Orascom Construction Industries (OCIC.CA) announced its Q3 2012 results today with consolidated revenues of $ 1,371.1 million (EGP 8,305.3 million) versus $ 1,357.8 million (EGP 8,093.7 million) in Q3 2011.
Summary of Consolidated Results for Q3 2012:
• Consolidated revenues increased 1.0% to US$ 1,371.1 million (EGP 8,305.3 million) versus US$ 1,357.8 million (EGP 8,093.7 million) in Q3 2011
• EBITDA decreased 18.9% to US$ 300.6 million (EGP 1,821.1 million) versus US$ 370.6 million (EGP 2,208.7 million) in Q3 2011
• Consolidated EBITDA margin of 21.9% and Construction Group EBITDA margin of 9.0% during Q3 2012
• Net income decreased 30.7% to US$ 126.8 million (EGP 769.2 million) versus US$ 182.9 million (EGP 1,090.2 million) in Q3 2011
Summary of Consolidated Results for 9M 2012:
• Consolidated revenues decreased 2.3% to US$ 3,999.2 million (EGP 24,174.3 million) versus US$ 4,092.9 million (EGP 24,237.1 million) in 9M 2011
• EBITDA decreased 20.4% to US$ 848.4 million (EGP 5,127.1 million) versus US$ 1,066.0 million (EGP 6,312.7 million) in 9M 2011
• Consolidated EBITDA margin of 21.2% and Construction Group EBITDA margin of 10.4% during 9M 2012
• Net income decreased 38.6% to US$ 340.7 million (EGP 2,059.0 million) versus US$ 554.7 million (EGP 3,281.9 million) in 9M 2011
Consolidated Construction Group Backlog
• Consolidated backlog as at 30 September 2012 stood at US$ 5.64 billion reflecting a decrease of 4.3% over the backlog as at 30 June 2012 and a decrease of 5.2% over the same period last year
• New awards totaled US$ 361.5 million during the quarter
• Infrastructure and industrial work constitute 66.6% of the Construction Group backlog as at 30 September 2012
Statement from the Chairman and Chief Executive Officer – Nassif Sawiris
Our third quarter results have declined year-on-year. EBITDA and net income fell by 18.9% and 30.7% respectively primarily due to the seasonal slowdown in the Construction Group’s work and a decline in margin from 10.8% during the second quarter to 9.0% during the third quarter as a result of some provisioning on several projects. Overall, net income increased from US$ 119.4 million in the second quarter to US$ 126.8 million in the third quarter on the back of strong results from the Fertilizer Group.
In November, natural gas supply to both our plants in Egypt witnessed drastic supply cuts arising from unscheduled stoppages in the natural gas grid for maintenance works. The pressure is only gradually returning in the third week of disruptions and stoppages. In order to minimize production down time, EBIC successfully brought forward its scheduled three week maintenance turnaround from the fourth week of November to the second week. EFC has also brought forward its revamp/maintenance turnaround at one of its urea lines from the first quarter of 2013 to the fourth quarter of 2012. The natural gas supply shortfalls will have an impact on our fourth quarter production utilization rates and results.
We continue to expect strong demand for our fertilizer products supported by strong fundamentals. Farmers in the United States have witnessed record income despite the fall in yields. A drop in yields and growing demand for crops (especially corn and wheat) will bode well for fertilizer prices.
In the United States, both OCI Beaumont and Iowa Fertilizer Company (IFCo) have made noticeable progress over the last several months. OCI Beaumont’s ammonia and methanol lines are now operational. The plant is now producing ammonia at the designed capacity of 250 thousand tons and methanol at 70-80 % of designed capacity of 750 thousand tons per annum.
IFCo, our new Greenfield plant in Wever, Iowa, was issued its air permit by the Iowa Department of Natural Resources (IDNR) last month and the plant broke ground last week in an event attended by the Governor of Iowa. The Construction Group was awarded the Engineering, Procurement and Construction (EPC) contract to build the plant and Maire Tecnimont and ThyssenKrupp Uhde will be supplying state-of-the-art technology for the project. The construction of the plant is scheduled for completion during the summer of 2015. The plant will produce 1.5 – 2.0 million metric tons of urea, urea ammonium nitrate (UAN), ammonia and diesel exhaust fluid (DEF) upon completion and will supply farmers in the US Corn Belt. The total investment cost of the project is now expected to be approximately US$ 1.65 billion and will be funded with a combination of equity and a tax-exempt bond issuance.
In Algeria, Sorfert Algeria expects to complete all mechanical works on Line II at the end of December. Once these works are complete, all necessary permits will be obtained during the first quarter of 2013 ahead of the planned full-fledged commercial production. Our team is working closely with our partner to ensure all planned works are complete on time and all necessary permits are obtained. We expect Sorfert Algeria to start contributing to earnings during the first half of 2013.
In addition, the Fertilizer Group announced that it has acquired distribution rights of ammonium sulphate (AS) produced by Lanxess N.V. at its Antwerp facilities in Belgium. The distribution rights were acquired from Fertiva GmbH, a wholly owned subsidiary of Eurochem. The deal entails up to approximately 1 million metric tons of AS including granular AS, a premium fertilizer product. OCI’s wholly owned subsidiary, Netherlands-based OCI Nitrogen currently distributes approximate 0.75 million metric tons of AS produced by DSM N.V. in the Netherlands. Combined, the Fertilizer Group expects to annually distribute 1.75 million tons of AS in both standard and granular form, making it a leading supplier in the European market and in Brazil.
The Construction Group reported a 4.3% decrease in backlog over the previous quarter and the backlog as at the end of the third quarter stood at US$ 5.64 billion. New work secured during the third quarter totaled US$ 361.5 million and US$ 1.49 billion during the first nine months. The Group is increasing its focus on the United States’ infrastructure program and petrochemical construction market in addition to expanding its presence and work in Saudi Arabia and Iraq.
The Construction Group recently announced that it will acquire the Weitz Company, a general contractor based in Des Moines, Iowa. The Group has already received Weitz’s Board approval for the transaction and an agreement has been signed. At present, final shareholders’ approval is pending but expected imminently. The Group is expected to pay a total consideration of less than US$ 90 million on an enterprise value basis.
The Weitz Company will be pivotal in the construction of IFCo and will allow the Construction Group to bid on infrastructure and industrial opportunities in the United States market in addition to commercial and federal work. We expect to start consolidating Weitz’s results and backlog during the fourth quarter.
The Egyptian Tax Authority has been reviewing the tax years 2005 – 2010. Our auditors and tax advisors have presented all necessary documentation to the authorities. We are confident that new laws will not be applied retroactively and that our legal and financial position is in accordance with paragraph 8 of article no. 50 of law no. 91 of 2005, which clearly exempts all capital gains resulting from the sale of shares listed on the Egyptian Stock Exchange (EGX).
On the planned demerger of the company’s construction business from its fertilizer business, we continue to work with the Egyptian Financial Supervisory Authority (EFSA) to receive final procedural approvals for the demerger, however no progress has taken place since October.
