It is unclear on whether or not annual reports are supposed to be glossy padded with long winding statements from Chairmen of the Board, Managing Directors and Chief Financial officers. When it comes to the Pamodzi Hotel Plc., their report comes as basic as they come. Needless to say, extracting the thought process of the management team and any indications of what their strategy is in the hospitality industry is an arduous one. Our analysis of their 2018 performance can best be assessed through macro indicators.
According to their tonned down AR, four directors held office during the year under review. Their names: S. Pandya, L. Kalala (Larry), R.C. Fundanga and R.M. Ramakers. The use of initials makes one wonder whether they were saving on ink when it came to printing or were too lazy to type out their full names.
What was impressive from the opening pages of the AR was the Director’s statement on Financial Results and Dividends. The profit after tax for the year amounted to K1.756 million in 2018 compared to K7.087 million in 2017. Although there was a substantial slump in earnings, the “hotel” still paid a dividend of K1 million (K3.75 million was paid from 2017 earnings while K2.5 million was paid from 2016). This indicates that company has a consistent dividend policy that pays approximately 52% of earnings when they have a good year.
Having a consistent dividend speaks to maturity of the company which has not had to reinvent itself for some time. It carries a strong brand name which is ubiquitously known globally.
A look at their financial performance showed that although the hotel’s revenues slid by 12.15%, operating cash flow increased by 153.01%. This can be attributed to the subtle increase in finance income from investments. However, EBITDA slumped by 10.98% with operating profit also reducing by a further 14.07%. Overall, their Profit before Tax came in approximately 60% lower than lower. All this was attributed to the lower revenue collected. Furthermore, with cost of sales only reducing by 6% and gross profit by 12.9% it meant the hotel could not further implementing cost saving measures without affecting their brand.
A closer look at working capital management, we noted that because the hotel’s acid test (current assets against current liabilities) was below 1, there was clear pressure on paying bills the hotel owed that were due within the year. The payable days increased from 494 to 574 which is rather substantial in the hospitality industry. Furthermore, we also noted indications of subtle business distress as with receivable days also increasing by 9 days. This shows that their cash collection ability for invoices issued is faced some constraints in comparison to the previous year.
For extant players that have made huge capital investments, it is imperative that they sweat their assets. We noted that return on sales had reduced from 8% to 2%. The hotel however was able to maintain its administration costs with only a 1% increase in administration against sales over the last two financial years. With a 14% reduction in operating profit, return on hotel infrastructure (non-current assets i.e. property plant and equipment) reduced by 9%.
The hotel’s gross profit margin remained in the 86% region. EBITDA increased by half a percent. Operating profit margin reduced by 1% with profit before tax and net earnings margin reducing by 8.2 and 5.8 percent respectively.
Going forward, the hotel is poised to continue enjoying its status as one of the preferred destinations for corporate events, weddings among other key events. However, working capital management will be crucial to their 2019 performance with intensifying competition from new 5 start hotels being opened. However, location has also provide beneficial to the hotel as it operates in the central business district and has no other branches across Zambia.