African Sun Ltd is awaiting regulatory approvals for the sale of a wholly-owned subsidiary which owns the hotel group’s foreign operations.
By Chris Muronzi
The company announced this week the board of African Sun Ltd had approved the disposal of African Sun Ltd PCC.
“The board has approved the disposal of African Sun Ltd PCC, a wholly-owned subsidiary of African Sun Ltd which owns all the foreign operations to allow the group to focus on solely on the profitable Zimbabwe operations.
Management is pursuing all regulatory approvals to conclude the disposal before year-end,” the company said.
The disposal is expected to improve the group’s working capital position by US$1,2 million.
This comes after management in FY15 boldly cut staff count, closed loss-making businesses and exited regional operations.
Through the layoffs, management hoped to save US$2 million annually.
A strategy to reduce debt in FY15 seems to have started bearing fruit for the group after narrowing losses in the first half to June this year.
As at December 31 2015, bank borrowings were US$7,74 million, a 55% reduction from US$17,35 million reported in September 2014.
African Sun MD Ed Shangwa told businessdigest in April the reduction in debt had been made possible by the disposal of the group’s investment in Dawn Properties Ltd, which raised US$5,8 million. The difference of US$3,8 million was financed from the group’s operating cash flows.
Shangwa is optimistic the cost cutting measures implemented in FY15 will result in more cash being available to service the debt as well as finance working capital. The impact of the measures will start reflecting in the FY16 numbers, he said. In the meantime, the group has secured funding to restructure US$5,4 million borrowings from short-term to long-term.
The US$5,4 million debt is current. The group spent US$2,24 million on retrenchments and expected to realise savings of US$1,90 million annually in FY16.
African Sun this week said the restructuring has seen total operating costs reduced by 14% or US$13,3 million compared to US$15,6 million previously while head office costs have been lowered by 20% in H1 to June.
“The board and management will continue to interrogate the business processes with the view of improving efficiencies and reducing costs,” the company said.
The group narrowed its H1 loss position to US$560 000 from US$1,2 million in the same period last year.
Revenue in the period fell 20% to US$17,99 million from US$22,41 million last year after occupancy levels declined by seven percentage points to 37% from 44% during same period prior year.
Business from the regional markets tumbled 46% weighed down by South Africa market where the Rand has depreciated against the US dollar. The local market also declined 17% due to reduced conferencing and current liquidity challenges.
The company has US$6,4 million current borrowings and US$1,6 million in long-term borrowings.
Finance costs stood at US$743 000 from US$1,2 million in the comparative period last year.