Tsogo Sun on high growth path

SA’s largest hotel and casino operator, Tsogo Sun Holdings which recently reported solid financial results, is to investing billions of rands on maintaining and upgrading operations. File Photo: Tsogo Sun CEO, Marcel von Aulock

SA’s largest hotel and casino operator, Tsogo Sun Holdings which recently reported solid financial results, is to investing billions of rands on maintaining and upgrading operations.

Results for the year to end-March showed Tsogo’s huge commitment to investment in future growth. It is spending more than R2.4bn on maintaining and upgrading operations, and on building new positions, including the R700m acquisition of Nigeria’s Ikoyi Hotel.

The company is also upgrading its Silverstar and Gold Reef City casinos in Gauteng, to the tune of R560m and R630m respectively.

The total investment is significant — equivalent to almost a quarter of Tsogo’s R10.8bn turnover in the past financial year.

In recent weeks, Tsogo invested another R3.1bn, snapping up 40% stakes in rival Sun International’s GrandWest and Worcester casinos in the Western Cape, executing hotel acquisitions through the Cullinan Hotel, and gaining a foothold in the UK hotel market via a deal with Redefine BDL Hotel Group, which manages 60 hotels.

Although most observers believe the local casino and hotel market is consolidated, Tsogo CEO Marcel von Aulock said the company had plenty of work to do. “We are still small by global standards. We have a way to go before we can compete with some of the big international names. We have the cash flow and balance sheet to be able to bulk up our business.”

He said Tsogo’s recent deal to acquire 40% of the GrandWest casino was a fantastic transaction. “We are buying into a big casino operation at a great price. The investment is expected to be strongly earnings-positive from day one.”

Mr von Aulock hinted that Tsogo’s acquisition of a 25% interest in Redefine BDL Hotel Group for R145m could be a forerunner for more offshore forays. “There is the potential for opportunities to deploy capital in attractive investments in the European market ” he said.

In terms of financial performance, Tsogo said fiscal 2014 profit rose 19% as an expansion helped boost rates for rooms and revenue from gambling.

Net income climbed to R1.9 billion in the 12 months through March from R1.6 billion a year earlier. Sales increased 9% to R10.8 billion,

Star performers were the Johannesburg and Durban casinos, Montecasino and SunCoast. Despite tough trading conditions, these managed a robust Ebitdar (earnings before interest, tax, depreciation, amortisation and rental) margin of 45% and 47% respectively.

Montecasino’s margin is outstanding considering the competitive gaming area around Johannesburg. Tsogo’s other two Gauteng casinos, Gold Reef City and Silverstar, recorded Ebitdar margins of about 40%.

Mr von Aulock said Montecasino produced the biggest rand value profit of any casino in SA.