RTG on retrenchment exercise

HARARE - Embattled hospitality concern Rainbow Tourism Group (RTG) is set to embark on an $800 000 retrenchment exercise aimed at reducing operation costs.

The Zimbabwe Stock Exchange-listed concern has for the past few years failed to turn the corner and is desperately seeking ways to return to profitability despite a challenging operating environment characterised by poor domestic air access to resort areas of the country, liquidity challenges in the local financial sector, and operational challenges in its tour operations businesses.

Presenting the group’s half-year financial results, RTG acting chief executive Paschal Changunda said the company has commenced a retrenchment exercise which will be funded by individual units.

“We are going to rationalise our staff in the next two to three months and there is a budget of $800 000 for that process. 20 percent of total staff complement is to be retrenched whilst 3 percent of the current staff will be absorbed into our Beitbridge operations,” he said.

Changunda, however, said that the group will continue to develop skills of staff as a key strategy to maintain a competitive edge.

“Exposure programmes at Cornell University for general managers are in place and the group will continue to resource the Rainbow Hotel Business School in order to fully maximise it as the in-house training and application hotel,” he said.

For the half-year ended June 30 the group registered a pre-tax loss of $2,3 million while the interest bill was $1,6 million. The group’s continuing operations achieved positive earnings before interest, taxes, depreciation and amortisation (EBITDA) of $88 000 although the margin decreased by 16 percent compared to prior period.

The drop was attributed to high operating costs, in particular, employment costs and utilities which grew by 33 percent and 34 percent respectively, compared to same period last year.

Revenue, however, grew by six percent to $13,3 million compared to prior period.

“This was driven by improvement in conferencing business and the average room rate. Room occupancy dropped by two percent, while the average room rate grew from $71 in 2011 to $81,” said the acting chief executive.

The group’s delayed servicing of short term loans weighed down heavily on the financial performance of the group.

“We experienced an increase in short-term loans interest charges from 17,8 percent to 23,3 percent which was significantly high.

“Short-term borrowings closed the period at $12,6 million whilst long-term borrowings closed at $10,7 million. The resultant interest burden and cash flow constraints from short-term borrowings affected performance during the period,” said Changunda.

He however, was confident that the recapitalisation initiative will be vigorously pursued and this would settle the short-term borrowings and also fund refurbishments currently underway.

“The implementation of the recapitalisation plan which will retire short-term borrowings and complete refurbishment projects is still to be finalised,” Changunda said.

Changunda added that to complement recapitalisation efforts, they had sold non-core assets such as Touch the Wild lodges and transport operator Tourism Services  and finalising disposal of Matetsi Water Lodge before year end will make the group realize more than $2,5 million.

“The group is currently refurbishing 296 rooms at the Rainbow Towers with 48 rooms already 85 percent complete including the Executive Towers Lounge. We expect to deliver these rooms by end of next month,” he said.

He added that new electric and water piping was already being installed for all sections of the hotel and three elevators had been fully modernised with work expected to commence on the fourth elevator.

“The construction of the Beitbridge Rainbow Hotel is nearing completion. It is estimated that the 140-roomed hotel will be opened in January next year,” Changunda said.

He also added that Rainbow Hotel Mozambique’s refurbishment will commence next month and the project will be entirely funded from internally generated resources of the hotel.

“The group will continue to look for opportunities in Mozambique given the favourable performance of the existing hotel,” said Changunda.

Other RTG properties such as Bulawayo Rainbow Hotel, Kadoma Hotel and Conference Centre and Victoria Falls Rainbow Hotel will be upgraded and refashioned through internally generated funds as well proceeds from the much anticipated recapitalisation exercise.

In its outlook RTG will focus on revenue growth, reduction of costs, improvement of profit margins and generation of free-cash flows in line with specific turnaround strategy.

“The second half of the year is the peak period for the industry and performance during this period will be driven by city hotels and resort hotels. The Group will not recover to full profitability by year end, however EBITDA will grow showing initiatives on cost savings and growth in revenues,” said Changunda.
 

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