Egypt’s OCI profit falls ahead of demerger
Cairo: Orascom Construction (OCI) , Egypt’s biggest listed company, reported a 28 per cent drop in net income for the second quarter, pulled lower by start-up costs at new fertiliser factories, as it prepares to split the two businesses.
Net income fell to $119.4 million (Dh439.15 million) from $165.2 million a year earlier, which the company also blamed on a higher effective tax rate because of a bigger contribution to earnings from its European operations.
OCI expects to split its construction and fertiliser businesses into separate companies next month to make them more competitive, widen their investor base and improve their credit profiles.
After announcing a $1.4 billion fertiliser investment in the United States late on Wednesday, OCI said droughts in that country had reduced yields, making it necessary for farmers to increase planted acreage.
“We expect strong demand for fertilizer products in the upcoming harvesting season and we expect prices to remain firm for the remainder part of the year,” Chairman Nassef Sawiris said in a statement on Thursday.
The company said it expected its new Sorfert Algeria business to begin exports this month and analysts said that would give a big boost to fertiliser margins.
In its other business, OCI has sought to attract construction projects across the Middle East to offset a slowdown at home since Egypt’s leader was ousted in 2011.
Profit margins slipped at both businesses, as analysts had expected.
Earnings before interest, tax, depreciation and amortisation (EBITDA) at the construction business represented 11 per cent of sales, down from 13 per cent a year earlier, the company said.
In the fertiliser business, the EBITDA margin fell to between 35 and 36 per cent from 43.7 per cent, according to calculations by analysts.
OCI said its construction business would increase its focus on infrastructure programmes in Saudi Arabia and Iraq after reporting a 9.2 per cent decline in its backlog of orders from the first quarter to $5.89 billion.
OCI’s net income was in line with the average forecast from 13 analysts. But revenue fell 8.5 per cent to $1.349 billion, below the average analyst forecast of $1.43 billion.
Investment bank EFG Hermes cut its ras neutral” from “buy” ahead of the results, citing a strong share price performance. OCI shares are up 41 per cent this year.
Bank of America Merrill Lynch analysts said there seemed to be little to justify further stock gains. “Given the level of profitability and the newsflow right now, there is not much positive to add at this (share price) level.”
Egyptian bank Beltone disagreed, saying profitability was in line with its forecasts and the results and expansion plans were a “positive indicator” for OCI as an investment.
Loic Pelichet at National Bank of Kuwait Capital, who has a 292.5 pound share price target for OCI, said the construction backlog was below his estimate.
OCI shares were up 1 per cent at 286.99 Egyptian pounds by 0947 GMT, in line with the Egypt benchmark index.
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