Pace (Pakistan) Limited

Pace (Pakistan) Limited (PSX: PACE) is a public limited company incorporated in Pakistan. The company began its operations in 1995 and is engaged in building, acquiring, managing, and selling departmental stores, condominiums, supermarkets, shopping plazas, housing societies, utility stores, plots as well as other kinds of property. The company also conducts commercial, industrial, and other related activities within and outside Pakistan. Pace is a part of First Capital Group which owns and operates a diversified business portfolio in financial services, real estate development, media, and telecom sectors.

Pattern of Shareholding

As of June 30, 2023, PACE has a total of 278.88 million shares outstanding which are held by 10,450 shareholders. Local general public has the highest stake of 67.58 percent in PACE followed by its associated companies holding 15.29 percent of its outstanding shares. Foreign investors including individuals and organizations account for 11.25 percent shares of the company. Around 4.69 percent shares of the company are held by joint stock companies. The remaining ownership is distributed among other categories of shareholders.

Financial Performance (2018-23)

Except for a stupendous rise in 2022, PACE’s topline has been diving since 2018. The company has never posted a net profit in any of the years under consideration. In fact, it has been registering operating losses since 2018 except in 2022. PACE’s gross margin which was in the negative zone in 2018 recovered thereafter to boast its optimum value in 2021. It then plunged in 2022 followed by a rebound in 2023. Operating margin only touted a positive figure in 2022 while net margin continued to hover in the negative zone throughout the period under consideration (see the graph of profitability ratios). The detailed performance review of each of the years under consideration is given below.

In 2019, PACE’s topline slid by 29 percent year-on-year. This was on account of no revenue derived from the sale of property during the year. Revenue from development services also registered a plunge in 2019. The cost of revenue also slid by 47 percent year-on-year in 2019 due to lesser cost incurred from shops and commercial buildings sold during the year. Write down value of inventory to net realizable value also plummeted during the year. This resulted in a gross profit of Rs.110 million in 2019 versus a gross loss of Rs.8.15 million in 2018. The company was able to curtail its operating expense by 22 percent in 2019 on account of lower payroll expense incurred during the year as the company streamlined its number of employees from 236 in 2018 to 231 in 2019. Another reason for the lower operating expense was lesser commission on sales incurred in 2019. PACE’s other income fell by a massive 94 percent in 2019 due to high-base effect as the company earned gain on sale of non-financial assets during the year particularly investment property. Gain earned on the settlement of loans in 2018 was also missing in 2019 resulting in thinner other income. PACE operating loss ticked up by 3 percent in 2019. Finance cost escalated by 21 percent year-on-year in 2019 due to higher discount rate due to higher interest on redeemable capital incurred during the year. PACE’s gearing ratio surged from 62 percent in 2018 to 79 percent in 2019. Exchange loss from foreign convertible bonds also magnified by 161 percent in 2019. However, unlike previous year, PACE earned gain from changes in the fair value of investment property in 2019. The company incurred a net loss of Rs.929.25 million in 2019, up 73 percent year-on-year. This translated into a loss per share of Rs.3.33 in 2019 versus Rs.1.93 in 2018.

PACE’s revenue further slumped by 47 percent in 2020 which was mainly attributable to significantly lesser revenue from development services. Cost of sales tumbled by 49 percent year-on-year in 2020 owing to lower construction cost and operating cost related to plazas. Gross profit in 2020 was 40 percent lesser than that of previous year, however, GP margin improved to 27.2 percent. PACE incurred 48 percent higher administrative and selling expense in 2020 on account of higher payroll expense coupled with an uptick in legal and professional charges. Other income boasted a 355 percent year-on-year jump in 2020 due to gain on the settlement of loans. Operating loss mounted by 166 percent in 2020. Finance cost hiked by 49 percent in 2020 due to higher discount rate. The bottomline was somehow buttressed by lower exchange loss from foreign convertible bonds which shrank by 91 percent in 2020. Gain from change in the fair value of investment property also rose by 751 percent. This squeezed the net loss by 57 percent year-on-year in 2020 to clock in at Rs.397.88 million with a loss per share of Rs.1.43.

In 2021, PACE’s revenue slipped by 12 percent year-on-year due to a drastic drop in revenue from development services. Rental income from lease of investment property also declined in 2021. Cost of revenue registered a massive fall of 57 percent due to lower construction and operating cost related to plazas. This resulted in a 108 percent rebound in gross profit in 2021 which translated into a GP margin of 64.6 percent – the highest in the period under consideration. PACE incurred 26 percent lower administrative and selling expense in 2021 due to lower payroll expense, thin legal and professional charges as well as a drop in impairment loss on trade and other receivables. Other income slumped by 26 percent year-on-year in 2021 as the company earned a gain on settlement on loan in the previous year, however, there was no such transaction in 2021. Operating loss in 2021 came out to be 59 percent lower when compared to previous year. Finance cost also dived down by 35 percent in 2021 owing to monetary easing. PACE also earned exchange gain of Rs.156.01 million on foreign convertible bonds in 2021 unlike exchange loss incurred in the yesteryears. Conversely, gain from change in the fair value of investment property posted 88 percent slump in 2021. PACE’s net loss fell by 88 percent year-on-year in 2021 to clock in at Rs.46.32 million with a loss per share of Rs.0.17 – the lowest among all the years under consideration.

After three consecutive years of topline fall, PACE’s net revenue posted a staggering 487 percent year-on-year rise in 2022 due to tremendous growth in the sale of inventory in 2022. This included sale of pace tower units, completed units and land. Cost of revenue also hiked by 1092 percent on account of spike in the cost of construction in 2022. Gross profit grew by 155 percent in 2022, however, GP margin slid to 28.1 percent. Administrative and selling expense hiked by 54 percent in 2022 due to higher impairment loss on inventory, fixed assets, trade and other receivables as well as escalation in repair and maintenance expense during the year. Other income registered a robust rebound of 859 percent in 2022 on the back of gain on the settlement of loan/lease liability. As a consequence, PACE boasted an operating profit of Rs.372.04 million in 2022 after four years of posting operating losses. OP margin clocked in at 29.6 percent in 2022. Finance cost surged by 16 percent in 2022 due to spike in discount rate. PACE also incurred a massive exchange loss worth Rs.818.89 million on foreign convertible bonds due to drastic decline in the value of Pak Rupee. Gain from change in the fair value of investment property improved by 62 percent in 2022. Higher exchange loss was the main culprit that resulted in a massive net loss of Rs.618.44 million in 2022, 1235 percent year-on-year. Loss per share also climbed up to Rs.2.22 in 2022.

Recent Performance (2023)

Followed by a splendid revenue growth of 2022, came a topline drop of 81 percent in 2023. This was on account of a steep fall in the sale of completed units in 2023 coupled with no sale of Pace Tower units and land. This was the result of shattered investor confidence and lower remittances. Cost of revenue also dropped by 87 percent in 2023. Gross profit shrank by 65 percent in 2023, however, GP margin improved to 50.9 percent. Administrative and selling expense ticked up by 14 percent in 2023 due to drastic surge in the impairment loss on trade and other receivables. Other income slipped by 61 percent in 2023 due to lower gain on the settlement of loans. PACE incurred an operating loss of Rs.85.15 million in 2023 versus operating profit of Rs.372.04 million in 2022. Finance cost posted an uptick of 17 percent in 2023 due to unprecedented level of discount rate. Exchange loss escalated by 74 percent in 2023 due to unabated depreciation of Pak Rupee. Gain from change in the fair value of investment property improved by 52 percent in 2023. Net loss magnified by 171 percent in 2023 to clock in at Rs.1677.60 million with a loss per share of Rs.6.02 – the highest ever net loss incurred by the company.

Future Outlook

Radical drop in remittances from overseas Pakistanis and risk aversion of both local and foreign investors on account of macroeconomic and political headwinds will continue to pose dire challenges to the real-estate sector. This coupled with escalated construction cost, higher electricity tariff and commodity prices and lower purchasing power of investors due to unparalleled level of discount rate and inflation will affect the overall performance of the real-estate sector.

As of June 2023, PACE’s current liabilities exceeded its current assets by Rs.5,250 million. Accumulated loss of the company stood at Rs.4,786 million. Due to persistent losses, the company’s equity stood at negative 1,677.513 million as of June 2023. This raises doubts on the ability of the company to continue as a going concern, realize its assets and discharge its liabilities.