Orascom Development Holding AG (ODHN) Earnings Call Transcript & Summary

As usual we'll start off with the presentation by management. And then we'll open the floor for questions. I will now hand over the call to management for the presentation.

Thank you very much. Good afternoon, everyone. This is Omar. Very happy to walk you through our 9-month results for 2024. Just a very quick reminder, we had a very strong year 2023, which you can see on this brief slide here, which had a record set of sales, a record set of revenues, record set of profits, both at the adjusted EBITDA level or operating profits or at the net profit level. Let's start looking at what happened over the last 9 months for us here. And what you can see here very clearly is a healthy growth in revenues, as well as a healthy growth in operating profits and a healthy growth in the adjusted net profits. We'll talk about where the differences are and why it appears that those are actually declining. They are actually declining because of the 3 factors that we have been talking about. One is very clear to everybody, hopefully, which is the decline in the Egyptian pound against both U.S. dollar and obviously, Swiss franc. That amount accounted for approximately a CHF 40 million net profit decrease from last year. Then we have an element associated with approximately CHF 9 million from FTI, the FTI bankruptcy, and another CHF 11 million for an accounting adjustment when we put to RAK, the UAE asset for sale. We had to take an CHF 11 million write down on it, which resulted in a net CHF 60 million shortcoming, which is what takes us from roughly minus CHF 17 million for the 9 months to the CHF 45 million that we show on the net profit. Having said that, the intrinsic underlying both revenue and operating profits performance is extremely strong. We wanted to show you on this page here a rough comparison of our financials for Orascom Development Egypt. So the Egyptian assets, which account roughly for half of the business, how you see them in Swiss franc and CHF on the left side, and also how they show up in Egyptian pound. Just to isolate, again, the effect of this major devaluation that has happened. You can clearly see, I think, here that the story of growth that we have driven over the last 4 years continued very healthy, with in local currency, our sales up 77%, 24% in hard currency, the CHF. Total revenue is up 49%. Total gross profits up 61%, and our adjusted EBITDA or operating profit up 68% and the net profit up only in this case by 10%, resulting from the FX adjustment. If you take the FX adjustment out of the way, then you see the net profit also growing by a tremendous 90%. So that's just kind of giving a bit of a flavor. So a very good 9 months to date that we're very excited about. Let's take the business lines one by one. On real estate side, as you can see for the 9 months, we're up 32%. And we have a deferred revenue balance that remains extremely healthy. The only reason it shows a decline is purely because of the Egyptian pound adjustment. Having said that, we have El Gouna contributing approximately 1/3 of our sales. O West, which is our primary homes project in Cairo, gaining and continuing to gain in hotels at 29%. And then a combination of Montenegro and our other project in -- on the Red Sea, Makadi Heights and Oman contributing 14%, 13%, and 8%, respectively. So nice mix of sources of real estate sales that give us again confidence and comfort about the underlying performance. If we look at the revenue that tracks and associated with this, which is fundamentally driven by our construction and [ more ] activity, we see also a healthy increase there. Again, the reason, the number doesn't be as big as it actually is in native currency as I showed a few minutes ago was driven by the Egyptian devaluation. So but overall, the revenues actually would have been 43% up at the Egyptian level, which have driven this number to be much larger. If we shift gears to our next line of business, which is the hospitality, 33 hotels and approximately 7,000 keys that we have, more than 7,000 keys now. Again, with the hit on devaluation of the Egyptian currency, we managed to keep our revenues flat for the 9 months, which is a very strong performing result, and a slight improvement, actually, on our operating profit. Our GOP also reached CHF 14.5 million in the third quarter of 2024 and overall, for the year CHF 42 million. Again, very strong. And from an adjustment of a operating margin perspective, we were very happy with the 35% adjusted EBITDA margin [ we're ] achieving versus 34% a year ago. Finally, our last revenue stream from our commercial assets, which is a recurring revenue stream, a business that we've been focusing on in the last 4 years to grow from virtually almost nothing. It was a very small business, one now where we really focus on both the top-line growth of 12%, again, with the FX impact, [Technical Difficulty] and a higher increase in the profits, 70% growth rate on profits, which again shows how we're improving the profitability of the business across the board, and how relevant it is. That relevance you can see immediately on the slide in front of you here, where we talk about not only having our overall revenues for the 9 months grow, but also, as you can see, the recurring revenue components. So from the commercial assets growing from CHF 51 million to CHF 57 million, what was more or less flat. And that also is an increase in our recurring revenues overall here. We also have a small land component, that's the green arc that you see there, at CHF 27.5 million, which is what we announced over the last quarter, in the second quarter of last year. If you look at the geographic split, no major change from the period before, slight sort of increase in prominence of Lustica Bay or Montenegro, which is a good [ thing ], and something that we think over time both Oman and Lustica Bay should continue to grow and outgrow actually possibly in CHF, the Egyptian overall performance. That's basically a broad overview of what's going on. Now if we talk about our destinations one by one, and I'll start with some overview of the financials. Let's start with El Gouna. We always talk about a few things. First of all, how has our sales done? And then second thing is, how have our prices evolved? On the left side, you have the view in Egyptian pounds, just to give you the native performance, if you will. And you can see there that the net sales were up almost more than 100%, 110%, while our average selling price in El Gouna was up almost 86%. A very, very, very strong performance, which even after devaluation and other effects, translated into 47% and 30% increases in Swiss franc. So that's a strong performance, one that continues to improve over time. Similarly, for the hotels, you can see that our GOP per available room, which is for us a super important metric, as well as our total revenues per available room, are both increasing in the 30% and 40%, so 34% and 44%, which again, after translation into CHF, show a very minor decline. On O West, which is our second largest destination, again, Egyptian pounds, a very strong performance, net sales up almost 38%, average selling price continuing to increase, and reflecting that into the numbers in CHF. Here, we're actually very happy with a number of things. A, is that there's increasingly commercial activity that's showing up in the destination. We also have a continuation of construction of this club, this whole, which is an important concept for us, that enables us to become a lot more attractive for future sales. And we're launching there something called O Plus, which is the new commercial revenue streams, as we have done in El Gouna, and that have shown those very promising numbers that I showed you earlier on the commercial recurring revenue. Third destination in Egypt, and last one we'll talk about here, is Makadi Heights, our [Technical Difficulty] El Gouna on the Red Sea. Again, extremely strong performance across the board, net sales up 125%, average selling prices up 75%. Similarly -- a similar, very positive translation of this into Swiss francs. Here, we're continuing to add to the international sales that we're doing, so the total international contribution of sales, which is an important metric for us because it shows the resilience of this destination in relation to any macroeconomic or any geopolitical evolution in Egypt. 63% of our total real estate sales that you see here for the 9-month period came from abroad, which we think is an important thing. The other thing that's also important is we're nice and on track to deliver on time or even slightly ahead of construction, slightly ahead of schedule, 500 units in 2024. That's important because it contributes to bringing life to Makadi Heights and continuing for it to gain momentum and to gain critical mass, which we think is very important in relation to placemaking and to build it into a very relevant destination. Shifting gears now to Oman, and our largest destination there, which is Salalah. What you can see again on the real estate side is very healthy growth, 60% growth in our net sales there, and 16% increase in our prices. That's a very, very healthy number. A healthy number also on the hotels, where our revenues, our total revenue per available room was up almost 10%, with a slight degradation on the GOP per available room, driven primarily actually by the fact that A, we've added, as you can see here, more rooms, almost 123 extra rooms, which is the extension bid, so we haven't had the opportunity to capture all of that yet. And second, what's called the Khareef season, which is the sort of the peak season that is driven very much by the weather, by the monsoon weather that happens in roughly August, September, and parts of October this year, was a little bit shorter, resulting in a smaller GOP per available room, but nothing that we're too concerned about going forward. And then looking at Montenegro, the last destination we'll look at briefly here, again, 90% growth in sales, almost 10% growth in average selling price, very, very solid performance there. And the hotel there, which is primarily used for placemaking, very small hotel. Overall, no significant changes on profitability, a little bit down, but that's really [ noise ]. And similarly for the revenues, somewhat [ noise ], not of much. At this point, I'm going to pass it on to Ashraf, our CFO, who will walk us through the financials, and we'll be back for a short description of what happens next.

Okay, thank you, Omar. I will try to highlight a couple of lines here, mainly related to margin. As you can see, we are able to maintain our margin to be roughly 31% or 30.8% to be exact, compared to 30.3% last year. Although that in the last couple of years, as you know, there was relatively high inflation that happened specifically on Egypt, which contribute to the big part of the revenues of the real estate. But we were able to maintain our margin by the price increase that was mentioned by Omar in the each destination slide that presented before. Also, the number here that really affected our profitability this year is the other gains and losses between the devaluation of the Egyptian pound and for sure the impairment on RAK or the provision that is taken on FTI. So affected our number of the other gains and loss compared to previous years. Worth mentioning as well, the share of associate, as you know, for ASA specifically, we recognize the revenue of the real estate units by hand -- once we hand over the units, unlike the rest of which is related to the construction or the progress of the construction. So for the first 9 months, the handover were lower than the previous year, but actually most of the handover will happen in Q4 of this year. And therefore, we will reverse this loss that you are seeing on ASA level. Also, the number here, the finance cost that increased mainly because of the relatively very high increase in interest rate in Egypt and as well on euro or dollars. But the good thing is that we are starting to see inflation going down and therefore the central banks across Europe or U.S. started to decrease the interest rate. And we expect that Egypt as well will start to decrease the interest rate starting next year, I would say. Having said that, we go to the maybe to the cash flow statement. As you can see on the cash flow from operation, we have excellent improvement, CHF 111 million cash from operation compared to only CHF 30 million last year, almost less than 4x based on the sales volume that we are achieving as well as the continuous collection of the previous year sales. So we are doing very well. And even if we look at it after paying the interest and the taxes across the group, we are still having a very positive number, CHF 55 million compared to CHF 25 last year. And even after taxes, almost we can say rough break even. So this is, I imagine it's a good achievement. And we still across the group have CHF 180 million of cash in banks. Looking at, we discussed several times during previous calls or previous quarters that we are refinancing, as you know, the CHF 100 million bond that we're maturing in October, we're successful on issuing a new bond to refinance the existing one. And for the number came down from CHF 111 million in 2024 to CHF 11 million. And also, as we announced, we also had a very good deal with IFC on rescheduling our Egyptian debt. And we have a 2.5-year grace period. So which will also start to reduce our repayment in year '25 and 2026. And we start to go back to near '27. So this will increase our, say, our free cash flow on the Egyptian subsidiary as well, which will be able to upstream some of the cash from Egypt to ODH for the expansion in Oman and in Lustica or even the expenses of ODH itself. Here is just the deal, as you know, we were successful to have this 4%. By this, I end the presentation and go back to Omar. Thank you.

Thank you, Ashraf. Appreciate it. So just I'm going to say only 2 words, and then we'll open the floor for any questions that you may have. As you see here on this page, our strategy very much continues along the monetization acceleration that we have. And I will share 1 slide in a minute to update you on this. Our commercial operation uplift is continuing very systematically and very consistently and coherently along the way. Growing our recurring revenues and income base that is also continuing very nicely on track. And we'll continue to do that as well as also optimizing our capital, cleaning up our balance sheet, constantly looking for better refinancing terms, as Ashraf has highlighted. And as you saw, the way that our balance sheet has been evolving and the way that our debt profile has been evolving and the debt repayment profile that we have, we are now -- we feel that we are now in an extremely, extremely resilient place and something that we're very happy with and comfortable with. One quick point to highlight is our commitment to the monetization acceleration, which we talked about before. Over the last 3 years, we've monetized so far CHF 260 million worth of transactions. The most recent one, as you possibly read, was announced a couple of days ago, where we had a small land sale in El Gouna, 110,000 square meters worth CHF 33 million. And that's something that was just added to the long list, as you can see here of monetization events that we've been driving. And as we continue and continue to see also, importantly, that the market is becoming more and more favorable, more and more responsive to not only our -- the quality of the assets that we have, but also enables us to potentially either divest or partner up with others where they can add strategic value or where we can have risk mitigation. That is something that we're very excited about and we're very happy to see more and more of that happen. On this, I'm going to stop here and I'll pass it on to the moderators if there's any particular questions.

Thank you Omar, and Ashraf for the presentation. We will now open the floor for questions. [Operator Instructions] So we have our first question in the Q&A box. Is there going to be a dividend for 2024 paid in mid-2025 as mentioned at Investora?

Right. Actually, maybe the first -- I will answer in 2 phases. First, we need to upstream the cash from -- because most of the cash is in Egypt. So we are really looking into either paying dividend from Egypt level to ODH first or paying part of the shareholder loan, as you know that it was a shareholder loan with roughly $30 million from -- that was sent from ODH to ODE 2 years back. So this we are working on. So this will be the first action I would say in -- by end of 2024. The second part is that you are mentioning here is to pay dividend from ODH to ultimately the shareholder of ODH. Still, we are, I would say, in discussion with the Board on that, but I believe that for '24, it will be a bit difficult, but maybe starting by end of 2025, this could be the case. But for the time being, the most important is to push from Egypt to ODH.

We have a question from Daniel Burki.

Yes. I would have a question on the land sale of the CHF 33 million. Will you book this in the fourth quarter and will be more or less additional sales and also EBITDA? Is this a correct assumption? And how does compare this transaction with other transactions you did? Was it even more book value just to give us some light on this?

Yes. Maybe for the last part, the book value, yes, more or less the same. So you can calculate the profitability, which you will be in the 90s percent more than -- so on the profitability side, yes, it will be the case. On when we are going to recognize revenue, as you know, recognizing revenue is really depending on the delivery of the land to the client based on some CPs that we are discussing with the client right now. So either we will fill the CPs before year end or it will be in Q1. So either this year or at most in Q1 of 2025.

[Operator Instructions] So there seems to be no further questions. Would you like to make any closing remarks?

Sorry, I would have more questions.