South Africa’s Gold Reef Resorts today published reviewed financial results for the year ended 31 December 2009. Last month the company announced that after three years Tsogo Sun and Gold Reef have put aside their differences and agreed to a R21 billion merger. The new entity, to be listed on the JSE, will become the 36th largest group on the stock exchange and become one of the world’s larger gaming and leisure groups, with 14 casinos across SA and 90 hotels across Africa and the Middle East.

According to the commentary on its financial results, Gold Reef says that trading conditions in 2009 were challenging with the recession in South Africa impacting on the consumer’s disposable income and access to credit and fuelling uncertainties about the future of the job market. Notwithstanding this, Gold Reef produced a solid set of results with increases in revenue and EBITDAR as well as market share gains in all but one province. Both Group revenue and EBITDAR increased by 1% to R2.2 billion and R897 million respectively.

The Company continued to focus on its controllable cost base, most notably employee costs which increased by only 4% and was achieved by headcount reductions through natural attrition. As a result of these cost controls, the Company was able to maintain the EBITDAR margin achieved in 2008, producing an EBITDAR margin of 40.3%. Following recent significant investments in the Group’s properties, either in regard to recently opened casinos or extensive refurbishments at existing properties, depreciation and amortisation increased 15% to R185 million. The increase in other operating expenses of 3% to R336 million was impacted by repairs and maintenance and utility costs which increased by 27% to R85 million.

Total Gross Gaming Revenue (GGR) in Gauteng contracted by 1% compared to growth of 8% in 2008 and double digit growth in prior years, clearly reflecting the current subdued consumer environment. The Company’s market share in Gauteng however increased from 24.5% to 25.1%, due mainly to Silverstar Casino’s market share growth. The economic recession impacted on the Western Cape market more than any other province in which Gold Reef operates. The tourism and property sectors in particular were adversely affected and GGR in the province fell by 6% from the previous year.

In the Free State, revenues improved slightly at Goldfields Casino during the year, increasing by 1% to R119 million. Trading at Queens Casino in the Eastern Cape improved notably during 2009 with revenues up 11% to R51 million. The casino also increased its market share slightly in challenging trading conditions which saw GGR in the Eastern Cape fall by 2%.

Difficult trading conditions are expected to continue into 2010. Currently there are limited indications of recovery with consumers still feeling the effects of last year’s recession. Gold Reef has a high quality asset portfolio, low gearing and strong cash flows and the company is well positioned to benefit from improvements in the economy as they arise. However, expectations are that the recovery will be slow and growth will be moderate during 2010. The proposed merger with Tsogo Sun creates a company of significant scale and diversification across geographies and markets. The Merged Entity will look to capitalise on new growth opportunities as a larger and stronger Company. (E-03.29.10)

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