7 Nov 2016 07:00
THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA, JAPAN AND AUSTRALIA
3Q2016 Earnings Release
Palm Hills Developments realize record Revenue of EGP3.6 billion, Net Profit of EGP404 million in 9M2016, with 3Q2016 Net Profit surpassing the first two quarters combined. New Sales rose 18% YoY to EGP5.4 billion, on track to become the largest developer in Egypt
Cairo/London (November 6, 2016) - 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 September 30, 2016. |
Key Highlights
§ Our strategy of increasing construction spend is paying off with the Company delivering record results driven by our accelerated construction program, on track to become the largest developer in Egypt, as the Company spent more than EGP4.5 billion on construction since the beginning of FY2014, and thus not severely impacted by inflation. § Net Profit for the third quarter of 2016 rose 59% YoY to record EGP235 million, exceeding the first two quarters of 2016 combined. § Deleveraging of the Balance Sheet is underway via securitization of receivables relating to delivered units. The first tranche is expected to close before year end, with size ranging between EGP350-450 million. 9M2016 § New Sales grew 18% YoY reaching EGP5.4 billion, driven by the strong demand across all regions coupled with an increase in average selling prices by 44% and 38% YoY for BUA of standalone units and apartments respectively. The weighted average selling price of land grew 27% YoY. § The number of delivered units reached 1,452 units, a growth of 42% YoY, in comparison to 1,024 units for the same period last year, in line with the Company's guidance to deliver more than 1,800 units during the year. Delivered units surpassed the number of units sold during the period. § Despite the changes in accounting standards, Revenue increased 40% YoY to EGP3.6 billion, driven by a stronger pace of unit deliveries, accelerated construction activities and healthy sales momentum. § EBITDA grew 18% YoY recording EGP700 million. § Net Profit1 remained relatively flat YoY at EGP404 million, as a result of the Company's tax exemption expiring on December 31, 2015, coupled with higher Minority Interest YoY as a result of higher recognized revenue from Village Gate, Palm Valley & CASA, which the Company owns 51% and 60% respectively. 3Q2016 § New Sales for the quarter recorded EGP2 billion, driven by demand for secondary homes in the North Coast during the summer season, positioning the Company as the highest selling Egyptian developer. § Cancellations recorded EGP163 million, representing 8% of New Sales, a decrease of 11% YoY and 71% QoQ, as cancellations during the second quarter of 2016 was largely led by the Company terminating delinquent reservations. § During the quarter, the Company delivered 627 units, an increase of 51% YoY and 40% QoQ, exceeding the pre-set target for the quarter. § Revenue grew 34% YoY to EGP1.5 billion, driven by the increased pace of delivery in the North Coast and East Cairo coupled with the significant increase in average selling prices. EBITDA stood at EGP366 million, an increase of 103% YoY. § Net Profit grew 59% YoY reaching EGP235 million. |
* For illustrative purposes, Net Profit figures of 9M2015 were normalized by adding back provisions of EGP100 million and deducting EGP426 million of capital gain on the sale of non-core land bank in the North Coast and Alexandria. Yasseen Mansour, Chairman Comments: I am delighted to share with you our results for the nine month ended September 30, 2016, another strong period for the Company in terms of New Sales, Revenue, profitability and handovers, driven by healthy market conditions, accelerated construction works, backed by our strong management team. We witnessed a strong summer season in North Coast despite the thinning inventory as both Hacienda Bay and Hacienda White are expected to be fully completed by 2018. New Sales recorded EGP2 billion and EGP5.4 billion during the third quarter and 9M2016 respectively, with the latter marking a growth of 18% YoY, on track to meet the full year target of EGP7 billion, positioning the Company as the largest developer in Egypt. Despite our cancellations hiking in 2Q2016 to 28% of New Sales, which was a one-off event mainly driven by the Company's cleanup of delinquent clients, this quarter we saw cancellations dropping to 8%, a decrease of 71% QoQ and 11% YoY. During 9M2016, we witnessed strong execution and units' handover within our residential projects. The Company delivered 1,452 homes, a growth of 42% YoY and for the first time exceeding the number of units sold during the period, reaping the benefit of our strategy to expedite construction over the last three years with a total construction spend of EGP4.5 billion, and therefore not severely impacted by inflation. In 9M2016, the Company spent EGP1.5 billion on construction and collected EGP2 billion from Receivables and New Sales, a growth of 18% YoY. Our Balance Sheet remains extremely strong with receivables of EGP9.8 billion covering Net Debt 3.9 times. However, due to the increasing interest rate environment, we opted to de-lever through a securitization of receivables program with the first tranche ranging between EGP350-450 million expected to close before year end, out of a total c.EGP2.5 billion to be monetized over the coming couple of years. The program is completely non-recourse to the Company and will result in lower interest, which will be fixed over the program's tenor. Despite us adopting the new accounting policy, which works to defer profits especially on the land component of standalone units, Net Profit increased 74% and 20% YoY during the third quarter and 9M2016 respectively due to the increased pace of delivery in addition to quarterly New Sales that was led by a significant increase in average selling prices. With regards to our recurring income and commercial real estate portfolio, the segment contributed 10% to Net Profits, in line with our strategy to achieve 25% in Net Profits from recurring income by FY2020. As we continue to replenish our land bank; the Company is currently in final phase of negotiations to acquire 190 feddan in West Cairo from the Egyptian government. We are still negotiating the terms and conditions of the 6,000 feddan co-development project of West Cairo with NUCA via a jointly formed committee, and hope to finalize the definitive agreement prior to year end. With regards to 2016 full year targets, the Company remains on track to achieve the previously announced New Sales target of EGP7 billion, and deliver more than 1,800 homes. Key Financial Indicators
Financial Review Despite the implemented changes in the accounting standards, Revenue3 marked 40% YoY growth to EGP3.6 billion. The YoY growth in top line was mainly driven by a stronger pace of deliveries marking new levels, accelerated construction activities and the YoY increase in selling prices, where the weighted average selling prices of land grew 27% YoY. In addition, weighted average selling prices of Built up Area of standalone units and apartments remarkably increased by 44% and 38% YoY respectively. Gross Profit grew 21% YoY and reached EGP1.1 billion, a 30% Gross Profit margin. The improvement in profitability was driven by stronger execution and units' deliveries coupled with the increase in average selling prices. EBITDA for 9M2016 recorded EGP700 million, a margin of 19%. SG&A amounted to EGP406 million. SG&A/New Sales stood at 7.4%, up from 6.9% in 9M2015 due to the increase in sales commissions as well as higher marketing expenses YoY following the successful Corporate Social Responsibility campaign executed during the holy month of Ramadan on national television and cable networks. Net Profit before Tax & Minority Interest grew by an impressive 44% YoY to reach EGP682 million, however Income Tax and Minority Interest resulted in relatively flat Net Profit of EGP404 million. The main reasons for the Year on Year variations under the two accounting methods are the following: 1. Adopting the current accounting method and therefore recognizing approximately 50% of COGS against the sale of land relating to standalone units. 2. The Company adopts a first sold first delivered policy of delivering units, and during 9M2016 we continued to deliver units sold post the Arab Spring which were contracted at depressed prices and suffered a delayed delivery (including VGK project). 3. Change in mix/type of units delivered during 9M2016 which include 1,047 apartments and 405 standalone units. Net Debt increased to EGP2.5 billion, up from EGP1.5 billion by end of FY2015, as the Company utilized an additional EGP500 million from its existing credit facilities. By end of 9M2016, Receivables stood at EGP9.8 billion compared to EGP7.6 billion by end of 2015, supported by the strong YoY growth in New Sales.
Revenue for the quarter recorded EGP1.5 billion, mainly driven by strong deliveries in East Cairo and North Coast, further boosted by the growth in New Sales and increase in average selling prices. Gross Profit for the quarter remarkably grew 68% YoY to record EGP517 million, with a Gross Profit margin of 35%. EBITDA recorded EGP366 million, a margin of 25%. The YoY improvements in EBITDA and EBITDA margin were driven by the increase in selling prices, accelerated deliveries in some of the Company's most profitable projects namely Golf Views, Golf Extension, Katameya, Katameya Extension and Hacienda Bay. Net Profit after Tax & Minority Interest recorded a remarkable growth of 59% YoY based on the new accounting rules. BR: Before restatement figures (using the old revenue recognition method); R: Restated figures. 2- For illustrative purposes, Net Profit figures of 9M2015 were normalized by adding back provisions of EGP100 million and deducting EGP426 million of capital gain on the sale of non-core land bank in the North Coast and Alexandria. 3- PHD recognizes revenue on a "Percentage of Completion" basis for standalone units. Revenue from apartments and multi-tenants buildings are recognized only upon delivery. Operational Review Strong Sales Momentum New Sales for 9M2016 recorded EGP5.4 billion, growth of 18% YoY, mainly driven by the increase in average selling prices. It is worthy to highlight that 61% of units sold during 9M2016 were units priced at a range of EGP1.5-7 million. Cancellations recorded EGP163 million during 3Q2016, translating into 8% of New Sales, a decrease of 11% YoY and 71% QoQ, as the previous quarter was largely led by the Company cancelling delinquent reservations. New Sales for the quarter recorded EGP2 billion, at par with the same period last year, as a result of thinning inventory in North Coast as the three Hacienda projects are nearing completion. In West Cairo, New Sales grew 50% YoY to record EGP2.5 billion during 9M2016, of which EGP817 million were generated from Palm Valley, EGP799 million from Golf Extension project, and EGP573 million from Golf Views, a true indication of the soundness of Egyptian property market, and strong evidence of the sustainable and growing demand for the Company's product offerings. In East Cairo, New Sales recorded EGP1.3 billion during 9M2016, a growth of 33% YoY, mainly driven by demand for Capital Gardens, Village Gate and Palm Hills Katameya Extension. It is worthy to highlight that cumulative New Sales in Capital Gardens stood at EGP1.2 billion equivalent to 771 units, since the project was launched in December 2015. In the North Coast, we have seen another strong season with a healthy momentum; New Sales stood at EGP1.6 billion during 9M2016, backed by our successful sales strategy and marketing campaigns executed during the season. By end of 9M2016, unit deliveries grew by a remarkable 42% YoY to reach 1,452 units, in comparison to 1,024 units for the same period last year. During the quarter, the Company delivered 627 units, an increase of 51% YoY and 40% QoQ, exceeding the pre-set target for the quarter. Our construction activities are progressing on schedule, recording an earned value of EGP1.5 billion in 9M2016, an increase of 17% YoY. With regards to recurring income portfolio and commercial real estate, the segment contributed 10% to Net Profits, mainly from our three hotels and Palm Club, in line with our strategy to achieve 25% in Net Profits from recurring income by FY2020. Outlook As we continue to replenish our land bank, the Company is currently in final phase of negotiations to acquire 190 feddan in West Cairo from the Egyptian government. We are still negotiating the terms and conditions of the 6,000 feddan co-development project of West Cairo with NUCA via a jointly formed committee, and hope to finalize the definitive agreement prior to year end. With regards to the recurring income and commercial real estate portfolio, the Company expects to finalize all construction works of Phase 8 office building, Village Gate and VGK Malls during FY2017, and to be operational during FY2018. Furthermore, Palm Valley's commercial mall concept design has been successfully concluded, and construction commenced during 3Q2016, with plans to finalize all the mall's construction works prior to the end of FY2018. The Company expects to monetize receivables of up to EGP2.5 billion in total over 2-3 years period, including a securitized bond issuance by up to EGP1 billion. The first transaction is foreseen to close before year end for a total consideration of EGP350-450 million in receivables relating to delivered units. Pricing remains to be defined based on the credit rating and market conditions at the time of launch. The Company is scheduled to launch New Sales in Palm Hills New Cairo, the co-development with NUCA spreading 500 feddan later this month. The launch will encompass standalone units, to be followed by apartments early 2017. In addition, the Company plans to launch New Sales in the second phase of Capital Gardens, the co-development with MNHD during December 2016. Income Statement (Egyptian Accounting Standards)
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R: Restated figures; BR: Before restatement figures (using the old revenue recognition method) which is exhibited for illustrative/comparative purposes only.
Consolidated Income Statement
(Egyptian Accounting Standards)
In EGP 000's | 3Q2016 R | 3Q2015 R | Change | 3Q2016 BR | 3Q2015 BR | Change |
Revenue | 1,485,231 | 1,109,940 | 34% | 1,526,871 | 1,132,117 | 35% |
Cost of Revenue | (968,529) | (801,982) | 21% | (952,643) | (798,406) | 19% |
Gross Profit | 516,702 | 307,958 | 68% | 574,228 | 333,711 | 72% |
Gross Profit margin % | 35% | 28% | (7pp) | 38% | 29% | (8pp) |
General administrative, selling and marketing expenses | (150,343) | (127,621) | 18% | (150,343) | (127,621) | 18% |
EBITDA | 366,360 | 180,337 | 103% | 423,885 | 206,091 | 106% |
EBITDA margin % | 25% | 16% | (8.4pp) | 28% | 18% | (10pp) |
Administrative depreciation | (3,278) | (2,316) | 42% | (3,278) | (2,316) | 42% |
Operating Profit | 363,082 | 178,021 | 104% | 420,607 | 203,774 | 106% |
Less: |
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Interest expenses - amortization of discount on land liability | - | (3,129) | NA | - | (3,129) | NA |
Finance costs & interests | (16,756) | (4,013) | NA | (16,756) | (4,013) | 318% |
Interest on land purchase liabilities | (31,164) | (42,246) | (26%) | (31,164) | (42,246) | (26%) |
Provision | 650 | - | NA | 650 | - | NA |
Add: |
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Gains on investments in fair value through profit or loss | 1,511 | 1,233 | 23% | 1,511 | 1,233 | 23% |
Interest income - amortization of discount on notes receivables | 11,515 | 23,050 | (50%) | 11,515 | 23,050 | (50%) |
Interest income | 14,523 | 7,545 | 92% | 14,523 | 7,545 | 92% |
Capital gain on investment property | - | - | - | - | - | - |
Net Profit Before Income Tax | 343,360 | 160,461 | 114% | 400,886 | 186,214 | 115% |
Income tax expense | (76,567) | (3,333) | NA | (85,928) | (3,333) | NA |
Deferred tax | (204,215) | (1,000) | NA | (204) | (1,000) | NA |
Net Profit after Tax | 266,589 | 156,128 | 71% | 314,754 | 181,881 | 73% |
Non-controlling interest | (31,613) | (8,041) | NA | (12,523) | (8,041) | NA |
Net Profit after Tax & Minority Interest | 234,977 | 148,086 | 59% | 302,231 | 173,839 | 74% |
Net Profit after Tax & Minority Interest margin % | 16% | 13% | (3pp) | 20% | 15% | (5pp) |
R: Restated figures; BR: Before restatement figures (using the old revenue recognition method) which is exhibited for illustrative/comparative purposes only.
Consolidated Balance Sheet
(Egyptian Accounting Standards)
EGP 000's | September 30, 2016 | December 31, 2015 R | |
Long-Term Assets |
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Investments in Associates | 76,933 | 78,506 | |
Investment Property | 854,665 | 854,665 | |
Notes Receivable - Long Term | 6,011,863 | 4,546,282 | |
Projects Under Construction | 946,306 | 858,654 | |
Advance Payments for Investments Acquisitions | 184,336 | 184,336 | |
Fixed Assets (net) | 342,240 | 334,623 | |
Deferred Tax Asset | 11,339 | 11,948 | |
Other Long Term Assets | 1,391 | 1,391 | |
Employee stock ownership plan (ESOP) | 66,112 | - | |
Total Long-Term Assets | 8,495,184 | 6,870,404 | |
Current Assets |
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Works in Process | 6,532,303 | 6,463,687 | |
Held to Maturity Investments | 113,701 | 613,046 | |
Cash & Cash Equivalents | 928,298 | 965,670 | |
Notes Receivable - Short Term | 2,959,434 | 2,371,035 | |
Investments at Fair Value | 61,616 | 67,113 | |
Accounts Receivable | 807,495 | 704,029 | |
Suppliers - Advance Payments | 347,015 | 384,777 | |
Debtors & Other Debit Balances | 328,611 | 174,854 | |
Due from Related Parties | 233,994 | 172,392 | |
Minimum Guaranteed Payments - Co-Development Projects | 90,000 | - | |
Total Current Assets | 12,402,465 | 11,916,602 | |
Total Assets | 20,897,649 | 18,787,006 | |
Current Liabilities |
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Banks - Credit Balances | 31,741 | 31,035 | |
Banks - Overdraft | 88,245 | 80,237 | |
Advances from Customers | 7,176,097 | 6,249,432 | |
Completion of Infrastructure Liabilities | 95,083 | 173,648 | |
Provisions | 117,862 | 116,844 | |
Current Portion of Land Purchase Liabilities | 285,028 | 263,319 | |
Due to Related Parties | 130,340 | 226,319 | |
Investment Purchase Liabilities | 44,257 | 44,257 | |
Notes Payable - Short Term | 747,972 | 473,693 | |
Current Portion of Term Loans | 491,892 | 80,814 | |
Suppliers & Contractors | 386,009 | 406,850 | |
Income Tax Payable | 156,704 | 46,631 | |
Creditors & Other Credit Balances | 450,265 | 345,368 | |
Total Current Liabilities | 10,201,494 | 8,538,447 | |
Working Capital | 2,200,972 | 3,378,155 | |
Total Investment | 10,696,156 | 10,248,559 | |
Financed as Follows: |
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Shareholders' Equity |
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Issued and Paid-In Capital | 4,617,899 | 4,344,640 | |
Legal Reserve | 624,902 | 585,104 | |
Special Reserve | 524,213 | 524,213 | |
ESOP Re-Measurement Reserve | 10,085 | - | |
Retained Earnings (Deficit) | (194,080) | (212,391) | |
Net Profit for the Period/Year | 404,308 | 915,563 | |
Equity Attributable to Equity Holders of Parent Co. | 5,987,327 | 6,157,129 | |
Non-controlling Interest | 386,796 | 270,774 | |
Total Shareholders' Equity | 6,374,123 | 6,427,903 | |
Long Term Liabilities |
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Land Purchase Liabilities | 178,682 | 268,236 | |
Notes Payable - Long Term | 493,135 | 148,532 | |
Other Long Term Liabilities - Residents' Association | 652,497 | 485,600 | |
Loans | 2,997,717 | 2,918,287 | |
Total Long Term Liabilities | 4,322,032 | 3,820,656 | |
Total Equity & Long Term Liabilities | 10,696,155 | 10,248,559 | |
R: Restated figures.
About Palm Hills Developments Palm Hills Developments, a leading real estate developer in Egypt, is a joint stock company established in 1997. Palm Hills builds integrated communities and has one of the most diversified land bank portfolios, spreading over 27 million square meters ("sqm") in Egypt, including 5 million sqm in Saudi Arabia. The Company's product offerings include primary homes on both West Cairo and East Cairo, as well as secondary homes by the Mediterranean Sea, North Coast. As at end of 3Q2016, PHD delivered more than 5,754 units within its developments, including more than 1,500 units in 11 completed projects. Today, PHD has 14 projects under development, 6 projects in West Cairo, 6 projects in East Cairo and 2 projects in North Coast, translating into a sales backlog exceeding EGP9.3 billion. PHD is one of the most liquid and actively traded stocks on the Egyptian Stock Exchange, and is traded under the symbol "PHDC.CA". The Company has a GDR listing on the London Stock Exchange, and is traded under the symbol "PHDC.LI". For more information, please visit: www.palmhillsdevelopments.com/ Investor Relations Contacts Mamdouh Abdelwahab Ahmed Nour El-Din Hassan Radwa Abu Elnaga Tel +202 35351200, Extension 1503 Investor.relations@phdint.com
Disclaimer The information contained herein is restricted and is not for publication, distribution or release, directly or indirectly, in or into, the United States of America, Canada, Australia or Japan. This document does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase nor shall it (or any part of it) or the fact of its distribution, form the basis of, or be relied on in connection with, any contract therefore. The Rights Issue and the distribution of this document and other information in connection with the Rights Issue in certain jurisdictions may be restricted by law and persons into whose possession any document or other information referred to herein comes should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. The price and value of, and income from, the securities issued in the Rights Issue may go down as well as up. Persons needing advice should consult a professional adviser. The Rights Issue is not being made in or into the United States of America or to any U.S. person (as defined in Regulation S under the United States Securities Act of 1933, as amended (the "Securities Act")). These materials are not an offer for sale of any securities in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from the registration requirements of Securities Act. The Company has not registered, and does not intend to register, any portion of the Rights Issue in the United States, and does not intend to conduct a public offering of any securities in the United States. No person has been authorized to give any information or to make any representations other than those contained in this announcement and, if given or made, such information or representations must not be relied on as having been authorized by the Company. In addition, no agent or representative of the Company accepts any responsibility whatsoever for the contents of this document and no representation or warranty express or implied, is made by any agent or representative as to the information set out in this document. Neither the content of the Company's website (or any other website, including but not limited to the websites of the Company's subsidiaries, joint ventures or restricted affiliates) nor the content of any website accessible from hyperlinks on the Company's website (or any other website, including but not limited to the websites of the Company's subsidiaries, joint ventures or restricted affiliates) is incorporated into, or forms part of, this announcement. This document contains forward-looking statements, which include all statements other than statements of historical facts, including, without limitation, any statements preceded by, followed by or including the words "targets," "believes," "expects," "aims," "intends," "may," "anticipates," "would," "could" or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company's control that could cause the Company's actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which it will operate in the future. These forward-looking statements speak only as at the date of this document. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any of such statements are based. This communication is only directed at (i) persons who are outside the United Kingdom; (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"); and (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). The securities referred to herein are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. 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