Organic growth

 

Both hotels and gaming have high levels of operational gearing due to substantial levels of fixed operating costs. The major driver of long-term organic growth will arise from maximising the revenue generated from the group's asset base in all macro-economic circumstances.

Operational overheads must be reviewed and measured for efficiency and to ensure each Rand spent is either in support of the objective of sustainability or growth.

Key performance indicators

  2016
Rm
  2015
Rm
 
Organic income growth 6%   2%  
Organic Ebitdar growth 5%   (3%)  
Free cash flow R2.0 billion   R1.8 billion  
Maintenance capital expenditure R945 million   R749 million  
Adjusted HEPS growth 12%   (1%)  

 

2016 performance

Segmental operating performance

  Income   Ebitdar   Ebitdar margin    
Year ended 31 March 2016
Rm
  2015
Rm
  2016
Rm
  2015
Rm
  2016
Rm
  2015
%
   
Montecasino 2 674   2 510   1 194   1 133   44.7   45.1    
Suncoast 1 701   1 581   791   732   46.5   46.3    
Gold Reef City 1 380   1 270   525   479   38.1   37.7    
Silverstar 735   676   254   248   34.6   36.7    
The Ridge 391   415   160   188   40.9   45.2    
Emnotweni 384   367   152   154   39.5   42.0    
Golden Horse 369   334   163   148   44.2   44.3    
Hemingways 318   310   113   109   35.4   35.1    
Garden Route 218   188   92   79   42.3   42.0    
Blackrock 168   152   63   58   37.7   38.1    
The Caledon 163   149   43   38   26.2   25.5    
Mykonos 156   145   68   64   44.0   44.1    
Goldfields 134   138   44   51   32.4   37.1    
Other gaming operations 109   100   (233)   (216)            
Total gaming operations 8 900   8 335   3 429   3 265   38.5   39.2    
South African hotels division(1) 2 744   2 506   920   830   33.5   33.1    
Offshore hotels division 691   552   169   116   24.5   21.0    
Pre-foreign exchange losses         192   137   27.8   24.8    
Foreign exchange losses         (23)   (21)            
Corporate(1) (52)   (50)   25   12            
Group 12 283   11 343   4 543   4 223   37.0   37.2    

All casino units are reported pre-internal gaming management fees
(1) Includes R52 million (2015: R50 million) intergroup management fees


Tsogo Sun gaming
Gaming win for the year grew by 6% on the prior year with growth in slots win at 4% and tables win at 11%. Gaming win for both slots and tables was impacted by lower win percentages with growth in slots handle at 7% and tables drop at 13% on the prior year.

  31 March
2016
Rm
    31 March
2015
Rm
    % change
on 2015
 
Gaming win 7 361     6 976     6  
Tables 1 750     1 573     11  
Slots 5 611     5 403     4  
Win % – tables 21.5     21.8     (0.3pp)  
Hold % – slots 5.0     5.2     (0.2pp)  

 

  • Gauteng
  • KwaZulu-Natal
  • Mpumalanga
  • Eastern Cape
  • Western Cape

Gauteng recorded provincial growth in gaming win of 3.7% for the year. Gaming win growth of 5.1% was achieved at Montecasino, 5.5% at Silverstar and 4.9% at Gold Reef City. Montecasino and Silverstar experienced reduced win percentages during the year and Gold Reef City was impacted by the refurbishment and expansion work which was completed in October 2015. Administered costs (property rates and water) at Silverstar increased by R11 million post the redevelopment.

KwaZulu-Natal provincial gaming win grew by 7.3% for the year. Gaming win growth of 7.1% was achieved at Suncoast Casino and Entertainment World, 8.8% at Blackrock Casino in Newcastle and 9.5% at Golden Horse Casino in Pietermaritzburg.

Provincial gaming win in Mpumalanga reduced 2.8% for the year. Gaming win growth of 2.2% was achieved at Emnotweni Casino in Mbombela with a reduction of 7.4% experienced at The Ridge Casino in eMalahleni impacted by significant economic disruptions to the steel industry in that area. Emnotweni and The Ridge experienced reduced tables drop and reduced win percentages during the year.

The Eastern Cape provincial gaming win grew by 1.9% for the year. Hemingways gaming win decreased by 0.7% on the prior year, impacted by the poor economic conditions in the East London area.

The Western Cape reported growth in provincial gaming win of 3.8% for the year. The Caledon Casino, Hotel and Spa, Garden Route Casino in Mossel Bay and Mykonos Casino in Langebaan reported growth of 10.0%, 18.2% and 6.7% respectively, reflecting a strong performance of the leisure markets in these areas.

The Goldfields Casino in Welkom in the Free State experienced difficult conditions with gaming win 4.2% down on the prior year.

Other gaming operations consisting of the Sandton Convention Centre and head office costs reflected a net Ebitdar loss of R233 million, R17 million adverse to the prior year.

Overall revenue for the gaming division increased 7% on the prior year to R8.9 billion. Ebitdar increased 5% on the prior year to R3.4 billion at a margin of 38.5%, 0.7pp below the prior year due to increased administered costs (property rates, water and electricity) and the opening of additional profitable lower margin businesses.

  • Gaming F'16 Ebitdar by property
  • Group revenue by nature

Tsogo Sun hotels
The hotel industry in South Africa continues to experience a subdued recovery from the dual impact of depressed demand and oversupply. Overall industry occupancies have improved to 63.8% (2015: 62.5%) for the year, but were adversely impacted by visa regulations which constrained growth. As a result of the strong sales and distribution channels and the superior product and service quality available within the group, Tsogo Sun hotels continues to achieve occupancy and rate premiums in the segments in which the group operates.

Trading for the group's South African hotels for the year recorded a systemwide Revpar growth of 8% on the prior year due mainly to an increase in average room rates by 7% to R1 018, with occupancies above the prior year at 63.5% (2015: 62.8%). Overall revenue for the South African hotel division increased 9% on the prior year to R2.7 billion, assisted by the inclusion of the additional Cullinan hotels for an additional month and the closure of Garden Court De Waal for refurbishment during the prior year, offset by the closure of the Riverside Sun and Sabi River Sun for refurbishment during the current year. Ebitdar improved 11% to R920 million at a margin of 33.5% (2015: 33.1%).

The offshore division of hotels achieved total revenue of R691 million, representing a 25% increase on the prior year due to a recovery from the impact of the Ebola epidemic on trading and the closure of Southern Sun Maputo for refurbishment during the prior year. The result was further assisted by the weakening of the Rand against both the US Dollar and the Euro. Ebitdar (pre-foreign exchange losses) increased by 40% to R192 million. Foreign exchange losses of R23 million (2015: R21 million) were incurred on the translation of offshore monetary items.

Combined South African and offshore hotel trading statistics, reflecting the Tsogo Sun group-owned hotels and excluding hotels managed on behalf of third parties, are as follows:

  31 March
2016
  31 March
2015
 
Occupancy (%) 62.5   61.6  
Average room rate (R) 1 035   945  
Revpar (R) 646   583  
Rooms available ('000) 4 307   4 209  
Rooms sold ('000) 2 691   2 595  
Rooms revenue (Rm) 2 784   2 453  

 

  • SA occupancy* (%)
  • SA average rate* (R)
  • SA Revpar* (R)

Maintenance capital expenditure
The group invested R945 million on maintenance capex group-wide, including gaming system replacements and major hotel and casino refurbishments, ensuring our assets remain best in class.

Looking ahead

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. The high level of operational gearing still presents significant growth potential of the group should these sectors of the South African economy improve.

Trading is expected to remain under pressure due to the ongoing macro-economic conditions and weak consumer sentiment. Nevertheless, the group remains highly cash generative and is confident in achieving attractive returns from the growth strategy once the macro-economic environment improves.