HOTEL group African Sun is seeking to reduce its short-term debt through a combination of initiatives which will include the sale of the remaining 16 percent stake in Dawn Properties and a US$6 million rights offer. Presenting the company’s results yesterday, chief executive Dr Shingi Munyeza, highlighted that the company expects to significantly reduce the short-term debt through the sale of the remaining 16,54 percent shares held in Dawn Properties at the same terms and conditions as the first sale of the 12 percent and a rights offer, among other initiatives.
The rights offer is expected to raise US$6 million. Commitment to underwrite the rights offer has already been secured from major shareholders of the company. The goal will be to reduce gearing from the current 51 percent to a long-term target of 30 percent.
Post the first sale of the 12 percent in Dawn Properties, gearing is expected to reduce down to 45 percent, which will go down further to 35 percent after the sale of the remaining 16,4 percent in Dawn Properties.
The reduction of the short-term debt is expected to boost earnings by saving an estimated US$3 million in finance charges which the company has been paying over the last two financial years.
African Sun, which went through a difficult period as relations deteriorated with its landlord, Dawn Properties, last year, seems to have turned a corner, helped by the restoration of cordial relations between the two parties and an improved operating environment which was topped by the hosting of the United Nations World Tourism Organisation General Assembly in August 2013 in Victoria Falls.
Revenue for the 2013 financial year was up 3,4 percent to US$56,3 million despite a drop in occupancy from 52 percent to 49 percent. The drop in occupancies was largely due to the refurbishment in various properties and the decreased occupancies were mitigated by an increase in the gross margin from 71 percent in 2012 to 73 percent during the year.
Cost to income ratio remained high at 63 percent, marginally down from last year’s 64 percent This is still above management target of 50 percent and with the emergence of a new majority shareholder, cost containment and reduction to set target has now been made a key deliverable and a number of measures are being implemented with expectations of positive results starting in 2014.
Operating income was up 14 percent from the previous period. This was despite a once- off income of US$1,7 million in 2012 from the exit of its management contract in Ghana, Holiday Inn Accra. Excluding the once-off income, African Sun would have recorded a 79 percent increase in operating income.
The company posted an 11 percent increase in earnings before interest, depreciation and amortisation compared with the prior year 2012. This was, however, significantly reduced by a once-off adjustment in fair value of the disposal of12 percent shareholding in Dawn Properties and the impairment of the remaining 16,54 percent shareholding in Dawn Properties by African Sun.
The impairment was as a result of the change in accounting policy on Dawn Properties investment, previously as an associate to fair value accounting.
Although the Dawn Properties-linked units were sold at a premium of 53 percent to the 30-day volume weighted average price on the Zimbabwe Stock Exchange and 51 percent above market trading price, the carrying amount had been significantly higher than the market prices.
Management indicated that it was necessary to go through the pain of re-adjustment as the proceeds of US$4,3 million were used to reduce short-term debt.
Total fair value adjustment and impairment amounted to US$7,6 million and finance costs of US$3,2 million resulting in a loss attributable to shareholders of US$6,6 million. Without the adjustments, the company recorded a profit of around US$1 million, an increase of 5 percent compared to the same period last year.
The company, which operates 13 hotels in Zimbabwe, including three in the Victoria Falls resort city and another three in Nigeria, announced that it had opened a new hotel in Ghana, which will operate under a lease agreement.
This is the first lease agreement secured by the company in West Africa. Previously, the company was operating under a management contract in Accra Holiday Inn, Ghana. The hotel, trading under the brand Amber Hotel and located at Accra Airport, was opened last weekend and is expected to contribute about 10 percent to the group turnover.
Speaking at the results presentation, chief financial officer Mr Nigel Mangwiro indicated that the company reinvested the termination fees they received last year from the Holiday Inn Accra Airport Hotel management contract, into the new hotel.
To complete the financing package of the new hotel, the company also secured a loan from Ecobank Ghana.