Orascom for Construction Industries’ (OCI) results showed a net decrease as at 30 June, although they project a positive outlook.
This year’s first half results show that the company’s net income dropped by 42.6 percent to EGP 1.3 billion versus EGP 2.2 billion in the first half of 2011. However, this year’s quarter-to-quarter results show improvements during the second quarter over the first. Net income increased by 27 percent on the back of higher selling prices for ammonia, which increased by 33.4 percent over the previous period, according to an OCI press release.
The company attributes the drop in income to a high effective tax rate resulting from high score revenues contributed by the company’s European operations, in addition to start-up costs from OCI’s expansion in the Algerian and North American markets, and investment-held-for-sale status of Gavilon Group, LLC, which the net income statements did not reflect.
Omar Darwazah, manager of investors relationship at OCI, added that OCI refinancing of its debt contributed substantially as the cost increased.
Darwazah explained that the Gavilon Group was not included in the OCI net income as the company received the returns on selling OCI’s 16.8 percent stake in its subsidiary US distributer. “”We expect proceeds on the sale of Gavilon to be reflected during the fourth quarter. These proceeds will help make up for the decline in net income this year as compared to last year”,” Darwazah said.
However, the company’s current and future investments are looking positive, OCI argued. The drought in the US, according to OCI’s expectations, will lead to high demands for fertiliser during the upcoming harvesting season, as production will increase to compensate for the drop in the yields of all major crops. OCI believes that prices will remain firm for the remainder of the year.
The OCI results report on the company’s plans for expanding its operations in the North American and Algerian markets. OCI has started ammonia and methanol lines, which are fully operational at a designed capacity of 250 and 750 thousand tonnes annually.
The rationale behind expanding operations in the US market goes beyond the short-term gains of high fertiliser prices, according to Darwazah. The Iowa Economic Development Authority (IEDA) unanimously approved a comprehensive state financial incentive package expected to provide tax relief in the order of US$ 100 million for the project, OCI reports.
“The market can be something completely different after three years,” Darwazah asserted. “There’s been a renaissance in the petrochemical industry on the back of the Shell gas boom in the US,” Darwazah said. The cheap gas in the US provides lucrative investments in the natural gas-based fertiliser production. OCI Fertiliser Group will invest up to $ 1.4 billion to build new a greenfield nitrogen fertiliser production plant in South-East Iowa to supply the US corn belt, which contributes a major proportion of global corn production.
OCI argues that Iowa Fertilizer Company (IFCo), the subsidiary of the Fertilizer Group, will be the first global-scale natural gas-based fertiliser plant built in the US in nearly 25 years and will help reduce US dependence on imported fertilisers, which surpass 15 million metric tons of ammonia, urea and urea ammonium nitrate (UAN) annually.
OCI also prospects improvements in its operations in Egypt and in Algeria, as it managed to overcome the bottle-neck phase, according to OCI report.