- Loss rose to US$1.8 million from a previous profit of US$15 million
- The Kingdom Hotel ceased operations in January of this year
- Occupancy rate increased to 46%
Harare- African Sun Limited (ASUN), a hotelier listed on Victoria Falls Stock Exchange (VFEX), has reported a loss of US$1.8 million for the half-year period ended 30 June 2023. This was primarily attributed to the discontinued operations, which incurred a loss of US$0.75 million. The discontinued operations primarily involved the closure of the Kingdom at Victoria Falls Hotel, resulting in property and equipment impairments that contributed to the overall loss.
On January 5, the Kingdom hotel, which had been operating in the resort town of Victoria Falls for 23 years, ceased its operations. The closure was a result of a lease dispute between ASUN the occupant of the hotel since 1997, and the property owners, First Capital Bank (FCB). ASUN had initially obtained a US$24 million loan from Barclays Bank, which later became FCB, to refurbish the facility in 1999. This refurbishment transformed the Kingdom hotel into one of the largest hotels in the country. However, due to the lease dispute, the hotel was forced to shut down its operations.
During the lease renewal process last year, FCB the property owners, proposed a shorter two-year lease for the 294-room property. In contrast, ASUN sought a 10-year extension, citing the need to recover its investment in the hotel. ASUN argued that a longer lease period would provide sufficient time to recoup the significant financial resources it had invested in the property.
As part of the lease renewal negotiations, certain tender requirements were put forth. These requirements included bringing in an international hotel brand and making substantial investments in rebranding the hotel. These conditions were likely aimed at enhancing the hotel's market appeal and ensuring its long-term success. However, due to the disagreement over the lease terms and the associated requirements, an agreement could not be reached between ASUN and FCB, ultimately leading to the closure of the Kingdom hotel.
After the closure of the Kingdom Hotel, ASUN is currently engaged in discussions with local financial institutions to secure standby financing facilities. These funds would be utilized for ongoing and upcoming hotel refurbishment projects. The primary focus is on completing the refurbishment of the remaining 46 rooms at Hwange Safari Lodge.
ASUN acknowledges the impact of ceding the Kingdom Hotel. The closure of the Kingdom Hotel has created a void in the company's hotel portfolio, and ASUN is aware of the need to address this gap.
Recognizing the importance of maintaining and upgrading its hotel properties to meet the evolving needs and expectations of its customers, ASUN is actively pursuing discussions with local financial institutions to secure standby financing facilities. These funds will be instrumental in supporting significant hotel refurbishment projects that are currently in progress.
By ensuring the availability of standby financing, ASUN aims to facilitate the smooth progress and timely completion of the refurbishment projects.
The ongoing refurbishment projects are expected to benefit from the resurgence of global tourism following the COVID-19 pandemic. Despite geopolitical tensions between Russia and Ukraine, the global international arrivals have shown promising signs of recovery. In the first quarter of 2023, international arrivals reached 80% of pre-pandemic levels, indicating a significant rebound in the tourism sector.
This recovery in global tourism has had a positive impact on ASUN's export revenue contribution. The company has observed an increase in export revenue, which now accounts for 25% of the total revenue generated by the Group's hotel segment. This growth in export revenue signifies the expanding market reach and the ability of ASUN to attract international visitors.
Revenue growth in the specified period, reached US$22.36 million, demonstrating a 2% increase compared to the corresponding period in the previous year. The growth in revenue was due to higher business volumes, indicating an increase in customer demand.
One factor that has contributed to the revenue growth was the improvement in hotel occupancy rates. Hotel occupancy rose by 5 percentage points, resulting in a 46% occupancy rate.
However, despite the revenue growth, the company faced challenges as costs escalated at a faster pace than revenue. The company experienced increased operating expenses, excluding depreciation, which amounted to US$13.91 million. This represents a significant 36% increase compared to the previous year.
The escalation in costs was attributed to various factors, including inflationary pressures and increased business volumes, which led to higher variable costs.
In light of the loss recorded and the ongoing capital expenditure on hotel refurbishments, the Board has made the decision not to declare a dividend for this period. By refraining from declaring a dividend, ASUN aims to retain the necessary funds for continued investment in refurbishment projects and to address the financial challenges it faces.
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