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GOLD REEF MERGER LIFTS TSOGO SUN PROFIT

Following its reverse takeover of competitor Gold Reef Resorts and its acquisition of the Grace Hotel in Rosebank, Tsogo Sun plans to develop more hotels in Africa, the Middle East and in this country.

However, despite striking this upbeat tone yesterday, new chief executive Marcel von Aulock warned that changes in gaming regulation posed a threat to the largest local gaming and hospitality group.

The changes, including a proposed withholding tax on winnings and increased compliance costs, “could have a negative impact on future employment levels and investment in the industry”, he said.

In interim results posted yesterday, the group reported consolidated adjusted headline earnings of R550 million for the six months to September and declared an interim dividend of 20c a share. Total income rose 38 percent from a year earlier to R4.4 billion, including R1.2bn from the merger with Gold Reef, which took effect in February.

Earnings before interest, tax, depreciation, amortisation, property rentals, long-term incentives and exceptional items rose 33.6 percent to R1.6bn, helped by R453m from Gold Reef and foreign exchange gains of R20m.

Despite the tough economic situation, revenue growth accelerated in the first half at many of its casinos, with its Gauteng flagship Montecasino, Gold Reef City, Golden Horse, Blackrock, Hemingways, the Caledon Hotel and Spa, Emnotweni, The Ridge and Goldfields all performing well.

But in comparison with a year earlier, when South Africa hosted the soccer World Cup, the group’s hotels in this country posted a drop in revenue. The directors noted that this effect was exaggerated in a six-month period and would have less impact in the full year.

Its hotels in the Middle East and elsewhere in Africa, including its newest one in the Seychelles, performed well, with earnings in US dollars boosted by rand weakness.

“Looking ahead, the underlying operations of the group remain highly geared towards the South African consumer (in gaming), and the corporate market (in hotels) ,” the directors said. “Despite current economic headwinds the group remains highly cash-generative and has significant opportunities to invest capital in its growth strategy at attractive rates of return.”

Von Aulock said the group was poised for growth but, apart from Botswana where it had a casino under construction, had no plans for more casinos in Africa because most of their custom came from the middle class. “Most of Africa has rich or poor people, but not a large middle class.”

It was, however, seeking opportunities for more hotels on the continent, particularly in west Africa. It did manage some, but preferred to develop its own. It manages two hotels in Dubai where the industry is booming.

The shares fell 3 percent to R16.05 on the JSE yesterday.

Source: Business Report – Audrey D’Angelo