Lower prices allied with a surge in marketing expenses depressed the net profits of Sorouh Real Estate by nearly 75 per cent in the second quarter of 2009 over the same period of 2008, its balance sheet showed yesterday.
But the income was nearly 16 per cent higher than the net earnings in the first quarter, indicating the company's performance is recovering through the year.
From Dh616.5 million in the second quarter of 2008, Sorouh's net profits dived to Dh50.9m in the second quarter of 2009, the balance sheet showed.
The Q2 income was about 16 per cent above the company's net earnings of nearly Dh130.4m in the first quarter of this year.
The Abu Dhabi-based master developer gave no reason for the sharp year-on-year fall but experts attributed this to lower property prices and slackening business due to global credit crunch. Sorouh's report also showed a surge in selling and marketing expenses to nearly Dh183.5m on in the second quarter from Dh10.8m in the first quarter. They stood at Dh229m in the first half of 2008.
The decline depressed the company's earnings per share to only six fils in the second quarter of 2009 from 27 fils in the same period of last year.
"These results are in line with the previous guidance given at the Q1 2009 results and reflect the company's strategy to focus on cash conservation along with prudent management of operating costs," said Sorouh in a statement.
It said the company maintains a strong balance sheet with net assets as at the end of June 2009 of Dh5.9bn compared with Dh5.7bn at the end-March. Total bank borrowings stood at Dh150m, representing a debt to equity ratio of 2.53 per cent. This excludes the outstanding amount of the asset-backed sukuk issued in the Q3 2008, which is a non-recourse facility.
The company said it expects to see gradual quarter-on-quarter improvement, as it starts to realise unit sales with the handover of Golf Gardens 1 in the third quarter and steady recurring income from the rental developments of Sas Al Nakhl, Khalidiya Village and Al Oyoun Village.
"We are pleased to report results in line with previous guidance of quarter-on-quarter earnings improvement. We are moving forward with our strategy to pass on cost savings to our customers and helping our customers through different schemes including; price reduction, payment re-schedule, consolidation and customised mortgage financing. Despite the current tough economic environment, long-term demand remains promising and we are actively managing the company's cash position," said Mounir Haidar, CEO of Sorouh. "This, combined with the ongoing investment in Abu Dhabi's infrastructure, makes us well-placed to capitalise on our strong position when the markets recover."
According to the statement, all of Sorouh's Abu Dhabi developments remain on track with the core focus being on maintaining delivery schedules. They include Golf Gardens 1, Sun Tower and Sky Tower, at the entrance to Shams Abu Dhabi, The Gate Towers, Alghadeer and Golf Gardens.
The balance sheet showed the company's assets rose slightly to about Dh16.93bn at the end of June from Dh16.55bn at the end of March. Paul Warren, Chief Strategy Officer told Reuters that the company expects Q3 profit to rise up to 15 per cent versus the previous period, boosted by sales.
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