April 1, 2004

By Max Gebhardt

Johannesburg - Painful short-term decisions for long-term gain was how niche hotel firm Don Group explained its fall into a loss for the first six months of its 2004 financial year.

Thabiso Tlelai, the chief executive and chairman, said the group also had a run-in with municipal billing problems that many ratepayers would identify with.

The group had to make large payments to forestall the cutting off of services. This had resulted from disputed residential instead of business tariffs and a bill that was a year in arrears that the group had never received.

But Tlelai accepted the blame for the fall into loss, saying that management had lost its focus.

"The accumulation of expense-related matters and the focus on remedial or resolution measures in part can be explained by management's unremitting preoccupation over the past four years with removing the burden of debt and organisational restructuring."

This, with having urgently to upgrade building services such as fire detection and furnishings, had meant that the trend the hotel group had started of slowly improving profits had received a setback. 

"The group took the view that it was vital for Don to revisit the character and quality of its product, to which less than desirable attention had been given in the preceding four years," he said.

These events meant a marginal improvement in turnover to R21.3 million did not translate to a rise in operating profits, which collapsed to R533 000 from R4 million in the previous six months.

This left the group with a headline loss of 0.17c a share, or a loss of R505 000.

The promise to expand its geographical footprint had been achieved with a reciprocity agreement concluded with Club Leisure, which operated the Oceanic on Durban's North Beach.

The company has, however, remained cash positive, with R6.6 million on the balance sheet.

In hindsight, Tlelai said, the company was perhaps overly ambitious, given its smallness. He warned that the going would not be easy in the next six months.

Don's shares were static at 5c yesterday in the unchanged leisure sector.