The Sunday Mail
FINANCIAL closure for the US$60 million facility needed to spruce up five African Sun hotels by the Legacy Group of South Africa is at an advanced stage as the group presses ahead with plans to get a solid footing in the sector.
An official told The Sunday Mail Business that the refurbishment works at Elephant Hills Hotel, the Kingdom Hotel, Hwange Safari Lodge, Crowne Plaza Monomotapa Hotel and Troutbeck Resort have already begun.
Financial closure is being masterminded by Brainworks Capital, a private equity investment and advisory firm that holds a 44 percent stake in African Sun through its investment vehicle Lengrah.
Other African Sun shareholders are Riustrix Investments (19,33 percent) and Old Mutual Zimbabwe (22,15 percent).
African Sun is smarting from a US$3,3 million loss for the year to September 2015 while a loss of US$2,2 million was recorded in the same period last year on weakening revenues.
It is believed that the appointment of the Legacy Group, which comes at a time when African Sun has moved from hotel management to hotel investment, will transform its fortunes.
Under the model, African Sun cedes the authority to manage the hotels to the Legacy Group, which owns and manages a collection of four and five star hotels, bush lodges, leisure resorts and casino resorts in key tourism and business locations throughout Africa.
It is also expanding into the emerging European and Middle Eastern markets.
African Sun hopes that the Legacy Group’s brand, associated volume purchasing power and its international relationships will allow it to avail special rates and promotions to clients.
Last week, Mr Herbert Nkala, the African Sun chairman told The Sunday Mail Business that the Legacy Group will assume management of their assets.
“We can confirm that indeed work has started and that Legacy Group is now managing the aforementioned (Elephant Hills Hotel, the Kingdom at Victoria Falls, Hwange Safari Lodge, Crowne Plaza Monomotapa Hotel and Troutbeck Resort), five out of the company’s 12 hotels.”
Mr Nkala said the management contract signed between African Sun and the Legacy Group provides for the management, refurbishment and expansion of five of its strategic assets.
He said there is room to expand the management contract to include Caribbea Bay, Fothergill Island, Beitbridge Express Hotel and Great Zimbabwe Hotel.
Holiday Inn Harare and Holiday Inn Bulawayo will remain under the InterContinental Hotels (IHG) franchise with Amber Hotel Mutare soon to be rebranded into Holiday Inn Mutare.
Mr Nkala said the Victoria Falls Hotel, which African Sun operates in partnership with Meikles Limited, is affiliated to the Leading Hotels of the World (LHW) brand and will continue to operate as such.
“We are optimistic about the future of African Sun and the refurbishment of our hotels has started on some of the hotels and the process to financial closure of the up to US$60 million refurbishment and construction facility is advanced and this is being overseen by Brainworks,” he said.
“This gives credence to management’s view that the company’s fortunes will start showing signs of improvement by mid-2016.”
The refurbishment will result in Hwange Safari Lodge being completely upgraded on a phased basis into a 4 or 5 star lodge while a revamp of Crowne Plaza’s 240 rooms will see an addition of a new outdoor pool area and other restaurant facilities.
Troutbeck, which is in Nyanga, will retain its Scottish Highlands feel and atmosphere, whilst leisure activities will be expanded.
Players in the tourism sector are struggling to access reasonably priced funding to refurbish their properties and very few companies have spruced up.
In 2012, Meikles Hotel refurbished its north wing in what was the first major revamp in 20 years for the imposing hotel that was 97 years old back then.
A few other hoteliers such the Rainbow Tourism Group refreshed their properties ahead of the 2013 United Nations World Tourism Organisation (UNWTO) General Assembly that was hosted in Victoria Falls.
In March 2009, Government through the Short Term Emergency Recovery Programme (STERP) conceded that the “country’s tourism product has deteriorated over the years thereby impacting negatively on the competitiveness of the destination”.
This saw Government intervening with incentives for investment in the tourism sector.
Duty payments were subsequently exempted on capital goods and on equipment used for expansion, modernisation and renovation of tourist facilities.
Mr Nkala acknowledged that the measures put in place by Government but said that businesses need to be operating optimally to be able to enjoy the incentives.
“This has not been the case in the tourism sector and all operators have not been able to refurbish their hotels, not because the incentives are not working, but operationally we are facing obstacles.
“We have had to borrow to refurbish where ideally we should be using cash generated by the business to upgrade the product offering. As our fortunes turn around, we will continue to lobby Government for more incentives that we can benefit from. This can only happen when we are operating optimally.”
However, in tandem with measures to transform its fortunes, African Sun has made significant progress in debt reduction.
As of October 31, 2015; bank borrowings were US$8,27 million, representing a 52 percent reduction from the US$17.35 million reported in September 2014.
The reduction in debt was made possible through the disposal of the investment in Dawn Properties Limited which raised US$5.8 million while the difference was financed from operating cash flows.
Consequently, gearing reduced from 58 percent to 41 percent.
To further improve the working capital position, management is negotiating that short-term bank facilities be converted to long or medium term.
African Sun has also moved to contain costs by disinvesting from all regional operations, including the Amber Hotel in Accra, Ghana. The disinvestment is envisaged to save up to US$10 million per annum.
It has also trimmed its head office head count from 42 to 12 and this is expected to save US$4,5 million a year.
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