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RTG working to turn around fortunes

HOSPITALITY concern, Rainbow Tourism Group (RTG) plans to increase its revenue per available room to US$44 by year-end from the US$35 recorded at the end of 2012.

BY KUDZAI CHIMHANGWA

Despite posting a loss before tax of US$4,6 million against the previous year’s profit of US$0,1 million, the group is planning on implementing a raft of measures for a successful turnaround in fortunes.

“This year we are focusing on stabilising the business because of the trauma it has endured in recent years due to undercapitalisation and so on. Next year we will be focusing on our growing strength and then after that in the year 2015 we will be talking about expansion,” he said.

He said the group would this year like to move the gearing ratio to “an optimal” 55% from the 67% recorded last year.

Gearing generally refers to a measure of financial leverage, indicating the degree to which a company’s activities are funded by shareholders’ funds against those of creditors.

“The other key number is RevPar [revenue per available room] reflecting how well we are sweating our assets. We are going from the current US$35 per room and we would like to grow that in the next three years to about US$66,” he said.

The group’s optimism comes in the wake of a recently successful US$14,5 million recapitalisation exercise, composed of a
US$10 million loan and a US$4,5 million rights issue.

It is understood the US$10 million facility was facilitated by one of the group’s key shareholders, with tenure of three years at an average interest rate of 10%.

Funds raised in the capital raise would be used for a restructuring exercise and retiring short-term debt, after the new board sought to address this issue.

The recapitalisation is expected to free working capital presently being channelled towards interest payments in order to finance more revenue generation for the group.

Following a protracted period of shareholder wrangles, the group failed to recapitalise since dollarisation in February 2009 and largely relied on short-term, high interest loans to fund working capital requirements as well as capital projects.

Consequently, a high interest burden weighed down the group’s performance.

RTG chief executive officer Tendai Madziwanyika said interest rates last year effectively stood at 23% but the group was now working with interest rates in the region of 11%.

“Factors that led to dismal performances include high interest rates, the payroll, utilities, water and electricity. These were the three main cost drivers for 2012,” said Madziwanyika.

Finance costs for the period stood at US$3,7 million which also contributed to the substantial loss, among other factors.

The group’s total assets turnover, which measures a company’s ability in generating revenue from all of its investments in assets, stood at 0,57.

Under standard practice, the higher the total asset turnover, the more effective the use of the company’s investments will be.

Occupancy was down to 43% from 44%, a drop that was attributed to regional operations, in particular Hotel Mozambique where occupancies were affected by ongoing refurbishments at the hotel
The group’s current ratio which reflects an ability to meet short-term debt obligations stood at 0,5 to 1 during the period under review.

Generally, a current ratio of at least 2 to 1 is considered acceptable.

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