REIZ | Release of 2016 Annual Report

Extracts from the Chairman’s statement

Real Estate Investments Zambia Plc (REIZ) is pleased to report a satisfactory year in spite of the economic and political challenges that characterized the 2016 financial year both locally and globally.

On the global front, the year witnessed significant political changes chief of which were the USA elections which ushered into office Mr. Donald J. Trump as President and the UK Brexit vote which entailed Britain exiting its membership of the European Union. Although the two election processes created uncertainty and a slowdown in certain key decisions, the impact of the eventual outcomes of the two elections will materialize in 2017 following the settling in the office of the Trump administration and the triggering of Article 50 for Britain’s exit from the European Union. Although the slowdown in the economy of China continued in 2016, copper prices started recovering and highs of USD 5,900/ton were recorded post Trump election from the lows of USD 4,500/ton. The rally, which began on the heels of Donald Trump winning in the US presidential election, has been partly based on speculation regarding the impact of President Trump’s infrastructure plans leading to high demand for the metal. The increase in copper prices is likely to be sustained as there is brightening outlook in terms of demand for the metal by China which is good for the copper industry’s health.

On the local front, the economic pressures experienced in 2015 such as electricity supply disruptions, high inflation rate and tight liquidity conditions among others continued in 2016 leading to low growth of the economy of about 3.2% GDP, which was lower than the 2015 GDP growth of 3.5%. 2016 was a general elections year of which the Patriotic Front (PF) and President Edgar C. Lungu emerged victorious and promised austerity measures on the fiscal side which includes removal of subsidies on fuel, electricity, and maize consumption. The impact of these austerity measures will come to bear in 2017. However, the period leading to the holding of the election was characterized with uncertainty and anxiety as most businesses slowed down on key decisions.

Although the Kwacha continued to remain unstable during the year, it was predominantly calmer averaging K10.42/$ during the year and closing at K9.87/$. This is a different story to the exchange rate volatility experienced in 2015 when the exchange rate moved from about K6.40/$ at the beginning of the year and ended at K11/$. During the year, the Bank of Zambia continued to maintain the monetary policy rate at 15.5%, while inflation rate that had reached 22.9% in the first quarter of the year eased in the last quarter to single digit closing at 7.5%. Electricity supply disruptions continued to adversely affect economic output.

Performance

Despite the global and national challenges outlined above, I am pleased to report that the Group posted outstanding results in the year under review. Its operating profit rose to K56.7 million, up 66% from the 2015 figure of K34.2 million. This was backed by a revenue increase to K75.8 million up 32% from the 2015 figure of K57.4 million and reduction in property costs by 35%. In the course of the year under review, the Group terminated a contract with a company which had been providing property management services to REIZ for 16 years in order to streamline operational efficiencies. This strategic decision had an immediate impact on the bottom line as alluded above. Shareholders will however note that due to appreciation of the Kwacha against the US Dollar, the value of the Group’s investment property reduced by K61.6 million leading to a loss after tax of K20.7 million. This reduction in the value of investment property is on account of an independent revaluation carried out at the yearend in compliance with international accounting standards which has no impact on the positive cash flows generated from operations. More information on the financial results and the Group’s property portfolio is provided in the Chief Executive Officer’s Report and the financial statements…

Future Outlook

The economy is forecast to grow by a modest 4.0% in 2017. Despite the economic slowdown, your Board remains optimistic that REIZ will not just survive economic turbulences but is set to improve its performance through maximization of income collection, reduction of operating costs and increase of the Group’s property portfolio’s lettable space. With the confidence bolstered by the support received from shareholders and investors during the year which we have no doubt will continue in the years ahead, REIZ has carefully laid down a long-term strategy anchored on ingenious pursuit for efficient, effective and agile management of the Group focused on creation and protection of shareholder value. REIZ will pursue specific growth oriented activities with direct impact on recalibrating yields and further enhance stakeholder confidence in the Group. Specific efforts are being pursued to ensure that REIZ becomes the captain of the real estate industry in the next five years. While we concede that challenges including low international copper prices, power shortfall and constrained domestic demand might suppress…

Board/Management Changes

During the year Mr. Jacob M. Njovu vacated office of director and the Board resolved that his position would not be filled so as to reduce the number of directors on the board to 8.

Mr. Sydney E. Popota, who was acting Chief Executive Officer at the time of the last AGM following the departure of Mr. Robin Miller was confirmed as substantive Chief Executive Officer during the year. I hereby congratulate Sydney for this appointment. The Management team was reinforced by engagement of two property managers Charity Banage and Daniel Kangombe.

Acknowledgement

I appreciate the invaluable contribution of the Board in the governance of this great Company and the commitment of Management and employees to put into effect the vision of the Board. The loyalty of tenants, service providers and stakeholders in general deserve acknowledgment too.

Kenny H. Makala
Chairman

To download our Annual Report for the year ended 31st December 2016, click on the link below.
REIZ.zm | 2016 Annual Report