Chairman and Chief Executive
Officer's review

John Copelyn – Chairman

Jacques Booysen – Chief Executive Officer

Adjusted headline earnings per share reduced by 5% due to the difficult macro-economic environment, poor business confidence and consumer sentiment and political uncertainty. The potential impact of the positive political developments during December 2017 resulted in improved sentiment which has not yet translated into a significant improvement in trading.


The year ended 31 March 2018 delivered overall revenue growth of 6% despite a disappointing reduction in casino gaming win by 2%. The overall revenue growth was positively impacted by the inclusion of the Gameco businesses from 20 November 2017 and the consolidation of HPF for the full year as compared to the five months in the prior year. Trading results were negatively impacted in casino gaming by the opening of Time Square in Menlyn on 1 April 2017. The South African gaming and hotel operations also reflect the difficult macro-economic environment, poor business confidence and consumer sentiment and political uncertainty. The potential impact of the positive political developments during December 2017 resulted in improved sentiment which has not yet translated into a significant improvement in trading. The offshore hotels continued to experience difficult trading conditions, with total revenue declining by 11% year-on-year. With organic revenue growth under pressure, the group continued with its focus of containing costs without impacting the customer experience. Adjusted headline earnings per share reduced by 5% due to the challenging overall trading environment.

The group’s casino and hotel properties remain in excellent condition as a result of the continuing refurbishment programme and the upside potential from any economic recovery is significant. A number of acquisitions and developments were concluded during the year, including:

  • the acquisition of HCI and all other shareholders’ interests in Gameco for a combination of 98.5 million Tsogo Sun shares and R1.7 billion in cash;
  • a further 29 hotel properties were transferred from the group to HPF for shares and cash effective 1 July 2017. Following this transaction and HPF’s R1.0 billion rights issue during August 2017, the group now owns 59.2% of HPF;
  • the development of a US$16 million 125 room StayEasy in Maputo, Mozambique, which opened during April 2018; and
  • the acquisition by HPF of various sections and exclusive use areas of the Sandton Eye sectional title scheme from Savana Property Proprietary Limited and an existing real right of extension in the scheme from Sandton Isle Investments Proprietary Limited for R302 million.



  • 30% of Suncoast (R1.0 billion)
  • Century Casinos (R438 million)


  • Gold Reef merger


  • 16.5% of Suncoast (R510 million)
  • 52.6% of Hotel Formula1 (R300 million)


  • 10% of Suncoast (R400 million)
  • 75.5% of Southern Sun Ikoyi (R695 million)


  • 10% increase in interest in Cullinan and acquisition of hotel assets (R762 million)
  • 25% of RBH (R145 million)
  • Buy-back of 12% of Tsogo Sun ordinary shares (R2.8 billion)


  • 25.9% of IHPL (R315 million)
  • 55% of HPF B-linked units (R252 million)


  • 20% of the GrandWest and Worcester casinos (R1.3 billion)
  • 40% of Cullinan plus loans (R1.03 billion)
  • Acquisition of hotel assets (R310 million)
  • 30% of Mykonos (R190 million)
  • Control of HPF through an asset for share transaction


  • Acquisition of Gameco (R3.7 billion)

The group continues to focus on value-adding projects which currently include the following:

  • the continued construction on the R1.6 billion expansion and refurbishment of the Suncoast Casino and Entertainment World. The project includes past spend with the Salon Privé opened in August 2018 and the remainder of the project scheduled to open in December 2018; and
  • continuing engagement with the Western Cape provincial government regarding the relocation of smaller casinos to the Cape Town metropole.

The industry continues to face regulatory challenges, including potential amendments to smoking legislation and Gauteng provincial gaming taxes, and these are being addressed as far as practical through constructive engagement with the decision-makers to enable a stable regulatory environment.


The strategic priorities of the Tsogo Sun group during the year remained sustainability and growth. The current uncertain socio-economic outlook in South Africa heightens sustainability risks which we address by avoiding decision-making that negatively impacts the long-term health and survival of the business and secondly, by developing appropriate strategies to eliminate or minimise the potential negative impact of identified external risks and taking advantage of opportunities which may arise. Growth is achieved both organically and inorganically and is measured by the increase in the group’s free cash flow generated over time.


Tsogo Sun’s sustainability is underpinned by five major pillars of focus in which we continue to focus on enhancing our performance.

Financial strength and durability

Closing net debt increased to R12.5 billion mainly as a result of the acquisition activities referred to earlier in this review, with a net debt:Ebitdar ratio of 2.4. The group’s committed debt facilities total R17.3 billion, some R4.7 billion above the current drawdown (including available cash on hand), and have an average tenure of 32 months. Accordingly, the group is adequately funded for ongoing operations and macro-economic shocks that may occur and able to take advantage of attractive expansion opportunities.

The proposed split of the business between a property company, a gaming operating company and a hotel operating company will impact the financial strength and durability of the group as the two operating companies will have higher levels of operational gearing and will retain limited properties that can be utilised as security. The proposed disposal of the casino precinct properties to HPF at an LTV of 35% will mitigate the risk as the majority of the debt will be in the entity with more stable cash flows and significant properties that can be used as security.

Deliver to our beneficiaries

Given the perceived social impacts around gaming, it will always be important who enjoys the economic benefit of the group’s activities through ownership, employment, taxes and social programmes.

HCI remains a stable and supportive shareholder and increased its ownership in the group to 51.2% during the year upon the acquisition by the group of Gameco. The ultimate largest shareholder in the group through HCI is SACTWU.

CSI and enterprise development activities continue to be conducted as part of citizenship, with a focus on programmes that make a real difference in the communities in which we operate. In total, R57 million was spent on CSI initiatives in the key areas of education, sport and environmental awareness, while in supplier and enterprise development the Tsogo Sun Entrepreneurs programme now supports 242 emerging businesses in the tourism sector and other industries throughout the country.

Tsogo Sun is extremely proud of having retained a level 1 BBBEE rating under the revised codes of good practice – tourism sector scorecard. The group continues to resist attempts by various gambling boards to unilaterally impose arbitrary requirements with regard to BBBEE compliance due to the fact that achievement of such levels can be impacted by factors beyond the group’s control. We remain committed to BBBEE as evidenced by our level 1 rating, but cannot expose our gaming licences to regulatory risk against uncertain moving targets.

Evidence of the large and diverse stakeholder base that benefits from the group’s activities can be found with reference to the approximately 24 500 people employed directly and indirectly by the group and the R2.4 billion in direct taxes paid per annum. We refer you to the value added statement in the key relationships section on page 32 and the community section on page 45 for further information.

Product relevance to customer experience

The group continues to reinforce its position with established brands in both the corporate and consumer markets in South Africa. The essence of the group’s products remain onsite experiences, as, in order for our customers to consume our projects they need to physically visit our properties, be it for accommodation, theatre, entertainment, dining, gaming or hospitality.

Key to remaining our customers’ destinations of choice is the group’s ongoing focus on maintaining and refurbishing both its gaming and hotel offerings. During the past five years, the group has spent R4.1 billion on casino and hotel refurbishments. The effect of this is that, despite the current difficult trading conditions, when the economic outlook improves, the group will not be faced with a major capital expenditure backlog.

Continued focus remains on facilitating ease of business for our customers ranging from hotel bookings to ordering refreshments on the gaming floor.

We use the feedback received through our guest experience survey programme to ensure that our operations are always aimed at providing a satisfying customer experience.

Regulatory compliance

The group enforces a culture of compliance at all levels of the organisation, relating to all relevant laws and regulations. Compliance is not limited to intensive gaming regulatory requirements, but also involves having systems and review processes in place to understand and abide by laws in areas as diverse as liquor and fire regulations, health and hygiene standards, labour, competition and consumer protection.

While we respect the important role that the various regulatory bodies play in society, business in general and the affairs of the group specifically, we have been, and are still, forced to challenge arbitrary unjustified decisions and laws and regulations that, while often well intended, we believe are misguided or will have unintended adverse consequences for the group and its stakeholders. We will continue to defend our commercial rights while maintaining a cordial and cooperative relationship with various levels of government.

Human resources

Tsogo Sun aims to recruit staff with the best attitudes and skills available and provide an enabling and satisfying work environment.

The Tsogo Sun Academy plays a pivotal role in the training and development of our employees and to this end spent R183 million during the 2018 financial year on training. Training and development programmes are aimed at ensuring that all our employees are properly prepared and equipped for their work environment.

We believe that engagement is as important as levels of remuneration to derive the best performance from our workforce and, to assess the levels of employee engagement, a survey was completed during the year. The results were very encouraging with an improvement in virtually all categories on the previous survey in 2014. Our remuneration philosophy is aimed at ensuring that we attract and retain talented employees. The remuneration section on pages 81 to 88 highlights the philosophy towards remuneration and incentivisation.


The value of a business is the present value of the future cash flows that can be generated by the assets and other capitals utilised by that business. The only true measure of growth for our business therefore is its growth in free cash flow over time.

Organic growth

Casino gaming win growth was negatively impacted by the macroeconomic environment and consumer sentiment. Casino gaming win reduced by 2%, with a 4% reduction in tables win and a 1% reduction in slots win. In the short to medium term it is expected that gaming revenue growth will continue to be impacted by negative consumer sentiment and the macro-economy.

Overall owned occupancies in the South African hotel division increased by 0.4pp to 63.6%, still well below normal long-term levels of approximately 67%. It is not expected to return to these levels without some positive macro-economic indicators and an improvement in business confidence. Revpar increased 1% on the prior year to R621, mainly as a result of no growth in average room rate on the prior year.

Trading for the group’s owned hotels excluding South Africa remained under pressure with occupancies down 1.3pp on the prior year to 51.1% and average room rates 10% down in Rand terms, mainly due to the strengthening of the Rand. These hotels continue to experience weaker markets due mainly to the negative impact of low commodity prices and the subsequent collapse of the local currencies.

The 2018 financial year reflects an income and Ebitdar growth of 6% and 4% respectively, assisted by the acquisitions implemented in the current and prior year. Excluding the impact of the Gameco acquisition, total income grew by 1% and Ebitdar was flat on the prior year. The Ebitdar margin weakened by 0.5pp to 37.7% due mainly to the weak organic income growth.

Given the quality of our asset base and the high levels of operational gearing in our industries, organic revenue growth even marginally above inflationary levels should see a significant increase in operating cash flows. In the longer term a recovery in consumer and business sentiment, together with an improvement in the macro-economic environment, remain the factors that present the largest growth opportunity for the group. In the current environment we will continue to focus on driving revenue and containing costs.

Inorganic growth

The group continues to pursue inorganic growth through a combination of acquisitions, new developments and expanding our own facilities, and a total of R2.6 billion was spent on this during the 2018 financial year, excluding the HPF asset for share transaction. For details of the transactions refer to page 68.

The acquisition of Gameco during the year is strategically important to the group as, in the short to medium term, growth in the LPM and EBT industries is expected to be stronger than in the casino industry, mainly as a result of the ability to roll out further gaming capacity and new facilities in previously untapped geographical areas.

Further opportunities are being pursued, with the most significant being the Suncoast expansion and the Western Cape relocation. In addition the group continues with the growth of its property portfolio through the roll out of Monte Circle office buildings at Montecasino.

Further investment opportunities will be evaluated as they arise bearing in mind the higher gearing levels of the group and the potential value that such opportunities present. We remain confident of generating significant value for our stakeholders in future, provided that the regulatory environment remains stable and that the macro-economy does not collapse.


The group intends to transfer a significant portion of its casino real estate assets to HPF following the two transactions concluded in 2016 and 2017 whereby a significant portion of the group’s hotel properties were transferred to HPF. On conclusion of the proposed transaction, HPF will be the property company and is expected to own investment property with a fair market value of approximately R36 billion. The intention is to distribute the group’s holding in HPF to the Tsogo Sun shareholders.

In addition to the property company the group intends to separate the operations into two asset light operating companies:

  • Tsogo Sun Gaming will be a gaming-focused operating company with a portfolio of traditional land-based casino operations and growth businesses in alternative gaming operations consisting of Galaxy and Vukani; and
  • Southern Sun Hotels will be a hotel management company with a portfolio of over 90 hotels under management spread across the industry spectrum, from deluxe to budget, operating throughout South Africa, sub-Saharan Africa, the Seychelles and the United Arab Emirates. The group intends to unbundle the Southern Sun Hotels operation into a separate JSE listing.

The group anticipates that the separation of Tsogo Sun into these three focused companies will unlock value and provide greater investment choice for shareholders. The proposed unbundling of the hotel and property businesses will then result in the separate listing of the hotel, property and gaming businesses with all three resultant entities remaining subsidiaries of the HCI group.


Our reporting on our application of the King IVTM principles has been integrated into our report. The board has a collective commitment to leading ethically, acting in good faith and in the best interests of the business. The board’s responsibility for the governance of ethics includes the approval of the ethics policy and oversight of its implementation through the social and ethics committee.


We wish to extend our appreciation to the board, management and the staff of the group for their contributions during the year. Tsogo Sun, with its irreplaceable assets and talented workforce, is perfectly positioned for an upturn in the economy.

  • John Copelyn

    15 August 2018
  • Jacques Booysen
    Chief Executive Officer

    15 August 2018