PHDC.L Regulatory News (PHDC)

PHD beat market consensus on all matrices coupled with strong profitable growth across the board and realize EGP224 million in Net Profit after Tax & Minority Interest during 1Q2018

Cairo/London (May 15, 2018) - Palm Hills Developments S.A.E. ("PHD" or "the Company") (EGX: PHDC.CA, PHDC.LI), a leading real estate developer in Egypt, announce its consolidated financial and operating results for the financial period ended March 31, 2018.

Key Highlights

§ As part of its steady focus on profitable growth, profitability margins witnessed remarkable improvements across the board while maintaining the quality PHD is known for. Gross Profit margin reached 37%, up from 31% in 1Q2017, while EBITDA margin recorded 26%, a strong growth from 20% same period last year. Net Profit margin reached 15% up from 13% a year earlier.

§ PHD concluded the second securitization of receivables transaction in May 2018, in line with its deleveraging plans. The Company received net proceeds of EGP261 million, and expects to finalize the third transaction during the third quarter for receivables portfolio of c.EGP400 million.

§ New Sales (Residential and Commercial) amounted to EGP2.1 billion, compared to EGP3.5 billion in 1Q2017. The YoY drop in New Sales resulted from a comparison with high base since 1Q2017 witnessed remarkable demand for primary offerings in Palm Hills New Cairo following its successful launch by end of FY2016.

§ PHD commenced sales in Palm Hills Medical in West Cairo and witnessed an uptake in the demand for commercial units in The Lane Mall in West Cairo, recording EGP55 million and EGP159 million respectively.

§ The Company handed over 301 units mainly in Hacienda Bay, Hacienda White 2, Palm Parks, Golf Views and Palm Hills Katameya, in line with its full year target of delivering 1,500 homes.

§ Revenue was relatively flat at EGP1.5 billion on the back of lower New Sales due to limited product launches and fewer handed over units. Gross Profit increased 12% YoY to EGP547 million, a margin of 37%. EBITDA grew 17% YoY to EGP381 million, a margin of 26%. Net Profit after Tax and Minority Interest grew 6% YoY to EGP224 million, a margin of 15%.

I am delighted to share with you our 1Q2018 financial results, another successful period on all fronts, in which we continued to witness profitable growth.

During the quarter, our focus was to freeze the master plan of the 3,000 feddan project (known as "Badya" which means the beginning in Arabic) in terms of units' types, sizes, design optimization alongside ongoing discussions with potential operators of various educational, leisure and commercial facilities, as we aim to develop a signature creative city in West Cairo.

Our financial results continued to reflect our operational excellence with Revenue of EGP1.5 billion, Gross Profit of EGP547 million, EBITDA of EGP381 million and Net Profit of EGP224 million. This quarter demonstrated healthy growth in profitability margins across the board as we continue to focus on improving our ROE. Profitability margins witnessed remarkable improvements across the board. Gross Profit margin reached 37%, up from 31% in 1Q2017, while EBITDA margin recorded 26%, a strong growth from 20% same period last year. Net Profit margin reached 15% up from 13% a year earlier. Our Balance Sheet maintained its strong position with receivables of EGP15.8 billion, covering Net Debt 4.2 times.

New Sales were relatively slow YoY during the first quarter of 2018 as the Company didn't offer any new products or projects with all concentration on Badya ahead of its launch, while the same period last year witnessed the launch of Palm Hills New Cairo. New Sales amounted to EGP2.1 billion in 1Q2018.

The Company remains committed to deleverage the Balance Sheet through the securitization of receivables program. In May 2018, we concluded the second securitization transaction with net proceeds of EGP261 million, which will be utilized in paying down existing debt. We are currently preparing for the third transaction which is expected to address receivables of c.EGP400 million.

With regards to our recurring income and commercial real estate portfolio, the segment contributed 16% to Net Profit, in line with our strategy to generate 25% in Net Profit from recurring income by FY2020.

Financial Review

Revenue for the quarter was relatively flat at EGP1.5 billion compared to EGP1.6 billion in 1Q2017. The Company handed over 301 units compared to 418 units delivered during the same period last year.

Gross Profit increased 12% YoY to reach EGP547 million, a margin of 37%, a remarkable improvement of 6pp, on the back of sales of standalone units in Palm Hills New Cairo alongside growth in the number of delivered units mainly in Golf Views and Hacienda Bay. EBITDA grew 17% YoY to EGP380 million, illustrating a margin of 26% compared to 20% in 1Q2017.

Net Profit after Tax & Minority Interest grew 6% YoY to reach EGP224 million, due to lower Minority Interest during the quarter coupled with the trickledown effect of improvements in profitability margins despite the hike in financing cost and land liabilities.

Net Debt/EBITDA dropped to 2.4 times, down from 2.7 times in 1Q2017. By the end of 2018, Receivables reached EGP15.8 billion compared to EGP15.3 billion by end of FY2017, covering Net Debt by 4.2 times.

Operational Review

New Sales for the quarter amounted to EGP2.1 billion, a drop of 39% YoY. New Residential Sales during the first quarter of 2018 stood at EGP1.9 billion with the balance from the sale of commercial units. The YoY drop in New Sales resulted from fewer launched products and projects, ahead of the launch of Badya in West Cairo, coupled with higher comparable base for 1Q2017 which seen strong uptake of launched inventory in Palm Hills New Cairo.

In 1Q2018, PHD launched sales of Palm Hills Medical in West Cairo and witnessed an uptake in the demand for commercial units in The Lane Mall in West Cairo, recording EGP55 million and EGP159 million respectively. New Commercial Sales for the quarter recorded EGP225 million.

Since the beginning of 2018, the Company increased average selling prices by 34% and 21% YoY for BUA of standalone units and apartments, and 21% YoY for land. The following chart shows percentage contribution of each operating region to New Sales during 1Q2018:

In West Cairo, New Sales recorded EGP855 million mainly led by The Crown and Palm Parks followed by Woodville and commercial units sold in The Lane and Palm Medical. Total residential sales in the region stood at EGP642 million with the balance from commercial sales.

In East Cairo, New Sales amounted to EGP1.2 billion, mostly in Palm Hills New Cairo ("PHNC"). It is worthy to mention that Cumulative New Sales in PHNC amounted to EGP5.4 billion, since its launch in November 2016.

The North Coast had low New Sales which is normal due to the seasonality factor and limited products offering.

The Company handed over 301 units during 1Q2018, ahead of the schedule to deliver 1,500 units by the end of 2018. Construction activities for the quarter are progressing on schedule with an earned value of EGP0.5 billion in 1Q2018.

Recurring income portfolio from three hotels and commercial real estate segment contributed 16% to Net Profits. The number of memberships in Palm Club stood at 2,859 memberships by end of 1Q2018.

Outlook

In 2H2018, PHD expects to conclude the third securitization of receivables transaction and monetize c.EGP400 million receivables portfolio.

The Company is currently discussing a number of potential partnership agreements for ventures in Badya project addressing educational, technological and retail fronts. Management expects to close those agreement before year end. In addition, PHD is in active discussions with a leading operator of commercial offerings to co-develop a mixed use commercial concept in Palm Hills New Cairo.