HILTON TARRANT: Tsogo Sun out with its first half results, Tsogo Sun being formed by the merger, effectively, of Tsogo Sun and Gold Reef Resorts. Marcel von Aulock is the chief executive of Tsogo Sun Holdings. Marcel, before we get into the numbers, the comparable sizes of both Tsogo Sun and Gold Reef Resorts in terms of how they make up these numbers, how big were they relative to each other?

MARCEL VON AULOCK: The old Tsogo Group was about 75% of the combined business and the old Gold Reef made up 25% and then we already owned 25% of them. So that’s how we got to the exchange ratio of 81:19 at the time, so it’s roughly four fifths Tsogo and one fifth Gold Reef.

HILTON TARRANT: The revenue in the six months to the end of September up 38% but obviously on a like for like basis only up 1%. Trading conditions tough out there?

MARCEL VON AULOCK: A bit of a mixed bag, our casino win was up just over 6.5% like for like last year, including all the Gold Reef properties but the hotel business is obviously down quite substantially on last year, which included the full World Cup impact, so we’re 9% down on hotel revenue and the net of that is flat for the year.

HILTON TARRANT: Just looking at the group, especially on the casino side, Monte Casino really the driver, if you look at the numbers, those obviously jump out. Then really with the additions of Suncoast and Gold Reef City comprising really the rump of the casino business.

MARCEL VON AULOCK: Yes, your big casino markets in South Africa are obviously Gauteng, KZN and the Western Cape, and in Gauteng we’ve got just over 52% of that market and some 61% in KZN, so those will be our big contributors. Our big four casinos are Monte Casino, Gold Reef City, Suncoast and then Silverstar, which we see as a big operation.

HILTON TARRANT: Interesting to look at some of the detail in the presentation. Silverstar really, I wouldn’t say struggling but really footfall somewhat of a concern, how are you aiming to address that?

MARCEL VON AULOCK: We’re putting a plan together to look at the Silverstar development to make sure that the facilities that it offers are relevant for that particular Krugersdorp market. Every casino operates in its own environment, in its own market and it needs to have facilities that appeal to local residents, it’s not like the Las Vegas strip scenario, it’s the locals’ casino market and we’re looking at that at the moment. You can see it come through in the numbers, Gold Reef City was up 8%, Monte up 8% and Silverstar battling at –2%.

HILTON TARRANT: In terms of growth on the casino side of the business, obviously the Cape Metropole absent from at least your operations, only one licence in that metropole. I know its under review, the group operating more in the Western Cape coastal markets, do you have any update from the regulatory officials as to how that review of that single licence is going?

MARCEL VON AULOCK: No, we don’t, we are keenly awaiting any update in that regard but we haven’t had anything from the Western Cape Province since it was originally announced.

HILTON TARRANT: Beyond that, growth on the casino business, Hemingways up with a redevelopment related to that licence renewal, will you be looking at potentially growing any of your properties?

MARCEL VON AULOCK: Every property has its own market, as I said earlier, and they can…as long as you’ve got the right facilities you can develop those markets quite nicely. Our biggest opportunity in casinos is growth in the consumer spend and that we think will come through in the next two or three years. We’ve just got to make sure we’ve got the right facilities to offer those consumers that keep our casinos their entertainment destinations of choice.

HILTON TARRANT: You did mention hotel demand earlier, Marcel. Obviously comparing these past six months versus the period where the FIFA World Cup happened a bit difficult. How are you reading the current hotel market, you do make mention in your numbers of the corporate business side of things battling slightly. How are room rates looking? How is occupancy looking?

MARCEL VON AULOCK: I think the best way to describe the hotel market, from our side, is stable. We obviously have a decline in revenue and EBITDA on last year where we had the World Cup in but we’ve sold slightly more rooms in this year but at a lower rate. What is encouraging is our occupancies just below the 60% are holding and to have those without the World Cup is quite satisfying in this period. The decline in our room rate for the first six months was all attributable to World Cup that didn’t repeat. So, we think we’re through the eye of the storm and we think that the occupancy should be stable going forward. The corporate market is the big driver for our group, we do well out of the government sector, we do well in leisure but our biggest market is people that work and we haven’t seen the recovery in that market yet.

HILTON TARRANT: You did also purchase The Grace Hotel development, up here in Rosebank, in Gauteng, will you be looking to make similar purchases perhaps in the next six, 12, 18 months as these distressed and rather desirable assets become available?

MARCEL VON AULOCK: Yes, definitely, if they’re available, we’ll look at them. The Grace is a good example of a product that’s right on strategy for us, it’s a corporate market, city centre type hotel. So, if those properties become available we’ll definitely look at them.

HILTON TARRANT: Marcel, just to close off with, broader prospects for the group, you do make mention that basically you do have the cash to invest and really just looking to government and authorities for some clarity on regulatory changes and new regulations etcetera, etcetera, is that as simple as it is? Is that the real hindrance to more investment?

MARCEL VON AULOCK: We’ve got a very strong business, the beauty of the Gold Reef merger was that we got scale without introducing large amounts of debt into our business. So, our cash flows are strong, our balance sheet is strong, the only uncertainty we have is regulatory risk, whether the government will look to increase taxes or introduce new forms of taxes on the casino industry. The Gaming Review Commission Report that came out recently from the Department of Trade and Industry was quite complementary on how the casino market is operated. So, we’re hoping that that’s a turning point in government’s approach towards casinos. They’re a big partner in this business and they benefit substantially from the taxes that casinos generate. We also use those cash flows to not just expand into additional casino operations like we have in this period but to acquire hotels and develop the tourism industry. So, we’re hoping that the corner has turned on that.

HILTON TARRANT: Now, you do have hotel operations outside of the country, would you be looking to offshore markets potentially for casinos?

MARCEL VON AULOCK: We’ve been offshore in hotels for about ten years. We’ve done pretty well in Africa, our brands are strong, our loyalty programme is attractive, there are a lot of South Africans working in Africa. The casino market in Africa is a bit more challenging, your customer profile is generally middle market, higher LSM market and you don’t have that large middle market population in Africa. There’s also quite a lot of regulatory risk around casino licensing in many of the jurisdictions where it is available. So, we focused on hotels to date and I think that will still be our approach going forward.

HILTON TARRANT: Marcel von Aulock is the chief executive of Tsogo Sun Holdings.

Source: Moneyweb – Hilton Tarrant