Financial strength and durability

The group is highly cash generative but it is important to ensure that the capital structure of the group is appropriate to ensure that the business survives through economic cycles.

The group believes that the relative resilience of its financial performance throughout the global economic downturn can be attributed in part to the general stability of its gaming income. Demand for the type of gaming-related services the group offers is sensitive to decreases in discretionary consumer spending but, because of its relatively high disposable income levels, the group’s core customer base has largely maintained its spending on gaming activities through the adverse macro-economic conditions of recent years. In addition, the group’s gaming business is largely unaffected by seasonality. The group believes that these factors are a significant strength of its business that alleviates the volatility usually inherent in operating in emerging markets.

Macro-economic conditions will vary in cycles. This is particularly relevant in the hotel industry, which is regularly in a state of under or over supply. In order to be able to withstand the impacts of these cycles, the group aims to ensure that debt is used prudently, with careful monitoring of the net debt to Ebitdar ratio.

In addition, the group ensures availability of sufficient credit facilities with long-term maturities, providing additional liquidity in the event of deterioration in economic conditions.

Key performance indicators

	2015	2014
Net debt to Ebitdar	2.2 times	1.1 times
Unutilised net facilities (including available cash on hand)	R4.8 billion	R3.4 billion
Weighted average expiry of debt facilities (excluding permanent revolving credit facilities)	58 months	39 months
Net debt hedged through fixed interest rate swaps	61%	67%

2015 performance

Net interest-bearing debt

Interest-bearing debt net of cash at 31 March 2015 totalled R9.2 billion, which is R4.8 billion above the 31 March 2014 balance of R4.4 billion, with R947 million paid in dividends to group and non-controlling shareholders in addition to the investment activities of R5.8 billion during the year.

For more detail on the group’s borrowings and cash position refer to notes 28 and 31 of the annual financial statements.

During the year, an additional R5.7 billion in term loans were negotiated and the tenures on the majority of existing facilities were extended to June 2020 and June 2021. Net debt to Ebitdar as at 31 March 2015 was 2.2 times with unutilised net facilities (including available cash on hand) of R4.8 billion. The weighted average number of months to expiry of the debt facilities (excluding 364-day revolving credit facilities) was 58 months.

Interest rate and currency risk management

The group has hedged a significant proportion of debt facilities to maturity to lock in the current historically low interest rate environment. In order to limit income statement volatility, the group does not normally enter into speculative hedges. As at 31 March 2015, 61% of net debt was hedged through fixed interest rate swaps and other fixed rate instruments. The weighted average effective interest rate for the year was 9.1% (2014: 7.7%).

Debt at year end is either Rand or US Dollar denominated, dependent on the nature of the cash flows in the underlying operations, with offshore cash held approximately 50% in US Dollar, 20% in Euro and 20% in Naira with limited other local currency deposits.

Looking ahead

The extent and tenure of the existing funding facilities were impacted by the share buy-back which was concluded during the year and the anticipated acquisition of the 40% equity interest in each of SunWest International Proprietary Limited and Worcester Casino Proprietary Limited which has subsequently been cancelled.

The facility pricing with the group’s existing consortium of banks remains competitive, however, the capital structure is being assessed, including the possibility of a Reit, to reduce the cost of funding.

In the event of an increase in the level of debt, further future dated interest rate swaps will be concluded. In the case of a significant spike in interest rates the group would be protected until March 2021 and could restrict investment to ensure debt levels would not cause financial distress.