September 7, 2004

By Samantha Enslin

Durban - Hotel firm The Don Group posted a loss of R4.1 million for the year to June from a profit of R954 000 a year ago because of improvements to its properties and its spending on facilities.

The company expects to restore its profitability through buying back its hotel properties and using a revamped sales team.

The group has appointed a new non-executive chairman, Danisa Baloyi. Two additional non-executive directors will further strengthen the company's leadership.

Despite the loss, which was in line with expectations, the firm's share price gained 1c to close at 9c yesterday.

The leisure and hotel sector closed up 0.8 percent.

Thabiso Tlelai, The Don Group's chief executive, said yesterday that the loss was because of non-recurring, urgent, or unavoidable expenses in the first half that spilled over into the second half. These expenses primarily concerned improvements to hotel properties.

Investments were made in security, computerisation and back-office operations, restaurant improvements, product development, and sales and marketing.

Revenue edged up to R41.2 million from R40.8 million. There was an operating loss of R1.2 million from a previous profit of R2.8 million.

The group reported a loss of 1.39c a share from previous earnings of 0.32c.

The group's performance does not compare favourably with competitors. City Lodge recently reported a 15 percent increase in net profit to R100.9 million.

The Don Group will exercise its option to buy back eight properties, which it currently leases, in Cape Town, Johannesburg, Sandton and Pretoria.

Tlelai said regaining possession of the properties at a favourable price not only enhanced the group's asset base but also removed uncertainty of tenure and improved cash flow.

The group was committed to 120 equal monthly instalments of R760 000.

"The rental bill exceeds R600 000 a month and would have escalated had the leases continued to term in three years' time," Tlelai said.