Southern Sun holds firm as SA strength offsets offshore losses and rising costs

Key topics:Domestic portfolio delivers 8% growth, with Western Cape and Sandton leading gains.Offshore operations slump, posting an Ebitdar loss after Paradise Sun’s closure.Higher utility and IT costs squeeze margins; capex-heavy refurbishments hit cash flow.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..BizNews Reporter.Southern Sun delivered a resilient performance in the first half of the 2026 financial year, achieving a 5% increase in total income, which rose to R3.1 billion (2024: R3.0 billion). This growth was driven almost entirely by strong domestic trading, although the results were weighed down by significant cost pressures and a sharp deterioration in offshore operations.The Good: Strong domestic trading and financial disciplineThe core strength of the group lies in its South African portfolio, where operations grew 8% to R3.0 billion. South African hotels saw positive movement in key metrics, with occupancy rising to 60.6% (2024: 59.4%) and the average room rate (ARR) increasing by 6% to R1,369. This helped lift rooms revenue in South Africa to R2.0 billion. Overall South African Ebitdar (Earnings before interest, income tax, depreciation, amortisation, rent, and related IFRS 16 rental adjustments) underscored the domestic portfolio's strength, increasing by 6% to R827 million (2024: R783 million).Several key domestic regions demonstrated powerful growth:Western Cape saw revenue grow 9% to R939 million and Ebitdar surge 14% to R317 million, benefiting from foreign inbound travel and large-scale events like the G20 and international sporting fixtures. This region now contributes 39% to the group’s total Ebitdar.Sandton Consortium revenue increased 16% to R368 million, with Ebitdar rising to R111 million, supported by strong conferencing demand and the reopening of Sandton Towers following refurbishment.The "Other" segment (including Mpumalanga and Eastern Cape) also performed well, with Ebitdar increasing by 18% to R103 million.On the financial front, the group showcased improved balance sheet management. Net finance costs declined significantly to R91 million (2024: R115 million), aided by lower debt levels and improved cash management. A key objective—reducing US Dollar-denominated debt—was achieved post-period end (31 October 2025) with the settlement of a USD24.7 million loan, which will be replaced by a Rand-denominated facility. The group also successfully refinanced its debt package into two-year revolving credit facilities, reducing Rand-denominated capacity to R1.5 billion, thereby lowering commitment fees.Looking ahead, October 2025 delivered group-wide occupancy of 73.3% and revenue growth of 18%, resulting in a 27% increase in Ebitdar, surpassing World Cup levels achieved in June 2010. The group is focused on expansion opportunities, particularly in the Western Cape and KwaZulu-Natal (Umhlanga), and is committed to progressing refurbishments to capture demand.The Bad: Offshore collapse and margin squeezeThe group's overall performance was negatively impacted by offshore operations and higher-than-anticipated operating expenses.The offshore segment was the "primary drag on performance". Offshore revenue fell steeply by 29% to R147 million, resulting in an Ebitdar loss of R9 million, a significant reversal from the R39 million profit posted in the prior period. The largest contributor to this decline was the temporary closure of Paradise Sun for refurbishment, which accounted for a R74 million reduction in revenue and R43 million reduction in Ebitdar. Trading also remained weak in Maputo, citing ongoing political unrest, and Tanzania. Consequently, group Ebitdar declined slightly to R818 million (2024: R822 million), and the group margin decreased from 28% to 26%.In South Africa, despite overall growth, certain regional segments saw Ebitdar declines due to rising costs:Gauteng Ebitdar dropped 6% to R219 million, primarily due to cost overruns from water outages and disruptions at Birchwood Hotel & OR Tambo Conference Centre.KwaZulu-Natal Ebitdar also declined 2% to R118 million, impacted by elevated utility costs and event-related overheads.General operating expenses rose 7%, driven by higher-than-expected cost pressures. This included an 11% (R32 million) rise in utility costs due to electricity tariff hikes and water outages, and a 23% (R10 million) increase in IT costs linked to SAP S/4 HANA upgrade licensing fees.Finally, free cash flow was significantly reduced to R52 million (2024: R154 million), mainly attributed to increased capital expenditure of R370 million spent on major refurbishment projects across multiple properties. Adjusted headline earnings per share (AHEPS) remained relatively stable, declining slightly to 24.9 cents (2024: 25.0 cents)..Read the results in full by downloading the PDF below

Southern Sun holds firm as SA strength offsets offshore losses and rising costs

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