Chipo Mtasa, the RTG CEO, speaking at the unveiling of the hospitality group’s financial results for the half year ended June 30, said they were prioritising product improvement and recapitalisation as the two were key to the company’s viability.
Although turnover was up 32% from US$10,5 million last year, the group’s performance was weighed down by short-term interest charges on borrowings.
“The major problem with short-term debt is the short tenure ranging from 30 to 90 days.
“By the time it is rolled over, it would have accumulated other costs,” Mtasa said, adding that negotiations on lowering of interest charges from the current 17% to less than 15% were underway.
RTG has not been recapitalised since dollarisation in February 2009 and has largely relied on loans to fund working capital requirements as well as capital projects.
Mtasa said she expected that gearing will be reduced to 30% after the rights issue by the end of the current financial year while borrowings would also be confined.
However, RTG’s exposure to Rennaisance Merchant Bank (RMB) left a balance of US$5,2 million held by the bank but the group hopes to recover the amount in tranches.
“We stopped accruing interest on short-term debt once RMB went under curatorship in April,” Mtasa said.
“The company can do with short -term debt of US$3 million so that (high short term debt levels) will be addressed.”
Interest payable from short-term debt stood at US$1,2 million during the period under review compared to US$597 000 last year.
RTG’s average room rate went up by a dollar to US$67 while the group recorded an operating profit of US$1,2 million.
Mtasa told stakeholders that the business would continue its focus on ensuring that all units achieved reasonable volumes while prudently managing their cost profiles.
The RTG board was optimistic that the signs of growth demonstrated in the past six months would be sustained throughout the year, based on the strategies the group had adopted.
Strategies included product refurbishment, disposal of non-core assets to offset borrowing, restructuring of short-term debt and recapitalisation, among others.
“Product refurbishment is a key focal area for us. We want to improve quality of rooms that will also lead to an improvement in our earnings, that’s our strategic thrust,” Mtasa said.
“As long as we don’t improve our product we will still have marginal RevPAR (Revenue per Available Room) so that’s an issue that management is focusing on.”
A tender had already been advertised for the disposal of the safari and tour operating companies. These were deemed as non-core and weighing down on the profitability of the group while proceeds from the disposals would be channelled towards product upgrade and working capital
City hotels contributed 74% to group revenue, while also making a 156% contribution in terms of operating profit.
Resort hotels provided an 8% contribution this year, from the 11% recorded in 2010.