Will African Sun be profitable again?

The market was waiting for its numbers following a string of developments within the group during the 12 months.
The group had earlier indicated that it would record a loss after discontinuing South African operations and its rationalisation exercise which reduced head count by 58 percent.
The group’s share price has fallen to its lowest levels in the past 12 months and market watchers have been debating if the hotel giant will be profitable again in the short term.

You could have noticed that the group has now shifted focus to profitable Zimbabwe operations after disappointing regional operations and the mutual termination of Holiday Inn Gaborone. The majority analysts believe it was a bad idea while others believe that it was the best move by chief executive Dr Shingi Munyeza. It remains to be seen if this is the best move. Only time will tell.
However, judging from the numbers it seems the pan-African hotel management group would be in a position to be profitable and pay a dividend in the current year.

Initially, it is understood that the group recorded good numbers in October and November meaning the future looks bright for the company.
Another indicator for improved performance is that during the period under review although still significantly high and excluding restructuring costs, operating costs came down to 65 percent from 70 percent of turnover.

Despite posting a staggering US$10 million loss for the full year with US$6,6 million coming from discontinued operations continuing operations were profitable at EBITDA level, which could be a positive sign for the future.
Other performance indicators were in the positive with RevPar up 21 percent to US$40, ADR up 8 percent to US$80 and occupancy level up 11 percent to 51 percent.

It is encouraging to note that the business is making serious efforts to become profitable as highlighted by the closure of the South African hotels, disposal of Hotelserve, staff rationalisation and a shift to concentrate on the Zimbabwe operations.
Concentrating on Zimbabweans operations is laudable and is a far better business strategy than expansion in Africa.

Meanwhile, investment attractions will include the continued reduction in costs. However, this can only be to a certain level since rentals will continue to be revenue based.
Improvement in the Zimbabwean image, improved flights into Harare and Victoria Falls, better strategy focusing on Zimbabwe and solid lease agreements with Dawn Properties are also pointing to good times ahead.

As I tried to read into the African Sun recovery story it was clear that the group wants to deal with the business model and to deal with the problems created during the hyperinflationary environment.
Last week I wrote about legacy issues and this is one of the issues African Sun is trying to deal with. Dealing with leakages and bleeding assets, offloading loss-making and non-performing assets, which had become a burden to the group, will complement this.

ASL has completely changed its business model, they are now concentrating with business and they have paid attention to debt, deal with costs structures to retain value.
Going forward, Dr Munyeza indicated that the group would be looking at management contracts in the sub-Saharan region.