HOSPITALITY concern Rainbow Tourism Group (RTG) expects to increase its ability to generate free cash in the second half of the year in order to meet financial obligations.
REPORT BY KUDZAI CHIMHANGWA
The group’s increased optimism comes after posting a US$105 000 profit after tax in the first half of the year.
Chief executive officer, Tendai Madziwanyika told analysts last week that the group expects to increase its ability to service short term debt.
He said 60% of the business would be generated in the second half, a scenario which would enable the group to surpass the 50% mark in terms of capacity utilisation.
“We reduced the break-even point from 47% to 41%,” he said adding that the cost structure reduced, with the variable cost component also reduced substantially.
The break-even point is when costs or expenses and revenue become equal; there is no net loss or gain.
“Beyond break-even point, 64% of our revenues will find their way to the bottom-line. In other words, for every dollar we sell above 41%, US$0,64 will find its way to the bottom-line,” he said.
The group recently conducted a successful US$14,5 million re-capitalisation exercise, composed of a US$10 million loan at an average interest rate of 10% and a US$4,5 million injection from existing shareholders.
Management earlier this year said the group was anticipating growing Revpar (revenue per available room) to about US$66 in the next three years.
The group focused on restructuring the balance sheet resulting in the company successfully converting its short term debt to long term debt from a US$10million loan facility.
As part of efforts to increase its revenue streams, RTG launched an innovative programme, RTG Virtual.
On this platform, RTG is able to book hotels around Zimbabwe on behalf of partner hotels.
This platform positions RTG as the largest hospitality grouping in the country with 20 hotels comprising of seven Rainbow hotels and 13 Virtual partner hotels.
REVPAR LIKELY TO GO UP
The group is also planning on sourcing cheaper finance from current average cost of 11% to 7% in order to further reduce the finance expense of US$851,228 achieved in the first half of the year.
“We think that at the end of the year we will end up on 50% occupancy, up from 43%,” he said.
The group also expects to improve the revenue per available room (Revpar) by 25% to US$40 per room.
Revpar is a key performance metric in the hotel industry which also provides insight into how well a hotel is utilising its room inventory.