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TSOGO SUN HOLDINGS LIMITED - Condensed Unaudited Consolidated Interim Financial Statements for the six months ended 30 September 2018

Release Date: 20/11/2018 17:30
Code(s): TSH     PDF:  
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Condensed Unaudited Consolidated Interim Financial Statements for the six months ended 30 September 2018

Tsogo Sun Holdings Limited 
(Incorporated in the Republic of South Africa) 
(Registration number 1989/002108/06) 
Share code: TSH    ISIN: ZAE000156238 
("Tsogo Sun" or "the company" or "the group")
www.tsogosun.com


CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
for the six months ended 30 September 2018


Income R7.7 billion up 21%
Ebitdar R2.5 billion up 14%
Adjusted HEPS 78.8 cents unchanged 
Interim dividend per share 132.0 cents

Commentary

REVIEW OF OPERATIONS
Trading during the first half of the financial year was impacted by the continued pressure on the consumer due to the
macro-economic environment. The improved sentiment arising from the positive political developments has not yet
translated into a significant improvement in trading, although casino gaming win showed good growth during August and 
September on the prior period. The trading results were positively impacted by the acquisition of Niveus Invest 19 
Limited ("Gameco") comprising the Galaxy Bingo and Vukani Slots businesses on 20ï November 2017. In the low-revenue 
growth environment cost control remained a significant focus during the period.

In terms of the group's continued growth strategy R1.2 billion was spent during the period, including:
- the continued construction on the R1.6 billion expansion and refurbishment of the Suncoast Casino and Entertainment
  World. The project includes past spend with the Salon Prive having opened in August 2018 and the remainder of the
  project scheduled to open in December 2018. R519 million was spent during the period;
- the development of a US$16 million 125 room StayEasy in Maputo, Mozambique, which opened during April 2018. R52
  million was spent during the period;
- gaming machine related expenditure for site expansion in Vukani of R46 million; and
- the group invested R512 million on replacement capex group-wide, including major hotel refurbishments, ensuring our
  assets remain best in class.

Total income for the six months of R7.7 billion ended 21% above the prior period with a 34% growth in gaming win
including the impact of Galaxy and Vukani, a 3% growth in hotel rooms revenue and a 6% growth in food and beverage 
revenue, offset by a 9% reduction in property rental income. 

Earnings before interest, income tax, depreciation, amortisation, property rentals, long-term incentives and
exceptional items ("Ebitdar") of R2.5 billion ended 14% up on the prior period for the six months. The overall group  
Ebitdar margin of 32.5% is 1.9 percentage points ("pp") down on the prior period, of which 0.4pp relates to the 
increase in the VAT rate from 14% to 15% on 1 April 2018. 

Total income for the six months, excluding the impact of Galaxy and Vukani, was 2% up on the prior period with 
Ebitdar 1% down on the prior period. The impact of the slow income growth was mitigated by good control on 
overheads.

The underlying operations of the group remain highly geared towards the South African consumer (in gaming) and the
corporate market (in hotels). The high level of operational gearing still presents significant growth potential to 
the group should these sectors of the South African economy improve.

Casino gaming win for the six months increased by 3% on the prior period with slots win unchanged including a 5%
increase in handle, offset by a reduction in win percentage, and an increase in tables win by 11% including an 
increase in both drop and win percentage. 

Gauteng recorded growth in provincial gaming win of 6.2% for the six months. Gaming win growth was achieved at
Montecasino of 6.3% and at Silverstar of 5.8% with a reduction at Gold Reef City of 1.8%. Gold Reef City was 
impacted by reduced tables drop.

KwaZulu-Natal provincial gaming win is estimated to have grown by 2.3% for the six months. Provincial statistics 
have not been published by the KZN Gaming and Betting Board since March 2018. Gaming win growth was achieved at 
Suncoast Casino and Entertainment World of 1.7%, Golden Horse Casino in Pietermaritzburg of 1.9% and Blackrock 
Casino in Newcastle of 11.4%. Suncoast was impacted by the refurbishment of the main floor during the period.

Mpumalanga provincial gaming win reduced by 1.8% for the six months. Gaming win growth of 3.0% was achieved at 
The Ridge Casino in Emalahleni with a reduction at Emnotweni Casino in Nelspruit of 7.5% impacted by the weak 
economic conditions in that area. 

The Eastern Cape provincial gaming win reduced by 2.2% for the six months. Hemingways gaming win increased by  
1.9% on the prior period. 

The Western Cape reported a growth in provincial gaming win of 1.5% for the six months. The Caledon Casino, Hotel 
and Spa and Garden Route Casino in Mossel Bay reported growth of 1.3% and 6.1% respectively. The Mykonos Casino 
in Langebaan reported a reduction in gaming win for the period of 1.6%, albeit off strong growth in the prior 
year.

Goldfields Casino in Welkom in the Free State experienced difficult trading conditions but grew gaming win by 
1.9% on the prior period.

Other Gaming division operations consisting of Sandton Convention Centre, head office costs and dividend income
reflected a net cost of R77 million, an increase of R16 million on the prior period. 

Overall income for the casino gaming division increased 3% on the prior period to R4.5 billion. Ebitdar was flat 
on the prior period at R1.6 billion at a margin of 35.1%, 0.9pp below the prior period, negatively impacted by 
the increase in the VAT rate by 0.6pp. The reduction in margin due to the slow growth in net gaming win was 
mitigated by good control on overheads. 

Overall income for the Galaxy and Vukani gaming businesses for the six months was R405 million and R759 million
respectively. Ebitdar was R114 million and R210 million respectively at a margin of 28.1% and 27.7% respectively. 
The Galaxy and Vukani gaming businesses account for 18.2% of the growth in group income and 14.7% of the growth 
in group Ebitdar for the six months on the prior period. 

As at September 2018 Galaxy operated 23 sites including 17 sites with EBTs ("Electronic Bingo Terminals"), three 
sites with EBTs and LPMs ("Limited Payout Machines"), one Bingo site with a 40 LPM ISO ("Independent Site 
Operator"), one 40 LPM ISO and one casino (the Grand Oasis Casino in Kuruman acquired during June 2018). Galaxy 
operated 3 410 EBTs, 200 LPMs, 154 slots and two electronic tables with 14 positions. As at September 2018 Vukani 
operated 1 139 sites with 6 033 LPMs. 

Overall hotel industry occupancies in South Africa have reduced to 60.0% (2017: 62.3%) for the period. Occupancies 
in Cape Town have remained weak as a result of the impact of the water shortage and additional supply.

Trading for the group's South African hotels for the period recorded system-wide revenue per available room 
("RevPar") flat on the prior period due to a 3% increase in average room rates to R1 051 offset by a reduction in 
occupancies on the prior period to 62.0% (2017: 64.0%).

Overall revenue for the South African hotels division was flat on the prior period at R1.7 billion assisted by 
the inclusion of the opening of the SunSquare and StayEasy City Bowl hotels on 1 September 2017. Ebitdar decreased 
by 8% on the prior period to R504 million at a margin of 29.2% (2017: 32.0%).

The Offshore division of hotels achieved total revenue of R306 million which increased 10% on the prior period,
impacted by 7% due to the opening of the StayEasy Maputo hotel during April 2018. This was further favourably 
impacted by the strengthening of the Rand against the US Dollar. Ebitdar (pre-foreign exchange gains/losses) 
increased by 51% to R71 million. Foreign exchange gains of R3 million (2017: R2 million) were incurred on the 
translation of offshore monetary items, principally between local country currencies and the US Dollar.

Combined South African and offshore hotel trading statistics, reflecting the Tsogo Sun group-owned hotels and
excluding hotels managed on behalf of third parties and those in HPF managed by third parties, are as follows:

For the period ended 30 September      2018             2017       
Occupancy (%)                          60.6             62.8       
Average room rate (R)                  1 024            1 000      
RevPar (R)                             620              628        
Rooms available ('000)                 2 445            2 349      
Rooms sold ('000)                      1 481            1 475      
Rooms revenue (Rm)                     1 517            1 475      

Operating expenses including gaming levies and VAT and employee costs, but excluding exceptional items and 
long-term incentives, increased by 24% on the prior period mainly due to non-organic growth in the business as 
a result of acquisitions and expansions, offset by savings initiatives. Excluding the non-organic growth and 
foreign exchange gains/losses, operating expenses increased by 3% due to tight overhead control. Non-organic 
represents all new business operations commencing during the current and prior year.

Property rentals at R169 million are 32% up on the prior period mainly due to the opening of the SunSquare  
and StayEasy City Bowl hotels on 1 September 2017 and the inclusion of the Gameco businesses.

Amortisation and depreciation at R529 million is 20% up on the prior period due mainly to the capital spend 
during the current and the prior year and the inclusion of the Galaxy and Vukani businesses.

The long-term incentive credit in the income statement on the cash-settled incentive scheme of R25 million is 
R24 million below the prior period credit of R49 million and values the liability (including dividend 
adjustments) by reference to the company's share price which is adjusted for management's best estimate of the 
appreciation units expected to vest and future performance of the group. A share price of R24.33 was used to 
value the liability.

Exceptional losses for the six months of R136 million relate mainly to fair value losses on the revaluation 
of investment properties of R119 million related to the non-Tsogo leased hotels in HPF, restructure costs of 
R6 million, transaction costs of R32 million, plant and equipment impairments of R3 million and preopening 
costs of R1 million, offset by interest rate swap and currency swap fair value adjustments of R25 million. 
Exceptional losses for the prior period of R73 million relate mainly to preopening costs of R21 million, 
transaction costs of R13 million, restructure costs of R28 million, plant and equipment disposals and 
impairments and loan impairments of R8 million and interest rate swap fair value adjustments of R3 million. 

Net finance costs of R602 million are 5% above the prior period due to the increase in debt to fund the 
growth strategy.

The share of profit of associates and joint ventures of R25 million reduced by 4% on the prior period mainly 
due to earnings from International Hotel Properties Limited and RBH Hotel Group Limited, the group's European 
hotel investments.

The effective tax rate for the six months of 28.5% (2017: 2.6% negative) is impacted by offshore tax rate
differentials and non-deductible expenditure such as casino building depreciation, offset by the pre-tax 
profits attributable to the HPF non-controlling interests due to its real estate investment trust ("REIT") tax 
status. The effective tax rate for the six months in the prior period was impacted by the release of deferred 
tax liabilities of R307 million on the disposal of assets to HPF, pre-tax profits attributable to the HPF 
non-controlling interests due to its real estate investment trust ("REIT") tax status and offshore tax rate 
differentials, offset by non-deductible expenditure such as casino building depreciation.

Profit attributable to non-controlling interests of R50 million is R28 million lower than the prior period 
mainly due to lower HPF profits including the share of the R119 million fair value loss on investment property, 
offset by the inclusion of Galaxy and Vukani. 

Group adjusted headline earnings for the six months at R834 million ended 11% up on the prior period. The 
adjustments include the reversal of the post-tax and non-controlling interest impacts of the exceptional losses 
and gains noted above. The number of shares in issue increased by 11% on the prior period and the resultant 
adjusted headline earnings per share is flat on the prior period at 78.8 cents. 

Cash generated from operations for the period of R2.4 billion increased 32% on the prior period. Cash flows 
utilised for investment activities of R1.2 billion consisted mainly of maintenance capital expenditure and the 
acquisitions and investments described above.

Interest-bearing debt net of cash at 30 September 2018 totalled R13.3 billion, which is R767 million above the 
31 March 2018 balance of R12.5 billion, with R957 million paid in dividends to group shareholders in addition 
to the investment activities during the period.

PROSPECTS
Given the weak state of the South African economy and many of the commodity focused countries in which the group
operates, trading is expected to remain under pressure. Growth will depend on how these economies perform going 
forward, including the impact of changes in commodity prices, and the level of policy certainty that the 
government is able to achieve. Nevertheless, the group remains highly cash generative and is confident in 
achieving attractive returns from the growth strategy once the macro-economic environment improves.

The group continues to implement a variety of projects and acquisitions including:
- the potential to bid for the relocation of one of the smaller casinos in the Western Cape to the Cape 
  Metropole remains an opportunity for the group should the provincial authorities allow such a process; and
- the acquisition of additional hotel properties by International Hotel Properties Limited, which currently 
  owns nine hotels in the United Kingdom, is anticipated in the future and the group may apply additional 
  capital in this regard. 

The proposed restructuring of the group through the sale of seven casino properties to Hospitality Property 
Fund Limited did not receive the necessary shareholder support and the transaction has been terminated.

DIVIDEND
The board of directors has declared an interim gross cash dividend from income reserves of 132.0 (one hundred 
and thirty-two) cents per share for the six months ended 30 September 2018. It has become apparent during 
recent interactions with our shareholders that they are in favour of increased cash distributions. In light of 
the pending completion of the group's last major expansion project, being the Suncoast development, and the 
fact that the group continues to be highly cash-generative, a decision has been taken to substantially increase 
the interim dividend. The group's dividend policy will be reviewed taking into account cash generation and 
major capital expenditure or investment opportunities.  The dividend has been declared in South African 
currency and is payable to shareholders recorded in the register of the company at close of business on 
Friday, 7 December 2018. The number of ordinary shares in issue at the date of this declaration is 
1 059 189 290 (excluding treasury shares of 88 468 494). The dividend will be subject to a local dividend tax 
rate of 20%, which will result in a net dividend of 105.6 cents per share to those shareholders who are not 
exempt from paying dividend tax. The company's tax reference number is 9250039717.

In compliance with the requirements of Strate, the electronic and custody system used by the JSE, the following 
dates are applicable in 2018:

Last date to trade cum dividend          Tuesday, 4 December    
Shares trade ex dividend               Wednesday, 5 December    
Record date                               Friday, 7 December    
Payment date                             Monday, 10 December    

Share certificates may not be dematerialised or rematerialised during the period Wednesday, 5 December 2018 
to Friday, 7 December 2018, both days inclusive. On Monday, 10 December 2018 the cash dividend will be 
electronically transferred to the bank accounts of all certificated shareholders where this facility is 
available.

Where electronic fund transfer is not available, cheques dated 10 December 2018 will be posted on that date.
Shareholders who have dematerialised their share certificates will have their accounts at their CSDP or 
broker credited on Monday, 10 December 2018.

SUBSEQUENT EVENTS
The directors are not aware of any matter or circumstance arising since the end of the financial period, not 
otherwise dealt with within the financial statements that would affect the operations or results of the group 
significantly.

PRESENTATION
Shareholders are advised that a presentation to various analysts and investors which provides additional 
analysis and information will be available on the group's website at www.tsogosun.com. 

J Booysen                                            RB Huddy
Chief Executive Officer                              Chief Financial Officer
20 November 2018


Notes to the condensed unaudited consolidated interim financial statements
for the six months ended 30 September 2018

1   BASIS OF PREPARATION
    The condensed unaudited consolidated interim financial statements for the six months ended 
    30 September 2018 have been prepared in accordance with International Financial Reporting Standards 
    ("IFRS"), IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the 
    Accounting Practices Committee and Financial Reporting Pronouncements as issued by Financial 
    Reporting Standards Council ("FRSC"), the Listings Requirements of the JSE Limited and the 
    requirements of the Companies Act of South Africa. Chief Financial Officer, RB Huddy CA(SA), supervised 
    the preparation of these condensed consolidated interim financial statements. The accounting policies 
    are consistent with IFRS as well as those applied in the most recent audited annual financial statements 
    as at 31 March 2018 other than as described in note 2. The condensed consolidated interim financial 
    statements should be read in conjunction with the annual financial statements for the year ended 
    31 March 2018, which have been prepared in accordance with IFRS. This interim report, together with any 
    forward looking information contained in this report, has not been audited or reviewed by the company's 
    auditors.      
    
    
2   CHANGE IN SIGNIFICANT ACCOUNTING POLICIES
    New and amended standards adopted by the group
    The group has adopted all the new, revised or amended accounting standards as issued by the IASB which 
    were effective for the group from 1 April 2018, the significant accounting standards being:
    -  IFRS 9 Financial Instruments; and
    -  IFRS 15 Revenue from Contracts with Customers.
    
    The adoption of IFRS 9 and IFRS 15 was applied retrospectively without restating comparative figures. 
    There was no material impact identified on the group's financial statements and therefore the group's 
    opening retained income has not been adjusted. The impact of these new standards is discussed below. No 
    other standards had any material impact on the group.
    
    
2.1 IFRS 9 Financial Instruments
    The adoption of IFRS 9 with effect from 1 April 2018 resulted in changes in accounting policies and had 
    no material impact on the group's financial statements.
    Classification and measurement
    Investments in unlisted equity instruments were previously classified as available-for-sale financial 
    assets. The group has elected to measure these equity instruments at fair value through other 
    comprehensive income ("FVOCI") as these investments are held as long-term strategic investments that 
    are not expected to be sold in the short to medium term. As a result, assets with a fair value of 
    R1.275 billion were reclassified from available-for-sale financial assets to financial assets at FVOCI 
    and the fair value reserve of R9 million was reclassified from the available-for-sale financial assets 
    reserve to the FVOCI reserve on 1 April 2018. These reclassifications have no impact on the measurement 
    of these assets.
    
    The majority of financial assets held by the group include debt instruments being loan receivables and 
    trade and other receivables which continue to qualify for measurement at amortised cost under IFRS 9 
    because they are held to collect contractual cash flows comprising principal and interest, therefore 
    there is no change to the accounting for these assets, together with cash and cash equivalents.
    
    There was no impact on the group's retained earnings due to classification and measurement of equity 
    instruments and trade and other receivables as at 1 April 2018. The main effects of this 
    reclassification are as follows:
    
    Balance sheet extract                                          31 March                       
                                                                       2018                     
                                                              as previously                   1 April 2018   
                                                                   reported       IFRS 9      under IFRS 9    
                                                                         Rm           Rm                Rm    
                                                                                                              
    Non-current assets                                                                                        
    Available-for-sale financial assets                               1 275       (1 275)                -    
    Financial assets at FVOCI                                             -        1 275             1 275    
    Other reserves extract                                                                                    
    Other reserves                                                                                            
    Available-for-sale investments fair value reserve                    (9)           9                 -    
    Financial assets at FVOCI reserve                                     -           (9)               (9)   
    
    Hedge accounting
    The new hedge accounting rules align the accounting for hedging instruments more closely with the 
    group's risk management practices and the group's interest rate swaps in place at 31 March 2018 continue 
    to qualify as cash flow hedges upon the adoption of IFRS 9, having no impact on the group's previously 
    reported financial statements.
    
    Impairment of financial assets
    IFRS 9 replaces the "incurred loss" model in IAS 39. The group has elected to apply the IFRS 9 simplified 
    approach to measuring expected credit losses ("ECL") which uses a lifetime expected loss allowance for 
    trade receivables measured at amortised cost. The balance of the group's financial assets measured at 
    amortised cost are loan receivables and cash and cash equivalents to which the general model is applied. 
    The group was required to revise its impairment methodology under IFRS 9 for each of these classes of 
    assets and no material impact was identified.
    
2.2 IFRS 15 Revenue from Contracts with Customers
    IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is 
    recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The 
    group adopted IFRS 15 from 1 April 2018 which resulted in changes in accounting policies. Under IAS 18, 
    revenue was recognised at a point in time given the nature of the services provided and under IFRS 15 
    revenue will continue to be recognised at a point in time, therefore the adoption of IFRS 15 does not 
    have a material effect on the group's revenue recognition and no change has been made to the group's 
    opening retained income.
    
    
3   STANDARDS ISSUED NOT YET EFFECTIVE
    IFRS 16 Leases must be applied for financial years commencing on or after 1 January 2019 and the group 
    will apply the new standard from 1 April 2019. The group has completed an initial assessment of the 
    potential impact on its financial statements but has as yet not completed its detailed assessment. Thus 
    far, the standard will affect the way the group accounts for its operating leases being mostly the Sandton 
    Convention Centre and some hotel property leases, where the group is the lessee. At 30 September 2018, the 
    group's outstanding commitments under non-cancellable operating lease agreements amounted to R2 558 million, 
    on an undiscounted basis.   
    
    The group will apply the practical expedient per IFRS 16 C3 in that the IFRS 16 definition of a lease 
    would only be applied to assess whether contracts entered into after the date of initial application 
    (1 April 2019) are, or contain leases. All contracts previously assessed not to contain leases will not be 
    reassessed. The group will also apply the recognition exemptions for short-term leases (a lease that, at 
    the commencement date, has a lease term of 12 months or less) and leases of low-value items (mainly small 
    items of office equipment and furniture).
    
    
4   FAIR VALUE ESTIMATION
    The group fair values its investment properties, FVOCI investments and its interest rate swaps. There were 
    no transfers into or out of level 3 financial instruments, other than as shown below.
    
4.1 Investment properties
    The movement of investment properties for the period is as follows:      
                                                                               30 September      31 March    
                                                                                       2018          2018    
                                                                                  Unaudited       Audited    
                                                                                         Rm            Rm    
                                                                                                             
    Opening net carrying amount                                                       5 255         4 969    
    Acquisition and development of investment properties                                108           471    
    Fair value adjustments recognised in profit or loss                                (119)         (191)   
    Transfer of owner-occupied property                                                 416             -    
    Acquisition of subsidiary                                                             -             6    
    Closing net carrying amount                                                       5 660         5 255    
    
    The group's investment properties have been categorised as level 3 values based on the inputs to the 
    valuation technique used. The group has elected to measure investment properties at fair value. The fair 
    value is determined by using the discounted cash flow method by discounting the rental income (based on 
    expected net cash flows of the underlying hotels) after considering the capital expenditure requirements. 
    The expected cash flows are discounted using an appropriate discount rate. The core discount rate is 
    calculated using the R186 (long bond) at the time of valuation, to which is added premiums for market 
    risk and equity and debt costs. The discount rate takes into account a risk premium associated with the 
    local economy as well as that specific to the local property market and the hotel industry.
    
    Subsequent to 31 March 2018, valuation adjustments have been made to The Westin and the Protea Hotel 
    Victoria Junction in Cape Town, and the Birchwood Hotel and Conference Centre in Gauteng. The change in 
    the rental income has been largely due to the change in sentiment towards Cape Town stemming from the 
    drought and the impact this had on the summer season in Cape Town, as well as the lower domestic corporate 
    business travelling into 2018. While the trading is expected to recover in 2019 to return to previous 
    levels, the operating margins at these hotels is expected to lag previous levels. The change in the 
    valuation of Birchwood has been as a result of a restructuring of the business that has led to an 
    improvement of the operating margin and is further supported by product improvements to the food and 
    beverage offering as well as a refurbishment of bedrooms.
    
    During the period under review, owner-occupied property was transferred from property, plant and equipment 
    to investment properties and, in accordance with IAS 16 Property, Plant and Equipment and IAS 40 Investment 
    Property, the property was revalued through other comprehensive income ("OCI") to fair value before being 
    transferred as shown in the statement of other comprehensive income.

4.2 Financial asset at FVOCI
    During the 2017 financial year, aligned with the group's desire to increase its exposure in the Western 
    Cape province, the group entered into a transaction with Sun International Limited ("SI") and Grand Parade 
    Investments Limited ("GPI") for the acquisition of a 20% equity interest in each of SunWest International 
    Proprietary Limited ("SunWest") and Worcester Casino Proprietary Limited ("Worcester"). The group has 
    pre-emptive rights but no representation on the board of directors of either company and has no operational 
    responsibilities. The group also has no access to any information regarding the companies except for that 
    to which it has statutory rights as a shareholder. These investments are classified as level 3 fair value 
    measurements and have been accounted for as financial assets at FVOCI.
    
    At the end of each reporting period the non-current asset is remeasured and the increase or decrease 
    recognised in OCI. A discounted cash flow valuation was used to estimate the fair value and no adjustment 
    to the carrying amount was required. The valuation model considers the present value of net cash flows to 
    be generated from SunWest and Worcester, together with its operating capital expenditure taking into 
    account expected growth in gaming win and other revenue generated from non-gaming related activities. The 
    expected net cash flows are discounted using a risk-adjusted discount rate. Among other factors, the 
    discount rate estimation considers risks associated with the gaming and hospitality industry in which 
    SunWest and Worcester operates.
    
4.3 SI put option
    In terms of the acquisition agreement of the SunWest and Worcester interests mentioned above, in the event 
    that any party acquires 35% or more of the issued ordinary shares of SI triggering a change in control of 
    the SI group, the group may elect to put its equity interests in SunWest and Worcester to SI. SI can elect 
    to either settle the put by the issue of new ordinary shares in SI and/or for a cash consideration, based on 
    the aggregate value of Tsogo Sun's interest in SunWest and Worcester. At the end of each reporting period the 
    derivative is remeasured and the increase or decrease recognised in the income statement. The derivative is 
    calculated in accordance with the terms of the put option agreement, effectively a 7.5 times Ebitda multiple 
    valuation of the SunWest and Worcester assets, less net debt, times the 20% shareholding the group holds. No 
    derivative has been recognised as the fair value of the option is Rnil at 30 September 2018 (31 March 2018:
    Rnil).  
    
4.4 Interest rate swaps
    The fair value of the group's derivatives used for hedge accounting is a net liability of R12 million 
    (31 March 2018: net liability of R135 million) and is calculated as the present value of the estimated 
    future cash flows based on observable yield curves, which is consistent with the prior year.
    
    The group has interest rate swaps that are effective with a fair value net liability of R28 million 
    (31 March 2018: liability of R133 million), as well as interest rate swaps from HPF that are not effective 
    with a net asset of R16 million (31 March 2018: liability of R2 million) being level 2 fair value 
    measurements.
    
    
5   BUSINESS COMBINATIONS
    Acquisition of intellectual property rights to the Golden Island Casino Limited pay-out machines  
    Vukani concluded agreements with TAB-Austria ("TAB") to acquire the intellectual property rights to the 
    Golden Island Casino Limited pay-out machines for Africa, which include the processes, formulae, methods 
    and information controlled and owned by TAB, currently being manufactured by TAB. The effective date was 
    21 September 2018.
    
    The acquired business ensures business continuation in the event that TAB is no longer in a position to 
    manufacture and maintain such LPM's for whatever reason. The provisional fair value of the net asset acquired 
    is equal to the fair value of the consideration paid at the date of acquisition. The intangible asset having 
    been identified on this acquisition consisting of the intellectual property has been accounted for in line
    with the group's accounting policies, the provisional fair value of the asset acquired was obtained by 
    applying a valuation technique performed on a discounted cash flow basis. The acquired business contributed 
    no revenue nor earnings to the group for the period to 30 September 2018, the calculation excluding the 
    funding impact of the acquisition and using the group's accounting policies. The provisional fair value of 
    net assets acquired is as follows:
    
                                                                                     Rm        
                                                                                               
    Other intangible assets - intellectual property                                  49        
    Total identifiable net assets acquired                                           49        
    Deferred cash purchase consideration                                            (36)      
    Cash outflow on acquisition of business - investing activities                   13       
    
    No provisional goodwill arose on the acquisition.
     
    
6   COMMON CONTROL ACQUISITION
    Acquisition of Kuruman from Niveus Investments Limited ("Niveus")                                 
    As part of the common control acquisition of certain gaming businesses from Niveus as reported during the 
    prior year, the group paid an amount of R95 million for the purchase of Niveus Invest 1, which owns the 
    Grand Oasis Casino "Kuruman" from Niveus, which required the approvals by the Northern Cape Gambling Board. As 
    these approvals had not been obtained by 31 March 2018, this payment was accounted for as a prepayment. The 
    approval was subsequently obtained on 15 June 2018.
    
    The transaction is deemed to be a transaction under common control and consequently falls outside the scope of 
    IFRS 3 Business Combinations. Tsogo Sun's accounting policy is to apply predecessor accounting to common control 
    transactions. Common control accounting is applied as the purchase is from HCI, the company's controlling 
    shareholder and under the predecessor accounting method, assets and liabilities acquired, including goodwill, 
    are recognised at the predecessor values with the difference between the acquisition value and the aggregate 
    purchase consideration recognised as a separate reserve in equity, a "common control" reserve.
    
    The abovementioned acquisition is in keeping with the group's strategy of expanding its gaming operations. The 
    identifiable assets less liabilities assumed at acquisition date is less than the value of the consideration 
    paid at the date of acquisition, and therefore the group recognised a common control reserve in the statement 
    of changes in equity of R26 million:                
    
                                                                                            Rm        
                                                                                                      
    Property, plant and equipment                                                           59        
    Other intangible assets                                                                  6         
    Deferred tax assets                                                                      1         
    Cash and cash equivalents                                                                4         
    Other non-current liabilities                                                           (5)       
    Other current liabilities                                                               (2)       
    Total identifiable net assets assumed                                                   63        
    Non-controlling interests                                                                6         
                                                                                            69        
    Less: Purchase consideration in the form of cash paid                                  (95)      
    Common control reserve arising on transaction                                          (26)      
    Net cash flow:                                                                                    
    Cash consideration prepaid during prior year to acquire Kuruman (refer note above)     (95)      
    Prepayment allocated to acquisition during current period                               95        
    Add: Cash balances acquired with Kuruman                                                 4         
    Net inflow of cash during the period                                                     4         
    Excluding the funding impact and by using the group's accounting policies, had the acquisition occurred on 
    1 April 2018, the group's income would have increased by R14 million with no impact to adjusted earnings.
    
    
7   CHANGES IN INTEREST-BEARING BORROWINGS ARISING FROM FINANCING ACTIVITIES
    Changes arising from financing activities for the six months ended 30 September 2018 related to interest-
    bearing borrowings, excluding bank overdrafts from short-term borrowings of R2 268 million (2018: 
    R1 707 million), are as follows:
                                                Long term         Short term           Total    
                                                       Rm                 Rm              Rm    
                                                                                                
    Balance at 1 April 2018                        12 667                941          13 608    
    Borrowings raised                                 513                100             613    
    Borrowings repaid                                  (6)              (221)           (227)   
    Currency translation                              195                  -             195    
    Reclassification to short term                 (1 368)             1 368               -    
    Other                                             (23)                32               9    
    Balance at 30 September 2018                   11 978              2 220          14 198    
    Balance at 1 April 2017                         9 439              3 399          12 838    
    Borrowings raised                               5 961                533           6 494    
    Borrowings repaid                              (2 602)            (2 997)         (5 599)   
    Currency translation                             (129)                 -            (129)   
    Other                                              (2)                 6               4    
    Balance at 31 March 2018                       12 667                941          13 608    
                                                                
    
    
    
8   RELATED PARTY TRANSACTIONS
    The group had no significant related party transactions during the period under review, other than as 
    mentioned in note 6.
    
    
9   SEGMENT INFORMATION
    In terms of IFRS 8 Operating Segments the chief operating decision maker has been identified as the 
    group's Chief Executive Officer ("CEO") and the Group Executive Committee ("GEC"). Management has 
    determined the operating segments based on the reports reviewed by the chief operating decision maker. 
    There has been no change in the basis of segmentation or in the basis of measurement of segment 
    profit or loss from the last annual financial statements.
    
    The group's CEO and GEC assess the performance of the operating segments based on Ebitdar. The measure 
    excludes the effects of long-term incentives and the effects of non-recurring expenditure. The measure 
    also excludes all headline earnings adjustments, impairments and fair value adjustments on non-current 
    and current assets and liabilities. Interest income and finance costs are not included in the results 
    for each operating segment as this is driven by the group treasury function which manages the cash and 
    debt position of the group. 
    
    
10  CAPITAL COMMITMENTS
    The board has committed a total of R2.2 billion for maintenance and expansion capital items at its 
    gaming and hotel properties of which R1.4 billion is anticipated to be spent during the next 12 months. 
    R702 million of the committed capital expenditure has been contracted for.
    
    
11  CONTINGENT LIABILITIES
    The group had no significant contingent liabilities as at 30 September 2018.
    
12  EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
    
    Other than the dividend declaration noted below, the directors are not aware of any matter or circumstance 
    arising since the balance sheet date and the date of this report.
    
    Dividend declaration
    Subsequent to the company's reporting date, on 20 November 2018, the board of directors declared an interim 
    gross cash dividend of 132 cents per share in respect of the six months ended 30 September 2018. The aggregate 
    amount of the dividend, which will be paid on 10 December 2018 out of retained earnings at 30 September 2018, 
    not recognised as a liability at the reporting date, is R1 404 million.

 
Condensed consolidated income statement
for the six months ended 30 September
                                                                              2018              2017    
                                                          Change         Unaudited         Unaudited    
                                                               %                Rm                Rm    
                                                                                                        
Net gaming win                                                34             4 792             3 564    
Rooms revenue                                                  3             1 517             1 475    
Food and beverage revenue                                      6               793               747    
Property rental income                                                         202               221    
Other revenue                                                                  397               378    
Income                                                        21             7 701             6 385    
Gaming levies and Value Added Tax                                           (1 045)             (742)   
Property and equipment rentals                                                (196)             (156)   
Amortisation and depreciation                                                 (529)             (441)   
Employee costs                                                              (1 747)           (1 541)   
Other operating expenses                                                    (2 374)           (1 900)   
Fair value adjustment on investment properties                                (119)                -    
Operating profit                                               5             1 691             1 605    
Finance income                                                                  36                70    
Finance costs                                                                 (638)             (641)   
Share of profit of associates and joint ventures                                25                26    
Profit before income tax                                                     1 114             1 060    
Income tax (expense)/credit                                                   (318)               28    
Profit for the period                                                          796             1 088    
Profit attributable to:                                                                                 
Equity holders of the company                                                  746             1 010    
Non-controlling interests                                                       50                78    
                                                                               796             1 088    
Number of shares in issue (million)                                          1 059               957    
Weighted average number of shares in issue (million)                         1 059               957    
Basic and diluted earnings per share (cents)                 (33)             70.4             105.5    
                                                                                                        


Condensed consolidated statement 
of comprehensive income
for the six months ended 30 September
                                                                              2018              2017    
                                                                         Unaudited         Unaudited    
                                                                                Rm                Rm    
                                                                                                        
Profit for the period                                                          796             1 088    
Other comprehensive income for the period, net of tax                                                   
Items that may be reclassified subsequently to profit or loss:                 215               (35)   
Cash flow hedges                                                               101               (75)   
Currency translation adjustments                                               142                19    
Income tax relating to items that may subsequently be reclassified             (28)               21    
Items that will not be reclassified to profit or loss:                         183                 -    
Gains on revaluation of owner-occupied property reclassified to                          
investment property(1)                                                         236                 -    
Income tax relating to items that will not be reclassified                     (53)                -    
                                                                                                        
Total comprehensive income for the period                                    1 194             1 053    
Total comprehensive income attributable to:                                                             
Equity holders of the company                                                1 143               975    
Non-controlling interests                                                       51                78    
                                                                             1 194             1 053    
(1) Refer note 4.1.                                                                                     
                                                                                         


Supplementary information
for the six months ended 30 September
                                                                Change           2018           2017    
                                                                     %      Unaudited      Unaudited    
                                                                                   Rm             Rm    
                                                                                                        
Reconciliation of earnings attributable to equity holders 
of the company to headline earnings and adjusted headline 
earnings       
Earnings attributable to equity holders of the company                            746          1 010    
Loss on disposal of plant and equipment                                             -              5    
Impairment of property, plant and equipment                                         3              1    
Fair value adjustment on investment properties                                    119              -    
Total tax effects of headline earnings adjustments                                 (1)            (2)   
Total non-controlling interest effects of adjustments                             (48)             -    
Share of associates' headline earnings adjustments (net)                           (1)            (5)   
Headline earnings                                                  (19)           818          1 009    
Other exceptional items included in operating profit                               14             70    
Deferred tax liability derecognised on property, plant and 
equipment on sale to the group's REIT subsidiary                                    -           (307)   
Share of associates' exceptional items (net)                                        1             (1)   
Total tax effects of other exceptional items                                       (1)           (13)   
Total non-controlling interest effects of other exceptional 
items                                                                               2             (4)   
Adjusted headline earnings                                          11            834            754    
Number of shares in issue (million)                                             1 059            957    
Weighted average number of shares in issue (million)                            1 059            957    
Basic and diluted HEPS (cents)                                                   77.2          105.4    
Basic and diluted adjusted HEPS (cents)                                          78.8           78.8    
Reconciliation of operating profit to Ebitdar(1)                                                        
Ebitdar pre-exceptional items is made up as follows:                                                    
Operating profit                                                                1 691          1 605    
Add/(less):                                                                                             
Property rentals                                                                  169            128    
Amortisation and depreciation                                                     529            441    
Long-term incentive credit                                                        (25)           (49)   
                                                                                2 364          2 125    
Add: Exceptional losses                                                           136             73    
Loss on disposal of plant and equipment                                             -              5    
Impairment of property, plant and equipment                                         3              1    
Fair value adjustment on investment properties                                    119              -    
Fair value adjustment on interest rate swaps                                      (23)             3    
Pre-opening costs                                                                   1             21    
Restructuring costs                                                                 6             28    
Transaction costs                                                                  32             13    
Other adjustments                                                                  (2)             2    
                                                                                                        
Ebitdar                                                             14          2 500          2 198    
(1) The measure excludes the effects of long-term incentives, non-recurring expenditure, headline earnings 
    adjustments including impairments and fair value adjustments on non-current and current assets and liabilities 
    and other exceptional items.


Condensed consolidated cash flow statement
for the six months ended 30 September

                                                                                        2018           2017    
                                                                                   Unaudited      Unaudited    
                                                                                          Rm             Rm    
                                                                                                               
   Cash flows from operating activities                                                                        
   Profit before interest and income tax                                               1 691          1 605    
   Adjust for non-cash movements and dividends received                                  751            544    
   Increase in working capital                                                           (48)          (344)   
   Cash generated from operations                                                      2 394          1 805    
   Finance income                                                                         36             70    
   Finance costs                                                                        (635)          (638)   
                                                                                       1 795          1 237    
   Income tax paid                                                                      (313)          (301)   
   Dividends paid to shareholders                                                       (744)          (676)   
   Dividends paid to non-controlling interests                                          (213)           (91)   
   Dividends received                                                                     50             54    
   Net cash generated from operating activities                                          575            223    
   Cash flows from investment activities                                                                       
   Purchase of property, plant and equipment                                          (1 013)          (654)   
   Proceeds from disposals of property, plant and equipment                                6              2    
   Purchase of intangible assets                                                         (19)            (1)   
   Additions to investment property                                                     (114)          (313)   
   Proceeds from disposal of investment property                                           1              -    
   Acquisition of Kuruman, net of cash acquired (note 6)                                   4              -    
   Acquisition of intellectual property (note 5)                                         (13)             -    
   Other loans and investments repaid/(made)                                              (2)            (1)   
   Net cash utilised for investment activities                                        (1 150)          (967)   
   Cash flows from financing activities                                                                        
   Borrowings raised                                                                     613          1 335    
   Borrowings repaid                                                                    (227)        (1 774)   
   Cash proceeds from rights issue to non-controlling interests                            -            995    
   Acquisition of non-controlling interests                                               (2)             -    
   Decrease in amounts due by share scheme participants                                    1              -    
   Net cash generated from financing activities                                          385            556    
   Net increase in cash and cash equivalents                                            (190)          (188)   
   Cash and cash equivalents at beginning of the year, net of bank overdrafts          1 071            725    
   Foreign currency translation                                                           13              1    
   Cash and cash equivalents at end of the period, net of bank overdrafts                894            538    
                                                                                                               


Condensed consolidated balance sheet
as at 30 September
                                                                                30 September       31 March    
                                                                                        2018           2018    
                                                                                   Unaudited        Audited    
                                                                                          Rm             Rm    
                                                                                                               
ASSETS                                                                                                         
Non-current assets                                                                                             
Property, plant and equipment                                                         16 665         16 038    
Investment properties                                                                  5 660          5 255    
Goodwill and other intangible assets                                                   6 567          6 507    
Investments in associates and joint ventures                                             662            641    
Financial assets at FVOCI                                                              1 275              -    
Available-for-sale financial assets                                                        -          1 275    
Non-current receivables                                                                   78             66    
Derivative financial instruments                                                          29              -    
Deferred income tax assets                                                               150            142    
                                                                                      31 086         29 924    
Current assets                                                                                                 
Inventories                                                                              121            119    
Trade and other receivables                                                              759            857    
Current income tax assets                                                                 29             36    
Cash and cash equivalents                                                              3 162          2 778    
                                                                                       4 071          3 790    
Non-current assets held for sale                                                          65             66    
Total current assets                                                                   4 136          3 856    
Total assets                                                                          35 222         33 780    
EQUITY                                                                                                         
Capital and reserves attributable to equity holders of the company                                             
Ordinary share capital and premium                                                     6 636          6 636    
Other reserves                                                                        (1 670)        (2 040)   
Retained earnings                                                                      6 281          6 280    
Total shareholders' equity                                                            11 247         10 876    
Non-controlling interests                                                              3 150          3 318    
Total equity                                                                          14 397         14 194    
LIABILITIES                                                                                                    
Non-current liabilities                                                                                        
Interest-bearing borrowings                                                           11 978         12 667    
Derivative financial instruments                                                          40            132    
Deferred income tax liabilities                                                        1 749          1 670    
Provisions and other liabilities                                                         479            468    
                                                                                      14 246         14 937    
Current liabilities                                                                                            
Interest-bearing borrowings                                                            4 488          2 648    
Trade and other payables                                                               1 969          1 876    
Current income tax liabilities                                                           122            125    
                                                                                       6 579          4 649    
Total liabilities                                                                     20 825         19 586    
Total equity and liabilities                                                          35 222         33 780    
                                                                                                


Condensed consolidated statement of changes 
in equity
                                                                        Attributable to equity holders of the company
                                                         Ordinary 
                                                            share                                                 Non-       
                                                      capital and        Other     Retained                controlling       Total  
                                                          premium     reserves     earnings       Total      interests      equity  
   Balance at 1 April 2017 (audited)                        4 576          874        5 321      10 771          2 685      13 456    
   Total comprehensive income                                   -          (35)       1 010         975             78       1 053    
   Consideration to HPF non-controlling interests 
   in hotels assets                                             -          (36)           -         (36)         1 066       1 030    
   Acquisition of non-controlling interests 
   from HPF                                                     -          436            -         436           (436)          -    
   Consideration to HPF non-controlling interest 
   - Sandton Isle                                               -          (15)           -         (15)            15           -    
   Ordinary dividends                                           -            -         (676)       (676)           (91)       (767)   
   Balance at 30 September 2017 (unaudited)                 4 576        1 224        5 655      11 455          3 317      14 772    
   Balance at 31 March 2018 (audited)                       6 636       (2 040)       6 280      10 876          3 318      14 194    
   Total comprehensive income                                   -          397          746       1 143             51       1 194    
   Common control reserve arising on acquisition 
   of Kuruman Casino                                            -          (26)           -         (26)            (6)        (32)   
   Acquisition of non-controlling interests - Galaxy            -           (1)           -          (1)             -          (1)   
   Ordinary dividends                                           -            -         (745)       (745)          (213)       (958)   
   Balance at 30 September (unaudited)                      6 636       (1 670)       6 281      11 247          3 150      14 397    


Segmental analysis
for the six months ended 30 September
                                                                                                                       Amortisation
                                                                                                                           and
                                              Income(1)                  Ebitdar(2)            Ebitdar margin         depreciation
                                          2018       2017             2018       2017          2018      2017        2018      2017    
                                            Rm         Rm               Rm         Rm             %         %          Rm        Rm    
   Casino gaming                                                                                                                       
   Montecasino                           1 329      1 265              562        524          42.3      41.4          56        57    
   Suncoast                                832        821              339        357          40.7      43.5          52        45    
   Gold Reef City                          736        734              268        262          36.4      35.7          55        59    
   Silverstar                              355        336              106         96          30.0      28.7          42        41    
   Golden Horse                            198        192               83         82          41.6      42.8          16        17    
   The Ridge                               196        188               70         69          36.0      36.8          16        16    
   Emnotweni                               182        196               57         69          31.3      35.4          14        14    
   Hemingways                              152        151               41         43          26.9      28.3          19        21    
   Garden Route                            111        106               42         41          37.8      38.5           8         8    
   The Caledon                              88         86               22         22          24.8      25.6           5         6    
   Blackrock                                85         78               26         27          31.0      33.9           7         6    
   Mykonos                                  84         85               36         39          42.5      46.1           6         6    
   Goldfields                               68         67               18         19          26.9      28.2           5         5    
   Alternative gaming(3)                                                                                                               
   Galaxy                                  405        n/a              114        n/a          28.1       n/a          20       n/a    
   Vukani                                  763        n/a              210        n/a          27.5       n/a          50       n/a    
   Other gaming operations                 113        105              (77)       (61)                                 10        10    
   Total gaming operations               5 697      4 410            1 917      1 589          33.6      36.0         381       311    
   South African hotels division(4)      1 725      1 721              504        550          29.2      32.0         124       110    
   Offshore hotels division                306        279               74         49          24.2      17.6          23        19    
   Pre-foreign exchange gains                                           71         47          23.2      16.8                          
   Foreign exchange gains                                                3          2                                                  
   Corporate(4)(5)                         (27)       (25)               5         10                                   1         1    
   Group                                 7 701      6 385            2 500      2 198          32.5      34.4         529       441    
 (1) All revenue and income from gaming and hotel operations is derived from external customers. No one customer contributes more 
     than 10% to the group's total revenue.
 (2) All casino units are reported pre-internal gaming management fees.
 (3) Gaming division includes Galaxy and Vukani (Gameco) with effect from 20 November 2017.
 (4) Includes R27 million (2017: R25 million) intergroup management fees.
 (5) Includes the treasury and management function of the group.

DIRECTORS: JA Copelyn (Chairman)* J Booysen (Chief Executive Officer) RB Huddy (Chief Financial Officer) 
MSI Gani** MJA Golding** BA Mabuza (Lead Independent)** VE Mphande** 
JG Ngcobo** Y Shaik* 
(*Non-executive Director **Independent Director)

COMPANY SECRETARY: GD Tyrrell

REGISTERED OFFICE: Palazzo Towers East, Montecasino Boulevard, Fourways, 2055 (Private Bag X200, Bryanston, 2021)

TRANSFER SECRETARIES: Link Market Services South Africa Proprietary Limited,
13th Floor, Rennie House, 
19 Ameshoff Street, 
Braamfontein, 2001 
(PO Box 4844, Johannesburg, 2000)

SPONSOR: Investec Bank Limited, 
100 Grayston Drive, Sandton, 2196 
(PO Box 785700, Sandton, 2146)

Auditors: PricewaterhouseCoopers Inc.,
 4 Lisbon Lane, Jukskei View, 2090 
(Private Bag X36, Sunninghill, 2157)


Date: 20/11/2018 05:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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