IT IS clear that gaming and hotel group Tsogo Sun Holdings — which has empowerment group Hosken Consolidated Investments (HCI) and beer giant SABMiller as major shareholders — is not content to just sit back and collect cash flow from its assets.

Results for the year to end-March released on Thursday showed Tsogo’s huge commitment to investment in future growth. It is spending more than R2.4bn on maintaining and upgrading operations, and on building new positions, including the R700m acquisition of Nigeria’s Ikoyi Hotel.

The company is also upgrading its Silverstar and Gold Reef City casinos in Gauteng, to the tune of R560m and R630m respectively.

The total investment is significant — equivalent to almost a quarter of Tsogo’s R10.8bn turnover in the past financial year.

In recent weeks, Tsogo invested another R3.1bn, snapping up 40% stakes in rival Sun International’s GrandWest and Worcester casinos in the Western Cape, executing hotel acquisitions through the Cullinan Hotel, and gaining a foothold in the UK hotel market via a deal with Redefine BDL Hotel Group, which manages 60 hotels.

Although most observers believe the local casino and hotel market is consolidated, Tsogo CEO Marcel von Aulock said the company had plenty of work to do. “We are still small by global standards. We have a way to go before we can compete with some of the big international names. We have the cash flow and balance sheet to be able to bulk up our business.”

He said Tsogo’s recent deal to acquire 40% of the GrandWest casino was a fantastic transaction. “We are buying into a big casino operation at a great price. The investment is expected to be strongly earnings-positive from day one.”

Mr von Aulock hinted that Tsogo’s acquisition of a 25% interest in Redefine BDL Hotel Group for R145m could be a forerunner for more offshore forays. “There is the potential for opportunities to deploy capital in attractive investments in the European market ” he said.

In terms of financial performance, Tsogo reported a solid 9% increase in turnover to R10.8bn, with adjusted earnings pushed up 18% to R1.9bn. Adjusted headline earnings were 176.5c per share. The final dividend increased 18% to 60c, bringing the full-year dividend to 89c.

Star performers were the Johannesburg and Durban casino s, Montecasino and SunCoast. Despite tough trading conditions, these managed a robust Ebitdar (earnings before interest, tax, depreciation, amortisation and rental) margin of 45% and 47% respectively.

Montecasino’s margin is outstanding considering the competitive gaming area around Johannesburg. Tsogo’s other two Gauteng casinos, Gold Reef City and Silverstar, recorded Ebitdar margins of about 40%.

Mr von Aulock said Montecasino produced the biggest rand value profit of any casino in South Africa.

Source: BDLive – Marc Hasenfuss