Annual review

The year under review has been a record one for Southern Sun’s profitability, with total income growth of 19%, Ebitdar growth of 32% and Adjusted HEPS growth of 88% to 56.4 cents per share. In addition to buying back just under 10% of the shares in issue in the last year, the group announced the declaration of a maiden dividend of 12.5 cents per share.

Free cash flow of R970 million has been applied to the share buybacks of R617 million as well as expansion capex of R180 million during the financial year, and the balance to the reduction of net debt to R1.0 billion, resulting in a comfortable leverage ratio of 0.7 times Ebitda.

This performance is anchored firstly, through the strict maintenance of the cost efficiencies achieved through the complete restructuring of the group during the Covid-19 period and secondly, through the significant exposure of the owned portfolio of hotels to the Western Cape and particularly the City of Cape Town, which has enjoyed a strong tourism, business travel and event-related year.

Aided by more normalised demand from local and international travellers and strong demand for conferencing and events, group occupancy at 58.6% for the year ended 31 March 2024, has increased by 7.1 percentage points (pp) compared to 51.5% in the prior year but is still 0.7pp below the 59.3% achieved for 31 March 2020, being pre-Covid-19.

This shortfall in occupancy largely relates to hotels in individual nodes, in South Africa and offshore, which have not yet fully recovered but are showing signs of improvement and present a focus area for management.

The group’s rooms revenue growth of 23% to R4.1 billion (2023: R3.3 billion) has been supported by ARR growth which has increased by 9% (pre-frequentGuest adjustment) for the year ended 31 March 2024, compared to the prior year and by an encouraging 27% compared to the 2020 financial year.

Similarly, food and beverage revenue is up 15% to R1.5 billion (2023: R1.3 billion), property rental income has grown by 17% to R229 million (2023: R195 million) and other revenue has increased by 15% to R308 million (2023: R268 million excluding the once-off payment of R399 million (R313 million after tax) received from Tsogo Sun Limited (TS) on implementation of the Separation agreement on 30 September 2022 (Separation Payment)).

Overall, the group’s operating costs for the year ended 31 March 2024 have increased by 14%. Main contributors to this increase being variable costs in line with the increased levels of trading. The increase in employee costs is attributable to above inflationary salary increases implemented on 1 April 2023 as well as increased rostering of OSS in response to higher trading levels. As a consequence of load shedding, R48 million (2023: R41 million) has been spent on diesel over the year, a 17% increase on the prior year. Property rates have increased by 1% to R162 million (2023: R160 million) for the year. The group continues to investigate options to reduce its energy costs.

The group generated Ebitdar of R1.9 billion (2023: R1.4 billion), a 32% increase on the prior year and equating to an Ebitdar margin of 31% compared to 28% (if the Separation Payment is excluded from total revenue) for the year ended 31 March 2023 and exceeds the Ebitdar margin achieved for the 2020 financial year of 30%; despite the consolidation of hotels previously accounted for as investment properties that generated rental income at an Ebitdar margin of 100% at that time.

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