African Sun pulls out of Zambia

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African Sun, Zimbabwe’s largest hotels group with operations in nine African countries, says it has disengaged from its partnership project in Zambia, but is still going ahead with other pipeline projects, taking advantage of improving international tourism arrivals and occupancies.
The United Nations Tourism Organisation predicts international tourism to recover 3% – 4% this year after receiving a battering from the global economic recession and the recent Icelandic volcanic eruption, which spewed ash cloud into a large part of Europe’s airspace and triggered a series of cancelations of hotel and flight bookings.
African Sun pulled out of Royal Chundu Zambezi River Lodge in Livingstone, Zambia, after disagreements on commercial terms erupted with its technical partner at the pre-opening stage. The five-star lodge opened in December last year.
The collapse of the deal, which terminated African Sun’s management contract, has subtracted the hotelier’s room stock by 200.
The group is pursuing plans to establish its footprint in high growth African markets with a target to grow rooms under management to 8 500 rooms by 2012 from 2 951 rooms at present, through the acquisition of long-term lease arrangements, management contracts and partnerships with property developers.
Three new hotels in West Africa with total capacity of 315 rooms are scheduled to come on stream by December this year, along with Holiday Inn Gaborone in Botswana with a capacity of 153 rooms.
“I can confidently say African Sun has turned round the corner,” said Nigel Mangwiro, the group Finance director for African Sun. “The markets are improving, revenue is increasing and costs are coming down.”
During its first half to March 31, African Sun successfully restructured its debts from short-term to long-term by fully servicing its entire stock of expensive short-term loans from the local market and securing a $10 million long-term facility from South Africa’s Industrial Development Corporation (IDC).
The short-term facilities were as high as 38% in the first four months of the review period.
“The money (from IDC) will significantly reduce our costs of borrowing in the longer term,” Mangwiro also said.
The money, acquired to complete the group’s pipeline projects including the refurbishment of its hotels in Zimbabwe, is seen bringing down long term borrowing costs to 11% from the current 17%.
The benefit of this will be reflected in the second half numbers.
During the review period, the loss in Earnings Before Interest Taxation, Depreciation and Amortisation (EBITDA) narrowed to just $29 000 from a full-year EBITDA loss of $2,3 million.
The improved earnings were also driven by improving cost ratios and RevPAR (earnings per available room), the standard measure of hotel performance.
Average RevPAR for the entire group increased from a loss position to a break-even point, climbing 33% to $37 from $28 in September 2009.
Revenue surged 96% to 26,1 million from $13,6 million driven by southern African operations, particularly those in South Africa, which recorded a jump in occupancies as a result of the 2010 Fifa World Cup.
South African operations — The Grace and The Lakes — are currently 100% booked for the World Cup. Southern African hotels contributed about 98% of group turnover with West Africa accounting for the balance.
The recovery of the Zimbabwe market also bolstered the strong revenue performance.
Average occupancies for the group rose to 40% by the end of the reporting period from around 29% the previous year in spite of the Icelandic volcano, which held up visitors from Europe and affected South Africa the most.
Zimbabwe numbers were even better at 41% against 27% in the comparable period before with RevPAR also jumping 67% to $30 from $18 in 2009.
The hotels company predicts occupancies will increase further in the outlook as hotels under refurbishment come on stream.