Chairman and chief executive Thabiso Tlelai said that neither the board of directors nor the staff were comfortable with, nor complacent in any way about, this drastic downturn in the group's results.
"These are poor reward for the extremely hard work applied to infrastructural improvements throughout the year to attain the goal of making the Don Group a winning entity," he said.
"These efforts came at a cost, borne out of revenue that was not matched byturnover growth above a plateau of R41-million generated in he 2003 and 2004 financial years.
"In consequence, operating profit slumped from R2,8-million to a loss of R1,2-million. Headline loss per share was 1.14 cents against a positive 0,38 cents. Net asset value was reduced from 8,8 cents to 7.3 cents a share," he said.
On a positive note, he announced that the Group was exercising the option to buy back from Ellwain Investments (Pty) Ltd the eight properties in Cape Town, Johannesburg, Sandton and Pretoria leased by the suite hotels. For this purpose, it had acquired R57,5-million in term finance from the
Industrial Development Corporation of South Africa Limited to help pay for the properties at an option price determined in 2001 when Ellwain bought all the Don Group's property holdings, then comprising 13 hotels and other assets.
The Group leased eight of the properties and itself owns the ninth in the group, the Don hotel near the Johannesburg International Airport.
The Ellwain transaction helped eliminate debts exceeding R100-million.
The eight leased properties being bought back have a current value of R75-million.
Tlelai said the balance of the buy-back price would be funded from the Group's resources.
Tlelai said: "It was always our intention to exercise the option. For the purpose of ownership and the IDC facility, the Group has ceded the option to Granport Investments (Pty) Ltd, a wholly owned subsidiary.
"Had the IDC facility been in place at 30 June 2004, the effect would not have made much difference to the disappointing year-end results, save to reduce by about 14 percent the headline loss per share from 1,14 cents to 1 cent.
"However, regaining possession of the properties at a price favourable to it not only significantly enhances the Group's asset base but also removes uncertainty of tenure."
He said the Don was committed to 120 equal monthly instalments of R760 000. The Ellwain rental bill currently exceeded R600 000 a month and would have escalated steadily had the leases continued to term in three years' time.
He also announced that Dr Danisa Baloyi, a non-executive director since April 1, 2002, had accepted the position of no-executive chairperson while he would remain the chief executive officer. It was planned to appoint two more non-executive directors.
Dealing with the circumstances leading to the loss, Tlelai referred to overhead expenses detailed in the results for the first half-year that were non-recurring, urgent or unavoidable, especially concerning improvements to the properties. The cost of meeting these commitments had spilled into the second half year, as he had intimated they would.
"Apart from the expenses then detailed, investments were extended into areas such as security, computerisation and back office operations, restaurant improvements, product development, and sales and marketing.
"We have revamped the sales team and given it fresh direction to increase revenue and occupancy levels. The benefits for the first quarter into the new financial year are encouraging."
He said the board's faith in the suite hotel concept was as strong as ever. "World-wide, there are strong adherents of the hotel suite concept in the travelling market. We are fortunate in South Africa that there is a hard core of support for the Don's 'Freedom to stay your way' lifestyle.
"Nevertheless, while we strive to build on this strength, the commercial realism is that while many appreciate the quality of Don's self-service suite accommodation, many others do prefer a restaurant option, and investment in and promotion of these facilities are consider a 'must' if the Don Group is to win market share. To this end, we have seen a steady improvement in the profitability of our food and beverage sector."
"Nevertheless, while we strive to build on this strength, the commercial realism is that while many appreciate the quality of Don's self-service suite accommodation, many others do prefer a restaurant option, and investment in and promotion of these facilities are considered a 'must', if the Don Group is to win market share. To this end, we have seen a steady improvement in the profitability of our food and beverage sector."
On prospects, Tlelai said: "Because we have paid so much attention to what is 'under the hood' of the Don vehicle in the financial year that has closed, there is room for quiet optimism for a change in the Group's fortunes. Undoubtedly, this will be assisted by a strengthened leadership, and ownership of the hotel properties that were under lease."