The growth of turnkey projects played a key role in Elsewedy Electric’s plan to increase profits. The revenues of this type of projects rose in the first quarter of 2016 to EGP 1.253bn from EGP 684.5m achieved in the first quarter of 2015, according to a source at the company who requested anonymity.
The source said that turnkey projects will continue raising Elsewedy’s revenues. Contracts of this type amounted to EGP 21.4bn at the company during the first quarter of the year—more than double the company’s contracts portfolio in the same period of 2015.
A turnkey project is a type of contract under which a company agrees to fully design, construct, and equip the business or facility and then deliver the project to the purchaser when it is ready for operation.
Elsewedy aims to implement three contracts for three power plants in Angola, signed with the Angolan Ministry of Energy and Water for $484.5m, the source said.
The company registered a net profit of EGP 758m in the first quarter of 2016, compared to EGP 239m year-over-year. This boost was supported by higher revenues amounting to EGP 4.693bn, compared to EGP 3.644bn, a growth rate of 29% year-over-year.
The research sector at HSBC Bank noted that the growth of turnkey projects at Elsewedy Electric is supported by the company’s adherence to the implementation timetable.
Egypt contributes 59% to Elsewedy’s turnkey contract portfolio, while the markets of sub-Saharan Africa account for 22% and 15% from the Gulf states.
Elsewedy achieved currency exchange revenues of EGP 267m during the first quarter of this year through the re-evaluation of return for projects carried out in Egypt in US dollars.
HSBC stated that contracts for these projects are in US dollars, which gives the company a chance to increase revenues when converting them into US dollars, especially as the Central Bank of Egypt depreciated the value of the Egyptian pound to the US dollar by 14% in March.
Meanwhile, the source at the company said that wire and cable industry revenues grew at a lower rate than the turnkey projects, as the growth was limited to 12% during the period of comparison. However, he added, this sector contributed the lion’s share of Elsewedy’s revenues by EGP 2.964bn.
Elsewedy Electric sold 43,220 tonnes of cables during the first quarter, compared to 34,967 tonnes during the same period last year. This growth was boosted by the company’s increased operations in Egypt by 34% and Algeria by 24% over the comparison period.
The source said that the European markets accounted for the most prominent factor in the development of the meters installation projects portfolio at the company with contracts valued at €163m.
He added that the sector recorded a revenue growth of 41% during the comparison period to register EGP 200m. Europe contributed about 50% of revenues.
Transformers revenues also recorded an annual growth rate of 69% to reach EGP 190m during the first quarter of the year. The transformers provision contracts portfolio amounted to $45m at the end of the first quarter of the year.
A research report issued by Mubasher International stated that revenues of Elsewedy Electric outperformed Mubasher’s estimations for the first quarter of 2016 by about 153%. Moreover, the company’s performance exceeded the median forecast of market research sectors by 117%.
The report pointed out that Elsewedy succeeded in achieving a high profit margin, as the annual growth of the gross profit rate increased by 77% to reach EGP 1.04bn.
Mubasher also noted that the turnkey projects were the main catalyst for Elsewedy in 2016, especially as it will implement three power plants in Angola for EGP 484.5m. The projects will return EGP 13 on each of the company’s shares.