You've got to hand it to Thabiso Tlelai, CEO of embattled hotel group The Don. He's toughed it out since purchasing the group for R1 five years ago and has demonstrated real guts against all odds. He was the owner of a couple of small hotels in Bloemfontein and Maseru and took over at The Don at the worst possible time - interest rates were high and the hotel industry was characterised by overcapacity and low occupancy levels.
Today, the group operates nine all-suite hotels, with a combined 410 rooms. The Don pioneered the concept of all-suite hotels in the early 1980s. And there can be little doubt that the chain offers good value. But the earnings and share price tell a different story. After reaching a low of 2c in 2001, the share price has risen to the rarefied level of 8c - great for the penny-stock punter but hardly cause for celebration. And published earnings per share have stumbled along around the zero level for the past few years, moving into positive territory only briefly in 2003. The poor performance is compounded by the performance of its hotel peers in the sector. Local tourism is booming and hotel occupancies in the value-for-money segment (City Lodge and Garden Court) are holding up well. Top-end hotels are experiencing falling occupancies because of the strong rand, but they're still making profits.
The Don is one of the few wholly owned and managed black enterprises listed on the JSE Securities Exchange and Tlelai serves on the steering committee charged with drawing up a black economic empowerment scorecard for the tourism industry. The group complies with the Employment Equity Act and is engaged in a three-year plan to achieve the correct staffing ratios. The objective is to move from a women to men ratio of 54:46 to 51:49 and to improve representation of previously disadvantaged and disabled individuals.
Tlelai is also the chairman of the Tourism Business Council and is a board member of SA Tourism. He's well respected by his peers and the various industry bodies. So, why has The Don story been so frustrating for all concerned?
One of The Don's biggest problems in 2001 was its unsustainable debt level. This was addressed at the time by selling eight properties to Ellwain Investments, which removed debt of R100m.
The Ellwain transaction held open a three-year window to repurchase the hotels, which the group exercised last year. It got funding from the Industrial Development Corp (IDC) for the repurchase. The cost of servicing the IDC funding is less than the previous lease payments on the hotels, which should improve cash flow.
So, the debt situation appears to have been resolved, at least as long as interest rates remain relatively low. The remaining question is whether the group can improve its operational performance. There is also the possibility of a tie-up with a foreign hotel group. Some years ago, The Don was involved in discussions with the US-based Ramada chain.
Tlelai is optimistic about the prospects for the group. The chain is small, but it is concentrated in the Western Cape and Gauteng - the two main business travel centres of the country. The realignment of the group's sales and marketing strategies is apparently showing promise and management expects a reversal of the disappointing trend of recent years.
Considering the tenacity of Tlelai and his people at The Don, it would be a great pity if this example of true empowerment failed at the final hurdle.
