Layoffs, pay cuts and shutdowns as major South African hotels count R1.7 billion in losses

 ·29 May 2020

South African hotel and gaming group Tsogo Sun has recorded R1.7 billion in exceptional losses for the full year ended March 2020, after a nationwide Covid-19 lockdown led to a near-complete closure of its hotels.

Earnings before interest, taxation, depreciation, amortisation and restructuring and re-evaluations (Ebitdar) was down 9% from the prior year, to R1.35 billion. The drop in Ebitdar was due to a decline in demand over the the course of the year, which was exacerbated in the fourth quarter by the Covid-19 pandemic, Tsogo Sun said.

Total income for the year of R4.5 billion (2019: R4.4 billion) was 2% above the prior year with a 2% growth in hotel rooms’ revenue and a 7% growth in food and beverage revenue, offset by a 7% reduction in property rental income and a 7% reduction in other income.

However, exceptional losses for the year of R1.7 billion (2019: R581 million) were recorded, mainly due to:

  • Fair value losses on the revaluation of externally managed investment properties in of R888 million (2019: R445 million);
  • Property, plant and equipment impairments of hotels in South Africa and offshore totalling R716 million (2019: R94 million);
  • Restructuring costs of R40 million (2019: R8 million) which includes the termination benefits of R8 million for the closure of Southern Sun Nairobi and retrenchment costs relating to the unbundling; and
  • The impairment of the group’s investment in RBH Hotels UK Limited of R17 million (2019: Rnil).

The group reported a total loss of R1.225 billion for the period, down from a small profit of R46 million in 2019.

Tsogo Sun said that the majority of the exceptional impairments are due to management’s assessment of the negative impact of Covid-19 on forecast cash flows generated by the underlying hotels for the financial years ending March 2021 and March 2022 – as well as volatility in the bond market, and increases in-country risk assessments.

In South Africa in particular, the risk posed by the Covid-19 pandemic was compounded by the ratings downgrade, it said. The group’s portfolio consists of hotel brands such as Southern Sun, Sandton Sun, Intercontinental, Garden Court and Holiday Inn, among others.

“Covid-19 had a marked impact on the group’s fourth quarter trading with international demand retracting as early as the last week of February 2020.

“The initial international travel regulations imposed by the President on 15 March 2020 and finally, the total ban on inter-provincial travel announced on 23 March 2020 as part of the nationwide lockdown resulted in a material reduction in revenues for the month of March, which is normally a peak activity month for the group,” it said.

The group’s entire portfolio in South Africa, Africa and the Seychelles has been deactivated with the exception of those hotels designated as quarantine facilities or as accommodation for essential service providers and persons awaiting repatriation.

No final dividend was declared, to preserve cash.


Tsogo Sun said it is reducing its payroll burden by temporarily laying off employees, and materially reducing pay across the board for all levels – including management and board members.

It is operating on skeleton staff until demand returns, and it is also halting all employee recruitment and training, and deferring salary increases and bonuses.

The group said it has also applied for the UIF TERS grant, pension and medical aid fund contribution holidays, and a SARS skills development levy payment holiday and PAYE payment deferral.

“Management is currently formulating a plan for the phased reopening of its portfolio,” Tsogo Sun said.

The first phase is to resume operations under lockdown level 3. It is not yet clear how this will proceed, however government has indicated that the hospitality sector will be able to open up for business travellers under level 3. This is still to be elaborated on.

The second phase of Tsogo Sun’s plan is to resume operations based on anticipated demand in the future – however, the group noted that hotels reliant on international inbound travel and groups and conferencing are not expected to be reactivated for an extended period of time.

“While the group supports government’s efforts to safeguard the health of citizens, the prolonged lockdown has had and will continue to have a devastating impact on the South African economy in general and the southern African travel and tourism industry and its employees in particular.

“No industry can survive extended periods without revenue. We welcome the recent announcement by president Ramaphosa of the move to level 3 and appeal to government to continue to open the economy as quickly as possible, with due regard for safety,” it said.

Read: South Africa’s level 3 lockdown – what you need to know, including the times you can buy alcohol

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