This archive report was first published on 31 July 2019.
Published on July 31, 2019, Home Afrika's financial struggles have been evident in its recent financial reports. The company recorded a 58.5% decline in project percentage-of-completion based revenue from Ksh 263 million in 2017 to Ksh 109 million in 2018.
Actual sales plummeted from Ksh 921 million in 2017 to Ksh 582 million in 2018, largely due to slowed growth in the real estate sector amid constrained credit access and general slowdown in spending power among plot and house buyers.
According to Dan Awendo, Home Afrika's Managing Director, the company's revenue recognition model, guided by the International Financial Reporting Standards (IFRS9), has led to most of the revenues being booked on the balance sheet as liabilities.
The group's operating expenses increased, mainly driven by fundraising roadshows, application of IFRS 9, and other professional fees, resulting in a loss of Ksh 346 million in 2018.
Awendo explained that IFRS only allows the company 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 received as sales and sales deposits are reflected as deferred income liabilities in their books, presenting a more depressed outlook on their financial position.
As of 2018, the deferred income and deposits from sales of plots stood at Ksh 2.6 billion, compared to Ksh 2.3 billion in 2017. Awendo noted that these amounts are carried as current liabilities in the balance sheet but will convert to revenues in their profitability statement over the next couple of years as they increase investment in the projects and thereby increase the percentage of completion.
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 Ksh 3.6 billion in 2017 to over Ksh 3.7 billion in 2018, signifying continued investment in the various projects.
Awendo emphasized that these investments help to improve the market value of the land as the land becomes more desirable.
Home Afrika is keen on new sales, collections, and restructuring of debt to improve its cash position. The company is currently engaging three financial institutions that are owed various debt facilities, with negotiations on restructuring and reorganization of the facilities 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.
Awendo revealed that they have an interested suitor who has a significant land portfolio and is keen to develop affordable housing on some of the group's existing land bank. Discussions are at an advanced stage, and further details will be shared as arrangements are concluded.
