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Palm Hills achieves highest quarterly sales ever of LE3.1 bln in Q1

Palm Hills achieves highest quarterly sales ever of LE3.1 bln in Q1

ArabFinance: 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, 2017.

Yasseen Mansour, Chairman Comments:

I am very pleased to share with you our first quarter 2017 financial results, another record quarter for the Company in terms of New Sales, profitability and handovers, driven by robust demand for our product offerings, the continued accelerated pace of construction, supported by our strong management team and healthy financial position.

Since our strategy was unveiled more than three years ago, we have been focusing on product quality, expediting construction and profitable growth, thus creating shareholder value and putting the brand name at its strongest position. This strategy has resulted in the significant improvement in operations and financial results witnessed during the first quarter of 2017.

The first quarter marked the highest quarterly New Sales in the Company’s history in terms of value and volume with Net New Sales recording EGP3.1 billion. While the market is still strong, we believe we have been gaining market share with 792 units sold during the quarter. We handed over 418 homes, spent EGP676 million on construction and generated EGP1.0 billion in cash from operations.

Our financial results for the first quarter of 2017 reflected our operational excellence with record Revenue of EGP1.6 billion and EBITDA of EGP324 million, a growth of 48% and 70% respectively. Net Profit after Minority Interest doubled to reach EGP212 million. Our Balance Sheet maintained its strong position with receivables of EGP12.6 billion covering Net Debt four times. One of the key performance matrices we are eyeing for this year is Return on Equity; we are expecting improvements to happen over the year.

Post the floatation of Egyptian Pound and the resulting inflation, we still expect sales growth in FY2017, driven by our new launches in Palm Hills New Cairo, Capital Gardens, the Crown (190 feddan in West Cairo) and Hacienda West, in addition to New Sales from our older projects which cater to clients who want to move in within 1-2 years. Accordingly, the Company has increased its 2017 full year New Sales target from the previously announced EGP8.5 billion to EGP9.5 billion, as we are not seeing any slowdown in demand for primary housing.

The Company remains committed to deleverage the Balance Sheet (Previous loans and credit facilities) through its c.EGP2.5 billion securitization of receivables program over 2-3 years.

During the first quarter of 2017, we concluded the first securitization transaction with net proceeds of EGP404 million, which was utilized in paying down existing debt. The securitization program is completely non-recourse to the Company and was concluded at a lower interest than existing debt, which will be fixed over the program’s tenor. We are currently preparing for the second securitization transaction which is expected to address receivables of c.EGP500 million with closing expected during the second quarter of 2017.

We have completed all construction works in the Village Gate project during the first quarter of 2017 and expect to conclude a number of projects during the year, as we previously promised, including Palm Hills Katameya, Palm Hills Katameya Extension, Casa and Hacienda White 2.

 

We continue to replenish our land bank as older projects comes to completion in FY2017/2018, with the latest addition in Alexandria, 135 feddan on co-development basis, positioning the Company as the first major developer to enter the country’s second largest city. The Company is still in negotiations with the Egyptian Ministry of Housing for the co-development of 6,000 feddan in West Cairo and hopes to reach a definitive agreement soon.

Financial Review

Revenue stood at EGP1.6 billion, a growth of 48% YoY. The growth in top line is mainly attributed to the strong quarterly New Sales of EGP3.1 billion, ongoing accelerated construction program where the Company handed over 418 homes with an increase of 11% YoY, coupled with the strong increase in selling prices of built up area of standalone units and apartments, as well as growth in average selling prices of land.

Gross Profit in absolute terms increased to EGP488 million, a growth of 59% YoY alongside 2pp improvement in Gross Profit margin which stood at 31%.

SG&A/Revenue decreased to 10% in 1Q2017, as opposed to 11% during the same period last year. As part of our focus on cost control, EBITDA grew 70% YoY to record EGP324 million, coupled with an improvement in EBITDA margin, which stood at 20% in 1Q2017, a remarkable growth compared to the 16% achieved in 4Q2016.

Growth in top line trickled down to earnings as Net Profit after Tax & Minority Interest for the quarter doubled YoY to record EGP212 million, with a Net Profit margin of 13%, an increase of 3.5pp YoY. Net Profit after Tax & Minority Interest after excluding discount/Interest expenses applied to the net present value of securitized receivables portfolio of EGP539 million would have exceeded the EGP300 million mark.

Net Debt/EBITDA decreased to 2.4x down from 2.6x in FY2016. By the end of 1Q2017, Receivables reached EGP12.6 billion compared to EGP11.3 billion by end of 2016, supported by the strong YoY growth in New Sales.

Operational Review

Continued healthy demand for primary housing

Net New Sales for the quarter amounted to EGP3.1 billion, outstripping 1Q2016 historical record of P1.9 billion, a growth of 58% YoY. Growth in New Sales was not only driven by the YoY increase number of units sold reaching 792 units, compared to 519 sold units in 1Q2016, but also the YoY increase in selling prices. 

In West Cairo, the YoY decrease in New Sales resulted from the depletion of inventory and the absence of the new launches, which will be compensated by the planned launch of The Crown project due during the current quarter.

Net New Sales grew 210% YoY in East Cairo to EGP2 billion. Cumulative Net New Sales since Palm Hills New Cairo was launched back in November 2016 recorded EGP2.9 billion, translating into 731 units. In April 2017, the Company launched the second phase of Capital Gardens project, and is currently witnessing a strong uptake for offered apartments.

By end of 1Q2017, the Company handed over 418 units, a growth of 11% YoY, in comparison to 377 units for the same period last year. Our construction activities are progressing on schedule, recording an earned value of EGP676 million in 1Q2017, an increase of 16% YoY.

Our recurring income from three hotels and commercial real estate segment came in at 14% of Net Profits, in line with our strategy to achieve 25% in Net Profits from recurring income by FY2020. The number of
memberships in Palm Club stood at the 2,409 memberships by end of 1Q2017.


Outlook

The Company will continue throughout FY2017 to implement its accelerated construction program with the aim of increasing handovers and is targeting to complete a number of projects currently under development during the current fiscal year namely Palm Hills Katameya, Palm Hills Katameya Extension, Casa and Hacienda White 2.

In April 2017, the Company launched New Sales and reservations in two of its commercial projects in West Cairo, namely Palm Valley Mall and Office 8 building. The Company is currently experiencing strong demand for launched commercial space. Palm Valley Mall is a mixed use development adjacent to Palm Valley residential compound, which is currently under development. Palm Valley Mall is expected to be completed during 2019. Office 8 Building is a mixed-use multitenant building adjacent to phase 8 of Palm Hills October. Office 8 will be completed during 2018.

The Company expects strong sales performance during the rest of the year to be driven by new launches including Hacienda West in the North Coast, the Crown in West Cairo, and new phases of Palm Hills New Cairo and Capital Gardens. The Company expects to monetize receivables of up to c.EGP500 million during 2Q2017, in line with the planned securitization of receivables program, with a strategic objective to deleverage the Balance Sheet.

With these impressive set of results for the quarter, the Company increased its full year New Sales target from EGP8.5 billion to EGP9.5 billion, backed by the healthy market conditions and strong demand for the Company’s products offering. The Company is still in active negotiations with the Egyptian government with regards to the finalization of all the terms and conditions relating to the co-development of a mega integrated community spreading over 6,000 feddan in West Cairo, and management expects to a definitive agreement during 2017.

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