Half year analysts presentation

We had our half year analysts presentation yesterday at the Royal Harare Golf Club. I presented to a packed room of analysts and it was very heartening to see the levels of interest in our group at the moment.

I thought the question and answer session would be short and over quickly but some insightful questions came from the gallery as they explored different aspects of our business model and investment story.

I thought I would use my blog to provide some additional insights into the presentation that we posted online on www.AfricanSunInvestor.com. In this blog I cover Ghana, Zimbabwe growth, 2010, our margins, Angola and Namibia and capital markets/financing initiatives.

www.AfricanSunInvestor.com

Ghana is a growth story for African Sun

Our hotel in Accra, Ghana, Holiday Inn Accra Airport is doing very well and it is the only hotel we have launched that recorded a profit in the first month of operation. Ghana is a good story. We like Ghana and we believe that opportunities there are sustainable and it is for this reason that our long stay brand, MyPlace is looking for a second hotel in Ghana.

By June 2010 Ghana will be an oil producing nation. Ghana has been stable and growing for many years. Business travel to Ghana is growing. Barack Obama is expected to visit Ghana. We expect occupancy rates in Ghana to remain above 70% for the next 3 – 5 years.

Zimbabwe growth based on current bookings

The statistics shown in your presentation record that Vic Falls Hotel occupancies are due to double but Elephant Hills occupancies are static. Let me put this into perspective. In 1998 we had occupancies at Elephant Hills of about 62% throughout the year driven by incentive groups and conferencing. This year we have had COMESA and the Government retreat. Typically the lead times to booking and utilising our hotels for these sorts of events are short and so the booking system statistics (shown in the presentation) may not be a true reflection of the possible growth for the remainder of the year. This is because the booking statistics and occupancies assumed in my presentation assume that only the current bookings in the system come to fruition and no other bookings are made for the remainder of the year.

2010, the story is about what’s beyond

African Sun is already a part of the 31,000 rooms already booked by FIFA in South Africa and negotiations are still underway for African Sun to understand fully the terms possible relating to the deficit of rooms that FIFA still has to allocate.

We have a global distribution system PACRO and we pursue a variety of other distribution channels to ensure that we participate meaningfully in the region. This mosaic of marketing initiatives is needed in order for us to fully leverage 2010.

Another channel is attendance at trade shows. We attended Indaba – the biggest travel show in Africa – which attracts the whole world to Durban. Online and website reservations are a growing part of our distribution channel and we plan to grow this area fully to maximize the capture of new online booking trends.

Construction is under way for a new hotel in Gaborone prior to the commencement of 2010 and our strategy for hosting teams generally is to avoid gambling with some of the highly risky conditions that can come with hosting teams in the World Cup. The terms and conditions of hosting can be particularly damaging and whilst the opportunity of hosting 2010 teams and supporters we are going to do this in a responsible manner.

There is a lot of focus on 2010 but we look beyond this. Post- 2010 we expect a general level of increase in travel to the sub-region. This has been experienced in every recent World Cup and the post-2010 period is expected to be no different.

Margins in a recovery phase

Last year in September our EBITDA margin was 27%. Our operations of January – March this year were reduced to Greenfield operations on account of the collapse of the currency. Our business is break even at 25 – 27% occupancy. Recent estimates show that for every increase in 1% occupancy EBITDA grows by over U$1m assuming that rates stay the same. African Sun is currently in a period of recovering from the extraordinary times of the beginning of this year.

Angola and Namibia on the radar

The language barriers in Angola can be overcome. We see a bigger issue however in property rights. Property rights is a sticking point and this issue has to be dealt with through the President’s office. Namibia is another area of opportunity as uranium has been discovered near Walvis Bay.

We plan to launch a new safari brand before the end of the year to cater for the lodge market which really needs a separate business model to the traditional hotels.

Capital raising and capital markets initiatives are a GO

Given the global meltdown we have had to re-look at the future and our strategy for growth and financing. In December last year we were seeking US$60m (for the cash flows of our property developers as well as African Sun). Those initiatives did not come to fruition and we are now working with multi-lateral institutions for finance.
We have publicly stated our intention to list on the JSE’s Africa Board. The Africa Board is a stepping stone to our stated objective of a listing on a major bourse but this initiative is not going to be carried out for the sake of it. It will coincide with a capital-raising and we intend to offer 20% of our share capital on the Africa Board to achieve this.

The timing is not yet confirmed but we hope that by the end of the year this initiative will have been confirmed. Consider that our business model is hedged geographically and from a currency and business model perspective so investor interest might be there. Add to this my previously mentioned comment on debt levels. Our gearing is less than 2% at the moment and the stability referred to in my presentation above has prompted us to seek finance from multilateral lending agencies in order for us to refurbish 60% of our hotels in Zimbabwe. We expect to make an announcement in the near future on this and estimate our funding requirement to be approximately US$15m.

Debt levels are undemanding and more than matched by growth

With African Sun coming from a very low occupancy base its tempting to reduce prices to increase occupancies but we feel that low occupancies are due to factors other than pricing. They are due to the general global slowdown. So it is not our strategy to price cut at this time.

It is however our strategy to leverage our growth through borrowing. You may question this as we are currently experiencing negative cash flows and you may ask is it wise to take on more debt when occupancies are so low. Our gearing is at 2% and we have a US$670,000 5 year loan in Rand at SA prime less 2%.

In my presentation I showed that occupancies are due to more than double based on current bookings in the system. For example, occupancies at Victoria Falls are expected to be around 48% so the increase in debt is going to be more than covered by the cash flows arising from our core business growth.

Shingi

Welcome to my first blog

My presentation at the COMESA Business Forum on 4th June shows the extent of the growth opportunities in Africa and our capacity to take advantage of this growth. Sure there are a number of barriers but the regional integration of trans-frontier parks, specifically the Great Limpopo Trans-Frontier National Park (“GLTF”) is a globally significant opportunity on our doorstep. Spanning South Africa, Mozambique, Zambia, Botswana, Zimbabwe, Swaziland, Lesotho, Namibia and Angola this will be the biggest wildlife conservation area globally. Upon completion GLTF Park will cover an area of over 100,000km² and will provide diverse development and sustainable opportunities at community and national levels.

I have had a busy time recently participating in the excitement that is preceding 2010 and it has struck me that it is difficult to comprehend the long-term opportunities offered by tourism opportunities in sub-Saharan Africa. The excitement continues and I am presenting at the Hotel Investment World Africa presentation next week, the conference runs from 9th-12th June in Cape Town and runs concurrently with World Economic Forum and more feedback from that when I return…

A review of the presentation below and our investor relations website will provide more insights into how African Sun is positioned to participate and contribute in tourism over the next 5 – 10 years. Enjoy. Please let me know if you have any questions – I value your feedback.

Shingi

Tourism development in the COMESA region

Preamble

Tourism, by its pervasive nature plays a significant role in the economies of most African countries with its contribution to all sectors of the economy. It is indeed one of the most remarkable economic and social phenomena of the last century. Notwithstanding the global financial crisis, all indications are that tourism will maintain this position in the current millennium. Every year, a bigger portion of the world population become tourists and for the majority of countries, tourism has developed into one of the most dynamic, and fast-growing sectors of the economy.

The continent is one of the few regions around the world still enjoying growth in international tourist arrivals. According to UNTWO statistics, Africa enjoyed a 5% growth translating to 47 million visitors in 2008, and still has to gain momentum in this sector and impact significantly on economic growth.

According to the World travel Tourism Council (WTTC) Tourism is one of the largest industries in the world, accounting for 9.9% of world GDP in 2008 and with projections of 10.5% in 2018. In real money terms, tourism GDP contribution in 2008 totalled US$5,890 billion. The impact on Africa was even greater with travel and tourism contributing to 7.9% in 2008 creating 10 million jobs.

With the onset In spite of the global economic downturn, Africa is becoming an increasingly important investment destination, and tourism continues to play its part as a significant contributor to the individual country’s GDP. With a wealth of natural resources including minerals, oil, attractions the fundamentals driving natural resource demand will remain in place, hence driving the impetus for growth.



However, in spite of all these endowments, the region is fraught with many challenges which hinder progress, i.e. political instability, bureaucratic constraints, infrastructure development, accessibility (air, road, rail), Press Freedom, Information Communication technology & telecommunications, human capital development as well as differing rates of economic development resulting in different priorities between the more stable economies in the region and the growing economies.

Infrastructure Development

This encompasses road, rail and air access. Access to the destinations is hindered by lack of comprehensive infrastructure. The majority of governments within COMESA have insufficient financing for construction, expansion and refurbishment of these facilities though they are pivotal to increasing tourist arrivals in the regions. In order to improve this situation, there is need for government to ease the regulations and policies governing development in these areas. Because of inadequate funding, government must create an enabling environment for public private partnerships to drive infrastructure development initiatives.

Accessibility: Air

From a global context, COMESA forms part of the travel and tours circuit to Africa with air transfers playing a critical role. However, seat capacity and market access restriction is a major constraint to growth of tourism in the region. The Yamoussoukro Declaration in 1988 and later decision of 1999 was made to deregulate the airlines industry in Africa. The skies were declared “open” for African nations in order to create more effective access opportunities in the travel industry as well as to increase competition with the aim of bringing increased competition, expand service, increase efficiency, have low fares and increase volume. However, governments in Africa have maintained strict regulations on the airline industry to protect their national airlines eliminating free market competition and ultimately increasing the cost of travel resulting in reduced demand for the destination between member countries.

Accessibility: Road

Road access is an integral part of access within the COMEASA region but travel by road is hampered by roads in an unsatisfactory condition exacerbated by congestion at the major border posts such as Beitbridge, which is one of the busiest road port hubs in sub-Saharan Africa. The same can be said of other ports including Victoria Falls and Kazungula to name a few. These border posts are gateways to other countries in the region from both a trade perspective and leisure perspective.

Initiatives such as the Uni-visa and COMESA Customs union will go a long way in alleviating some of these delays characterizing our borders. However bureaucratic processes continue to hinder progress in these initiatives. A case in point is the Uni-visa for the SADC region which was mooted in 1998, and was supposed to be operational in 2002, but 7 years later, has still not been implemented.
Expedited implementation of the Comesa Customs Union will decrease Africa’s dependence on aid, enabling member states to rely on trade in order to achieve economic growth. COMESA, with 19 member states and annual trade amounting to US$230 bn, still lags behind at realized earnings of $15.2 billion. The combined potential that exists as a result of the overlap in membership by countries in both COMESA with 400 million people and SADC with 233 million people underpins the enormous potential of these two regions to become a significant player globally in trade and tourism with proper management and enabling policies. The implementation of the Customs Union will also play a big role in intra regional trade.

Accessibility: Rail

Rail is the cheapest form of travel globally as evidenced in Europe. Rail travel in the COMESA region has not been exploited enough to take advantage of the potential traffic between countries from both a leisure and business perspective. There are few players in this market in COMESA, namely Rovos Rail, Chongololo and the Blue Train. The potential to incorporate other players is huge as is the capacity of increased inter-country travel.

Press Freedom

With the world becoming a global village, information dissemination through the press plays a critical role in destination marketing through this medium. Regrettably, COMESA has a considerable number of countries where press freedom is highly regulated and hampered by repressive media regulatory instruments. Safe regulatory processes for the media are an imperative in attaining press freedom. International media houses presence should be allowed in the region as they can play a positive part in shaping opinions and influencing destination choices globally.

Information Communication Technology (ICT)/Telecommunications

Access to technology and ICT is paramount for tourism growth in this global era. The convenience of information and cost effective travel is absolutely necessary in influencing the choice to visit a destination. Regrettably, Africa is still heavily reliant on telephone communications and is plagued by slow internet and obsolete technology due to inadequate funding to upgrade these facilities. It is critical for governments to facilitate and support telecommunication upgrades as they are vital in the modern communication era.

This includes increasing of band width to enable access and increase speed of internet access. Implementation of wireless internet as well as telecommunications that support GPRS are but examples of tools that are essential for travellers to access destination information as well as to provide convenience for inbound travellers.

The use of current trends in ICT such as social networks like Twitter, You Tube, Facebook, and Skype are imperative is a destination is to remain relevant to the modern traveller. Social networks are a rich source of information on a country and its products. In addition to all the other means of communication, they also influence trends and enable countries and businesses to learn about their audience thereby largely enabling them to adjust to customer needs and preferences.

Human Capital Development

Skills development and investment in human capital development is critical to the economic development of a country. Technical skills are even more important in driving tourism in Africa as the guest experience in the hospitality sector is a major decision maker in return business to a destination. In the COMESA and SADC region there are limited facilities that offer such training, with the bulk in South Africa, but from a COMESA perspective, only Zimbabwe and Kenya have between them a few Hospitality training schools.

With the potential growth in tourism in Africa, this area is critical to enable us to provide the guest with a memorable experience encompassing attractions and service delivery. In this light, governments should play a key role in supporting the increase in capacity of such tertiary institutions. It is also important for these institutions to form synergies for accreditation with world renowned institutions offering the same training. Courses offered should be recognized worldwide and encompass all aspects of training ranging from Chefs, Game Guides, House Keeping, Languages, Front office and Management.

Room Capacity

Africa’s development in accommodation has been stagnant due to government policies and lack of shared vision between the private and public sectors. The forecast of increased arrivals in Africa is real if the statistics of projected growth of 10.5 % contribution to GDP by tourism by 2018 globally are indicators, there is a real need for increased accommodation capacity. A case in point is the upcoming 2010 World Cup Soccer taking place in South Africa. This event has highlighted the inadequate rooms in Africa and the World Travel and Tourism Council states that Africa requires three times more rooms than are current available. Governments will have to play a more critical role in supporting private public partnerships in increasing capacity, and must do away with government policies that hinder development of the same.

Opportunities

COMESA has a strong resource endowment and ranks highly in tourist attractions, wildlife and flora and fauna. Famous attractions include Mount Kilimanjaro, beaches in Kenya, Namib Dessert, Ngorongoro Crater and the Victoria Falls as well as the Transfrontier Park.



New openings of hotels and resorts as well as mixed use developments within COMESA will play a major developmental role through the potential to bring investors. The resulting infrastructure development will assist with making the attraction accessible and thereby strengthening the status of the region as a tourism destination.

Initiatives such s the Transfrontier Park will open borders and encourage the creation of regional tourism packages. This will increase competition resulting in price competitiveness and a favourable outlook of the region as a value for money destination.

Of greater significance is the trickle down positive effects to downstream industries such as the services industry.

Conclusion

In order to successfully equip the region to attract offshore investment, it is imperative that the above-mentioned policies are adhered to as long term policy consistency is a major attraction for investors across all sectors. Whilst tourism is s a tertiary institution, it can be used to rigger economic growth and economic integration in sub-Saharan Africa because:

• People visit then trade and thereafter they invest


• The immense and diverse attractions in sub-Saharan Africa cannot be ignored for longer


• The desire to make these attractions accessible will give birth to infrastructural development of which the feed into the supply side of the economy will lead to economic growth


• The construction of infrastructure will then necessitate the need for increased accommodation capacity

Dr S. Munyeza's Profile

Dr Munyeza is an accomplished business leader and currently holds the reins at the fastest growing hospitality group in sub-Saharan Africa, African Sun Limited. He holds a balanced portfolio of experience which has more than adequately prepared him for this role. He was conferred an honorary Doctorate in Business Administration and Development by Solusi University in March 2010 in recognition of his contribution to business development in the tourism sector. He is the Zimbabwe 2008 Institute of Directors Award winner, was twice recipient of the Institute of Directors Runner up Award, crowned CEO of the Year 2008 by the Institute of People Management Zimbabwe and received the Zimbabwe Tourism Authority Personality of the Year Award for four years running.

Driven by passion and strong conviction in all that he does, Dr Munyeza led a consortium of business persons into buying a stake in the largest hotel management company in Zimbabwe. His vision for growth in the tourism sector in Africa at large has seen him standing at the helm of a pan-African hotel group with more than 1,000 rooms in the region and a target to increase capacity to 5,500 by 2012.

Dr Munyeza’s experience has more than adequately prepared him for this role. He holds a balanced portfolio of experience which is a pre-requisite to fulfilling the vision of growing tourism in Africa to high enough levels that will enable the continent to become a significant player on a global scale. A trained accountant by profession, with one of the top accounting firms in the world, Ernst & Young, Dr Munyeza has the necessary business acumen and attention to detail that is an integral part of driving such a dynamic business. Having gleaned business and financial experience, his love for marketing saw him make a career change to advertising. Not one to do things in half measures, Dr Munyeza attained an IMM Diploma in marketing, and ended up as Executive Director in an advertising Agency.

The journey in marketing was not to end here. His belief in what Africa has to offer in the hospitality industry saw him make his final career move to the hospitality industry, where he has found his home. It is his belief in tourism that has seen him actively involved in all spheres of influence that encompass tourism and hospitality from a policy making level to operations within the industry. A Diploma in Hotel Strategic Management from Cornell University, New York has sharpened his natural inclination in driving business at African Sun Limited toward the vision of attaining US$1 billion market capitalisation by 2012 through the regional expansion programme.

Dr Munyeza’s involvement in tourism is not only limited to African Sun Limited. He played an instrumental part in bringing about a turnaround of tourism in Zimbabwe through various initiatives where he has been the president for Zimbabwe Council for Tourism for three years in succession. In addition, he sees the tourism potential in Africa and works closely with governments in Africa to improve tourism and hotel development in African countries.

In keeping with his diverse nature, his leadership is not limited to the business sector. His passion for community transformation has resulted in the initiation of sustainable youth programmes in disadvantaged communities in Zimbabwe targeted at young people through a community church where he plays a leading role. Dr Munyeza sits on several board committees including Zimbabwe Tourism Authority, where he is Chairman. He is married to Wilma and they have a daughter Nomsa.