Announcing results for the six months ended 30 September 2015
- Income R5.9 billion, up 7%
- Ebitdar R2.1 billion, up 6%
- Adjusted HEPS 88 cents, up 9%
- Interim dividend per share 31 cents, up 7%
Commenting on the results, Tsogo Sun CEO, Marcel von Aulock said: “In the context of the difficult trading environment where consumers continue to be under financial strain and with sentiment at record lows, achieving year-on-year growth in both casino and hotel revenues is an acceptable result. This performance was underpinned by the group’s development and merger and acquisition activity which will continue to be a focus moving forward.”
Total income for the six month period rose 7% to R5.9 billion. This was driven by the combination of 4% growth in gaming win and a 15% growth in both hotel rooms revenue and food and beverage revenue. The group reported adjusted headline earnings per share of 88 cents, a 9% improvement. Ebitdar ended 6% above the prior period at R2.1 billion.
The 4% growth in gaming win is comprised of growth in both slots win and tables win of 4%.Overall revenue for the Gaming division increased 6% on the prior period to R4.3 billion. Ebitdar increased 2% on the prior period to R1.6 billion at a margin of 37.5%, 1.3pp below the prior period due to the slow growth in gaming win, increased administered costs and the opening of additional lower margin business.
The hotel industry in South Africa continues to experience a subdued recovery from the dual impact of depressed demand and oversupply. Industry occupancies have improved marginally to 61% but were adversely impacted by the visa regulations which constrained growth. Overall revenue for the South African Hotels division increased 7% on the prior period with Ebitdar increasing by 5% to R349 million at a margin of 28.4%
The Offshore Hotels division achieved total revenue of R337 million, representing a 34% increase on the prior period due to a recovery from the impact of the Ebola epidemic on trading and the closure of Southern Sun Maputo for refurbishment in the previous period. This was assisted by the weakening of the Rand against both the US Dollar and the Euro.
Despite the tough current operating environment, the group continues to allocate capital in terms of its growth strategy. This is expected to reap benefits once the economy improves. In this regard a total of R1.0 billion was spent during the period on various expansionary activities.
- continued the R640 million refurbishment and expansion of the Gold Reef City Casino, Theme Park and Apartheid Museum. Phase one of the project, which excludes the Theme Park, was substantially completed in November 2015;
- continued with the planning for the expansion of the Suncoast Casino and Entertainment World. Construction is anticipated to commence mid-2016 with three years to completion. Following an assessment of the Durban retail market, the investment in the expansion has increased to R3.5 billion highlights of which include a 49 500m2 destination retail mall, a 2000-seater multipurpose venue, additional restaurants and entertainment offerings and an expanded casino floor.;
- acquired 55% of the Hospitality Property Fund Limited (HPF) B-linked units for R252 million in August 2015; and
- invested R520 million on maintenance capex group-wide, including gaming system replacement and major hotel refurbishments, ensuring our assets remain best in class.
Looking ahead, the group continues to pursue a variety of projects and acquisitions including:
- The potential bid for a fourth casino license in the Mpumalanga Province which is currently subject to legal proceedings;
- The potential relocation of one of the smaller casinos in the Western Cape to the Cape Metropole;
- The acquisition during October 2015 of a minority interest in International Hotel Group Limited (IHG) for R80 million. The property fund will pursue hotel opportunities in the United Kingdom and Europe with the hotels being managed by RedefineBDL, a company in which the group currently owns a 25% interest.
- The potential acquisition of a controlling stake in HPF through the injection by Tsogo Sun of 10 hotel properties in exchange for ordinary shares in HPF which at the time of issue, will comprise a single class of share. This is an exciting opportunity which will see Tsogo Sun become a multi-managed, multi-branded hotel group and will provide HPF with a stable anchor shareholder, an appropriate capital structure and an attractive growth pipeline. The transaction is subject to the execution of definitive agreements as well as regulatory approvals.
Commenting on the prospects, von Aulock said: “We expect trading conditions to remain under pressure due to the ongoing macro-economic conditions and weak consumer sentiment. Nevertheless, the group remains highly cash generative and we are confident that we will achieve attractive returns from the growth strategy when the macro-economic environment improves.”