FY 2012 Annual Report - Orascom Development

8 Orascom Development 2012 Annual Report 9
2. Board and Management Statements
2.1 Letter to Shareholders
Dear Shareholders,
Samih O. Sawiris
Chairman of the Board of Directors
Despite the challenging market environment,
Orascom Development offers an attractive
real estate and hotels mix in unique locations
and customers will ultimately reward our
offering over time.
As I wrote to you last year, Orascom Development started to adapt
its business model to counteract the adverse effects of the fragile
macroeconomic environment and unstable political situation in
the MENA region. During the period under review, we analyzed
several options for each of our destinations to embark on a more
capital-light growth path. We established encouraging partnerships
to expand projects as planned but with less financial commitments
from our side and at the same time succeeded to turn some of
these partnerships into first visible results. During September, we
achieved to sell 73 apartments in The Chedi Andermatt to Acuro
Immobilien AG, which secured the completion and opening of the
hotel for December this year.
In order to further streamline our business and to focus on our core
competencies, we decided to divest the tour operations business and
signed a sale and purchase agreement in November to sell further
stakes in companies operating in this segment.
We continuously reviewed our capital expenditures and recurring
costs based on achievable cash flows and have identified a portfolio
of non-strategic assets which we are going to divest over the next 24
months.
Board of Directors
At the previous and fourth Annual General Meeting in Altdorf,
Switzerland, on May 7, 2012 all members of the Board of Directors,
with the exception of Amr Sheta who left Orascom Development to
pursue business opportunities outside of the company, stood for reelection
and were confirmed in their office for a further year.
In light of the results 2012, the Board of Directors will propose to the
fifth Annual General Meeting on March 13, 2013 to pay no dividend.
Executive Management
In order to respond to the changed market environment we
strengthened the Executive Management team. Effective July 2012,
Ahmed El Shamy who has a track record in private equity in
the MENA region was appointed Chief Financial Officer. His
predecessor Mahmoud Zuaiter, whose career spans 14 years in the
hotel industry, became Chief Hotel Officer. In addition, Stuart Siegel
was appointed Chief Real Estate Officer. He has vast experience
in the real estate business and served for more than 15 years as
President and CEO of Sotheby’s International Realty. Furthermore,
the Board of Directors appointed Aly Elhitamy as new member of
the Executive Management responsible for Egypt. Aly Elhitamy is
Orascom Development’s Managing Director of Egypt and Chief
Construction Officer. The assignment of responsibility to the new
members underscores the relevance that they have for our company.
The new Executive Management now contains seven members. We
believe that the appointments enable us to improve the performance
of Orascom Development in the coming years.
Significant events after the balance sheet date
On March 26, 2013, the Board of Directors decided to improve
the capitalization of Orascom Development’s Swiss subsidiary
Andermatt Swiss Alps (ASA). As a result of the transaction, I will
become majority shareholder with a 51% share by converting my
loans to Orascom Development into ASA equity, and will act as
new Executive Chairman of ASA. Orascom Development remains
shareholder with a 49% share. Furthermore, I will invest at least
CHF 150 million of new equity or subordinated loans into ASA in
order to secure funding of the critical size of the resort in Andermatt
until 2017.
The transaction will release Orascom Development from further
capex spending in Andermatt and significantly reduce debt levels.
Furthermore I remain firmly committed to fully finance the expected
operating cash deficit of Orascom Development of up to CHF 60
million in 2013.
Outlook for 2013
For 2013, we expect that the political environment will remain unstable
in many regions in the Middle East. However, our destinations
especially on the Red Sea and in the United Arab Emirates are
affected only to a limited extent because of their safety and security.
Therefore, tourists from the MENA region and Europe continue
to visit our towns in good numbers which enables us to generate
free cash flows from these operations. Sales of secondary homes
depend on the general economic environment, the location and
the funding schemes available. In this regard, the conditions have
not changed materially in the last months, but we remain cautiously
optimistic regarding real estate sales for 2013. In addition, the Board
has mandated the management of Orascom Development to put
a stronger focus on cost reduction across our destinations and
business segments to prepare the company for the future. We believe
that Orascom Development offers an attractive mix of real estate in
unique locations, and customers will ultimately reward our offering
over time. More than once, Orascom Development has proved to be
able to adapt to difficult market conditions and to initiate change to
undermine its position as a leading town developer. Personally, I am
convinced that we can transform the Group to a position of former
strength, thereby creating long-term value for both our stakeholders
and you, our shareholders. The Board of Directors likes to thank all
employees for their contribution and efforts to advance our company
in 2012. We also like to express a special thanks to our shareholders
for their continued support of Orascom Development, as well as to
our clients, suppliers and business partners for the trust and confidence
they have placed in our company.
Samih O. Sawiris
Chairman of the Board of Directors