African Sun Limited (Zimbabwe) releases its 2021 Integrated Annual Report

African Sun Limited (ASUN.zw) 2021 Annual Report

Message from the Chairman

Introduction

On behalf of the Board of Directors of African Sun Limited and its subsidiaries (together referred to as “the Group”), it gives me pleasure to present to you the integrated annual report for the year ended 31 December 2021.

Operating Environment

Despite the impact of Covid-19 induced lockdowns, the operating environment in 2021 was better compared with the previous year.

According to the Ministry of Finance, the Zimbabwean economy registered a Gross Domestic Product growth rate of 7.8% in 2021 and inflation decelerated from a high of 363% at the beginning of the year to 60% at year end. Among other things, economic recovery was underpinned on bumper agricultural output, increase in global commodity prices, improved capacity utilization in the manufacturing sector and infrastructure development projects across the country.

The Zimbabwean Dollar (“ZWL”) however continued to depreciate against the United States Dollar. The widening gap between the official and the unofficial exchange rates resulted in price instability which adversely impacted on businesses’ ability to make long term decisions.

The property market continues to be depressed, albeit showing signs of recovery from prior year. Rental yields across all property sectors were weak due to low incomes, reflecting curtailed economic activity. Property sales transactions continue to be dominated by cash sales as mortgage finance is limited. With limited funding options, activity in the property development sector is anticipated to remain low in the short to medium term.

Impact of Covid-19

The Covid-19 pandemic continued into its second year with new variants emerging during the year under review. Following the discovery of the Omicron variant in November 2021, key source markets including Europe and America, implemented travel restrictions such as the red-listing of Southern African countries.

This weighed down the recovery of the tourism industry resulting in cancellation of festive season holiday bookings. It is estimated that in Zimbabwe at least 13,400 room nights bookings were cancelled in November 2021 and December 2021.

Despite the emergence of new variants, the fortunes of the tourism industry continue to improve due to the easing of self-isolation and lockdown measures generally across the world. According to the United Nations World Tourism Organization (“UNWTO”) a 4% upturn was expected in global tourist arrivals in 2021 (415 million international arrivals in 2021 in comparison to 400 million in 2020). However, international tourist arrivals (overnight visitors) were still 72% below the pre-pandemic level of 2019, according to preliminary estimates by UNWTO.

Ongoing vaccination programs initiated both locally and internationally have assisted in making progress towards the opening up of international travel and also spurring domestic tourism.

Financial Performance

The financial performance commentary is based on inflation adjusted financial statements, which are the primary financial statements in accordance with the International Accounting Standard (“IAS”) 29 – Financial Reporting in Hyperinflationary Economies. Historical cost consolidated financial statements have been issued for information purposes only.

Revenues

At ZWL4.329 billion, revenue for the year under review increased by 48% relative to the prior year. This was on the back of a 8-percentage point increase in occupancy from prior year to 31% and former average daily rates (“ADR”). Improved performance reflects the impact of a more open and active economy as lockdown restrictions were substantially relaxed in 2021 compared to the period during the height of the pandemic in 2020. The achieved occupancies are however still lower than the +40% occupancies achieved during pre-Covid 19 era. Foreign source markets were largely closed for the greater part of the year, with foreign business contributing only 8% (2020: 14%) towards hotel revenue which is significantly lower than +30% contribution achieved during pre-Covid 19 era.

12% of Group revenue is attributable to Dawn Properties Limited (“Dawn”), a subsidiary acquired in January 2021. Key contributors to Dawn revenues include twenty-two (2020: seventeen) residential stand sales at Marlborough Sunset Views and property consultancy revenue. As at 31 December 2021, twenty-three stands remained unsold.

Operating Expenses

The Group’s operating expenses (excluding depreciation) increased by 23% compared to same period last year. The increase was due to the increase in volumes driving variable costs and the inclusion of Dawn related expenses in the consolidated !nancial statements. Excluding the effects of Dawn consolidation, the hotel business operating expenses (excluding depreciation) increased by 24% from ZWL1.97 billion to ZWL2.44 billion, which was less than growth in hospitality revenue of 37% from prior year. The Group will continue to monitor costs and implement various cost savings initiatives.

Profitability

The Group recorded an inflation adjusted normalized earnings before interest, tax, depreciation and amortisation (“EBITDA”) of ZWL1.95 billion and normalized profit before tax depreciation and amortisation of ZWL1.14 billion.

Normalised EBITDA and profit for the year ended 31 December 2021 principally excluded gain on bargain purchase amounting to ZWL8.59 billion, which was recognized on the acquisition of 91.17% equity interest in Dawn Properties in January 2021.

Update on the Acquisition Of Dawn Properties Limited

Pursuant to the Company’s offer to acquire 100% of Dawn Properties Limited (“Dawn”), 91.17% of the ordinary shares of Dawn have been fully acquired. The company is going through pertinent legal processes to acquire the remaining 8.83%. The integration of the two businesses to achieve the anticipated synergies has commenced and is expected to be completed by 31 December 2022.

Dividend Declaration

Subsequent to year end, the Board resolved to declare a dividend of ZWL 0.0815947 per share, amounting to a total of ZWL 116,151,461 and an additional USD 0.0003548 per share amounting to a total of USD 505,064, payable in respect to the year ended 31 December 2021.

Outlook

The outlook remains highly uncertain and will largely depend on the pandemic’s evolution, the rate of vaccination and the effects of the geo-political tensions in Eastern Europe. We however anticipate that the Covid-19 situation will continue to improve and most self lockdown restrictive measures will be further relaxed. In the short to medium term, our performance will continue to be primarily driven by domestic business.

We continue to be optimistic about the future of the Group and are con!dent that our business model and strategy will put us in a strong position to succeed. Among other things, key to our success will be managing costs, disposal of non-core assets and deploying proceeds from the same to refurbish our hotels.

Enhancing guest experience is of paramount importance to us. In that regard, the Group will be focusing on hotels refurbishment projects.

We anticipate that works to replace the roof coverings at Troutbeck Inn Resort (“Troutbeck”) will be completed beginning of Q2 of 2022 and this will pave way for the refurbishment of 70 rooms at Troutbeck. Refurbishment of 47 rooms at The Victoria Falls Hotel is progressing well Message from the Chairman and the works are expected to be completed during Q2 of 2022. Preparatory work to carry out the refurbishment of 8 additional rooms at Great Zimbabwe and remedial works on the Hungwe Conference Centre are at an advanced stage, with actual works likely to commence in Q2 2022.

Directorate Changes

Executive Directors

Mr. Believemore Dirorimwe stepped down as the Finance Director on 30 November 2021 whilst Mr. Edwin Shangwa resigned as the Managing Director e#ective 31 December 2021.

Mr. Ndangariro Mutizwa was appointed as the Chief Finance O”cer e#ective 1 December 2021. On 31 December 2021 Mr. Peter Saungweme who had hitherto served as a non-executive director on the Company stepped down from the same and was appointed as the Chief Executive Officer effective 3 January 2022.

On behalf of the Board, I would like to thank Believemore and Edwin for their sterling service to the Company and wish them all the best in their future endeavors. In the same vein, I would also like to extend a warm welcome to Ndangariro and Peter and wish them the best as they steer the Company to greater heights.

Non-Executive Directors

Mr. Alex Makamure and Ms. Nyaradzo Maphosa retired as Board Chairman and Board member respectively on 17 October 2021. The company takes this opportunity to express its gratitude to Alex and Nyaradzo and wish them all the best in their future endeavors.

I was appointed Chairman of the Board of Directors effective 20 October 2021.

Following the acquisition of Dawn Properties Limited, the Board was reconfigured to include the two former Dawn directors, Mr. Lloyd Mhishi and Mr. Constantine Chikosi as Non-Executive Directors with e#ect from 1 May 2021. Additionally, Mr. Alex Siyavora and Mr. Vernon Lapham were also appointed as Non-Executive Directors e#ective 8 November 2021.

On behalf of the Board, I congratulate the new Board members on their appointment and look forward to their valuable contribution to the Board.

Appreciation

Taking the current landscape and uncertainties into considerations, I would like to commend management, staff and fellow Board members for their continued commitment to drive the Group’s survival and recovery strategies. I am con!dent that we will emerge stronger post the Covid-19 storm.

E.A. Fundira
Chairman
20 April 2022

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