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

Good day, and welcome to the United Development Company Q2 2021 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Roy Thomas. Please go ahead, sir.

Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to United Development Company's second quarter 2021 financial results conference call. On this call, we have Maher Omar Naim, UDC's Executive Director of Financial Planning; and Karim Farhat, Financial and Business Planning Director. We will conduct this conference call with management first reviewing the company's results followed by a Q&A. I will turn the call now over to Maher Naim. Go ahead, Maher.

Hello, everyone. I hope everyone is all right. The financial results of United Development Company for the first half of the year. The revenue for the company has reached to QAR 1.2 billion compared to QAR 563 million of last year, with an increase of 116%. And the net profit of the company reached to QAR 157 million as compared to QAR 101 million of the prior period with an increase of 56%. While the net profit attributable to the equity shareholders reached to QAR 136 million compared to QAR 87 million with an increase of 56%. So as we have noticed that the financial performance for UDC for the first half of the year has improved the prior period. And this is due mainly to completion of Al Mutahidah -- the substantial completion of Al Mutahidah Tower, where the handover of the units which were sold during the construction period was made, and the revenue has been recognized accordingly, which has led for the net profit to be increased. Since last year, this type of revenue was not there, okay, and the number of units handed over is more than 200 units handed over. So this is, in particular, led to the increase of the net profit compared to prior period. As we see for the next half -- for the second half of the year, we will continue to work on maintaining the profitability level that we want. And hopefully, towards year-end, we will achieve a satisfactory results as planned. And as we can also see the COVID impact nowadays, even though COVID is still around, but maybe major economics in the whole world and in Qatar here is starting to recover. So hopefully, we will not have any measure impacts or any sudden impact of corona during the second half of the year. Should you have any questions, myself and Karim are ready to answer all your questions.

[Operator Instructions] We will now take our first question from Zohaib Pervez from Al Rayan Investment.

You mentioned the more than 200 units have been handed over. So all the revenue regarding for these 200 units have already been recorded in the second quarter. Is my assumption correct?

Of course, if they are handed over, it means the revenue has been recognized.

And another, about 40 units are left to be handed over because 240 units were sold in total, correct?

And when I said precisely more than 200 units, if you want the precise, yes, it is even more. Maybe it is 230 units per se have been handed over, and we have launched due to the demand. Al Mutahidah Tower is divided in 2 towers. Is divided in 2 towers. One tower is mainly dedicated for sale and other tower for leasing, but we have decided, due to the huge demand that we have to take some of the units available -- allocated for leasing and other tower for sale, which also they have been sold during the first half of the year, and the revenue has been recognized as well. So it is maybe 10 units only or 15 units have been left from the first tower sale of 240 units to be handed over. And more units have been sold and handed over from the tower, which the majority of the units there is allocated for leasing, but we have taken certain number for sale, as I said, due to the high demand that we have.

That's why it seems like there is a very strong demand for the project. So how many units have -- additional units have been taken?

Yes. I mean we are considering between 60 to 70 unit. This is still have not been finalized yet. But as of now, this is -- we are testing. As I said, there is a demand. So we are taking -- we are entertaining the demands. And we are selling whatever is available for sale from these units. So, so far, the demand is on its high level. So towards year-end, we will see how thing goes. But of course, we -- the plan is to keep a certain number for leasing. But as I told you, there is a very high demand from the local market to buy these units. So we are offering accordingly to potential buyers.

[Operator Instructions] We will now take a follow-up question from Zohaib Pervez from Al Rayan Investment.

I've got more questions. Firstly is the margins -- the gross margin declined significantly. Could you give us some idea of what led to this decline. It seems like since the since the Mutahidah Tower sold, probably the margins were lower on that one. Could that be one reason? That's my first. That's one of the questions. The other question is, your CapEx requirements were about QAR 1 billion, QAR 1.5 billion -- QAR 1 billion to QAR 1.5 billion for 2021, if I correctly remember. And only QAR 77 million or around QAR 77 million has been spent in the first half. So could you -- are you going to revise your guidance on CapEx? Or why it's such as slow investment in CapEx?

Okay. Regarding the gross profit, the comparable period, as I said, it did not have a lot of unit sales. It was land block sale and the land block sale carry a higher gross profit. Thus, the gross profit of prior year was more than this year. Since this year, the land block revenue is significantly lower than a prior period. So the gross profit for land block is, of course, higher than the units' gross profit. Regarding the CapEx, I really -- I'm not sure I understand your question correctly. But no, we have not stopped any capital or development project. The CapEx has been increasing based on the progress of work and progress of work has been completed. There has been a transfer on a reclassification on -- in accordance with the International Accounting Standard for work in progress for any projects that will be held as an investment in property. It shall be transferred under capital work in progress, which this falls under the fixed assets, so -- which will be transferred. It's not mainly fixed asset, but it's called capital work in progress. Once the project is fully completed, it will be transferred either to fixed asset or investment in property.

The QAR 77 million, but where did you pick up QAR 77 million CapEx expenditure from.

I'm just looking at the…

QAR 77 million, is it something…

Addition to investment properties.

No, no. This is -- addition to investment properties are…

Work in progress.

So if I look at the work in progress…

Because our CapEx is still at bay, and we're going ahead accordingly in our CapEx and the increase in our work is pretty much evident. So the QAR 77 million, I think, maybe Maher, and I don't know what -- where this 77…

No, no. He just mentioned, Karim, that this is additions to investment in property. Investment in property leased or not, these are units that are leased, okay, and -- or units transferred from inventory to investment in property as such. But the capital work in progress, you can see our note or not note, in the financial statement -- in the balance sheet and the financial position. It is the -- okay, it is QAR 1 billion for -- clear. And as I said, here, if you compare it to December, December was QAR 1.6 billion as compared to QAR 1.4 billion. This is mainly due to the reclass, which has happened from work in progress to capital work in progress. But again, the investment in property, the QAR 77 million, has nothing to do with the work in progress and the development projects.