Tsogo Sun isn’t objecting against Marula switch to Pretoria – eyes the prize of a Cape Town casino

Gambling in South Africa has come a long way since people had to head off to Bophuthatswana to get their game on. Today, the country is home to a number of glamorous entertainment and gambling palaces like Montecasino, Sun City, Grand West, and more. As the industry has developed, competition in the sector has heated up, and things look like they’re about to step up another notch as Sun International is set to open a casino in Pretoria, putting it into closer competition with Tsogo Sun’s Fourways-based Montecasino. However, Tsogo Sun CEO Marcel von Aulock doesn’t seem worried. Instead, he is looking ahead to the company’s plans to open a new casino in the Western Cape (a region dominated by Sun International), and focusing on Tsogo’s aggressive expansion plans for the rest of Africa. – FD

To watch this CNBC Power Lunch video click hereMarcel von Aulock - Tsogo Sun

GUGULETHU MFUPHI:  Today, Tsogo Sun reported a 20 percent rise in first-half profit, helped by an acquisition that offset the slow revenue from gambling and leisure travel.  Marcel von Aulock, Chief Executive of Tsogo Sun joins us now.  Marcel, looking at your numbers very briefly, I saw that you were investing quite heavily in your South African operations, both in KZN as well as the Western Cape and even up here in Gauteng – rather aggressive on that front.  How come?

MARCEL VON AULOCK:  Well, we have a growth strategy and we’ve been putting a lot of money into, both the hotel and gambling business.  You have to build these things for the long term, so you have a bit of a volatile trading environment at the moment.  We were pretty happy with the nine percent up in revenue, but to roll out the capacity that we’ve been given for in Gauteng for example, is going to take two or three years.  You can’t wait for the economy to turn and then start building, so we’ve been chasing that quite aggressively – we have many building projects on the go.  In this particular period, we obviously had the acquisition of the Ikoyi Hotel in Nigeria.  It was a big one for us.  It was 700 million rand.  We started in Maputo – a 300 million rand project, and we’ve been investing locally. Our  maintenance CapEx is running at about 400 million.

ALEC HOGG:   Is the Africa strategy then on track?

MARCEL VON AULOCK:  It is on track.  Africa makes up about 25 percent of our hotel earnings.  Hotel earnings make up about 20/25 percent of the group earnings.  Obviously, gaming in SA is still the big number producer.  Nigeria is a good acquisition for us: it’s a hotel that we’ve run for five years, for a third party owner.  We bought it and now we own it for our own account, so it’s pretty much on track for us.

GUGULETHU MFUPHI:  How is the trading environment there in Nigeria?  It’s not an easy one for South African companies to do well in.

MARCEL VON AULOCK:  Yes, that’s why we’ve been there for five years, so we were very comfortable with it.  Our whole strategy in Africa is to try to invest where we already are and bulk up our operations.  Maputo is another example: we’re building 110 rooms onto an existing hotel that we’ve had for ten years, and that de-risks your investment quite a lot.

ALEC HOGG:  Which hotel is that?

MARCEL VON AULOCK:  Southern Sun Maputo.

ALEC HOGG:  Okay, it’s a big story as you say.  If one has a look at this group, it’s the gaming income in South Africa, which means to a large degree in Gauteng, there’s a potential challenge coming with Sun International moving from Marula into Pretoria.  How will that affect you, what are your numbers telling you, and are you objecting?

MARCEL VON AULOCK:  No, we haven’t objected to it.  We don’t see much of an issue with it.  It might impact us a little at Montecasino in Silver Star, but we have about 53-odd percent of the Gauteng market.  Casinos are very localised in their markets.  Pretoria is a little bit un-serviced, so it is caught up by the others, but we don’t see it as a massive risk.  We think it will affect the East Rand Mall because of the way the road network works into the prison side.  We also think relocation…we’re quite keen on the Western Cape, so we’re not going to shoot ourselves in the foot there.

ALEC HOGG:  Is that on the cards – the Western Cape?

MARCEL VON AULOCK:  The Western Cape Provincial Government has said they want to have a second casino in the Metropole.  They have a limited number of licenses, so the only way you can do that is to move one of the smaller ones in.  They seem to be dilly-dallying with the process, but I think it will come through at some stage.

ALEC HOGG:  GrandWest is the jewel in the Sun International crown.

MARCEL VON AULOCK:   It’s the only one in the Metropole and we think there’s scope for a second one there.

ALEC HOGG:  What about the management changes that has happened in the past six months?

MARCEL VON AULOCK:  We looked at our internal structures.  It’s easy to just go in and cut down newspapers and throw out the bottled water etcetera, but we looked at the whole structure and said ‘is this as efficient as it can be?’  We have good revenue growth in SA, but it’s not shooting the lights out as it was in the heydays, so you need to watch your cost continuously.  We had a review – internally – of how the management structures work and out of that we eliminated five executives, and it’s not fun.

ALEC HOGG:  ‘Eliminated’.  It seems as though they were there one day and the next day they were gone.

MARCEL VON AULOCK:  It was an agreed process and very professionally handled by them, too.  They’re not idiots.  They looked at it, understood it, and they said ‘this is a more efficient structure’.  The classic approach of firing the tea lady and the waiter – it doesn’t really save you costs.  You have to look at all the costs – right the way through

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