• Revenue rose 13% to US$50.3m despite liquidity pressures and weaker NGO demand, with occupancy, ADR and RevPAR all improving
• Gross margin expanded to 74% from 70%, showing stronger operating efficiency, but US$1.6m in acquisition costs and sharply higher finance charges pushed PAT down 39% to US$3.3m
• The balance sheet is the main pressure point, borrowings surged 251% to US$12.3m, receivables more than doubled to US$9.3m, and year-end net cash was only US$729k
• Dividends paid of US$2.6m far exceeded the cash buffer

Harare- Rainbow Tourism Group Limited, has reported revenue of US$50.3 million for the year ended 31 December 2025, a 13% increase from US$44.4 million in 2024. This comes after the group navigated persistent market liquidity challenges and a structural reduction in NGO-related business following the withdrawal of donor funding by key international partners, making the double-digit revenue growth the more creditable given the headwinds against which it was achieved.

Occupancy improved from 54% to 57%, average daily rate strengthened from US$102 to US$109, and RevPAR grew 13% to US$62 from US$55, each metric reflecting improved demand across the portfolio.

Foreign currency revenue, the most commercially significant component for a group whose cost base contains significant hard currency inputs, grew 28% to US$24.1 million from US$18.9 million, driven by continued growth in international tourist arrivals at Victoria Falls and an increase in regional conferences.

From revenue, gross profit margins expanded materially to 74% from 70% in 2024, reflecting the success of procurement optimisation initiatives, the expansion of in-house horticulture projects supplying up to 80% of vegetable requirements, and enhanced operational efficiencies across the portfolio.

In absolute terms, gross profit grew to US$37.4 million from US$31.2 million. This is a genuinely strong cost management outcome and represents the income statement's most positive signal, the underlying hotel operations are becoming more efficient, not less, and that efficiency is compounding into margin expansion at the gross level.

The picture however, changes below gross profit. The group incurred US$1.6 million in acquisition-related costs in FY2025, a new cost line that did not exist in 2024, associated with the three strategic transactions completed during the year. These costs are non-recurring in nature but were charged to the income statement in full, depressing EBITDA to US$7.9 million from US$9.7 million in 2024, a 20% decline.

Finance costs also increased sharply to US$1.19 million from US$190,000 in 2024, reflecting the significant increase in borrowings drawn to fund the acquisition programme. The combined effect of acquisition costs and higher finance charges meant that profit before tax fell 47% to US$4.2 million from US$7.9 million, and profit after tax declined 39% to US$3.3 million from US$5.4 million.

Basic earnings per share fell 41% to 0.13 US cents from 0.22 US cents, while headline earnings per share, which strips out the gain on bargain purchase recognised in the year, fell 68% to 0.07 US cents. Hence, the income statement for FY2025 is a tale of two halves, a strong gross profit performance undermined by the accounting costs of building the portfolio that will generate tomorrow's gross profit.

Turning to the balance sheet, total assets grew 28% to US$82.7 million from US$64.5 million, driven primarily by the three strategic acquisitions. Property and equipment increased to US$63.8 million from US$48.8 million, reflecting both the acquired properties and US$10.3 million in capital expenditure on refurbishment across existing properties, notably completing the remaining 50% room inventory upgrades at A'Zambezi River Lodge and Victoria Falls Rainbow Hotel.

Non-current assets now represent 79% of the total asset base, a reflection of the capital-intensive nature of the hotel business and the pace of the 2025 acquisition programme. The balance sheet has been materially enlarged and the asset base is operationally stronger than at any point in the group's recent history. The concern does not sit in the asset line, it sits in the liabilities and liquidity lines that correspond to how those assets were financed.

Total liabilities increased 66% to US$44.1 million from US$26.6 million, growing at three times the rate of total equity growth, which increased only 2% to US$38.6 million. Borrowings increased from US$3.5 million to US$12.3 million, a 251% increase in a single year, as the group drew on new debt facilities to fund the acquisition programme. The group's gearing increased to 24% as a result.

The average cost of borrowing is 14% per annum, with certain land and buildings pledged as security. At US$12.3 million in borrowings at 14%, the annual interest obligation is approximately US$1.7 million, a figure that compares directly to the total dividend declared for the year of US$2.8 million, and represents a cash cost that must be serviced from operating cash flows regardless of revenue performance.

Trade and other payables nearly doubled from US$10.3 million to US$18.6 million, adding to the current liability pressure on the balance sheet and contributing to the significant deterioration in the net current asset position.

Trade receivables increased from US$4.5 million to US$9.3 million, a 107% increase in a year when revenue grew only 13%. The receivables balance has grown at eight times the rate of revenue growth. In absolute terms, trade receivables at US$9.3 million now represent approximately 68 days of revenue, compared to approximately 37 days at the end of 2024.

A doubling in debtor days across a single financial year in a hospitality business, where the majority of revenue from individual guests and conference delegates is typically settled at checkout or within standard short-cycle corporate credit terms, warrants explanation.

The most likely drivers are an increase in credit extended to corporate and government clients, a slowdown in payment by those clients in Zimbabwe's constrained liquidity environment, or the consolidation of receivables from the newly acquired businesses whose credit terms and collection cycles differ from the established RTG portfolio. None of these is explained in the results announcement. Each has materially different implications for the cash flow quality of the 2026 financial year.

The cash flow statement reveals the full consequence of the year's activity. Net cash generated from operating activities was US$5.97 million, a solid number for a group of RTG's size and consistent with prior year performance. Net cash used in investing activities was US$14.2 million, the majority directed toward the three acquisitions and the property refurbishment programme.

Net cash generated from financing activities was US$6.5 million, reflecting the new borrowings drawn to fund the investment shortfall. The net effect of these three movements was a reduction in cash and cash equivalents of US$1.7 million during the year. The group ended 2025 with net cash of US$729,058, after netting the bank overdraft of US$354,624 against cash and bank balances of US$1,083,682. That figure represents 1.4% of annual revenue and approximately 5.3 days of cash cover at current revenue run rates, less than one week of operating expenses for a group with US$31.5 million in annual operating expenditure.

The Board declared a total dividend of US$2.8 million for FY2025, an increase from US$2.5 million in 2024, and actually paid US$2.6 million during the year. The net cash position at year end was US$729,058. The dividend is therefore not funded from free cash flow in the conventional sense. It is funded from operating cash flows supplemented by borrowings, in a year when the group needed to draw US$10.9 million in new facilities to fund its total investment programme.

Paying dividends during an expansion phase financed partly by debt is not inherently wrong and many growing companies do it, but it requires the market to understand that dividend sustainability depends on borrowing capacity rather than standalone operating cash generation. That dependency is not reflected in the language of the dividend announcement, which references the Group's commitment to shareholder value and a solid liquidity base. A net cash position of US$729,058 is not, by any analytical standard, a solid liquidity base.

The post-reporting date dividend declaration of a further US$1.7 million, partly in USD at US$650,000 and partly in ZiG at the equivalent of US$1.05 million, compounds the liquidity concern. This payment will draw on cash resources in 2026 from a starting position of US$729,058. Unless first quarter 2026 operating cash flows have materially restored the cash buffer before this dividend is paid, the group will be drawing the distribution from debt facilities rather than accumulated operating surplus. The decision to increase the dividend in a year when profit after tax fell 39% and net cash deteriorated 67% signals confidence in the operating trajectory, and that confidence may well be justified by the revenue pipeline from the newly acquired properties.

The three acquisitions completed in 2025, Montclair Resort in Nyanga, Batoka Safaris in Victoria Falls, and MSK House in Cape Town, collectively contributed 8% of group revenues in their first partial year of consolidation, representing approximately US$4 million. The acquisitions are strategically coherent, Montclair extends RTG's conferencing capacity into the Eastern Highlands tourism corridor that Cabinet has designated a priority development zone, Batoka Safaris adds a tour operating and destination management capability at Victoria Falls that creates a vertically integrated leisure offer, and MSK House represents the group's first geographic expansion beyond Zimbabwe's borders.

The most analytically underexplored of the three is MSK House. RTG has committed to developing a four-star luxury hotel in Cape Town, competing in a market where it has no existing brand recognition, operational footprint, or management infrastructure, against well-capitalised regional and international operators. The strategic logic is sound, Cape Town's hard currency, high-yield tourist market offers revenue quality unavailable in any Zimbabwe property. The construction budget, timeline, and expected return on investment remain undisclosed, leaving investors with an open-ended capital commitment whose financial merits cannot be independently assessed.

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