THL - response to the impact of COVID-19
20 March 2020 17:31
President Ramaphosa declared a national state of disaster on Sunday 15 March 2020, which included numerous, very necessary interventions in order to try and contain the spread of COVID-19 in South Africa which the Group is fully supportive of. The impact of COVID-19, combined with the acceleration in travel bans being imposed by many countries, including South Africa and other markets in which we operate, have resulted in forward bookings for April through June reflecting a total collapse of demand. Given the environment of the past few weeks we had already implemented actions in order to reduce costs and capital expenditure, and these have now been expanded to eliminate virtually all variable costs, substantially reduce the fixed cost overheads, conserve cash in order to preserve the sustainability of our business and the people whose livelihoods depend on us.

In order for this to be achieved, a reduction of excess capacity is required. This will be implemented through an orderly deactivation of a number of hotels in the key nodes where the Group has multiple properties and consolidating the available demand into the remaining operating hotels in those areas. The Group has the ability to reactivate this capacity on short notice should we see an upturn in demand. All booking channels will remain active for the close monitoring of demand patterns in addition to the Group’s web booking and call centre functionality.

In areas with a single hotel such as outlying areas in South Africa and some of the other African countries or hotels where the saving through deactivation is minimal, such as in the budget market, the Group will assess demand on an ongoing basis while ensuring the operating cost of these hotels are reduced to a minimum. Should there be little to no demand or future regulatory impacts that result in a total restriction of travel, the hotels will be deactivated, again with the ability to reactivate the hotels on short notice. The first phase will affect up to 36 hotels representing 7 700 rooms (or 40%) of the Group’s portfolio over the next few weeks. There are a number of consultations and planning logistics to be finalised, however we intend to still retain significant operating capacity in our key nodes for the foreseeable future given current levels of hotels. During this period, all capital expenditure has been postponed and only essential maintenance will endure. In addition, head office support functions will operate on a limited staff-only basis to ensure good communication with guests, partners and suppliers in order to facilitate this process and most importantly, ensure the smooth reactivation of these hotels once the situation normalises.

The Group has been approached by both the public and private healthcare sectors to assist in the provision of quarantine facilities through the use of hotels that would otherwise have been deactivated and we are endeavouring to assist in this regard. Although near impossible to predict, the Group is working on the assumption that hotels will begin to be reactivated by no later than July 2020 and that the corporate and government travel sectors will recover relatively quickly. Many of the events and conferences that were to take place during the next three months have been postponed to the second half of 2020 as opposed to being cancelled.

Financial Impacts
This financial year has been a difficult period with subdued demand on the back of poor economic growth. March is typically a peak month for the Group and until the effects of the COVID-19 pandemic began to impact trading the Group was on track to achieve a satisfactory performance in the month. Despite the March impact, the Group (Tsogo Sun Hotels and HPF) still expects to meet the covenant obligations to its various debt providers for the 12-month period ended 31 March 2020. Assuming exceptionally low occupancies and the deactivation of a number of hotels for a period of three to six months, it would be unlikely that the Group will meet the covenant requirements for the rolling 12-month period ending 30 September 2020. Accordingly, we are engaging with the Group’s various lenders to request waivers of these covenants and ensure that the facilities to which the Group has access are maintained. The combination of existing cash resources and these facilities should sustain the Group if the effects of the COVID-19 pandemic continue for longer than is anticipated. Lenders have been supportive and are currently dealing with this process.

The actions described above are required to ensure the sustainability of the Group though this crisis and we are acutely aware of the impact that these will have on particularly our people, suppliers and partners. We are endeavouring to minimize these as far as possible. Additional updates will be provided as events unfold and the market conditions in which we operate evolve. Once the consultation and logistics planning have been completed, the Group intends to hold an investor call, the details of which will be announced in due course.

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