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PHDC - Palm Hills Developments News Story

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Market Cap £14.3m
Enterprise Value £214.0m
Revenue £236.1m
Position in Universe th / 1828

Palm Hills Develop - 1st Quarter Results

RNS Number : 6290X
Palm Hills Developments S.A.E.
09 May 2016

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA, JAPAN AND AUSTRALIA

1Q 2016 Earnings Release

Record quarter for PHD with New Sales recording EGP2.2 billion, driven by robust demand for homes. An all-time high quarterly Gross Profit of EG394 million, yet changes in accounting policies results in deferred profits.

Cairo/London (May 9, 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 March 31, 2016.

Key Highlights

1Q2016

New Sales for the quarter recorded EGP2.2 billion, a growth of 62% YoY, the highest quarterly New Sales achieved since inception, driven by the strong demand for housing across all regions, backed by successful launches of new projects and new phases of existing projects.

EGP Million

Previous Accounting Standards

New Accounting Standards

1Q2016 BR

1Q2015 BR

Change

1Q2016 R

1Q2015 R

Change

Revenue

1,121

754

49%

1,072

743

44%

Gross Profit

394

343

15%

308

313

(2%)

Gross Profit Margin

35.2%

45.4%

(10.2 pp)

28.7%

42.2%

(13.4pp)

EBITDA

277

252

10.1%

191

222

(14.3%)

EBITDA Margin

24.5%

33.1%

(8.6pp)

17.8%

29.6%

(12.1pp)

Net Profit before Tax & Minority Interest

282

219

29%

196

190

3%

Net Profit after Tax & Minority Interest

192

215

(11%)

105

186

(43%)

Net Profit Margin

17.1%

28.5%

(11.4pp)

9.8%

25%

(15.1pp)

For consistency and comparability purposes, we briefly highlight 1Q2016 financial results under the previous revenue recognition method:

o Revenue for the quarter recorded EGP1.12 billion, a growth of 49% YoY, driven by a stronger pace of construction and units deliveries.

o Gross Profit achieved a new quarterly record of EGP394 million, a growth of 15% YoY. EBITDA grew 10% YoY, achieving a new record of EGP277 million.

o Net Profit before Tax & Minority Interest reached EGP282 million, a growth of 29% YoY. Net Profit after Tax & Minority Interest reached EGP192 million, a decrease of 11% YoY. The decrease in Net Profit after Tax & Minority Interest was driven by 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.

Since the beginning of January 2016, PHD started to apply the Percentage of Completion ("PoC") method on the recognition of revenue from villas and standalone units, as per recent amendments in the Egyptian Accounting Standards, whereas revenue is weighted against the unit of contract basis, and recognized based on PoC relative to actual cost incurred. Revenue from apartments and multi-tenants buildings are recognized only upon delivery, which remains in line with the previous revenue recognition method. Comparative figures were restated accordingly. The new accounting standards didn't reduce our profits, but merely deferred it, as we control our profitability internally to meet our targets, not having in mind the accounting standards being applied.

Under the new revenue recognition method, Revenue for the quarter grew 44% YoY to record EGP1.07 billion. Gross Profit was largely flat at EGP308 million, while EBITDA decreased 14% YoY. Net Profit before Tax & Minority Interest increased 3% YoY to EGP196 million. Net Profit after Tax & Minority Interest decreased 43% YoY to EGP105 million. Profitability for the quarter was not only impacted by the change in accounting standards but also the following factors:

o The Company adopts a first sold first delivered policy of delivering units and this quarter we delivered units sold in 2011 and 2012 which were sold at depressed prices and suffered a delayed delivery due to the 2011 revolution.

o Change in mix/type of units delivered during 1Q2016 with a total of 377 units, which included 263 apartments and 114 standalone units.

Yasseen Mansour, Chairman Comments:

I am very pleased to share with you our first quarter 2016 financial results, another record quarter for the Company in terms of New Sales and units' deliveries, driven by robust market conditions, accelerated construction works, backed by strong management team and financial position.

Our New Sales for the quarter recorded EGP2.2 billion, a growth of 62% YoY, the highest quarterly New Sales achieved since inception, driven by the strong demand for housing across all regions.

We continued our efforts with expediting projects deliveries; during the quarter, the Company handed over 377 homes. Furthermore, the Company spent EGP582 million on construction and collected EGP715 million from Receivables and New Sales, a growth of 13% YoY.

Our Balance Sheet maintained its strong position, with Total Equity (unadjusted) of EGP6.2 billion. Net Debt stood at EGP1.75 billion, with Net Debt/EBITDA at 2.3x. On April 7, 2016, the Company commenced distribution of cash dividends of EGP0.15/share and is currently pursing regulatory procedures required to conclude the distribution of bonus shares (each 20 existing shares to receive 1 bonus share).

Since the beginning of January 2016, we adopted the mandatory changes to revenue recognition policies as per the revised Egyptian Accounting Standards, which negatively impacted our consolidated and standalone retained earnings by EGP156 million and EGP128 million respectively. While the new regime adversely affected our 1Q2016 financial results, we expect it to boost our results going forward as the new standards will result in more balanced revenue recognition especially with regards to standalone units. The new accounting standards didn't reduce our profits, but merely deferred it, as we control our profitability internally to meet our targets, not having in mind the accounting standards being applied.

On the land bank growth front, we signed a co-development agreement of 135 feddan in the North Coast, which is located 65 km west of Hacienda White 1, on a revenue sharing basis, with a private land owner.

With regards to our recurring income portfolio, the segment contributed 11% to Net Profits, in line with our strategy to achieve 25% in Net Profits from recurring income by FY2020. To date, we have leased 81% from Street 88's GLA, our strip mall in West Cairo, with a revenue backlog of EGP29 million.

We remain on track to launch Sales in the 500 feddan co-development project with NUCA during 4Q2016. SWA Group is expected to finalize the master plan during this quarter. We are still negotiating the 10,000 feddan project of West Cairo with NUCA, and expect to reach a final agreement later this year. Given the strong market conditions, we expect to achieve New Sales of EGP7 billion for the full year, and deliver more than 1,600 homes.

Key Financial Indicators

EGP Million

Previous Accounting Standards

New Accounting Standards

1Q2016 BR

1Q2015 BR

Change

1Q2016 R

1Q2015 R

Change

Revenue1

1,121

754

49%

1,072

743

44%

Gross Profit

394

343

15%

308

313

(2%)

Gross Profit Margin

35.2%

45.4%

(10.2 pp)

28.7%

42.2%

(13.4pp)

EBITDA

277

252

10.1%

191

222

(14.3%)

EBITDA Margin

24.5%

33.1%

(8.6pp)

17.8%

29.6%

(12.1pp)

Net Profit before Tax & Minority Interest

282

219

29%

196

190

3%

Net Profit after Tax & Minority Interest

192

215

(11%)

105

186

(43%)

Net Profit Margin

17.1%

28.5%

(11.4pp)

9.8%

25%

(15.1pp)

New Sales

2,200

1,358

62%

2,200

1,358

62%

Financial Review

Under the previous revenue recognition method, Revenue2 for the quarter recorded EGP1.12 billion, a growth of 49% YoY, driven by a stronger pace of construction and units deliveries. While Gross Profit achieved a new quarterly record of EGP394 million, a growth of 15% YoY. EBITDA grew 10% YoY, achieving a new record of EGP277 million. Net Profit before Tax & Minority Interest reached EGP282 million, a growth of 29% YoY. Net Profit after Tax & Minority Interest reached EGP192 million, a decrease of 11% YoY. The decrease in Net Profit after Tax & Minority Interest was driven by 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.

Since the beginning of January 2016, PHD adopted recent amendments to the Egyptian Accounting Standards, as stipulated by Ministerial Decree #110 of 2015, by applying the Percentage of Completion ("PoC") method as an accounting policy with regards to revenue recognition relating to standalone units (villas, town-houses and twin-houses) on a unit of contract basis including all contract components (land development cost, construction works, extra works, etc..). PoC is calculated in relation to cost of actual completed components as a percentage of the unit's total contracted value for each house. Recognition policy for apartments and multi-tenants buildings remains unchanged from previous practices due to difficulty in applicability of PoC and allocation of costs of public areas and the likes to each unit's cost, which may vary until completion of the relevant multi-tenants building.

Under the new revenue recognition method, Revenue for the quarter grew 44% YoY to record EGP1.07 billion. Gross Profit was largely flat at EGP308 million, while EBITDA decreased 14% YoY. Net Profit before Tax & Minority Interest increased 3% YoY to EGP196 million. Net Profit after Tax & Minority Interest decreased 43% YoY to EGP105 million. Profitability for the quarter was not only impacted by the change in accounting standards but also the following factors:

The Company adopts a first sold first delivered policy of delivering units and this quarter we delivered units sold in 2011 and 2012 which were sold at depressed prices and suffered a delayed delivery due to the 2011 revolution.

Change in mix/type of units delivered during 1Q2016, which included 263 apartments and 114 standalone units.

The Company delivered 377 units during the quarter, a growth of 47% YoY including 263 apartments, with stand-alone units accounting for the balance.

It's worthy to highlight that weighted average selling prices of land increased 21% YoY. In addition, weighted average selling prices of Built Up Area of standalone units and apartments increased 20% and 16% YoY.

Net Debt stood at EGP1.75 billion, up from EGP1.5 billion by end of FY2015. Annualized Net Debt/EBITDA stood at 2.3x, negatively impacted by the adoption of changes in the Egyptian Accounting Standards.

By end of 1Q2016, Receivables stood at EGP8.0 billion; compared to EGP7.6 billion by end of 2015, supported by the growth in New Sales.

Operational Review

Strong Sales Momentum

New Sales for the quarter, which are not yet recognized as revenue, stood at EGP2.2 billion, up from EGP1.4 billion in 1Q2015, a growth of 62% YoY, a new record for quarterly Sales surpassing the Company's previous record of EGP2 billion achieved in 3Q2015, driven by the strong demand for the Company's products portfolio, backed by successful sales strategy and marketing campaigns. It is worthy to highlight that 68% of 1Q2016 New Sales were from units priced at a range of EGP1.5 - EGP7 million.

In West Cairo, New Sales grew 119% YoY to record EGP1.3 billion, of which EGP662 million were generated from the recently launched Palm Valley project, a true indication of the soundness of Egyptian property market, and strong evidence of the sustainable and growing demand for our product offerings.

In East Cairo, we witnessed another record quarter with New Sales of EGP714 million, a growth of 39% YoY, mainly driven by the launch of the third phase of Capital Garden, which recorded New Sales of EGP 277 million.

In the North Coast, we have seen a good momentum as well with New Sales amounting to EGP162 million, despite the seasonality factor where demand for secondary homes is usually much stronger during the summer season.

A total of 567 units were sold during 1Q2016, up from 428 units in 1Q2015, supported by the strong New Sales realized in Capital Gardens and Palm Valley, alongside EGP344 million in Golf Extension. In addition, we have seen a good demand for secondary homes during the quarter, as we realized New Sales worth EGP92 million in Hacienda White 2 and EGP62 million in Hacienda Bay.

The Company delivered 377 units during the quarter, an increase of 47% YoY, up from 256 units in 1Q2015, exceeding the pre-set target for deliveries during the 1Q2016. Total construction spending reached EGP582 million during the quarter, an increase of 36% YoY.

With regards to recurring income portfolio, the segment contributed 11% 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. In West Cairo, we have completed all construction works in Street 88 strip-mall and successfully leased 81% of the project's GLA, with total revenue backlog of EGP29 million, at average lease rate ranging between EGP260-300/sqm per month. Two tenants commenced official operations, with remaining tenants finalizing their furniture and fixtures before end of year.

Phase 8 office building is progressing as planned and the Company received indicative interest for 70% of the project's GLA. In East Cairo, Village Gate & VGK malls are currently under development, with 52% of the available-for-sale units on VGK mall successfully contracted, translating into a revenue backlog of EGP163 million. Average selling price in VGK mall ranged between EGP32-35k/sqm.

Outlook

The Company expects to launch Sales in a number of projects during 2016, namely Phase 2 of Palm Hills Katameya extension (East Cairo), the recently signed co-development in Ras El Hekma (North Coast) and the 2.1 million sqm co-development with NUCA (East Cairo).

The Company is still negotiating the 10,000 feddan project of West Cairo with NUCA, and expects to reach a final agreement later this year. The Company is also looking into a couple of other land bank opportunities in West Cairo, with size ranging between 150 and 200 feddan.

With regards to the recurring income portfolio, the Company expects to finalize all construction works of Phase 8 office building, Village Gate & VGK malls by beginning of FY2017.

Given the strong market conditions, management have revisited the full year New Sales target and is now set at EGP7 billion, compared to EGP6.5 billion previously. The Company remains to track to spend EGP2 billion on construction and deliver more than 1,600 units.

Consolidated Income Statement

(Egyptian Accounting Standards)

In EGP 000's

1Q2016 R

1Q2015 R

Change

1Q2016 BR

1Q2015 BR

Change

Revenue

1,071,535

743,366

44%

1,120,743

754,221

49%

Cost of Revenue

(763,537)

(429,946)

78%

(726,532)

(411,698)

77%

Gross Profit

307,998

313,420

(2%)

394,211

342,523

15%

Gross Profit margin %

28.7%

42.2%

(13.4 pp)

35.2%

45.4%

(10.2 pp)

General administrative, selling and marketing expenses

(117,355)

(91,009)

29%

(117,355)

(91,009)

29%

EBITDA

190,643

222,411

(14%)

276,857

251,514

10%

EBITDA margin %

17.8%

29.9%

(12.1 pp)

24.7%

33.4%

(8.6 pp)

Administrative depreciation

(2,641)

(2,074)

27%

(2,641)

(2,074)

27%

Operating Profit

188,003

220,337

(15%)

274,216

249,440

10%

Less:







Interest expenses - amortization of discount on land liability

-

(3,129)

NA

-

(3,129)

NA

Finance costs & interests

(5,123)

(2,868)

79%

(5,123)

(2,868)

79%

Interest on land purchase liabilities

(25,151)

(48,572)

(48%)

(25,151)

(48,572)

(48%)

Provision

(607)

-

NA

(607)

-

NA

Add:







Gains on investments in fair value through profit or loss

1,415

1,215

17%

1,415

1,215

17%

Interest income - amortization of discount on notes receivables

11,515

23,050

(50%)

11,515

23,050

(50%)

Interest income

25,748

76

NA

25,748

76

NA

Net Profit Before Income Tax

195,799

190,108

3%

282,012

219,211

29%

Income tax expense

(45,908)

(1,186)

NA

(45,908)

(1,186)

NA

Deferred tax

-

(60)

NA

-

(60)

NA

Net Profit after Tax

149,891

188,862

(21%)

236,104

217,965

8%

Non-controlling interest

(44,464)

(3,264)

NA

(44,464)

(3,264)

NA

Net Profit after Tax & Minority Interest

105,427

185,598

(43%)

191,640

214,701

(11%)

Net Profit after Tax & Minority Interest margin %

9.8%

25%

(15.1 pp)

17.1%

28.5%

(11.4 pp)

Consolidated Balance Sheet

(Egyptian Accounting Standards)

EGP 000's

March 31, 2016

December 31, 2015 R

Long-Term Assets



Investments in Associates

76,836

78,506

Investment Property

854,665

854,665

Notes Receivable - Long Term

5,164,817

4,546,282

Projects Under Construction

879,421

858,654

Advance Payments for Investments Acquisitions

184,336

184,336

Fixed Assets (net)

336,412

334,623

Deferred Tax Asset

11,905

11,948

Other Long Term Assets

1,391

1,391

Total Long-Term Assets

7,509,783

6,870,404

Current Assets



Works in Process

6,645,566

6,463,687

Held to Maturity Investments

390,007

613,046

Cash & Cash Equivalents

1,276,902

965,670

Notes Receivable - Short Term

2,146,382

2,371,035

Investments at Fair Value

70,934

67,113

Accounts Receivable

675,992

704,029

Suppliers - Advance Payments

325,141

384,777

Debtors & Other Debit Balances

255,487

174,854

Due from Related Parties

198,510

172,392

Minimum Guaranteed Payments - Co-Development Projects

90,000

-

Total Current Assets

12,074,921

11,916,602

Total Assets

19,584,704

18,787,006

Current Liabilities



Banks - Credit Balances

28,213

31,035

Banks - Overdraft

76,893

80,237

Advances from Customers

6,319,885

6,249,432

Completion of Infrastructure Liabilities

144,242

173,648

Provisions

117,336

116,844

Current Portion of Land Purchase Liabilities

233,462

263,319

Due to Related Parties

254,638

226,319

Investment Purchase Liabilities

44,257

44,257

Notes Payable - Short Term

735,590

473,693

Current Portion of Term Loans

410,234

80,814

Suppliers & Contractors

268,161

406,850

Income Tax Payable

81,370

46,631

Creditors & Other Credit Balances

324,709

345,368

Dividends Payable

329,850

-

Total Current Liabilities

9,368,840

8,538,447

Working Capital

2,706,081

3,378,155

Total Investment

10,215,864

10,248,559

Financed as Follows:



Shareholders' Equity



Issued and Paid-In Capital

4,397,999

4,344,640

Legal Reserve

624,902

585,104

Special Reserve

524,213

524,213

Bonus Share

219,900

-

Amounts Set Aside for Employees' Stock Option Plan

(77,371)

-

ESOP Re-Measurement Reserve

24,012

-

Retained Earnings (Deficit)

34,538

(212,391)

Net Profit for the Period/Year

105,427

915,563

Equity Attributable to Equity Holders of Parent Co.

5,853,620

6,157,129

Non-controlling Interest

311,149

270,774

Total Shareholders' Equity

6,164,769

6,427,903

Long Term Liabilities



Land Purchase Liabilities

266,893

268,236

Notes Payable - Long Term

292,054

148,532

Other Long Term Liabilities - Residents' Association

516,962

485,600

Loans

2,975,185

2,918,287

Total Long Term Liabilities

4,051,094

3,820,656

Total Equity & Long Term Liabilities

10,215,864

10,248,559

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 27.1 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 1Q2016, PHD delivered more than 4,690 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 EGP9.2 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

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. Any person who is not a relevant person should not act or rely on this communication or any of its contents.

Any offer of securities to the public that may be deemed to be made pursuant to this communication in any EEA Member State that has implemented Directive 2003/71/EC (as amended and together with any applicable implementing measures in any Member State, the "Prospectus Directive") is only addressed to qualified investors in that Member State within the meaning of the Prospectus Directive. This document is an advertisement and not a prospectus for the purposes of the applicable measures implementing the Prospectus Directive and as such does not constitute an offer to sell or the solicitation of an offer to purchase securities.


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The company news service from the London Stock Exchange
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