Home Afrika Limited recorded a 58.5% decline in its project percentage-of-completion based revenue from Sh263 million in 2017 to Sh109 million in 2018. While actual sales plummeted from Sh921 million in 2017 to Sh582 million in 2018 owing to slowed growth in the real estate sector amid constrained credit access and general slowdown in spending power among plot and house buyers.
Owing to the company’s revenue recognition model and guided by the International Financial Reporting Standards (IFRS9), most of the revenues were booked on the balance sheet as liabilities. The group operating expenses went up, mainly driven by the fundraising road shows, application of IFRS 9 and other professional fees, leading to a loss of Sh346 million in 2018.
“IFRS only allows us to recognize deposits from sales as revenue once a plot owner has completed payment, title has been processed and the project is complete. This means the billions we have received as sales and sales deposits are reflected as deferred income liabilities in our books thus presenting a more depressed outlook on our financial position,” said Dan Awendo, Home Afrika managing director.
The deferred income and deposits from sales of plots stood at Sh2.6 billion in 2018 compared to Sh2.3 billion in 2017.
“In line with our accounting policy, these amounts are carried as current liabilities in the balance sheet but will convert to revenues in our profitability statement over the next couple of years as we increase the investment in the projects and thereby increase the percentage of completion,” said Mr Awendo.
He said that with the road and golf course works at Migaa Golf Estate in high gear, the completion of the project will effectively see all of the deferred revenue and deposits from sales of plots translate to revenue in the profitability statement shortly.
The book value of the group’s sellable land and other inventory increased from Sh3.6 billion in 2017 to over Sh3.7 billion in 2018. “This signifies continued investment in the various projects. “These investments help to improve the market value of the land as the land becomes more desirable,” added Awendo.
“We are keen on new sales, collections and restructuring of debt in order to improve our cash position,” he said, revealing that the real estate developer is currently engaging three financial institutions that are owed various debt facilities. “Negotiations on restructuring and reorganization of the facilities are at an advanced stage.”
To accelerate the completion of its projects and effectively see a majority of its deferred revenue and deposits from sale of plot translate into revenue, the firm is seeking to raise cash from a strategic investor.
“We have an interested suitor who has a significant land portfolio and who is keen to develop affordable housing on some of the group’s existing land bank,” he said.