He came in to “put the house in order”. Omar El Hamamsy took over the role of CEO of Orascom back in September 2020. In a discussion, the former McKinsey consultant indicates that Orascom was too heavily shaped by the charismatic Samih Sawiris as well as insufficiently process-oriented in the past – even though Orascom is a multinational group active on three continents.
The main priorities of the new boss are to increase profitability, sharpen corporate strategy, and bring down debt. In response to the question of why he is refraining from making a forecast for the current year despite these objectives, El Hamamsy responds as follows: “Due to unexpected crises we have had to refrain from doing this ever since I became CEO.” The first blow to the business during his tenure was the Covid pandemic. This was followed by Russia’s invasion of Ukraine, while last year the company’s result was overshadowed by turmoil in its largest market, Egypt, most notably the devaluation of the local currency.
Real estate, hotels, infrastructure
However, the company has improved its ability to make predictions in recent months, and according to El Hamamsy will soon be issuing concrete forecasts once again. And this despite the array of geopolitical and economic uncertainties it faces. The CEO believes the greatest current uncertainty for Orascom lies in the global interest rate-hiking cycle, and the associated questions of when this will end and how economic growth will be affected.
The business activity of the company, which is listed on SIX Swiss exchange, breaks down into three areas. The Real Estate segment sells holiday and residential properties in the resorts owned by the company, while the Hotels segment derives its income from 33 hotels comprising more than 7,100 rooms. The third segment, Destination Management, focuses on generating a regular income stream from the management of the company’s resorts, through revenues from golf courses, harbours, shopping centres, schools, hospitals, and airports. Economic developments affect the various business areas in different ways. In total, Orascom is active through 14 resorts spread across 10 destinations in seven different countries – three in Europe, and seven in the Middle East and Asia. The various locations are in turn exposed to individual developments.
Perfect storm in Egypt
Over the last few quarters, Egypt has endured the “perfect storm”, according to the CEO. As it is heavily dependent on tourism, the country was badly affected by the Covid pandemic. The onset of war in Ukraine was another setback, as the country straddling the Nile is dependent on grain imports from Russia and Ukraine. The local economy has contracted over the last 18 months against a backdrop of high inflation and a significant currency devaluation. “This has affected our Real Estate business negatively and the Hotels business positively, as trips to Egypt became cheaper as a result of the devaluation,” explains the CEO. However, El Hamamsy points out that Orascom has succeeded in growing its business despite the sale of real estate coming under pressure generally in Egypt: “Our Real Estate business in Egypt is currently growing at a rate of 60% annually. But in Swiss francs our growth works out at more or less zero due to the aforementioned devaluation of the Egyptian pound.”
«Egypt has endured the ‘perfect storm’ over the last few quarters»
“Our guests in the Tourism segment predominantly come from Western Europe, above all Germany, Austria and Switzerland. Our business is therefore closely intertwined with macroeconomic developments in these regions.” According to El Hamamsy, the Hotels segment is set to record the best overall result in the company’s 34-year history.
“Over the last few years I have introduced a systematic approach for revenue generation in all three business segments,” is how El Hamamsy explains the increase in real estate prices in Egypt and other destinations. He points out that for the previous 30 years Orascom had been a family-run business, and had only partially applied a systematic market approach. Numerous individual initiatives were launched but were sometimes not seen through to maturity. These included the drive to set up in the Gulf region and attempts to tap into the US tourist market. “There is now a single strategic thrust, with all ten markets having clear targets. And this setting of targets has enabled us to increase real estate prices significantly,” explains the CEO. He states that this improvement will be apparent in the company’s results, as costs have not risen at the same pace as sale prices over the last three years.
No longer in the red
“When I started three years ago, business volumes were expanding at a modest rate. Orascom had posted a negative result in every one of the ten years prior to my arrival. No positive cash flow was generated,” observes El Hamamsy. His first objective was to make Orascom profitable, which was duly achieved in the first year: The company unveiled net profit of CHF 10 million in 2021 and CHF 54 million the following year. As El Hamamsy goes on to explain, the next step is to achieve positive free cash flow and enable shareholders to participate in the company’s success. He anticipates shareholders receiving a dividend in around a year or two.
An indication of the hidden reserves slumbering in the company’s land portfolio is made clear by the sale of a plot of land in Egypt earlier this year: The company sold 45,000 m2 of land in El Gouna, receiving in return the sum of CHF 11 million. This was 55 times the book value of the land in question. The company’s total “land bank” is more than 2,000 times the size of this recently divested parcel of land, yet is valued at just CHF 400 million on the balance sheet. The CEO is keen to improve the way the company communicates in respect of its obvious hidden reserves, such as within its land bank. “The real estate services provider CBRE valued the land reserves in El Gouna alone at CHF 2.3 billion a few years ago,” adds El Hamamsy.
“We can’t do everything on our own”
Another company is set to build a school and housing on the sold plot of land. “This is essentially a further – i.e. a fourth – business segment for us,” says the CEO. Orascom intends to create a regular income stream in this way, but through the investments of a third party rather than its own. El Hamamsy points out that in order to create towns in the way that Orascom intends, the corresponding infrastructure needs to be put in place, and this means hospitals, schools, museums, security, etc. In short, this is not something any company can do on its own.
A good example of this kind of development is the involvement of Vail Resorts in Andermatt. “We sold the installations and activities on the mountain to this company, but retained a minority stake of 49%. In this way, we generated both one-off and recurring income,” explains the Orascom CEO. This kind of cooperation brings numerous synergies. For example, the US company has much greater familiarity with winter sports. Furthermore, it can tap into the market for US tourists. The Andermatt resort and The Chedi and Radisson Blu hotels belong to Orascom Development and Samih Sawiris, who no longer has any financial connection with Orascom but holds 51% of the Andermatt Swiss Alps operating company.
Samih Sawiris never really interested in profit
The new CEO also wants to rein in the scope of the company’s geographic footprint. “Samih (Sawiris) takes a very long-term view of the development of Orascom – extending to several decades. With this in mind, he added large reserves of land to the portfolio. He commented on a number of occasions that short-term profit was of little interest to him.” Orascom has up until recently operated 14 destinations. The CEO has ordered a halt to the development of four of these, and is intent on reducing the other ten destinations to “a smaller number, which will facilitate a better overview”. The intended sale of the O West resort in Egypt this year fell through at the last moment. By contrast, certain projects are “no brainers” and of strategic importance. These include the company’s three jewels: El Gouna in Egypt, Andermatt in Switzerland, and Lustica Bay in Montenegro.
For El Hamamsy, it makes little sense to continually divert any profit made to some new project, nor does he consider such an approach to be in the interests of shareholders. “Do we really need to design, build and operate beach resorts, harbours, shopping centres, schools, golf courses and ski resorts ourselves?”, he asks rhetorically. As El Hamamsy sees it, funds should be deployed wherever they can generate the highest revenues.
Compensating for political risk
Numerous countries in which the company is active, such as Egypt and Montenegro, are not exactly model pupils when it comes to political stability. How does Orascom deal with this risk? “For one thing, we cultivate close contact with the political establishment, the region, key organizations, and the wider population. We have a solid track record overall in this respect,” says the Orascom CEO. In addition, the company takes a risk-adjusted view when it comes to the return generated on invested capital. For example, the Andermatt CEO is not expected to deliver as high a return as his counterpart in Montenegro, who in turn does not need to match the figure recorded in Egypt. “This is also the basis on which we allocate our capital.”
In response to the question of why Orascom appears to have had a lower media profile over the last few years, El Hamamsy answers as follows: “Samih Sawiris was a very public figure, and very well known.” At the end of 2021, Sawiris handed over his 76.4% stake in Orascom along with the position of chairman to his son, Naguib Sawiris, who has preferred to remain in the background. As a result, the company’s media presence has fallen to some extent, not least because management was not yet ready to communicate to a wider audience.
Seeking dialogue with shareholders
“Naguib recognized that Orascom was too big for the management style preferred by his father. With that in mind, he recruited an internationally experienced management team,” explains El Hamamsy. “Our business model is complex, and that’s one reason why the stock price is languishing in the way it is.” The new CEO has been reluctant to present shareholders with a story before he had a track record on which he could anchor it. But he now believes things have reached precisely that point: “We will be intensifying our dialogue with shareholders over the next few months, having already taken the initial step in this respect at this year’s Investors Conference.”
But will there be any Orascom shareholders in the future? The Institute of Financial Services Zug, which is part of Lucerne University of Applied Sciences and Arts, has conducted a study that identified 15 companies that derive only a limited benefit from their listing on SIX – and that number includes Orascom. So might the company soon part company with the Swiss stock market? The CEO doesn’t sound that enthusiastic about the idea: “The Board of Directors is always reviewing strategic developments. But there’s a good chance that new investors will express an interest in our company, which has a very low valuation. Now is a good opportunity to invest in Orascom. But that also means retaining our listing in Switzerland,” explains the CEO.
Dubai as role model
So far, however, there has been little reason for shareholders to invest in Orascom. The shares, which were listed on SIX in May 2008 at an issue price of CHF 152, have fallen from just over CHF 10 to CHF 5.70 since the new CEO took office. But according to El Hamamsy, all this is set to change: “By far my greatest priority is to increase returns for shareholders – which is of course also in my own interest, as the majority of my compensation package is tied to the stock price.”
El Hamamsy’s answer to the question of which company he measures Orascom against and who he sees as the relevant peer group is interesting: “That was the first question I asked myself when I took over the job.” But he quickly realized that it was not an easy one to answer. Put simply, there are no comparable listed companies. Indeed, he sees greater similarities with certain city states in developing countries, with Dubai as a good case in point, albeit on a completely different scale.
He points out that Dubai is relatively independent and embedded in a larger federation. Like Dubai, Orascom acquires substantial plots of land and has the freedom to plan these itself, as well as plan airports, hospitals, etc. Dubai has to install infrastructure, roads, energy, desalination plants, security – just like Orascom. Like Dubai, Orascom also seeks to appeal to both residents and tourists with local attractions. In addition, Orascom’s individual resorts are continuously being compared with all the other tourist providers, destinations and hotels. “We aim to be ranked in the top decile in every area,” asserts El Hamamsy.