Keeping our heads down and our growth up

Over the past couple of weeks you may have noticed that I have referenced the favourable (to Africa) findings of research from STR Global Hotel Review and the Jones Lang LaSalle Hotels forecasts, but this week I thought it may be of value to talk about what these markers have meant for African Sun itself.

On this continent we are benefiting from the fact that the recovery from the 2008/2009 Global Financial Crisis favours the emerging markets and that growth in Africa is set to outpace the rest of the world. The hospitality industry has responded by registering increase in occupancy, Average Daily Rate and Revenue per Available Room. At African Sun we have achieved growth in Key Performance Indicators since September 2009 as follows:

• Occupancy up 26% from 31% to close at 39% end of February 2010
• Average Daily Rate increase of 2% from $90 to $92 end of February 2010
• Revenue Per Available Room growth of 29% from $28 to $36 end of February 2010

This doesn’t mean that we haven’t felt the impact of the crisis, indeed the group has implemented several cost reduction initiatives - as have many of our peers. Internally we were forced to re-look at our business model and come up with a leaner and more nimble organisation that can react faster to market cycles. The strategies implemented to date will see the Group saving close to $2 million for the current year and reduce cost of sales to 30%.

Despite the downturn, our successful track-record has meant that we received increased enquiries from property owners to manage their hotels in the last year and that we were able to attract credible funders because of our buoyancy during the crisis. I believe that this stands us in good stead as we expand our operations still further this year.

Thank you,

Highlights into our successful AGM and beyond

We have just hosted our 38th annual general meeting of shareholders at Crowne Plaza in the Ophir Room on 18 March 2010. Things are looking up for African Sun in 2010 and this blog provides a glimpse into what we have in stall for 2010.

Prior to the meeting we gave shareholders a sneak preview into our newly refurbished suites and rooms.

Our Chairman, Mr Chiganze kindly supervised our AGM’s proceedings, the salient extracts of which I outline below directly from his transcript and the Q & A following the meeting:-

“As the recovery out of the 2008/2009 Global Financial Crisis favours the emerging markets, growth in Africa will outpace the rest of the world. The hospitality industry has responded by registering increase in occupancy, Average Daily Rate and Revenue per Available Room. The Group has achieved growth in Key Performance Indicators since September 2009 as follows:

• Occupancy up 26% from 31% to close at 39% end of February 2010
• Average Daily Rate increase of 2% from $90 to $92 end of February 2010
• Revenue Per Available Room growth of 29% from $28 to $36 end of February 2010

The group has implemented several cost reduction initiatives targeting salaries and employment costs, cost of sales and operational overheads. The strategies implemented to date will see the Group saving close to $2 million per annum on salaries and employment costs for the current year, (18% saving from payroll costs realised in the prior year) and reduce cost of sales to 30%.

In Zimbabwe, occupancy in the city hotels has surged as a result of increased conferencing business with a lesser increase in the yields. Below are the highlights of the latest developments in Zimbabwe;

• Occupancy for the resorts increased by 100% from 13% in February 2009 to close at 26% for the 5 months ended February 2010.
• Occupancy for all the hotels increased by 25% to 40% for the five month ended February 2010 from 32% achieved in September 2009.
• For the five months to February 2010, Average Daily Rate grew by 4% to $72 from September 2009, with Revenue per Available Room, achieving 32% growth over the same period.

Though the South African hotels were greatly affected by the trough period to December 2009, the five month to February 2010 presented positive results showing growth in our Key Performance Indicators. The following are indications that going forward, things will be better as we emerge out of the recession:

• 3% growth in occupancy from September 2009 to 37%
• 6% growth in Average Daily Rate from September 2009 to $109

The hotels under management in West Africa have improved with:

• Occupancies in Nigerian properties increasing by 67% by end of February 2010 from September 2009
• Occupancies in Ghana averaging 70% and recording highest Average Daily Rate and Revenue per Available Room in the Group of $180 and $126 respectively.

Following the approval at the Extra-ordinary General Meeting in November 2009, the Rights Offer was completed successfully in December 2009. In addition, the Group has secured offshore financing of $10million which will be used to structure borrowings, finance operations and regional expansion. (The cost of this financing is LIBOR + 2.5%.)

The first phase of the refurbishment of the Zimbabwe hotels was successful with the completion of the mock rooms first week of March 2010.

Our “in-system” bookings have shown an improved position for the resorts for the period starting April to July 2010. The following is expected for few months to come;

• Harare and Bulawayo full to capacity during the HIFA and Trade Fair.
• Resort hotels full to capacity during Easter Holidays.
• Arrivals in the Victoria Falls area to increase due to increased air capacity by South African Airways and Air Zimbabwe.
• The South African hotels full to capacity for the period of the 2010 FIFA World Cup

As 2010 FIFA World Cup approaches, the group has aligned itself with several tour operators and airlines to create packages for the travelling fans during this soccer showcase.”

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Africa is a top performer in the 2009 STR Global Hotel Review

According to the STR Global Hotel Review, the region referred to as Africa and the Middle East produced the highest global annual US Dollar Revpar during 2009 – a figure which outperformed the Americas with a very material margin of 72.1 percent, Asia Pacific by a considerable 31.2 percent and Europe by 18.4 percent. No small achievement in the challenging global economic conditions of 2009!

That isn’t to say that the hospitality industry in Africa has been unaffected, we have all had to look closely at how best to ensure our organisation’s are in the best possible position to capitalise on the coming opportunities. However, what I believe is of note is that the percentage decline for Southern Africa in US Dollar Revpar for 2009 compared to 2008 was roughly half when compared to the percentage decline in both Asia Pacific and Europe. And if one evaluates the regions that experienced the smallest decline in US Dollar Revpar in 2009 compared to 2008, Southern Africa and Northern Africa hold position number one and two – out of 15 key global regions.

At African Sun we believe that this is an affirmation of what the hospitality industry on our continent has achieved in the past few years. It echoes the investment and growth we have seen in our own organisation and heralds a bright future for us and our peers in this burgeoning sector.

Hospitality industry upswing expected

After dropping to the lowest level this decade, Jones Lang LaSalle Hotels forecasts that global hotel transaction volume will increase by 20 to 40 percent in 2010, according to initial results from the firm’s Hotel Investment Outlook 2010 report. The expected increase marks the first rise in two years.

While the outlook is more positive for this year, the firm expects the 2010 investment landscape to remain localised, characterised by ‘subdued cross-border activity’ as investors remain risk averse and favour their home markets. The exception to this, African Sun believes, is our continent, Africa. We are investing strongly across borders, we are refurbishing hotels, and leasing new properties and keeping a weather eye on OPPORTUNITY – of which there is plenty.

While much of Africa is counting on FIFA 2010 to ‘deliver the tourism goods’, we are looking beyond at how we may best serve an African market. We believe that the majority of our business is and will be derived not from off the continent, but rather from within it. 2010 will be year of upswing for the hospitality sector globally and for Africa particularly. We embrace it.