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

We're happy to be hosting today ODH 4Q '24 Results Conference Call. From management, we have with us Omar El Hamamsy, CEO; Ashraf Nessim, CFO; and Ahmed Abou El Ella, IR Director. As usual, we will 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.

Very good. Thank you. So let's start immediately on Page 6, where you can see automatically one major change from all the other previous calls we've been having, which is obviously the fact that our ODH shareholding structure has gone to a 97.5% ownership by LPSO, which is the Sawiris -- or the Naguib Sawiris family. And now we have approximately 2.5% free float. So that's just one point to highlight. That's part of the delisting process and perhaps there might be some questions there towards the end of the call. Overall, now if we shift gears and start talking about 2024. 2024 was once again a spectacular year for us. Off the charts performance. Just a few highlights for you. We managed to close the year with CHF 818 million of real estate sales. That's always a super important number because it tells us very directionally what the next 2 to 3 years real estate revenues will look like. We also closed with total revenues at CHF 631 million, which again is a huge success given the dramatic devaluation that took place in March of 2024 in the Egyptian pound, and we'll look at that in a minute with a bit more detail. We had our operating profit at CHF 189 million. And our net profit, a very positive net profit again despite the huge headwinds that we faced during the year, at CHF 8 million. Almost 2,200 units were sold in real estate across our 11 operating destinations in the 7 different countries where we operate. We also served over 2.5 million hotel guests during that period. And we also had one more piece of land sale, just once again to establish the price of our land at CHF 70 million for 280,000 square meters in El Gouna. Now let me take you a little bit through the numbers in more detail, and if we start with the overall P&L picture. You will see again that, in CHF numbers, we are flat on revenues, which again is a major accomplishment with the Egyptian pound devaluation that took place, which was almost of the magnitude of 60-plus percent. Our adjusted EBITDA, again, up 12%. And our net profit, if you adjust for the devaluation, was up 20%. If of course, you live in the real world that we live in and you eat up this evaluation in one shot, you see that we managed still to close a positive net profit or net income at CHF 8 million. I want to highlight the numbers on the next page and show you what those numbers translate in when you look at it for our Egyptian subsidiary, called Orascom Development Egypt, of which, of course, ODH owns 75% of the shares. And here, again, what we're trying to show is the dramatic progress we've had between 2023 to 2024 in local currency, which is the right side of the table, and how that unfortunately doesn't translate into much when you look at it from a CHF perspective despite, again, managing to turn a positive net profit, which I think was a big accomplishment for this year. So what you can see there is that we managed to have our sales increase by 67% in local currency. Our total revenues were up 42%. Our gross profit margin improved and grew from 36% gross profit margin to 40% gross profit margin, and the gross profits in the absolute grew by almost 60%. Our operating profit margin also improved, jumping from 38% to 43%. And the absolute number for the operating profit grew 62%. And then, of course, net profit margin ended up -- or the net profit ended up 10% higher than the previous year in local currency. So that's an overall picture. Now let's take our 3 lines of business one by one and maybe walk you through some of the key elements there. If we look at the aggregate level for our real estate line of business, we'll see a 16% growth in the total sales, up from CHF 700 million to CHF 818 million, which gives us a very healthy also 20% or 19% growth in our deferred revenue balance. We'll see here that the contributions of both El Gouna and O West are around 30% each; Makadi Heights in Egypt was almost 20%; and then Montenegro and Oman contributed the remaining 20% of our total sales. So a pretty balanced portfolio, both inside and outside Egypt. We also see that the receivables portfolio has increased for us by 10% to CHF 1.2 billion, and that's a healthy number for us. If you look at the revenues, which more or less tracks the sales that we had done a couple of years ago, because that tracks basically the construction and the percentage of completion of construction. By definition, because of the devaluation and the dominance of the Egypt historical sales in the numbers, you see a CHF decline in the numbers -- in the revenue numbers and, of course, in the profit. While in reality, as I showed you earlier, those numbers are up in a very healthy way in local currency as a whole. If we switch to the hospitality segment, our hotel business, very healthy growth despite not adding any major capacity throughout the year. We've seen a 4% growth in the top line. We've seen a 10% growth in our operating profits. And you can see that the fourth quarter performance was particularly strong and healthy, which forecasts for us a very healthy 2025 onwards. That is a consequence of a lot of very good work that's being done by our hotel teams, with new capabilities around yield management with new renegotiated commercial transactions with the tour operators in various destinations, and with a very focused and dedicated effort in the 2 major destinations that we're operating, namely Salalah and Egypt in El Gouna, as well as, also, now increased effort in Andermatt to get that destination also on track. So overall, very positive results for the whole year and extremely positive momentum in the last quarter and in going into this first quarter of this year. If we go to the commercial assets that we have -- again, I'll remind you, these are the aftersales construction efforts that we do in our houses. It's the marinas, it's the schools, it's the airports, it's the town management functions that we have. It's the electricity and water production and distribution. It's our retail, rentals, et cetera. You see here, in CHF, a very healthy growth for -- to the business of 10% and extremely healthy margins that have grown 60% in there. The bulk of this, about 70% of it, still comes from El Gouna, but this is something that we're continuing to roll out across the entire group. If you put all this together and go to the next page, you'll see that basically now we are in a place where more than 1/3 of our total revenues are recurring businesses. It's basically the hotels. It's all of the commercial assets that I just described. And frankly, depending on how you choose to think about our real estate business, one might easily consider, given the fact that we have a very large land bank, roughly another 50 million square meters to be developed over the course of the next decades, that also could be considered a recurring business. But even if you were to take that out of the equation, you see that we have 36% of our business is recurring, and that's something that we've been growing very steadily over the last few years. If you go to the next page, you'll realize that our geographic contribution to our revenues still remains more or less the same. El Gouna still remains a very important play for us. O West, obviously increasing and will continue to increase year-on-year given the sales impact. And of course, Oman, which is Salalah and Sifah, and Luštica or Montenegro will continue to increase their share as we have been growing them and their sales in a very aggressive way. Let's give a few highlights by destination maybe and talk about a few salient points. If we start with El Gouna in Egypt, what we've seen here -- and I'll start with the numbers first on the next page, what we see is a very aggressive and concerted effort in increasing our prices in local terms. So on the left side of the table, at the bottom of the table, you'll see that our average selling prices in Egyptian pounds have gone up 81%. And therefore, our net sales has gone up by almost 64%. That translates into still extremely healthy numbers in CHF despite, again, once again, all corrected for the fact that we've had the big devaluation in there. If you look at the hotel numbers, also incredibly healthy. We've had the occupancy more or less stable at 71%. But we've seen a tremendous increase in our total revenue per available room, almost up 57% in local currency. Our gross operating profit, up 53%, and that translates also into improvements in CHF again after the correction. A couple of highlights maybe, just qualitative highlights in there. I will tell you, on the hospitality side, our occupancy is primarily made up of foreigners. That represents approximately 79% of our hotel occupancy throughout the year 2024. We're also making good progress in constructing another 29 rooms to the hotel called Casa Cook, which has been one of our highest-performing, best-yielding hotels in El Gouna and one of the most popular hotels now in terms of high end. I'll highlight the land sale that was made for a total value of USD 34 million or $341 per square meter. That was done for a 110,000 square meter parcel in 2024, November. As well as also another piece of land that was sold for a total of $7.3 million, which is simply an extension of a piece of land that we had sold earlier at -- and this one is at $274 per square meter. The one we had sold earlier was closer to $215, I believe, to $220 per square meter. So we're seeing a very healthy progression in almost like-for-like land price evolution, as well as in the volume of transactions that we've done there. So that's as far as El Gouna goes. On O West, let's look at the numbers on Page 24. And again, a very concerted effort and focus on maintaining our margins and improving them, in fact, by increasing our average selling price by 73%. Sales went up by 37%, all of this is in local currency. And of course, right side, you have the translation of the numbers in foreign currency or in CHF. A couple of highlights there. The construction of the club is almost done. That's actually good news. And we think that we'll begin operating formally the club sometime in the second half of this year. We so far have almost 5,000 memberships there. This is going to be a pretty important value add to the overall destination, because it means that the livability in it is dramatically higher. And we think it will generate a lot more footfall and, hence, allow us to accelerate or at least to, in relative terms, to continue on a healthy path from a sales perspective over there, right? I'll also highlight the fact that international sales in O West represent 30% of the customers in 2024. That's relatively healthy. We'd like to try to increase that number a bit more. I'll remind you that in the case of El Gouna, we were at about 40%. And in the case of Makadi, which we'll talk about in a minute, we are at about 60%. So O West is probably the one with the lowest percentage of international sales, and it's something that we need to continue to work on to try to improve that perspective. Shifting over to our next destination, which is Makadi Heights, I believe. There, we've had also a spectacular year. If we look at the numbers, our average selling prices were up 71%. We're actually even higher priced, in some instances like-for-like, from some of the far better position and located destinations in our surrounding developments. Our net sales were up almost 180% for the year, and so very, very strong numbers and performance. We continue there -- as I said, with international sales making up almost 60% of our sales, we continue to deliver very successfully. We've delivered 500 units there, and we're continuing with a positive momentum of creating the life in the destination there, engaging much more closely now with the people who are residents there. And we're constantly improving the quality of the experience for them and the Net Promoter Scores for the satisfaction levels that they have there. Shifting gears to Salalah and then Montenegro very quickly before we look at our integrated financials. If we go to Page 30, we'll see that Salalah in Oman, again, I would say that 2024 was a year of return of Salalah, both on the hospitality side as well as on the real estate side. Our real estate sales were up 54%. It's an amazing accomplishment. And our prices were up 22% there, which again is a very strong showing given the increased and increasing competitive dynamics that we're seeing in the Oman market. But then equally, importantly, we see a tremendous improvement in our total revenue per available room, 8%, recognizing that the bulk, in fact, almost 100% of our business in hospitality in Salalah is coming from tour operators. That's a very healthy increase. And almost all of it translates into the GOP, where we've seen an improvement of 7.6%. On Luštica, very quickly on Page 32, we have a slight increase in average selling prices. Pretty healthy again because we do have an increased level of competition there. However, our net sales were up a very healthy 23% and momentum for this year is continuing also in a very healthy manner. The hotel itself also continues to operate very nicely. But again, in the big scheme of things, this is not yet a big destination for hospitality for us. This is the quick overview of the overall business as well as specific destinations. I'm going to pass it to Ashraf, our CFO, who'll walk us through our financials, our P&L, our balance sheet as well as our cash flow statements, and make some commentary over the dramatic improvement we've had on our balance sheet with the debt structures that we have today. And then I'll come back for closing statements and opening it up for any questions you may have. Ashraf?

Thank you, Omar. Good afternoon, everyone. As usual, I will try to highlight some of the KPIs or the numbers within the P&L and the financial statements. Looking at the first number, which is the profit margin. As you can see, we're able to increase our profit margin from 29.1% to 32.2%. This is, I would say, a very good achievement in a couple of years with high inflation in general, specifically in the region that we work in. This was mainly coming from the effect of the improvement in the hotel segment overall in addition to the land sales, which historically has and still has very high margin compared to the other segments. Also, when I look at maybe the other gains and losses, this is the big number this year, it's mainly, as we announced during the -- since Q2 -- and since Q1 of this year of '24, is that we started the year by the big devaluation of the Egyptian pound, which had an effect of losses on the financial statement of roughly CHF 33 million. In addition, as you know, that we have to take some -- we have to deliver to the Egyptian government in O West some in-kind or units. Not only to pay in cash, but we have to pay also to deliver in kind units. So we need to take provision year-over-year of the new costs estimated, which has had some of the provision -- big portion of the provision of the CHF 20 million coming from this revaluation of the impact. Also in Q2, we announced the RAK sale and which had also an impairment of almost CHF 9 million. In addition to, by year-end, we usually look at any impairment that is needed with the discussion of the auditor. So all of this together reached roughly the CHF 79 million or CHF 80 million of impairment this year. When I look probably at the next page in the cash flow, not the balance sheet, but the cash flow, there is a big enhancement on the cash flow, as you can see, either from directly the cash from operation or even operating cash flow, which is after paying the interest and tax. Compared with previous year, I think we have an excellent achievement, CHF 88 million compared to CHF 25 million. And even after we pay the taxes, as you can see in the -- not the taxes, but the CapEx, which is the PPE, we are still in the positive range, which is great. And we managed to close the year at roughly CHF 200 million in the banks. But as you all know, this is mainly, I would say, booked in Egypt. Most of this cash is booked in Egypt and the profitability of the -- most of the project is still in Egypt. When I look at the next slide, which is we already announced the deal that we have done to reschedule the debt in Egypt with IFC, and you can see the big difference between the current payment plan that we had and as well the new payment plan, which will push a lot of the payment till later years. I think that's it from my side, and I'll go back to Omar for final remarks.

Thanks, Ashraf. So yes, that pretty much closes the overview of 2024. I guess we'll pass it on to our moderators for any Q&A.

[Operator Instructions] So our first question, what is the estimated time line for the entire delisting process from start to finish?

Yes. So I can quickly comment on that. The delisting requires the shareholders' approval. Therefore, we expect that it will occur no earlier than the AGM, which is on May 8, 2025. And then after May 8, where we expect the approval to take place at the AGM, it's a matter, as I understand, of weeks for the SIX to process basically the delisting paperwork and procedures and make it happen. So we're probably talking a few weeks. And I don't know whether that is 2 or 4 or 6. My understanding is it's something in that ZIP code for the processing of that delisting to happen. Starting from the 8th of May, which will be the AGM.

We have another question. How about the shareholders that still own shares and would like to remain shareholders, what can they do?

Yes. Great question. And so again, our understanding from our majority shareholder, LPSO, is that currently, they have no intention of conducting a squeeze-out, right? So this corresponds exactly to the announcement that was made by them in the public tender offer prospectus. And therefore, those shareholders, I guess, remain as shareholders and that is that, right? That is that.

So our next question. I missed the beginning of the call, can you elaborate on the results of the tender offer?

Yes, sure. The results of the tender offer that we shared on, I think, it was Page 6, showed that 97.5% of the shares today are owned the Samih Sawiris family, LPSO, and specifically by Naguib Sawiris, while 2.5% are still remaining in free float. That's post tender offer closing, as I understand.

[Operator Instructions] We have another question in the Q&A box. Samih Sawiris has mentioned that there will be no squeeze-out, what is your comment?

None whatsoever. This is a shareholder to shareholder matter, nothing to do with management. So I will refer you back to the LPSO, both in terms of what they wrote in the public tender offer prospectus and whatever other formal communication they have had with any of the shareholders or all of the shareholders.

We have another question. Do you already have new information on whether the stock will be listed on alternative exchanges?

No.