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DON GROUP LIMITED - RESULTS
DON GROUP LIMITED
("Don" or "the Group")
(Registration No. 1946/023123/06)
Share code: Don ISIN: ZAE000008462
CONSOLIDATED INCOME STATEMENTS
Reviewed Reviewed Audited
Six months Six months Year-end
31 Dec 2003 31 Dec 2002 30 June 2003
R000 R000 R000
Revenue 21 363 20 956 41 310
Operating profit 533 4 028 2 833
Net finance income 152 51 535
Depreciation (1 190) (1 120) (2 252)
(Loss)/profit before
exceptional items (505) 2 959 1 116
Exceptional items - - (175)
(Loss)/profit after
exceptional items (505) 2 959 941
Taxation -
overprovision prior
years - - 14
(Loss)/profit
attributable to
ordinary
shareholders (505) 2 959 955
Headline (loss)/
profit (505) 2 959 1 130
Number of ordinary
shares in issue
(000s) 294 485 294 485 294 485
Weighted average
number of
ordinary shares
in issue (000s) 294 485 294 485 294 485
(Loss)/profit per
share (cents) (0,17) 1,00 0,32
Headline (loss)/profit
per share (cents) (0,17) 1,00 0,38
Reconciliation of
headline (loss)/
profit
(Loss)/profit
attributable
to ordinary
shareholders (505) 2 959 955
Provision against
employee share
incentive
Scheme loan - - 175
Headline (loss)/
profit (505) 2 959 1 130
CONDENSED CONSOLIDATED CASH FLOW
Reviewed Reviewed Audited
Six months Six months Year-end
31 Dec 2003 31 Dec 2002 30 June 2003
R000 R000 R000
Cash generated
by operations 3 797 1 801 848
Investing
activities (411) (931) (1 112)
Opening cash &
cash equivalents 3 230 3 494 3 494
Closing cash &
cash equivalents 6 616 4 364 3 230
STATEMENTS OF CHANGES IN EQUITY
Reviewed Reviewed Audited
Six months Six months Year-end
31 Dec 2003 31 Dec 2002 30 June 2003
R000 R000 R000
Opening balance 25 828 24 873 24 873
(Loss)/profit
attributable to
ordinary
shareholders (505) 2 959 955
Closing balance 25 323 27 832 25 828
CONSOLIDATED BALANCE SHEETS
Reviewed Reviewed Audited
Six months Six months Year-end
31 Dec 2003 31 Dec 2002 30 June 2003
R000 R000 R000
Assets
Non-current assets 21 041 22 900 21 765
Property, plant and
equipment 19 604 21 288 20 328
Unlisted
investments 1 437 1 437 1 437
Long term
receivable - 175 -
Current assets 10 660 11 679 10 917
Inventories and
accounts receivable 4 044 7 315 7 687
Cash and cash
equivalents 6 616 4 364 3 230
Total assets 31 701 34 579 32 682
Equity and Liabilities
Capital and
reserves 25 323 27 832 25 828
Non-current
liabilities 2 990 2 990 2 990
Interest free 2 390 2 390 2 390
Interest bearing 600 600 600
28 313 30,822 28 818
Current liabilities
Creditors and
provisions 3 388 3 757 3 864
Total equity and
liabilities 31 701 34 579 32 682
Net asset value
per share (cents) 8,6 9,5 8.8
Capital expenditure
during the period
(R000s) 466 931 1 188
Directors" valuation
of unlisted
investments 1 437 1 437 1 437
Rental commitments
(R000s)*1
Payable in the
next year 7 864 6 905 7 613
Payable thereafter 23 453 15 302 1 419
Contingent
liabilities (R000s) - 149 -
*1The rental commitments are calculated on the basis that
the leases of properties owned by Ellwain Investments (Pty)
Limited will be renewed.
COMMENTARY
Financial results: The hotel group ended the financial half
year to 31 December 2003 with a marginal improvement in
revenue to R21,4-million compared with R20,9-million in the
previous half year. This was achieved through the consistent
support of the group"s core corporate market, which helped
Don maintain average occupancy levels slightly above the
hotel sector"s median for 2003. The company is cash
positive, with minimal interest bearing debt.
That said, it is with regret that I have to report that the
Group was not able to achieve higher occupancy and cost of
sales budgets, which in hindsight were overly ambitious
given the small size of the group operating in the tight
hospitality market. This was compounded by overhead
expenses, some non-recurring, some unavoidable or urgently
necessary, in the reporting period which seriously set back
the trend up to year-end 30 June 2003 of incrementally
increasing operating and bottom line profits.
The accumulation of the expense-related matters set out
below and the focus on remedial or resolution measures in
part can be explained by management"s unremitting
preoccupation hitherto of removing the burden of debt and
organisational restructuring.
The Group took the view that it was now vital for Don to re-
visit the character and quality of its product - the hotels,
the furnishings, and service requirements - to which less
than desirable attention had been given in the preceding
four years. Over time, to compete successfully, the Group"s
nine hotels must be able to provide a full range of hotel
facilities required by the modern business travellers where
these were not already present in Don properties, and to
participate more fully in the growing tourism market.
In the short term, painful decisions to implement product
enhancement were made for long-term gain. The upshot was a
headline loss of R505 000 or 0,17 cents a share against a
profit of R2,9-million or 1 cent a share, reported a year
ago, which was greater than anticipated. Net asset value was
reduced to 8,6 cents a share from 9,5 cents in the
comparable period.
Overhead expenses: The Group had to pay a price for
inefficient municipal billing: disputed domestic instead of
business rates and accounts in arrears for more than a year,
which the Group had never received. Large payments to
forestall termination of services placed a considerable
strain on resources. Other expenses incurred, borne entirely
from revenue, related to a need to maintain or upgrade
buildings and furnishings to a standard commensurate with
the hotels" four-star grading. This included building plans
compliance requirements and upgrading fire detection and
fire fighting equipment. During the review period, Don began
phasing in installation of air-conditioning, an amenity in
increasing demand from regular guests and a much-needed
requirement to attract new custom. The objective is to have
air conditioners in all suites by the end of 2004.
Considerable investment is also being made in security to
provide optimal protection of guests and hotels against
crime. This ongoing development of guest care is doing much
for regular guest retention and will be promoted to
encourage new custom.
Training for optimum service and guest care: Allied with
this objective was implementation throughout the group of
intensive staff training and development based on computer
modules purchased for the Don Academy to raise the already
high service commitment, almost a byword among Don"s regular
guests, to new levels. This was in terms of the trainee,
supervisory and management standards set by THETA, the
Education, Training and Development SETA, and the Department
of Labour. Service delivery was matched and visibly enhanced
by smart new uniforms issued to staff.
Expansion: Don has alluded previously to revenue growth
being hampered by weaknesses in its geographic spread. The
first tentative step to expanding the group"s operations
beyond Gauteng and Western Cape has been achieved through a
reciprocity arrangement with the Durban-based Flexi Holiday
Club (Club Leisure), which operates an apartment block known
as the Oceanic on the North Beach. In terms of this, Don now
can offer its guests accommodation to Don standards in
Durban. Likewise, Leisure Club members can obtain reciprocal
accommodation at Don hotels. The revenue for each
reservation accrues respectively to Don and Club Leisure.
None of this entailed capital expenditure; involvement in
organising the Don presence at the Oceanic was financed from
revenue.
This development is in line with exploration of many offers
of partnerships and/or hotel operation propositions both
inside the country and beyond its borders in the past two
years. In the process, the Group has delineated more clearly
the expansion plans it requires to grow and it continues to
explore opportunities that are not capital intensive to
provide a presence in centres where Don is not represented,
with the objective of strengthening and increasing the
Group"s special relationship with its business guests and
open the doors wider to tourist traffic, especially foreign
visitors familiar with the suite hotel concept.
Accounting policies: The consolidated interim financial
statements are prepared in accordance with the accounting
policies adopted in the preparation of the Group"s 30 June
2003 financial statements and comply in all material aspects
with South African Statements of Generally Accepted
Accounting Practice.
No provision has been made for taxation as the Group has
large accumulated tax losses available for offset against
taxable income. No deferred tax asset has been raised in
terms of AC102 due to uncertainty as to when these losses
are expected to be utilised.
Investment in associate company: It is the intention of the
directors to have the dormant associate company deregistered
and accordingly, the valuation of the investment and the
financial liability has remained unchanged.
Restatement of comparative figures: The bank call notice
deposit, previously shown separately, is included with cash
and cash equivalents.
Audit report: The consolidated results for the interim
period have been reviewed by Fisher Hoffman PKF (Jhb) Inc.,
and their unqualified review report is available for
inspection at the company"s registered office.
Dividend: No dividend has been declared or paid.
HIV/AIDS responsibilities: Through its training programme,
the Group is active in promoting education about HIV/ Aids
for its staff and in the communities in which the hotels are
located. The core of the programme is an edutainment video
package that reproduces typical life situations in a South
African context to which viewers can easily relate and
assimilate the preventative message.
BEE status: In terms of Black Economic Empowerment (BEE),
Don is recognised to be in the forefront of BEE status in
the hotel industry. The basic tenets of BEE permeate all
levels and cover ownership, management responsibilities and
the assumption of risk. In terms of shareholding, the black
empowerment component exceeds the absolute minimum
requirement of 25 percent.
Social responsibility: The Group is active in social
responsibility programmes that help disadvantaged young
people: the staff of each hotel has adopted projects that
among others cover children"s care, Reach for a Dream
projects, and crime victim trauma care.
Good governance: In terms of good governance, the dual
function of chairman and chief executive is to be split.
Negotiations for the appointment of an independent chairman
are at hand and shareholders will be advised in due course.
Prospects: Some upgrading expenditure continues into the
second half of the year. We have in place a business model
that has the capacity and the focus to rise above short-term
setbacks such as that experienced in the interim reporting
period. Within that framework every effort is being made to
lift occupancy and revenue levels by the end of the calendar
year 2004 and to reduce costs commensurately. These are good
grounds for anticipating that Don will rise above the
challenge of redeeming financial territory lost through the
product enhancement drive, but the going will not be easy.
Thabiso Tlelai
Chairman and Chief Executive Officer
Johannesburg
31 March 2004
Date: 31/03/2004 02:45:57 PM Produced by the JSE SENS Department
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