United Development Company Q.P.S.C. (UDCD) Earnings Call Transcript & Summary

Hello everybody, thanks a lot for attending the investor call for United Development Company of the financial results of the company for the first quarter of the year 2020. This is Maher Naim, the Executive Director of Financial Planning; and I'm combined with Karim Farhat, Director of Financial and Business Planning. I hope everyone is able to hear me and my voice is clear.

Yes. Thank you, it's very clear.

So let me start by giving a small -- a very short brief about the results that has been achieved for Q1. The results that we have achieved in the Q1 is not as good as were budgeted or expected or targeted due to the current situation of the coronavirus that have impacted us very much. Our revenue, we have achieved a revenue of QAR 297 million as compared to QAR 530 million of prior period with a reduction of 44%. And our net profit, we achieved QAR 57 million as compared to QAR 176 million with a reduction of 68%. The main reason for the reduction and net profit is mainly due to the reduction in revenue. It is simply the volume and value of revenue we recognized in the first quarter of 2020 as compared to prior period. The corona thing has impacted us almost towards the end of the brewery, where there has been a transaction, sales transaction, real estate property transaction on the [indiscernible], that has [indiscernible] been finalized, which has impacted the profitability accordingly of the company. We have just achieved a modest profitability of QAR 57 million. But this is -- it has a big impact on the overall operation and the sales activity of the company. Since now the whole market, [indiscernible] even in the whole world, it's only watching to see what's going to happen. So there are no really actual business transaction being executed. So to give you a brief on what UDC -- UDC is a public shareholding company and has a social responsibility as well. So UDC has decided to give a rent waiver for all retailers including SMB and non-SMB as well and the Pearl Island from rent for the month of April, May and June with approximate value of QAR 41 million, of which the impact will be in Q2. So this will also affect the results of Q2 as well. Everyone is hoping for the best. Hopefully, this corona saga will end soon and life will come back to normal and business will come back to normal. And towards year-end, hopefully, I mean, this is our hope, our wish and hope that we can recover somehow the low profitability and revenue that has been recognized. Let us see how thing goes. But in a nutshell, what has been achieved is a direct reaction to what the market is all about from the impact of coronavirus. From a cash flow perspective, we are very much -- from a liquidity perspective, we are very much solid; from a cash, we have good cash to -- and we are able to sustain our moderation, and it is sufficient enough to run our operation. Our projects are not going to be delayed from a cash flow perspective. Either our projects, they are still financed, the small ones. Others, they are financed by loans. So from a liquidity perspective, we don't have an issue, but it's really from sales perspective. Now there is no such transaction due to the prevailing market situation. I leave the floor to you, should you have any questions, please do.

I'm not sure if I can ask a question, if possible. Basically, on the CapEx plans. So in the full year call, a full discussion on that CapEx and you were quite keen to proceed. Now obviously, nobody could have anticipated this disaster. And given now the situation remains very fluid. Can we assume that the company will pull back from CapEx plans to conserve cash until there is much more clarity on the situation?

Yes. As I said, for our major CapEx project, the construction project, the development projects, we have not stopped. And we are not planning to stop. And we are working continuously even on a 24-hour basis. As I said, our projects, these are essential projects for UDC and the Gulf. And these are not a small CapEx project, these are development projects that we have not stopped. Maybe there will be a delay and the completion due to the availability of the resources from labor, from under construction worker, from the contractor point of view due to the current situation, but this is not significant until now, and we hope it will not be significant. And till now, as I said, yes, we are looking to consider the small CapEx, the small projects that are not of the development nature and are not essential for the company to be ceased, but other major projects like the school project, we are building a school, we are not stopping; like the gated compound, we are building 2 gated compounds. We are not stopping. We are building commercial showroom. It is not stopping. The Al Mutahidah the 2 twin tower, also of Al Mutahidah Gewan Island. We are working heavily on the marine package. And the main -- the main bridge, as I told you previously, these are all funded, and there is no liquidity issue on projects, and we are not going to stop these projects.

This is Zohaib Pervez from Al Rayan Investment. So you mentioned that your CapEx for 2020 is going to be QAR 1.3 billion. I'm assuming because some of the projects have not started, this number is going to reduce this year?

Now these are, as I said, the major CapEx, we are awarding and this is, till now, the projects that plan to be awarded in 2020 will be awarded. And we have awarded, and in the final stage of awarding of 2 major projects related to Gewan Island. So until now, there is no anticipation that this CapEx will be reduced because the projects, they have been [indiscernible] they are in the final stage of being awarded.

[Foreign Language]. And you mentioned that -- I'm sorry, it was difficult for me to understand. QAR 41 million, you said that there was deferment of rentals of QAR 41 million, is my understanding correct?

Rent waiver. Yes. It's rent waiver. Rent waiver is the value of QAR 41 million.

That is for the period March or second quarter?

April, Q2. And this was the public information, we published this. So April, May, June.

Yes, this is Meit from [indiscernible]. I have one question. Can you please throw some more light on the fall in the revenue. We see that there has been a significant fall and from which places is the revenue fall coming? Is it due to some recurring revenue? From nonrecurring revenue? If you can give us more color on that?

Yes. It is mainly the reduction from sale of properties. As we targeted and budgeted properties to be sold and a value on volume, which is almost comparatable to prior period for real estate. However, this did not happen, okay, due to the current situation, especially the corona. Corona started [indiscernible] in China and towards the end of December. Here, it started almost mid or towards, I mean, the last week of February. So really the customers and the clients were maybe a bit hesitant to conclude the real estate transaction. And the margin, of course, went down a bit, it is reduced. So it is mainly the reduction and the value and the volume of real estate transaction, sale transaction compared to prior period. So the major reduction is on the real estate sales. If we go and see the real estate, the retail leasing revenue, as a matter of fact, increased by 24% in Q1 compared to Q1 of last year. This indeed in Q2, will go down due to the impact of the rent waiver. So it is mainly the real estate sales transactions that impacted the profitability due to the uncertainty that the market is living.

Sure. Can you please repeat the growth in the leasing income, which you mentioned right now?

It's 24% retail leasing income. But don't note it down that much because in Q2, it will be little. Because, as I told you, we have a rent waiver of QAR 41 million, which will -- we'll witness the impact of it, and it will be recorded in Q2.

My name is Bijoy. I'm from QIC. My question is on the recurring revenue that you have. So can you please tell us what -- how much is the recurring revenue as part of the QAR 296 million that you have reported?

From a percentage stand point of view. Okay. I'll give you a range, usually, we don't give as such, but we'll give you a range on this. It is in the magnitude of 60% to 70% recurring revenue.

Okay. And my second question is, do you have any scope for cost improvement to review the impact of the lower revenue?

Indeed, we -- the company is working on a cost optimization exercise. Of course, the budgeted cost and the budgeted expenditure for the 2020 year, 2022 will be also considered for reduction due to the current market situation. And hopefully, this will be witnessed during Q2, towards the end of Q2. We are revising our budget, and then it will be approved by our Board of Directors. And then we will move accordingly. Of course if there is a reduction in revenue, then there should be indeed a reduction in cost, and we are working on a cost optimization exercise now. But of course the operation will not be impacted.

I have a question on receivables. So the overall receivables still maintained very high level. It was reduced from year-end, but the absolute number is still very high. What do you expect this year? Do you expect to reduce further? Especially I'm looking also the noncurrent [indiscernible]

I don't see it high. It is a receivable based on certain payment demand. We get to clients of care taking capital [indiscernible] market situation. And these are all secured, and there is no risk of collectibility at all. And they go through the normal [indiscernible], when the [indiscernible] comes for collection, the balance will be reduced accordingly.

Those are the normal levels we have [indiscernible].

So these are normal levels.

I have a follow-up question. As you mentioned that there is an impact of QAR 41 million. Can you please tell us how much percentage of your client base or like tenant base, does it -- like is it impacting? Like how much percentage is that QAR 41 million?

No, I'm not looking [indiscernible] in this way. I'll tell you. The country has decided and they issued a regulation that all restaurants to close and only to provide services through delivery -- food delivery only. So we took our social responsibility. If a restaurant is closed, then they don't have that -- such restaurant, there is no revenue at all for them. So what the company has taken, the company Board of Directors took a social responsibility, given a relief from a major expenditure to that restaurant, to those outlets and we waived the rent for them. So also, we took the extra measure of giving retailers who still have the right to open under certain reduced hours, but also our Board of Directors decided to give them a rent waiver as well also because there -- this has been impacted as well due to the low movement and no measures in footfall and so forth. So it's an overall, all retailers where either they are SMB, commercial retailer anything okay, whoever they -- retail or commercial rent to UDC except offices, of course, are being waived and the -- for 3-month rent. And that amount is in the magnitude of QAR 41 million for 3 months, every May, June.

This is Mehmet Aksoy from QNB Financial Services. If there are no further questions, then we can wind up the call for today. I would like to thank everyone for participating in the call. Please do reach out to Tim at QNB Financial Service or UDC, if you have any further questions. Thank you.

Thank you very much.