Load shedding takes its toll on even more businesses in South Africa
Southern Sun and Tsogo Sun say that maintenance costs associated with load shedding are hurting their finances.
The two companies split following an unbundling in 2019; as per the agreement, Southern Sun will focus on hotels while Tsogo Sun manages casinos.
Although several companies have acknowledged the high cost of diesel required to run generators, Southern Sun and Tsogo Sun said that the maintenance costs associated with generators are having an adverse effect on their financials.
In its reviewed condensed consolidated financial statements for the year ended 31 March 2023, Southern Sun said that it spent R41 million on diesel in Financial Year 2023 (FY23), a significant increase from the R10 million in FY22 and the R11 million in FY20.
It said that it also saw consistent increases in repairs and maintenance, which could be linked to generators and other equipment faults due to load shedding.
Overall repairs and maintenance costs in FY2023 jumped 54.4% to R159 million in FY23 from R103 million in FY22.
In its financial statements for the year ended 31 March 2023, Tsogo Sun said that it was also faced with unprecedented levels of load shedding, with high fuel prices expected to continue hurting the company in the short term.
The group said that it was concerned whether its generators could sustain the workload as load shedding worsens this winter.
It said that it has taken preventative maintenance to protect its casinos and has ordered generators with a combined cost of roughly R30 million.
It said that these preventative measures will be able to stop a complete shutdown in the event of equipment failure.
Tsogo Sun’s casinos will also implement green energy solutions, with a 4.3MW solar installation at Montecasino expected to be completed by July 2023.
It will also expand the size of its existing solar plants at the Silverstar and Garden Route casinos, while a 1.5MW solar complex is planned for Gold Reef City, which should be completed by the end of 2023.
Financials
Southern Sun that trading levels continued to recover following the normalisation of local and international travel patterns after the pandemic, with demand for conferencing and events also increasing.
Despite the group’s Santon node reflecting a delayed recovery from transient corporate travel worsened by the hybrid work model, all regions performed well.
The group’s adjusted headline profit from continuing operations grew to R431 million in FY23, up from a R132 million loss in FY22.
However, the group’s directors decided to retain all cash resources so that the group can meet its obligations until occupancies normalise, as load shedding is set to worsen this winter.
Thus, the group’s directors decided not to declare a cash dividend.
However, Tsogo Sun decided to up its cash dividend for the full financial year to 57 cents per share – a 200% increase from the 19 cents per share for FY22.
Although the group saw remuneration and diesel costs increase over the year, it said that it generated positive net cash from operations following effective cash management.
Overall, headline earnings grew to R1.6 billion, up from R1.2 billion from the prior year.
However, it said that if the R289 million cost for cancelling hotel management contracts and the R57 million paid regarding credit hedge ineffectiveness were excluded, adjusted headline earnings reached R1.8 billion.
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