Sodic Announces Q1 2018 Financial Results: Solid Start for the Year With Exceptionally Strong Profitability

Sixth of October Development & Investment Company “SODIC” has released its consolidated financial results for the quarter ended 31st of March 2018.

• Revenues: EGP 512 million
• Gross profit: EGP 266 million
• Gross profit margin: 52%
• Operating profit: EGP 193 million
• Operating profit margin: 38%
• Net Profit: EGP 212 million
• Net Profit Margin: 41%

Consolidated Balance Sheet Figures as at 31st of Mach 2018:

• Accounts Receivable: EGP 11 billion
• Cash and cash equivalents balance: EGP 3.9 billion

Financial Review; Exceptional profitability

SODIC recorded revenues of EGP 512 million during the quarter, this compares to EGP 703 million recorded during the same period last year. Revenues during 2017 were exceptionally front loaded towards the first quarter in which SODIC delivered circa 35% of the units for the year.

Gross profit increased by 26% to reach EGP 266 million, delivering a solid gross profit margin of 52%. SODIC’s projects recorded exceptionally high profitability during the quarter with almost all projects achieving a gross margin of over 40%. Gross profit was augmented by a sub-development deal in SODIC West. Excluding the effect of this deal gross profit margin from developments was a solid 43%. Operating profits came in at EGP 193 million reflecting a healthy operating margin of 38%, representing a marked improvement of 712 bps over same period last year. 

Net profit amounted to EGP 212 million during the quarter recording a net profit margin of 41%. SODIC’s bottom line continues to be positively impacted by the high interest rate environment. Excluding the impact of net interest income net profit margin comes in at a solid 28%.

Total cash and cash equivalents amounted to EGP 3.9 billion at the end of the quarter, reflecting the strength of the company’s balance sheet, supporting the company’s aggressive land bank expansion plans and timely projects execution.

Bank leverage remains low with bank debt to equity at 0.3x. As of 31st of March 2018 SODIC’s bank debts outstanding were EGP 1.5 billion reflecting a 45% utilization rate for its EGP 3.3 billion facilities.

Land liabilities continued to decline to EGP 560 million as the company remains committed to the timely repayment of NUCA installment. Receivables of EGP 11 billion provide strong cash flow visibility for the company, with delinquency rates remaining low at 4%.

Client deposits which represent the backlog of unrecognized revenues from contracted sales of units that are to be delivered over the coming three to four years stood at EGP 16 billion, providing strong revenue visibility for the company. Net cash flows from operations were up 82% to reach EGP 241 million.

Operational Review: Strong collections and timely deliveries

SODIC recorded EGP 1.2 billion of net contracted sales up 9% on the same period last year. With limited release of residential inventory, sales for the quarter were mainly driven by non-residential developments which represented 78% of the net contracted sales for the period. The quarter witnessed the launch of Eastown District New Cairo “EDNC”, SODIC’s prime located commercial development in the heart of New Cairo. With construction commencing this year, the project is slated for completion in 2021 and is expected to be the cornerstone of SODIC’s recurring income portfolio in the future.

Cancellations remained low at 4.3% in line with historical averages and slightly below 4.8% recorded during the same period last year. Net cash collections increased by 20% to reach EGP 1 billion during the first quarter 2018, while delinquencies remained low at 4%.

The company continues its strong commitment to timely deliveries, with 167 units delivered on schedule across our projects during the quarter including debut deliveries in Caesar. This compares to 399 units that were delivered on schedule during the same period last year. Deliveries during 2017 were exceptionally front loaded towards the first quarter in which we delivered circa 35% of the units for the year.

Key land bank developments

Replenishment of land bank in the Mediterranean North Coast: On March 11th SODIC signed a revenue share agreement with a private land owner for two adjacent plots with a total land area of 1.3 million square meters on the Mediterranean North Coast of Egypt. The agreement provides the land owner with a 28% share of the project’s revenue generated from the sale of units, while the balance represents SODIC’s share with no minimum guarantee to the landlord. The project is expected to generate total sales of over EGP 15 billion over a period of seven years.

Revenue share deal with NUCA for 2 million sqm in West Cairo: SODIC was announced as the highest bidder on a 2 million square meter plot in West Cairo. The plot was offered by the New Urban Communities Authority “NUCA” under a revenue share scheme back in December 2017.

Potential strategic transaction with MNHD

After growing its market capitalization four folds over the past four years, SODIC is currently contemplating potential avenues for inorganic growth. To that end, the company announced on April 11th 2018 that it will enter into preliminary talks with Madinet Nasr Housing & Development “MNHD” to explore strategic alternatives for the two entities.

“A potential deal would leverage on the strengths of the two companies in their respective target markets and accelerate the monetisation of a consolidated land bank of 14 million square meters.” Said Magued Sherif, SODIC’s Managing Director. “SODIC would potentially combine its well diversified land bank of 6 million square meters in East, West Cairo as well as the North Coast – excluding the 500 acres in Sheikh Zayed on which we were highest bidder- with MNHD’s over 7 million square meters of prime located land in East Cairo.”

“Having said that, discussions at this stage are preliminary and non-binding, there can be no assurances that a definitive agreement between the parties will be reached or on what terms. Any final decision regarding the form and timing of any potential transaction would remain subject to approvals by the respective boards, general assemblies and respective regulatory authorities as applicable.

2018 Outlook

SODIC reiterated its guidance for 2018 with a strong outlook for the Egyptian property sector and continued demand for its products driven by the company’s credibility and solid brand equity.

SODIC targets contracted sales of EGP 8.7 billion representing a 53% increase over 2017 levels supported by a more diversified portfolio of developments. The year will witness launches in existing projects in East & West Cairo, and the introduction of a new project on the North Coast. In addition the company aim to launch a new project on Al Yosr land towards the fourth quarter.

Some 1,048 units are scheduled for delivery in 2018, with an expected value of EGP 3.9 billion in revenues. The year will mark the commencement of deliveries in two new projects, namely Villette and Caesar contributing to the significant growth in projected revenues.