PALM HILLS DEVELOPEMNTS SAE 1Q2016 EARNINGS CONFERENCE CALL HSBC BANK PLC (HSBC CONFERENCE)

PALM HILLS DEVELOPEMNTS SAE 1Q2016 EARNINGS CONFERENCE CALL HSBC BANK PLC (HSBC CONFERENCE) May 09, 2016 9:00 am Central Time 4:00 pm Cairo Local Time Coordinator: Welcome and thank you for standing by. At this time all participants are in a listen-only mode until the question and answer session. To ask a question, please press star followed by the Number 1. This call is being recorded. If you have any objections, you may disconnect at this point. Now I will turn the meeting over to your host, Mr. Patrick Gaffney. Sir, you may now begin. Patrick Gaffney: Thank you. Hello, everyone. Welcome to the Palm Hill s Development 1st Q 2016 Financial Results call. I m Patrick Gaffney from HSBC. I cover the real estate names in the MENA region and I m very proud to be able to welcome many members of the PHD Management Team including Mr. (Yasseen Mansour) the Chairman, Mr. (Tarek AbdelRahman) the Co-CEO, Mr. (Ali Thabet) the CFO and Mr. (Mamdouh Abdel Wahab) the Head of IR. I ll turn it over now to Mr. (Abdel Wahab). (Mamdouh) if you d like to start. (Mamdouh Abdel Wahab): Yes, thank you Patrick for the introduction and for hosting today s conference call. Ladies and gentlemen, welcome to our first quarter 2016 earnings conference call. Before starting the presentation, I ll briefly present to you today s Safe Harbor statement.

So any financial projections or any other statements of expected future performance made on this call are expectations based on assumptions by the company s management. These forward looking statements involve certain risks and at times may prove to be incomplete or inaccurate. The actual results achieved may vary from the projections and the variations made in the series. The statements should not be regarded as representation of unstated results which would occur on our expected objectives or of the assumptions underlying such statements. So at this point I would like to hand the call over to our chairman, Mr. (Yasseen Mansour). Thank you. (Yasseen Mansour): Thank you (Mamdouh). Good afternoon to all and thank you for joining our first quarter 2016 earnings conference call. In today s call I will briefly present to you the highlights of the quarter and then I will hand over the call to (Tarek) to walk you through the financials and afterwards we will open it for Q&A. In the first quarter our New Sales marked a growth of 62% year over year to record 2.2 billion Egyptian pounds. This is the highest quarterly the New Sales achieved in the company s history which was driven by the strong demand for housing across all regions that we are active in. Our profitability got deferred as a result of adapting the new accounting standards since the beginning of 2016 and therefore we are unable to record the sale of land for standalone units as full as the full revenue upon contract signature. The new accounting standards didn t reduce our profits but merely deferred it as we control our profitability internally to meet our targets not having in mind the accounting standards being applied.

While the new regime adversely affected our first quarter 2016 financial result, we expect it to boost our results going forward as the new standards will result in more balanced revenue recognition especially with regards to the standalone units. In addition to the impact of adapting the new accounting standards, our results were impacted by the following factors. One, the company adapts a first sold, first delivered policy similar to FIFO for delivering units and this quarter we were delivering units that were sold back in 2010 and 2011 and 2012 which were sold at depressed prices and suffered a delayed delivery due to the 2011 revolution. Secondly the change in mix and type of units delivered during first quarter 2016 which included 263 apartments and 114 standalone units. Nevertheless our balance sheet maintained its strong position with total equity unadjusted I might add of 6.2 billion Egyptian pounds which by the way reflects the true historical book value and was never adjusted with any asset revaluation. Our Receivables stood at 8 billion Egyptian pounds boosted by the growth in New Sales. Net Debt stood at 1.75 billion with our Net Debt to EBITDA at 2.3 times. Our receivables are 4.6 times our net debt. On the projects delivery front the company handed over 377 homes during this quarter compared to 256 homes in the first quarter of 2015 with an increase of 47% year on year which supports our ambition to finalize all projects currently under development by the end of 2017, early 2018. The company spent in that quarter 582 million Egyptian pounds on construction and collected 715 million from Receivables and New Sales with

a growth of 13% year over year. On April 7th 2016 the company commenced distribution of cash dividends of 15 piasters per share and we are in the process of finalizing the paperwork required to distribute the previously announced bonus shares. On the land bank growth front we signed a co-development agreement of 135 feddan in the north coast area which is located 65 kilometers west of our Hacienda White project completely on a revenue sharing basis with a private land owner. We expect to launch sales in this project during summer 2016. We are currently finalizing a land bank opportunity in the west of Cairo with size ranging between 150 to 200 feddan as an expansion to our flagship project in the sixth of October area. This should give us sufficient land bank that would accommodate our sales over the next four years with a forecasted sales increase of approximately 30% year over year as our plans are to match our sales with our inventory. We have also as you re all aware the MOU that we have signed back in the EEDC about a year or so ago with the Egyptian government. We are still working on it. We think that we should sign a definite agreement by the second half of this year. With regards to our commercial portfolio, this segment contributed 11% of our net profit in line with our strategy to achieve 25% of net profit from recurring income by the year 2020. Today we have leased 81% of our mall we call Street 88 in West Cairo with a revenue backlog of 29 million Egyptian pounds.

Two tenants already commenced official operations with the remaining tenants finalizing their fixture before the end of the year. Phase Eight office building is progressing as planned and the company received indicative interest for 70% of the project s GLA. In East Cairo we have two more Village Gate and VGK Malls. They re both under development with 52% of the available for sale units in VGK Mall successfully contracted, translating into a revenue backlog of 163 million Egyptian pounds. We remain on track to launch the 500 feddan co-development project with NUCA during the fourth quarter of 2016. SWA Group is expected to finalize the master plan during this quarter. Given the current strong market condition, we expect to achieve conservative targets of more than 7 billion Egyptian pounds of New Sales for this year as we revisited our previous target of 6.5 billion. We expect to deliver more than 1600 units this year. We are planning a number of new launches this year during 2016: 1) Phase two of Palm Hills Katameya extension in East Cairo which is an addition of 44 feddan to our existing project that we have and the entire project IRR is currently projected at 95% with an EBITDA margin of 38% and an NPV of 168 million. 2) The recently signed co-development in Ras El Hekma in the North Coast which we re expecting to launch during the summer of this year is expected to yield an IRR of 70% an EBITDA margin of 30% and an NPV of 457 million.

3) Last but not least the 2.1 million square meters co-development with NUCA in East Cairo which is expected to yield an IRR of 46%, an EBITDA margin of 57% and an NPV ranging between 5 and 5.2 billion Egyptian pounds which is roughly our market cap today - I might add - from this project only. With that, I hand over the call to (Tarek) to talk you through the first quarter financials. (Tarek Abdel Rahman): Hello and thank you very much for attending today s call. As our Chairman said, the market continues to be extremely strong and our brand name is in its strongest position to date. This is reflected in our new sales for the quarter being a record for the company at 2.2 billion which is the highest quarterly level ever achieved. This is seen across all projects and geographies. Taking West Cairo for example, new sales grew by 120% to record 1.3 billion. We launched during the first quarter Palm Valley of which we sold 662 million or roughly about 65% of the available for sale inventory which were all sold during the first week of the launch. In East Cairo we witnessed another record quarter with new sales of 714 million a growth of nearly 40% year on year, driven mainly by the launch of the third phase of Capital Gardens or the third phase of the first phase of Capital Gardens which recorded new sales of 277 million. Mind you the reason the new sales in East Cairo are not stronger than they actually were is because we continue to suffer from a lack of inventory especially for standalone units which will be rectified once we launch the 500

feddan to be launched with the new urban communities authority that the chairman alluded to. In the North Coast we ve seen good momentum in Q1 which is usually not the case because the strong quarters in the North Coast are Q2 and Q3 however despite the seasonality factor; we recorded 162 million worth of sales. Not only have we seen sales as a dollar figure or an Egyptian pound figure in proof but this quarter we sold 567 units as compared to 428 units for the same quarter of 2015. Looking at our sales price and comparing Q1 2016 with Q1 2015 we will see that the sales price for the land of the standalone units alone increased by 21% while the built up area for standalone units increased by 20% and built up area for apartments or the price per meter squared of apartments increased by 16%. If we compare this quarter alone by the last quarter of FY2015, we had increased prices probably in the neighborhood of 7 to 8% for Q1 2016 versus Q4 2015 which still shows the market going strong and our brand name being able to command a premium over competitors and other developers. It is worth to highlight that 68% of the first quarter 2016 were from units priced between 1.5 to 7 million. On the delivery front this was the highest quarter for delivery that we ve seen with delivery reaching 377 units up from 266 units for the same quarter in 2015. Construction spent was 582 million representing a 36% year on year and we continue to be on track to close this year with 2 billion in construction and we continue to be on track to finish all construction of the 12 projects by 2017 with one maybe remaining for 2018.

Looking into the income statement for the first quarter, we are going to discuss first the results based on the old accounting standard so it is comparable with Q1 2015 and with our results last year. Revenues of 1.12 billion grew nearly 50% year on year driven by stronger pace of construction, unit deliveries but also by the very strong presales that we discussed earlier. Gross profit achieved a new quarterly record of nearly 395 million, a growth of 15% year on year with EBITDA growing 10% to 277 million. Net profit before tax and minority reached 282 million, a growth of 30% however after tax and minority it declined by 11% to 192 million basically due to two reasons: 1) We started paying taxes this year, 2) Palm Valley, Village Gate and CASA three of our projects which have had strong sales in the first quarter we don t own them 100% however Village Gate and Palm Valley we own them by 51%, with CASA by 60%, so we expensed a significant amount of minority interest this quarter. Since the beginning of January 2016 we adopted recent amendments to the Egyptian accounting standards as stipulated by the Ministerial Decree number 110 for the year 2015 by applying the percentage of completion methods as an accounting policy with regards to revenue recognition relating to standalone units on the unit of contract basis including all contract components. This means that if we sell a standalone unit and the land represents let s say 50% of the value of the contract, we have to expense 50% of the estimated value of the construction as well affecting our margins. Percentage of completion is calculated in relation to cost of actual completed component as a percentage of the unit s total contracted value for each house.

Recognition policy for apartments and multi tenants continues to be the same as last year which is based on delivery so that is not affected. The only thing that s affected is the sales of or is the recognition of standalone units. Like I said, we have to take if we record the land or parts of the land now we have to record an equivalent part of the estimated cost now which obviously affects our profitability metrics negatively. Under the new revenue recognition method the revenue for the quarter still grew by 44% year on year to record 1.07 billion however gross profit was largely flat at 308 million while EBITDA decreased 14% year on year. It is important to note that we are focused on controlling our cost and SG&A, which when compared to sales have declined this quarter to 5% from above 7% by end of FY2015. Net profit before tax and minority actually recorded a growth of 3% to 196 million while net profit after tax and minority declined by 43% to 105 not only affected by the new accounting system but also by paying taxes and the minority interest that we have to expense. Having said that like the chairman had explained this new accounting method nearly defers profits to other quarters, I mean it does not cancel it; it only defers it to subsequent quarters and smooth out the earnings over the years. We continue to be very optimistic about the real estate market and about Palm Hill in general. We are looking at a very strong year. We have revised our sales upwards to 7 billion. We are looking at two very strong launches, one for the 135 feddan in the North Coast and one for the 500 feddan in East Cairo which will work on replenishing our inventory in the area of East Cairo which has the strongest sales in the market.

With that, we can open the Q&A session. Coordinator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by the Number 1. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. To withdraw your request please press star followed by the Number 2, one moment please as we wait for the first question. Our first question comes from the line of (Mayar Alashry). Your line is now open. (Mayar Al Ashry):Hello. Thank you for hosting this call. I have two questions, the first of which is about dividends. Can you provide any guidance on any future dividend payments that may occur? And my second question is in regards to Capital Gardens, are there any new phases being planned to be launched any time soon? Thank you. Yasseen Mansour: Sorry. What s the second question? (Mayar Al Ashry):About Capital Gardens. Are there any new phases that you re planning to launch any time soon? Yasseen Mansour: Okay. For the first one for the dividends as we have announced earlier what we will be doing we announced as a board and as a company, we will be distributing 30% of our free cash flows on an annual basis either in the form of dividends or in the form of share buyback programs. So this is to answer your first question.

For the second question on Capital Gardens, yes definitely we will be launching phase two. Tarek Abdel Rahman: In Capital Gardens just to add, the total project inventory is 2,500 unit divided upon four phases, each phase divided upon four sub phases. What we have sold to date is nearly 95% of phase one of the first 700 units so phase two will be another 700 units which will be launched this year and given the pace of the sale, I wouldn't be surprised if phase three s also launched this year. (Mayar Al Ashry):Thank you very much. Coordinator: Our next question comes from the line of Mr. (Martin King). Sir, your line is now open. (Martin King): Hello (Martin King Smitherson). Could I ask about the progress you ve made in the share of recurring income? It s a very strong growth in percentage. Could I ask you about the components of the absolute growth the amount of absolute growth in the components? Yasseen Mansour: The components as you mean where is it coming from? (Martin King): Yes, yes. Yasseen Mansour: Okay. (Martin King): And the amount, yes. Yasseen Mansour: Okay, the amount of the recorded recurring income came at 11 million. It s around 11 million Egyptian pounds and it s mainly coming from our club.

You know, we have a club on the 6th of October side called Palm Hill Club and this club was a burden on us. It was losing until 2014. Last year was the first year we made some money and then we made around 9 million of profit on the first quarter. The rest would come from our hotels and some of the rent that s coming from the Mall Street 88. (Martin King): Okay, thank you very much. Coordinator: Speakers, we don t have any more questions on queue. Participants if you have any questions, again please press star 1 to ask a question. We have another question from Mr. (Martin King). Sir, your line is now open. (Martin King): Hello, sorry. I should have asked them both together. Could I just ask for a comment on the market? You say the market remains extremely strong. Could I just ask you for some quantification because I can see what you re doing, just maybe some perspective on where you sit in the market. Yasseen Mansour: Okay. I believe it s two factors. One is PHD focused which is I believe today the brand is at its strongest position ever. As everybody probably on the call knows very well that Palm Hill has passed through very difficult times. I think all of our customers they see today what we re adding to the market and the delivery and amount of construction we re doing. I would argue that all our units we measure it through resale. I would say depending on the area but I would say especially on the west side of Cairo, our resale value happened to be higher than any of our competitors. Our resale value is probably 40 or 50% higher than anybody else in the market in that area. I would argue we have the same on the east side, yet it s maybe 15 to 20% higher than anybody else. On the North Coast I would argue also around 20 or 30% higher than anybody else.

As far as the total market is concerned, I feel the market is still strong. There is still a lot of demand towards the east and towards the west. Maybe the demand for the west is a little bit more as we witnessed in the last quarter. As we keep on mentioning again and again, Egypt is very unique in the sense that there is a migration from the city to both sides the east and the west. This migration started back in 2006/2005 and due to some factors, it has even increased after 2011. The reasons for that are many things. One is security. Two of course is that the city has become extremely crowded. Pollution is an issue. On another front most of the schools and universities moved outside of the city and accordingly for anybody who has kids they could be commuting five, six hours a day. So he wants to move where the schools are and where the universities are. So all of these factors coming in together you can imagine the amount of growth that we re seeing and the amount of demand that we keep seeing until now. (Martin King): Thank you. And just linking that to your increase in guidance for presales or reservations is that just I mean is it just that, you know, you were just being prudent and cautious or were you being positively surprised in the first quarter by what you ve seen? Yasseen Mansour: I think it s a combination of both. I mean we tried to be prudent. It depends who you talk to in the management team but some are more prudent than others. But I think the seven billion is extremely, extremely, extremely prudent. We think it s going to be higher.

(Martin King): Yes, okay. That s great. Thank you. Yasseen Mansour: Thank you: Coordinator: Speakers, we don t have any more questions on queue. Mamdouh Abdel Wahab: Thank you. Okay, thanks everyone for attending today s conference call and please feel free to contact investor relations in case of any follow-up questions and thank you, Patrick and HSBC for hosting today s conference call. Thank you, Patrick. You may all disconnect now. Thank you. Bye, bye. Coordinator: And that concludes today s conference. Thank you all for participating. You may now disconnect. END