The group is highly cash generative but it is important to ensure that the capital structure of the group is appropriate so that the business survives through economic cycles.
The group believes that the relative resilience of its financial performance throughout the global economic downturn can be attributed, in part, to the general stability of its gaming income. Demand for the gaming-related services the group offers is sensitive to decreases in discretionary consumer spending but, because of its relatively high disposable income levels, the group's core customer base has largely maintained its spending on gaming activities through the adverse macro-economic conditions of recent years. In addition, the group's gaming business is largely unaffected by seasonality. The group believes that these factors are a significant strength of its business that alleviates the volatility usually inherent in operating in other industries.
Macro-economic conditions will vary in cycles. This is particularly relevant in the hotel industry, which is regularly in a state of under or oversupply. In order to be able to withstand the impacts of these cycles, the group aims to ensure that debt is used prudently, with careful monitoring of the net debt:Ebitdar ratio.
In addition, the group ensures availability of sufficient credit facilities with long-term maturities, providing additional liquidity in the event of a deterioration in economic conditions.
|Net debt:Ebitdar||2.4 times||2.4 times|
|Unutilised net facilities (including available cash on hand)||R4.7 billion||R3.4 billion|
|Weighted average expiry of debt facilities (excluding permanent revolving credit facilities)||32 months||36 months|
|Net debt hedged through fixed interest rate swaps||53%||58%|
Net interest-bearing debt
Interest-bearing debt net of cash at 31 March 2018 totalled R12.5 billion, which is R424 million above the 31 March 2017 balance of R12.1 billion, with R1.2 billion paid in dividends to group shareholders in addition to the investment activities of R2.6 billion during the year. The increase is mainly due to the acquisition of Gameco during the year, together with additional funding for the group's expansion programme.
During the year an additional R3.5 billion in bank facilities were negotiated in order to refinance a term loan of R1.5 billion due in July 2017 and to fund future acquisitions. The HPF bank facilities were also replaced which will reduce the cost of funding and provide additional funding headroom. HPF also raised R1.0 billion through a rights issue. The tenures on the majority of existing Rand facilities are to June 2020 and June 2021. Net debt:Ebitdar as at 31 March 2018 was 2.4 times with unutilised net facilities (including available cash on hand) of R4.7 billion. The weighted average number of months to expiry of the debt facilities (excluding 364-day revolving credit facilities) was 32 months.
Interest rate and currency risk management
The group has hedged a signiﬁcant proportion of debt facilities to maturity to lock in the current historically low interest rate environment. In order to limit income statement volatility, the group does not normally enter into speculative hedges. As at 31 March 2018, 53% of net debt was hedged through ﬁxed interest rate swaps and other ﬁxed rate instruments. The weighted average effective interest rate for the year was 9.4% (2017: 9.4%).
Debt at year end is either Rand or US Dollar denominated, dependent on the nature of the cash ﬂows in the underlying operations, with offshore cash held approximately 33% in US Dollar, 19% in Euro and 32% in Nigerian Naira with limited other local currency deposits.
The facility pricing with the group's existing consortium of banks remains competitively priced. The group continues with the negotiations for a revised funding package for the proposed disposal of the casino properties to HPF and the proposed split of the remaining business between a gaming opco and a hotel opco. Gearing levels following the proposed split of the group into three listed businesses will need to be carefully managed as the two opcos will have higher levels of operational gearing and will retain limited properties that can be utilised as security. This will reduce the financial strength and durability of the operating companies.
In the event of an increase in the level of debt, further future dated interest rate swaps will be concluded. In the case of a signiﬁcant spike in interest rates the group would be protected until March 2021 and could restrict investment to ensure debt levels would not cause ﬁnancial distress.