PHDC.L Regulatory News (PHDC)

Cairo/London (June 11, 2019) - Palm Hills Developments S.A.E. ("PHD" or "the Company") (EGX: PHDC.CA, PHDC.LI), a leading real estate developer in Egypt, announced its consolidated financial and operating results for the financial period ended March 31, 2019.

Key Highlights

§ The Company's 40% owned subsidiary Arkan Palm for Real Estate Investment inked a co-development agreement with the New Urban Communities Authority ("NUCA") on a revenue sharing basis for an innovative mixed-use development in Sheikh Zayed City, overlooking 26th of July Axis, adjacent to Nile University. The project is expected to encompass residential components (high rise multi-tenant buildings and standalone units) and commercial facilities including medical, administrative, hospitality and recreational components.

§ PHD concluded securitization and discounting of receivables portfolio of EGP760 million, in relation to 670 handed over units in Golf Views, Golf Extension, Palm Hills Katameya (1 & 2), Hacienda Bay and Hacienda White 2. The transactions proceeds were utilized entirely in the partial repayment of existing debt.

§ New Sales (Residential and Commercial) amounted to EGP2.2 billion, an increase of 5% YoY with 374 units sold. Said growth in New Sales resulted mostly from continued uptake of launched units in Palm Hills Alexandria, yet offset by limited launches in West and East Cairo projects, as opposed to strong demand in Palm Hills New Cairo and some other key project during the same period last year.

§ In May 2019, the Company launched Golf Central spreading 48,038 sqm of land, PHD's first dedicated business complex in West Cairo, adjacent to Bamboo and Bamboo extension. The project is expected to offer 188 offices and 69 commercial units.

§ Revenue declined by 35% YoY to EGP958 million, largely driven by lower handed over residential units, despite that PHD had c.440 units released from construction during 1Q2019, yet in non-livable zones. Furthermore, top line seen limited contribution from sales of standalone units, as Palm Hills Alexandria's impact is yet to be reflected during coming quarters. Gross Profit stood at EGP356 million, translating into a margin of 37%.

§ Net Profit after Tax and Minority Interest stood at EGP141 million, a Net Profit margin of 15%.

§ Despite the drop in top line, profitability margins remained stable YoY with a Gross Profit of 37%, an EBITDA margin of 23% and Net Profit margin of 15%.

§ The Company spent EGP309 million on construction activities during the period, largely on Palm Hills New Cairo, Capital Gardens, Palm Valley and Woodville.

§ PHD handed over 215 units, on track to achieve the full year target of 1,350 units in FY2019. The majority of handed overs units were in Palm Parks, Golf Views, Golf Extension, Woodville, Hacienda Bay, and Hacienda White 2. Notably, PHD continued to deliver units in Palm Valley in West Cairo ahead of schedule.

Yasseen Mansour, Chairman & Group CEO Comments:

During 1Q2019, we maintained our market share with mild sales growth and 374 units sold, nevertheless we are planning several launches which will take place during the coming quarters especially the summer season, allowing us to sustain our leading position.

Our P&L demonstrated slowdown in 1Q2019 mostly due to limited handovers, although we completed the construction of c.440 units yet in unlivable zones, and the mild 5% YoY growth in New Sales resulted in Revenue of EGP958 million, Gross Profit margin of 37%, EBITDA margin of 23%, Net Profit after Tax & Minority Interest of EGP141 million.

Looking at our Net Debt position, it stood at EGP2.2 billion by end of 1Q2019, solidifying our Balance Sheet where receivables cover Net Debt 7.8 times. Net Debt/EBITDA stood at 2.5x by end of 1Q2019.

We intend to engage in further securitization and discounting transactions in FY2019 as the interest rate environment improves further complemented by conclusion of projects under developments.

We expect to complete a number of projects during the year including Palm Valley, Golf Extension and Woodville in West Cairo, as well as Palm Hills Katameya extension 2 in East Cairo. Notably, we commenced site mobilization, earthworks and construction activities of Badya's phase 1A during 2Q2019.

We remain confident about our Company's ability to catch up with the full year targets during the coming quarters. Accordingly, we maintain our FY2019 guidance with New Sales target of EGP14 billion, which should lead to Revenue in the range of EGP7.5 billion, resulting in a Gross Profit margin of 38%, and Net Profit in the range of EGP1 billion.

We expect a minor impact of c.5% on the cost of construction from the hike in electricity and foreseen increase in fuel prices associated with subsidy cuts, thus we remain confident about our ability to achieve Gross Profit margin of 38% during FY2019.

Financial Review

Revenue for the quarter amounted to EGP958 million, a decrease of 35% YoY, largely due to lower handovers YoY as many constructed units are in non-livable zones with ongoing site works and hence can't be delivered to its owners. Furthermore, top line seen minor contribution from New Sales given the limited launches and the fact that sales of Palm Hills Alexandria are yet to be reflected in coming quarters.

Gross Profit also decreased 35% YoY. Gross Profit margin stood at 37%, at par with last year and in line with targeted levels, supported by the handover of high margin units. EBITDA stood at EGP219 million, an EBITDA margin of 23%. Net Profit after Tax and Minority Interest amounted to EGP141 million, a decrease of 37% YoY.

Net Debt/EBITDA stood at 2.6x in 1Q2019, increasing from 1.2x in FY2018. By end of 1Q2019, Receivables recorded EGP17.4 billion, compared to EGP15.8 billion in FY2018, covering Net Debt by 7.8 times.

Operational Review

New Sales amounted to EGP2.2 billion in 1Q2019, a growth of 5% YoY, of which EGP2.1 billion was generated from residential sales and EGP71 million from the commercial segment. Palm Hills Alexandria was the largest contributor to Residential New Sales, followed by Badya and Palm Hills New Cairo.

Commercial sales came lower this quarter, due to limited launches coupled with lower inventory in East Cairo, North Coast and Alexandria regions. In West Cairo, The Lane and Palm Hills Medical had some positive momentum.

In West Cairo, New Sales amounted to EGP753 million. The region's biggest contributors to the New Sales were Badya and The Crown, bringing cumulative sales in those projects to EGP5 billion and EGP1.6 billion respectively followed by Golf Views and Palm Parks. Commercial sales stood at EGP62 million in Hale Town (the medical clinics) and Palm Central. New Sales were limited in Badya as the Company is still offering units in Phase 1A and didn't yet launch new phases.

In East Cairo, New Sales stood at EGP369 million in 1Q2019, largely driven by Palm Hills New Cairo, where aggregate sales amounted to EGP7.6 billion.

North Coast and Alexandria recorded New Sales of EGP1.1 billion during 1Q2019, supported by strong demand for Palm Hills Alexandria alongside a healthy uptake of secondary homes in Hacienda Bay. On the commercial front, Lake yard witnessed modest sales of only EGP10 million.

The Company handed over 215 units during 1Q2019. The Company currently has c.440 units released from construction units, which will be delivered once site activities of public areas and landscape are completed in said zones.

It is worthy to highlight that number of memberships in Palm Club stood at 3,297 memberships by end of 1Q2019.