South Africa will regain status as top summer holiday destination, says Southern Sun CEO

By Xolisa Phillip
Posted on Thursday, 16 June 2022 12:03

Visitors are seen at the entrance of Gold Reef City and casino which is owned by Tsogo Sun, in Johannesburg
Visitors are seen at the entrance of Gold Reef City and casino which is owned by Tsogo Sun, in Johannesburg, South Africa, March 20, 2017. REUTERS/Siphiwe Sibeko

After a financial year of “devastating lows and encouraging highs” hotel and hospitality group Southern Sun has moved from “survival to a state of recovery”, says CEO Marcel von Aulock.

In May, Southern Sun published the group’s results for the year ended 31 March 2022, a period characterised by two distinct halves, according to Von Aulock.

“The first half, we were trading at 20% occupancy – we were losing money. We were struggling to keep our heads above water,” says Von Aulock.

“The second half of the year improved,” Von Aulock tells The Africa Report. “We had occupancy of around 40% – normal trade is in the mid-60s.”

“We saw a recovery that put us into a cash positive position. It [recovery] was countrywide –  with the exception of Sandton – and, to an extent, the Western Cape,” Von Aulock says.

Assuming there are no restrictions and we are not in some other funny [Covid-19] wave, I think we are going to have strong demand for South Africa

In March 2022, the group sold 231,587 rooms, marking the first month since February 2020 the company achieved more than 200,000 room sales in South Africa.

In addition to South Africa, Southern Sun’s footprint includes Mozambique, Zambia, Tanzania, Nigeria, and the Seychelles.

The hospitality group has a presence in all of South Africa’s nine provinces, where its dominant markets are the Western Cape, KwaZulu-Natal, and Gauteng.

The Western Cape relies on international travellers and key source markets are Germany, the UK, and the US. KwaZulu-Natal is sustained by domestic travellers while Gauteng, where Sandton is located, depends on corporate travellers.

The South African economy’s reopening, with the attendant relaxation of Covid-19 regulations, including the lifting of restrictions on interprovincial travel and a booze ban, and the country’s removal from an international red list, helped the group’s performance in the second half.

However, corporate travel has not recovered to pre-pandemic levels as evidenced by the Sandton precinct’s muted contribution to the group’s recovery, says Von Aulock.

“Sandton needs foreign business people. The headquarters of the big banks and insurance companies were slow to come back to the office,” Von Aulock says. “I think there’s going to be a long delay to get back to normalised travel. It [Sandton] is the weakest market out of all the provinces.”

In the year under review, the group rebranded from Tsogo Sun Hotels to Southern Sun, its founding name.

Survival mode

The Johannesburg Stock Exchange-listed company completed a two-year restructuring that resulted in the loss of 2,500 jobs.

“I think, at best, 500 of those [jobs] are coming back. The balance will be a permanent restructure,” Von Aulock says. “It’s hard on people.”

[The disposal] … allows us to raise a good amount of money and settle all our dollar debt

“[The restructuring] … started from my desk to every department – whether in a hotel or the support regions. Everything got questioned because we were in total survival mode,” Von Aulock says.

“We’ve come out more efficient, which is good in the long term. That means we’ll be more profitable, we’ll have better cash flows, and we’ll be able to grow, but in the medium term it is a job reduction. That [job count] is not going to come back,” says Von Aulock.

The group is also selling its Southern Sun Ikoyi hotel in Lagos, Nigeria, to Kasada Albatross Holding, a subsidiary of the Kasada Hospitality Fund, for a $30.4m consideration, the company announced at its results presentation in May.

The disposal is subject to the approval of the Federal Competition and Consumer Protection Commission in Nigeria. This transaction will reduce Southern Sun’s dollar-denominated debt and reorganise the group’s balance sheet.

“We had a lot of dollar debt on the balance sheet, but I am happy we came through without having to go back to our shareholders for money. That is value destructive. We didn’t have to do a rights issue. We sold certain assets and got a good price despite the Covid-19 world,” says Von Aulock.

“[The disposal] … allows us to raise a good amount of money and settle all our dollar debt, which is something we’ve wanted to do for a long time. We’ll be exiting Nigeria,” he says.

“Our balance sheet is in good condition,” Von Aulock says. “While it has been a traumatic two years, what has come out on the other side is a more sensible operating structure.”

In recovery

In the year ended 31 March 2022:

  • Total income amounted to R2.7bn ($168m), a R1.5bn improvement from the year ended 31 March 2021. Income received a R1bn and R462m boost from hotel rooms, as well as food and beverage, revenue respectively.
  • Interest-bearing debt totalled R2.8bn. That is R239m less than the R3.1bn balance in the year ended 31 March 2021.

As the South African economy picks up pace, “now we are going back to worrying about lack of growth, dysfunctional municipalities, cost pressure from inflation, and oversupply in the hotel industry”, says Von Aulock.

“I am positive about Mozambique,” Von Aulock says about the rest of Africa operations. “I like Zambia – it has had a slow recovery; I think we’ll be fine there. I am surprised it hasn’t bounced back stronger with the rally in commodity prices. Usually, when copper booms, Zambia booms.”

“We’ve got […] Garden Court in Kitwe, near the border with the Democratic Republic of the Congo, and it is trading superbly. It seems to be Lusaka that is the problem,” he says.

In Tanzania, “that market took strain when the previous president moved all government functions out of Dar es Salaam into a town [Dodoma] a couple of hours away”, says Von Aulock.

South Africa is nearing the end of its winter and preparing for its peak tourism season starting in September.

“Assuming there are no restrictions and we are not in some other funny [Covid-19] wave, I think we are going to have strong demand for South Africa,” says Von Aulock.

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