South African Tsogo Sun Hotels Welcomes Travel Ban Lift

Tsogo Sun Hotels, a South African casino and hotel company, welcomed the relaxation of international travel, warning that although its results were not expected to improve in the short term and that it might be forced to axe employment, the relaxation would provide relief for the tourism sector.

The operator suffered a loss over the six months to the end of September, but by October 2020, 14 of the group’s 17 hotels were open.

The company said: “The UIF temporary employer/employee relief scheme has been of great assistance in alleviating the cash flow burden on both the company and its employees, while hotels have been closed or operating at low occupancy levels.

“The group has processed R103 million in grants over the period. However, with this assistance coming to an end and with occupancy levels unlikely to improve in the short term, the group will have to consider further operational restructuring to align headcount with trading levels.”

With an 84 percent decrease in total income to R335m, Tsogo Sun felt the full lockdown power. Gaming income accounted for much of the total, but were down 70.9 percent. In hotel room revenue and food and beverage revenue, there was a 91 percent decrease. The casinos of the business only started to reopen from July 1, while its Galaxy Bingo chain reopened between July and September with revenue dropping 75.1 percent in stages.

Tsogo Sun said: “These interim results clearly reflect the devastating impact that Covid-19 and the accompanying lockdown regulations have had on the hospitality industry in general and our group in particular.

“The Government’s regulatory restrictions such as the curfew, limited capacity and ban on alcohol sales, had a substantial negative impact on the results for this interim reporting period. With reduced levels of revenue due to restricted trading, offset by a lower cost base, only essential capex to be spent and no dividends paid to shareholders, we are of the view that debt levels can be reduced significantly by September 2021.”

“With the significant investment in infrastructure, high employment numbers and staff costs, casinos were not built to operate in a constrained environment, thereby placing severe pressure on the group’s cash flow and debt position for the period under review,” it added. “The resultant focus on reducing operating expenses was therefore inevitable and this should provide a positive impact on the group’s ability to survive, recover and emerge a strong business subsequent to the current crisis.”

The casino customer experience is also expected to be enhanced by interactive and technological growth and the shift in marketing emphasis. The group’s new website, tsogosungaming.com, was launched in October.

It added: “The Bingo division obtained some rental relief from its landlords for the period until September 2020, but rental costs reverted to the full contractual costs from October 2020. There are limited cost savings opportunities in this division. The trading levels at Bingo sites were also constrained by floor limitations and the curfew.”

As a result of its low cost base, the LPM division has recovered better than all the other companies in the group, being a non-operational organisation and the low number of machines per site making social distancing easier to handle.

Tsoso added: “Unfortunately the impact of the pandemic was felt with some permanent site closures resulting in not all LPMs being operational as yet (95 per cent at September 30 2020). The dedicated management team of the LPM division is pleased to report that in October 2020 the business exceeded the 2020 year end average per month performance for the first time since the pandemic crisis.

“The month of October delivered a solid performance and a further improvement as a result of the relaxation of the curfew being applicable for the full month.”