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RTG records a 4% increase in revenue in H1 2016 by refining business model



Rainbow Tourism Group (RTG) says the remodelling of its pricing and reduced expenditure driven by the domestic market resulted in group revenues for the first half of 2016 increasing by 4% to  $11.75 mln from $11.27 mln same period in 2015.

Group chief executive officer Tendai Madziwanyika in a presentation said the price remodelling was out of necessity to suit the current macro-economic environment in order to remain viable.

“In response to the market liquidity challenges the group custom designed packages to suit the evolving customer and market dictates.

“These included a high volume-low yield strategy as well as menu re-engineering and the market responded positively as evidenced by the 16% growth in occupancy to 54% from 47% against an average of 44%,” he said.

Madziwanyika said during the period, hotel resorts occupancy grew to 56% from 46%, thus strengthening the group’s strategy to focus on growing foreign markets which will support the fragile domestic market.

Room nights sold went up 15% to 98 517 compared to 85 719 in 2015 the same period. As a result, Revenue per Available Room (RevPar) grew 3% to $36 from $35 recorded in 2015.

“The gain in the Group’s RevPar was due to a higher occupancy which outweighed the negative impact of the market led softening of rates,” he said.

During the period, market share increased 19% to 31% compared to prior year same period share of 26%.

According to the CEO, the market environment resulted in the group focusing more on cost reduction and as result the cost of sales per room sold reduced 20% resulting in gross margin growth of 5% from 64% in 2015 to 67%.

The Group’s EBITDA margin was 57% firm at $1.1 mln compared to $0.7 mln in the corresponding period last year. Madziwanyika said for the first time since 2012, the group posted an operating profit of $50 000.

“The various cost saving initiatives deployed across the business continued to drive operating margins and will remain a strategic focus given the current operating environment,” he said.

During the period under review, the Group exited the Rainbow Beitbridge Hotel following perennial losses and the group will by 30 September 2016 also exit Mozambique due to poor results.

“As a result of the impact of the discontinued operations, the group posted a loss of $2.9 mln compared to a loss of $1.9 mln recorded same period last year of which $1.6 mln was from discontinued operations,” he said.

During the period staff costs reduced 12% to $5.01 mln compared to $5.71 mln same period prior year.

At half year period, total debt went down to $18.2 mln from $19.4 mln as at December 2015 as the gearing moved to 56% from 54% in December 2015.Madziwanyika said included in the total debt is a $13.6 mln NSSA loan but the group is exploring alternative options to restructure the facility.

The group paid $4 mln to banks as interest on debt. RTG expects to yield savings of $1 mln in the FY 2017 following retrenchment of 40 employees.

Looking ahead, he said the second half of the year contributes approximately 60% of the business and the group will continue to introduce exciting revenue generating programmes on the local market.

Madziwanyika said the group will open new international markets as well as consolidating revenue streams from existing source markets.

Consolidated income statement

Our thoughts………………………..

We have said this before and we will continue saying it; the only way for RTG to get out of its legacy issues would be through a capital call from shareholders. Borrowings cannot be increased further ……… However a capital call is likely to be protracted due to shareholder issues as well as the tight liquidity environment. As well prospects for the tourism sector are not very encouraging and will likely dissuade current shareholders from committing further capital.

And we still stand by our comment. We fail to see how RTG’s funding issues will improve in the short term unless there is a capital call or economic fundamentals change for the better leading to better operational performance than what was currently achieved.

espite the operational performance improving, a result of tight cost control and remodelling of pricing, the group still cannot cover its interest bill (interest cover of 0.05x) regardless of the restructuring of borrowings from short to long term.

The balance sheet remains weak with unsustainable gearing and a weak current ratio (0.5x).Cashflows are under pressure as cashflow from operations are largely being funded from the late payment of creditors. This is likely to be the scenario for the group in the short to medium term.

However we commend management’s decision to exit the Rainbow Beitbridge Hotel and Rainbow Hotel Mozambique as these operations were bleeding the group. Hopefully this will result in improved performance on the continuing operations.

While the domestic market remains fragile, it still contributes a large chunk of the group’s revenue and responds more to promotional activities than the foreign market. To foreigners, Zimbabwe is still viewed as an expensive destination.  Hence we believe the group’s strategy to grow foreign business is unlikely to have a major impact in the short to medium term.


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