Orascom Development Holding (ODH) has released its consolidated financial results for the first quarter (Q1) of 2019 recording an EGP 111.332m increase in its consolidated profits during Q1 of 2019, compared to EGP 83.087m during the same quarter of 2018, with an increase of 34%.
The company’s revenues rose to EGP 837.646m during Q1 of 2019, compared to EGP 654.910m during Q1 of 2018.
Gross profit increased to EGP 201.428m during the Q1 of 2019 compared to EGP 179.270m in the Q1of 2018.
Khaled Bichara, CEO of ODH, said that the net real estate sales increased by 166.1% to reach EGP 1.5bn in Q1 of 2019, compared to EGP 397.6m in Q1 of 2018.
Bichara told Daily News Egypt that ODH plans to achieve EGP 6.5bn -EGP 7bn in sales of the company’s projects during the current year, constituted of EGP 430m from El Gouna, EGP 130m from the Makadi Heights project, and EGP 930m from the O West project.
DNE interviewed Bichara to discuss the company’s development and extended plans, the transcript for which is below, lightly edited for clarity:
First of All, please tell us the reason behind decreasing the losses and turning to profit.
We have changed the company strategy so that each project is a focus, therefore, we have achieved higher revenues for the third year in row. The company was netted from a loss to profitability recording a net profit of EGP 27.487m during Q1 of 2019, compared to a net loss of EGP 45.955m in Q1 of 2018.
Moreover, we have achieved an increase in sales to record 280% increase compared to the same period last year. The net real estate sales increased by 166.1% to reach EGP 1.5bn in Q1 of 2019 compared to EGP 397.6m in Q1 of 2018.
What is the size of the company’s land bank? Additionally, what is the size of unexploited land bank?
The total land bank of the company is about 43msqm, including the projects of El Gouna, Makadi Heights and O West. The El Gouna project is 36msqm, of which 14msqm have been developed and 22msqm have not yet been developed. Makadi Heights is spread over 3msqm, of which 500,000sqm have been developed and the rest has not yet been developed.
Additionally, the company is co-developing the O West project in collaboration with New Urban Communities Authority on 4msqm.
I think that we have a big land bank and it will take about eight years to complete its development.
When will the company begin the O West implementation?
It is scheduled to begin the project implementation in the current year.
What is the value of achieved sales of O West in the current year?
With regard to sales of the O West project, the company has achieved total contracted sales amounting to EGP 936.3m in Q1. Moreover, the total value of reserved units is worth EGP 1.3bn.
We launched two phases, the first phase mainly included villas and the second phase included a different range of apartments. Capitalising on the huge demand and success, more inventory was added in April 2019 with a total value of EGP 696.4m. To date, ODH managed to sell approximately 85% of the launched inventory.
It is worth mentioning that in 2019, only the land portion of the villas that were sold will be recognised as revenues, yet no positive margins will be reflected due to the upfront marketing and sales expenses that will be paid out this year. Revenues and positive margins will start to kick in starting from the year 2020 and onwards.
What is the company’s expansion plan?
ODH’s expansion plan focuses on east Cairo and the North Coast, and the company is still looking for an area of not less than 3m sqm for development in both regions, whether to be developed by the company itself or in partnership with the state.
Because we care about developing integrated urban communities, we plan to expand in land areas not less than 3msqm to make sure that the project will be an integrated residential project not be less efficient than previous company projects.
What is the value of investments that will be directed in the company’s projects in the current year?
We aims to invest EGP 2.5bn in the company’s projects during the current year, including construction works, which are estimated at approximately EGP 1.2bn.
What is the value of the company’s targeted sales in 2019?
The company targets achieving EGP 6.5bn -EGP 7bn in sales of the company’s projects during the current year, driven by the new offerings in the company’s projects, and the robustness of Egypt’s real estate market constituted from EGP 430m from El Gouna, EGP 130m from the Makadi Heights project, and EGP 930m from the O West project.
Moreover, I believe that there is a real demand based on population growth, which is a real safety compass for the local real estate market.
Additionally, what is the value of targeted revenues in the current year?
The targeted value of the company’s revenues is estimated at approximately EGP 4bn.
What is your expectations of the real estate price increases after the scheduled increase in fuel prices next month? Additionally, do you think that the price hikes that will follow that decision will lead to market deceleration?
Property price spikes can be calculated only after the percentage of increase in fuel is announced, but even with these increases there will be no slowdown in the performance of companies and their sales during the current year, as there are about 900,000 marriages annually which require the provision of residential units, along with the shortage of commercial and administrative units and projects in the market.
Do you plan to increase the company’s capital?
The company has no intention to increase its capital during the current period because it is too cumbersome for shareholders.
What is the value of increase in hotel revenues in Q1?
Hotel revenues rose by 20.5% to record EGP 357.3m and hotel operating profits increased by 25.1% to register EGP 158.7m in Q1 of 2019
Do you plan to launch business in New Alamein?
The development of the New Alamein City is characterised by the state’s endeavour to operate one of the most important areas throughout the year and not only during the summer season. The accelerated implementation rates of New Alamein project reflects a strong interest in quickly taking advantage of this place and its operation.
How do you see partnership projects, and do you plan to repeat the O West co-developed project?
The partnership system between developers and the state is important in accelerating development rates and providing a renewed return of lands to the state instead of selling them once, in addition the developer can inject his monetary liquidity in the project implementation and not in the instalment of land value.
What is the percentage of the company’s sales to foreigners?
Exporting Egypt’s property does not mean selling units for Egyptian customers working abroad,. Meanwhile, exporting takes place through selling local property to a non-Egyptian customer, but there are challenges, namely, the absence of mortgage financing and the difficulty in registration units, which are not present in the Egyptian real estate which in turn represents obstacles to implement the state strategy in property export.
The percentage of our sales to foreign customers represents about 10% of the total sales achieved during Q1, which the company seeks to increase to reach 50% as it was in 2010.
Over and above, I appreciate the state’s cooperation with developers to market Egypt and real estate projects abroad.
Most of the company’s revenues in the US dollar range from 75 to 85%, whether through hotel revenues, city management revenues, or real estate revenues, which are all the revenue structures of the company.
Our company participates in the Berlin Tourism Expo (ITB Berlin) and participated in Cityscape Dubai last year, and has a plan to market its projects in Europe in the coming period.
In my point of view, the government has to work on the unit’s registration issue as the foreign client needs a legally registered unit to guarantee his right in this property, especially considering the local mortgage finance system in Egypt. However, the developer has the burden of financing the client through an instalment period over seven or eight years but it does not help the developer in growing his business.