8 Nov 2010 10:29
Egypt's Premiere Developer Reports Sharp Revenue and Earnings Growth on a Sustained Sales Performance
Revenues rise 49% in 3Q 2010 over 3Q 2009, a second straight quarter of record new sales, on the back of new sales (reservations) of EGP 1.78 billion; new sales were dominated by the successful launches of two north coast projects.
Cairo, November 8, 2010 - Palm Hills Developments (PHDC.CA, PHDC.EY), Egypt's premier real estate developer, reported a 15% year-on-year rise in net earnings to EGP 153.7 million as it announced today its consolidated financial and operational results for the third quarter of 2010. Performance in the quarter was marked by strong growth in both new sales (reservations) and revenues (operating sales).
The three months ending 30 September 2010 saw PHD achieve new sales of EGP 1.78 billion, its second consecutive quarter of record new sales. The increase represents a 53% rise year-on-year, backed by EGP 1.3 billion in sales at North Coast projects. New contracts in Q3 2010 exceeded EGP 1 billion, up 13% over EGP 923.8 million the same quarter of 2009. Meanwhile, the company's client base grew to 6,809 customers at the end of Q3 2010.
"As anticipated, strong sales at Palm Hills' North Coast developments underpinned our record sales in the third quarter. Palm Hills Developments has benefitted from strong organic sales momentum in a quarter during which we had no new project launches," said Palm Hills Developments Chairman and Chief Executive Officer Yasseen Mansour. "Our continued success is the direct outgrowth of the trusted brand relationship we have developed with customers since inception. We remain confident in the real estate sector's broad demand fundamentals and believe that PHD's extremely diverse land bank will perform well as the Egyptian real estate industry continues its recovery and development.
"While we are obviously pleased with how 2010 has shaped up, we are even more excited about 2011, where our emphasis will be on construction with the goal of beating our delivery schedule on select developments," Mansour added.
In Q3 2010, PHD recorded revenues (operating sales) of EGP 451.26 million, a rise of 49% over the same quarter last year. PHD's gross profit margin also inched down to 70% in the quarter just ended, from 72.5% in Q3 2009. For the first time, revenues in the quarter just ended also include a notable contribution from the Palm Hills Club.
Consolidated net income rose markedly year-on-year to EGP 153.7 million from EGP 133.1 million in Q3 2009.
PHD's sales backlog as of 30 September 2010 stood at EGP 13 billion, of which cumulative contracts accounted for EGP 9.6 billion and new sales composed EGP 3.4 billion.
"We continue to build our new sales pipeline - despite the planned slowdown in our marketing activities during the traditionally quieter Ramadan period - and to convert that into contracts," added Mansour. "Sales in the new year will be given a momentum boost from the re-launch of Palm Sokhna and the conversion of Botanica reservations into contracts."
Highlights of PHD's Q3 2010 results follow below, along with management's analysis of the company's performance and an update on operational developments. Full consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) are available for download on www.palmhillsdevelopments.com.
KEY HIGHLIGHTS
§ Total New Sales in Q3 2010 rose 53% year-on-year to reach EGP 1.78 billion.
§ Total New Contracts signed in Q3 2010 were valued at just over EGP 1 billion, 13% compared to the same quarter of last year.
§ PHD's Customer Base grew to 6,809 clients at the end of September 2010 on the back of management's strategy of attracting new customers through the diversification of products and the price ranges at which they were offered.
§ Net Operating Sales (revenues) in Q3 2010 stood at EGP 451.26, a rise of 49% year-on-year.
§ Net Operating Profit (EBIT) rose 5% year-on-year to EGP 189.32 million in Q3 2010.
§ Net Profit (after minority interest) rose to EGP 153.72 million in Q3 2010, up 15% compared with the same period last year.
§ Total Land Bank stood at 47.8 million square meters broadly diversified across Cairo (multiple locations), the Red Sea and the Mediterranean as well as Saudi Arabia.
§ Ratio of Bank Debt to Equity stood at 16.2% at the end of Q3 2010. (Net debt to equity: 9.0%)
Operational Highlights of Q3 2010
PHD reported a strong sales performance in Q3 2010 as the nation's largest (and most diversified) real estate sales force capitalized on continued strong marketing spending to drive new sales and contracts across the company's footprint.
At the North Coast's Hacienda White 2, new sales (reservations) remained robust, reaching 239 units and EGP 464 million (26% of new sales). Hacienda Bay contributed EGP 307 million in new sales in the third quarter while Cairo-area Village Gardens Katameya saw EGP 137 million in new sales, and Golf Extension saw EGP 140 million.
New contracts at Hacienda White 2 reached 106 units valued at EGP 398million during the quarter, while Hacienda Bay saw 140 new contracts worth EGP 194 million in Q3 2010.
Sales momentum in the quarter was driven by reported sales at the Hacienda White 2 project, which contributed EGP 191 million, followed by EGP 66 million reported from the Golf Extension project and Golf Views, which added EGP 51 million in the quarter.
Management is also pleased to note that Burooj has, with assistance from PHD, sold 120 of the 425 units it purchased from Palm Hills Developments, with 100% of those sales being Egyptian expatriates living in the Gulf, as previously planned.
Notably, new sales at the newly launched North Coast development Seashell, approximately 10 km from Hacienda White, reached 500 units at a value of EGP 539 million during the third quarter, which accounted for 30% of new sales during the quarter.
Costs were driven by development at the Golf Extension project, which constituted 33% of total direct cost in Q3 2010, at EGP 41 million, while Hacienda Bay added costs of EGP 23 million and Village Gardens Katameya contributed EGP 18 million.
Management anticipates new sales in Botanica to be converted into contracts in the new year.
Construction of Golf Views' Nicklaus golf course (in Palm Hills October) remains ahead of schedule, leading management to expect a soft opening early in the new year. Fully 18 holes of the course has been finished, while an additional nine are now in the pipeline. Tender documentation for the construction of the Ritz Carlton Hotel at Palm Hills October is now in the finalization stage, setting the stage for a soft launch early in 2013.
Construction of the company's East Cairo Village Mall is now more than 50% complete (on track to begin receiving tenants by Q3 2011, and be fully operational by Q1 2012). The average lease per square meter will be EGP 200, leading to a projected total annual revenue of EGP 55 million, with an increase of approximately 7% annually. Finally, the Sixth of October Downtown commercial project has begun earth works as the project nears the completion of the detailed design phase. Management maintains its estimate that construction at Sixth of October Downtown will take approximately three years.
Financial Performance
Net sales (revenues) rose 49% year-on-year in the third quarter of 2010 to reach EGP 451.26 million. The leading contributor to sales in Q3 2010 was the well-received launch of Hacienda White 2 (EGP 191 million) followed closely by continued sales at the Golf Extension project (EGP 65 million) and Golf Views (EGP 51 million)
The third quarter saw EBITDA rise 8% year-on-year to EGP 197.2 million. In absolute terms, COGS rose 62% to EGP 134.85 million, faster than sales growth, but not hindering a 44% increase in gross profit compared to Q3 2009.
Despite the 220% year-on-year increase in SG&A to EGP 119 million as previously capitalized costs are now expensed, in addition to the increase in summer marketing and advertising campaign for the launch of Hacienda White2. Net operating profit increased from EGP 179.8 million in Q3 2009 to EGP 189.3 million in Q3 2010, an increase of 5%. Consolidated net income rose as well in the same period to EGP 153.7 million, up 15% year-on-year.
Land Bank
The size of the land bank stood at 47.8 million square meters at the end of Q3 2010, diversified by country (Egypt and Saudi Arabia) and geography within Egypt (including North Coast, Red Sea and multiple Cairo locations). PHD's focus in the third quarter was on the execution of existing projects. Nonetheless, the company remains diligent regarding the pursuit of compelling land acquisition opportunities that complement its existing developments.
Outlook
PHD maintains a very positive view of the Egyptian real estate market and believes strong Q3 2010 results underscore not just the sustainability of the recovery in consumer sentiment, but of PHD's strong brand equity in the Egyptian marketplace. PHD recorded has its second straight quarter of record sales. The company looks forward to new sales momentum in 2011 with the launch of at least one new project and as the finalization of legal procedures allow the re-launch of Palm Sokhna and the conversion of Botanica reservations into contracts.
Sales growth at new distribution points in Europe (London) and the GCC (Dubai) will be driven largely by economic developments in those markets, and management will continue to invest in expansion of those points of sale.
Although Egypt's large, fast-growing population, expanding economy, and long-term fundamentals of the fast-developing infrastructure base make the country highly attractive going forward, management also continues to explore interesting opportunities outside Egypt that would allow it to exploit the strength of its balance sheet and of its operational know-how.
Investment in the development of recurring revenue streams in all markets and projects will continue to be a priority going forward.
Table 1 - Performance Highlights (in EGP millions) | ||||
Year-on-Year |
| |||
3Q 2009 | 3Q 2010 | %Change |
| |
Total New Reservations | 1,165.8 | 1,781.3 | 53% |
|
Total New Contracts | 923.8 | 1,046.1 | 13% |
|
Table 2 - Q3 2010 vs. Q3 3009Operating Results (EGP '000) | ||||||
Three Months Ended | Nine Months Ended | |||||
30/09/2010 | 30/09/2010 | 30/09/2010 | 30/09/2009 | |||
SALES (NET) | 451,255 | 303,035 | 981,094 | 675,044 | ||
Cost of Sales | (134,845) | (83,364) | (350,038) | (208,041) | ||
GROSS PROFIT | 316,410 | 219,672 | 631,056 | 467,003 | ||
Margin% | 70% | 72% | 64% | 69% | ||
Selling, General & Administrative Expenses | (119,203) | (37,253) | (239,257) | (96,021) | ||
EBITDA | 197,206 | 182,418 | 391,799 | 370,982 | ||
Margin% | 44% | 60% | 40% | 55% | ||
Depreciation and Amortization | (7,891) | (2,618) | (17,381) | (7,450) | ||
OPERATING PROFIT (EBIT) | 189,315 | 179,800 | 374,418 | 363,532 | ||
Margin% | 42% | 59% | 38% | 54% | ||
Other Income | 8,141 | 5,572 | 94,427 | 22,015 | ||
Interest Income - Amortization of Discount | 51,489 | 32,434 | 154,446 | 97,301 | ||
Finance Costs | (2,405) | (18,623) | (18,752) | (42,567) | ||
Interest Exp. - Amortization of Discount | (66,466) | (24,661) | (173,530) | (41,982) | ||
PROFIT BEFORE TAX | 180,075 | 174,522 | 431,030 | 398,298 | ||
Income Tax Expense | 30,930 | (29,085) | (69,514) | (56,663) | ||
PROFIT FOR THE PERIOD | 149,144 | 145,437 | 361,516 | 341,636 | ||
Minority Interest | 4,580 | (12,286) | (16,372) | (51,114) | ||
NET PROFIT AFTER MINORITY | 153,724 | 133,151 | 345,144 | 290,522 | ||
Margin% | 34% | 44% | 35% | 43% | ||
N.B
Palm Hills Developments recognizes its villas and town houses revenues from land upon signature of a contract while revenues from construction are recognized on a percentage of completion basis with a minimum threshold of 50%. Revenues from apartments and multi tenant buildings are recognized upon delivery. As a result, total revenues figure on the Income Statement during a period does not reflect neither reservations nor construction revenues from villas and town houses less than 50% completed or any revenues from apartments.
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