Tsogo Hotels keeps beating the odds


Tsogo Hotels keeps beating the odds


Published Date: 2021-11-25 | Source: INCE|Community | Author: The Finance Ghost

Tsogo Hotels keeps beating the odds

The hospitality industry has been locked in a fight for survival since the start of the pandemic. It's been a terrible time for those involved and through no fault of their own. The industry remains in serious trouble and in desperate need of a proper tourist season in our beautiful country.

Tsogo Sun Hotels (not to be confused with Tsogo Gaming) has released interim results for the six months ended September. The company continues to keep its head above water, for which management must be commended.

Room sales

Recent trading has been at around 50% of system-wide rooms prior to Covid and occupancies are far below the long-term average. The SENS announcement gives insights into just how tough things are by noting that the focus is on "cash preservation and liquidity to continue trading through the pandemic and to protect the livelihoods of the many stakeholders who depend on Tsogo Sun Hotels."

The good news is that things are at least on an upward trend, with room sales in October 2021 at the highest level since the pandemic began. There are hideous murmurings in the media of a 4th wave, which implies the possibility of further lockdowns.

The Tsogo management team (and shareholders) will be hoping that this won't be the case, although the result commentary does indicate that the lead-time for international tourists is long and so any major recovery can only be expected next year. Domestic tourism is keeping the lights on for the time being, which is why lockdowns remain a significant risk.

As a clear indication of the impact of lockdowns, Tsogo sold 117,952 system-wide rooms in April 2021 (the highest at that stage since the start of the pandemic) and only 55,280 in July 2021. In October, room sales were 167,967 which is encouraging.

In the latest interim period, the group had to contend with severe restrictions during winter as well as the civil unrest. Durban was the group's best-performing region in the pandemic, so KZN as the epicentre of the violence really hurt Tsogo.

The numbers

Total income for the six months was R959 million, a whopping R624 million above the (catastrophic) prior year. R427 million of the increase was in room revenue and R210 million in food and beverage revenue.

Tsogo managed to generate R64 million from the Castle Lager Lions Series, which required staff to stay in the "bio-bubble for weeks at a time" - a reminder that we now live in a crazy world. Other revenue was down R16 million vs. last year though as the base included the use of hotels as quarantine and isolation facilities as well as Premier Soccer League bio-bubbles.

Other positives included an inflow of R177 million from business interruption cover and R112 million in TERS grants.

Cleverly, the group took R100 million from its South Africa facilities and used it to reduce offshore debt at an average exchange rate of R13.56 to the USD. The management team should consider selling forex signals to help subsidise the hotel revenue!

The headline loss per share is 11 cents, a massive improvement on the loss of 39.1 cents last year but still a negative number of course.

Net debt is stable at just over R3 billion. EBITDA covenants were met in June and September. The group notes that "lenders have been very supportive of the group" and have approved further covenant waivers.

Naturally, there is no dividend for this reporting period. The group needs to retain every cent in case there are further lockdowns.


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