African Sun Limited (ASUN.zw) 2021 Annual Report
Message from the Chairman
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.
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.
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.
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.
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.
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.
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.
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 r