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 the business. Accordingly, the only true measure of growth for our business over time is the growth in cash flow.
Growth in cash flow over time is generated through the optimal operation of the group’s capitals (organic growth) and building the tangible and intangible asset base of the group through developing and acquiring new businesses (inorganic growth). It is only with sustainable and growing cash flows that a business can hope to create value for the organisation, its stakeholders and society and thereby achieve a multitude of additional benefits such as increased levels of employment and meaningful social contributions.
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.
|Organic income (reduction)/growth||(1%)||2%|
|Organic Ebitdar (reduction)/growth||(3%)||1%|
|Free cash flow||R1.9 billion||R2.2 billion|
|Maintenance capital expenditure||R675 million||R925 million|
|Adjusted HEPS (reduction)/growth||(5%)||6%|
Segmental operating performance
|Year ended 31 March||2018
|Montecasino||2 625||2 694||1 135||1 196||43.3||44.4|
|Suncoast||1 681||1 732||752||810||44.7||46.8|
|Gold Reef City||1 497||1 450||569||549||38.0||37.9|
|Other gaming operations||184||195||(141)||(154)|
|Total gaming operations||9 661||9 134||3 646||3 540||37.7||38.8|
|South African hotels division(3)||3 799||3 509||1 470||1 359||38.7||38.7|
|Offshore hotels division||565||635||120||108||21.2||17.0|
|Pre-foreign exchange gains/(losses)||119||146||21.1||23.0|
|Foreign exchange gains/(losses)||1||(38)|
|Group||13 975||13 222||5 271||5 049||37.7||38.2|
|(1)||All casino units are reported pre-internal gaming management fees|
|(2)||Gaming division includes Galaxy and Vukani (Gameco) with effect from 20 November 2017|
|(3)||Includes R50 million (2017: R55 million) intergroup management fees|
Tsogo Sun casino gaming
Net casino gaming win for the year reduced by 2% on the prior year with slots win down 1% and tables win down 4% and was negatively impacted by the opening of Time Square and a strong performance in the first quarter of the prior year in Gauteng, mainly at Montecasino.
|Casino gaming win||7 357||7 483||(2)|
|Tables||1 822||1 891||(4)|
|Slots||5 535||5 592||(1)|
|Win % – tables||20.9||21.8||(0.9pp)|
|Hold % – slots||5.0||5.0||–|
Gauteng recorded growth in provincial gaming win of 7.1% for the year. Gaming win growth of 2.9% was achieved at Gold Reef City with a reduction at Montecasino of 4.5% and at Silverstar of 8.3%. Provincial gaming win was positively impacted during the current year by the opening of the Time Square Casino in Menlyn on 1 April 2017, although the impact on the group's casinos, mainly at Montecasino and Silverstar, is significantly below expectation. Montecasino was, in addition, also impacted by very strong tables win in the first quarter of the prior year.
KwaZulu-Natal provincial gaming win grew by 1.8% for the year. Gaming win reduced by 2.3% at Suncoast Casino and Entertainment World and 8.8% at Blackrock Casino in Newcastle, impacted by disruptions to the local manufacturing industry in that area, but grew by 1.1% at Golden Horse Casino in Pietermaritzburg.
Mpumalanga provincial gaming win was flat on the prior year. Gaming win growth of 0.2% was achieved at Emnotweni Casino in Nelspruit with a reduction at The Ridge Casino in eMalahleni of 0.9% impacted by economic disruptions to the local manufacturing industry in that area.
Eastern Cape provincial gaming win reduced by 0.4% on the prior year. Hemingways gaming win increased by 0.6% on the prior year.
The Western Cape reported growth in provincial gaming win of 1.1% for the year. The Garden Route Casino in Mossel Bay and Mykonos Casino in Langebaan reported growth of 4.1% and 10.2% respectively with the Caledon Casino, Hotel and Spa reducing by 2.7% on the prior year.
Goldfields Casino in Welkom in the Free State experienced difficult trading conditions but grew gaming win by 2.1% on the prior year.
Other gaming division operations consisting of the Sandton Convention Centre, head office costs and dividend income reflected a net cost of R141 million, a decrease of R13 million on the prior year mainly due to four quarterly dividends received from SunWest in the current year where only three quarterly dividends were received in the prior year.
Overall income for the casino gaming division decreased 1% on the prior year to R9.0 billion. Ebitdar decreased 4% on the prior year to R3.4 billion at a margin of 37.7%, 1.1pp below the prior year with particularly good control on overheads mitigating the reduction in net gaming win.
Overall income for the Galaxy and Vukani (Gameco) gaming businesses from 20 November 2017 was R263 million and R362 million respectively. Ebitdar was R69 million and R169 million respectively at a margin of 26.2% and 46.7% respectively.
Tsogo Sun hotels
Overall hotel industry occupancies in South Africa have reduced to 64.2% (2017: 65.2%) for the year. Occupancies in Cape Town have weakened, particularly during the last quarter as a result of the impact of the water crisis. Trading for the group's South African hotels for the year recorded systemwide Revpar flat on the prior year due to flat average room rates at R1 066, with occupancies slightly up on the prior year at 64.7% (2017: 64.3%).
Overall revenue for the South African hotels division increased 8% on the prior year to R3.8 billion assisted by the inclusion of Garden Court Umhlanga and StayEasy Pietermaritzburg from October 2016, the consolidation of HPF from September 2016 and the opening of the SunSquare and StayEasy City Bowl hotels on 1 September 2017. Ebitdar increased by 8% on the prior year to R1.5 billion at a margin of 38.7% (2017: 38.7%).
The offshore division of hotels achieved total revenue of R565 million which was 11% down on the prior year impacted by tough local economic environments due mainly to the reduction in commodity prices impacting the local economies negatively. This was further adversely impacted by the strengthening of the Rand against the US Dollar. Ebitdar (pre-foreign exchange gains/losses) decreased by 18% to R119 million. Foreign exchange gains of R1 million (2017: R38 million loss) were incurred on the translation of offshore monetary items, principally between local country currencies and the US Dollar.
Combined South African and offshore hotel trading statistics, reflecting the Tsogo Sun group-owned hotels and excluding hotels managed on behalf of third parties and those in HPF managed by third parties, are as follows:
|Average room rate (R)||1 045||1 063|
|Rooms available (’000)||4 763||4 578|
|Rooms sold (’000)||3 024||2 895|
|Rooms revenue (Rm)||3 160||3 078|
The decrease in average room rate is impacted by US Dollar average rate weakness and effect of the Rand strength on the offshore portfolio.
Maintenance capital expenditure
The group invested R675 million on maintenance capex groupwide, including gaming equipment replacements and major hotel and casino refurbishments, ensuring our assets remain best in class.
The underlying operations of the group remain highly geared towards the South African consumer (in gaming) and the corporate market (in hotels). The high level of operational gearing still presents significant growth potential for the group should these sectors of the South African economy improve.