Consumer Industries Editor

CAPE TOWN Management of suite-hotels operator Don Group has expressed "quiet optimism" that there would be a change in the group's fortunes after it invested in upgrading its facilities, bought back some of the properties it was leasing and strengthened its board.

Don Group CE Thabiso Tlelai said the group's headline loss of 1,14c a share for the year to June, compared with a profit of 0,38c a share the year before, was poor reward for the efforts to improve the group's infrastructure.

Group revenue edged up to R41,2m from R40,9m, but there was an operating loss of R1,2m after the previous year's operating profit of R2,8m. However, the cash position improved, with R2,1m generated from operations. This was almost three times the previous year's R848000. The dividend was passed.

Tlelai said overhead expenses incurred in the first half of the year, some once-off and some unavoidable, had spilled over into the second half.

The group had invested in security, computerisation, restaurants, product development and sales and marketing, he said.

The group also took up an option to buy back from Ellwain Investments eight leased properties, from which it runs suite hotels.

In October 2001 Don Group sold several properties to Ellwain and leased some back. This cleared R105m in debt off the balance sheet. Tlelai said at the time this was in line with overseas trends, where hoteliers focused on managing hotels rather than properties.

There was an option for Don Group to buy back the properties within three years . Tlelai said the group had always intended to exercise the option.

The price was favourable, the acquisition enhanced the group's asset base and it ensured security of tenure.

The properties are to be bought for R57,5m, under finance from the Industrial Development Corporation, although they have a current market value of R75m.

Interest payments of R760000 a month for 120 months compare with monthly rentals of R600000, which were due to escalate.

Marc Wainer and Sidney Ellerine of Ellwain Investments had resigned from the board; the group appointed Danisa Baloyi as nonexecutive chairman, while Tlelai remained CEO. Two more nonexecutive directors would be appointed, he said.

Sep 07 2004 07:20:59:000AM Charlotte Mathews Business Day 1st Edition