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SODIC reports a normalised net profit of EGP229m

April 24, 2014 4:17 pm

SODIC “Sixth of October Development & Investment Company” released its consolidated financial results for the full year ending 31st of December 2013.

Consolidated Income Statement Figures for the period ending 31-Dec-2013:
• Revenues: EGP 1,324 million
• Gross Profit: EGP 355 million
• Net Loss: EGP 447 million

Consolidated Balance Sheet Figures as at 31-Dec-2013:
• Accounts Receivable: EGP 3,603 million
• Work in Process: EGP 2,965 million
• Cash Balance: EGP 453 million

Normalised Consolidated Income Statement Figures for the period ending 31-Dec-2013:
• Revenues: EGP 1,566 million
• Gross Profit: EGP 535 million
• Net Income: EGP 229 million

SODIC reported a significant accounting loss for the year, due to two extraordinary, one-off cancellations and a 100% impairment of its investment in Syria which impacted the Company’s revenues, gross profit and net income. Before accounting for those one-offs, SODIC’s normalised gross profit for the period ending 31st of December, 2013 came in at EGP 535 million (8% increase yoy) on consolidated revenues of EGP 1,566 million (10% increase yoy), reflecting a gross profit margin of 34% and a normalised net income of EGP229.

Details of one-off treatments:

1. The amicable settlement with Solidere International which entailed the cancellation of the sub-development of part of SODIC’s land in SODIC West, reversing revenue previously booked by SODIC. As a result, SODIC deducted an amount of EGP 111 million from its gross profit. On the positive side, the land freed up for development is expected to yield some EGP 1.3 billion of new contracted sales for SODIC.
2. The cancellation of a sub-development land sale worth EGP 91 Million which took place in July 2010 for a land area of 16,860 sqm to be paid over 5 years, following a two year failure of the buyer to meet his contractual obligations. As a result of the cancellation, SODIC’s gross profit will be decreased by the reversal of EGP 69 million.
3. A one-off, non-cash charge on SODIC’s Syrian investment with an amount of EGP 478 million. The impairment related to Syria is an accounting treatment and has no impact on the cash flows of SODIC. Management’s decision to take a more conservative approach in the short term does not in any way affect its legal position with regards to the title ownership of the land plots by Palmyra SODIC, nor the fact that the land has considerable value. Management have taken the view however, that it will not realistically be possible to realise the lands’ value in the short term.

SODIC had embarked on an investment in Syria in 2010, in partnership with MAS Economic Group, to acquire 50% of Palmyra Real Estate Development. Following SODIC’s acquisition, the company became known as Palmyra SODIC Real Estate Development. Palmyra SODIC has a current land bank of 3.2 million sqm spread across Damascus, Aleppo & Lattakia.
The above one-offs which came in line with an annual review of accounting policies, and management’s decision to review its position on all material financial risks and to adopt an extremely cautious approach to reduce substantially the possibility of any negative surprises in the future, resulted in a consolidated net loss of EGP 447 million for the period ending 31st of December 2013.

Strong Operational Performance

Operationally, 2013 was an extremely positive year for SODIC with record-breaking results in terms of sales, collections, deliveries, and new project launches:

– EGP 2.7 billion in new sales across more than 1,400 units
– Highest number of deliveries, with 680 units delivered showing a 55% growth yoy
– Revenues were to reach its highest level (EGP 1,566 million) pre-extra-ordinary cancellations
– EGP 1.2 billion of cash collected during 2013 presenting some 70% increase yoy

The momentum continued into 2014 with strong Q1 net contracted sales and the resolution of all legal disputes.

In terms of sales 2013 proved to be a record breaking year for SODIC, achieving EGP 2.5 billion of net contracted sales (55% growth yoy) of over 1400 units, well diversified across SODIC’s full range of projects. Despite a turbulent 2013 year marred by socio-political unrest, SODIC was able to navigate through the rough periods and launch the first four phases of Eastown Residences, SODIC’s flagship project in New Cairo. In addition, SODIC was able to launch 3 new phases in its first post-revolution designed project, Westown Residences.

On the delivery front, SODIC managed to ramp up deliveries after the interruption experienced in the third quarter. The Company delivered 336 units worth EGP 847 million in 4Q2013 (15% increase qoq), aided by 5 new projects coming on stream. This brings the total number of deliveries in 2013 to 680 units across 7 different projects, beating full year’s estimate by 13%.

In Allegria – SODIC’s flagship project – deliveries reached over 1,000 units worth some EGP 2.9 billion, of which 256 units were delivered over the course of 2013. Deliveries of Kattameya Plaza reached 284 units, with over half of the residential project delivered. Deliveries also entailed 61 units in The Polygon Business Park, 11 units in Forty West, 24 units in CASA, 8 units in The Strip and 34 units in the first phase of Westown Residences, delivered one whole year ahead of schedule – a record breaking two years since launch in December 2011.

SODIC’s tightly managed cash collection process led to the collection of more than 90% of 2013 project accounts receivable, taking total project cash collections to be in excess of EGP 1.2 billion for the year, some 70% growth yoy.

SODIC had also signed a syndicated medium term loan facility worth EGP 900 million with four major Egyptian banks in December 2013 – led by Arab African International Bank (AAIB) with the purpose of re-financing the Company’s outstanding indebtedness on SODIC West, as well as financing the remaining project cost in SODIC West. The syndication is proof of SODIC’s credibility as a developer as well as its strong financial position and the lenders’ confidence in SODIC’s ability to deliver on its commitments.

2014 has already witnessed the resolution of all SODIC’s major legal disputes, the last concluding when SODIC and NUCA reached a final settlement on Eastown. On the 14th of April SODIC 2014, accepted NUCA’s request for an additional land payment of EGP 900 million to be paid over 7 years in return for dropping all outstanding legal disputes on SOREAL (a 100% SODIC owned company) and agreeing on a new development time frame of up to 5 years starting from the date of the agreement.

The Eastown settlement follows SODIC’s February announcement that it had reached an amicable settlement with Solidere International on all disputes concerning their sub-development agreement. By SODIC concluding both its legal issues during the first half of 2014, the Company’s land bank is free of challenge and the company is perfectly poised for growth with its current platform.

SODIC has a number of launches lined up in the coming period, across Westown Residences and Eastown Residences. The upcoming phases are a continuation of the successful launches of Eastown Residences & Westown Residences over the past 2 years, nearly selling out all phases launched.