By Yona Banda
Financial Performance Highlights
- Listed hospitality and tourism group African Sun Limited announced net profit after tax of ZWL$6.1 billion for its half year ended 30 June 2022. Fair value gains of ZWL$4 billion to the group’s investment property holdings contributed significantly to profitability. However, topline growth was significant at 153% in inflation adjusted terms, which put total revenues at ZWL$8.5 billion. According to the group, the hospitality operations accounted for 95% of the revenues with the newly acquired real estate making up the remainder.
- The increase in income was attributed to a rebound in global tourism, with international arrivals estimated at 46% of pre-pandemic levels. Consequently, the group saw its occupancy levels rise from 24% to 41% during the period. The group also reported that hospital revenues from foreign business increased to 15% from 8% in the comparative 2021 period.
- Another contributor to the rise in the group’s earnings was an increase in the service prices. Average daily room prices increased by 56% in inflation adjusted terms to ZWL$36k.
- The group noted the adverse impact of the inflationary domestic and global environment on operating costs over and above the increased business activity levels. Operating expenses increased by 127% inflation adjusted terms from the comparative 2021 period. The gross profit margins remained stable at 72% but the staff costs to revenue ratio worsened to 34% from 22%.
- Before tax profits generally increased across the groups operating segments. The Country and City hotels earned the highest profits with ZWL$950 million while the resort hotels lost ZWL$409 million.
- The group’s operations generated a net cash flow of ZWL$2.2 billion which was sufficient to finance net investment expenditures of ZWL$541 million. According to the group, refurbishments to the Victoria Falls Hotel have been completed while those at Troutbeck Resort, Hwange Safari Lodge, and Great Zimbabwe Lodge are still in progress.
- At the end of the period, the group’s total assets stood at ZWL$75 billion and its total liabilities reached ZWL$14 billion. The group has cash holdings of ZWL$4.7 billion, and is engaging financial institutions for financing facilities to fund planned refurbishment projects.
- The group announced the completion of its acquisition of Dawn Properties and expects the integration process to be complete by the end of 2022. The group is currently undertaking a strategy to rationalize its asset base by disposing non-core assets. To date, US$1.7 million has been raised disposals, including the sale of the Brondesbury Park Hotel in Nyanga. The Beitbridge Express Hotel and 100% in Dawn Property Consultancy are currently on the market.
- The group declared an interim dividend of ZWL$0.102118 and USDc0.000545.
Commentary and Analysis
Evidently, the group benefited from the winding down of the COVID-19 pandemic and reduced restrictions on public recreational activities. The group seems to be positioning itself to take advantage of the anticipated eventual full recovery of the global tourism – with the refurbishment and upgrading of its hospitality assets. However, the uncertainty surrounding the domestic and global economic outlook stand as real threats to the recovery of global tourism. More so as African Sun generally features at the high end of hospitality and tourism services. The other threat is the political environment, leading up to and beyond the elections. Any ensuing instability and negative international exposure are likely to significantly disrupt both domestic and foreign business.
Another interest is the acquisition of Dawn Properties as a now wholly owned subsidiary – as was the case before the business was unbundled in 2003 from what was then Zimbabwe Sun Limited. The arrangement has always been a bit curious, with Dawn Properties housing the hospitality assets operated by African Sun and those assets being the Dawn’s core revenue generators. The reintegration gives African Sun more direct access to Dawn’s assets, and the signaling suggests the focus of the merged operation will be on the hospitality business. One expectation would be for the transfer of control of the hospitality assets to African Sun to lead to improved costs efficiencies. As the key shareholder, Arden Capital looks to be taking a more active role in running the integrated operation through the recent appointment of Peter Saungweme to CEO. Given that Arden’s investment portfolio now primarily comprises of African Sun, there is definitely an emphasis on making the most out of the situation. The choice of declaring an interim dividend seems a bit out of step with that in one sense, but the hope will be for the new executive management to chart a bold and innovative course for the group.
On the ZSE, the African Sun share has performed relatively well in the bearish market, gaining 139% value in nominal terms and losing 58% in implied USD terms. It is trading at a noticeably lower price to book ratio than peer hospitality stock RTG – Harare
