Southern Sun opts to withhold dividend despite rebound
Hotel group Southern Sun has decided against paying a dividend despite returning to profit, saying trading and occupancies need to stabilise and it remains wary of the impact of power cuts.
“The directors considered it prudent to retain cash resources to ensure that the group can meet its obligations until trading and occupancies normalise, and the threat of increased loadshedding during winter subsides,” the company said in its results for the year to endMarch.
As SA’s energy crisis continues, Eskom warned last week of the likelihood of higher stages of load-shedding this winter, with stages 7 and 8 on the cards, as the forecast of a colder winter is expected to trigger greater demand for heating.
Over the past year, Southern Sun, which is valued at R6.43bn on the JSE, spent R41m on diesel for generators, four times more than in the previous financial year. It also spent more on maintenance linked to power outages.
“While not specifically tracked, the group has also seen consistent increases in repairs and maintenance, some of which would relate to generator and other equipment faults caused by load-shedding,” the group, formerly known as Tsogo Sun Hotels, said.
Repairs and maintenance costs rose 54.4% to R159m, it said. Still, profit for the year was R741m, a reversal of last year’s R156m loss, while profit including discontinued operations was R1.01bn.
The results were a stark turnaround from the Covid-19 pandemic lockdowns when few people travelled and occupancy plummeted to 12% for the full 2021 financial year. The positive news on increased travel may have lifted competitor City Lodge’s share price, which closed 5.27% higher at R4.99.
The average occupancy rate at its hotels jumped 20.9 percentage points to 51.5%, but that is still below the 59.3% in its 2020 financial year, before the onset of the pandemic. As a result, room revenue more than doubled to R3.26bn and the group reported a further uptick in occupancies in April and May of the new financial year.
PANDEMIC
Local and international travel patterns returning to normal as the pandemic subsided also led to a return in demand for conferencing and events.
“All regions performed well and exceeded the 2020 financial year (pre-Covid) levels except the Sandton node, reflecting the delayed recovery in corporate transient travel exacerbated by many companies in the node still operating a hybrid remote-working model,” Southern Sun said.
It said growth in what it earned per room was due to demand for its luxury properties that had higher room rates such as The Westin Cape Town, Arabella Hotel, Golf & Spa and Mount Grace Hotel & Spa.
“Luxury hotel guests have proven more resilient to prevailing economic pressures such as inflation and rising interest rates, being influenced more by location and personal preference rather than price,” it said.
But the company warned that despite improved trading, it remained “heavily” exposed to SA’s weak economic growth, high unemployment, the lack of policy certainty and the persisting power crisis.
“The continuous load-shedding has a detrimental impact on consumer and corporate sentiment,” it said.
The group’s debt has also vastly improved from the pandemic when it had to have a rights issue in 2022 to raise R1.2bn. Its debt totalled R1.3bn, which is R1.5bn less than the year before when it was R2.8bn. It has also renegotiated financing facilities and loan terms at banks, it said.
The group owns more than 90 hotels with more than 16,000 rooms. These include the StayEasy hotels, Southern Sun Resorts, Sun1, Sandton Sun, Garden Court and Beverly Hills, as well as the Sandton Convention Centre.