By Gareth Vorster

Gaming, hospitality and entertainment group Tsogo Sun Holdings said it had significant firepower to invest in new projects.

The owner of Montecasino and Gold Reef City casinos announced basic and diluted adjusted headline earnings per share of 50.1 cents in interim results for the six months ended September 2011, from 52.1 cents previously.

It noted basic and diluted headline earnings per share of 50.1 cents, from 50.0 cents in 2010.

Overall income improved 38% to R4.356 billion, from R3.156 billion, while operating profit improved to R1.174 billion, from R883 million.

Room occupancy climbed marginally to 59.5%, from 58.5% with the average room rate at R786, from R917 in 2010 with rooms revenue declining to R777 million, from R850 million before.

Profit for the period increased 23% to R 618 million.

Tsogo Sun announced an interim cash dividend of 20 cents per share.

The boost in total income was assisted by the inclusion of R1.2 billion income from the Gold Reef merger while EBITDAR (earnings before interest, income tax, depreciation, amortisation, property rentals, long-term incentives and exceptional items) weighed in at R1.6 billion, a 33.6% increase on the prior period.

Additional EBITDAR from Gold Reef of R453 million, as well as foreign exchange gains of R20 million in the current period, assisted this growth, the group said.

"The reverse listing of Tsogo Sun into Gold Reef was always driven by scale but, importantly, was achieved without having to inject onerous levels of debt into the group," said newly appointed CEO Marcel von Aulock.

"With gearing of around R4bn or just 1.3 times annual EBITDA, this means that the group has significant firepower to invest in new projects and continue its growth strategy," he said.

In a conference call on Thursday, the chief executive said that the integration of the Gold Reef properties into the Tsogo Sun business had progressed smoothly and was largely complete.

Additionally, the group recently acquired the hotel and office development in Rosebank that previously traded as the Grace for R85 million.

It has also reached agreement to purchase an additional 16.5% effective interest in the Suncoast Casino for R510 million, bringing the total ownership of that operation to 90%.

Construction work had begun on the R400 million redevelopment of the Hemingways casino and followed the renewed gaming license award in May 2011 to Tsogo Sun Emnoti, the group subsidiary which owned the Hemingways casino in East London.

CEO von Aulock stressed that current regulatory risks presented a threat to the group and could consequently have a negative impact on future employment levels and investment in the industry.

"Possible changes to tax regulations, including a proposed withholding tax on winnings, combined with increased regulatory compliance costs, pose the most risk," the group said.

"We've been engaging with treasury extensively," von Aulock said.

Looking ahead, Tsogo said that the underlying operations of the group remained highly geared towards the South African consumer (in gaming) and the corporate market (in hotels).

"The group is poised for growth if these sectors of the South African economy improve. Despite current economic headwinds, the group remains highly cash-generative and has significant opportunities to invest capital in its growth strategy at attractive rates of return," it said.

By 12.53pm, shares in Tsogo declined 50 cents or 3.02% to R16.05 on the JSE.

Source: I-Net Bridge