Mashonaland Holdings Limited (MASH.zw) HY2023 Interim Report
I am pleased to present the Mashonaland Holdings Limited inflation adjusted financial results for the six months ended 30 June 2023.
During the period under review, the macroeconomic environment remained uncertain with persistent exchange rate volatility and inflationary pressures increasing the cost of doing business. The economy remains marked by political risks, which normally precede an election period, leading to market uncertainty. The exchange rate depreciated by 739% from USS 1:ZW$684 at the start of the year to US$1:ZW$5,740 in June 2023. Authorities have responded by implementing monetary policy interventions, including reducing Zimbabwe Dollar liquidity and maintaining high minimum lending rates, to stabilize the exchange rate. The resulting tight Zimbabwe Dollar liquidity has led to an increased adoption of use of the United States Dollar as a transactional currency.
These developments have led to an improvement in foreign currency collections by property market players who have reported foreign currency revenue contributions of above 70%. The Group has engaged its tenants to align its revenue contribution with these market developments and this has seen the company also growing its foreign currency revenue.
The property market remains constrained by the persistently low economic activity in the formal sectors of the economy. The low economic activity has led to a lethargic space absorption rate affecting mainly CBD office sub-sector. The market has however witnessed some pockets of growth in the retail and office park segments while the industrial segment has remained resilient with steady demand for strategically located industrial warehouse space. Office tenants continue to show preference for suburban and out of CBD office space due to deteriorating public infrastructure among other inner city urban problems, especially in the Harare CBD. The tourism segment continues to record steady growth with increasing tourist arrivals in the first 6 months of the year thereby providing an attractive alternative investment destination for diversified property investors.
The development submarket remains hamstrung by the high construction costs, limited long term financing and high cost of capital. However, residential properties continue to present investment opportunities for property developers in view of the positive demand for housing, The supply side imbalance has led to an increase in property prices for medium to high income residential properties.
Attaining sustainable rentals has remained a major challenge for the property industry given the exchange rate fluctuations and wide disparities between official and unofficial exchange rates. In view of this background, property companies have converted leases for prime properties to United States Dollars while frequent reviews have been maintained for Zimbabwe Dollar based leases in order to preserve rental yields.
Inflation adjusted financial performance
Revenue increased by 150% in the 6 months under review to ZW$8,7billion. Rental income contributed to the improved revenue performance posting a 115% growth. The Group now earns 74% of its rental revenue in foreign currency up from 35% at the same time last year. The deterioration in the exchange rate over the half year period had a positive impact on the Groups revenue performance in Zimbabwe Dollar terms. The portfolio occupancy level increased from 83% in June 2022 to 87% thereby contributing to the revenue growth. Further, the Group earned revenue of ZW$1.2billion from the Mashview Gardens housing project as the project reached the practical completion stage.
Operating profit increased by 781% to ZW$34.6billion. The increase in operating profit was due to the 150% improvement in revenue performance as well as foreign exchange gains of ZW$32.4bilion realised on conversion of foreign currency balances on hand.
The Group posted a profit after tax of ZW$236.4 billion up from ZW$7.7bilion in 2022. The improved profit position was realized due to the improved operating profitability and a 117% capital gain recorded on investment properties.
The Group’s collections percentage remained resilient at 94% due to continuous credit control engagements which sought to ensure timely realisation of value from rentals in the hyperinflationary environment.
The Group performed an open market valuation of its investment properties as at 30 June 2023. The Groups investment property portfolio was valued at ZW$453 billion, which represents a 117% capital gain from the inflation adjusted valuation performed in December 2022. The capital gain is reflected in the growth in rental income in inflation adjusted terms.
Property development projects
Pomona Commercial Centre Development, Stand 489 Pomona
During the period under review, the Group completed all the pre-construction works for the Pomona Commercial Centre, which encompassed architectural and engineering designs, statutory and corporate approvals, tendering and award of tenders. The development concept consists of wholesaling and flexible warehousing units with 14,000sqm lettable area. The anchor tenant has been secured and 60% of the development has been successfully pre-leased.
A groundbreaking ceremony, which marked the commencement of the project was done on the 30th of June 2023.
The project has a targeted construction duration of 15 months and is programmed for completion in Q4 2024.
Milton Park Day Hospital Project
The project is now 90% complete. Roof cover installations have been completed, external paving works and elevator installations are in progress. The contracted tenant for the hospital development has been invited to commence tenant fit outs to enable lease commencement in November 2023.
The cluster housing project is substantially complete. Finishes works comprising of tiling, plumbing and electrical fit out are being finalised. The boundary wall and gate house for the housing development have been completed, External works comprising of water reticulation, electrical connections and landscaping works are also currently underway. The units are planned for handover in September 2023.
The Board declared an interim dividend of 0.00761 US cents and ZW$ 0.1535 per share. A separate dividend notice will be published to this effect.
The Government of Zimbabwe has forecast that the economy will grow by 5.3% in 2023 supported by better performance in agriculture, mining, ICT and tourism. The Ministry of Finance and Economic Development anticipates that the improvements in electricity generation in the second half of the year will reinforce the positive economic outlook.
Despite current headwinds in the economic and political environment, the Group remains focused on its strategic objectives, notably portfolio diversification and portfolio performance optimisation. Major focus continues to be set on completion of on-going property development projects which form part of the portfolio diversification roadmap.
On behalf of the Board, I express appreciation to our valued tenants for their continued loyalty and all our other stakeholders for their support. I also thank my fellow board members, management, and staff for their continued dedication.
12 September 2023
Eng. G. Bema
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