Zimbabwe: African Sun Set to Shine Again

October 12, 2011 11:24 am 0 comments



Published by the government of Zimbabwe

11 October 2011







ZIMBABWE’S tourism sector is this year expected to grow by six percent but it is discouraging that the projected growth is not adequately reflected in the country’s top tourism and hospitality companies.

The operating environment has been difficult in the past nine months and was characterised by negative publicity on the country as a safe destination and gross inefficiencies at Air Zimbabwe.

However, a crisis meeting on Air Zimbabwe organised by industry last week in a bid to chart the way forward for the airline stakeholders said failure by the airline should not be an excuse for business not to operate viably. Stakeholders said companies should think outside the box while Air Zim is putting its house in order.

The tourism sector is the most affected industry when Air Zimbabwe is grounded.

Looking at the performance of the listed hotel groups, it is noticeable that African Sun did not perform very well on the Zimbabwe Stock Exchange.

The Pan-African hospitality group started the year trading at about US7c and it is now trading at US1,1c as of Monday this week.

The company was faced with numerous operating challenges mainly to do with tourism trends in neighbouring South Africa where they have already pulled out of two hotels.

The share price could have been affected by boardroom squabbles with Dawn Properties. However, from the look of things it shows that things are on the mend.

During the second half of the year, it was clear that African Sun had decided to restructure the group to return to profitability.

The strategy was not clear but looking at the disposal of South African operations it meant that they are doing away with loss making operations.

Thereafter the group gave a market update that it was restructuring the group, an exercise that will reduce the head office head count by 58 percent.

The group said this would consequently reduce head office costs by at least 40 percent. This sounds like a great idea because in most companies head offices are bloated and yet it is not the most productive cost centre.

African Sun will however, have to cough out at least US$2,8 million in restructuring costs. Most companies have recapitalised and restructured since the adoption of multiple currencies to ensure their survival and position them for growth.

Operationally, a few companies have now turned the corner and significant recapitalisation should provide for a more solid position for growth.

Post dollarisation, a number of companies have restructured, right-sized and adapted to the realities of the new US dollar environment.

Yes, African Sun is going through a rough patch and it should be admitted that management has done well to bring back the company to profitability. Restructuring has paid for most companies and it would also work for African Sun. The good part of it is that they have the money for the exercise while most companies are struggling to secure funding for restructuring.

After streamlining of operations they would be concentrating on profit making operations and this is expected to give some impetus to the group that has got a big upside potential.

With the expected growth in tourism, the group is expected to benefit as well from the improvement of domestic tourism. The group said its operations in Zimbabwe, Ghana and Nigeria are operating profitably thus overall the group will soon turn the corner.

A projected US$48 million in revenue is not a bad figure but with the restructuring costs it would affect margins. Restructuring costs are once off payments thus the profit position for the group should improve in the next reporting period.

When they (African Sun) walked out of South Africa they said this will improve their margins and this time around US$2,8 million is on the table to deal with restructuring - after all the group is expected to record profits.

Dawn Properties should also put their case to rest and see how African Sun will perform.

Maybe for bargain hunters this could be the time to buy the counter.

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