Tsogo Sun looks to igaming amid Covid-19 struggles

South African gaming and entertainment business Tsogo Sun Gaming said it lost an estimated ZAR400m (£18.9m/€21.0m/$23.9m) in revenue as a result of the novel coronavirus (Covid-19) pandemic disrupting operations in its fiscal year ended 31 March, 2020.

The crisis has prompted the business to look beyond land-based gaming into new channels, with chief executive Chris du Toit revealing the business is at an “advanced stage” of moving into online sports betting.

Online gaming was therefore a “natural progression” for the buisness, du Toit added.

For the year ended 31 March, revenue grew marginally, rising 1% year-on-year to ZAR11.69bn, with a 5% rise in the first half of the year to ZAR5.0bn partially offset by a 3% decline in the second half.

Gaming revenue accounted for the majority of revenue in the year, rising 0.3% to ZAR9.85bn, of which casino contributed ZAR7.3bn, down 3% year-on-year. This broke down into ZAR5.5bn from slots, with the remaining ZAR1.8bn coming from table games.

Tsogo Sun’s Galaxy Bingo hall chain, on the other hand, saw revenue grow 10% to ZAR856m, while revenue from limited payout machines hosted in its VSlots network was up 7% to ZAR1.7bn.

Revenue from hotel rooms remained flat at ZAR490m, as did food and beverage revenue at ZAR647m, while the operator received a ZAR110m dividend from its 20% stake in Sun International’s Western Cape casinos. Other revenue amounted to ZAR593m, up 4% year-on-year.

The operator said Covid-19 began to affect the business from 15 March, before which trading had been solid. From that date, capacity at its venues was limited, before all properties were closed by 25 March to slow transmission of the virus. The impact of Covid-19 on revenue was estimated to be around ZAR400m for the year, Tsogo Sun added.

However, the pandemic weighed heaviest on earnings, through a ZAR2.0bn impairment charge as a result of the closures, and amortisation and depreciation expenses rising to ZAR881m.

Gaming levies and value added tax for the year rose marginally to ZAR2.1bn, with property expenses declining to ZAR176m. Employee costs also fell, to ZAR2.2bn, while other operating expenses climbed to ZAR3.2bn and the business realised a ZAR81bn charge related to fair value changes of property.

The impairment charges caused by Covid-19 therefore significantly cut operating profit, which fell 67% to ZAR1.0bn. After financial items, Tsogo Sun swung to a pre-tax loss of ZAR205m, which increased to ZAR287m after income tax.

However, the business then recorded a ZAR564m profit from discontinued operations, for a net profit of ZAR277m for the year, down from ZAR1.6bn in the prior year.

Looking ahead, Tsogo Sun said Covid-19 had continued to cause “devastation” of the business. Since the year end on 31 March, it claimed to have lost an estimated ZAR2bn in revenue, with debt increasing to ZAR12bn.

This, du Toit said, meant the business needed to resume operations “as a matter of urgency” to avoid further losses.

“The business is ready, with a robust strategy of enhanced hygiene and safety measures to enable a seamless re-opening to our loyal customers,” he said.

Once this happens, the operator said it was confident that it could return to profitability rapidly, by reducing cost structure, with a more efficient casino business a particular focus.

Much of this return to growth will be driven by technology, Tsogo Sun continued. Du Toit said it would step up efforts to leverage smartphone penetration to allow for better interactions with customers, as well as through offering its products via these devices.

“We are also in an advanced stage of entering the online betting industry which is a separate segment of the market,” he explained.

Furthermore, online casino would then be a “natural progression”.

“[If] done responsibly on licensee level, [this] can protect the substantial investment and jobs created by casinos,” Tsogo Sun said.

The Galaxy Bingo business, meanwhile, would continue its expansion into other markets, and generates ZAR1bn annually when operating at full capacity, and the LPM division, including the VSlots halls, was on a strong growth curve.

In related news, Tsogo Sun has appointed Annelize Hoyer as chief financial officer, effective 1 August. Hoyer has more than 10 years’ experience in the casino industry, the operator said, and would play a “vital role” in helping the business recover from Covid-19.

“The focus during the lockdown has been primarily to eliminate variable operating costs as quickly as possible, reduce fixed costs and cancel non-essential and uncommitted capital expenditure in order to restrict the increase in net debt during the period the businesses is prevented from trading,” Hoyer said.

“There are many challenges that await me in my new role as CFO during these difficult times, but we are confident that the measures that have been, and are still to be implemented, will provide a long-term reduction in our cost base, without limiting future performance.”