Two of the City’s major entities are facing severe cash flow problems and are struggling to cover operations as Covid-19 has laid waste to the economy.
The Cape Town International Convention Centre (CTICC), ranked number 1 in Africa by the International Congress and Convention Association, has been granted a lifeline of R200 million by the City.
The entity is unable to conduct its business operations due to the limitations posed by the Covid-19 regulations.
According to the City, the company’s available financial resources were projected to last until the end of March.
Chief executive Taubie Motlhabane said the entity’s costs exceeded its revenue as it was unable to host events of more than 50 people due to the current Covid-19 regulations in place.
The City holds 71.4 % shares in the entity, the Western Cape government 23.2% and SunWest International 5.4%.
Documents in support of the financial rescue showed that the total revenue lost for 144 contracted events that were either postponed or cancelled for the period March 2020 to June 2021, amounted to R234m.
Confirmed bookings for the financial years up to 2024 had an estimated value of R693m.
“In order to mitigate the CTICC’s going concern risk – which could negatively impact on hosting future events – and to protect the City’s shareholding, it is in the City’s best interests to consider a further investment in the CTICC,” the City argued in its proposal.
Mayco member for finance and deputy mayor, Ian Nielson, further told the council meeting in January: “The CTICC has operated for 15 years without the need for any operational support from its shareholders, while generating billions of rands of economic activity in our city. It’s been able to support itself in the past year when it was partially converted into a field hospital for Covid-19 patients for several months.
“Since then it has taken drastic action – it has closed down CTICC 1 and cut its salary bill and overall expenditure. It will now require support from its shareholders over the next few years to assist it to remain a going concern, and return to full service when the disaster has passed,” Nielson said.
The CTICC had contributed R44.5 billion to the provincial GDP and R52.8bn to the country’s GDP, the documents showed.
Over the past five years it had also generated a turnover of R223m per annum with an average year-on-year growth in turnover of 9% a year.
According to the CTICC’s financial forecast, it was estimated that the pandemic would face financial constraints for the next two financial years, 2021/22 and 2022/23.
The City said the financial support of R200 million would be in the form of a “special class of ordinary shares”.
“This special class of shares will be subject to dividend payments and the entity will have the option to buy back the shares once they are in a financial position to do so,” the City said, adding that the investment would “yield returns for the City once the CTICC’s financial position improved”.
Should the buy-back option be exercised, the City said it would enable it to reinvest the funds in other programmes.
Motlhabane said the CTICC would use the investment in a responsible manner until it was in a position to commence operations “normally”.
She said organisers of major events scheduled for later in 2021 and 2022 had indicated that they intended to proceed with events as soon as Covid-19 regulations allowed.
However, cost-saving initiatives had been implemented, including capital expenditure, a freeze on salary increments and bonuses, and an offer of early retirement to those eligible.
No jobs had been lost so far.
Nielson also told the meeting that the City’s other entity, the Cape Town Stadium, continued to rely on its support while it was positioning itself for a return to service.
The company has adjusted its budget for the current financial year as it had envisioned that it would only be allowed to host spectators at events from July 2021.
The entity proposed a reduction of its total revenue of R18.5m, which was a 75% revenue reduction.
However, it envisaged generating significant revenue during the 2021/22 and 2022/23 financial years from the commercial overlay, naming, pouring and commercial rights.
All events with Western Province Rugby (WPR) were anticipated to take place at the stadium, including a match between the Stormers and Lions in the next financial year.
Nielson told the meeting that construction of additional suites was almost complete and the commercialisation plan was ready for implementation when business could resume, and this would lessen its need for support from the City in future.
Revenue streams that were now bringing in reduced income included tours, parking fees and advertising fees.
Chief executive of the Cape Town Stadium, Lesley de Reuck, said the stadium has, over the past few weeks, had “successful discussions with WPR, and were now working through the final draft of the anchor tenant agreement.
“We anticipate their games for the upcoming season being played at the Cape Town Stadium, and we look forward to that with excitement,” De Reuck said.
De Reuck said the stadium would continue to be a multi-use, event-hosting facility and would also continue to host as many of Cape Town City Football Club’s matches as possible.