Orascom Construction Industries works on a new project in Cairo. Dana Smillie for The National, Bloomberg News
Orascom Construction Industries works on a new project in Cairo. Dana Smillie for The National, Bloomberg News

Egypt revolution hits company profits



Profits are sagging at some of Egypt's biggest companies in a fresh sign the country's revolution continues to take it toll on its economy.

Banking and property have been among the sectors hardest hit by the revolution and the political uncertainty that followed, analysts say.

Commercial International Bank, Egypt's largest lender, has announced an 11 per cent decline in second-quarter profits, compared with the same period last year, to 443 million Egyptian pounds (Dh272.5m).

Profits at Talaat Moustafa Group, one of the country's biggest developers, slumped 40 per cent in the second quarter to 202m pounds. Palm Hills Development, another big property player, is projected to lose 45.3m pounds in the second quarter.

"To book profits you need to deliver the unit, and in the current political environment we did have some delays in construction," said Jan Hasman, an analyst at EFG-Hermes.

"The country was at a standstill during the most crucial events of the revolution, and some of the construction could not be delivered."

Banks, meanwhile, have taken a hit because of companies' reluctance to buy equipment or to borrow to expand their businesses in the current uncertainty. They are also feeling the brunt of a decline in trade to and from Egypt - financing commerce made up a substantial part of some banks' business.

"For banks the main negative effect was in the first quarter, when there was a clear drop in loan growth driven by lower capital expenditure and loan demand," said Tarik El Mejjad, an analyst with Nomura in London. Take a deeper look at the state of Egypt's biggest listed companies, and analysts say the picture gets far more complicated.

Property companies, for one, are beset by obstacles that extend well beyond delays in construction. In the short term, some of them are still booking profits for projects finished years ago, which is partly obscuring the financial effect of the revolution. But a long-term stagnation in sales and flagging demand for new projects could put a serious dent in future profits.

Analysts are already forecasting slower profit growth into next year for Orascom Construction, the country's biggest builder. Analysts point to other worrying signs, such as a rise in the number of people getting refunds of deposits put down in better economic times.

There is also concern about a lack of new sales and possible problems for some developers completing projects they have promised to build. "With Palm Hills Development we do have some concerns about its liquidity and its ability to fulfil its commitments to its customers," Mr Hasman said. The company posted an operating loss of 73m pounds in the first quarter.

Compounding that sad state of affairs, executives at some of the biggest developers in Egypt, including Palm Hills, have been hauled into court amid allegations of improper land grants by the government of the former president, Hosni Mubarak. In a market where mortgages are a rarity and off-plan sales are the norm, avoiding such bad publicity and keeping trust intact was a top priority, Mr Hasman said.

"It's a market based on trust," he said. "You have to have trust on both sides. The buyer has to trust the developer that the property will be delivered according to specifications. The developer has to trust the client that once they construct the unit the client will pay."

While banks and property companies have taken huge hits after the revolution, Egypt's big telecommunications companies - Orascom Telecom, Telecom Egypt and Mobinil - have had a relatively problem-free time. Many suffered outages at the height of January's protests, but none had a significant amount of equipment destroyed, said Sally Gerges, an analyst with Beltone Financial in Cairo.

"There was theft of cables, damage to infrastructure, and they couldn't maintain some of their base stations because of the low security," she said. "But nothing has been booked in their statements as yet, and even if it were to be booked, I wouldn't expect it to be very significant."

Still, new subscriptions to telecoms services have taken a dive, she concedes, and the continuing lack of clarity about the structure of a new Egyptian government and its telecommunications regulator pose serious risks for the country's overall economy.

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Director: Alfonso Cuaron 

Stars: Cate Blanchett, Kevin Kline, Lesley Manville 

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