ZPI focusing on smaller valuable projects

Published: 20 March 2014

ZPI will be focusing on smaller projects that deliver value going forward until the economy recovers, managing director Edson Muvingi told an analyst briefing yesterday.

"Those who know Zimre Park, we still have about 60 hectares of land that is still outstanding in that project. That's the areas that we want to develop this year," Muvingi said.

"Our focus is not on bigger projects going forward until this economy recovers. We would rather have small projects that deliver value. Small projects relatively do not have a problem in terms of funding and recovery unlike bigger projects," Muvingi said.

He briefed the analysts that the project comprised 233 stands which is a mixture of commercial, residential, institutional and industrial.

"We are however focusing on residential stands with an anticipated cost of $5 million whilst revenue and expected return of $6.2 million and 24% are targeted respectively," noted.

He further added that funding for the project will be mainly debt and this has been what the company has always been doing in the past.

In terms of the outlook, Muvingi said; "…we do not see any change. Our view is that we expect the operating environment will remain difficult or even worsen. We are very clear on that but if nothing happens you will see these same numbers almost flat."

Muvingi said cost alignment and disposal of existing projects would remain critical going forward as part of strategy focus.

"In addition, rental collections are an issue and we have said it's something we have put all our effort on. All our efforts are targeted on collection. We will also concentrate on portfolio recapitalisation particularly safety issues," he noted.

Turning to operational performance, Muvingi told the meeting that they were happy with the performance of ZPI considering the harsh operating environment.

"To achieve a 28% growth in revenue and only 11% growth in expenses, for us it's something to write home about," Muvingi remarked.

Rent collections were down by 1% to 92% whilst average yields went down to 7.9% from 8.7% in prior year.

"For us this decline means the portfolio has stabilised with risk of the portfolio seen as reducing," he added.

Muvingi highlighted that the increase in portfolio voids to 14% from 10.92% was worrying though he noted that the issue was not specific to ZPI but a market wide issue. Meanwhile, average rentals per square metre were flat for both retail and office space at $150 and $8,50 respectively.

Muvingi told analysts that debtors had been an issue not only for ZPI but across the economy.

On projects update, Muvingi disclosed that Tynwald which had been the flagship project proved to be a success.

"To date we can confirm that we have stopped selling and if you want a stand you are buying from a person who bought from us," he noted.

Muvingi also indicated that the project had delivered value with income generated amounting $2.03 million whilst the total costs of the project were $2.62 million.

"Stands sold represent 51% of the total area whilst we have recovered 77% of the total development cost and we still expect a 41% return.

"Masvingo project has been slow but it's a market issue. We however managed to raise $700 000 in the past year alone." he added.

The total cost for the project was $0.83 million whilst 54% of the total stands had been sold. The return expected for the project is 155%.

"We revisited the Adylinn project after having problems with approvals. Council approved only 40 units compared to the initially target 80 units making the project not viable," said Muvingi.

He added that they were now renegotiating with council and pursuing alternative design options.

Presenting the financial review, FD Nyasha Zhou told analysts that revenue was up by 28% to $6.67 million from last years' $5.20 million.

"Rental income accounted for 56% of total revenue whilst Project sales weighed in 40%. Worth noting is that project sales rose by 110% from the year before whilst rentals only grew by a modest 2% reflecting the hardening in the market in terms of rent review," he added.

Operating expenses at $2.56 million were 11% higher whilst other expenses rose by 113% to $2.45 million.

"Building and project cost of sales made up the significant portion due to the fact that we sold more stands in 2013 than we did before. In other words we transferred those costs from what we were holding as cost of sales," noted Zhou.

Operating profits were largely flat at $1.96 million and fair value adjustments stood at $304 000 mainly made up of asset acquisitions rather than fair value gains.

After tax profits were down 71% to $1.8 million mainly due to the marginal fair value gain of $0.3 million compared to the $5.07 million recorded in 2012.

"The significant change in fair value adjustment made the difference but worth noting is that at operating level we recorded an almost similar position," he said.

Zhou told the meeting that a dividend of 0.024cents was declared which was a 5% growth from prior year.

"The rationale for dividend payment though debatable in this market is that we acknowledge the support by our shareholders. We have been pursuing an active dividend policy since 2010. The dividend decision goes at the same time as the investment and finance decision so in other words the shareholder is a major priority hence the board decision."

Inventories were down by 20.2% at $4.17 million. He noted that the decline was mainly due to sales that were done mainly from the Zimre Park Masvingo and Tynwald projects. "It therefore represents the transfer from inventory to cost of sales," Zhou added.

Borrowings rose by 592% to $1.31 million meant to fund purchase of commercial land in Harare according to Zhou.

Muvingi also gave a trading update where he noted that there was not much change as revenue grew by 18% to $1.11 million which was a 3% positive variance against budget.

An operating profit of $466 216 was recorded, 9% higher to prior years' $427 712 and "this was however 3% below budget."

- zfn

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