Hotel group African Sun has advised that it is parting ways with Legacy Hospitality Management after a partnership of just over three years. The management contract with Legacy Hospitality Management commenced on 1st October 2015.
In a Press Announcement dated 3rd September 2019, African Sun said, “African Sun Limited (The Company) would like to advise of the termination of its Management Agreement (The Agreement) with Legacy Hospitality Management Systems Limited (Legacy). The Agreement was entered into on 1 October 2015 for the management of five (5) of the Company’s hotels, namely
- Elephant Hills Resort and Conference Centre;
- Monomotapa Hotel;
- Troutbeck Resort;
- Hwange Safari Lodge; and
- The Kingdom at Victoria Falls Hotel
Accordingly, management of these hotels has reverted to the Company and pertinent handover takeover processes are underway.” The press statement goes on to assure stakeholders that service delivery will not be affected by this move in any way. As to how true this is, only time will tell.
Targets not met?
When the deal was struck with the South African company Legacy back in 2015, African Sun was seeking to reshape its model into a hotel investment company. Legacy Hospitality Management was reportedly satisfied with the potential that they saw in Zimbabwe as a growing tourist destination hence the US$60 million partnership was formed. Now that the arrangement has been cancelled, no reasons were immediately given as to why such a decision had to be taken. We can only speculate that the current foreign currency problems may have frustrated the foreign partners since the repatriation of forex is a daily challenge in Zimbabwe.
Access to foreign currency is very limited despite the introduction of the interbank forex exchange market a few months ago and many local companies owe their foreign suppliers, shareholders, partners and other stakeholders millions in unpaid debt, dividends, management fees and the like. Maybe African Sun has realised that paying millions of foreign currency to an outsourced company may not be the wisest decision at the moment. It is also possible that the arrangement has failed to reach its targets because of economic hardships which have left most businesses constrained. As a result of the above, African Sun can no longer afford to pay a foreign partner at a time when things are not rosy at home. So, this is probably some kind of austerity measure.
It will be interesting to see if African Sun will manage to maintain the quality of their service and profitability without the help of their former partner. Profit for the year 2018 was US$10.14 million, a remarkable 110% increase from the 2017 figure of US$4.82 million. However, the company admitted in its financial statements for 2018 that the second half of that year was dampened by huge forex shortages, post-election violence and other ills. Operating expenses also increased by 23% in 2018 and this was partly attributable to price increases in imported goods according to the company. It is against this background that the termination of the Legacy contract should be viewed. African Sun can only be vindicated if they maintain or improve on their good reputation and profits. If not, it will become evident that they will be finding it hard to survive without the help of Legacy.
It may be too early to ascertain what effect the termination of the management agreement with Legacy will have on African Sun. However, one thing is certain. That termination is a sign that things are not well somewhere.