Cairo — Orascom Construction Industries (OCI) released disappointing first-quarter results last week. Citing lower selling prices for ammonia and melamine and a drop in fertilizer sales volumes, OCI posted first-quarter EBITDA of US$255.8 million, down 23.6 percent from EBITDA of $334.8 for the first quarter of 2011. Net income for the quarter fell 54.4 percent to $94 million, compared with $206.3 million in last year’s first quarter, while consolidated revenues moved up 1.4 percent, to $1.28 billion from last year’s $1.26 billion. OCI said the income drop was due to lower operating margins and the elimination of investment income from the Gavilon Group LLC, since Gavilon was reclassified as an investment held for sale. OCI said the May 29 announcement of the sale of Gavilon to Japanese trading house Mrubeni Corporation (GM June 4, p. 1) valued the equity of the business at $3.6 billion. Subject to the completion of the transaction, OCI expects to receive cash proceeds in excess of $600 million for its 16.8 percent stake in Gavilon, which it acquired in 2008 for $340 million. OCI Chairman and CEO Nassef Sawiris said part of the proceeds will be paid as dividends to shareholders, and part will finance the company’s Fertilizer Group expansion in North America and potentially other opportunities. OCI said lower than targeted fertilizer sales volumes of ammonia, urea, and UAN during the first quarter, despite full operating rates, resulted in a favorable inventory position for OCI’s Fertilizer Group. Sawiris said this “should bode well for the Group, since fertilizer prices have recovered in the second quarter.” With increased production rates at its new fertilizer plants, Sawiris said OCI expects “a noticeable improvement in our financial results for the remainder of the year.” Since the first quarter, Sawiris said ammonia prices “have surged over 50 percent and urea prices have rebounded over 20 percent, and we expect prices for both commodities to remain firm for the second half of the year.” OCI said the Fertilizer Group has made significant progress on the commissioning of its capacity extensions in the U.S. and Algeria, and continues on track with its debottlenecking initiatives in Egypt and the Netherlands. In the U.S., OCI Beaumont sold 38,000 mt of ammonia during the first quarter, and is on track to produce at a rate of 250,000 mt/y. OCI Beaumont’s 750,000 mt/y methanol line is slated to start production in June. OCI noted that shareholders on May 17 approved the planned demerger of the company’s construction business from its fertilizer business. After remaining regulatory approvals are cleared, OCI said it expects the demerger to be completed during the third quarter.
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