Egypt's Orascom Construction optimistic for full year

Reuters, Monday 11 Jun 2012

Country's largest listed firm says surge in fertiliser prices will eventually fuel 2012 profits

Orascom Construction (OCI) expects a surge in fertiliser prices to spur a rebound in earnings this year after Egypt's biggest company by market value reported a fall in first quarter net income.

OCI, which plans to split its construction and fertiliser businesses into two new companies, has benefited from infrastructure growth across the Middle East despite economic turmoil at home.
But lower sales volumes and a drop in prices at its fertiliser business contributed to a 54 per cent fall in first quarter net income.
"Our first quarter results have been impacted by lower selling prices for ammonia and melamine," Chairman and Chief Executive Officer Nassef Sawiris said, referring to the fertiliser business.
"We think this is a temporary matter because in April and May, prices recovered. Today in June, ammonia prices are about 50 per cent higher than what they were in February," he told Reuters in an interview.
Sawiris said that the rebound would benefit second quarter net income and that the firm expected an improvement in earnings for the rest of the year.
The fertiliser business is expanding its projects in the United States and Algeria. The group's OCI Beaumont plant in Texas in the United States sold 38 thousand tonnes of ammonia during the quarter and is on track to produce 250 thousand tonnes per year. The Beaumont plant's methanol line is due to start production in June.
OCI's Sorfert plant in Algeria has also started production runs for one of its urea and ammonia lines.
The construction business's consolidated order backlog at end-March grew to $6.5 billion, a 1.4 per cent increase from the end-December figure and a 15.5 per cent jump from the same period a year earlier.
The company had new orders worth $841 million during the quarter, with infrastructure and industrial work making up 61 percent of the construction group's backlog.
OCI has been able to attract projects from across the Middle East to offset a slow-down at home since Hosni Mubarak was ousted in 2011. A run-off presidential vote to replace him is scheduled for June 16-17.
"Everything is on hold. It has been on hold for 18 months. We hope that investment freeze comes to an end after the election," Sawiris said. He said any economic rebound at home "would depend on the outcome of the election."
In the meantime, the group is looking at new projects in the region, particularly Saudi Arabia, Morocco and Iraq, where OCI secured a $363 million contract to build a power plant in the fourth quarter.
"In Iraq, we are continuing to look at more power projects and infrastructure in general," Sawiris said.
OCI's first quarter net profit fell to $94 million from $206.3 million in the same period a year earlier. That compares with a consensus estimate by 14 analysts of $129.5 million.
Consolidated revenue rose by 1.4 per cent to $1.28 billion from $1.26 billion while earnings before interest, tax, depreciation and amortisation dropped 24 per cent to $255.8 million from $334.8 million in the same period a year earlier.
The firm said its net profits were also affected by the sale of a 16.8 per cent stake in U.S. grains merchant Gavilon to Japanese trading house Marubeni.
OCI said in May it would earn $605 million from the deal, which is part of a $3.6 billion takeover by Marubeni of Gavilon.
The firm expects to use the proceeds to finance its expansion in North America and invest in other opportunities under review. Part of the proceeds would be paid as dividends.
The investment income related to the Gavilon stake was taken out during the quarter and reclassified as an investment held for sale, OCI said.
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