HILTON TARRANT: Tsogo Sun numbers out today. Tsogo of course owns Montecasino, Suncoast, Gold Reef City, Silverstar and a host of smaller casinos, as well as the Southern Sun hotels. I spoke with Marcel von Aulock, the chief executive of Tsogo earlier. We spoke about this deal a number of weeks ago on the Market Update where Tsogo and Sun International and Grand Parade were in that complicated deal which effectively sees Tsogo buy 40% of its rival, Sun International’s casino in Cape Town. I asked Marcel why.
MARCEL VON AULOCK: It’s a good financial investment for us. One of the things we’ve got is strong black ownership and strong cash flow. So we are able to acquire the stake from GPI without negatively affecting the empowerment status of GrandWest. And it’s very lucrative. It’s not often that you can buy into a really good casino operation directly at the casino level, and it’s obviously cash-generative of note. So you get a strong dividend yield and that allows us to have a large acquisition that’s…positive from day one.
HILTON TARRANT: Speaking of shareholding, your major shareholder, one of them at least, SABMiller, announced a strategic review of its options regarding the legacy stake in Tsogo Sun, just under 40%. Is that likely to influence your strategy at all?
MARCEL VON AULOCK: No, it’s not. The process with SAB is ongoing, and they’ll make an announcement as-and-when they make up their mind what they want to do. But it doesn’t affect our day-to-day operations at all. SAB is a great shareholder and has been for a long time, but a passive shareholder. I think for the last 15 years or so we’ve been the only non-beverage operation in that business, and largely left to our own devices. So it won’t change what we do or how we do anything.
HILTON TARRANT: That’s was Marcel von Aulock. David, it’s going to be very interesting to see what SABMiller does or doesn’t do with this stake. Of course, HCI probably doesn’t have the balance sheet to buy it outright.
DAVID SHAPIRO: Because they’ve just done all their deals. So you can’t use internal cash to buy back the shares because, remember, they upgraded all their casinos as well…
HILTON TARRANT: That’s continuing.
DAVID SHAPIRO: And spent a lot of money there. And they are continuing to do so. They have to do that. It actually absorbs a lot of cash. I also was surprised. If you read the results there were a huge number of deals that they have done, capital-intensive deals, acquisitions and that. But they did give a warning about the sustainability of growth. Right at the end, if you look at their prospects – uncertainty and that. So there’s a little bit of a warning sign about gaming. But they do generate a lot of cash and I suppose they use that to actually buy growth through other operations.
HILTON TARRANT: With an outright ban on smoking in casinos, we’ve seen what that does to Chile, to Sun International’s operation there. You can see what happens literally overnight.
DAVID SHAPIRO: I can’t believe there’s actually that tie-up, that you have to smoke and gamble at the same time. Drink – OK, maybe you can drink and gamble.