Tsogo Sun lifts income, looks for acqusitions

Published May 18, 2012

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Audrey D’Angelo

Tsogo Sun, now the largest listed hospitality group in South Africa, lifted income for the year to March by 39 percent to R9 billion and earnings a share by 12 percent to R1.22, it said yesterday. The final dividend was 40c a share, bringing the total for the year to 60c.

This was the first complete year since its successful merger with Gold Reef. Chief executive Marcel von Aulock pointed out yesterday that, since it had bought control of Gold Reef partly with equity rather than cash, the group was in a position to make further acquisitions. It had strong cash flow and its debt was not high.

The firm was also considering an opportunity to bid for a licence to open a second casino in Cape Town, which would be in opposition to Sun International’s flagship GrandWest.

The Western Cape provincial government has invited bids from companies operating smaller casinos in the province following the expiry of Sun International’s exclusive right to operate a casino in the city.

Tsogo’s profit in the past year has come mainly from its casinos, which account for 70 percent of the group, rather than from its hotels, which reduced rates to boost occupancy. But von Aulock said the hotel situation recently improved, with demand rising and an uptick in corporate business.

This was encouraging, although its sustainability was uncertain. Tsogo had significant opportunities to invest in its growth strategy but this depended on the impact of regulatory and tax changes being considered by the government.

The group had a range of hotels, from five-star luxury to the “clean but basic” rooms of its Formula 1 chain, and expected to benefit from SA Tourism’s campaign. But “the recovery we need is in corporate travel. Most of our hotels are in the cities and most of our guests travel on business.”

Most of its hotels are local, with three in Dubai, one in the Seychelles and one opening in Abu Dhabi. Countries in Africa where it has hotels include Nigeria, Kenya and Mozambique. The offshore hotel unit reaped total revenue of R325 million, up 20 percent from the previous year, while rand weakness in the second half of the year resulted in a foreign exchange gain of R13m.

Average occupancies of hotels in this country grew to 61 percent from 58 percent last year. But average room rates fell 7 percent from levels of the World Cup in 2010. “Overall revenue from hotels is flat on the prior year at R1.6bn. As a result, earnings before interest, taxes, depreciation, and amortisation fell by 9 percent to R512m at a margin of 31.5 percent.” the group said.

New acquisitions in South Africa included an additional 53 percent of the Formula 1 chain for R300m, which is now wholly owned by Tsogo; the former Grace hotel in Rosebank, bought for R85m; and Garden Court Milpark, bought for R95m.

Tsogo’s shares closed at R18 yesterday, a rise of 1.1 percent.

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