5 December 2012

Zimbabwe: African Sun Turns the Corner

AFRICAN Sun Limited chief executive Dr Shingi Munyeza believes the hospitality group has effectively turned the corner and is now poised to sustain its growth trajectory. The hospitality giant reported a US$2,6 million full year profit to September this year compared to a US$10,2 million loss last year. This is the first time that the group has realised a profit since 2009 when the country dollarised. This was largely as a result of a reduction in operating costs through retrenchments, significant growth in inbound visitors due to increased flight capacity and improvement in average daily rates following refurbishment of its hotels.

"We went through a painful yet needed and needful process and I can say we are out of the woods. We reduced our operating costs through retrenchment and this achieved annual savings of US$3,2 million. Our costs are now much aligned hence our desire to return to dividends (in the next financial year). Things are actually looking up. We have witnessed a sustainable growth in city hotels while our resort hotels are showing significant growth.

"This, I am sure, can be sustained. For instance, our numbers for the month of October (this year) are showing that RevPar (revenue per every available room) has increased by 15 percent while total revenues are up 47 percent. November is also looking good," said Dr Munyeza.

Revenues for the period under review grew 12 percent to US$54,4 million due to growth in average daily rate while revenue per available room rose by 18 percent to US$47. But revenue would have been better had it not been cancellations at Victoria Falls hotels as a result of flight suspension by Air Zimbabwe. RevPar is projected to grow to US$57 next year.

EBITDA improved by 131 percent to US$6,3 million. EBITDA margin came in at 5,5 percent better at 11,5 percent and 3,5 percent better than management's 8 percent projection. Interest expenses rose 86 percentage points following an increase in short-term loans and effective borrowing rates.

African Sun also booked an impairment charge of about US$900 000 due to the disposal of Hotelserve and earned a total of US$1,63 million in other income from the Ghanaian management contract.

Next year, the group forecast revenue growth of 10 percent and EBITDA margins of 12 percent.

Dr Munyeza said despite an expected 3 percent growth in global tourism, African Sun is confident that revenue and income in 2013 will grow far ahead of that number.

"Our forecasts are more conservative. We are most likely to perform better," he said.

When asked to what extent the forthcoming elections would affect operations, Dr Munyeza said: "Volumes would pick up due to conferences linked to elections."

He said chances of violence in the run-up to elections were "slim" as they are coming almost at the same time as the United Nations World Tourism Organisation conference.

Dr Munyeza noted the group has, and will benefit from increased weekly flights to Harare, now at 84 from 70 in May while flights into Victoria Falls have risen to 32 from 18. Growth in visitors from the US has also strongly benefited Victoria Falls hotels.

In addition, the domestic market, which was partly affected by closed rooms as a result of refurbishments, is expected to rebound.

The closure of The Grace Hotel in Rosebank and The Lakes in Benoni, both in South Africa, resulted in the avoidance of an annual loss of up to US$3,3 million.

The group raised US$10 million in long- term debt for refurbishment of its top six hotels and this has seen improvement in average daily rate by about US$30.

African Sun intends to spend an additional US$4 million for refurbishment from the cash flows.

Dr Munyeza indicated that differences with Dawn Properties were resolved "amicably and we are now jointly pursuing mutually beneficial value unlocking initiatives".

He added the group would continue evaluating hotel portfolio performance with the view of further value addition and "imperative disposals" would also be considered.

On the net borrowings, currently at US$15,4 million, Dr Munyeza said: "We are confident about reducing our debt. As for our short-term debt, it will be restructured within the first quarter and the repayment of long-term debt is on course."

The group is also looking to re-enter Ghana "to hedge the concentration risk" but also in a manner that does not "compromise growth and without adding the costs".

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