Reference no: EM13490561

Experience Africa Holdings Ltd ('EA Holdings') is the holding company of a group of eco-tourism companies which provides world-class wildlife and outdoor experiences to discerning travellers. The group is committed to sustainable conservation and the empowerment of local communities. The group owns and operates safari lodges in South Africa, Namibia and Botswana.

EA Holdings has three wholly-owned subsidiaries, which operate and manage the group's safari lodges in their respective countries, namely -
• Experience Africa SA (Pty) Ltd ('EA SA'),
• Wildlife Botswana (Pty) Ltd ('Wildlife Botswana'), and
• Wildlife Namibia (Pty) Ltd ('Wildlife Namibia').

EA Holdings was founded 15 years ago by Dr Joe Player, an environmentalist and entrepreneur. His objective was to provide tourists with the opportunity to experience Africa's unique wildlife whilst promoting sustainable conservation of wilderness areas. EA Holdings listed on the alternative exchange of the Johannesburg Securities Exchange (JSE) in 2008. Immediately prior to listing, Dr Player retired as chief executive officer of the company and became the non-executive chairman of EA Holdings.

Shareholding and board of directors
The current shareholders of EA Holdings are as follows:
Player Family Trust
37%
Employee Staff Trust
5%
Unit trusts
8%
Public investment corporation
12%
General public
38%
The current directors of EA Holdings are as follows:
Dr Joe Player
Non-executive chairman
Ms Jane Player-Carter
Chief executive officer
Mr Sonny Ndlovu, CA(SA)
Financial director
Mr Thabiso Mleng
Operations director
Mr Jan Johnsen
Independent non-executive director
Mr Jim Jackson
Independent non-executive director
Ms Jayne Naidoo
Independent non-executive director

All executive directors have employment contracts (dealing with salaries, benefits and performance incentive payments). Non-executive directors receive directors' fees plus fees for attending meetings of the board of directors and its sub-committees. The Remuneration Committee is responsible for setting and monitoring the remuneration policies of the group and approving incentive schemes. The members of the Remuneration Committee are Mr Johnsen (chairman), Dr Player and Ms Naidoo. EA Holdings also has an Audit Committee consisting of Mr Jackson (chairman) and Ms Naidoo. A Risk Committee has also been established.
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Auditors

Dlamini and Partners Inc. has been the auditors of EA Holdings and EA SA for the past nine years. The engagement partner for the past six years, Bob Dlamini, is an experienced auditor of eco-tourism businesses.

Wildlife Botswana and Wildlife Namibia are audited by local audit firms in their respective countries. Independence-auditors Inc. was appointed as the auditor of Wildlife Botswana during October 2010.

The financial year end of the group is 31 October.
Information regarding EA SA's operations
EA SA offers 'all inclusive' travel packages to the upper end of the tourist market. Customer service is of paramount importance and the group strives to provide each guest with a unique and memorable experience. EA SA owns numerous safari lodges in the Welgevonden Private Game Reserve ('Welgevonden') in the Limpopo Province of South Africa. The company also owns a fleet of small aircraft to transport guests from OR Tambo International Airport in Gauteng to the game reserve and back again.
EA SA at present only offers six-night packages to guests and the standard all inclusive package includes the following:
• A return flight from OR Tambo International Airport to Welgevonden in one of EA SA's aircraft;
• Six nights' accommodation at one of the safari lodges, including all meals and beverages;
• Daily game drives; and
• A hot-air balloon excursion.

The EA SA Welgevonden safari lodges can together accommodate a maximum of 150 six-night packages per month. For the past three years EA SA's lodges have accommodated an average of 105 packages per month.

EA SA bases its six-night package price on cost plus 20%, which at present amounts to R18 384 excluding VAT. The current estimated cost of the package is as follows:
Cost of the all inclusive six-night package
Notes
R
Accommodation
1
8 000
Food and beverages
2
3 000
Cleaning and other services
3
500
Game drives
4
900
Aircraft and flight costs
5
1 500
Hot-air balloon excursion
6
1 200
Electricity
7
220
Total cost
15 320
3
Notes

1 Accommodation represents the fixed costs of operating the lodges, excluding those costs mentioned below, and includes lodge maintenance costs, administration costs and municipal rates. These expenses are allocated to the six-night package based on normal occupancy levels of 70% for the lodges throughout the year.

2 Food and beverage costs represent the average cost of food and beverages consumed by each guest during a six-night stay.

3 Cleaning and other service expenses are the cost of employing staff to clean the lodges and service the rooms. Cleaning staff are able to clean and service the lodges if they operate at the normal 70% occupancy level. If the lodges are more than 70% full, cleaning staff work overtime at R150 per hour. Cleaning staff spend an extra 30 minutes per day cleaning and servicing the lodges for each additional guest above the 70% occupancy level.

4 The cost of daily game drives comprises the salaries of game rangers, maintenance costs of vehicles and the cost of complimentary hampers provided for each guest. The complimentary hampers cost R400 each and include a blanket for the game drives, a game viewing booklet and mini binoculars. Each guest receives one of these hampers during the course of their six-night stay at the lodge (they do not receive a hamper each time they go on a game drive). Game rangers are permanent employees of EA SA.

5 The total cost of collecting guests from OR Tambo International Airport, transferring them to the lodge, and returning them to OR Tambo International Airport at the end of their stay amounts to R157 500 per month. This cost is allocated to each package based on the number of guests per month at the 70% occupancy level. EA SA has sufficient aircraft capacity to cope with a 100% occupancy level.

Some guests travel to EA SA's safari lodges by road and at their own expense. These guests do not receive a reduction in the total package price. Mr Ndlovu, the financial director, believes that this is the correct treatment. In his opinion, 'the cost of running the fleet is mainly fixed and is incurred regardless of whether clients use the service or not'. Thus the cost of the air transport service is allocated to all packages sold. Market research has indicated that many guests find safari lodge packages which do not include air transport services in their prices, to be more affordable than the EA SA package.

6 The hot-air balloon excursions offered to guests are outsourced to Eagle Eye Balloon Tours ('Eagle Eye') which operates from Welgevonden. Eagle Eye charges EA SA a fee of R1 200 per guest per hot-air balloon excursion. This fee is applicable for up to 105 guests in any particular month. If the monthly number of guests is higher, Eagle Eye has to rent extra hot-air balloons and charges an incremental fee of R800 for each guest over 105 guests (i.e. R800 plus the original R1 200) to cover the increased costs. Eagle Eye has indicated that it could increase its capacity and reduce the fee to R1 000 per guest if EA SA could guarantee at least 140 guests per month.

7 Electricity costs vary according to occupancy levels. The total electricity cost per month at an occupancy level of 70% is R23 100. Total electricity costs would amount to R31 200 per month if the safari lodges operated at full capacity.

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A new business venture for the South African operation

The directors of EA SA were satisfied with the company's results for the year ended 31 October 2010. The number of guests increased as a result of the FIFA 2010 Soccer World Cup and it is hoped that many of these tourists will return in the future. At the National Tourism Board Conference entitled Tourism 2010 and beyond, Mr Sonny Ndlovu learnt that tour bus operators which offered bus tours around Gauteng to foreign guests during the World Cup had been highly successful. Sonny subsequently did some market research into a venture to utilise the monthly spare capacity at the EA SA safari lodges in South Africa.

Sonny prepared the following business proposal which has been approved by the directors of EA SA:

• EA SA will enter into an agreement with Interstate Bus Tours (Pty) Ltd ('Interstate'), a tour bus company wholly owned by Petunia Ndlovu, Sonny's wife. (Interstate is audited by Eric Eager, a sole practitioner.) Interstate will sell an all-inclusive package for R17 000, consisting of three days and nights at the EA SA Welgevonden safari lodges and four days and nights touring famous landmarks in and around Gauteng. The portion of the package that relates to the bus tour will include all meals, accommodation and sightseeing expenses. The three-night stay at the Welgevonden safari lodges will entitle guests to all the privileges of the standard six-night package, including the hot-air balloon excursion, daily game drives, food and beverages and all other lodge services. The existing game rangers and vehicles will be able to cope with the increased demand for daily game drives as most guests do not use this service every day. Over and above these normal privileges, EA SA needs to provide entertainment on one evening per package. This would entail a cost of R2 000 eight times per month. This package price does not include flights to and from OR Tambo International Airport because Interstate will take responsibility for transporting guests.

• Market research indicates that there would be a demand for 120 such packages per month. Sonny was particularly thrilled with this proposal as it would solve the current problem of unutilised capacity at the Welgevonden safari lodges. The demand from Interstate is equivalent to 60 normal all inclusive six-night packages sold by EA SA.

• Interstate will take responsibility for the booking, invoicing and general administration of the all-inclusive packages.

• Per the agreement, Interstate will pay EA SA R4 000 for each guest for the three-night stay at EA SA's Welgevonden safari lodges. Interstate has requested that EA SA reserve a minimum of 120 three-night packages at the Welgevonden safari lodges for their all-inclusive packages.

• Interstate will charge EA SA a management fee of 5% of the three-night stay revenue for the booking, invoicing and administrative functions they perform.

The terms and conditions of the venture were unanimously approved at a directors' meeting on 15 September 2010 at which all the directors were present, for implementation in early 2011. The board of directors furthermore decided that the pricing of the standard six-night package should remain at R18 384 per guest despite EA SA's cost-plus pricing policy.