Orascom Development Holding AG / Key word(s): Half Year Results/Half Year Results
19-Aug-2020 / 07:00 CET/CEST
Release of an ad hoc announcement pursuant to Art. 53 KR
The issuer is solely responsible for the content of this announcement.
ODH ("Orascom Development Holding") (SIX ODHN.SW) has released its consolidated financial results for 1H 2020.
Orascom Development Holding reports 1H 2020 results with CHF 164.1 million of revenues and Adj. EBITDA of CHF 27.2 million.
Highlights of 1H 2020
- Total revenues reached CHF 164.1 million in 1H 2020.
- Adj. EBITDA reached CHF 27.2 million in 1H 2020, with a 16.0% margin.
- Net real estate sales reached CHF 191.8 million.
- Real Estate receivables portfolio increased by 30.3% to CHF 667.1 million.
- Real Estate deferred revenue balance also grew by 36.7% to CHF 551.7 million.
- Sale of 40,654 m2 land plot in El Gouna for CHF 6.4 million.
- Cash and bank balances reached CHF 180.1 million in 1H 2020.
- Omar El Hamamsy appointed as the new Chief Executive Officer effective September 1st, 2020.
Altdorf, 19 August 2020 - The intensity of the pandemic across the world was more pronounced during the second quarter of the year, following the introduction of several restrictions to control its spread. Those restrictions have had a severe impact on the hospitality side of ODH's business, due to the related reduction in global travel and tourism. Nevertheless, as limitations are easing gradually across the different destinations, ODH is prepared for the come back and remains optimistic for the recovery of the real estate and the tourism sector in the months to come.
Total revenues decreased by 26.4% to CHF 164.1 million (1H 2019: CHF 222.9 million) and gross profit reached CHF 43.6 million (1H 2019: CHF 61.2 million). The Group was able to maintain healthy gross profit margins of 26.6% in 1H 2020 (1H 2019: 27.5%), because of the successful adaptions of several cost saving initiatives across the board. Adj. EBITDA stood at CHF 27.2 million, down 34.6% vs. the same period last year (1H 2019: CHF 41.6 million) while EBITDA reached CHF 18.9 million in 1H 2020. General and administrative expenses (G&A) decreased from CHF 24.9 million in 1H 2019 to CHF 19.1 million in 1H 2020. The decrease in G&A expenses is mainly due to reduction in marketing expenses across all destinations and the cost saving initiatives implemented in response to the Covid-19 pandemic.
Operating margins were significantly impacted by the complete shutdown of the hotels business along with the suspension of international flights. Accordingly, ODH reported a net loss of CHF 19.2 million in 1H 2020 (1H 2019: CHF 1.5 million). Bottom-line figures were affected by CHF 2.2 million in FX losses compared to CHF 7.9 million of FX gains in 1H 2019.
The Group continued to preserve a healthy balance sheet and monitor its cash balance and liquidity, which reached CHF 180.1 million in 1H 2020. Total debt balance amounted to CHF 437.3 million, while net debt balance reached CHF 257.2 million in 1H 2020. The Group continued to generate more savings in its finance costs since the beginning of the year, whereby interest costs decreased by 14.4% to CHF 17.9 million in 1H 2020 (1H 2019: CHF 20.9 million).
Group Real Estate: Acceleration of construction works
Net real estate sales decreased by 32.6% to CHF 191.8 million in 1H 2020 (1H 2019: CHF 284.6 million). Some of the outstanding reservations during the period took longer to be converted into contracts, due to the curfew limitations and the social distancing procedures imposed. Total number of contracted units reached 478 compared to 1,058 units in 1H 2019. O West continued to be the Group's largest contributor to new sales (48% of sales), followed by El Gouna (39% of sales), Oman (7% of sales), Makadi Heights (4% of sales) and finally Lustica Bay (2% of sales, mainly due to seasonality). El Gouna continued to stand out as the "destination of choice" recording an increase in its net sales figures' year-on-year. Construction slowed down during April and Mid-May, because of the curfews installed by the government during that period. Revenues decreased by 23.1% to CHF 89.8 million in 1H 2020 (1H 2019: CHF 116.8 million). Nevertheless, the Group started expediting its construction efforts in June across all its destinations and is delivering all units on time according to contractual obligation. The segment EBITDA decreased by 14.4% to CHF 28.0 million in 1H 2020 (1H 2019: CHF 32.7 million), as more apartment units were sold this year compared to more villas, with immediate land revenues in 1H 2019. Total deferred revenue from real estate that is yet to be recognized until 2024 increased by 36.7% increase to CHF 551.7 million in 1H 2020. While total real estate portfolio receivables increased by 30.3% to CHF 667.1 million in 1H 2020.
Group Hotels: A challenging year for the world's tourism industry
Following a solid performance in the first two months of 2020, hotel operations were suspended during most of Q2 2020, in accordance with local regulations and guidelines. All of the Group's hotels (Gouna, Taba Heights, Fayoum, Hawana Salalah, Jebal Sifah, Lustica Bay and Andermatt) were ordered to shut down, as social distancing measures and travel restrictions came into effect early March. These restrictions resulted in a revenue decrease of 55.4% to CHF 37.3 million (1H 2019: CHF 83.6 million). The segment's EBITDA declined by 98.1% to CHF 0.5 million (1H 2019: CHF 26.3 million). Nevertheless, immediate implementation of cost saving and cash preservation measures resulted in an overall positive GOP of CHF 3.5 million in 1H 2020. During Q2 2020, ODH used the time of the temporary suspension to introduce a comprehensive range of measures to ensure the safety and wellbeing of its employees and guests. The standard hygiene protocol was comprehensively enhanced, all Egyptian hotels received the "Corona secure" audit certificate by renowned "TÜV Nord Group" from Germany. Contactless interaction between guests and hotel staff was introduced wherever possible, replacing direct interaction with online solutions. The Group's hotels response to Covid-19 remains centered around the commitment to the wellbeing of guests and associates, and ODH continues to take all necessary actions to reinforce the resilience of its business model to the benefit of all stakeholders.
Group Destination Management: Continued steady performance, despite the hit from Covid-19
Despite the challenging times the world is encountering, the destination management segment has maintained its solid ground and continued to secure its recurring revenue stream to the Group. Revenues increased by 1.3% to CHF 22.8 million in 1H 2020 (1H 2019: CHF 22.5 million) and EBITDA losses decreased from CHF 1.9 million to CHF 0.5 million in 1H 2020. The increase in revenues resulted from enhanced revenues from the utility functions which includes water, and electricity. In El Gouna, Egypt, work has started on the Gouna Film Festival (GFF) Fourth Edition, expected to take place from October 23 until 31, 2020. The Group finished setting up the new location for the event which will entail that the opening and closing ceremonies and other key networking events will take place in a much larger outdoor area, and with less than half of the total capacity of the indoor cinemas will be used to ensure social distancing. The event will enhance its virtual capabilities so guests who are not able to attend physically can participate in the festival online.
Appointment of Omar El Hamamsy as the new CEO effective 1 September 2020
On July 29, 2020 ODH board of Directors approved the appointment of Omar El Hamamsy as Chief Executive Officer (CEO) effective 1 September 2020. El Hamamsy joins ODH from McKinsey & Company where he was a Senior Partner in the Middle East office and was previously in the Belgium office. In his 18 years at McKinsey, he led many practices including Travel and Transport. His clients at McKinsey spanned many sectors and he supported them on topics ranging from strategy, organization, sales and marketing, operations, and finance. El Hamamsy holds a master's degree from Stanford University.
The appointment of the new CEO marks the end of the interim committee. Samih Sawiris, Jürgen Fischer and Naguib S. Sawiris will focus again on their roles as members of ODH's Board of Directors. Abdelhamid Abouyoussef will take up the new position as the Chairman of Orascom Hotels Management (OHM), the Group's hotels management company. Ashraf Nessim will continue his role as the current Chief Financial Officer (CFO) and Executive Management member.
Most of the countries in which ODH operates are re-opening and relaxing their health-related measures, which is starting to reflect positively on the company's business in general. The Group has experienced steady, incremental improvement in hotel reservations for July and August in Egypt, UAE and Andermatt. While the potential for new local and international restrictions could still impact this trend, this improved reservation pace reflects pent-up demand and the Group's ability to offer a vacation option that is perceived to be "safer" compared to other alternatives. A solid statement of which was present in El Gouna, Egypt during El Adha feast break, where we opened 887 rooms and secured an occupancy of 82%.
ODH accelerated the construction pace across all destinations, expecting to boost real estate revenues during the second half of 2020. The Group remains committed on meeting all contractual delivery obligations. In Egypt, real estate sales recorded a tremendous boost across all destinations, whereby total contracts and reservations reached CHF 44.5 million for July 2020 compared to CHF 21.9 million in contracts for July 2019 which are shown in the table below. Outstanding reservations are taking longer than expected to convert into contracts due to social distancing procedures put in place for the Covid-19 pandemic.
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We are continuing to execute on our strategy of accelerating the monetization of our land bank in 2020 and after. ODH remain diligent with studying strategic land sales opportunities that would add value to the destination and unlock the hidden/discounted land bank value to the market.
The Group still stands with its earlier position and abstains from providing full-year guidance on its 2020 results. However, we remain diligent in providing updates of the evolving situation during all our quarterly results calls and market communications as needed. Meanwhile, the underlying strength of our business during the pandemic gives us the confidence to meet all upcoming obligations. We believe ODH's actions in response to these unprecedented times ensure that our business is strong through and on the other side of this pandemic.
Details on Destinations
El Gouna, Red Sea
El Gouna continues its stance of being the «destination of choice» even under the current unprecedented circumstances. Real estate sales continued to increase with a 4.9% uptake to CHF 74.6 million in 1H 2020 (1H 2019: CHF 67.3 million), coupled with a 24.7% increase in average selling prices to CHF 3,388 per m2. We are planning to launch a new real estate product in Q4 2020, on the back of the increased demand across our projects with a total inventory of USD 88.0 million. Construction pace is speeding up, deploying 100% capacity at the construction sites, complemented by all the necessary precautionary and safety measures. ODH managed to increase the construction budget for the destination in 2020 to CHF 64.7 million, which is expected to generate real estate revenues within the range of CHF 112-123 million for 2020. We are planning to deliver 254 units this year with main deliveries happening in Abu Tig Hill, Tawila, Ancient Sands, Cyan and Sabina committing to meeting the contractual delivery obligations. Real estate continued its up-trend and revenues recorded 25.1% increase to CHF 59.8 million in 1H 2020 (1H 2019: CHF 47.8 million).
Hotels were significantly impacted during the second half of 2020, due to the Covid-19 related decision to shut down hotel operations in accordance with local regulations and guidelines from March 19 until mid-May. The Segments' revenues decreased by 57.3%, from CHF 35.8 million in 1H 2019 to CHF 15.3 million in 1H 2020. The hotels TRevPAR reached CHF 31 compared to CHF 80 in 1H 2019. Occupancy rates on total rooms reached 32% in 1H 2020 (1H 2019: 84%), noting that most of the rooms were shut down during the first two months of Q2 2020 and re-opening started with a limited number of rooms to abide by the capacity guidelines instated by the Government. ARR reached CHF 67 (1H 2019: CHF 67).
Flexible booking and cancellation options were initiated to ensure that the hotels remain ahead of competition in terms of business recovery, whilst protecting ODH's long-term market positioning.
Destination management continued its positive performance with revenues increasing 4.5% to CHF 18.7 million in 1H 2020 (1H 2019: CHF 17.9 million).
In line with the Group's strategic notion of accelerating the monetization of its land bank, we sold a 40,654.5 m2 land plot in El Gouna to "Mangroovy for Hotels" as an extension for its project. The land plot will encompass different types of services to serve residences and guests. The total value of the deal is CHF 6.4 million.
First home market: O West, Egypt
Net contacted units were impacted by the restrictions installed as a result of the pandemic and reached CHF 92.5 million in 1H 2020 (1H 2019: CHF 160.6 million). 1H 2020 sales included CHF 31.1 million from commercial sales (schools development agreements). Additionally, 213 new memberships were added to O West Club in (membership fee is CHF 8.6K), bringing the total number of memberships in O West Club to 1,148. Total real estate revenues from O West reached CHF 6.2 million in 1H 2020 vs. CHF 23.8 million in 1H 2019. The Group is continuing to speed up construction pace and has successfully received all construction permits for phase 1 of the destination. We also signed the construction contract for the first phase which will include 445 villas, expected to be delivered by end of June 2021.
During 2020, ODH signed three school development agreements, the educational zone transactions that have been successfully concluded since the beginning of 2020 resulted in securing a total of CHF 32.2 million of cash inflows to ODH. Revenues from the agreements have started to kick-in during Q2 2020 (1H 2020: CHF 7.8 million), the rest will follow in the coming quarters. Total revenues of O West reached CHF 14.0 million in 1H 2020 (1H 2019: CHF 23.8 million).
Hawana Salalah, Oman
Despite challenges created by Covid-19, there was a strong commitment to continue delivering on time. Forest Island project already started the handover of its +200 sold-out units with full handover expected before the end of the year. Construction pace with other real estate projects «Lily and Laguna Gardens» is also speeding up, with on-time delivery expected in Q2 and Q4 2021. The construction of Phase I of the 5-star beachfront fourth hotel is progressing, with the opening scheduled for end of Q4 2021. Real estate revenues reached CHF 13.2 million in 1H 2020 (1H 2019: CHF 20.5 million) and net real estate sales reached CHF 8.4 million in 1H 2020 (1H 2019: CHF 21.9 million).
In Oman, all tour operators cancelled their operations starting 11th of March, following a strong performance in the first months of the winter season. The Governorate of Dhofar, where Hawana Salalah project is located, is in lockdown until further notice, with no access from other governorates due to Covid-19 pandemic. Salalah Rotana Resort and the Fanar Hotel & Residences re-opened on July 1st only for Dhofar Governorate residence, while Juweirah Boutique Hotel is still closed. Hotel revenues decreased by 42.9% to CHF 13.3 million (1H 2019: CHF 23.3 million), yet the hotels managed to maintain a positive GOP of CHF 3.6 million, down from CHF 9.3 million in 1H 2019 and occupancy rates reached 37% in 1H 2020. With the inter-country lockdown still in effect, forward visibility regarding demand for the summer and Khareef seasons remain very limited, though continued strong interest from the main European markets for the winter season is noticeable. Hotel restaurants, pools and the Hawana Aqua Park continue to be closed. Overall, total revenues of Hawana Salalah were impacted by the closure of the hotels and decreased by 37.9% to CHF 27.7 million in 1H 2020 (1H 2019: CHF 44.6 million).
Luštica Bay, Montenegro
The Chedi Lustica Bay developed an extended entertainment program for the summer season, as Montenegro initially reported close to zero Covid-19 cases and allowed hotels to open as of June 15. Unfortunately, July has seen a rise in the rate of new infections and further restrictions in travel across the region are expected during the summer months. Despite the impact of the pandemic, the construction of two new apartment buildings (23 apartment) in the Centrale area and one apartment building (10 apartments) in the Marina Village were finalized. In addition, the finishing works on the main marina, including the lighthouse and the main design for golf course were completed. Real estate revenues reached CHF 8.0 million in 1H 2020. Total revenues for Luštica Bay, Montenegro, decreased 32.2% to CHF 8.6 million in 1H 2020 (1H 2019: CHF 12.7 million).
Jebel Sifah, Oman
Most of "Jebel Sifah Heights", 150 sold-out apartments, have been handed over successfully, as well as the completion of their landscaping and related amenities. The construction and ground-breaking of 115 units comprising Phase I of "The Beachfront project" will start beginning of Q4 2020. Net real estate sales reached CHF 4.9 million in 1H 2020 (1H 2019: CHF 6.7 million). The Sifawy Boutique Hotel resumed its operations on July 5th,as it was closed since March 11 due to Covid-19, while the golf course is operational for golf members only, as per the government decrees. The residential rental business is widely activated with reliance on local tourism from Muscat residents. All access to beaches and pools continues to be prohibited. The marina resumed its operations on May 23rd. Total revenues from Sifah destination reached CHF 3.3 million in 1H 2020 (1H 2019: CHF 15.4 million).
Makadi Heights, Egypt
In Q2 2020, more inventory was added in "Bayou", "Jade" and "Sole". The three phases include fully finished twin villas, standalone villas, and apartments with a total inventory of CHF 9.3 million. Net real estate sales decreased by 45.4% to CHF 7.1 million (1H 2019: CHF 13.0 million). However, the construction work of Phase 2 of the project is progressing with plans to be delivered in 2022. With the speeding up of construction progress, revenues are expected to kick in more over the coming quarters. The first Football court in the Club House was opened and the construction of the tennis courts finalized. Total revenues from Makadi destination reached CHF 1.2 million (1H 2019: CHF 1.5 million).
Taba Heights, Egypt
Taba Heights, being a hotels' only destination, was severely affected by the Government instructions of closing all hotels starting from March 19, 2020 and suspending all international flights until July 1st, 2020. Accordingly, only one hotel out of the six hotels was opened. Strand Beach & Golf Resort has 503 rooms, out of which only 251 rooms are open, as per the 50% capacity the government ordered. Occupancy rate dropped to 14% (1H 2019: 39%). GOP losses reached CHF 1.7 million in 1H 2020 (1H 2019: CHF 0.06 million). Total revenues for Taba destination were down 66.0% to CHF 1.8 million in 1H 2020 (1H 2019: CHF 5.3 million).
The Cove, UAE
The Cove Rotana remained opened for local residences only except for the period starting (May 11 till June 15) that was used for the sanitization of the property. The market conditions continue to be challenging, especially with the suspension of international tourism during the quarter, which was resumed on July 7, 2020. Occupancy rate for the hotel reached 38% in 1H 2020 (1H 2019: 71%) and revenues decreased to CHF 5.9 million in 1H 2020 (1H 2019: CHF 15.4 million). GOP also decreased to CHF 1.1 million (1H 2019: CHF 5.5 million). Since the beginning of July, hotel occupancy is gradually increasing, driven by local demand out of Dubai on the weekends.
Eco-Bos in Cornwall, United Kingdom
Work on site never stopped unlike many other sites across the UK and globally although there were some obstacles and delays due to Covid-19. ODH withdraw £ 3.0 million from Shawbrook Bank out of £ 18.0 million that were previously announced to kick-start the project with the construction of 296 homes. On the positive side, the accelerating trend of early retirement and work from home, in addition to the low interest rates and mortgage availability, all strongly support the Cornish housing market and particularly projects of our nature.
About Orascom Development Holding AG:
ODH is a leading developer of fully integrated destinations that include hotels, private villas and apartments, leisure facilities such as golf courses, marinas and supporting infrastructure. ODH's diversified portfolio of destinations is spread over 7 jurisdictions (Egypt, UAE, Oman, Switzerland, Morocco, Montenegro and United Kingdom), with primary focus on touristic destinations. The Group currently operates nine destinations: four in Egypt (El Gouna, Taba Heights, Makadi Heights and Byoum), The Cove in the United Arab Emirates, Jebel Sifah and Hawana Salalah in Oman, Luštica Bay in Montenegro and Andermatt in Switzerland. ODH recently launched O West, the latest addition to its portfolio and its first project in Cairo, Egypt, located in the 6th of October City.
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