We measure our creation of shareholder value throgh the increase in adjusted headline earnings per share and the generation of free cash, our efficiency through Ebitdar margin and our financial risk through our net debt:Ebitdar ratio and unutilised net facilities. The transactions concluded during the year have resulted in a step change in our gearing levels.

Overview

This report should be read in conjunction with the summarised consolidated financial statements and the consolidated financial statements available separately on our website which set out the financial position, results and cash flows for the group for the financial year ended 31 March 2015.

Commentary on the organic growth during the year is included in the segmental operational performance in the Organic growth section.

Commentary on inorganic growth is included in the Inorganic growth section.

Commentary on net interest-bearing debt and interest rate and currency risk management is included in the financial strength and durability section.

Income statement comparison for the year ended

	31 March		31 March
	2015		2014		% change
	Rm		Rm		on 2014
Income	11 343		10 767		5
Gaming win	6 976		6 819		2
Revenue
Rooms	2 453		2 221		10
Food and beverage	1 203		1 063		13
Other	711		664		7
Ebitdar	4 223		4 214		–
Gaming	3 265		3 266(1)		–
Hotels – South Africa	830		752(1)		10
– Offshore	137		153		(10)
Foreign exchange (losses)/gains	(21)		33		*
Corporate	12		10		*
Ebitdar margin	37.2%		39.1%		(1.9pp)
Long-term incentives	(95)		(150)		37
Property rentals	(210)		(221)		5
Amortisation and depreciation	(733)		(648)		(13)
Exceptional items	(143)		(73)		(96)
Finance costs (net)	(681)		(373)		(83)
Associates and joint ventures	25		–		*
Income tax	(680)		(776)		12
Non-controlling interests	(34)		(96)		65
Attributable earnings	1 672		1 877		(11)
Adjustments	103		61		*
Adjusted headline earnings	1 775		1 938		(8)
Weighted number of shares in issue (m)	1 014		1 098		8
Adjusted HEPS (cents)	175.0		176.5		(1)

(1)	Restated 2014 comparatives due to the transfer of the StayEasy Century City hotel from the gaming division to the South African hotels division.
*	Variance not meaningful

Trading performance

Trading during the financial year reflected continued pressure on the consumer due to the macro-economic environment and weak consumer sentiment. Limited organic year-on-year growth was achieved in both casino and hotel revenues. Trading results were impacted by a variety of mergers and acquisitions and development projects including the acquisition of hotel businesses from Liberty, and the acquisition in the prior year of a stake in Southern Sun Ikoyi, offset by the closure of Southern Sun Maputo and Garden Court De Waal for refurbishment and the sale of Garden Court Sandton. In addition, the year saw the impact of the post-election and fiscal austerity consequences on government travel in South Africa, the impact of the Ebola pandemic on hotel occupancies mainly outside South Africa and foreign exchange losses in the current year versus gains in the prior year.

Total income for the year of R11.3 billion ended 5% above the prior year with a 2% growth in gaming win assisted by a 10% growth in hotel rooms revenue and a 13% growth in food and beverage revenue.

Operating expenses including gaming levies and VAT and employee costs but excluding property rentals, exceptional items and long-term incentives increased by 9% on the prior year mainly due to non-organic growth in the business and increased offshore overheads as a result of the weakening of the Rand against both the US Dollar and the Euro offset by savings initiatives

Ebitdar at R4.2 billion for the year was unchanged from the prior year. The overall group Ebitdar margin of 37.2% is 1.9pp down on the prior year.

Long-term incentives

The long-term incentive expense at R95 million is R55 million below the prior year charge and reflects the effect of the increased Tsogo Sun share price (including dividend adjustments) at 31 March 2015. The share price increased from R27.00 to R27.60 during the 2015 financial year (2015: R24.75 – R27.00). Refer to the remuneration report for further detail.

Rentals, amortisation and depreciation

Property rentals at R210 million are 5% down on the prior year mainly due to the acquisition of the Garden Court Kings Beach property and the sale of Garden Court Sandton offset by contractual increases and straight-line lease provision adjustments.

Amortisation and depreciation at R733 million is 13% up on the prior year due mainly to the capital spend during the year, the inclusion of Southern Sun Ikoyi for 12 months and the hotels acquired by Cullinan not in the prior year.

Exceptional items and adjustments

Exceptional losses for the year of R143 million relate mainly to the IFRS 2 Share-based Payment charge on the executive facility amounting to R118 million, pre-opening costs of R19 million during the closure period of the hotels closed for refurbishment, property, plant and equipment and loan impairments of R17 million, a marketing fee income write off of R16 million (refer associates and joint ventures below) and transaction and restructure costs of R11 million offset by the gain recognised on the change in other long-term employee benefits of R38 million. Exceptional losses for the prior year of R73 million relate mainly to property, plant and equipment and loan impairments, fair value adjustment to the value of a previously held interest in an associate and transaction and retrenchments costs on the restructure of various departments in the business offset by a lease termination recovery. Refer to the table in the Supplementary information section.

Net finance costs

Net finance costs of R681 million are 83% above the prior year due to the increase in debt and reduction in net cash, to fund the growth strategy and the share buy-back offset by an adjustment to the Cullinan put option of R8 million.

Share of profits of associates and joint ventures

The share of profit of associates and joint ventures of R25 million improved by R25 million on the prior year mainly due to earnings from the Redefine BDL acquisition and the group’s share of a joint venture’s marketing fee reversal of R20 million (refer exceptional items and adjustments above).

Taxation

The effective tax rate for the year at 28.8% is impacted by non-deductible expenditure such as casino building depreciation and non-deductible foreign exchange losses offset by the tax holiday at Southern Sun Ikoyi. The comparative effective tax rate of 28.2% is impacted by similar items.

Non-controlling interests

Profit attributable to non-controlling interests of R34 million is 65% below the prior year mainly due to the acquisition of the additional 10% of Suncoast, 15% of Garden Route Casino and 49% of the Pivot office development and reduced profits at Southern Sun Ikoyi, Southern Sun Maputo, Cullinan and Hemingways Casino offset by the Southern Sun Ikoyi acquisition in the prior year.

Earnings

Group adjusted headline earnings for the year ended 31 March 2015 at R1.8 billion are 8% below the prior year. The adjustments include the reversal of the post-tax impacts of the exceptional losses noted above in addition to the reversal of the remeasurement of the Cullinan put option in net finance costs and the joint venture’s marketing fee reversal. The number of shares in issue decreased due to the buy-back of 133.6 million ordinary shares on 28 August 2014 and the resultant adjusted headline earnings per share is 1% down on the prior period at 175.0 cents per share.

Cash flow

	31 March	31 March
	2015	2014	% change
	Rm	Rm	on 2014
Cash generated from operations	3 866	3 764	3
Dividends received	7	3
Net interest paid	(715)	(376)
Income tax paid	(537)	(756)
Operating equipment	(61)	(41)
Maintenance capital expenditure	(749)	(769)
Free cash flow	1 811	1 825	(1)
Dividends paid	(947)	(897)
Investment activities	(2 045)	(1 643)
Share buy-back	(3 019)	–
Other	25	53
Increase in net interest-bearing debt	(4 175)	(662)

Cash generated from operations for the year improved by 3% on the prior year at R3.9 billion. Free cash for the year decreased by 1% to R1.8 billion due mainly to increased finance costs paid net of reduced taxation payments. Cash flows utilised for investment activities of R2.9 billion, including the acquisition of non-controlling interests, consisted mainly of maintenance capital expenditure and the acquisitions and investments described under the inorganic growth section.

Balance sheet derivative financial instruments

The group entered into a call option over Liberty’s 40% shareholding in Cullinan and Liberty has a corresponding put option, both exercisable at the fair values of the shares. A financial liability for the put option of R493 million and a corresponding debit to transactions with non-controlling interests was recognised. The non-current liability, included in derivative financial instruments, has been remeasured to R485 million at the year end with the decrease of R8 million recognised in finance costs.

Dividends

A final gross cash dividend of 60.0 cents per share in respect of the company’s 2015 year end was declared and the dividend was paid on 15 June 2015. The number of ordinary shares in issue was 957 388 870 (excluding treasury shares). The dividend was subject to a local dividend withholding tax rate of 15% which resulted in a net dividend of 51.0 cents per share to those shareholders who were not exempt from paying dividend tax. The company’s tax reference number is 9250039717.

The total dividends declared in respect of the 2015 financial year amounted to 89.0 cents per share which is flat on the 2014 financial year and which equates to 50% of fully diluted adjusted HEPS.

Subsequent events

There are no matters or circumstances arising since 31 March 2015, not otherwise dealt with in the financial statements, that would materially affect the operations or results of the group.

Looking ahead

Trading is expected to remain under pressure due to the macro- economic environment and weak consumer sentiment.

RB Huddy

Chief Financial Officer

20 August 2015