Tsogo Sun : Reviewed Financial Results for the year ended 31 March 2024

REVIEWED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2024

	Year	Year	Change
	ended	ended	on
	31 March	31 March	prior
	2024	2023	year
	Rm	Rm	%
Income	11 503	11 318	2
Operating costs	(7 602)	(7 352)	(3)
Adjusted EBITDA*	3 901	3 966	(2)
Adjusted EBITDA margin	33.9%	35.0%	(1.1)pp
Net finance cost (excluding leases)	(732)	(655)	(12)
Headline earnings	1 761	1 592	11
Adjusted headline earnings (AHE)	1 721	1 824	(6)
Adjusted EBITDA to AHE conversion rate	44.1%	46.0%	(1.9)pp
Dividend per share - interim (cents)	30	30	-
Dividend per share - final (cents)	40	57	(30)
Capex cash flow	(771)	(569)	(36)
NIBD and guarantees	(7 672)	(8 047)	5

• Adjusted EBITDA is defined by the group as earnings before interest, tax, depreciation and amortisation ("EBITDA") and excludes the effects of items which are regarded as unusual and are infrequent and are considered to distort the numbers if they were not adjusted, and headline adjustments in terms of Circular 1/2023 Headline Earnings

Tsogo Sun Limited (Previously Tsogo Sun Gaming Limited)

(Incorporated in the Republic of South Africa) (Registration number 1989/002108/06) Share code: TSG  ISIN: ZAE000273116 JSE Alpha code: TSGI

("Tsogo Sun" or "the company" or "the group")

www.tsogosun.com

Six months comparison

for the year ended 31 March 2024

	Six months	Six months	Year
	ended	ended	ended
	30 September	31 March	31 March
	2023	2024	2024
	Rm	Rm	Rm
Income	5 855	5 648	11 503
Operating costs	(3 885)	(3 717)	(7 602)
Adjusted EBITDA*	1 970	1 931	3 901
Adjusted EBITDA margin	33.6%	34.2%	33.9%
Net finance cost (excluding leases)	(370)	(362)	(732)
Headline earnings	895	866	1 761
Adjusted headline earnings (AHE)	895	826	1 721
Adjusted EBITDA to AHE conversion rate	45.4%	42.8%	44.1%
Dividend per share - interim (cents)	30	-	30
Dividend per share - final (cents)	-	40	40
Capex cash flow	(472)	(299)	(771)
NIBD and guarantees	(8 175)	(7 672)	(7 672)

*  Adjusted EBITDA is defined by the group as earnings before interest, tax, depreciation and amortisation ("EBITDA") and excludes the effects of items which are regarded as unusual and are infrequent and are considered to distort the numbers if they were not adjusted, and headline adjustments in terms of Circular 1/2023 Headline Earnings

2 Tsogo Sun

Reviewed condensed consolidated financial statements for the year ended 31 March

2024

Commentary

REVIEW OF OPERATIONS

Debt and covenants

R7.67 bn		1.99 times
NIBD		Net debt:
(March 2023:		Adjusted
R8.05 bn)		EBITDA

The group's net interest-bearing debt and guarantees at 31 March 2024 reduced to R7.67 billion from R8.05 billion at 31 March 2023.

The net debt to adjusted EBITDA ratio, as measured for covenant purposes, for the 31 March 2024 year end, amounted to a 1.99 times multiple. The group's debt covenant ratio requirement is less than a 3.0 times multiple.

The group's medium-term debt leverage target remains lower than a 1.8 times multiple, thereby decreasing risk and funding costs.

The lower debt level was achieved notwithstanding cash outflows of R1.45 billion relating to:

• Capex payments for generators and solar of approximately R130 million;
• Emerald Resort and Casino upgrade investment of R76 million;
• Share buy-backs of R88 million at an average share price of approximately R12.44;
• Ordinary dividend payments of R908 million; and
• Various other transactions concluded during the year with a net cash outflow totalling approximately R248 million.

The group's medium-term note and loan profile is as follows (all debt comprises notes except for the amount due on 30 November 2026, which is a term loan):

Maturity date	Amount
Rm
28 February 2026	1 620
30 November 2026	650
28 February 2027	1 000
31 May 2027	1 000
31 August 2027	900
31 May 2028	550
31 August 2028	200
31 August 2029	400
	6 320

In addition to the funding set out above, the group has a revolving credit facility ("RCF") of R1.50 billion, all of which was drawn down at 31 March 2024, which can be called up on 13 months'notice. R300 million of the RCF is scheduled to be repaid on 31 May 2024 out of cash generated. This facility arrangement remains in place until November 2025. To strengthen liquidity, the group also has access to overnight loan facilities of R1.00 billion, which are 364-day notice facilities. The pricing of the debt pool and facilities as noted above, is lower than pre-COVID-19, which illustrates the lenders' confidence in the group.

Tsogo Sun

Reviewed condensed consolidated financial statements for the year ended 31 March

2024 3

Commentary continued

Financial

	R3.90 bn				R1.76 bn				R0.1 bn
	Adjusted				Headline				Cost of
	EBITDA				earnings				diesel

Total income of R11.50 billion was generated for the year ended 31 March 2024 and adjusted EBITDA amounted to R3.90 billion. The cost of diesel and the adverse effect on income due to load shedding continued to negatively impact the group's results.

An adjusted EBITDA margin of 34% was achieved for the year (35% for the prior year). If the cost of diesel and impact of the costs for the expansion and improvement of the business for the future are excluded, the margin would have exceeded 35%.

Net finance costs (excluding IFRS 16 lease interest and hedge reclassifications to profit or loss) for the year amounted to R732 million, a significant increase from the R655 million for the prior year, mainly as a result of the higher Jibar rate (Johannesburg Interbank Average Rate). The reduction of net interest-bearing debt achieved by the year end and thereafter, should assist in reducing finance costs.

Interest rate swaps with a notional amount of R3.50 billion are expiring on 31 May 2024, which will result in higher finance costs whilst the Jibar rate remains higher than the swap rate.

Headline earnings achieved for the year amounted to R1.76 billion compared to the R1.59 billion reported for the prior year. Excluding the hedge reclassifications to profit or loss in the year under review and the prior year, and the cost of the termination of the hotel management contracts in the prior year, the adjusted headline earnings would be R1.72 billion and R1.82 billion for the current and prior years respectively.

On comparing the results for the year to those of the prior year, the following should be noted:

• Revenue growth in general is under pressure in a market with limited discretionary spend and customer behaviour changes since the pandemic;
• Retirement fund employer contributions increased from 1 May 2023;
• Advertising and marketing costs have increased, partly owing to the development of the new Tsogo Sun app and the Tsogo Rewards programme;
• Insurance cover has become more expensive;
• The cost of diesel and other consequential losses suffered as a result of load shedding, eroded margins;

• The benefit of solar energy installations has not yet been sufficient to contra the negative impact of the continued higher than inflation increases in electricity cost;

• Continued effort will be required to control general inflationary pressure whilst revenue growth is under pressure;
• Finance costs increased, necessitating a need for further reduction of net interest-bearing debt; and
• Strong positive net cash was generated by operations, positioning the group in a solid financial position for future growth projects.

4 Tsogo Sun

Reviewed condensed consolidated financial statements for the year ended 31 March

2024

Commentary continued

Casinos

As expected, the continued impact of load shedding, high fuel and food prices and increased interest rates, resulted in income remaining under pressure during the year.

Gauteng delivered relatively solid results notwithstanding the tough trading conditions.

KwaZulu-Natal and the Western Cape achieved fairly stable revenue, but with some cost pressures resulting in marginally lower adjusted EBITDA.

The other casinos located in Emalahleni and Mbombela (both in Mpumalanga), Welkom (Free State) and East London (Eastern Cape) experienced a challenging year resulting in a R50 million reduction of adjusted EBITDA. This is a result of lower income and two years of exponential cost increases due to higher inflation. The business models of certain of these properties are being re-evaluated to improve efficiency as the market conditions are different than prior to the pandemic.

The casino precincts have continued with the implementation of green energy solutions. As part of this project, the Montecasino, Silverstar, Garden Route and Gold Reef City casino solar plant installations have been completed. Most of these were only completed in the second half of the financial year and are limited to generating power for daytime usage. The Montecasino and Gold Reef City solar plants have been planned to be expanded in the 2025 financial year to generate a larger portion of daytime utilisation. New solar projects are anticipated to be completed by February 2025 (the last month to make use of the enhanced renewable incentive for businesses, in terms of the income tax act) at several other casino precincts.

The Emerald Resort and Casino ("Emerald") upgrade project has been expedited, which will negatively affect short- term income and profit because of the concomitant disruption to operations. Amongst others, the Privé section of the casino and almost a hundred chalets have been upgraded. Refurbishments to the main casino floor and the hotel are expected to be completed by the end of the 2025 financial year. The entertainment and events areas are also planned to be improved, but this may be delayed until the 2026 financial year. The group remains optimistic regarding the potential of Emerald.

Substantial investments planned for the Western Cape by the group will contribute considerably to the tourism attraction of both the Helderberg and Overberg regions. These will include a new, uniquely green, casino and hotel precinct development in Somerset West and upgrades to the remaining Caledon site, including the hotel, spa, thermal hot water springs, conference facilities, the old stables and an alternative gaming offering. However, the self-serving objections to these initiatives by other industry players continues, which will delay the significant benefits which will be achieved. The Somerset West and Strand areas have been deprived of their own upmarket, secure and safe entertainment facilities for over a decade since the expiry of the exclusivity period for a single casino in the Cape Metropole.

Tsogo Sun

Reviewed condensed consolidated financial statements for the year ended 31 March

2024 5

Commentary continued

Hotels

The in-house management of the hotels is running smoothly with record results for the group's portfolio of hotels for the financial year. The saving of historical management fees and central cost charges has yielded the most significant positive impact.

There are a number of opportunities being explored by the group to expand or improve the hotel offering. These opportunities will, however, be affected by excess cash prioritisation constraints and take time to implement and, therefore, no significant change to the hotel offering is expected during the new financial year. The group currently holds almost 12% (if treasury shares are excluded) of City Lodge Group.

Other income and entertainment

Food and beverage revenue and tenanting income delivered double digit growth for the year.

The Gold Reef City Theme Park continues to deliver exceptional results with strong revenue and profit growth. Upgrades to the food and beverage and other facilities in the park were completed during the year.

Bingo

Galaxy Bingo's trading continued to be negatively impacted by load shedding, particularly in shopping centre nodes that endure darkness for extended hours during the evenings. Customer behaviour changes as a result hereof, do not seem to reverse when there are short periods of relief in load shedding such as in April 2024. As reported in the previous year, margins in this division have remained strained due to the resultant lower income earned, salary and property rental cost increases, high costs of diesel and generator maintenance.

Limited Payout Machines ("LPMs")

With the negative impact of load shedding and the general adverse trading conditions, LPM's results declined marginally when compared to the prior year, with income declining by 1% and adjusted EBITDA by 4%. Even though slightly lower, the division did well to protect margins during the year.

DIGITAL, ONLINE AND TECHNOLOGY

Developments within the digital, online and technology space are continuing. The improved Tsogo Sun app and Tsogo Rewards programme, with extensive interactive functionalities for improved customer experience, remain a priority for the business.

Casino, hotel, entertainment and playTSOGO guests can now earn and spend reward points at an expanded range of facilities across casino precincts. Tsogo Rewards programme customers also receive significant discounts on various product offerings.

Improvements to and expansion of the online betting business, including a more vast product offering and reinvestment for growth whilst remaining largely self-funded, will be key focus areas for the 2025 financial year.

Income generated from online betting has grown to approximately R200 million for the 2024 financial year and this was achieved with a marginal positive adjusted EBITDA for the year. Following the 2024 financial year end, the online betting business generated approximately R21 million income and R3 million adjusted EBITDA for the month of April 2024.

6 Tsogo Sun

Reviewed condensed consolidated financial statements for the year ended 31 March

2024

Commentary continued

CAPITAL EXPENDITURE, ACQUISITIONS AND TRANSACTIONS

Capital expenditure cash outflow for the year amounted to R771 million (including capital creditors from the prior year).

This capital investment includes the investment in green energy projects, including solar plant installations of approximately R100 million, generator cash outflow of almost R30 million, and improvement capex for Emerald of R76 million. Sufficient additional generator capacity was completed during the year. Similar investments in solar solutions and the Emerald upgrade project will continue throughout the next financial year.

Maintenance capex has settled at around the R600 million mark, and was impacted by inflationary increases and foreign exchange fluctuations in certain areas.

Net acquisition and investment costs amounted to approximately R248 million in cash outflows, predominantly relating to an acquisition of a bingo licence, an increase in an undivided share in investment property, Bet.co.za and City Lodge Hotels.

REGULATORY

A higher tax burden for land-based casinos remains a risk.

The introduction of various forms of"terminals"is likely to be the next possible roll out of more betting and gambling in the near future. In addition, some regulators are continuing to issue more gambling licences in markets which are already saturated.

DIVIDEND

The board of directors has resolved to declare a final gross cash dividend of 40.0 (forty) cents per share in respect of the year ended 31 March 2024 from distributable reserves. The dividend will be paid in cash to shareholders recorded in the register of the company at close of business Friday, 26 July 2024. The number of ordinary shares in issue at the date of this declaration is 1 042 596 816. The dividend will be subject to a local dividend tax rate of 20%, which will result in a net dividend of 32.00000 (thirty-two) cents per share to those shareholders who are not exempt from paying dividend tax. The company's income tax reference number is 9250039717.

Salient dates are as follows:
Last date to trade cum dividend	Tuesday, 23 July 2024
Trading ex-dividend commences	Wednesday, 24 July 2024
Record date	Friday, 26 July 2024
Payment date	Monday, 29 July 2024

Share certificates may not be dematerialised or re-materialised from Wednesday, 24 July 2024 to Friday, 26 July 2024, both days inclusive.

Tsogo Sun

Reviewed condensed consolidated financial statements for the year ended 31 March

2024 7

Commentary continued

PROSPECTS

The setbacks of load shedding and high inflation for the past two years, which have negatively affected income and cost saving measures previously implemented, necessitates the group to evaluate cost in some of its business units to improve efficiencies in the current trading circumstances.

Good progress is being made with the substantial investment in solar energy projects which will continue throughout the 2025 financial year.

The increase in net finance costs for the year affected headline earnings negatively. With firmly managed capital cash allocation, the group's effort to further reduce its debt levels to achieve its medium-term target, being a multiple which is lower than a 1.8 times net debt to adjusted EBITDA ratio, as measured for covenant purposes, will continue, as is illustrated with the reduction of debt scheduled for 31 May 2024.

Upgrading Emerald will take approximately another year and a half and the group remains positive that this resort will yield appropriate results and a more sustainable business under an experienced management team.

The group is ready to invest and contribute to the promotion of tourism in the Helderberg and Overberg regions, bringing with these developments significant benefits to the surrounding areas. For the reasons mentioned earlier, this project development is unlikely to gain significant traction in the 2025 financial year.

The online betting platforms, playTSOGO and Bet.co.za, provide exciting prospects for growth. The group is in the process of resolving the regulatory frustrations it has faced in this space, thereby enabling it to focus on expediting growth more aggressively in the second half of the 2025 financial year.

An exciting new era, with innovative interaction and experiences, has been initiated with the launch of technological advancements such as the Tsogo Sun app and Tsogo Rewards programme. The group plans to further improve these offerings.

Improvement of facilities at the existing casino precincts is continuously evaluated and effected. The LPM division has capacity for expansion and the Bingo division has the potential to rebound.

Share buy-backs will be considered when appropriate opportunities arise, over and above dividend pay outs to shareholders.

Overall, fundamentals are in place to continue to deliver fairly strong levels of headline earnings and cash generation and several exciting prospects are in process for future growth, although some of these are currently being frustrated by external parties.

The board extends its appreciation to management and employees for their efforts in the delivery of these results in difficult trading conditions.

JA Copelyn	CG du Toit	G Lunga
Chairperson	Chief Executive Officer	Chief Financial Officer
23 May 2024

8 Tsogo Sun

Reviewed condensed consolidated financial statements for the year ended 31 March

2024

Independent auditor's review report on condensed consolidated financial statements

TO THE SHAREHOLDERS OF TSOGO SUN LIMITED

We have reviewed the condensed consolidated financial statements of Tsogo Sun Limited included on pages 10 to 33, which comprise the condensed consolidated statement of financial position as at 31 March 2024 and the condensed consolidated statements of profit or loss, changes in equity and cash flows for the year then ended, and selected explanatory notes.

Directors' Responsibility for the Condensed Consolidated Financial Statements

The directors are responsible for the preparation and presentation of these condensed consolidated financial statements in accordance with the requirements of the JSE Limited Listings Requirements for condensed financial statements, as set out in note 1 to the financial statements, and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Listings Requirements require condensed consolidated financial statements to be prepared in accordance with the framework concepts and the measurement and recognition requirements of IFRS Accounting Standards as issued by the International Accounting Standards Board, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and also contain the information required by International Accounting Standard (IAS) 34, Interim Financial Reporting.

Auditor's Responsibility

Our responsibility is to express a conclusion on these financial statements. We conducted our review in accordance with International Standard on Review Engagements (ISRE) 2410, which applies to a review of historical information performed by the independent auditor of the entity. ISRE 2410 requires us to conclude whether anything has come to our attention that causes us to believe that the financial statements are not prepared in all material respects in accordance with the applicable financial reporting framework. This standard also requires us to comply with relevant ethical requirements.

A review of financial statements in accordance with ISRE 2410 is a limited assurance engagement. We perform procedures, primarily consisting of making inquiries of management and others within the entity, as appropriate, and applying analytical procedures, and evaluate the evidence obtained.

The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International Standards on Auditing. Accordingly, we do not express an audit opinion on these financial statements.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements of Tsogo Sun Limited for the year ended 31 March 2024 are not prepared, in all material respects, in accordance with the requirements of the JSE Limited Listings Requirements for condensed financial statements, as set out in note 1 to the financial statements, and the requirements of the Companies Act of South Africa.

Deloitte & Touche

Registered Auditor

Per: Cathryn Emslie

Partner

23 May 2024

5 Magwa Crescent

Waterfall City

Midrand South Africa

Tsogo Sun

Reviewed condensed consolidated financial statements for the year ended 31 March

2024 9

Condensed consolidated statement of profit or loss

for the year ended 31 March

		2024	2023
	Change	Reviewed	Audited
	%	Rm	Rm
Net gaming win		9 673	9 627
Food and beverage revenue		648	589
Rooms revenue		523	501
Other revenue		411	359
Other income		248	242
Income	2	11 503	11 318
Gaming levies and Value Added Tax		(2 126)	(2 115)
Employee costs		(1 863)	(1 836)
Other operating expenses		(3 606)	(3 318)
Cancellation of hotel management contracts		-	(399)
Amortisation and depreciation		(712)	(756)
Impairment of non-current assets (note 4)		(310)	(83)
Impairment reversal of non-current assets		-	198
Fair value adjustments of investment properties (note 5.1)		(5)	(17)
Operating profit	(4)	2 881	2 992
Finance income		44	60
Finance costs		(749)	(666)
Share of profit of associates		9	9
Profit before income tax	(9)	2 185	2 395
Income tax expense		(640)	(627)
Profit for the year	(13)	1 545	1 768
Profit attributable to:
Equity holders of the company		1 530	1 744
Non-controlling interests		15	24
		1 545	1 768
Basic and diluted earnings per share attributable to the
ordinary equity holders of the company (cents)	(12)	147	167

10 Tsogo Sun

Reviewed condensed consolidated financial statements for the year ended 31 March

2024