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African Sun rethinks strategy post Legacy deal

13 Jul, 2020 - 00:07 0 Views
African Sun rethinks strategy post Legacy deal African Sun

The Herald

Tawanda Musarurwa Senior Business Reporter

African Sun Limited has shifted its business model from being a hotel investment company to that of a hotel asset management company following the termination of a management contract with Legacy Hospitality Management Services.

In October 2015, African Sun engaged Legacy to manage five of its properties, namely: the Elephant Hills Resort and Conference Centre, The Kingdom at Victoria Falls, Monomotapa Hotel, Hwange Safari Lodge and Troutbeck Resort.

The contract was, however, ended last April.

And management is of the opinion that the revised business model will maximise the value and potential of the group’s hotel assets.

“To date, the group has fully integrated and taken over the management of all the hotels previously managed by Legacy.

“Group operations are now segmented into country and city hotels, resorts hotels and the partnership and sun leisure division,” said managing director Edwin Shangwa in the group’s integrated FY2019 report.

“The strategy driving change in our business model is premised on the need to move the group to a position of sustainable growth and value creation.”

According to management, the revised strategy seeks to achieve the following targets: to consistently achieve no less than 20 percent pre-tax return on equity; to achieve an EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin of at least 25 percent; to achieve customer satisfaction Index (CSI) of 75 percent and above; and to set a benchmark in the group’s talent development for sustainability, succession and growth.

African Sun is also looking to ensure that associations with reputable brands have sustainable long-term returns, while it seeks to be in top three measured by Revenue Generation Index (RGI) in markets in which it operates.

The group reported a 68 percent jump in inflation-adjusted revenue for the year to December 31, 2019 to $914 million despite a decline in occupancies. The improved topline was largely driven by the average daily rate (ADR).

ADR represents the average rental income per paid occupied room in a given time period. ADR, along with the property’s occupancy are typically the foundations for a hotel property’s financial performance.

African Sun’s ADR grew by 102 percent from $869 recorded last year to $1 759 as the group’s hotels continued to align room rates with interbank exchange rates during the year.

Occupancy for the year, however, was depressed closed at 48 percent, compared to 59 percent recorded last year.

“The local market was negatively affected by the January 2019 protests and low disposable incomes, with room nights declining by 15 percent from 214 892 reported last year to 181 698 for period under review,” said chairman Alex Makamure.

“The international market has also been affected by the general slowdown in world travel by 3 percent, as well as random actions of civil unrest such as the Hong Kong strikes which affected our arrivals in the Victoria Falls destination, in particular for The Kingdom at Victoria Falls.”

Due to these macroeconomic factors, African Sun’s foreign room nights was down by 21 percent from 134 639 reported last year to 106 526 during the period under review.

Inflation-adjusted EBITDA of $387 94 million was recorded by the group, which was 187 percent above last year mainly in response to inflation pressure.

Financing costs also jumped significantly during the period under review.

African Sun’s net financing costs for the year amounted to $8,8 million, an 83 percent increase from $4,8 million reported last year.

“The increase is mainly attributable to lease liabilities as finance costs on borrowings decreased by 93 percent,” explained the chairman.

Inflation-adjusted profit before income tax for the year stood at $338,01 million, a 302 percent growth from $83,89 million reported in the prior year.

And profit for the period rose 227 percent to $187, 04 million, from $57, 21 million in the prior comparable period.

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