- Cresta Jwaneng Hotel directly affected due to its reliance on the diamond mining industry, underscoring the vulnerability of the company’s hotels to shifts in the local economy
TLOTLO KEBINAKGABO
Cresta Marakanelo Limited’s business hotels registered reduced occupancies in the first half of 2024.
Because the business hotels account for 77 percent of the company’s room inventory, coupled with the high operating leverage nature of the hospitality industry, this decline drove a drop in profitability for the period ending 30 June 2024.
According to the company’s financial results, the slowdown in the diamond market had a significant impact on Cresta’s business.
Modest revenue growth
The Cresta Jwaneng Hotel, in particular, was directly affected due to its reliance on the diamond mining industry, underscoring the vulnerability of the company’s hotels to shifts in the local economy.
“The Board and Management have since deployed measures to pivot the cost structure in line with the prevailing revenue generation capacity whilst working on market diversification strategies,” the financial report states.
Despite these hurdles, Cresta managed to post a 3 percent increase in revenue for the first half of the year, rising from P180.9 million in 2023 to P187.1 million in 2024.
Cresta Mowana
This growth was largely driven by Cresta Mowana, the company’s flagship property, which attracts international clientele.
However, profitability took a hit as the gross profit margin fell from 40 percent to 37 percent in the first half of 2024. The decline was primarily due to an increase in staff costs at the beginning of the year, which outpaced the company’s revenue growth.
“The mismatch in increased staff costs and struggling revenues, compounded by unforeseen economic headwinds, was a significant challenge,” the report notes.
Procurement economies of scale
Cresta’s Food and Beverages segment, however, managed to maintain its gross profit margins despite inflationary pressures. The company attributed this resilience to procurement economies of scale and robust operational cost containment strategies.
The company also ramped up its digital marketing efforts, which led to an 11 percent rise in sales and distribution expenses compared to 2023. These efforts were aimed at attracting more corporate and international business, which had a positive impact on foreign bookings.
Lease-related costs
Administrative and operating expenses saw a marginal increase, rising from P46.9 million in 2023 to P47.5 million in 2024. This increase was primarily due to lease-related costs from the addition of 60 new rooms at Cresta Mahalapye.
The new wing, launched in December 2023, increased the hotel’s room inventory by a significant 94 percent.
In response to the weaker revenue performance, Cresta implemented cost austerity measures to mitigate the impact of fixed costs on profitability.
Finance costs
The company also reported an 87 percent drop in finance income, as it divested short-term investments to bolster working capital. However, finance costs continued to decline due to lower prime lending rates and ongoing capital repayments on borrowings.
Cresta’s expansionary strategy, particularly its heightened capital expenditure, resulted in a tax credit for the period, reflecting the subdued profitability.
Meanwhile, the company’s assets for the half-year ending June 2024 grew by 15 percent to P493.1 million, compared to P565.7 million in 2023. This increase was driven by Cresta’s expansionary efforts, including ongoing refurbishment of existing properties to improve guest experience.
Liquidity challenges
However, the company faced liquidity challenges, with trade receivables increasing by 64 percent due to delayed payments from customers.
Cresta also ended the first half of 2024 with a P7.2 million bank overdraft, used intermittently to bridge a temporary working capital gap during what is typically a slower season in the business cycle.