Financial Performance Highlights
- Listed hospitality and tourism group African Sun Limited reported an inflation adjusted ZWL$7.2 billion profit after tax for its 2022 financial year. The performance was a 79% decline from the prior financial year. The decline owes to the impact of the gains from the groups bargain purchase of Dawn Properties. The transaction resulted in a ZWL$29.5 billion windfall reported in the 2021 financial year.
- Otherwise, the groups total revenue increased by 114% to ZWL$31.8 billion, buoyed by improved occupancy levels which rose to 46% and average daily room rates which increased by 337% to ZWL$59,676. Domestic and foreign visitors accounted for 81% and 19% respectively of the groups hospitality revenues. The group reported that 60% of its revenues were in foreign currency.
- The now ceased operations at The Kingdom Victoria Falls Hotel contributed US$5 million towards group revenue and US$380k to profit before tax.
- Gross profits were up by 124% to ZWL$23.2 billion and the normalized EBITDA was 142% higher at ZWL$15.7 billion. Off the back of the increased occupancy and room rates, the EBITDA and Gross Profit margins improved to 49% and 73% respectively. Operating profit stood at ZWL$12.7 billion as operating expenses excluding depreciation increased by 62%.
- The group generated cash flows of ZWL$8.7 billion which funded net investment expenditures of ZWL$3.6 billion. During the year, the group completed a US$5 million refurbishment of 47 rooms and the kitchen at the Victoria Falls Hotel. Additionally, the refurbishment of 70 rooms was completed at the Troutbeck resort, while refurbishment projects at the Hwange Safari lodge and Great Zimbabwe Hotel are expected to be completed by mid-year 2023.
- Total assets stood at ZWL$105.7 billion, with cash holdings of ZWL$8.7 billion. Total liabilities stood at ZWL$20.1 billion, with zero interest-bearing borrowings, deferred tax liabilities of ZWL$10 billion and payables of ZWL$7.1 billion.
- Among the groups segments, Country and City Hotels contributed ZWL$18 billion to revenue. Revenue from resort hotels showed sharper growth at 210% to ZWL$14.3 billion. The Country and City Hotels saw occupancy levels increase to 58% from 45% in the previous year. The Resort Hotels saw occupancy levels increase to 36% from 19%, with the group noting that the segment had not yet fully recovered from the impact of COVID-19.
- Looking ahead, the group expects international tourism to consolidate its recovery in 2023 particularly the Asian and Pacific markets. Domestically, the group is primed to benefit from an uptick in leisure activities across the country. However, the August 2022 expiry of the VAT exemption on domestic tourism was noted as a downside, with the group concerned about the price sensitivity of domestic clients. The group aims to undertake an upgrade of all its hotel assets, and expects to investment about US$12 million with the next year or two – depending on demand and economic developments. The spending is expected to be financed by internally generated funds and borrowings. The group expects its ongoing and planned projects to ease the profitability pressures expected to arise from the closure of The Kingdom Victoria Falls Hotel.
- The group declared a dividend of USc 0.1411.
Commentary and Analysis
Though obscured somewhat by the bargain gains reported in the previous financial year, its a strong performance by the hospitality group. On the back of increased activity and more favorable prices, analysis suggests the group experienced sharp real revenue growth across all of its hospitality segments – particularly the resort hotels. There was also the moderate improvement in the group’s gross profit and EBITDA margins, which likely reflects the increased forex takings and improved capacity utilization. Overall, in terms of revenue and occupancy levels, 2022 was the groups best performance in the “Post-Covid” world. The ongoing and planned capital projects have the group poised to exploit the recovery in global tourism that it is anticipating. There is still arguably a lot of local and global downside risk, so it is ideal that the group has managed to remain debt free whilst undertaking these projects. The upcoming elections are likely to draw a spotlight on Zimbabwe’s internal issues, which could limit the benefit from an upswing in global tourism. A sustained reliance on domestic customers stands to limit the group’s ability to charge higher prices for its services – as suggested by the relatively flat growth in the average daily room rates since 2019 despite the global inflation pressures. With 81% of the groups revenue stemming from locals, and 40% of the revenues being in the local currency – the accelerating depreciation of the ZWL should be a serious concern. So, the overall the outlook for 2023 is neutral – expecting real increases in service prices and foreign arrivals to balance out the loss of The Kingdom Hotel and the diminished capacity of local customers.
African Sun migrated to the VFEX in April 2023, making the switch from a ZWL to USD share valuation. Since the start of the year and change in currency, the African Sun share has an implied YTD of 204% and is trading at a P-B multiple of 1.2x – HARARE
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