Briefing by Aventura Board Members on the Status of Aventura Resorts

Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
18 September 2002
BRIEFING BY AVENTURA BOARD MEMBERS ON THE STATUS OF AVENTURA RESORTS

Chairperson: Mr B Martin (ANC)

Documents handed out:
Presentation on Maximizing Shareholder Value

SUMMARY
The Chairperson of the Aventura Board of Directors briefed the Committee on the status of Aventura Resorts as they stand. He gave a brief background on the status quo and Aventura's operational performance. He discussed the sustainability of Aventura for the balance of the financial year, and mentioned the challenges, due to the restructuring of Aventura, which lay ahead for the board. He updated the Committee on the disposal of Roodeplaat, an Aventura resort situated in Pretoria. Lastly, the Chairperson responded to questions posed by Members at the previous meeting. It was reiterated that the Department of Public Enterprises was closely monitoring the performance of Aventura.

MINUTES
The Chairperson, Mr Martin, stated that the last meeting which was held was not a very good reflection on the Aventura board, as questions posed by the Committee could not be answered fully.

The Chairperson of Aventura Limited Board of Directors, Mr Tommy Oliphant, stated that the presentation was compiled jointly by himself and Ms Nonkululeko Msomi, a Department of Public Enterprises representative. Mr Oliphant stated that the new board of Aventura was appointed this year, in which many of the members had come in cold with many issues with which to deal. One of the biggest issue facing the board is the financial situation and the cash flow of Aventura resorts. There are no reasons up to now which provided for the old Board resigning, but many issues were left unresolved.

Mr Oliphant explained that Aventura was up for sale in 1999, and after the sale did not go through, the Protea was appointed in the management context. A five-year contract was signed and Protea are still managing the Aventura resorts. Mr Oliphant said that last year a decision was again taken on the disposal of the resorts. In that time the new board came into being, three of the Aventura resorts in the Orange Free State were in the process of being sold, the sales of which only went through in May.

Mr Oliphant stated that the board has not been very pleased with the operational performance Aventura and the board has therefore appointed an audit Committee to assist with the financial management of Aventura. On the sustainability of Aventura for the balance of the financial year, it came to the board's attention that Aventura had a bank overdraft of R35 000 000 with ABSA. It also had a bank overdraft of R5 000 000 with Standard Bank, which has been paid up and closed two months ago already. With the sale of the three resorts, an amount of R23 000 000 was acquired, which was paid back into the ABSA overdraft. This left the ABSA overdraft reduced and allowed the board to close the Standard Bank facility. A week ago, an article appeared in the press stating that ABSA had recalled the credit facilities of Aventura, and there were a number of issue which emanated from that, which Mr Oliphant said he would discuss later in the meeting. The sustainability of Aventura balances on two issues, firstly, the successful sale of the balances of the results, and secondly, assistance from the Department of Public Enterprises and National Treasury.

Mr Oliphant briefed the Committee about the disposal of resorts. The four resorts up for sale are Roodeplat, Pretoria; Die Eiland, Mpumalanga; Kareekloof, Heidelberg and Heidelberg Kloof, Heidelberg. The buyers have all subsequently paid their 10% deposits. Problems arose when the bidders had to raise money to pay off the results. In Pretoria, the bidders bid R25 000 000 for the resort, of which only R2 500 000 has been paid into the trust account of Aventura's legal team. When the contracts were drawn up, it was realised that the size of the property has been incorrectly set down as 327h, when it was actually 230h. This issue then impacted on the price of the resort. Bidders offered to pay the price of R17 500 000, but the sale has not yet been consummated. Mr Oliphant stated that the Aventura board has received a post-dated cheque of R15 000 000 from the bidders which will be added to the R2 500 000 deposit.

Mr Oliphant explained that deposits for the other resorts have been put down. He mentioned that the Gauteng Department of Land Affairs has made an offer of R1 700 000 on Kareekloof, Heidelberg resort due to nature conservation issues of the area. He said that the department has been seen as the best bidder, due to its knowledge of the restrictions on the development on the resort, and the desire to maintain the natural status of the area. With regards to the other resorts, consultants have been employed, and those deals should be closed in due time. Mr Oliphant said that the total sum from the disposal of the resorts is R24 000 000, which will be used to settle the ABSA overdraft.

Mr Oliphant sketched the background to the status quo. The nature of the business of Aventura is seasonal and within the last four months, the resorts have not been performing well due to the winter season, and under-utilization of facilities. The cash flow has also been influenced due to the last payments of the bidders. He consoled the Committee by saying that the money will be available to the board by Friday this week. The operational income has therefore been impacted on, hence Aventura's reported losses over this period.

Mr Oliphant spoke about Aventura being in arrears with payment of its creditors due to the seasonal business. The impact of the delays resulted in a high utilisation of overdraft facilities with higher interests and therefore the proceeds from the three only settled the ABSA overdraft to some extent. The board still managed to settle accounts with many of Aventura's suppliers due to the fact that their provision of services are imperative for the sustainability of Aventura.

Mr Oliphant spoke about the setback which the press release had cost Aventura. People who had made reservations and Prive club members were worried about their status as patrons. Mr Oliphant said that Aventura has honoured them by relaying that Aventura is still functioning as normal, although many future bookings are declining due to the uncertainty of Aventura's future. He went on to explain the origins of Club Prive in 1994, where people were able to put down deposits of R10 000, which allowed them to spend holidays at Aventura for a period of 10 years. Mr Oliphant noted that this money was placed in a trust account, which was supposed to be free from meddling. The fact was that ABSA bank used this money as a supplement when Aventura's cash flow became endangered. The trust money in the account has now been exhausted. This has impacted negatively on the operational performance of Aventura. The Board needs between R60 000 000 and R68 000 000 to regain their money from their Club Prive obligations.

Mr Oliphant went on to speak about the maintenance and upkeep of resorts, and the necessity of these operations for the running of resorts. Repairs to the cost of R1 600 000 have occurred at the Warmbaths resort in Pretoria. The board was invited to check up on the current status of resorts, and the report came out that the physical state of Warmbaths was not very good. Aventura management has stated that no provision was made in the budget to undertake repairs, but has made a dent on the potential operational profit.

Mr Oliphant said that the Board has completed planning for a 'roadshow' which has a dual purpose. Firstly, to advise employees and ensure them that their jobs are secured, and secondly, to make them aware of the logistics of the disposals. He also stated that meetings have been set up with stakeholders in the resort area, the community, businesses, and the municipalities to encourage them to use the resorts for various reasons.

Mr Oliphant went on to address previous questions of Committee Members to the Aventura Board at the last meeting. The first was the issue of security. Mr Oliphant stated that the security of the resorts is currently undertaken by Recom Security. He rectified a Member's statement, saying that the managing director, Don Hamilton, who used to be involved in the franchise group: the Boulevard Hotel Group, was never at any time employed by Protea.

He went on to speak about the Mercedes Benz, which was purchased by Aventura to market the products of Dairy Maid on the resorts. An exclusivity agreement had been reached between Aventura and Dairy Maid, where Dairy Maid was paid R310 000 for the exclusive right to sell their products at the resorts. He plainly stated that the purchase of the Mercedes was not sanctioned by the Board. Mr Oliphant emphasised that the responsible manager was disciplined at a disciplinary hearing and was given a final warning. The Mercedes was then sold to a Mercedes dealership in Cape Town, and the negative impact which this agreement had, had to be paid out by the responsible manager.

Mr Oliphant stated that the Aventura network used to function on a CLS system, which has now been changed by Protea, to a Landmark program, when Protea took over management. They were familiar with this system, and that facilitated their accounting processes. On the same note, Mr Oliphant then said that the Landmark Program was installed to be compatible with the existing Protea Program specifically for central reservation. He also said that part of the expenditure was to prepare the computer network for Y2K.

Mr Oliphant closed off his briefing by noting that the board had already had two audit committee meetings, the last of which occurred on 7 September. The people who sit on the ccommittees are himself and the DPE. The board had invited chartered accountants from both PriceWaterhouse Coopers and independent auditors. He emphasised the need for a report to be drafted on the Aventura financial situation, issued by the audit committee, which would be made available in due time to the Portfolio Committee.

Discussion
Mr Heine (DP) stated that this was a sad day for Aventura. He also stated that questions from the last meeting replied have not been satisfactorily answered. According to the report, the exclusivity agreement was reached between Aventura and Dairy Maid, not between the managers. The Mercedes had been purchased by Aventura, and it made no sense that the purchase was not sanctioned by the board. He asked who bought the Mercedes, and stated, that although it was just the manager, according to the report, it had been bought by Aventura. He also rectified the stance that had been taken in the report on Don Hamilton, by stating that he had never made the point that Don Hamilton had been employed by Protea, but that Don Hamilton was merely a hotel owner.

Mr Heine stated that in the financial report, it was stated that there had been a R20 500 000 shortfall because of money loss after the sale of shops on Aventura resorts. He noted that these shops were having a turnover of R20 000 000 a month. It made no sense to sell these shops at a stock value. If the turnover was R20 000 000 a month, then he guessed that the profit should be R7 000 000. The shops had now been disposed to a company called Freedom, with no tender process, and this company also gave certain undertakings that they would get involved in black empowerment and involve the people living around these resorts. Mr Heine ultimately wanted to know why a profit making venture such as these shops, had been sold.

Mr Heine then went on to say that the security had been privatized, and that it had been given to outside persons. He asked it this process was on tender and how had it eventually happened. He stated that the security staff had been absorbed into Aventura, into other positions, which had the Department facing a double cost. The security was since taken over by another company.

Mr Frolick (UDM) stated that he had serious reservations about the slogan 'Maximising Shareholder Value' situated on the front page of the document. The chairperson mentioned that there were serious obligations with regards to the Club Prive, that people are running into R80 000 000 not taking into account that one of the resorts had already been sold for R1 500 000. He asked the Aventura board if Aventura would ever be financially viable.

Mr Frolick also noted that the system in which bookings are made at Aventura lacked control mechanisms. He also mentioned the five-year contract with Protea, and asked about the provisions which had been made in the contract for the definition of roles once the resorts had all been sold. Lastly, Mr Frolick asked to what extent the audit goes at what stage the audit report be seen to be coming out.

Mr Oliphant responded that the board had never sanctioned the purchase of the Mercedes. Aventura management did, without consultation with the board. Concerning the disposal and shops and privatization of businesses on Aventura property, Mr Oliphant stated that the board had imposed a moratorium on any outsourcing or sale of any shops or business on the resorts. He noted that management stated that shops had to be sold to raise income. The board raised the issue of how shops and businesses on the resort property could be sold when these shops and businesses had become a cash card to the resort, and which supplements Aventura.

Mr Oliphant stated that he was not sure if the security issue was placed on tender or not but he would investigate the issue.

Mr Oliphant told the Committee that Club Prive facilities are not available on all resorts. The resorts which had been disposed of, had no Club Prive facilities available. He said that the only Club Prive facilities were available at Pretoria, Roodeplat. He stated that the DPE had put together a report for cabinet on options of how the government can deal with obligation on sale of resorts. He said that firstly, the government can negotiate with prospective buyers to ensure Club Prive facilities will continue, and secondly, that the government starts communicating with members of Club Prive concerning the paying out their deposits.

Mr Oliphant stated that one of reasons why the government has decided on the disposal of Aventura is that it does not want the responsibility of always sending a letter to the bank concerning extending overdraft allowances. Government needs to be absolved of this issue as soon as possible. The resort should be sold as soon as possible so that it guarantees employment to those already employed at the resorts. There are currently not sufficient controls on the resorts which could lead to loss of money to Aventura.

Mr Oliphant then addressed the Protea contract signed with Aventura. The board had advised Protea that if the government had disposed of the sites by the end of the year, then the contract expires. The Aventura board did not want to impose this contract on the new owners of the resorts.

Mr Oliphant stated that the board meeting had been postponed, due to the necessity of the audit Committee meeting. He said that this has been done so that issues discussed within the audit Committee meeting can be taken to the board. He also stated that the internal audit is an important matter, and will also be looked at closely. He stated that the external audit is looking into why there are problems in the cash flow and why Aventura has to always look to government for assistance in this regard.

Mr Frolick asked the DPE for assistance if there was a clause in the contract with Protea allowing for regulation of intimidation in the process of disposal.

Ms Msomi of the Aventura Board stated that the issue has been raised within the board. The board has since identified that in following contracts drawn up in balance of payments, a clause of this nature will definitely be included.

Mr Heine stated that he is very concerned about Club Prive trust money being used to solve the problem of the cash flow operation. He declared that this is a serious offence, and he would like to know who took this decision.

Mr Komphela of the Aventura Board stated that foresees a very malicious manner of opportunist reporting and only reporting that Aventura is likely not to honour the reservation of the people. He stated that moral and ethical issues are at stake here. ABSA had been treating Aventura as merely 'a piece of paper' which he did not understand, due to the nature of the account Aventura held with ABSA, with sums of money as great at R50 000 000 passing hands each day. Mr Komphela was disgusted with ABSA's attitude towards Aventura, especially when Aventura has been one of ABSA longest standing clients. It was unethical and amoral of ABSA, during a very short period of time where Aventura is experiencing problems, to draw it out and disregard Aventura as an important client of the bank.

Mr Oliphant stated that ABSA has been doing business with Aventura for a great deal of time. He stated that ABSA should send Aventura a letter or notice regarding the status of the account, of which none had been received. A press release was sent out to staff to assure them of job security. He stated that he had received a call from Business Day Newspaper, where he was allowed to explain the whole situation. Mr Oliphant further noted that he would do research on which person made the decision on the use of Club Prive members trust money for funding the cash flow operation. The board had merely been advised about the situation and did not know the full details.

Mr Heine stated that there are serious operational problems with the matter. He noted for example, the disposing of shops and businesses on Aventura property. The board should let discrepancies come to the fore and they should deal with these accordingly, so that they should not be the ones to receive the blame for these problems. He also suggested that the Auditor General conduct a forensic investigation this issue.

Mr Mahlala asked for government's full reasons for disposing of Aventura. He also wanted to know from the Aventura board how to ensure that government does not carry this problem as a weight around it neck. He suggested finding ways of speeding up the process of disposal.

Mr Komphela stated that legally ABSA has a right to demand anything they please, but they have proved they are not deserving of this through this issue with Aventura. He stated that ABSA is handling this affair immorally and unscrupulously. He noted that it is only now that Aventura is 'falling apart' and thus being sold. Was ABSA not supporting its friend for many years? He stated that this had to do with politics that goes beyond Aventura itself.

Mr Martin stated that Mr Komphela's suggestions made about ABSA were unnecessary, because his focus did not need to move a critical level, but rather, should be kept at the level where the focus is on the issue at hand.

Mr Heine stated that the government oversees the taxpayer's money. If there is something which becomes a matter, a probe should be set and the issue should be sorted out. A few years ago, Aventura was the jewel of the state, and now it is in a dire mess. In a session like this one, one would not be able to get to the bottom of the problem. He wanted to know from the board the person or group of people responsible for running Aventura into the ground.

Mr Martin stated that the Committee would keep a close watch on the processes, and possibly even would delve into field research at the various Aventura resorts. It was an excellent idea for the Board of Aventura to address the Committee on these issues as a start. The issue is ongoing, and the processes and matter cannot be exhausted at a meeting of this nature.

The meeting was adjourned.