Arabian Centres Co. announces its Interim Financial Results for the Period Ending on 31-12-2021 (Nine Months)
| Element List | Current Quarter | Similar quarter for previous year | %Change | Previous Quarter | % Change |
|---|---|---|---|---|---|
| Sales/Revenue | 510.6 | 469.4 | 8.777 | 497 | 2.736 |
| Gross Profit (Loss) | 290.4 | 248.9 | 16.673 | 266.9 | 8.804 |
| Operational Profit (Loss) | 189.9 | 201.6 | -5.803 | 183.1 | 3.713 |
| Net Profit (Loss) after Zakat and Tax | 110.1 | 95.6 | 15.167 | 90.8 | 21.255 |
| Total Comprehensive Income | 112.1 | 88.2 | 27.097 | 89.5 | 25.251 |
| All figures are in (Millions) Saudi Arabia, Riyals | |||||
| Element List | Current Period | Similar period for previous year | %Change |
|---|---|---|---|
| Sales/Revenue | 1,518.3 | 1,410.1 | 7.673 |
| Gross Profit (Loss) | 842.9 | 802.4 | 5.047 |
| Operational Profit (Loss) | 587.5 | 681 | -13.729 |
| Net Profit (Loss) after Zakat and Tax | 327.2 | 359.7 | -9.035 |
| Total Comprehensive Income | 328.1 | 413.8 | -20.71 |
| Total Share Holders Equity (after Deducting Minority Equity) | 6,024.3 | 5,923 | 1.71 |
| Profit (Loss) per Share | 0.69 | 0.75 | |
| All figures are in (Millions) Saudi Arabia, Riyals | |||
| Element List | Explanation |
|---|---|
| The reason of the increase (decrease) in the net profit during the current quarter compared to the same quarter of the last year is | Net Profit increased by 15.2% to SAR 110.1 million in Q3-FY2022 compared to |
SAR 95.6 million one year previously, driven mainly by the following:
• An increase in revenue, which grew by 8.8% year-on-year (y-o-y) to book SAR 510.6 million for Q3-FY22. Top-line growth for the period was driven by an increase of 5.4% y-o-y in net rental revenues, which recorded SAR 459.2 million for Q3-FY22. Growth in net rental revenue was supported by a decrease in the Company’s weighted average rental discount rate, which recorded 10.3% (SAR 52.7 million) in Q3-FY22 against 12.1% (SAR 59.8 million) in Q3-FY21. This decrease maintains the downward trend in the Company’s weighted average discount rate observed since the rationalization of discount policies in FY2018. Nonrecurring, COVID-19-related discounts accounted for 81.1% of discounts recognized by the Company during Q3-FY22, and the Company amortized SAR 42.7 million in such discounts during the quarter, down by 28.6% y-o-y from the amount amortized in Q3-FY21. Arabian Centres had fully recognized the cash impact from all COVID-19-related discounts by the close of FY2021. The increase in net rental revenues during Q3-FY22 was also driven by an increase in occupancy rates to 92.8% in Q3-FY22 from 90.2% one year previously, as well as the introduction of two new shopping centres in the year to date (Jeddah Park and The View). Consolidated revenue growth for the period was further driven by an increase in media sales, which booked SAR 21.2 million in Q3-FY22 against SAR 3.6 million in Q3-FY21. On a like-for-like (LFL) basis, Arabian Centres’ revenues rose by 5.8% y-o-y in Q3-FY22.
• A decrease in the cost of revenue by 8.5% y-o-y to SAR 87.2 million for Q3-FY22. This decline in the cost of revenue was driven mainly by y-o-y decreases in security and repair and utility expenses.
• An increase in gross profit, which rose by 16.6% y-o-y to book SAR 290.4 million during Q3-FY22. Arabian Centres recorded a gross profit margin (GPM) of 56.9% in Q3-FY22 against a GPM of 53.0% for Q3-FY21. The increase in gross profit was driven by strong revenue growth and the decrease in cost of revenue recorded during the period. Gross profit grew during Q3-FY22 despite an increase in depreciation expenses on investment properties and right-of-use assets, reflecting the continued ramp-up of operations at recently launched centres, including the extension to the Company’s Nakheel Mall and U-Walk properties in Riyadh, Nakheel Mall Dammam, as well as The View, opened during Q3-FY22 in Riyadh.
• A decrease in advertisement and promotion expenses, which fell by 7.8% y-o-y to record SAR 4.8 million for Q3-FY22.
• A decrease in financial charges, which fell by 43.4% y-o-y to book SAR 35.4 million for Q3-FY22. The reduction in financial charges for the period reflects the heightened capitalization of borrowing costs.
It is worth noting that Arabian Centres’ net profit margin (NPM) of 21.6% for Q3-FY22 exceeds both the NPM of 20.4% booked one year previously in Q3-FY21 and the pre-COVID-19 NPM of 19.8% recorded in Q3-FY20.
• An increase in revenue, which grew by 2.7% quarter-on-quarter (q-o-q) to book SAR 510.6 million for Q3-FY22. Top-line growth for the quarter was driven by an increase in media sales and other revenues.
• A decrease in the cost of revenue by 3.4% q-o-q to SAR 87.2 million for Q3-FY22. This decline in the cost of revenue was driven by q-o-q decreases in security and utility expenses.
• An increase in gross profit, which rose by 8.8% q-o-q to book SAR 290.4 million during Q3-FY22. Arabian Centres recorded a gross profit margin (GPM) of 56.9% in Q3-FY22 against a GPM of 53.7% for Q2-FY22. The increase in gross profit was driven by the growth in revenues and the decrease in the cost of revenue recorded during the quarter. Growth in gross profit for Q3-FY22 was further driven by a q-o-q decrease in depreciation expenses on investment properties.
• A decrease in general & administrative (G&A) expenses by 15.8% q-o-q to SAR 56.1 million for Q3-FY22. This decline in G&A expenses was driven by a q-o-q decrease in employee salary and benefit outlays.
• A decrease in financial charges, which fell by 15.6% q-o-q to book SAR 35.4 million for Q3-FY22.
• A decrease in interest expense on lease liabilities, which declined by 22.5% q-o-q to record SAR 37.1 million during the quarter.
Arabian Centres recorded a NPM of 21.6% in Q3-FY22, up by 3.3 percentage points from the NPM of 18.3% booked for Q2-FY22.
• An increase in cost of revenue, which grew by 15.4% y-o-y to record SAR 273.8 million for 9M-FY22, reflecting the normalization of the Company’s operating costs compared to the same period of FY2021, during which Arabian Centres generated large, nonrecurring savings on variable costs due to COVID-related centre shutdowns and mobility restrictions.
• An increase in depreciation expense on investment properties and right-of-use assets, which rose by 8.4% y-o-y to book SAR 401.6 million for 9M-FY22, reflecting the continued ramp-up of operations at recently launched centres, including the extension to the Company’s Nakheel Mall, U-Walk and The View properties in Riyadh, as well as Nakheel Mall Dammam.
• A decrease in other income, which fell by 94.5% y-o-y to book SAR 7.4 million in 9M-FY22. This decrease reflects a large base effect, with the Company booking large inflows of nonrecurring income during 9M-FY21, including discounts received from landlords at leasehold properties to address the market effects of the COVID-19 pandemic, as well as proceeds from the disposal of a noncore investment in Aswaq Almustaqbal.
• An increase in in general & administrative (G&A) expenses, which grew by 31.1% y-o-y to record SAR 173.8 million for 9M-FY22. This increase in G&A expenses was driven by a y-o-y expansion of 45.7% in employee salary and benefit outlays. It is worth noting that the comparable period of the previous year included government support for employee salaries under the SANED program. Growth in G&A expenses was additionally driven by the continued ramp-up of operations at recently launched assets (Nakheel Mall Dammam, U-Walk Riyadh, extension at Nakheel Mall Riyadh, and The View).
• A decrease in the share of profit (loss) from an equity-accounted investee, which booked a loss of SAR 4.0 million in 9M-FY22 against a profit of SAR 1.7 million booked for 9M-FY21.
• An increase in interest expense on lease liabilities by 9.9% y-o-y to SAR 121.8 million for 9M-FY22 driven by the continued ramp-up of operations at recently launched assets (U-Walk and the extension at Nakheel Mall Riyadh).
While the above-mentioned factors impacted net profitability for the 9M-FY22, it is worth highlighting that the ramp-up in activity across ACC’s malls is driving a recovery in the following items:
• Revenue, which grew by 7.7% y-o-y to book SAR 1,518.3 million for 9M-FY22. Top-line growth for the nine-month period was driven primarily by an increase in net rental revenue and secondarily by an expansion in media sales.
• Gross profit, which rose by 5.1% y-o-y to book SAR 842.9 million during 9M-FY22. Arabian Centres recorded a gross profit margin (GPM) of 55.5% in 9M-FY22 against a GPM of 56.9% for 9M-FY22. The increase in gross profit was driven by the growth in revenues and came despite the normalization in the cost of revenue for the period, as well as y-o-y increases in depreciation expenses on investment properties and right-of-use assets.
• Recurring net profit, which increased by 18.7% y-o-y to book SAR 584.7 million during 9M-FY22. Arabian Centres booked a recurring net profit margin (NPM) of 38.5% against 34.9% in 9M-FY21. The recurring NPM of 38.5% booked in 9M-FY22 exceeds the pre-COVID-19 margin of 32.3% recorded in 9M-FY20.
Arabian Centres booked a statutory net profit margin (NPM) of 21.6% for 9M-FY22, down from the NPM of 25.5% booked one year previously in 9M-FY21.
Note 8 (iii):
This amount includes a piece of land in Riyadh which was acquired by the Group in 2013 from a private real estate investment fund with a carrying value of SR 1,770 million (31 March 2021: SR 1,770 million). The land is under development under an approved scheme issued by the Riyadh Development Authority. The carrying amount of the development is SR 715 million (31 March 2021: SR 519 million).
The Supreme Court through its decision dated 23 Rajab 1442H (7 March 2021), cancelled certain land title deeds citing the violation of applicable legal procedures for the transfer of title deeds and subsequent deeds. Consequently, the title deed of the land owned by the Group was cancelled.
The Group submitted a letter to the Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al Saud on 20 September 2021 requesting the cancellation of the Supreme Court decision as:
• the Royal Decree issued on 11 Rajab 1442H (23 February 2021), that directed the formation of a team to resolve the issues of the deeds that are within an approved scheme and therefore should not be assigned to the courts;
• the real estate in the deed was purchased under a proper sale purchase agreement by the Group; and
• the infrastructure development of the land started after obtaining the required approvals from authorities in line with the approved scheme issued by the Riyadh Development Authority, and under the supervision of Riyadh Municipality. Further, the development licenses were renewed by Riyadh Municipality in December 2021.
Based on an opinion from an independent legal counsel and recent precedents, management is confident that their request will be considered and the land title will be reinstated. Further, management believes that the rightful land ownership of the Group is not impacted merely on account of certain legal procedures not being met on transfer of the original land deed. Thus, the Group continues to control the land and its use and continues the construction and development of the land. Furthermore, the independent legal counsel confirms in the remote instance the request is rejected, the Group has legal recourse available to recover the cost of land and any related damages from the seller.
• Visitor footfall at the Company’s centres recorded 20.5 million in Q3-FY22, up by 13.6% y-o-y from 18.0 million visitors in Q3-FY21. It should be noted that the comparable period (Q3-FY21) saw the application of vestigial restrictions and limitations on activity at the Company’s shopping centres, in compliance with efforts to arrest the spread of COVID-19 in the Kingdom of Saudi Arabia. Visitor footfall was down slightly quarter on quarter, a development that conforms with historical footfall patterns: the third quarter is traditionally the trough of annual footfall progression. Footfall reached 60.8 million visitors for 9M-FY22, up by 43.6% y-o-y from 42.3 million visitors in 9M-FY21. This rapid YTD recovery in footfall indicates a sharp recovery in activity following the closure of ACC’s centres for periods of FY2021 in compliance with efforts to halt the spread of COVID-19.
• Arabian Centres booked an EBITDA of SAR 322.6 million for Q3-FY22, down by 2.8% y-o-y to yield an EBITDA margin of 63.2% against the 70.7% recorded for Q3-FY21. EBITDA was down only slightly year-on-year due to the normalization of general and administrative (G&A) expenses over the period. G&A expenses increased by 13.0% y-o-y to record SAR 56.1 million in Q3-FY22, driven largely by a rise in communication expenses and salaries. Additionally, the decrease in EBITDA during Q3-FY22 was also limited despite a high base effect in other income: the Company booked SAR 2.1 million in other income during Q3-FY22, down by 95.6% y-o-y from the SAR 48.8 million recorded for Q3-FY21, a figure composed largely of proceeds from the disposal of a noncore investment in Aswaq Almustaqbal for Trading. On a nine-month basis, ACC booked a decline of 7.1% y-o-y in EBITDA to SAR 999.5 million for 9M-FY22, reflecting the normalization of G&A costs and a high base effect in other income, which for the comparable period was composed mostly of nonrecurring discounts secured from the Company’s landlords to mitigate the impact of COVID-related centre closures as well as the proceeds from the disposal of a noncore investment in Aswaq Almustaqbal for Trading. The EBITDA margin booked 65.8% for 9M-FY22 versus 76.3% in 9M-FY21.
• The Company’s recurring EBITDA, which normalizes for the impacts of nonrecurring items, fell by 2.2% y-o-y to book SAR 391.4 million for Q3-FY22 against SAR 400.1 million one year previously. ACC’s recurring EBITDA margin stood at 76.7% in Q3-FY22 against 85.2% for Q3-FY21. Meanwhile, on a YTD basis ACC reported a recurring EBITDA of SAR 1,227.0 million for 9M-FY22, an increase of 1.5% y-o-y representing a margin of 80.8% against the 85.7% booked one year previously. This increase comes as Arabian Centres leverages the ongoing recovery in commercial conditions and normalization of the operating environment to drive profitability from its core operations. The recurring EBITDA margin of 80.8% booked in 9M-FY22 exceeds the pre-COVID-19 margin of 76.4% recorded in 9M-FY20.
• Recurring net profit, which normalizes for the effects of nonrecurring items, recorded SAR 189.0 million for Q3-FY22, an increase of 15.4% y-o-y against the SAR 163.8 million booked in Q3-FY21. The Company reported a recurring NPM of 37.0% for the quarter, up by 2.1 percentage points from 34.9% in Q3-FY21. Strength in ACC’s recurring bottom line indicates the health of the Company’s core operations and its ability to leverage the ongoing market recovery in driving financial performance. ACC reported a recurring net profit of SAR 584.7 million for 9M-FY22, an increase of 18.7% y-o-y yielding a recurring NPM of 38.5% against 34.9% in 9M-FY21. The recurring NPM of 38.5% booked in 9M-FY22 exceeds the pre-COVID-19 margin of 32.3% recorded in 9M-FY20.
Corporate Developments During the Quarter
• ACC inaugurated The View in Q3-FY22, introducing an additional 55.1 thousand square meters (sqm) of gross leasable area (GLA) to the Company’s portfolio. Marking the latest addition to the Company’s expanding profile in Saudi Arabia’s capital Riyadh, The View occupies a strategic location in downtown Riyadh and overlooks King Salman Park, a megaproject combining a wide variety of recreational, cultural, environmental, and sports activities. The View has been developed on freehold land and houses 170 commercial units and a wide range of international and local brands in areas including fashion, cosmetics, and food and beverage, in addition to a large cineplex. Pre-letting rates at The View stood at 88% at the close of Q3-FY22.
For more information regarding Arabian Centres’ financial and operational results for Q3-FY22, please see the Earnings Press Release accompanying this disclosure. The release also includes comments from the CFO and the date and time of the analyst call.
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