Orascom Development Egypt (ODE) (EGX: ORHD.CA) has released its consolidated financial results for 9M 2022.
Remarkably strong top-line and bottom-line results with total revenues of EGP 6.7 billion and net profit up 26.1% to EGP 1.5 billion during 9M 2022
In the third quarter, ODE demonstrated robust business execution across all segments, and our revenues, Adj. EBITDA and net profit continued to increase as planned. The strength in margins, which are in line with our medium-term trajectory, demonstrates the quality of our underlying portfolio, an improving revenue mix. Despite challenging market conditions, in 2022, ODE underwent a major financial, operational, and organizational transformation to become more financially resilient and operationally agile. This was made possible thanks to our commitment to enhancing our operating and business activities while optimizing costs to further drive efficiencies agility and boost resilience.
During 9M 2022, total revenues reached EGP 6.7 billion, up 36.3% y-o-y compared to EGP 4.9 billion in 9M 2021. Gross profit increased by 37.1% to EGP 2.4 billion with a margin of 36.1% (9M 2021: EGP 1.8 billion). The boost in revenues and gross profit resulted from the acceleration of our construction activities, with real estate revenues reaching EGP 4.7 billion, an increase of 26.1% compared to 9M 2021, in addition to the enhanced business performance of the hotels and town management segments. The company also posted the highest-ever Adj. EBITDA of EGP 2.5 billion, a 36.0% increase vs. EGP 1.8 billion in 9M 2021. Other gains and losses reported a loss of EGP 123.7 million vs. a gain of EGP 8.7 million in 9M 2021. The FX translation loss is mainly related to the devaluation of the EGP. Interest expense increased by 29.2% to EGP 260.3 million (9M 2021: EGP 201.5 million) due to the increase in interest rates. This operational excellence was reflected in our bottom-line figures with net income up 26.1% to EGP 1.5 billion (9M 2021: EGP 1.2 billion). It is worth mentioning that adjusted net income excluding one-offs (which includes forex losses or gains along with any non-operational one-off transactions) would have increased by almost 36.3% from EGP 1.2 billion in 9M 2021 to EGP 1.6 billion in 9M 2022.
A very solid credit profile with very comfortable net debt-to-equity and debt coverage:
ODE continued to preserve a healthy balance sheet and monitor its cash balances and liquidity. During 9M 2022, our cash and cash equivalent balance reached EGP 3.1 billion. Total debt stood at EGP 4.1 billion in 9M 2022, with bank debt to equity standing at 0.6x at the end of September 2022 and the net debt reaching EGP 1.0 billion. We continued to generate positive cash flow from operations, recording EGP 1.2 billion (9M 2021: EGP 1.1 billion).
Our third quarter results demonstrated strong sequential and y-o-y revenue growth, Adj. EBITDA and net profit, driven by growth in the real estate segment and the improvement of our hospitality segment. Revenues increased by 50.1% to EGP 2.9 billion in Q3 2022 compared to Q3 2021. Gross profit increased by 63.2% to EGP 1.1 billion in Q3 2022 with a gross margin of 38.3% vs. EGP 671.3 million and a margin of 35.2% in Q3 2021. Our enhanced margins signal our operational excellence despite global challenging market conditions in 2022. Adj. EBITDA reached EGP 1.1 billion, up 62.1% in Q3 2022 and a margin of 39.5%. In line with this background, net profit increased by 43.4% to reach EGP 672.4 million (Q3 2021: EGP 468.8 million).
ODE has received a preliminary non-binding offer (NBO) from Sixth of October Development & Investment Company (SODIC) for the potential acquisition of the entire share capital of its subsidiary Orascom for Real Estate (ORE), the owner of O West, a 4.2 million square meter real estate development located in West Cairo. ODE currently owns 70% of ORE. The NBO includes an indicative and preliminary equity value purchase price of EGP 2.46 billion for 100% of ORE. The offer is subject to the fulfilment of several conditions, including but not limited to the completion of due diligence, ODE’s corporate approvals, and all relevant regulatory approvals. ODE Board has granted SODIC exclusivity to commence the due diligence process and engaged management to initiate negotiations for the transaction.
Group Real Estate: Strong and sustained demand was witnessed for our real estate products pushing our sales to EGP 7.3 billion, a 16.9% increase over 9M 2021.
We had another robust quarter with strong demand for El Gouna homes, complemented by solid sales momentum in O West and Makadi. New sales for Q3 2022 reached EGP 2.6 billion, a 17.0% increase from EGP 2.2 billion in Q3 2021. That brings our 9M 2022 sales value to EGP 7.3 billion, a 16.9% increase over 9M 2021. O West was the group’s largest contributor to new sales (48%), followed by El Gouna (44%), and Makadi Heights (8%). Revenues from real estate rose by 26.1% to EGP 4.7 billion (9M 2021: EGP 3.7 billion). Total deferred revenue from real estate that is yet to be recognized until 2026 increased by 31.0% to EGP 14.3 billion (9M 2021: EGP 10.9 billion). Total real estate portfolio receivables also increased by 30.0% to EGP 19.3 billion (9M 2021: EGP 14.8 billion). Real estate cash collections during 9M 2022 increased by 30.1% to EGP 4.3 billion (9M 2021: EGP 3.3 billion).
Group Hotels: The Group’s hotel portfolio continued its impressive growth trajectory, with revenues up 104.8% to EGP 1.1 billion supported by the increase in international guest
A summer season wrapped up on a positive note. The appetite for travel continued to recover; the demand increased across all customer segments, and the Group continued to implement its newly designed B2C approach. As expected, we continue to see outperformance relative to pre-pandemic metrics, with our ARRs increasing approximately 30.8% when compared to 9M 2019. Q3 2022 revenues increased by 64.2% to EGP 443.3 million (Q3 2021: EGP 269.9 million) pushing our GOP to EGP 199.6 million, an 87.6% increase (Q3 2021: EGP 106.4 million). Accelerating TRevPAR growth expanded our operating leverage and led us to generate EGP 175.3 million of Adj. EBITDA up 98.3% (Q3 2021: EGP 88.4 million). Revenues for the hotels during 9M 2022 increased by 104.8% to EGP 1.1 billion (9M 2021: EGP 525.6 million), GOP also increased by 190.8% to EGP 464.1 million (9M 2021: EGP 159.6 million). The segment Adj. EBITDA increased by 215.4% to EGP 361.8 million (9M 2021: EGP 114.7 million) on the back of further improvements in operational efficiencies.
Group Destination Management: Maintained its improved operational performance, with revenues up 39.1% to EGP 921.8 million.
The destination management segment continued to grow in a very healthy way, both from a margin perspective as well as from a revenue perspective reaping the benefits of the successful restructuring implementation. Revenues in Q3 2022 increased by 37.1% to EGP 346.0 million (Q3 2021: EGP 252.4 million) and Adj. EBITDA increased by 89.7% to EGP 101.5 million (Q3 2021: EGP 53.5 million). Revenues for the town management segment during 9M 2022 increased by 39.1% to EGP 921.8 million (9M 2021: EGP 662.5 million) with an Adj. EBITDA of EGP 223.7 million in 9M 2022, up 73.0% vs. 9M 2021.
Details on the Destinations
New real estate sales during Q3 2022 grew by 19.9% to EGP 1.2 billion vs. Q3 2021. That brings our 9M 2022 sales value to EGP 3.2 billion, up 4.8% compared to 9M 2021. We managed to increase the average selling prices by 14.3% to EGP 69,173/sqm vs. 9M 2021. During Q3 2022, we launched two new real estate projects “Kamaran” and “Miramar Residences” with a total inventory of USD 118.0 million. Our solid construction pace keeps us on track with our planned delivery of 285 units for FY 2022. Real estate revenues were up by a 18.4% to EGP 2.5 billion (9M 2021: EGP 2.1 billion).
El Gouna hotels’ revised business model which demonstrated a special focus on direct business conversions at higher average daily rates delivered good quarterly results, benefiting from the destination’s leading local and regional market positioning. Revenues increased by 45.5% to EGP 358.5 million (Q3 2021: EGP 246.3 million). Hotels’ occupancy levels increased from 52% to 77% in Q3 2022. For 9M 2022, El Gouna hotels’ revenue increased by 93.8% to EGP 952.4 million (9M 2021: EGP 491.4 million) and occupancy rates for 9M 2022 reached 69% (9M 2021: 33%). GOP, on the other hand, increased by 144.0% to EGP 441.6 million (9M 2021: EGP 181.0 million). Foreigners represented 72% of our total hotels’ occupancy during Q3 2022 and 78% for 9M 2022. Moving to the hotel’s development side, we are progressing with the renovation process across four hotels, with plans to be finalized during Q4 22. Town management continued its positive momentum with revenues up 36.9% to EGP 879.8 million (9M 2021: EGP 642.7 million). Total revenues for El Gouna were up by 33.7% to EGP 4.3 billion (9M 2021: EGP 3.2 billion).
O West, Egypt:
O West continues to affirm its leading position in West Cairo. New real estate sales during Q3 2022 reached EGP 1.1 billion, a 15.0% increase vs. Q3 2021. That brings the 9M 2022 sales value to EGP 3.5 billion, a 50.1% increase vs. 9M 2021. We managed to increase our average selling prices by 23.7% to EGP 37,039/sqm vs. 9M 2021. On the development side, we are speeding up our construction pace, whereby we completed the construction of 444 villas and are progressing with the construction of 1,015 apartments and 236 townhouses, with plans to start delivering 710 units in Q1 2023. We started the construction of 119 units in the O West Business District. The construction work at O West Club is progressing. The club will be partially open by Q3-2023. Total revenues of O West increased by 57.7% to EGP 1.9 billion (9M 2021: EGP 1.2 billion).
Makadi Heights, Egypt:
In Makadi Heights, real estate sales started to pick up during Q3 2022, with real estate sales increasing by 12.6% to EGP 304.9 million (Q3 2021: EGP 270.8 million). While 9M 2022 real estate sales reached EGP 609.4 million (9M 2021: EGP 854.7 million), as we purposefully slowed sales until we resolved the land concern issue with the TDA in June 2022. We managed to increase our average selling prices by 23.2% to EGP 36,869/sqm vs. 9M 2021. We continued to accelerate our real estate construction activity, keeping our delivery schedule on track with plans to deliver 150 new units before the end of 2022. With the speeding up of construction progress, revenues are expected to kick in more over the coming quarters. Total revenues from Makadi reached EGP 347.8 million (9M 2021: EGP 441.8 million).
Taba Heights, Egypt:
The continuous efforts to regain the destination’s position on the international travel map have started to show positive effects supported by cost control measures and an increase from the local and regional businesses, which afforded an increase in occupancy, revenues, and GOP. Taba witnessed a strong summer season, reporting a 52% occupancy rate during Q3 2022 vs. 21% in Q3 2021. The overall 9M 2022 occupancy rate reached 28%, up from 10% in 9M 2021. For the first time since 2019, the hotels reported a positive GOP of EGP 22.5 million vs. a negative EGP 20.9 million in 9M 2021. To date, only two hotels out of the six hotels are open with 929 rooms, with plans to open another hotel by 2023. Total revenues from Taba Heights increased by 301.8% to EGP 137.0 million (9M 2021: EGP 34.1 million).
Business Updates 2022:
While the current state of the global business environment is uncertain and poses some operational challenges, we are confident that our strategies and business fundamentals will carry us forward through these challenging times.
As always, we will continue closely monitoring macroeconomic and global inflationary pressures’ effects on consumer purchasing power and our business. We will also continue to keep a close eye on our cash balance and monitor costs. We will remain focused on expanding our operations, protecting our profitability, and unlocking new value for our shareholders. While the situation remains highly fluid, the outlook is subject to extraordinary uncertainty. The management is closely monitoring the market developments. Nevertheless, we are continuing to abstain, at least for the time being, from providing guidance for 2022.
The key areas we are focusing on for our core lines of business for 2022:
1) Hospitality Segment:
a. Focusing our efforts on attracting more tour operators from our traditional German-source markets that feed into Gouna.
b. Continue campaigning staunchly in the local market to balance the international uncertainty demand pattern.
c. Finalize the renovation works by Q4 2022; across some of our hotels in El Gouna (Sheraton, Chedi, Steigenberger, Ocean View) to increase our ARRs.
2) Real Estate Segment:
a. Continue fast-tracking our construction pace to meet contractual dates or deliver before time, thus increasing revenues and mitigating any potential inflationary effect on costs.
b. Continue increasing the average selling prices across all destinations to absorb the escalation in prices of raw materials, while closely examining construction & infrastructure costs to guarantee high-value engineering and procurement savings.
c. Maximizing cross-selling synergies between our destinations.
3) Town Management Segment:
a. Focusing on leveraging on our operations and steady growth. Further expanding the number of residents, demonstrating our successes in disciplined delivery.
b. Provide attractive offerings for startups and entrepreneurs, encouraging them to come and settle in our destinations.
c. Focus on extra work by strengthening our home offerings through introducing standard home renovation packages tailored for the owners with better payment terms.