| Wed 9 Jun 2010, 17:00 | | GEN - Tsogo Sun Holdings (Proprietary) - Condensed Audited Results for the |
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GEN
GEN - Tsogo Sun Holdings (Proprietary) - Condensed Audited Results for the
year ended 31 March 2010
TSOGO SUN HOLDINGS (PROPRIETARY) LIMITED
Incorporated in the Republic of South Africa
Registration number 2002/006556/07
Condensed Audited Results for the year ended 31 March 2010
Introduction
In February 2010 the proposed merger of Tsogo Sun Holdings (Pty) Ltd
("Tsogo"
or "The Group") and Gold Reef Resorts Ltd ("Gold Reef") and the effective
reverse listing of Tsogo via the acquisition by Gold Reef of the entire
issued
share capital of Tsogo through the issue of new shares (the consideration
shares) to Tsogo Investment Holding Company (Pty) Ltd ("TIH") and SABSA
Holdings (Pty) Ltd ("SABSA") was announced. On 26 April 2010 the
shareholders of TIH and Hosken Consolidated Investments Limited ("HCI") and
Gold Reef approved the proposed transaction through the passing of the
relevant resolutions. Once concluded this transaction will lead to the
creation of the leading gaming and hotel group in South Africa, with 14
casinos and over 90 hotels. The closing of the transaction remains subject
to inter alia the approval of the various gaming boards and the competition
authorities.
The listing of the consideration shares by the JSE is subject to inter alia
the publishing of the unqualified audited financial results of Tsogo for the
year ended 31 March 2010, which are hereby presented.
Commentary
The past financial year proved to be one of the most difficult trading
periods in the Group`s history. Total income of R5,8 billion was 2% below
last year and earnings before interest, income tax, depreciation,
amortisation, property rentals, long term incentives and exceptional items
("EBITDAR") at R2,3 billion reflected a 12% decline on the prior year. This
result was driven principally by the hotel divisions which reflected a year-
on-year decline in EBITDAR of 29% (pre-foreign exchange losses) on the back
of the lowest occupancies on record as a result of the macro-economic
environment. The underlying operations of the Group remain sound and are
highly geared towards the South African consumer (in gaming) and corporate
market (in hotels). The Group is poised for growth if these sectors of the
South African economy improve as expected.
The Group has previously disclosed a number of corporate activities
undertaken in pursuit of its growth strategy and has made significant
progress on these during the year under review. These include:
- The conclusion of the regulatory process around the acquisition of a 25%
stake in Gold Reef and control of the Gold Reef BEE voting pool in June 2009
bringing the total voting interest in Gold Reef to 34.9%;
- The conclusion of the regulatory process for the acquisition of Century
Casinos Inc`s South African operations, being the Caledon Casino, Hotel and
Spa and the Century Casino Newcastle, and the integration of these
operations into Tsogo Sun Gaming with effect from 30 June 2009. The total
acquisition price was R472 million including take on debt and the Group
recognised goodwill of R269 million;
- The acquisition of an additional 30% effective interest in Suncoast
Casino, via the acquisition of Millennium Casino Ltd from Johnnic
Holdings Ltd with effect from 7 October 2009. The total acquisition
price was R1,3 billion including a provision for a deferred consideration
of R330 million and the Group recognised goodwill of R890 million;
- The conclusion of a joint venture arrangement with 888.com, a leading
on-line casino operator. Whilst the implementation of on-line gaming is
being delayed by pending approval of regulations, the Group is well-
placed to ultimately pursue on-line gaming once the legislation permits;
- The completion of The Pivot development, including the exciting new
Southern Sun Montecasino hotel, conference centre, offices and
parking at a cost of R565 million to the Group;
- The addition of the Southern Sun Hyde Park , Southern Sun Ikoyi
(Lagos), Garden Court Umhlanga, StayEasy Pietermaritzburg and
StayEasy Emalahleni (Witbank) to the Groups hotel portfolio; and
- The increase in the Group`s effective economic interest in the Middle
East management company from 50% to 80%.
The Tsogo Sun Group remains focused on its growth strategy and will continue
to pursue opportunities to develop and enhance its core hotel and gaming
businesses.
The gaming industry has been under pressure in all markets with the Western
Cape and Gauteng provinces reporting market size reductions while
KwaZulu-Natal recorded some growth but at lower levels than previously
experienced. Total gaming division income of R4,1 billion and EBITDAR of
R1,7 billion were achieved during the year, assisted by the acquisition of
the two Century casinos.
EBITDAR margins in Tsogo Sun Gaming have been under pressure on the back of
revenue declines, excluding acquisition activity. However the division
continued to outperform other operators in South Africa with a margin of
42.2%, reflective of the quality of assets and the efficient cost structures
in
place.
Montecasino gaming win reflected a decline of 1.7% against a Gauteng
provincial decline of 3.1% for the year ended 31 March 2010. The
consequential gain in market share arose as the Montecasino catchment area
was less affected than other Gauteng markets. This trend has seen some
reversal in the last quarter of the financial year, as some markets
recovered from previously depressed levels. Montecasino continues to service
high levels of footfall attracted by the entertainment and events on offer
and remains the premier entertainment destination in Gauteng. Overall casino
activity levels in terms of number of wagers remains in line with the prior
periods with the average bet reflecting marginal decline. EBITDAR at R632
million is 9% below the prior year as overheads increased by 3.7% including
gaming taxes.
The KwaZulu-Natal market grew by 4.5% over the prior year with the Suncoast
casino reflecting growth of 3.8% in gaming win. The Durban market continues
to show greater resilience than other large gaming markets in South Africa.
EBITDAR at R504 million is 1% below the prior year as overheads increased by
5%
including gaming taxes.
The Group`s other gaming interests, consisting of, inter alia, Emnotweni in
Nelspruit, The Ridge in Emalahleni (Witbank), Hemingways in East London,
Caledon, Blackrock in Newcastle, the Sandton Convention Centre and the
central management activities, performed satisfactorily during the year
given the economic environment. EBITDAR for this segment of R577million was
some 9% above the prior year and included a R54 million contribution from
the newly acquired Century operations for the 9 months from 30 June 2009.
Excluding this acquisition activity, EBITDAR reflected a 1% decline on the
prior year.
The Southern Sun Hotel Group in South Africa experienced a continuation of
the economic contraction in the hospitality market that started half way
through the prior financial year. With no recovery in the core corporate and
government segments, occupancies were under pressure at 58% (2009: 68%). The
Group managed to maintain average room rates achieved at R801 in line with
the prior year R803. The weakness in corporate and government spend was
partially offset by increases in the leisure and sports segments. In line
with the consequential Revpar decline revenues decreased by 13% to R1,5
billion during the year. Operating costs were well-controlled at R994
million, a R4 million reduction on the prior year, despite above inflation
increases in payroll, regulated utility costs and property rates. However
with significant fixed capacity, EBITDAR declined by 29% to R555 million.
The Group continues to actively manage costs while maintaining operating
standards. Occupancies, excluding the 2010 FIFA World Cup period, will
however only reflect a recovery once corporate travel returns to more normal
levels. Southern Sun is well-placed and fully prepared for the 2010 FIFA
World Cup and is looking forward to the opportunity to host a significant
number of visitors to this event.
The offshore division of the Southern Sun Hotel Group achieved total revenue
of R237 million, representing a 19% decline on the prior year with EBITDAR
(pre-foreign exchange losses) of R72 million reported for the year.
Occupancies were negatively affected and at 66% were some 5 percentage
points below the prior year, particularly in the Seychelles, which
experienced weak European leisure demand. US$ room rates held up on the
prior year at US$177 but when translated to Rand reflected a decline of 15%.
The Rand remained strong during the year under review which impacted both
the translation of US$ and Euro earnings streams as well as resulting in a
R52 million foreign exchange loss on the translation of offshore monetary
items, being mainly cash and loans to associates.
The corporate division reflected EBITDAR of R21 million, a R16 million
improvement on the prior year, as the Group`s captive insurance operations
achieved an improved trading result in the absence of any significant
claims.
Depreciation and amortisation at R423 million, was 12% above last year on
the back of recent capex spend and net finance costs of R367 million were 6%
above the prior year.
The Group`s share of associate and joint venture profits at R87 million
reflected a 36% increase on the prior year as the investment in Gold Reef
was equity accounted for a full year compared to 6 months in the prior year.
The effective tax rate for the year at 29.8% is assisted by inter alia the
receipt of R33 million in tax refunds relating to prior year claims. The
Group`s long-term effective tax rate is expected to be above the statutory
rate as a result of non-deductible expenditure such as casino building
depreciation, preference share dividends as well as secondary tax on
companies.
The prior year included a R132 million fair value loss on financial
instruments, which related to a put and call option exercised over Gold Reef
shares in July 2008. This loss has been added back in determining prior year
adjusted earnings.
Group adjusted earnings for the year at R862 million were 16% below the
prior year.
Cash generated from operations during the year was R2,3 billion, an 11%
improvement on the prior year. Total investment activities amounting to R2,7
billion, include the acquisition of the additional 30% effective share in
the Suncoast Casino, the two Century casinos, investments in Gold Reef and
the development of The Pivot at Montecasino, in addition to the normal
maintenance capital expenditure.
Interest-bearing debt net of cash at 31 March 2010 totalled R4,5 billion, an
increase of R1,4 billion over the prior year, mainly attributable to the
issue of preference shares with respect to the Suncoast acquisition.
Prospects
The trading environment for gaming and hotels continues to be subdued,
however the Group remains highly cash generative and focused on growth.
The merger with Gold Reef is expected to be concluded during the current
financial year and will see Tsogo emerge as the largest gaming and hotel
group in South Africa.
The Eastern Cape Gaming and Betting Board has issued the request for
proposals for the Zone 2 casino licence, which is currently held by the
Group in East London, and which expires in September 2011. The Group
has accordingly submitted a bid for this licence.
Dividend
The Group declared an ordinary dividend of R411 million on 17 March
2010 which was paid on 30 March 2010.
J A Mabuza M N von Aulock
Chief Executive Officer Chief Financial Officer
On behalf of the board
9 June 2010
Condensed Income Statement
For the year ended 31 March
Change 2010 2009
% Rm Rm
Revenue (10) 2 400 2 677
Hotel revenue 1 513 1 744
Food and beverage revenue 543 552
Other revenue 344 381
Net gaming win 5 3 410 3 243
Income (2) 5 810 5 920
Gaming levies and Value-Added Tax (689) (656)
Property and equipment rentals (192) (182)
Amortisation and depreciation (423) (377)
Employee costs (1 234) (1 148)
Other operating expenses (1 564) (1 620)
Operating profit (12) 1 708 1 937
Interest income 40 35
Finance costs (407) (382)
Share of profit of associates and joint
ventures 87 64
Profit before income tax (14) 1 428 1 654
Income tax expense (400) (579)
Profit for the year (4) 1 028 1 075
Profit attributable to:
Equity holders of the Company 857 908
Minority interest 171 167
1 028 1 075
Number of shares in issue (`000) 250 000 250 000
Weighted number of shares in issue (`000) 250 000 250 000
Basic and diluted earnings per share (cents) 342.8 363.4
Condensed Statement of Comprehensive Income
For the year ended 31 March
2010 2009
Rm Rm
Profit for the year 1 028 1 075
Other comprehensive income for the period, net of tax (112) 266
Cash flow hedges (6) (56)
Currency translation adjustments (108) 47
Surplus arising on change in control in joint venture - 347
Income tax relating to components of other comprehensive
income 2 (72)
Total comprehensive income for the year 916 1 341
Total comprehensive income attributable to:
Equity holders of the Company 747 1 043
Minority interest 169 298
916 1 341
Condensed Balance Sheet
As at 31 March
2010 2009
Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 5 583 4 961
Goodwill and other intangible assets 1 676 505
Investments in associates and joint ventures 1 710 1 552
Non-current receivables 135 144
Deferred income tax assets 68 63
9 172 7 225
Current assets
Inventories 130 127
Trade and other receivables 285 361
Cash and cash equivalents 514 506
929 994
Total assets 10 101 8 219
EQUITY
Capital and reserves attributable to equity holders
of the Company
Ordinary share capital and premium 1 074 1 074
Cash flow hedging reserve (44) (40)
Foreign currency translation reserve 51 157
Surplus arising on change in control in joint venture 130 130
Retained earnings 1 571 1 125
2 782 2 446
Minority interest in equity 625 672
Total equity 3 407 3 118
LIABILITIES
Non-current liabilities
Interest-bearing borrowings 3 357 2 472
Derivative financial instrument 19 31
Deferred income tax liabilities 203 160
Provisions and other liabilities 648 305
4 227 2 968
Current liabilities
Interest-bearing borrowings 1 624 1 118
Derivative financial instrument 53 24
Trade and other payables 634 759
Current income tax liabilities 40 110
Provisions and other liabilities 116 122
2 467 2 133
Total liabilities 6 694 5 101
Total equity and liabilities 10 101 8 219
Condensed Statement of Changes in Equity
For the year ended 31 March
Attributable to equity holders of the Company
Ordinary
share capital Other Retained
and premium reserves* earnings
Group Rm Rm Rm
Balance at 31 March 2008 1 074 112 1 542
Changes in equity for 2009
Total comprehensive income for the year - 135 908
Surplus arising on change in
control in joint venture
- At acquisition minority reserves - - -
Ordinary dividends - - (1 325)
Balance at 31 March 2009 1 074 247 1 125
Changes in equity for 2010
Total comprehensive income for the year - (110) 857
Surplus arising on change in
control in joint venture
- At acquisition minority reserves - - -
Acquisition of minorities - - -
Ordinary dividends - - (411)
Balance at 31 March 2010 1 074 137 1 571
Minority Total
Total interest equity
Group Rm Rm Rm
Balance at 31 March 2008 2 728 309 3 037
Changes in equity for 2009
Total comprehensive income for the year 1 043 298 1 341
Surplus arising on change in
control in joint venture
- At acquisition minority reserves - 87 87
Ordinary dividends (1 325) (22) (1 347)
Balance at 31 March 2009 2 446 672 3 118
Changes in equity for 2010
Total comprehensive income for the year 747 169 916
Surplus arising on change in
control in joint venture
- At acquisition minority reserves - (1) (1)
Acquisition of minorities - (195) (195)
Ordinary dividends (411) (20) (431)
Balance at 31 March 2010 2 782 625 3 407
*Comprises cash flow hedge reserve, foreign currency translation reserve and
suplus arising on change in control in joint venture. These reserves are
disclosed separately on the balance sheet.
Segmental Analysis
Income
2010 2009
Rm Rm
Montecasino precinct 1 796 1 817
Suncoast precinct 1 195 1 167
Other Gaming operations 1 065 902
Other Casino precincts 989 809
Central costs, management fees and other 76 93
Total Gaming operations 4 056 3 886
South African Hotels division 1 549 1 778
Offshore Hotels division 237 294
Corporate (32) (38)
Group 5 810 5 920
EBITDAR
2010 2009
Rm Rm
Montecasino precinct 632 694
EBITDAR pre-internal management fees 760 826
less internal management fees (128) (132)
Suncoast precinct 504 510
EBITDAR pre-internal management fees 588 591
less internal management fees (84) (81)
Other Gaming operations 577 529
Other Casino precincts 368 345
Central costs, management fees and other 209 184
Total Gaming operations 1 713 1 733
South African Hotels division 555 780
Offshore Hotels division 20 104
EBITDAR pre-foreign exchange losses 72 109
Foreign exchange loss (52) (5)
Corporate 21 5
Group 2 309 2 622
EBITDAR margin
2010 2009
% %
Montecasino precinct 35.2 38.2
EBITDAR pre-internal management fees 42.3 45.5
Suncoast precinct 42.2 43.7
EBITDAR pre-internal management fees 49.2 50.7
Other Gaming operations 54.1 58.6
Other Casino precincts 37.2 42.6
Central costs, management fees and other * *
Total Gaming operations 42.2 44.6
South African Hotels division 35.8 43.9
Offshore Hotels division 8.8 35.5
EBITDAR pre-foreign exchange losses 30.6 37.1
Corporate * *
Group 39.7 44.3
Total assets#
2010 2009
Rm Rm
Montecasino precinct 1 987 1 577
Suncoast precinct 1 075 1 105
Other Gaming operations 4 097 2 588
Total Gaming operations 7 159 5 270
South African Hotels division 2 301 2 322
Offshore Hotels division 667 786
Corporate (26) (159)
Group 10 101 8 219
Total assets include
associates and joint ventures
2010 2009
Rm Rm
Montecasino precinct - -
Suncoast precinct 3 3
Other Gaming operations 1 536 1 390
Total Gaming operations 1 539 1 393
South African Hotels division 44 41
Offshore Hotels division 127 118
Corporate - -
Group 1 710 1 552
Total liabilities#
2010 2009
Rm Rm
Montecasino precinct 82 69
Suncoast precinct 496 477
Other Gaming operations 2 292 1 397
Total Gaming operations 2 870 1 943
South African Hotels division 936 872
Offshore Hotels division 495 497
Corporate 2 393 1 789
Group 6 694 5 101
Capex
2010 2009
Rm Rm
Montecasino precinct 459 113
Suncoast precinct 71 41
Other Gaming operations 182 310
Total Gaming operations 712 464
South African Hotels division 179 340
Offshore Hotels division 6 28
Corporate 1 6
Group 898 838
# Included in total assets and total liabilities is net interest-bearing
debt
of R4.5 billion (2009: R3.1 billion).
Notes to the Audited Financial Statements
1. BASIS OF PREPARATION
The consolidated audited annual financial statements and the condensed
consolidated audited annual financial statements for the year ended 31 March
2010 have been prepared in accordance with International Financial Reporting
Standards ("IFRS"), IAS 34 - Interim Financial Reporting, AC 500 standards
as issued by the Accounting Practices board and the requirements of the
Companies Act (Act 61 of 1973) as amended. The accounting policies are
consistent with IFRS as well as those applied in the most recent audited
annual financial statements as at 31 March 2010. The condensed consolidated
audited financial information should be read in conjunction with the annual
financial statements for the year ended 31 March 2010, which have been
prepared in accordance with IFRS.
The consolidated audited annual financial results for the year ended 31
March 2010 have been audited by PricewaterhouseCoopers Inc. and their
unqualified opinion is available for inspection at the registered office of
the Company.
2. ACCOUNTING POLICIES
Except as described below, the accounting policies have been consistently
applied to those of the annual financial statements for the year ended 31
March 2009, as described in those annual financial statements.
IAS 1 (revised) Presentation of Financial Statements. The revised standard
prohibits the presentation of items of income and expenses (that is "non-
owner changes in equity") in the statement of changes in equity, requiring
"non-owner changes in equity" to be presented separately from owner changes
in equity. All "non-owner changes in equity" are required to be shown in a
performance statement. Entities can choose whether to present one
performance statement (the statement of comprehensive income) or two
statements (the income statement and statement of comprehensive income). The
Group has elected to present two statements: an income statement and
statement of comprehensive income
3. BUSINESS COMBINATIONS
The Group acquired a 100% effective interest in Century Casinos Africa (Pty)
Ltd and Celebration Accommodation and Food Services Management (Pty) Ltd.
This acquisition gave effective ownership of 100% in Century Casinos Caledon
(Pty)Ltd and 60% of Century Casinos Newcastle (Pty) Ltd. In addition the
Group also acquired the remaining 40% of Century Casinos Newcastle (Pty) Ltd
- effective 30 June 2009 - for a total purchase consideration of R472
million including take-on debt.
The Group also acquired an effective 100% control in The Millennium Casino
Ltd - effective 7 October 2009. This acquisition gave the Group an effective
73.5% control over Tsogo Sun KwaZulu-Natal (Pty) Ltd, a company in which the
Group previously held an effective 43.5% interest. The total purchase
consideration was R1.3 billion which includes a contingency payment of R330
million dependent on future results.
Goodwill arising on these two acquisitions was R269 million and R890
million,respectively, which is attributable to gaming licences.
4. SEGMENT INFORMATION
The chief operating decision-maker has been identified as the Group`s board
of directors. The board reviews the Group`s internal reporting in order to
assess performance and allocate resources. Management has determined the
operating segments based on the reports reviewed by the Group`s board of
directors at the board meetings which are used to make strategic decisions.
The board considers the business from both a geographical basis and business
type, being hotels and gaming.
Although the offshore hotels segment does not meet the quantitative
thresholds of IFRS 8, management has concluded that the segment should be
reported as it has a different risk and reward profile. It is closely
monitored as it is expected to materially contribute to Group revenue in the
future.
The reportable segments derive their revenue from hotel and gaming
operations.
The Group`s board of directors assesses the performance of the operating
segments based on a measure of adjusted earnings before interest, income
tax, depreciation, amortisation and property rentals ("EBITDAR"). The
measure excludes the effects of long-term incentives and the effects of non-
recurring expenditure such as rebranding and pre-opening expenses. The
measure also excludes all headline adjustments, impairments and fair value
adjustments on non-current assets and liabilities. Interest income and
finance costs are not included in the result for each operating segment as
this is driven by the Group treasury function which manages the cash and
debt position of the Group.
The total assets and total liabilities of the segments presented in the
segmental analysis include shareholder funding and inter-group loans, but
exclude funding provided by the Group`s treasury function which is included
in the corporate segment. Consolidation entries and the elimination of the
inter-group and shareholder funding are also shown in the corporate segment.
Condensed Cash Flow Statement
for the year ended 31 March
2010 2009
Rm Rm
Cash flow from operating activities
Profit before interest and income tax 1 708 1 937
Non-cash movements 556 645
Decrease/(increase) in working capital 21 (520)
Cash generated from operations 2 285 2 062
Interest received 40 35
Interest paid (398) (382)
1 927 1 715
Income tax paid (449) (626)
Dividends received 52 11
Dividends paid to shareholders (411) (1 325)
Dividends paid to minorities (20) (22)
Net cash generated from/(utilised in) operations 1 099 (247)
Cash flows from investment activities
Purchase of property, plant and equipment (850) (899)
Proceeds from disposals of property, plant
and equipment 4 19
Additions to intangible assets (24) (16)
Acquisition of subsidiaries, net of cash acquired (1 439) -
Cash acquired with subsidiary previously accounted for
as joint venture - 33
Investment made in associate (333) (1 268)
Other loans and investments (22) 11
Net cash used in investment activities (2 664) (2 120)
Cash flows from financing activities
Borrowings raised 1 804 2 655
Borrowings repaid (308) (127)
Net cash from financing activities 1 496 2 528
Net (decrease)/increase in cash and cash equivalents (69) 161
Cash and cash equivalents at beginning of year 506 343
Foreign currency translation (12) 2
Cash and cash equivalents at end of year
(net of bank overdrafts) 425 506
Supplementary Information
2010 2009
Rm Rm
Reconciliation of earnings attributable to
equity holders of the Company to headline
earnings and adjusted earnings
Earnings attributable to equity holders of the Company 857 908
Gains on disposal of property, plant and equipment * (11)
Impairment of plant and equipment 1 1
Excess of fair value of assets acquired (2) -
Headline earnings 856 898
Fair value loss on financial instruments - 132
Other exceptional items # 6 -
Adjusted earnings 862 1 030
Weighted average number of shares in issue (000) 250 000 250 000
Basic and diluted headline earnings per share (cents) 342.2 359.2
Basic and diluted earnings per share (cents) 342.8 363.4
# Net of tax and minority interest.
2010 2009
Rm Rm
Earnings before interest, income tax, depreciation,
amortisation, property rentals and long term incentives
("EBITDAR")
Group EBITDAR pre exceptional items is made up as follows:
Operating profit 1 708 1 937
Add:
Property rentals 154 152
Depreciation and amortisation 423 377
Long term incentive costs 23 32
2 308 2 498
Add: exceptional losses 1 124
Gains on disposal of property, plant and equipment * (11)
Fair value loss on financial instruments - 132
Other adjustments 1 3
EBITDAR - pre exceptional items and long term
incentive costs 2 309 2 622
*Amounts less than R1 million.
Date: 09/06/2010 17:00:01 Produced by the JSE SENS Department.
