Ground Floor, First Mutual Park, 100 Borrowdale Road, Borrowdale, Harare, Zimbabwe, Tel: +263 4 886 121 – 4 or +263 772 13...
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Pearl Properties Limited FY 2013 results

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Pearl Properties Limited FY 2013 results

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Pearl Properties Limited FY 2013 results

  1. 1. Ground Floor, First Mutual Park, 100 Borrowdale Road, Borrowdale, Harare, Zimbabwe, Tel: +263 4 886 121 – 4 or +263 772 134 112-20, Fax +263 4 885 081, Email: info@pearl.co.zw. Website: www.pearlproperties.co.zw Directors: E. K. Moyo (Chairman), F. Nyambiri* (Managing Director), C. U. Hokonya (Dr), D. Hoto, N. J. Mugabe (Mrs), J. K. Gibbons, R. B. Ncube (Ms), J. P.Travlos, M. J-R Dube *Executive PEARL PROPERTIES (2006) LIMITED for the year ended 31 December 2013 Audited Financial Results a member of FIRST MUTUAL HOLDINGS LIMITED Chairman’s Statement Financial Performance Highlights Revenue 2.18% Property Expenses 3.38% Net Property Income (“NPI”) 1.91% Administration Expenses 5.56% NPI After Administration Expenses 1.00% Investment Properties 6.55% Profit AfterTax 8.80% Shareholders' Equity 8.41% The Economy The business environment was characterised by liquidity challenges, high unemployment and general economic decline across most sectors of the economy. The economy continues to shrink as evidenced by low and declining capacity utilisation across the productive sectors and an increase in incidences of companies being liquidated or going into judicial management. Against a backdrop of a shrinking economy and tight liquidity, companies generally require recapitalisation. In the instances where the financial sector can advance loans to the productive sector, the interest rate was prohibitively high. These constraints remain major factors inhibiting meaningful economic growth. The Property Market The general economic decline characterised by liquidity challenges, limited mortgage finance and high unemployment will curtail any meaningful activity in the real estate sector.The property market continues to face challenges with nominal property transactions being recorded especially in the lower end of the market. Some limited property developments were undertaken during the year, especially in low income residential housing development schemes and other self-financing, cooperative-type residential developments. In the absence of significant economic upturn, and in light of increasing costs of occupancy such as municipal rates, electricity and other property service charges, sustaining current rental rates and occupancy levels is going to be tough going forward. A number of companies continue to face viability challenges due to unfavourable business conditions characterised by high input costs such as labour, service charges and old equipment. Incidences of credit losses on tenant rental and operating cost balances are increasing while the slow legal process has hampered efforts to accelerate the collection measures. As a result, the business continues to face rising property expenses and stagnating occupancy levels. Financial Results Revenuefortheyearended31December2013increasedby2.18%to$9.022million(2012:$8.830 million)asaresultofincreasesinrentalincomeandotherincomefrompropertyservicesrendered to third parties. Rental income increased by 2.06% to $9.012 million (2012: $8.83 million) driven by an increase in the contribution of turnover-based rental income. The average rental per square metre increased by 1.22% to $8.28 (2012: $8.18) as planned rental reviews were deferred. Rental yield eased to 7.80% (2012: 8.60%) as a result of the slower growth in rental income relative to increase in values of investment properties. Property expenses grew by 3.38% to $1.683 million (2012: $1.628 million) due to higher property maintenance costs, specific and general provision for credit losses and landlord’s expenses on vacant space. Net property income before administration costs increased by 1.91% to $7.339 million (2012: $7.202 million) while the 5.56% increase in administration expenses resulted in a 1.00% decline in net property income after administration expenses to $3.975 million (2012: $4.015 million). Administration expenses increased by 5.56% to $3.364 million (2012: $3.19 million) due to increases in staff costs and group shared services. The Group will continue to explore opportunities to enhance internal efficiencies and accelerate cost containment in order to improve operating margins. Operating profit before tax and fair value adjustment declined by 1.42% to $4.684 million (2012: $4.751 million) due to slower growth in fair value of investments properties. The market value of investment properties grew by 6.55% to $128.142 million (2012: $120.266 million) underpinned by improving quality of the refurbished space and rezoning to commercial of land previously zoned for residential use. Property Management The occupancy level declined by 3.30% to 76.30% (2012: 78.90%) due to voluntary tenant space surrenders and evictions. Rent and operating cost arrears grew to 14.56% (2012: 9.06%) reflecting operational challenges sometenantsarefacing.Collectioneffortsaimedatreducingarrearstosustainablelevelscontinue through tenant engagement for negotiated payment plans, eviction of defaulting tenants and rightsizing of space held to ensure sustainable rental levels. The Group also expects higher levels of rent default in view of the tight liquidity in the economy and the general economic downturn. During the year, the Group committed a total of $0.309 million (2012: $0.204 million) towards property maintenance. Property maintenance is aimed at improving the quality of lettable space in order to retain existing tenants and also attract new tenants to improve occupancy levels. The Mabvuku Supermarket commenced trading on the 27th of November 2013 with OK Zimbabwe as the tenant. Property Development The number of units at the Kamfinsa cluster housing scheme that are at roof level stand at thirteen. Focus is on bringing the remaining 25 units to slab level in order to pave way for external works.This housing project is expected to be completed by the first quarter of 2015. Property Refurbishment The Group embarked on the refurbishment of the air conditioning system at 99 Jason Moyo at a total cost of $0.700 million with commissioning scheduled for the first quarter of 2014. Property Investment The Group acquired holiday cottages and land located in Nyanga at a total cost of $0.285 million, and a property in the Harare Central business district for $0.220 million. Acquisition of the Remainder of Lot 57, Mount Pleasant land In December 2013, the Group concluded negotiations for the acquisition of the remainder of Lot 57, Mount Pleasant land measuring 24.0664 hectares (approximately 59.47 acres) for a purchase price of $9.600 million.The acquisition was funded through a combination of internal resources and external borrowings.The current planned use of the land is for the development of housing units, a shopping complex and medical facilities.The acquisition is expected to form a major part of the Group’s property development initiatives in the medium term. Human Capital Development The Group embarked on an organisational transformation exercise aimed at realigning its human capital to revised operating structures to enhance operational effectiveness and efficiency. The Group continues to support permanent staff members pursuing relevant academic and professional studies with affordable study loans. Continued investment in human capital development is premised on the need to improve employee productivity. Dividend Your Board has deemed it prudent not to declare a dividend for the year ended 31 December 2013 in light of the significant cash outlay associated with the acquisition of the remainder of Lot 57, Mount Pleasant land as previously described. There is also need to allocate cash for the completion of the Kamfinsa housing project. Directorate Mr Munyaradzi Dube was appointed to the Board on the 5th of March 2013 while Mr Andreas Mlalazi resigned from the Board with effect from the 31st of December 2013. Outlook Your Board remains optimistic about Zimbabwe’s long term economic outlook. We believe that the economic challenges currently prevailing in the country are of a short term nature or at most, they should resolve in the medium term. We hope that all stakeholders will commit to the recent policy pronouncements made by the government aimed at tackling the macroeconomic framework. The successful implementation of the macroeconomic blue print is expected to create opportunities for the productive sectors of the economy, including the real estate industry. Acknowledgements On behalf of your Board, I appreciate the invaluable support received from stakeholders including our tenants, employees and service providers. God Bless, E.K. Moyo Chairman 4 March 2014 Consolidated Statement of Comprehensive Income For the year ended 31 December 2013 Profit for the year 9,823,588 9,028,837 Other comprehensive income – items to subsequently be reclassified to profit or loss Fair value adjustments on available-for-sale equities 8.1 (207,299) (310,607) Available-for-sale reserve reclassified to profit or loss 8.1 - (205,114) Deferred tax effect 8.1 2,072 5,585 Other comprehensive loss for the year, net of tax (205,227) (510,136) Total comprehensive income for the year, net of tax 9,618,361 8,518,701 Total comprehensive income attributable to: Equity holders of the parent 9,618,361 8,511,148 Non-controlling interest - 7,553 Total comprehensive income 9,618,361 8,518,701 Consolidated Statement of Cashflows For the year ended 31 December 2013 All figures in USD Note 2013 2012 Profit before tax 12,702,558 13,668,512 Adjustment for non-cash items (8,234,292) (9,242,020) Working capital adjustments (5,232,060) 261,233 Tax paid (1,295,158) (857,485) Net cash flows from operating activities (2,058,952) 3,830,240 INVESTING ACTIVITIES Improvements to existing properties 6 (294,313) (243,497) Additions to properties under development 6 - (1,262,452) Purchase of vehicles and equipment 7 (45,753) (281,252) Purchase of equity stocks - (3,008) Finance income received 457,853 221,300 Proceeds from sale of investments - 934,716 Proceeds on disposal of property, plant and equipment 5,554 5,627 Dividend received 2,697 11,783 Net cash flows used in investing activities 126,038 (616,783) FINANCING ACTIVITIES Purchase of non-controlling interest - (898,634) Dividend paid - (851,852) Net cash flows from financing activities - (1,750,486) Net increase in cash and cash equivalents (1,932,914) 1,462,971 Cash and cash equivalents at 1 January 11 2,250,495 787,524 Cash and cash equivalents at 31 December 11 317,581 2,250,495 Consolidated Statement of Financial Position At 31 December 2013 All figures in USD Note 2013 2012 ASSETS Non-current assets Investment properties 6 128,142,000 120,266,000 Vehicles & equipment 7 461,770 649,321 Financial assets available-for-sale 8 415,460 622,759 Financial assets at fair value through profit or loss 9 299,644 342,577 Total non-current assets 129,318,874 121,880,657 Current assets Inventory 10 1,328,193 162,860 Cash and cash equivalents 11 317,581 2,250,495 Other current assets 12 8,799,226 3,460,206 Total current assets 10,445,000 5,873,561 TOTAL ASSETS 139,763,874 127,754,218 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Ordinary share capital 1,238,157 1,238,157 Available-for-sale reserves 8.1 (68,679) 136,548 Retained earnings 122,788,877 112,965,289 Total Shareholders’Equity 123,958,355 114,339,994 LIABILITIES Non-current liabilities Deferred tax 13 14,969,274 12,964,786 Total Non-current liabilities 14,969,274 12,964,786 Current liabilities Tax payable 33,171 63,541 Trade and other payables 14 803,074 385,897 Total current liabilities 836,245 449,438 TOTAL EQUITY AND LIABILITIES 139,763,874 127,754,218 Consolidated Income Statement For the year ended 31 December 2013 All figures in USD Note 2013 2012 Revenue 9,022,322 8,830,138 Property expenses (1,683,164) (1,628,197) Net property income 7,339,158 7,201,941 Administration expenses (3,364,339) (3,187,110) Net property income after administration expenses 3,974,819 4,014,831 Other income 708,985 736,377 Operating profit before tax and fair value adjustment 4,683,804 4,751,208 Fair value adjustments 8,018,754 8,917,304 Profit before tax 12,702,558 13,668,512 Tax 15 (2,878,970) (4,639,675) Profit for the year 9,823,588 9,028,837 Profit attributable to: Equity holders of the parent 9,823,588 9,021,284 Non-controlling interest - 7,553 Profit for the year 9,823,588 9,028,837 Basic and diluted earnings per share (USD cents) 0.793 0.729 Weighted average number of shares in issue 1,238,157,310 1,238,157,310 Notes to the Consolidated Financial Results (continued) For the year ended 31 December 2013 6 Investment Properties All figures in USD 2013 2012 At 1 January 120,266,000 109,737,515 Improvements to existing properties 294,313 243,497 Reclassification to Inventory (480,000) - Additions to properties under development - 1,262,452 Fair value adjustments 8,061,687 9,022,536 At 31 December 128,142,000 120,266,000 Lettable Space m2 % of portfolio Sector Dec 2013 Dec 2012 Dec 2013 Dec 2012 Industrial 37,239 37,239 30.95% 30.95% CBD Offices 39,277 39,277 32.64% 32.64% Office Parks 24,652 24,652 20.49% 20.49% Suburban Retail 7,683 7,683 6.39% 6.39% CBD Retail 11,468 11,468 9.53% 9.53% Total 120,319 120,319 100.00% 100.00% 7. Vehicles and Equipment All figures in USD 2013 2012 At 1 January 649,321 632,488 Additions 45,753 281,252 Disposals (29,168) (51,093) Depreciation (204,136) (213,326) At 31 December 461,770 649,321 8. Financial Assets Available-for-Sale At 1 January 622,759 1,181,282 Disposals - (247,916) Fair value on available-for-sale investments (207,299) (310,607) At 31 December 415,460 622,759 The fair value of the quoted equity shares is determined by making reference to published price in an active market.The shares are listed on the Zimbabwe Stock Exchange. All investments that were set aside for property development in accordance with the objectives of the Initial Public Offer of 2007 were designated as financial assets available-for-sale. 8.1 FairValue Reconciliation: Available-for-Sale Reserve At 1 January 136,548 646,684 Unrealised loss (207,299) (310,607) Reclassified to profit or loss - (205,114) Deferred tax 2,072 5,585 At 31 December (68,679) 136,548 9. Financial Assets at FairValue through Profit and Loss At 1 January 342,577 1,105,908 Acquired during the year - 3,008 Disposals - (661,107) Fair value adjustment on financial assets at through profit and loss (42,933) (105,232) At 31 December 299,644 342,577 10. Inventory Property held for trading 140,150 140,150 Work-In-Progress: Kamfinsa Cluster Houses 1,152,034 - Consumables 36,009 22,710 At 31 December 1,328,193 162,860 11. Cash and Cash Equivalents Short-term investments 189,649 400,788 Bank and cash on hand 127,932 1,849,707 At 31 December 317,581 2,250,495 12. Other Current Assets Net trade debtors 1,237,075 828,518 Prepayments 5,214,685 109,667 Other receivables 991,724 584,423 First Mutual Holdings Limited loan 977,022 1,937,598 Other loans & receivables 378,720 - At 31 December 8,799,226 3,460,206 An amount of $0.977 million relates to the loan placed with First Mutual Holdings Limited, the ultimate parent company.The loan is administered under the following terms: • Type of facility: Short term facility • Interest rate: 13% per annum Theloanwhichwasscheduledtobefullyrepaidby30September2013wasrenewedonthesametermsuntil30 September 2014 at a Board meeting held on the 22 November 2013. 13. DeferredTax Arising on vehicles and equipment 86,377 65,283 Arising on investment properties 14,990,708 12,889,851 Arising on assessed losses (114,962) - Arising on financial assets through profit or loss 2,996 3,425 Arising on available for sale investments 4,155 6,227 At 31 December 14,969,274 12,964,786 14. Trade and Other Payables Tenant payables 56,577 25,570 Sundry creditors 277,403 167,878 Provisions 64,866 73,963 Trade creditors 404,228 118,486 At 31 December 803,074 385,897 15. Taxes Current tax 872,408 856,703 Deferred tax 2,006,562 3,782,972 2,878,970 4,639,675 16. Events after Reporting Date 16.1 Equity Investments The value of equities held by the Group has been affected by market fluctuations since year end. Set out below is an analysis of the changes in the carrying amount of quoted available-for-sale investments after year end: Equity investments 25 Feb 2014 31 Dec 2013 Financial assets available-for-sale 389,823 415,460 Financial assets at fair value through profit or loss 128,669 299,644 Total equities 518,492 715,104 16.2 Acquisition of Land On the 9th of January 2014, the Group acquired land measuring 24.0664 hectares being the remainder of Lot 57, Mount Pleasant situated in the District of Salisbury under Deed of Transfer number 3251/88 at a cost of $9.600 million excluding transfer fees. The acquisition was funded through a combination of internal cash flows and a five (5) year loan secured from a local financial institution. The acquisition costs of the land are broken down as follows: Date Source of Funds All figures in USD 30 December 2013 Internal cash flows 4,100,000 9 January 2014 External borrowing 5,500,000 Total Acqusition Price 9,600,000 Transfer fees [Including Rates] 519,246 Total Cost 10,119,246 The $4,100,000.00 from internal cash flows paid on the 30th of December 2013 was accounted for under prepayments. The loan facility sourced from a local financial institution and will be administered under the following terms; Facility Amount $5,500,000.00 Tenure 5Years Security Immovable property, title 0004163/2007, being Stand 18259 Harare Township of Stand 14908 SalisburyTownship called First Mutual Park in the name of First Mutual Park (Private) Limited registered and stamped to cover $6,500,000.00 Interest Rate Base Rate minus 3% per annum [Base Rate at drawdown – 13% per annum] Fees Commitment fee of 1.00% Arrangement fee of 1.00% Management fee 0.5% per annum Consolidated Statement of Changes in Equity For the year ended 31 December 2013 All figures in USD Ordinary Share Capital Reserves Shareholders Equity Non- Controlling Interest Total Equity As at 1 January 2012 1,238,157 105,286,323 106,524,480 1,047,299 107,571,779 Profit for the year - 9,021,284 9,021,284 7,553 9,028,837 Other comprehensive loss - (510,136) (510,136) - (510,136) Acquisition of non-controlling interest 156,218 156,218 (1,054,852) (898,634) Dividend - (851,852) (851,852) - (851,852) As at 31 December 2012 1,238,157 113,101,837 114,339,994 - 114,339,994 Profit for the year - 9,823,588 9,823,588 - 9,823,588 Other comprehensive loss - (205,227) (205,227) - (205,227) Total comprehensive income - 9,618,361 9,618,361 - 9,618,361 As at 31 December 2013 1,238,157 122,720,198 123,958,355 - 123,958,355 Notes to the Consolidated Financial Results For the year ended 31 December 2013 1. Corporate Information Pearl Properties (2006) Limited is a public Group incorporated and domiciled in Zimbabwe and its shares are publicly traded on the Zimbabwe Stock Exchange. The principal activities of the Group are property investment,developmentandmanagement.TheconsolidatedfinancialresultsoftheGroupfortheyearended 31 December 2013 were authorised for issue in accordance with a resolution of the directors at a meeting held on 4 March 2014. The registered office is located at Ground Floor, First Mutual Park, 100 Borrowdale Road, Borrowdale, Harare, Zimbabwe. 2. Basis of Preparation The consolidated financial results of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The financial results are based on statutory records that are maintained under the historical cost convention except for investment properties, financial assets available-for-sale and financial assets at fair value through profit or loss that have been measured at fair value. The financial results have been prepared in compliance with the Companies Act [Chapter 24:03]. 3. Reporting Period and Currency The reporting period is 1 January 2013 to 31 December 2013.The financial results are presented in the United States dollars being the functional and reporting currency of the primary economic environment in which the Group operates. 4. Audit Opinion The Group external auditors, Ernst &Young Chartered Accountants Zimbabwe have expressed an unqualified opinion on the Group’s financial results.The signed Annual Report is available for inspection at the company’s registered office. 5. Segment Reporting Year ended 31 December 2013 All figures in USD Office Retail Industrial Adjustment Total Revenue 4,446,236 3,425,981 1,125,412 24,693 9,022,322 Property expenses (1,018,687) (318,552) (289,663) (56,262) (1,683,164) Segment results 3,427,549 3,107,429 835,749 (31,569) 7,339,158 Fair value adjustment Investment property 6,831,695 3,023 1,076,969 150,000 8,061,687 Segment profit 10,259,244 3,110,452 1,912,718 118,431 15,400,845 Administration expenses - - - (3,364,339) (3,364,339) Fair value through profit or loss - - - (42,933) (42,933) Dividend and other income - - - 56,344 56,344 Interest on overdue accounts - - - 199,951 199,951 Interest on short-term investments - - - 452,690 452,690 Profit before tax 10,259,244 3,110,452 1,912,718 (2,579,856) 12,702,558 Reconciliation of Segment Assets for 2013 All figures in USD Office Retail Industrial Adjustment Total Assets Investment property 93,862,000 19,230,000 12,210,000 2,840,000 128,142,000 Trade receivables 1,211,038 532,530 697,745 (217,312) 2,224,001 Segment assets 95,073,038 19,762,530 12,907,745 2,622,688 130,366,001 Other non-current assets 37,557 16,466 - 1,122,850 1,176,873 Other current assets - - - 8,221,000 8,221,000 Total asset 95,110,595 19,778,996 12,907,745 11,996,538 139,763,874 Liabilities 505,536 42,883 93,684 194,143 836,246 Capital expenditure 71,188 14,906 - 4,362,000 4,448,094 Year ended 31 December 2012 All figures in USD Office Retail Industrial Adjustment Total Revenue 6,067,834 1,520,089 1,223,265 18,950 8,830,138 Property expenses (997,501) (373,877) (146,212) (110,607) (1,628,197) Segment results 5,070,333 1,146,212 1,077,053 (91,657) 7,201,941 Fair value adjustment Investment property 4,811,794 2,470,254 1,360,488 380,000 9,022,536 Segment profit 9,882,127 3,616,466 2,437,541 288,343 16,224,477 Administration expenses - - - (3,187,110) (3,187,110) Investment income - - - 230,806 230,806 Dividend and other income - - - (105,232) (105,232) Interest on overdue accounts - - - 55,582 55,582 Interest on short-term investments - - - 159,307 159,307 Fair value through profit or loss - - - 290,682 290,682 Profit before tax 9,882,127 3,616,466 2,437,541 (2,267,622) 13,668,512 Reconciliation of Segment Assets for 2012 All figures in USD Office Retail Industrial Adjustment Total Assets Investment property 83,920,000 20,390,000 11,130,000 4,826,000 120,266,000 Trade receivables 895,612 339,381 356,609 2,693 1,594,295 Segment assets 84,815,612 20,729,381 11,486,609 4,828,693 121,860,295 Other non-current assets - - - 1,614,657 1,614,657 Other current assets - - - 4,279,266 4,279,266 Total asset 84,815,612 20,729,381 11,486,609 10,722,616 127,754,218 Liabilities 197,005 90,520 56,545 105,368 449,438 Capital expenditure 68,206 1,390,355 62,512 (15,124) 1,505,949

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