Analysts have attributed the losses to huge operating costs that include staff costs. “The number one suspect is the operating expenses which are loaded with staff costs.
African Sun had gross profit margins of 62 percent but had stunning operating costs to revenue of 61.7 percent. Effectively all the margin was matched by the operating costs,” said an analyst from a leading financial institution.
The analysts, who declined to be named, cited Rainbow Tourism Group as having an operating cost to revenue of 93 percent after having achieved a gross profit margin of 85 percent.
RTG made a loss for the year of $1 million. African Sun made half year losses of $1.3 million with revenue going up 6 percent to $ 27.7 million, occupancy rate up 13 percent to 45 percent, revPar up 16 percent to $37 (break even revPar $41) and average room rate up 5 percent to $81.
Some stock market analysts recommended a sell for the share prices of African Sun, saying “We are not optimistic about the African Sun story.”
Another analyst blamed corporate governance for the loss making trend. This refers to the rules, processes, or laws by which businesses are operated, regulated, and controlled and includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.
“Revenues in these hotels are going up but not robustly enough to cover operating costs and they need to concentrate were they are very good at in order to maximize,” said the analyst.
However, some companies say business is not fully capitalized and that if funds are injected into the business then the company will turn around.
Post published in: Business Analysis