Tsogo Sun reports 36% increase in adjusted HEPS
- Income R4.8 billion, up 10%
- EBITDAR R1.8 billion, up 13%
- Adjusted earnings R746 million, up 36%
- Adjusted HEPS 68.0 cents, up 36%
- Interim dividend per share 24.0 cents, up 20%
Tsogo Sun CEO, Marcel Von Aulock said: “The continued improvement in trading conditions across the group’s operations during the first half of the year is encouraging. Whether this is sustainable or not is uncertain as we have seen some inconsistency in our monthly results. For instance September 2012 produced particularly high activity levels in both Gaming and Hotels. Nevertheless, the Tsogo group remains highly cash generative and an improvement in the macro-economic environment should result in strong organic growth for the group in addition to the significant opportunities to invest in and build on our business.”
Tsogo Sun increased its interim dividend by 20% and reported a 36% increase in adjusted earnings of R746 million for the six months to 30 September 2012. This reflects the continued recovery in trading conditions, evidenced in the second six months of the prior financial year, and the impact of the Group’s growth strategy.
The group has reported year-on-year growth in both gaming (8%) and hotel (17%) revenues, an achievement which has been assisted by a particularly strong September trading month for both divisions and the consolidation of the Formula 1 hotel business. Total income rose 10% to R4.8bn during the period under review.
Earnings before interest, income tax, depreciation, amortisation, property rentals, long-term incentives and exceptional items (“Ebitdar”) at R1.8 billion for the six months increased by 13% on the prior period. The overall group Ebitdar margin of 38.2% is 1.0pp above the prior period. Results for the six months reflect the growth potential of the group if the consumer (in gaming) and corporate (in hotels) sectors of the South African market continue to improve.
Tsogo Sun continued to pursue growth by:
- completing the integration of the Hotel Formula 1 business acquired at the end of the previous financial year;
- concluding the acquisition of the Southern Sun Hyde Park operation for R130 million from Hyprop Ltd. This was previously operated under a management agreement. R65 million was paid on 1 September 2012 with the balance to be paid on transfer of the property;
- acquiring the hotel now known as Garden Court Mossel Bay at the Garden Route casino for R20 million;
- continuing the redevelopment of the Hemingways casino in East London in line with the R400 million relicensing bid. The total spend on this project to date is R203 million with final completion scheduled for the first quarter of 2013;
- completing the refurbishment of 54 on Bath and the re-launch of the hotel on 8 August 2012;
- obtaining irrevocable commitments from certain of the remaining indirect minority shareholders in the Suncoast casino, holding collectively an effective 8.7% in the operation for the acquisition of their interest. It is anticipated that this acquisition will be effected through the buy-back of shares in Durban Add Ventures Limited (“DAV”) and Adventure World Management (Pty) Limited (“AWM”) in terms of an offer, for a total maximum consideration of R400 million. Depending on the number of shares acquired through the offer, the group’s resultant shareholding in the Suncoast casino will be between 98.7% and 100%. The relevant legal and regulatory documentation is being prepared.
In addition to these acquisition and expansion projects, Tsogo Sun invested over R300 million on maintenance capex group-wide thereby ensuring its assets remain best in class.
Satisfactory revenue growth for the period under review was achieved across most of the group’s casinos, particularly in the group’s flagship casinos located in Gauteng and KwaZulu-Natal, where revenue grew by 8% at Montecasino and at the Suncoast casino. Overall revenue for the gaming division increased 8% on the prior period to R3.7 billion while Ebitdar improved 12% to R1.5 billion at an increased margin of 40.2%.
With industry hotel occupancies at 57.7% for the six months ended 30 September 2012 (2011: 53.7%), South Africa is still experiencing the dual impact of depressed demand and over supply, although some recovery has been achieved.
Trading for the Tsogo Sun South African hotels division for the first six months has been more buoyant. A system-wide RevPar growth of 10.7% on the prior period was due mainly to an increase in occupancies to 62.5% (2011: 58.9%). Average room rates remain constrained with limited pricing opportunities and increased by 4% to R791. Overall revenue for the South African hotels division increased 17% on the prior comparative period to R910 million assisted by the inclusion of Formula 1, 54 on Bath, and Southern Sun Hyde Park, offset by the closure of Southern Sun Grayston. Ebitdar improved 27% to R272 million at an improved margin of 29.9%.
The offshore hotels division achieved total revenue of R179 million, representing a 17% improvement on the prior period, mainly driven by the weakening of the Rand against both the USD and the Euro since April. The Rand weakness resulted in a R13 million (2011: R20 million) foreign exchange gain on the translation of offshore monetary items. Notwithstanding this, Ebitdar (pre-foreign exchange gains) of R46 million was achieved.
Tsogo declared an interim cash dividend of 24 cents per share, an increase of 20% on the dividend declared in respect of the previous interim period.