CAIRO: Egypt’s Orascom Construction (OCI) posted a 15 percent rise in second-quarter net income on Tuesday and said it expected orders to grow this year as governments in the Middle East try to create more jobs by boosting infrastructure spending.
OCI, the biggest company in Egypt by market value, also said it planned to ask shareholders to approve a split of its operations into two independent companies with separate boards under a single holding company.
The group, run by millionaire tycoon Nassef Sawiris, constructs infrastructure, industrial facilities and buildings and produces fertilizers.
OCI reported net income of $165.2 million, up from $144 million in the second quarter of 2010. It was expected to make net income of $191.4 million, according to the average forecast from 15 brokerage and investment banks.
"I think 2011 will be better in terms of order intake, for sure, than 2010," Sawiris told Reuters in an interview.
OCI said its consolidated construction backlog on June 30 was $5.23 billion, up 2.4 percent from March 31.
It said it was in advanced negotiations for construction contracts worth more than $1 billion.
Net income was held back by an increase in the Egyptian rate of corporate tax, levied on earnings since the start of 2011. Sawiris also blamed part of the shortfall in net income compared with the consensus forecast on weaker fertilizer prices.
"The top line is strong but the bottom line is weaker than the market was expecting and this seems to be mainly because of the higher taxes," said an analyst who asked not to be named.
"The construction outlook looks better than we expected and OCI is bullish on new awards, especially in Egypt considering how much political instability there is," the analyst said.
Sawiris said he expected Egypt to continue representing a fifth of OCI’s construction backlog, despite a sharp economic downturn prompted by the overthrow in February of President Hosni Mubarak, which led to a wave of strikes and the withdrawal of tourists and foreign investors.
The unrest slowed construction activity in Egypt and delayed the launch of public private partnerships that OCI was eyeing. But Sawiris was bullish on Egypt’s prospects.
"There is no alternative. For Egypt to create additional jobs it needs to attract investment and it needs to create homes for those investments, and one best home is infrastructure," he said. "I have no doubt that while private investment in infrastructure stopped, it will come back, probably after the elections."
The region’s construction outlook was strong because states such as Saudi Arabia, Algeria, Qatar and Morocco were spending more to create extra jobs, while inflation was lower, which would support the value of OCI’s backlog, he said.
Growing apart
Sawiris said the decision to split OCI into two separate companies would make it easier for both firms to form partnerships and expand on their own.
Asked whether the move was aimed at facilitating future merger and acquisition activity, Sawiris told Reuters: "Never say never … Our priority right now is exclusively organic growth."
OCI’s fertilizer producing capacity is set to grow by some 60 percent in the next six months, he said, as it ramps up operations in Algeria, the United States, the Netherlands and Egypt.
"For the next 12 months, global agriculture fundamentals are strong," Sawiris said. Fertilizer prices "are somewhere in the region of 20 percent higher than three to four months ago."
OCI said a fertilizer unit in Algeria was scheduled to enter commercial production before the end of the year, while an expansion in the Netherlands and the turnaround of a US ammonia and methanol facility were both on track.
OCI’s consolidated revenues grew 9.8 percent to $1.47 billion while earnings before interest, tax, depreciation and amortization (EBITDA) rose 34 percent to $360.6 million.
