DUDU RAMELA: Tsogo Sun Hotels, which unbundled from casino and hospitality giant Tsogo Sun Holdings in 2019 prior to the Covid-19 fallout, is seeing a strong rebound and has taken the opportunity to rebrand back to Southern Sun.
The group released its latest financial results, confirming a rebound for the year ended March 31, 2022. However, it is yet to recover to pre-Covid levels. Earnings before interest, taxes, depreciation, amortisation, and restructuring for the full year came in at R519 million, compared to a loss of R177 million in the previous year.
Marcel von Aulock is the CEO of the Tsogo Sun group. Marcel, thank you so much for joining us this evening. As we heard from our Market Watcher characterising this as a strong set of results, a satisfactory performance for you?
MARCEL VON AULOCK: Yeah, it is. I mean, if you set the bar low enough, I guess it always looks good. We are not where we should be. We’re not at pre-Covid levels, but we have seen a sustained recovery in the second half of the year. It was really two completely separate halves.
The first half of the year ran with the third wave, the Delta variant, and the rioting in KZN; it was just bleak. We did occupancies at our half-year [at] about 22%. For our second half-year those had increased to 39%. Now we shouldn’t be trading at 39%, we should be above 60%, but we’ve seen various segments of that market coming back. Local leisure has been strong all the way through, but even that’s improved.
We’ve seen more and more corporate travel, we’ve seen government travel. We’ve seen the resurgence of conference events, groups and so on, still with restrictions around.
The only stuff we are really missing at the moment is your main corporate business as it has taken a while for some companies to open.
And then your international travel. The Omicron variant coming in December and the reintroduction of travel restrictions pretty much messed up the foreign visitation that was building nicely in the summer, the second half of summer this year. That we don’t think is going to come back until next summer. After this winter we think that that will return nicely.
DUDU RAMELA: Let’s expand on occupancy levels. Full-year hotel occupancy levels for the group came in at 30.6%, compared to just 12.2% for the Covid-hit prior financial year.
MARCEL VON AULOCK: Last year was a total disaster. We probably lost about R450 million in cash in the prior year, which we covered by selling one of our small Seychelles hotels.
This year we actually broke even cash-wise, pre the insurance proceeds we got out. We got about R190 million in insurance proceeds which went straight into reducing debt and helping our liquidity. But our actual operating cash performance was about R400 million. That covers our interest, covers our rental payments where we have them cover [things] like capex and that sort of thing.
So we managed to keep our head above water for this year, and we’ve been cash-positive from October. If we can stay in that sort of thing, which we do believe we [can], we are through it. That’s why we say in our results we’ve moved from survival to recovery. How fast that recovery to normal trading levels will be, we don’t know. But we are seeing, just about every month, an improvement and reopening of markets.
We’ve got all our hotels open now – I think we’ve one more in Sandton to go – whereas six months ago we still had a number of hotels closed. So it’s definitely much rosier that it was.
DUDU RAMELA: To your point of reducing debt, you’re selling the Ikoyi Hotel and casino assets in Nigeria, which will bring in some R900 million. How far will this go?
MARCEL VON AULOCK: Well, there are two deals in that. The hotel in Nigeria will bring us about R660 million, and then we’ve done a deal with our sister company, Tsogo Sun Gaming.
They want to take their own hotel management in-house, very much like the other casino groups do, and we’re going to get a net R250-odd million out of that.
So R900 million is very material for us. We started Covid with a debt balance of R3.1 billion, and there was a lot of worry at the time that because you’re losing money you’re just going to build up a debt balance that ends up so much that you can’t get out of it.
We have actually managed to bring that down to R2.8 billion by the end of this financial year, and another R900 million coming in gets us below the R2 billion mark.
Once all of that’s done, along with all the restructuring of the business and so on, we think we’d have really fixed the balance sheet and we’d be in a very good position.
DUDU RAMELA: On Tsogo Gaming, you are splitting completely from it, which means what? Will you not be operating or managing the hotels?
MARCEL VON AULOCK: Correct. When we separated out of the bigger group we had a discussion at the time and we said, look, it can’t be that we split the casinos up and take the hotels physically into the hotel business, because you’ve got to run those casino complexes as a complex.
So we had a management agreement over the hotels at the casinos, which was an in-perpetuity thing, and we unbundled that.
Gaming assessors said they’d rather run them in-house very much, as I say, like Sun International and Peermont do, because in the split we’d put these in perpetuity management contracts in place, and that’s what we’d given hotel shareholders. They have to buy us out of those contracts. So we get about R400 million to terminate the contracts.
And then there are two hotels in Nelspruit that I wanted to keep in the portfolio, because they’re quite important for our distribution in that area. They don’t do a lot of casino business. So we are buying those back from them for R140-odd million. Then there’s almost no connection between ourselves and the gaming company.
That’s why we also pushed the rebranding, If we’re separating all of this, it’s confusing to have two Tsogo Suns on the market.
I get asked a lot of casino questions. I’m not in that business and I think it happens to the other guy too. So we’ve gone back to our Southern Sun brand, which is not a big change for us.
It’s the corporate name that we’re going back to, We never change the hotels, The Southern Sun Hyde Park or the Southern Sun Cullinan were always Southern Sun hotels – you had Garden Court, StayEasy. But it gets the corporate name separated. We think that will just help a bit with clarity.
DUDU RAMELA: To that point, I go onto your website and it already reads ‘Southern Sun’. So, just to reiterate, that’s a done deal?
MARCEL VON AULOCK: Yeah. The rebranding is done. We’re going to do that anyway. I think the rest will all go through. We do it because it’s a related-party transaction. We do need to go to shareholder approval but the logic behind the transaction is pretty solid. So I can’t see big problems from shareholders.
DUDU RAMELA: You mentioned a little bit earlier on that you are not where you should be. Where would you like to be and what will propel you to that point?
MARCEL VON AULOCK: Our long-term occupancy trends over the last few years have been between 60% and 65%. We felt even that was depressed.
It is a cyclical industry and we had things like the drought in Cape Town – remember the big ‘Day Zero’ traumas that were there? So we’ve had a number of things that were affecting the industry prior to Covid. We would like to get to 65% or above. Our very long-term occupancy trend is about 68%, but you do need a bit of a boom to get to that.
You’ve got to have strong international travel, which means no restrictions. There are still some around; for example the sporting codes that can’t fill the stadiums is an issue. You’ve got some big events later this year, the [World Rugby] Sevens, you’ve got the Wales tour coming through. We need those stadiums open because that generates a lot of that traffic that can come through.
But if we can make this kind of cash at 30% occupancy, we should be really excited if we can get back to the sixties.
DUDU RAMELA: Thank you very much, Marcel, for coming through and joining us this evening. Marcel von Aulock is the CEO of the Tsogo Sun Group.