Southern Sun Limited · JSE:SSU

Southern Sun — Tsogo Sun Holdings — Investor Presentation (November 2017)

57 slides from Southern Sun's investor presentation, November 2017

  1. Slide 1: Analysts & Fund Managers Presentation

    TSOGO SUN we ANALYSTS & FUND _ MANAGERS PRESENTATION November 2017. Y TSOGO SUN

  2. Slide 2: Forward looking statements disclaimer

    Certain statements in this document may constitute ’forward looking statements’. Such forward looking statements reflect the company’s beliefs and expectations and involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achieveme

  3. Slide 3: Group structure

    Public 50.9 % 49.1% 100% 100% 100% 100% 100% 50+% 25+% CASINOS ALTERNATIVE GAMING HOTEL OPERATIONS HOSPITALITY EUROPE PROPERTY FUND 3

  4. Slide 4: TSH Board of Directors

     TSH Board of Directors ● Executive Directors  Jacques Booysen – Group CEO  Rob Huddy – Group CFO ● Non-Executive Directors  Johnny Copelyn – Chairman  Marcel Golding  Mac Gani – Audit & Risk and Social & Ethics Chairman  Busi Mabuza – Lead Independent  Elias Mphande  Jabu Ngcobo  Yunis Sh

  5. Slide 5: Group Executive Committee

     Group Executive Committee ● Corporate ● Gaming  Jacques Booysen – Group CEO  Glenn Joseph – COO Gaming  Rob Huddy – Group CFO  Greg Lunga – FD Gaming  Noeleen Bruton – Marketing Director ● Hotels  Vusi Dlamini – Group HR Director  Ravi Nadasen – COO Hotels SA  Laurelle McDonald – Corporate

  6. Slide 6: Financial Overview

    FINANCIAL OVERVIEW

  7. Slide 7: Ebitdar and income by operation

    Income Ebitdar(1) Ebitdar Margin % % % H1 F’18 H1 F’17 Change H1 F’18 H1 F’17 Change H1 F’18 H1 F’17 Montecasino 1 265 1 337 (5) 524 593 (12) 41.4 44.4 Suncoast 821 839 (2) 357 385 (7) 43.5 45.9 Gold Reef City 734 714 3 262 265 (1) 35.7 37.1 Silverstar 336 360 (7) 96 119 (19) 28.7 33.1 Emnotweni 196

  8. Slide 8: Income statement H1 F'18

    H1 F’18 H1 F’17 % Change Income 6 385 6 294 1 Net gaming win 3 564 3 679 (3) Revenue Rooms 1 475 1 450 2 F&B 747 686 9 Rental income 221 104 * Other 378 375 1 Ebitdar 2 198 2 202 - LTI expense 49 (98) * Property rentals (128) (134) 5 Amortisation & depreciation (441) (421) (5) Exceptional items (73)

  9. Slide 9: Group income by nature and hotel Ebitdar

    Total Hotel Ebitdar (Rm) Group Income by Nature % H1 F’18 H1 F’17 H1 F’18 H1 F’17 Hotels SA 550 455 Core business 403 426 Slots 42 44 Liberty Hotels 17 - Tables 13 15 HPF 130 (1) 29(2) Rooms 23 23 Hotels Gaming 83 92 Hotels Offshore 48 25 F&B 12 11 Ebitdar 681 572 Rental income 4 2 % of Group Ebitda

  10. Slide 10: Headline and adjusted earnings reconciliation

    H1 F’18 H1 F’17 % Gross Net Gross Net change Attributable earnings 1 010 875 15 PP&E disposal losses 5 4 2 2 Impairment of PP&E and intangibles 1 - 1 1 Fair value of HPF shares on acquisition - - (46) (46) Gain on bargain purchase price - - (13) (13) Associate headline adjustments (net) (5) - Headli

  11. Slide 11: Cash flow and net interest-bearing debt

    H1 F’18 H1 F’17 Ebitdar (pre LTI) per income statement 2 198 2 202 Property rentals (128) (134) Ebitda 2 070 2 068 Working capital adjusted for non-cash and exceptional items (265) (65) Dividend income 54 62 Cash generated from operations 1 859 2 065 Interest paid (net) (568) (485) Taxation paid (30

  12. Slide 12: Investment activities and capex

    H1 F’18 H1 F’17 F’17 Investment activities 531 704 2 590 SunWest and Worcester - 480 1 272 Gold Reef City redevelopment 5 23 34 Suncoast expansion 99 62 112 Mykonos land 30 - - Monte Circle and Monte Place 10 9 16 SunSquare and SE Cape Town FF&E 30 30 53 Cape Town land - 79 79 Sun 1 expansions - 18

  13. Slide 13: Debt and dividends

    H1 F’18 H1 F’17 External debt (US$ based) 1 050 1 133 External debt (Rand based) 9 254 9 231 External debt HPF (Rand based) 2 132 1 725 Bank overdrafts 2 210 1 789 Prepaid borrowing costs (27) (37) Gross IBD 14 619 13 841 Cash on hand (2 747) (2 312) Net IBD 11 872 11 529 Cost of net debt ― pre tax

  14. Slide 14: Tsogo Sun Gaming

    TSOGO SUN GAMING

  15. Slide 15: Gaming ownership structure

    100% 100% 100% 100% 65% 100% 100% 100% 100% 100% 25% (1) 100% 100% 100% (1) Note: TSH will sell interest on expiry of the casino licence in December 2017 15

  16. Slide 16: Gaming win by type and province

    H1 F’18 H1 F’17 % Change Gaming win 3 564 3 679 (3) Tables 854 938 (9) Slots 2 710 2 741 (1) Win/drop % – tables 19.9 21.7 (8) Hold/handle % – slots 5.1 5.0 2 H1 F’18 H1 F’17 % Change Gauteng 1 879 1 978 (5) KwaZulu-Natal 980 1 005 (2) Mpumalanga 285 288 - Western Cape 247 233 6 Other 173 175 - 3 56

  17. Slide 17: Gaming win growth on prior year

    800 700 -5.8% 2.2% 1.7% -4.0% 6.5% -10.4% 8.2% 2.2% 4.6% 17.3% 600 500 400 300 200 100 0 Year Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10 Period 11 Period 12 Period 13 2010 2011 2012 2013 2014 2015 2016 2017 Percentage growth on prior year 17

  18. Slide 18: Growth in gaming win: Gauteng

    Growth in Gaming Win (%) Gauteng Montecasino Gold Reef City Silverstar Calendar years 2000 Monte vs Sundome 25.0 (4.9) 2001 Other casinos opened 5.8 20.9 2002 13.9 16.5 2003 11.0 9.6 2004 18.9 15.5 2005 11.1 13.2 2006 14.9 14.5 2007 13.1 12.6 2008 7.8 (6.8) (1.0) * 2009 (0.9) 0.5 (1.3) 7.4 2010 1.1

  19. Slide 19: Time Square impact on F'18

     Time Square Impact on F’18 H1 F’18 H1 F’17 % Rm Rm Change Market 3 808 3 755 1.4 Tsogo Sun 1 893 2 020 (6.3) Rest of Gauteng 1 403 1 630 (13.9) Time Square (estimate) 512 - 100.0 Morula - 105 (100.0) 19

  20. Slide 20: Market growth on prior year

    400.0 350.0 2.6% -3.1% 6.7% 1.7% -5.6% 6.2% 5.3% 3.7% -2.5% 300.0 250.0 200.0 150.0 100.0 50.0 - Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 2011 2012 2013 2014 2015 2016 2017 Percentage growth on prior year Note : Market statistics for September not yet available from the board and are est

  21. Slide 21: Growth in gaming win: KwaZulu-Natal

    Growth in Gaming Win (%) KwaZulu-Natal Suncoast Golden Horse Blackrock Calendar years 2004 24.5 37.3 2005 24.7 22.5 2006 16.2 15.1 2007 19.6 15.6 2008 6.9 8.3 2009 4.6 5.0 1.4 5.5 2010 4.4 4.6 4.1 10.1 2011 7.3 5.3 9.2 10.8 2012 10.0 10.8 8.9 11.6 2013 5.3 6.9 (1.6) 7.3 2014 2.8 3.2 (1.6) 2.7 2015 7

  22. Slide 22: Growth in gaming win by province

    Growth in Gaming win (%) Province Unit Unit Unit Mpumalanga Ridge Emnotweni 3 months to September 2017 2.0 (4.7) 6.1 6 months to September 2017 (0.2) (3.4) 0.7 Western Cape Caledon Mykonos Garden Route 3 months to September 2017 0.8 1.4 8.3 (0.6) 6 months to September 2017 0.2 2.6 10.6 1.7 Eastern C

  23. Slide 23: Member demographics by gender and affiliation

    Members Spend Gender Male Female Male Female Black 58% 42% 63% 37% Platinum 49% 51% 49% 51% Gold 49% 51% 51% 49% Total 50% 50% 58% 42% Affiliation Members Spend African 27% 21% Asian/Indian 30% 35% White 36% 39% Coloured 4% 3% Other 3% 2% 23

  24. Slide 24: Player age profile

    2011 2017 Slots Players Age Members Spend Members Spend 18 – 34 24% 8% 24% 7% 35 – 54 44% 55% 42% 50% 55+ 32% 37% 34% 43% Tables Players Age 18 – 34 30% 18% 31% 19% 35 – 54 53% 65% 51% 65% 55+ 17% 17% 18% 16% 24

  25. Slide 25: Regulatory issues

     B-BBEE condition of licence  Regulation regarding the maximum number of casino licences nationally  Gauteng gaming taxes  Smoking regulations 25

  26. Slide 26: Vukani and Galaxy acquisitions

     Vukani and Galaxy acquisitions ● Strategically a good deal as should be fast growing business with good operational management ● Total purchase price equivalent to 160m shares for 100% of Gameco with 10m shares subject to clawback ● The total purchase price valued at R28 per share is R4.5bn (R1.76

  27. Slide 27: Vukani and Galaxy acquisitions (cont)

     Vukani and Galaxy acquisitions (cont) ● The approval of the Northern Cape Gambling Board (“NCGB”) of TSH’s indirect acquisition of the Grand Oasis Casino, Kuruman could not be obtained by 30 October 2017, as there was no NCGB in place until 25 October 2017, and Niveus has thus retained ownership o

  28. Slide 28: Suncoast redevelopment

     Suncoast redevelopment ● Expansion comprises a new Privé, refurbishment of the existing main floor, new restaurants, structured parking, a Barnyard theatre and the Dome venue at a cost estimated at R1.6bn (R300m spent to date including R100m CSI) ● Construction commenced during June 2017 with the

  29. Slide 29: Gaming positions licensed but not displayed

     Gaming positions licensed but not currently displayed Slots Tables Montecasino 460 6 Gold Reef City 230 4 Suncoast 750 13 Silverstar 173 - The Ridge 64 2 Golden Horse - 1 Hemingways 43 - Emnotweni 75 1 Mykonos - 3 Caledon 52 - 1 847 30 29

  30. Slide 30: Western Cape Metropole

     Western Cape Metropole ● Sun International launched court action to set aside the decision of the Western Cape Government to allow relocation of an outlying casino to the metropole ● The group launched court action to Curtesy Google compel the Western Cape Government to allow the relocation ● Sett

  31. Slide 31: Monte Circle and Monte Place

     Monte Circle and Monte Place ● Buildings A and B have been completed (Tsogo Sun commitment R29m and R23m respectively) ● Construction of building C commenced in February 2017 (Tsogo Sun commitment R44m) ● Additional phases will be rolled out as tenanting proceeds 31

  32. Slide 32: Tsogo Sun Hotels

    TSOGO SUN HOTELS

  33. Slide 33: Hotel Operations

    HOTEL OPERATIONS HOSPITALITY EUROPE PROPERTY FUND 33

  34. Slide 34: Hotel Operations

    HOTEL OPERATIONS HOSPITALITY EUROPE PROPERTY FUND 34

  35. Slide 35: Group operated hotel portfolio

    GROUP OPERATED HOTEL PORTFOLIO Luxury MALIA Full Service Select Service Budget) eee \ eel © SouthernSun BEVERLY HILLS y. ; 4 ©) Southern Sun PALAZZO SQUARE “ r 4 , / d > SANDTON SUN ‘sunt | CeBoutt CROWNE PLAZA —— | Y stayeasy 4 a Inn WHCORST J ~~ J Q INTERCONTINENTAL. \nseseneeenatD © TSOGO SUN 35

  36. Slide 36: Hotel portfolio and owned statistics

    Hotels Rooms Owned Managed Luxury 6 1 105 410 695  Portfolio as at 30 September 2017 Full Service 25 5 386 5 386 -  Owned includes leased hotels Select Service 27 5 079 4 563 516 and associates Budget 22 1 741 1 741 -  Excludes hotels managed by 3rd Timeshare & Resorts 6 992 138 854 parties: Sout

  37. Slide 37: South African hotel trading

     Occupancy increased 1.1pp to 64.0% on the prior period  Average room rate reduced by 2% on the prior period  The majority of the portfolio has been refurbished and is in very good condition 37

  38. Slide 38: Water security projects: Westin and Waterfront

     Westin, SS Cullinan and SS Waterfront (R3.5m) ● Reverse osmosis plant to make brackish water pumped from Westin basement (1.2m l/d) potable ● Anticipated completion - February 2018  Radisson Waterfront, SE Century City and Protea Victoria Junction (R2.1m) ● Boreholes and reverse osmosis ● Anticip

  39. Slide 39: Water security projects: Cape Town hotels

     SS Newlands, Cape Sun, SunSquare City Bowl (R4.1m) ● Boreholes and reverse osmosis ● Anticipated completion 8 – 12 weeks  Sun 1 Parrow, Sun1 Milnerton, Sun 1 Foreshore (R900k) ● Additional storage tanks  SunSquare Gardens, GC Nelson Boulevard ● No action 39

  40. Slide 40: Offshore hotels trading

     Offshore hotels trading remains under pressure with occupancies down 0.8pp on the prior year to 53.8% ● Remains impacted by weaker corporate markets attributable to the negative impact of commodity prices  Forex gain for H1 F’18 R2m (H1 F’17 R57m loss) on cash and monetary items 40

  41. Slide 41: StayEasy Maputo and SS Nairobi

     StayEasy Maputo ● Capital cost of 125 key hotel US$16.2m ● 50 year land lease on a shopping development at zero cost ● Construction commenced in April 2017 and expected opening in Q2 2018  SS Nairobi ● Existing lease terminates November 2020 ● Landlord has agreed to a 12.5% reduction in rent unti

  42. Slide 42: Expansion in existing territories

     Expansion in the territories the group already operates in ● Management agreements for a 150 key Southern Sun in Accra, Ghana, and a 128 key Garden Court in Kitwe Zambia concluded ● Construction has commenced on Garden Court Freedom Park Kitwe Zambia both hotels with expected opening dates during

  43. Slide 43: Hospitality Property Fund

    HOTEL OPERATIONS HOSPITALITY EUROPE PROPERTY FUND 43

  44. Slide 44: HPF group structure

    HPF — GROUP STRUCTURE Y Public HOTELS 59.2% | 40.8% a HOTEL PROPERTY OWNER Leases TENANT/ HOTEL PROPERTY OWNER HOTEL OPERATOR 44

  45. Slide 45: Luxury, Upscale, Midscale, Economy

    Luxury Upscale Midscale Economy 45

  46. Slide 46: HPF portfolio and statistics

    Hotels Rooms  Portfolio as at 30 September Luxury 3 749 2017 Upscale 12 3 227 Midscale 19 3 519 Budget 19 1 508 Total 53 9 003 Statistics H1 F’18 H1 F’17 % Change  On a like-for-like basis for the six Occupancy (%) 61.4 61.2 0.2pp month period ended 30 September Average room rate (R) 990 990 - 201

  47. Slide 47: HPF statutory vs Tsogo Sun group

    HPF Tsogo Sun Statutory Group Rooms revenue - 454 Food & beverage revenue - 119 Other revenue - 22 Rental income 314 155 3rd party 152 152 Tsogo Sun 162 3 Overheads (26) (437) Hotel trading related - (411) HPF central (26) (26) Ebitdar 288 313 Depreciation on owner occupied properties - (31) Finance

  48. Slide 48: Second Tsogo Sun transaction and rights issue

     2nd Tsogo Sun transaction ● HPF acquired 29 hotels (3 771 rooms) from TSH effective 1 July 2017 ● Purchase consideration of R3.6bn was settled R2.6bn in shares and R1.0bn in cash  Rights Issue ● Rights Issue of R1.0bn undertaken in July/August at market price of R14.00 ● Underwritten by TSH  TSH

  49. Slide 49: Sandton Eye and reduced funding costs

     Sandton Eye ● Acquired various additional sections and exclusive use over Sectional Title Scheme (Radisson Blu Gautrain) in Sandton Eye, including real right of expansion by ± 10 000 bulk square metres or additional 7 floors ● Aggregate purchase consideration of R302m : R271m in cash and R31m in s

  50. Slide 50: Hospitality Europe

    HOTEL OPERATIONS HOSPITALITY EUROPE PROPERTY FUND 50

  51. Slide 51: UK hotel management company

     Private company  TSH owns 25% plus board and committee representation  Manages 67 hotels in the UK ● includes new contract for the Best Western Beamish House management of 26 hotels from 27 September 2017  Manages under multi brands including Crowne Plaza, Holiday Inn, Holiday Inn Express, Best

  52. Slide 52: International Hotel Properties

     TSH owns 25.9% plus board representation  Delisting in progress and Redefine International will own 74.1%  TSH intends to increase stake to 50%  Currently has GBP115m (R2.1bn) in hotel assets Hampton by Hilton Gatwick ● 4 Travel Lodges – leased to Travel Lodge ● 4 Holiday Inn Express hotels (Du

  53. Slide 53: Lat)

    Y) _ U Lat) a Ww © a a Lat) 4 — _ — Daler

  54. Slide 54: Group outlook

     Group ● Strong cash generation ● Growth opportunities will be pursued if compelling but debt levels higher ● Upside potential from any economic recovery is significant ● Focus on driving revenue and cost control remain to protect margins ● REIT structure aims to enhance shareholder value and being

  55. Slide 55: Gaming outlook

     Gaming ● Gaming win growth – medium term outlook uncertain  Need consumers to get wealthier and, more importantly, feel wealthier  Regulatory issues remain a threat ● Western Cape metropole ● Mpumalanga fourth casino licence ● Complete development activity  Suncoast is the final major project 5

  56. Slide 56: Hotels outlook

     Hotels ● Occupancy and rate still under pressure until transient Corporate demand recovers ● Focus on customer satisfaction, brand awareness, distribution through channels and Web and yield enhancement ● Opportunistic in SA – land bank, acquire leases, new builds and acquisitions ● Continued pursu

  57. Slide 57: Thank you

    O)ieree) SUN es os | THANK YOU

Tsogo Sun Holdings — Investor Presentation (November 2017) on 6ix