African Sun terminates Legacy agreement

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Hospitality entity, African Sun has terminated a hotel management contract with Legacy Hospitality Management Services Limited, after 3 and half years of operationalisation.

Following the snapping of a controlling stake in African Sun, the majority shareholder Brainworks pushed for an organisational restructuring in a move the group said was aimed at globalising African Sun’s hotel brands as well as making them more competitive.

Legacy Hotel Management Services is a subsidiary of Legacy Group of Hotels. The latter is one of the largest hotel chains in Africa with operations in Ghana, South Africa, Namibia, among others.

The contract with African Sun was with respect to the management of 5 hotels namely Elephant Hills, Monomotapa, Troutbeck Resort, Hwange Safari Lodge and The Kingdom at Victoria Falls Hotels.

Overall Africa Sun operates 12 hotels in Zimbabwe which includes 3 Holiday Inn branded Hotels in Harare, Bulawayo and Mutare. Substantial refurbishments have been undertaken across the hotel portfolio over the last 2 years, in line with the adopted model.

The remodelling from a hotel management to a hotel investment group could have been influenced by a years of stuttering as the group struggled to post consistent positive earnings while managing its own hotels.

The group recorded bottomline losses up until 2015, which is the year the company engaged Legacy for management of the above mentioned 5 hotels, before recording profit between 2016 and 2018. It is also worth noting that the bottomline position before 2016 was weighed by heavy gearing, as legacy debt chewed deep into earnings.

The coming in of Brainworks which pushed for disposal of a stake in property concern Dawn resulted in freeing up of financial resources and the subsequent extinction of legacy debt.

Although the group did not highlight what could have caused the termination of the contract, just 3 years into its implementation and also at a time African Sun was reporting firmer earnings, it is likely that the shifts in the macro economic environment could have influenced the decision.

The liberalisation of the exchange rate between the USD and the RTGS$ implies increased costs, in line with the exchange rate which consequently pushes management fees due to Legacy.

In a bid to manage costs in an inflationary environment, most companies will resort to looking inwards thus substituting foreign services.

Source: EQUITY AXIS NEWS

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