Dear shareholders,

It has been a good year for SODIC. Looking back at the key targets that were set for the SODIC team for 2016, I am very happy to say that the Company has over-delivered on every one of them. We ended 2016 with another outstanding earnings performance and solid operating results, reaffirming our strong position in the real estate market in Egypt.

During the first quarter, we focused on expanding our land bank, concluding our first revenue-sharing agreement with Heliopolis Housing and Development Company. Acquiring land suitable for development at the right terms is the fundamental building block of our business. This deal reflects our quality and disciplined approach to our land bank expansion strategy, continually securing high-margin plots in attractive locations.

As the year unfolded, we saw strong demand across all our projects, driven by the continuing trend favouring gated communities and the ever-expanding need for quality housing. During the fourth quarter, sales were accelerated due to looming inflation that created a flurry in demand for property, pushing SODIC to achieve yet another record sales figure of EGP 5.6 billion.

Our performance on delivery was no less impressive, breaking the 1,000 mark for units delivered annually for the first time in the company’s history and welcoming our first homeowners to Eastown. The strong performance on deliveries was echoed in our financial results, with revenues and profits reaching record levels of EGP 2.1 billion and EGP 429 billion, respectively.

Our success is not only measured by our financial achievements but also by our continuous contribution to the community. We see responsible stewardship not only as a key driver of long-term value creation for our shareholders, but also as an important obligation to society at large. Our corporate citizenship initiatives operate through three complementary programmes: SODIC CSR, SODIC Art, and SODIC Sports, which work to positively affect the lives of thousands of people through a number of interwoven education, rehabilitation, and relief efforts while supporting the arts and championing sports activities.

Despite our success for the year, the economic backdrop in 2016 was particularly challenging for Egypt. The reforms pursued by the government and their implications on the economy painted the contours of the year, with implications expected to persist in 2017. Although the reforms substantially improved the long-term prospects of the country and our operating environment, the short-term pains are expected to be felt across the board. These measures have disproportionately impacted industries, with real estate bearing less of the brunt. Solid demand drivers along with a limited foreign currency component in our construction cost underpin the sector’s resilience.

Our outlook for 2017 remains positive; we continue to bring to the market primary homes within our existing developments and look forward to the launch of several new projects, the largest of which is our co-development project in New Heliopolis. The year will also see the commencement of construction on several commercial projects that will contribute to our recurring-income portfolio in the future, including Eastown Commercial in the heart of New Cairo.

Our ambitious growth plans reflect our expectations that the real estate market will resiliently navigate this short-term volatility and believe that challenging operating environments create opportunities for well capitalised and experienced companies like us with our strong track-record of performing in even the most turbulent of times. The long-term fundamentals for the market remain solid with strong demand for new housing across Egypt, an opportunity that SODIC is ready to capture.

Magued Sherif

Managing Director

2016 has proven to be an interesting and dynamic year for Egypt, with a wide array of reforms implemented that will surely put the country on the right track for growth. Despite these measures impacting all sectors across the board, the Egyptian real estate market is once again demonstrating its resilience and depth, with credible, well-funded and prudently governed developers rising again as strong pillars for the industry.

There is no doubt that the devaluation has put pressure on our supply chain. I am pleased that the long-term relationships with our suppliers have ensured that we have been able to work through these issues with little disruption to our business, with deliveries remaining on track at 1,060 units in 2016.

Despite the economic backdrop, we delivered high returns underpinned by our strong operational performance and overall positive performance of the real estate sector. Our revenues recorded EGP 2.1 billion, expanding by about 41%, with deliveries of the first homes in Eastown being the main contributor to that growth. Our gross margins remained strong at 38%, and despite initial deliveries of the lower-margin Eastown Residences units weighing down on our average gross margin for the first nine months of the year, 4Q saw a strong recovery as the higher-margin Eastown deliveries progressed.

The Company recorded a growth of 38% in net profit during 2016, which came in at EGP 429 million, maintaining our net profit margin at 21%.

We also ended the year with our capital structure once again providing real flexibility. At the end of 2016, our cash balance came in at EGP 2.6 billion and our EGP 2.2 billion bank facilities were only 55% utilised. This strong financial position continues to support our relentless drive to deliver on time as well as our ambitious land bank expansion strategy. We generated EGP 687 million in net operating cash flows during the year, backed by EGP 3.1 million in collections and a record-low delinquency rate of 2%.

Despite our success in 2016, we acknowledge that the current inflationary environment poses a challenge to businesses serving domestic consumers. We remain alert to potential risks that these unprecedented economic conditions pose for the economy at large, impacting not only developers but our clients, our contractors, and all our stakeholders. However, as we demonstrated in years prior, SODIC possesses the unique ability to adapt and grow even in difficult conditions.

We continue to believe that momentum for property demand is solid as demographic drivers remain strong, and against a backdrop of high inflation, property is often the first place Egyptians turn to for ‘safe harbour’. While all the main drivers that buoyed the property market in recent years remain intact, another potential boon for demand is the Egyptian diaspora. The property market is a major beneficiary of remittances from Egyptian expatriates (a population of c.4.7 million) who have gained substantial purchasing power since the liberalisation of the Egyptian pound.

Our exemplary reputation for delivery has meant that our developments continue to enjoy the market’s favour, securing strong growth in our sales year on year. Catering for this demand, we continue to expand our land bank by securing quality, high-margin plots. The market outlook is strong, we have a clear strategy in place and the management and operational capability to continue delivering growth. We look forward to another year of outstanding performance.

Omar Elhamawy

Chief Financial Officer