A logo of South Africa's biggest gaming and hotel operator Tsogo Sun, is seen at Montecasino in Johannesburg
A logo of South Africa's biggest gaming and hotel operator Tsogo Sun, is seen at Montecasino in Johannesburg

Tsogo Sun set to expand in KZN

By Sandile Mchunu Time of article published May 25, 2017

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Durban - South African hotel, gaming and entertainment group, Tsogo Sun, said on Wednesday that it was going to spend an additional R1.3 billion to expand the Suncoast Casino and Entertainment World in KwaZulu-Natal.

The overall project cost is R1.6 billion. The construction commenced in 2016, but was later interrupted and was stopped due to unexpected challenges.

However, construction is anticipated to re-commence in mid-June, subject to revised building approvals, with an anticipated eighteen months to completion.

Chief executive Marcel von Aulock said that the company would continue to invest in the economy and various expansionary projects, including the acquisition of two hotel businesses from the Liberty Group and through the acquisition of Hospitality Property Fund, have been undertaken.

“We have always been an acquisitive business. We are going to continue to look for possible acquisitions in the year ahead. It does not mean we are going to slow down now that the South African economy is growing at a slow pace. In business some of the best deals are bought in times of distress, possibly at a lesser price if compared to a price of a booming economy,” said Von Aulock.

Tsogo Sun also bought a 20 percent equity interest in each of SunWest International and Worcester Casino for an aggregate R1.3 billion in April 2016.

Von Aulock said that the company had seen growth in its hotel occupancy, but the gaming division took a knock in the year to end March.

The group reported an 8 percent increase in total income to R13.2 billion, while earnings before interest, income tax, depreciation, amortisation, property rentals, long-term incentives and exceptional items at R5 billion was 11 percent up on the prior year with an overall group Ebitda margin of 38.2 percent.

Read also: Tsogo Sun expecting higher earnings

Adjusted headline earnings per share ended 6percent up on the previous year at 207.6 cents a share and the group has declared a final dividend of 70c a share, resulting in a total dividend a share for the year of 104c, up 6 percent on the previous year. Total revenue for the gaming division increased by 3 percent to R9.1 billion, with gaming win growth disappointing at only 2 percent.

Total revenue for the South African hotel division increased 28 percent to R3.5 billion, assisted by a variety of expansionary projects.

“With a weak economy in South Africa and many of the commodity-focused countries in which we operate, trading is expected to remain under pressure.

“Our gaming and hotel focus leave the underlying operations of the group highly geared towards both the South African consumer and corporate markets. However, the high level of operational gearing presents significant growth potential to the group, should these sectors of the South African economy improve in the future,” said Von Aulock.

Nolwandle Mthombeni, an investment analyst at Mergence Investment Managers, said Tsogo Sun had delivered a good set of results.

“However, the casino industry is facing severe headwinds, due to low consumer confidence, and this leads to less spending and hotel occupancies are also under pressure. So to see some growth, although low, is commendable and is a testament to management efforts,” said Mthombeni.

Tsogo Sun’s share price dropped 1.02 percent on the JSE to close at R24.30.


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