeing that the U.S. is going to be, let's say, a little bit more than 30% of our backlog. Egypt is slightly more than 50% and the balance is the Middle East. And we believe that our Middle East portfolio will grow. There may be some delays in some awards, but I don't believe that it will be really affected. We feel the will within the UAE government. I wouldn't say the word double down, but they would focus on performing their plans. And I believe that we are in the right space, which is the infrastructure. This is a type of sector that particularly in the Middle East, will never stop because of the demography of the -- at the age level of the population of the Arab world and the fact that this is a crucial element for the quality of life for the people particularly in Saudi and the Emirates. So we are quite comfortable that the pipeline will continue. Obviously, we are extremely diligent on the impact of the current geopolitical dispute on our operation, whether from a schedule point of view and also from a cost impact, and we are working with this, again, as I previously mentioned closely with our clients on that. Our subsidiaries have performed extremely well between the subsidiaries and the concessions which we believe this is -- could be defined as reoccurring revenue. We are reaching close to 20% of the bottom line from those 2 activities. And we will continue to drive. We are quite bullish about our 900-megawatt wind farm. While we signed the PPA, we believe we'll reach financial close if not by end of Q3, sometime in Q4 of this year. And again, we are hopeful that our performance would allow us to -- of an early completion and early generation of revenues. I believe that it's due for the numbers to be -- to look at it in detail, and I'll leave the floor to Reham to go ahead.

Thank you, Osama. Good morning, good afternoon, everyone, and thank you for joining us today. Building on the note that Osama gave. Again, 2025 was the strongest commented for the group. It is actually marked by several milestones and a continuation of our positive trajectory over the past couple of years. At a high level, we would like to flag 4 or 5 points. We selectively secured new awards across marketable markets making extensive progress towards diversification as highlighted by Osama, resulting in a well-diversified backlog, where 54% of it is denominated in Egypt, 32% in the U.S. and the delta, 14% is other Middle East, mainly GCC being UAE and Saudi. Revenue grew by 55% year-on-year alongside an improved EBITDA margin of 6%. We also achieved favorable resolution of a legacy matters, including KSA export project as well as positive or better award on Sidra Hospital in -- healthy income streams from our concessions and building material subsidiaries contributing 19.6% of the group's net income and full year of 2025. Finally, we closed the year with a net cash position of $1.05 billion, supported by strong operational cash flow of $462 million. With that, we will now move on to a more detailed review of our full -- of our Q4 2025 and full year 2025 results. The group concluded the year with a healthy backlog of $9 billion, representing an 18.9% increase year-on-year driven by another strong year of new awards totaling $5.6 billion in 2025, up by 86.6% year-on-year. Revenue grew by 73.4% year-on-year to $1.6 billion in Q4 of 2025 and by 55.1% year-on-year, to $5 billion in full year 2025. EMEA Q4 revenue displayed a consistent increase of 53.4% year-on-year boosted by accelerated progress of high-profile projects from the current backlog across all main markets, demonstrating the ongoing success of the group's geographical diversification strategy. Q4 of 2025, USA revenue doubled year-on-year, primarily attributable to the contribution from newly awarded data center projects. In Q4 of 2025, EBITDA doubled year-on-year to USD 81 million with a margin of 5%, up from 4.2% in Q4 of 2024. The increase in Q4 2025 EBITDA is driven by improved operational performance across both MEA and USA. Full year 2025 EBITDA reached $305 million with a 6% margin. Full year '25 EBITDA incorporates $29 million net gain from favorable legal case outcome in Saudi and Qatar that we have mentioned earlier. Excluding this one-off, adjusted consolidated EBITDA would have stood at $276 million with a margin of 5.5% for the full year compared to $151 million with a 4.7% margin in full year 2024. This marks an 82.2% year-on-year increase. of our adjusted EBITDA. Full year adjusted MEA margin would also have 7.3% compared to the 5.9% last year in 2024. BESIX contribution to our net profit increased by $24.7 million for 2025 compared to $22.6 million in 2024. Our concessions across wind farms and waste water treatment accounted for a total of 6.5% of our net profit in full year 2025, reflecting sixfold increase year-on-year, highlighting the early commissioning of the 650-megawatt wind farm in Egypt. Our subsidiaries across building materials, equipment services and facility management, on the other hand, accounted for 13.1% of our net profit for 2025. Q4 2025 net profit doubled year-on-year, reaching $61.5 million with a margin of 3.8% compared to a 3.3% margin in Q4 of 2024. Full year 2025 net profit increased by 65% year-on-year to $194.8 million compared to $118 million in 2024. Moving on to the balance sheet side. Equity accounted indices amounted to $540 million, of which $459.9 million relates to BESIX and $49.8 million relates to wind farm investments in Egypt. The group's total equity increased to $900.7 million as of December of 2025, up from $647.5 million closing of 2024, primarily driven by net profit despite the $51.8 million of distributions that took place. Trade and other receivables increased to $1.9 billion from $1.4 billion in December of last year. This reflects the growth in revenue and progress on billing and -- payments to suppliers on top contractor on our large projects in MEA. Trade and other payables balance increased to $2.2 billion up from $1.5 billion in December of last year, reflecting an increased volume of work and effective working capital margin. Gross debt stood at $314.9 million in December 2025, in line with December 2024 level. Gross debt was reduced in Q4 of 2025 and $135.8 million lower than the level in September of 2025. Finally, the group generated a healthy operating cash flow this quarter, higher than the amount generated over the preceding 9 months, enhancing the net cash position to $1.05 billion in December of 2025, compared to $728.1 million in December of 2024 and $839 million as of September of 2025. We are -- I believe that completes our regime, and we will now open the Q&A session. Hesham, back to you.

Thank you, Reham. Eli, I will ask you please to provide us with instructions to ask questions.

[Operator Instructions]

Thank you, Eli, for the confirmation. I will start with the first question on the webcast. Dear Orascom Construction management team. In the 2025 annual report, it is noted that Orascom continues to pursue a deal with OCI Global. Regarding this transaction, has the Board been fully apprised of the potential risks associated with the escrow agreement between OCI and ADNOC. Specifically, we are concerned about the maximum potential liability, which is estimated at $680 million or more. We would appreciate clarification on how this liability was factored into the board's decision-making process and what measures are in place to mitigate this exposure.

Okay. Let me remind everybody that there has been due diligence performed by a third-party adviser to OC on OCI that included all and related matters to the Fertiglobe deal. And that report, everything was stipulated there. What also has stipulated not only the risk but also stellated the dollar amount in escrow to cover that to cover a portion of that risk. Also, this issue has been part of the valuation of OCI. So the Board had access to -- the due diligence had access to the details of the valuation of both OCI and its related reps and warrants. And these were reflected in the conversion ratio and in the numbers. That reflected the proposed transaction.

So next question. You previously mentioned a new dividend policy will be announced post merger. Given that the deal is taking more time than previously anticipated, you have an update on dividends.

That's a very good question. I think we are obliged to wait till end of June due to the fact that our agreement with OCI is valid till that date. And any change in the -- any dividends that will take place could affect the conversion ratio that has been established. And we are committed to our shareholders in another call and in the general assembly that we are going to stick to that conversion ratio for the benefit of our shareholders. So at this moment, we would rather hold on any announcement of any dividend plans at this stage. Obviously, if the merger takes place, there will be a combined dividend policy that will be announced -- and if this is awarded by end of June or at any time before or after, we will continue with our dividend policy and we will announce our plan moving forward.

We have received now -- we've answered all the questions here through the webcast. Eli, could you please confirm whether any have received by phone?

As of right now, we don't have any questions in the conference line. .

So back to the webcast. In the proposed new structure, it was mentioned that 1 of the pillars would work is on concession given the sizable cash balance, would you expect to deploy new investments until the merger is completed or canceled?

We are continuing this as usual until there is clarity on the combination. As you can see a couple of weeks ago, we have concluded the power purchase agreement for the 900-megawatt Obviously, Wave is the next coming deployment of cash once it's completed, there will be certain delays due to the force majeure event in the but that's also another commitment that we have. We're continuing to pursue opportunities, whether in the region or in Africa or even in the U.S. as OC stand-alone. And we will not, as long as it's within our mandate and it's in the infrastructure space. And provides the level of returns that we would like to provide to our shareholders, we are going to continue to invest. And once we have clarity, then as I said just a few minutes ago, we will announce our dividend policy. .

That concludes all of the questions received through the webcast. Eli, can you provide us with your final confirmation, please, on the phone?

As of right now, we don't have any pending questions in the conference line. I'd now like to hand back to the management for the closing remarks.