Southern Sun - Integrated Annual Report 2022

2022 Integrated annual report

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Left: John Copelyn | Non-Executive Chairman
Right: Marcel von Aulock | Chief Executive Officer
Joint statement
from the Chairman and Chief Executive Officer

The focus of the year ended 31 March 2022 has been on strengthening the financial position of the group and on continuing with the measures necessary to protect cash reserves and ensure the group’s sustainability as the Covid-19 pandemic persisted.

Download full statement

Throughout the pandemic, KwaZulu-Natal has been the group’s best-performing region due to its appeal to the domestic leisure market thanks to its proximity and ease of accessibility from Gauteng, as well as the region’s ability to provide accommodation along with conferencing facilities to government departments and sporting bodies needing to travel during the pandemic in order to function. This status was put to the test during 2022 with government implementing inter-provincial travel restrictions to curb the spread of the highly contagious Delta variant. An already difficult trading environment was worsened by the violent protests and civil unrest in Gauteng and, most materially for the group, in KwaZulu-Natal. Having barely recovered from the rioting and looting, heavy rainfall in the province during April 2022 caused extensive flooding and landslides.

The group suffered minimal damage to its properties following the riots and flooding in KwaZulu-Natal and while room sales did decline during these periods, the long-term damage to infrastructure is what is of most concern. We have worked closely with the eThekwini municipality to assist with the removal of debris and beach clean-up programmes and we are grateful that beaches in the region have safely re-opened as this will improve the perception of KwaZulu-Natal with travellers ahead of the summer season.

Encouragingly, trading levels, while still below our long-term averages and pre-Covid-19 levels, have shown continued improvement across all regions in South Africa as well as operational hotels offshore, and the group has generated positive free cash (after finance costs, tax and maintenance capex) since October 2021. Improved activity levels across all segments (including leisure, government, corporates and groups and conferencing) in conjunction with the substantial cost restructuring undertaken over the last two years, have contributed to this positive outcome, and we believe that we have transitioned from survival to a steady recovery.

The one area where we have not seen the same improvement in activity levels is from the transient traveller – a guest from a small business travelling to provide their service. We believe that this is a function of the depressed local economy and many of these businesses did not withstand the impact of Covid-19.

So while we are pleased by the recent upward trend in trading and anticipate a return to normalised travel patterns, we acknowledge that it will take time for the economy to recover and it requires policy certainty from government and solutions to the country’s ongoing energy crisis. We will continue to manage cash flow and liquidity closely as the country faces rising food and fuel prices and increasing interest rates which not only affect the group, but also our guests. With travel budgets reduced to save costs and individuals preserving disposable income in a rising interest rate environment, the increasing cost of transport due to rising fuel prices is a travel deterrent, particularly for international and corporate travel.

As we prepare this report, South Africa has withstood the fifth wave of Covid-19 infections with minimal negative impact on the group, and the country has seen the subsequent lifting of all remaining Covid-19 protocols by Health Minister, Joe Phaahla. We welcome this development and consider it to be a significant milestone in the group’s recovery from the devastating impact of the pandemic.
A promising development in the new financial year has been that key hospitality events are back on the calendar, including the Mining Indaba held in Cape Town as well as the Africa Travel Indaba held in Durban, both in early May 2022. While the attendance volumes were around 75% of pre-Covid-19 levels and, as a result, there was less opportunity to yield rates, we are encouraged that international guests are increasingly comfortable to travel to South Africa as this could signal a much better summer season in Cape Town for the 2023 financial year than what was experienced in the 2022 financial year when the Omicron variant and South Africa’s subsequent placement on the UK’s red list effectively eliminated foreign in-bound travel to the region.

Having successfully hosted the Castle Lager Lions Series tour to South Africa in July 2021, the group continues to benefit from sporting events post year end including the recently concluded Welsh rugby tour to South Africa enjoyed by spectators across the country. In addition, the Rugby World Cup Sevens tournament will be hosted in Cape Town in September 2022 and while this is a short three-day event, it does create excitement among South Africans and increases the country’s visibility to international markets – with rising global inflation and the weakness of the Rand, South Africa is an affordable and attractive travel destination for foreign guests. Thanks to the group’s distribution and ability to coordinate large sporting events, SA Rugby has renewed its long-standing partnership with Southern Sun for another five years, extending the group’s association with SA Rugby and the Springboks to three decades.