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Reviewed condensed consolidated financial results for the year ended 31 March 2020
Tsogo Sun Hotels Limited
(previously known as Southern Sun Hotels Proprietary Limited)
Incorporated in the Republic of South Africa
Registration number 2002/006356/06
Share Code: TGO ISIN:ZAE000272522
("Tsogo Sun Hotels" or "the group" or "the company")
Short-form announcement: Reviewed condensed consolidated
financial results for the year ended 31 March 2020
Financial results
Total income for the year of R4.5 billion (2019: R4.4 billion)
ended 2% above the prior year with a 2% growth in hotel rooms'
revenue and a 7% growth in food and beverage revenue offset by
a 7% reduction in property rental income and a 7% reduction in
other income. Revenues were favourably impacted in the third
quarter following the successful conclusion of the fixed and
variable leases over the three Sandton hotels with effect from
1 November 2019. These three hotels comprise the InterContinental
Sandton Towers, Sandton Sun and Garden Court Sandton City, which
together total 1 001 rooms and make up 5% of the group's total
rooms' portfolio. In terms of the leases, which are similar to
those between Tsogo Sun Hotels and Hospitality Property Fund
Limited ("HPF"), 98% of hotel earnings after the deduction of
management fees payable to the group, accrues to the hotel
owners as rent. As a result, while the group consolidated the
trading of these hotels on the income statement, the net impact
on earnings before interest, income tax, depreciation,
amortisation, long-term incentives and exceptional items
("Ebitda") is minimal. Excluding the impact of the Sandton
hotels, revenue for the group's base portfolio declined by 3%
for the year ended 31 March 2020.
Covid-19 had a marked impact on the group's fourth quarter trading
with international demand retracting as early as the last week of
February 2020. The initial international travel regulations imposed
by the President on 15 March 2020 and finally, the total ban on
inter-provincial travel announced on 23 March 2020 as part of the
nationwide lockdown resulted in a material reduction in revenues
for the month of March, which is normally a peak activity month for
the group. The group's entire portfolio in South Africa, Africa and
the Seychelles has been deactivated with the exception of those
hotels designated as quarantine facilities or as accommodation for
essential service providers and persons awaiting repatriation.
Despite strict cost controls during the year to counteract the above-
inflationary increases in administered costs including property rates
and utilities, the shortfall in revenue as a result of the decline in
demand which was further exacerbated by the Covid-19 pandemic has meant
that earnings before interest, income tax, depreciation, amortisation,
property rentals, long-term incentives and exceptional items ("Ebitdar")
of R1.4 billion (2019: R1.5 billion) ended 9% down on the prior year.
Excluding the impact of the Sandton hotels, Ebitdar for the group's base
portfolio declined by 12% for the year ended 31 March 2020. The overall
group Ebitdar margin of 30% has declined by 4 percentage points ("pp")
from the prior year.
In order to provide shareholders with meaningful, like-for-like analysis
of the group's performance for the year after reported Ebitdar, the pro
forma financial information as set out in Annexure 3 of the company's
pre-listing statement issued to shareholders on 23 May 2019 has been
used as the comparative set of results. Shareholders are referred to
Annexure 4 of the pre-listing statement for the reporting accountants'
report on the pro forma financial information. Digital copies of the
pre-listing statement can be found on the group's website at
https://www.tsogosun.com/investors/circulars/2019.
Supplementary information
2019
% Change 2020 Pro 2019
on pro Reviewed forma Audited
For the year ended 31 March forma Rm Rm Rm
Income 2 4 475 4 389 4 389
Ebitdar (9) 1 352 1 488 1 491
Exceptional losses, net of gains
Headline adjustments (1 623) (542) (542)
Other adjustments (46) (39) (39)
Ebitdar post exceptional items * (317) 907 910
Property rentals (84) (208) (208)
Amortisation and depreciation (348) (306) (306)
Long-term incentive expense (17) (13) (4)
Operating (loss)/profit (766) 380 392
Net finance costs (360) (231) (417)
Share of (loss)/profit of
associates and joint ventures (3) 15 15
(Loss)/profit before income tax * (1 129) 164 (10)
Income tax expense (96) (118) (70)
(Loss)/profit for the period (1 225) 46 (80)
(Loss)/profit attributable to:
Equity holders of the company (896) 28 (98)
Non-controlling interests (329) 18 18
(1 225) 46 (80)
Reconciliation of earnings
attributable to equity holders of
the company to headline earnings
and adjusted headline earnings
(Loss)/profit attributable to equity
holders of the company: * (896) 28 (98)
Impairment of property, plant and
equipment 716 94 94
Fair value adjustment on investment
properties 888 445 445
Other headline earnings adjustments 19 3 3
Share of associates' headline
earnings adjustment 41 10 10
Total tax effect of adjustments (52) (27) (27)
Total non-controlling interest
effects of adjustments (500) (182) (182)
Headline earnings (42) 216 371 245
Exceptional items 76 39 39
Total tax effects of other
exceptional items (11) 1 1
Total non-controlling interest
effects of other exceptional items (4) (7) (7)
Share of associates' exceptional
items 1 (1) (1)
Adjusted headline earnings (31) 278 403 277
Diluted weighted average number of
shares in issue (million) 1 060 1 064
Basic and diluted (loss)/earnings
per share (cents) * (84.5) 2.6
Basic and diluted headline earnings
per share (cents) (41) 20.4 34.8
Basic and diluted adjusted headline
earnings per share (cents) (31) 26.2 37.9
* Percentage change greater than 100%.
Exceptional losses for the year of R1.7 billion (2019: R581 million)
relate mainly to fair value losses on the revaluation of externally
managed investment properties in HPF of R888 million (2019: R445 million),
property, plant and equipment impairments of hotels in South Africa and
offshore totalling R716 million (2019: R94 million), restructuring costs
of R40 million (2019: R8 million) which includes the termination benefits
of R8 million for the closure of Southern Sun Nairobi and retrenchment
costs relating to the unbundling, as well as the impairment of the group's
investment in RBH Hotels UK Limited of R17 million (2019: Rnil). The
majority of the quantum of these impairments are due to management's
assessment of the negative impact of Covid-19 on forecast cash flows
generated by the underlying hotels for the financial years ended March 2021
and March 2022 as well as volatility in the bond market and increased in-
country risk assessments that have had a material impact on discount rates
across the portfolio. In South Africa in particular, the risk posed by the
Covid-19 pandemic compounded by the ratings downgrade, saw the South Africa
Government 10Y bond yield increasing by 1.9% from 31 March 2019 (8.61%) to
31 March 2020 (10.51%).
Group adjusted headline earnings for the year at R278 million (2019: R403
million) ended 31% down on the prior pro forma year. The adjustments to the
current year includes the reversal of the post-tax and non-controlling
interest impacts of the exceptional losses noted above. The number of
shares in issue remained flat on the prior comparative pro forma year and
the resultant adjusted headline earnings per share is 31% down on the prior
pro forma year at 26.2 cents (2019: 37.9 cents).
Funding capacity and covenants
The group's liquidity and access to facilities are of paramount importance
and as at 31 March 2020 the group was well within lender covenant
requirements:
* Tsogo Sun Hotel's leverage ratio (net debt to Ebitda) is 1.3 times against
a maximum covenant requirement of no more than 2.5 times;
* Tsogo Sun Hotel's interest cover ratio is 12.2 times against a minimum
covenant requirement of at least 3 times;
* HPF's leverage ratio (net debt to Ebitda) is 3.2 times against a maximum
covenant requirement of no more than 3.5 times; and
* HPF's interest cover ratio is 3.7 times against a minimum covenant
requirement of at least 2 times.
As at 31 March 2020, the group has net cash and cash equivalents of R722
million (2019: R212 million) and R4.0 billion (2019: R3.2 billion) of interest-
bearing debt (excluding capitalised lease liabilities). Lenders to both Tsogo
Sun Hotels and HPF have approved the waiver of the 30 September 2020 covenants,
securing the group's access to sufficient short-term liquidity facilities to
meet its obligations as they become due.
Prospects
This financial year has been one of highs, with the group celebrating its
50th anniversary and the separate listing of Tsogo Sun Hotels on the
Johannesburg Stock Exchange. A short nine months later, the group experienced
the low of having to deactivate the vast majority of its hotels. While the
group supports government's efforts to safeguard the health of citizens, the
prolonged lockdown has had and will continue to have a devastating impact on
the South African economy in general and the southern African travel and tourism
industry and its employees in particular. No industry can survive extended periods
without revenue. We welcome the recent announcement by President Ramaphosa of the
move to level 3 and appeal to government to continue to open the economy as quickly
as possible, with due regard for safety.
Dividend
As outlined in the pre-listing statement, the group had intended to apply cash
resources generated during the initial 15 months post the listing towards the
settlement of the offshore division's Dollar-denominated interest-bearing debt.
Given the anticipated extended period of minimal revenue, the directors considered
it prudent to retain cash resources in order to ensure that the group is able to
navigate this difficult period until trading resumes. Accordingly, the directors
have not declared a final cash dividend for the year ended 31 March 2020.
Short-form announcement
This short-form announcement is the responsibility of the board of directors of
Tsogo Sun Hotels. This short-form announcement is a summary of the full announcement
released on SENS on 29 May 2020 and does not include full or complete details. The
information contained in this announcement has not been reviewed or reported on by
the company's auditors.
The full announcement is available on the company's website
https://www.tsogosun.com/investors/financial-reports/2020
and can also be accessed using the following JSE link:
https://senspdf.jse.co.za/documents/2020/jse/isse/TGOE/YE20.pdf.
A copy of the full announcement may be requested from
companysecretaryTGO@tsogosun.com or the sponsor, Investec Bank at
InvestecSponsorTeam@investec.co.za. Any investment decisions by shareholders
should be based on a consideration of the full announcement, which shareholders
are encouraged to view on SENS and on the company's website.
The condensed consolidated financial statements have been reviewed by the company's
auditors, PricewaterhouseCoopers Inc., who expressed an unmodified review conclusion
thereon.
Fourways
29 May 2020
JSE Equity Sponsors
Investec Bank Limited
www.tsogosun.com
Date: 29-05-2020 09:30:00
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