First full-year results since merger with Gold Reef Resorts in February 2011 show revenue up 39%, many SA hotels financially distressed creating opportunity.

TSOGO Sun reported its first full-year results yesterday since its merger with Gold Reef Resorts in February last year, showing revenue rose 39% to R9bn for the year ended March.

Tsogo CEO Marcel von Aulock said many hotels in SA were “still financially distressed”, which was creating opportunities for the country’s largest gaming company to make acquisitions while it was generating about R2bn a year in free cash flow and had very low levels of debt.

“At any given point we are looking at four to five possible acquisitions,” he said.

Gaming, which makes up more than 80% of group income, showed accelerated growth “across many of the group’s casinos”, the company said.

“Particularly noteworthy are the results of Montecasino and Gold Reef City casinos in Gauteng, which recorded gaming win growth of 8,4% and 11,3%, respectively, for the year.”

In KwaZulu-Natal, the Suncoast casino reflected growth of 5,8% in gaming win, and the Golden Horse casino and Blackrock casino reflected growth of 11,6% and 13,7%, respectively.

Tsogo has plans to invest about R1bn in its Suncoast property, which will almost double the size of the entertainment complex in Durban. Tsogo is waiting for regulatory approval before it is able to go ahead with its plans for the property, Mr von Aulock said.

Occupancies for the group’s hotels were higher than the national average of 57%, the company said. Occupancies grew to 61,4%, from 58,4% a year earlier, while average room rates fell to R805 a night from R855 a year ago. Tsogo owns 94 hotels.

The hotel industry has been hard hit by a combination of over-capacity in the domestic market and a drop in demand from leisure and business travellers.

Kagiso Asset Management analyst Rubin Renecke described Tsogo’s performance as “good”, with the second half of the year “being particularly strong”.

“These results represent the first full 12 months of operation of the merged group. On a like-for-like basis, revenue was up 5% year on year over the period, operating profit rose 7%, and margins improved to a better than expected 39%,” Mr Renecke said.

Taking the gloss off this performance was a decline in gaming win at Silverstar casino.

“We see a lot of opportunity for growth and improvement at Silverstar,” Mr von Aulock said. “We are going to put R320m in that casino and improve the entertainment offering by adding more cinemas, restaurants and bowling. We are also going to include some eventing space.

“There is a shortage of entertainment opportunities on the West Rand.”

Business Day – Nicky Smith