Pamodzi serves a medium rare half year performance review
Taj Pamodzi Hotels Plc, Tourism

In compliance with the requirements of the Securities Act number 41 and the listing rules of the Lusaka Securities Exchange (LuSE) all listed companies are expected to publish their interim and full year performance results. Many of the players on LuSE often provide a summary of what they believe has been their performance over the period under review. However, there are players on the local bourse who will offer a few notes on their performance that will leave stakeholders a tad bit puzzled as to what the numbers published actually mean. This bare minimum interpretation is clearly an act of trying to meet the minimum requirements albeit not giving enough meat on the plate for investors to chew on. Such was the case when we reviewed the SENS Announcement publication for Pamodzi Hotel Group’s half year performance for 2017. A medium rare interpretation? Yes, but that’s where Financial Insight Zambia (FiZ) comes in.

The unaudited results for the first half of their financial year, which runs from April in the current year to March of the following year (half year at 30th September 2017), showed  a slump of 12.5% in comparable accumulated turnover from the previous period.  The hotel’s “medium rare” assessment indicated that their operating and turnover margins reduced due to the increase in local commodities. National Inflation during the year hovered around 6 to 8%. However, according to,  food inflation at its lowest was 3.5% and highest at 26.5% during the 2011 to 2017 period for Zambia. Therefore, consumables that Pamodzi uses in heavy rotation suffered high price increases during the period under review. Furthermore, the depressed turnover according to the hotel was due to the strengthening of the kwacha. However, the abridged financials do not show what the actual amount of the exchange loss was suffered (only available in the full audited accounts). Conversely, Bank of Zambia’s 12 months data shows that the exchange rate during the 2017 period was fairly stable with marginal fluctuations. Therefore, we can only contend that the competitive environment must have played a huge role in their performance. Although their third reason highlights weak business sentiment, consumers now have more options in terms of premium accommodation, fine dining and exquisite function hosting. Competition is real.

A closer look at its ability to sweat its assets showed that there was a reduction in asset turnover from 1.2 to 0.99. The hospitality industry is heavy on fixed and tangible assets which makes keeping an eye on asset turnover very important.

In terms of liquidity, its comparable position was weaker in the current year compared to the previous one as current assets were less than current liabilities indicative of liquidity constraints that impact working capital management. However, the hotel has maintained gearing in the 10% region implying they are not a financial risk.

Profitability unfortunately reduced from 9.2% to 4.5%. If the 2016-17 audited financial year results that showed an 8% net profit margin are anything to go by, should this present performance hold, the hotel would close the year in the range of 4% to 5% net profit margin.

Although the management team declared that the future outlook is positive and optimistic, the hospitality industry largely depends on the macro environment. Furthermore, it is clear that competitive forces are a challenge when it comes to value creation. With the construction boom that has currently swept through the country, more prime locations are witnessing the construction of new opulent hospitality offerings. With an increase in the high end options of hospitality means that the switching costs for consumers goes down. All in all, we anticipate that 2018 will be a competitive year for the hotel.


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