African Sun sheds light on Legacy management deal

There has been a lot of developments in the tourism industry recently and chief among them involved the relationship between African Sun Limited (ASL) and Legacy Hospitality Management Services Limited that has been terminated.

The Herald Business (HB) caught up with African Sun Limited managing director Mr Edwin Shangwa (ES) and discussed a number of issues related to this matter and other issues in the tourism sector. The following are some excerpts of the discussion.

HB: There has been a number of articles in the press about your organisation but the one that I’d like to discuss today is your relationship with Legacy Hospitality Management Services. What is going on?
ES: Legacy Hospitality Management Services Limited used to manage African Sun Limited’s five hotels namely Elephant Hills Resort, The Kingdom at Victoria Falls, Hwange Safari Lodge, Monomotapa Hotel and Troutbeck Resort in Nyanga. However, as stated in our announcement in the print media last week, that relationship has since been terminated as of April 24, 2019.

HB: So what exactly were Legacy involved in at African Sun and is that relationship peculiar to the arrangement you had with them or its common place in hospitality?
ES: African Sun Limited engaged Legacy Hospitality Management Services Limited in October 2015 to manage the five said properties as African Sun Limited at that time changed its business model.
So what we had in place was a management agreement where Legacy Hospitality Management Services Limited were supposed to be involved in supervision and sharing of expertise through established methods and procedures for the good of the business in return for a fee.

HB: In that arrangement, who was responsible for what?
ES: African Sun Limited owned the business, they employed all the staff and therefore carried the risk and profit in this relationship.
Legacy in turn seconded a few senior employees who were paid by African Sun Limited and over and above Legacy Hospitality Management Services received the previously mentioned fee for their management services.

HB: From your response it seems Legacy then did not invest any capital expenditure on African Sun Hotels since the management agreement came into place?
ES: Legacy Hospitality Management Services Limited would not have invested any money into African Sun Limited, as that is not the norm in the hospitality industry Management Agreements. African Sun Limited were the one that picked up the whole capital expenditure in the period which by the end of 2018 stood at US$4 million.
This is because we believe in improving our product to give our guests an exceptional experience when they step into our hotels. To that end in 2019 we have planned to spend US$11 million in product improvements and expansions.

HB: There is the issue of US$60 million investment over a period of 30 years, which also appears in certain media publications, what was that about?
ES: True, there is an impression that Legacy was going to spend US$60 million towards refurbishing African Sun Hotels which is not so. All capital expenditure was and still is to the account of African Sun Limited.

HB: You mentioned earlier in the interview that Legacy had their own employees seconded to African Sun for the past three and half years?
ES: Yes, there were few employees seconded by Legacy to work at African Sun Hotels. At the time of termination there was only one employee on secondment to one of the hotels out of the five. At most, we had three employees seconded by Legacy to our hotels during the period October 2015 to April 2019.

HB: How did African Sun Limited perform financially before and after the Legacy Management Services (Private) Limited management agreement?
ES: As a public listed company, African Sun Limited results are published annually and we’ve just announced our 2018 results. However, it is worth noting that African Sun Limited in the hospitality industry in Zimbabwe owns and manages a total of 10 hotels and then is in a 50:50 partnership with Meikles Hospitality Private Limited in managing The Victoria Falls Hotel.
Therefore ascribing African Sun Limited’s performance as a group to some of the group’s hotels would be a misnomer. It would only make sense to compare the five hotels’ business performance before and during the management agreement period.

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