SODIC Releases 1Q20 Results, Residential Sales up 25% Despite Limited New Launches

Development & Investment Company “SODIC” has released its consolidated financial results for the period ending 31st of March 2020.

·Revenues EGP 429 million

·Gross profit EGP 114 million

·Gross profit margin 26%

·Operating profit EGP 36 million

·Operating profit margin 8%

·Net profit EGP 28 million

·Net profit margin 6%

·Gross contacted sales of EGP 865 million

·Timely deliveries of 100 units

·Net Cash collections EGP 986 million

Consolidated Balance Sheet Figures as at 31st of March 2020:

·Accounts Receivable: EGP 13.1 billion

·Cash and cash equivalents balance: EGP 3.85 billion

Operational Review; residential sales up 25% despite limited new launches

Total gross contracted sales for the period were down 14% recording EGP 865 million versus EGP 1.01 billion for the same period last year. While gross contracted sales from residential units grew 25% over 1Q2019 to reach EGP 842 million, up from EGP 672 million during 1Q2019. This comes in line with the company’s strategy to largely retain prime non-residential assets to contribute to the company’s recurring income in the future. Commercial sales contributed only 2.6% to the company’s gross contracted sales during 1Q2020 versus 33% of gross contracted sales during the same period last year.

West Cairo contributed 70% of SODIC’s sales for the quarter driven by the strong performance of VYE, the company’s newest project in its home market of West Cairo. VYE represented 45% of SODIC’s sales during the period. On the other hand, 30% of the company’s sales came from projects in East Cairo, mainly from Villette which generated 20% of the quarter’s gross contracted sales.

Cancellations were recorded at 22% of gross sales in 1Q2020, this compares to 12% recorded in 1Q2019. The exceptionally high cancelations rate is consistent with the company’s past experience following historical macro level shocks. Cancellations increased as COVID19 started spreading in Egypt, before trending downwards to 15% during April and May.

Net cash collections reached EGP 986 million during the quarter with delinquencies at 11%. This compares to collections of EGP 1.1bn and a delinquency rate of 7% recorded during the same period last year. Delinquency rates inched up during the month of March as a result of the current crisis; SODIC continues to closely monitor collection performance, expecting delinquencies to trend downwards reverting to historical averages as the situation stabilizes and economic activity restarts.

SODIC delivered some 100 units during the quarter. East Cairo projects accounted for 61 of the delivered units, while delivering 37 and 2 units in West Cairo and the North Coast respectively. This compares to 201 units delivered in 1Q2019, as a lower number of deliveries were planned for the period, with the majority of expected unit deliveries for 2020 scheduled for later during the year.

Financial Review; operating profit affected by mobility restrictions and postponed handovers

Revenues of EGP 429 million were recorded during the quarter compared to EGP 941 million recorded during the same period in 2019. Revenues were mainly driven by deliveries in East Cairo projects amounting to 60% of the delivered value during the period. West Cairo projects amounted to 38% of the company’s delivered value during the quarter.

Total gross profits reached EGP 114 million during 1Q20, implying a gross profit margin of 26% compared to EGP 270 million and a margin of 29% during 1Q19. While gross margins achieved on real estate development operations improved slightly by 50 bps on the back of an improved delivery mix to reach 30%, total gross margin was negatively affected by losses on clubhouse and golf course operations.

Operating profits came in at EGP 36 million, reflecting an operating profit margin of 8% for the quarter versus EGP 149 million at an operating profit margin of 16% for the same period in 2019, with the decline mainly attributable to the decrease in revenues.

Net profits after tax and non-controlling interests amounted to EGP 28 million for 1Q20 reflecting a margin of 6%, this compares to EGP 161 million at a net profit margin of 17% during 1Q19. The decline in net financing income as a result of 750bps cut in interest rate since January 2019, coupled with lower revenues have both pushed down net profits for the period.

SODIC continues to maintain a strong liquidity position with total cash and cash equivalents amounting to EGP 3.85 billion providing strong comfort for its operations in the face of the uncertainties presented by the current pandemic.

Bank leverage remains low with bank debt to equity at 0.38x. The company’s strong relationships with Egypt’s leading banks has secured a total of EGP 4.2 billion in facilities of which EGP 2 billion are outstanding as of 31st of March 2020, and over EGP 1 billion remain available providing additional liquidity to ensure financing of project executions.

Receivables remain at EGP 13.1 billion providing strong cash flow visibility, of which EGP 3.9 billion are short term receivables.

Client deposits represents the backlog of unrecognized revenues from contracted sales of units that are to be delivered over the coming three to four years. Client deposits as at the end of the quarter amounted to EGP 18.4 billion providing strong revenue visibility for the company.

Message from the Managing Director

“The world entered 2020 with a new challenge to respond to the ongoing COVID19 pandemic. Our first and foremost priority during this crisis has been the safety and wellbeing of our staff, their families, and our +20,000 residents, and ensuring business continuity to deliver to all our stakeholders. To meet these objectives our plans for digitization have been accelerated, allowing for a speedy and smooth deployment of our work from home policy while maintaining full operations. Construction has resumed fully after ensuring the appropriate measures were put in place by our contractors on site. Accordingly, at this time, we continue to operate at normal levels while enforcing strict preventative measures.

The effect of the outbreak on the business thus far is reflected in the lower number of deliveries, as mobility restrictions decrease the urgency for customers to come in for handovers. The effect on sales has been less pronounced despite the cancellation of major marketing events and the postponement of a number of launches to later in the year. We have maintained our residential sales successfully, aided by the launch of our online virtual sales platform to reach our clients.

Driven by our strong corporate citizenship, SODIC has allocated some 5 million EGP in initiatives related to the COVID19 crisis. We have redirected marketing resources to creating awareness about the virus, utilising all SODIC’s outdoor billboards and digital platforms. We have donated ventilators and monitors to Sheikh Zayed Specialised Hospital, Sheikh Zayed General Hospital and Imbaba General Hospital. We have coordinated with the Ministry of Health to commission portable quarantine units for Abbassia Fever Hospital and Mansoura Chest Hospital, as well as to equip hospital rooms in Mahala Fever Hospital to serve as complete isolation units. Furthermore, we have distributed protection and immunity boosting packages in Ezebt Khairallah. We are all in this together.

We believe that while the ongoing outbreak presents significant challenges, it also provides an opportunity to standout and distinguish ourselves. The strength and liquidity of our balance sheet strongly support us but more importantly we believe that our credibility and track record of strong performance in turbulent times as well as our customer centric approach to the crisis are what make us stand out in these times.

We are lucky to operate in a sector with very strong local demand fundamentals and we continue to believe in the long-term drivers of growth in our market. We are looking forward to a challenging but rewarding year ahead as we continue to invest in our brand and ensure we distinguish ourselves in this market.”