Tsogo Sun results reflect negative impact of Covid-19 but the business is positioning itself for the future, says CEO Chris du Toit
Johannesburg, 9 June 2020: JSE listed Tsogo Sun, which holds licenses for 14 casinos, 21 Galaxy Bingo sites and VSlots in all nine provinces, has announced its financial results for the year ending 31 March 2020.
Income increased 1% to R11.7 billion
Negative impact of Covid-19 on revenue was approximately R0,4bn or 3%
Ebitdar decreased by 1% to R4 billion
Ebitda increased 3% to R4bn
Adjusted earnings down by 14% to R1.4 billion due to higher interest cost
Adjusted HEPS down by 14% to 134,5 cents
The solid results, despite the negative impact of COVID-19, reflects the quality of the Tsogo Sun core business. However, this is the first time in the past decade that no dividend was declared, to preserve cash.
The Covid-19 lockdown has continued to cause devastation of the business, as a result of not being able to trade and with no certainty yet of when trading can recommence. The business lost an estimated R2bn in revenue, and debt increased to R12bn since year-end.
Lenders have accordingly agreed to waiver the September 2020 covenant measurement period and to provide liquidity, by rolling up interest of R0,75bn which will accrue until the 2021 year-end, repayable within three years.
The group’s 10 000 employees, service providers, suppliers and various other stakeholders have also been negatively impacted, and expected restrictive trading conditions after opening will be challenging.
Du Toit said that the business needs to be allowed to open responsibly as a matter of urgency to avoid further losses. “The business is ready, with a robust strategy of enhanced hygiene and safety measures to enable a seamless re-opening to our loyal customers.”
Despite the setbacks, the group is confident that the resilient gaming business will benefit from many initiatives to recover profitability faster when given the opportunity to operate again. This will include focus on a lower cost structure with scrutiny of all costs across the group being intensified. The casino business in particular will be more cost-efficient post the pandemic.
Bringing back excitement has been part of the new casino marketing strategies, with the Magical Italian Festival of Lights, and its Ferrari promotion delivering phenomenal response, though the latter is now compromised by the Covid-19 crisis.
According to du Toit, the group must step up efforts to benefit from the accessibility to smart phones in the market for better communication, seamless interaction for customers and growth. “We are also in an advanced stage of entering the online betting industry which is a separate segment of the market.”
With regards to future growth, it will be a natural progression for casinos to offer products online, and if done responsibly on licensee level, can protect the substantial investment and jobs created by casinos.
The bingo division continues to invest its excess cash nationally on expansions and improvements of its business concept, which will increase its contribution to the group in the long term. Galaxy Bingo remain a market leader in its sector with total income now on almost a billion rand a year when trading at full capacity.
The LPM (Limited Payout Machines) division continues its strong growth curve, thanks to a dedicated management team under the leadership of Bandile Mogiba. “We are positive that the LPM industry should recover quickly once the lockdown of bars and restaurants is lifted,” comments Mogiba.
Tsogo Sun has appointed a new CFO, Annelize Hoyer, effective 1 August 2020. Hoyer has 10 years of casino experience and is well placed to play a vital role in the business improvement projects. Hoyer comments, “The focus during the lockdown has been primarily to eliminate variable operating costs as quickly as possible, reduce fixed costs and cancel non-essential and uncommitted capital expenditure in order to restrict the increase in net debt during the period the businesses is prevented from trading. There are many challenges that await me in my new role as CFO during these difficult times, but we are confident that the measures that have been, and are still to be implemented, will provide a long-term reduction in our cost base, without limiting future performance.”
Once trading recommences the group intends to prioritise surplus cash to reduce the debt levels.
The hospitality and tourism industries have been impacted the most by the Covid-19 pandemic. The group is currently faced with the uncertainty of when our various divisions (casinos, bingo and LPMs) will be able to commence trade and under what restrictions. “However we are using the time to position the business for the future; the Tsogo Sun brands are strong and are here to stay,” says du Toit
Tsogo Sun Holdings (TSH) was renamed Tsogo Sun Ltd (TSG) in 2019 when the ‘Hotels division’ was unbundled through a dividend in specie and listed separately on the JSE.
Tsogo Sun Ltd (TSG) is South Africa’s premier gaming and entertainment group. Combining 14 Casinos, 21 Galaxy Bingo sites and VSlots operations throughout the country, the group offers a diverse range of gaming and entertainment options including theatres, movies, restaurants, a theme park and much more.
The CEO of Tsogo Sun is Chris du Toit.