Troubled hotel group, African Sun Limited (ASL), has reported its first profit since dollarisation, raising hope that its fortunes have turned the corner. In an interview with Senior Business Reporter, Shame Makoshori , chief executive officer (CEO) Shingi Munyeza reveals where the wheels first came off, and how he recharged his batteries to steer the group out of trouble.
Could you tell us the nature of problems that drifted ASL into crisis?
Actually, the crisis happened prior to dollarisation. At dollarisation, we had already suffered a couple of major blows; the first one was the cholera epidemic that resulted in major cancellations.
We also had a depleted balance sheet because of the way we were charging food prices and accommodation. You will also recognise that in September 2008 I was detained by the price control (officers) for having issued instruction to hotels that they must charge in foreign currency because we could not sustain (Zim dollar losses).
But our utilities (under a hard currency regime) were higher than the regional parities. We could not shut a hotel, so our working capital was then eroded. At the same time we had a product that needed serious attention. We now had real overdraft for the first time.
Our US dollar income was lower than what it was the previous year. The local market was still grappling with paying in US dollars.
And so African Sun was in trouble?
The structures then crystallised, all of a sudden we had a huge overhead cost burden to the company. We wanted capital, we wanted to refurbish, at the same time we still had to remain viable.
Towards August (2009) we realised we needed to raise money, equity; the board had decided that we could (embark on) a rights issue.
That rights issue is what saved this company. If we had not raised (money through) that rights issue, we could have had a serious crisis, the company was in danger.
You should have felt (like) throwing in the towel.The feelings of quitting are always there because when the heat is on, it's on. My wife's encouragement was what I needed to focus on things that had to be done.
I must be honest with you that the role of a CEO is a seasonal one. It's not a permanent job. The plan that is always there is when you know that you have to hand over not just to another person, you need to hand over a legacy. A lot of ASL's businesses are relationally driven.
So there has to be a deliberate process of handing over those forms of relationship so that you don't destroy value. But if it was done haphazardly, it could have injured the company. I felt that if I was to hand over to somebody, I needed to hand over a company that is making money like what it is now. You don't hand over something that is broken.
I was looking at your balance sheet, it still shows some strain?
All we have to do is to restructure the short-term debt to a positive working capital position. What we intend to do is to make the short-term borrowings medium to long-term and then reduce the cost, and also start paying off those borrowings.
Short-term borrowings are 90 days, 180 days so they are always in there. But if we make them three years to five years they don't come into our working capital cycle. It changes our balance sheet quality.
We want to push all our interest to below 15 percent. We have made inroads into is. It is not sustainable to have interest rates of 15 to 22 percent.
Once you make them more long-term, the interest rates naturally come down. It's just that our local banks don't have long-term money, so we will be accessing lines of credit. This is not going to be done by local banks.
Then the drastic measures that you took, I mean the retrenchments?
First of all the turnaround was an agreed position by both the board and management and staff. So the board finally agreed that in order to survive we needed to make these initiatives and these drastic measures, my job as CEO was to now make sure that the staff and management were put on one page.
So we started by making sure that any staff structures that we felt were not at a hotel level was retired. Then at HQ level we streamlined. The leadership team also realised that we could not continue as we were.
We agreed that some of us were going to leave. It was done with a lot of respect, a lot of honour and a lot of engagement.
And we agreed that it was going to be done in a manner that was going to be fair. It was meant to be swift, it was meant to be respectful, it was meant to be fair. And so we did it in 30 days. No one was happy that they were leaving, we were not happy that they were leaving but because of the manner in which we put it together, it was the right way to do it.
As CEO, how does it feel,three years, no profit?
Three years is a long time in any business cycle, but if you look into the long-term, if there are things that you have put in place and you know that the business is going to do well, you are comforted. What was frustrating for me is the inability to do much because of the lack of capital, access to capital. That was the most painful thing
You were going to be the CEO who brought ASL down?
(Laughs). That is why there was a prophecy of doom that the sun was setting on African Sun. You look at the diversity of stakeholders in African Sun; it affects the ecosystem of the business community in Zimbabwe.
We cannot have the largest hotel group collapsing, going into receivership. You just are not carrying your own little desire. You are carrying a national asset, and you are just a steward of that national asset. So there was this deep sense of responsibility during that time and one has to be sober all the time. You just have to have balanced counsel during that time.
Who gives the hotel group's CEO counsel?
The first counsel is always from my family; I have a few guys who have surrounded me throughout all this. Others are responsible for market perception, others for my physical wellbeing, others are responsible for my spiritual wellbeing, others are making sure that I am continuously managing my family affairs well so that my decision-making is not affected.
What was Mrs Munyeza saying?
My wife's role was always to keep me balanced. She is a deep thinker herself. So she is not moved by emotions too quickly, I am probably more temperamental than she is.
So her role was always to, "Keep your head to the ground, and keep your hands on the plough, don't lose focus. There are things that you need to do, they must be done" so she would check on whether that has been done and why it is not done. So she became my headmistress in execution.