Tsogo Sun reports 39% income increase
Tsogo Sun Holdings announces solid annual results which represent the first full twelve months of trading for the combined group following the successful merger with Gold Reef on 24 February 2011. Total income at R9.0 billion ended 39% higher than the prior year, assisted by the inclusion of R2.2 billion incremental income from Gold Reef as well as satisfactory organic growth. Both casino win and hotel occupancy showed accelerated year on year growth, particularly in the second six months of the year.
Earnings before interest, income tax, depreciation, amortisation, property rentals, long-term incentives and exceptional items (“EBITDAR”) increased by 41% to R3.5 billion. On a like-for-like basis (factoring a full 12 months, as opposed to one month, of Gold Reef’s trading into the group’s financial results for the year ended 31 March 2011) income and EBITDAR increased by 5% and 7% respectively, a satisfactory performance considering the impact of the 2010 FIFA World Cup (“World Cup”) in the prior period. The overall group EBITDAR margin of 38.8% is 0.6pp above the prior year marking the first margin growth achieved since the recession began in 2008.
The integration of the Gold Reef properties into the Tsogo Sun business has progressed smoothly and is largely complete, culminating in the rebranding and launch of the group’s new-look identity in April 2012. During the year the group also concluded the acquisitions of:
- an additional 16.5% effective interest in the Suncoast Casino for R510 million, increasing the group’s total ownership of that operation to 90%;
- an additional 52.6% of Hotel Formula 1 (Pty) Ltd and related property companies for R300 million, bringing the group’s effective shareholding to 100%;
- the hotel and office building in Rosebank for R85 million (previously trading as “the Grace”) which will be re-launched as “54 on Bath” on 1 July 2012; and
- the Garden Court Milpark, previously leased by the group, for R95 million.
Apart from these acquisitions, the redevelopment of the Hemingways casino in East London continued in terms of the R400 million relicensing successfully completed in the prior year, and over R400 million was spent on maintenance capex group-wide to ensure that assets remain best in class. In total the group has spent R1.4 billion on investment activities for the year and continues to investigate other opportunities to allocate capital in line with its growth strategy.
“We have plans, which are at an advanced stage, to invest R320 million in the redevelopment of Silverstar Casino which will include cinemas, restaurants, concert and entertainment areas and conferencing facilities to better service the West Rand market.
We are also considering the redevelopment of the Gold Reef City Theme Park, the expansion of Suncoast Casino and the opportunity to bid for the relocation of one of the smaller casinos in the Western Cape to the Cape Metropole” Chief Executive Officer Marcel von Aulock said.
The underlying operations of the group remain highly geared towards the South African consumer (in gaming) and the corporate market (in hotels) with both sectors still experiencing difficult economic conditions and increased administered costs. However, the group is poised for growth if these sectors of the South African economy continue to improve.
Gaming experienced revenue growth throughout the financial year with accelerated revenue growth across many of the group’s casinos during the second six months. Particularly noteworthy are the results of Montecasino and Gold Reef City casinos in Gauteng, which recorded gaming win growth of 8.4% and 11.3% respectively for the year.
Silverstar casino recorded a decline of 1.1% for the same period; disappointing results as the casino awaits the redevelopment spend that will improve its customer offering. In KwaZulu-Natal, the Suncoast Casino and Entertainment World reflected growth of 5.8% in gaming win, and Golden Horse casino and Blackrock casino reflected growth of 11.6% and 13.7% respectively, showing strong demand in their relevant catchment areas.
With national hotel occupancies at 57% for the year, South Africa is still experiencing the dual impact of depressed demand and over supply. Although the group’s hotels are likewise affected, a significant occupancy and rate premium is being realised through the strong sales and distribution channels as well as the superior product and service quality available within the group.
Showing some recovery, the group’s occupancies in South Africa improved to 60.9% (2011: 58.4%). Average Room Rates in the South African operations declined by 7% to R775, with the decline attributable to the higher achieved rates during the World Cup in the prior year. Overall revenue for hotels is ﬂat on the prior year at R1.6 billion. As a result, EBITDAR declined 9% to R512 million at a margin of 31.5%.
The offshore division of hotels reported total revenue of R324 million during the year, up 20% from the prior year, assisted by the inclusion of Southern Sun Nairobi as a leased hotel (previously managed) with effect from 1 August 2010. EBITDAR (pre-foreign exchange gains) of R88 million was achieved while the Rand weakness in the second half of the year positively impacted the translation of monetary items resulting in a R13 million foreign exchange gain.
Von Aulock concluded: “The accelerated trading performance across the group’s operations in the second half of the year is encouraging although the sustainability thereof is uncertain. Nevertheless, the group remains highly cash generative and has significant opportunities to invest capital in its growth strategy. Our ability to do so will depend on the final outcome and impact of the numerous proposed regulatory and tax changes currently being considered by
Our ability to do so will depend on the final outcome and impact of the numerous proposed regulatory and tax changes currently being considered by government. The optimal resolution of these will require successful interaction with various regulatory bodies including gaming boards, city councils, provincial authorities and national departments and we are engaging with all stakeholders.”
Tsogo declared a final cash dividend of 40 cents per share, bringing the total dividend for the year to 60 cents, an increase of 20% on the dividend declared in respect of the previous year.