| Wed 29 Mar 2006, 17:19 | | The Don Group Limited - Interim Results |
|
DON
DON
The Don Group Limited - Interim Results
The Don Group Limited
(Registration number 1946/023123/06)
Incorporated in the Republic of South Africa
Share code: DON & ISIN: ZAE000008462
("Don" or "the company")
Decade-old tax issue helps knock 272.7 percent increase in operating profit and
pushes Hotel Suite Don Group into half-year headline loss
A NETTLESOME unresolved tax issue dating back to the late 1990s when The Don
Group shed the loss-making restaurants it acquired when it listed on the Stock
Exchange in 1994 was one of three contributory factors to knock a 272.7 percent
increase in operating profit at half-year to December 31 2005 and helped push
the hotel chain into a headline loss of R3,8-million as against a profit of R116
000 a year previously.
(Editorial note: The 272.7 percent operating profit increase must be seen in the
context that interest paid in the current half-year of R2.9-million referred to
below is compared with rent paid of R4.7-million in respect of the half-year
ended 31 December 2004. The Don Group"s cash flow accordingly has improved as a
consequence of owning the properties.)
The other above-the-line causal factors in the interim results were: a financial
expense of R2,9-million (2004; R52 000) relating to the R57-million Industrial
Development Corporation (IDC) loan used to acquire eight of the group"s nine
hotels and increased property related depreciation of R2,2-million (2004: R1,0-
million).
At the interim stage, Don delivered an operating profit of R4,1-million, up from
the previous year"s R1,1-million, based on a revenue increase of 9.3 percent to
R24,7-million from R22,6-million, the latter partly attributable to a five
percent increase in occupancies.
Chief executive Thabiso Tlelai said: "With every process in the Group pointing
in the right direction. We knew we were going to deliver a healthy operating
profit but that it possibly would not be enough since we had to factor in the
expense relating to the IDC loan as well as a hefty depreciation arising from
the revaluation of the properties. This is a separate issue from the cash flow
benefit arising from the IDC transaction. Our monthly financial charge in that
respect is about R250 000 less than what we paid in rental for purchase.
"It is unfortunate therefore that these above-the-line costs combined with the
interest on the once-off tax payment pushed the Group into an interim headline
loss we are reporting today.
"The fundamentals of the business are in really good shape but clearly we"ll
have to do even better."
Dealing with the tax issue, Tlelai said that well before he had taken control in
2000, the Group had been faced with conflicting opinions on whether Don was
liable for the tax issue relating to events nearly a decade ago and, if so, for
what amount.
"It has been on the back burner for so long. When it appeared we were no closer
to resolution, we grasped the nettle and, without prejudice to further
negotiations, paid a once-off tax item of R2-million, R1-million being interest,
which is reflected in the accounts as an exceptional item."
As a result of the acquisition, followed by the revaluation of all the
properties, the Group"s total asset base stood at a healthy R156,2-million
compared with R28.5-million a year earlier. It had also moved from a cash
negative position as at year-end December 31,2005, to a half-year cash and cash
equivalent positive item of R689 000.
The results reflected a net asset value improvement to 0,242 cents from 0,074
cents a year previously.
In their report, chairperson Dr Danisa Baloyi and Tlelai said: "Many of the
fundamentals intended to drive the hotel group towards profitability are
delivering results according to our business plan. Our occupancy levels are
steadily increasing: these are enhanced by periodic marketing campaigns that
reflect satisfactory public support. It is also encouraging to report that Don
has won back clients lost to competitors. Hits on the website www.don.co.za are
a valuable source of reservations."
The directors also acknowledged with pride the recognition by the Financial Mail
and Empowerdex of the Don Group as the second most empowered out of 200
companies company (it was ranked third in 2005).
There were changes at board level. On January 27 2006, Errol Grolman, who had a
long history with Don and who helped guide the Group through turbulent times,
resigned. Tribute was paid to his thoughtful insight and commitment to Don"s
future. At the same time, a new board member was appointed; well-known property
consultant Professor Francois Viruly of the School of Construction Economics and
Management at the University of the Witwatersrand.
On second half-year prospects, Baloyi and Tlelai were cautious, saying redoubled
effort by all was needed to ensure a return to profitability by capitalising on
the increasing level of sales and occupancies and positive feedback from guest
exit questionnaires about the spacious quality of the hotel suites, the option
to self-cater or dine in restaurants, and the competitive cost of `key to the
door" costs as opposed to the `per person" rates usually charged by conventional
hotels.
Ends
Date: 29/03/2006 05:19:03 PM Produced by the JSE SENS Department
