Edison issues flash note - Palm Hills Developments

London, UK, 11 May 2016

Edison issues Flash note on Palm Hills Developments

Palm Hills' (PHD) Q116 preliminary earnings release shows continued strong momentum in reservations (with full-year guidance increased) and revenues. Tax increased as anticipated (following the expiry of the tax exemption) as did minorities, both a drag on net profit. The momentum in the business seems consistent with our full-year forecasts, which are struck on an IFRS basis. We will review them when the Q1 IFRS results become available.

PHD has reported Q1 Egyptian GAAP results on the newly adopted percentage of completion basis and has also disclosed a comparison on the previous GAAP revenue recognition basis. The new basis has deferred some revenues and profits into the future but has no impact on ultimate profitability. In a strong market, PHD's new launches have been well received with reservations up 62% to a record EGP2.2bn; guidance for the year has been lifted to at least EGP7bn with a number of new projects to be launched, including the 500 feddan co-development project with NUCA. GAAP revenues grew 44% (49% on the old basis). Deliveries of units sold into a weaker market in 2011-12 are still having some negative impact on margin, as well as a mix shift towards more apartments in the period; gross profit fell by 2.0% (29% margin) but increased by 15% (35% margin) on the old basis. A strong performance by the Palm Club helped lift the share of recurring profits to 11% in the quarter, while the commercial developments continue to progress. The balance sheet remains strong, although net debt increased a little (to EGP1.75bn from EGP1.5bn at 31 December) as construction spending remains strong (EGP582m in Q1) in an effort to complete existing projects and accelerate the recognition of revenues and profits. Negotiations on the potentially very significant 10k feddan project continue.

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