Cresta at the crest of liquidity uncertainty as it nets P63mn loss
Material uncertainties regarding the recovery of the occupancy levels and the resultant impact on liquidity, as well as the successful negotiation of additional funding, should this be required, cast significant doubt on the Group’s ability to continue as a going concern.
For the financial year 2020, Cresta Marakanelo, the country’s largest hotel chain operator incurred a net loss of P63 million owing to disruptions caused by the Covid-19 pandemic on the travel and hospitality industry.
The group cautions that the disruptions are expected to continue in varying degrees for the foreseeable future hence it is not clear when the current operating restrictions will return to ‘normal’ pre-pandemic levels. Mokwena Morulane, Cresta’s Managing Director says the material uncertainties regarding the recovery of the occupancy levels and the resultant impact on liquidity, as well as the successful negotiation of additional funding, should this be required, cast significant doubt on the Group’s ability to continue as a going concern.
As part of the Directors’ consideration of continuously managing the on-going changing impacts of Covid-19, Morulane says the appropriateness of adopting the going concern basis in preparing the financial statements and consideration of future funding requirements, a range of scenarios have been considered. “The assumptions modelled in the scenarios are based on the estimated potential impact of Covid-19 restrictions and regulations, along with our proposed responses over the course of the next 15 months,” Morulane says adding that these include a range of estimated impacts primarily based on length of time various levels of restrictions are in place and the severity of the consequent impact of those restrictions. The range of scenarios includes a scenario of an 18 percent reduced occupancy compared to 2019 as the best-case scenario, to a base case scenario which has a further 16 percent decrease in occupancy compared to the best-case scenario, to an extreme scenario of continued low occupancy throughout the 2021 financial year, which results in a further 14 percent decrease in occupancy compared to the base case. Morulane says the length of the liquidity period, in relation to each outcome, depends on those actions which the Group chooses to take (e.g. the extent to which cash expenditure is reduced) and the Directors expect the negotiations relating to additional financing to be successful.
In addition, the following assumptions and considerations have been made by the Directors in preparing the cash flow forecasts;
- That the downturn in business would not be for a period exceeding 12 months from date of approval of the financial statements;
- That there will be continued disruptions to the travel and hospitality industry, particularly for the foreign tourist sector during 2021, with foreign tourism picking up in 2022;
- No further extended country lockdowns;
- Improved food and bar revenue following the easing of alcohol restrictions and some level of increase in the level of conferencing;
- Cost containment and cash preservation measures continue and that salary reductions are re-instituted as approved by the Board; and
- In the worst-case scenario, the current conditions with limited conferencing prevail to March 2022.
Morulane says the Group is currently in negotiations for an additional working capital facility to provide additional headroom. “To date the Group has had adequate resources to meet its loan repayment commitments and its trading liabilities as they fall due,” he says adding that the Directors are satisfied that the Company has sufficient liquidity to withstand adjustments to the base case forecast, as well as the downside scenarios and continue to trade as a going concern for a period of at least 12 months from the date of approval of these financial statements and accordingly, the financial statements have been prepared on the going concern basis.