Tsogo Sun Gaming : Interim Financial Results for the six months ended 30 September 2021

CONDENSED UNAUDITED CONSOLIDATED

INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2021

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The group, however, still managed to achieve income of R3.8 billion (up 144% from the six months ended 30 September 2020, but still 36% below pre-Covid levels for the six months ended 30 September 2019) and adjusted EBITDA (after IFRS 16 adjustments) of R1.2 billion (up 723%, but still 35% below pre-Covid levels).

The headline earnings for the period amounted to R323 million, which is a great improvement from the R543 million headline loss reported for the prior year interim period. The various trading restrictions emanating as a result of the ongoing National State of Disaster, which included various curfews, alcohol bans, trading and capacity restrictions, and the total lockdown for the better part of July 2021 resulted in a R352 million reduction in headline earnings compared to the pre-Covid comparable six months ended 30 September 2019.

The EBITDA margin of 33% achieved for the September 2021 interim reporting period is in line with the pre-Covid September 2019 period, which is an exceptional achievement in a restricted environment.

Operating expenses

Management has continued to focus on cost reductions and operational efficiencies during the reporting period, resulting in a significantly reduced cost base. As the group gradually returns to a normal state (hopefully in the 2023 financial year) after continuous restrictions affecting the business over an extended period, certain expenses, some of which are beyond our control (such as utility costs), will continue to increase, offsetting some of the saving initiatives achieved. The visibility of where the operating cost base will finish when we return to a normalised trading environment, remains difficult to determine accurately at this point in time.

Casinos

In addition to the other restrictions imposed, losing between three to five hours of peak trading time daily for casinos as a result of the varying curfews negatively impacts the business and employees' livelihoods, and will continue to do so should further restrictions and/or lockdowns be imposed.

It is impossible to ascertain with certainty when gaming win will fully recover after all restrictions are finally lifted as predicted to happen sometime in the 2023 financial year, since the casinos have not had one full month of unrestricted trading for the past 20 months. However, during adjusted level 1 restrictive regulations with a 23:00 closing time, there were certainly some encouraging trading levels.

Commentary continued

Casinos continued

Other income streams, comprising mainly food and beverage, rooms, tenanting income and cinemas, remained under pressure during the period under review.

Developments within the digital and technology space are progressing to position the group to benefit in the long term.

Bingo

The violence and looting which took place in July 2021 resulted in the destruction and closure of two bingo sites in KwaZulu-Natal. These sites were only reopened in November 2021. The region's other bingo sites were also negatively impacted due to shopping centres in KwaZulu-Natal opting to close earlier than required in order to mitigate security threats.

The Bingo division completed the development of its flagship, state-of-the-art "The Marco Polo" site at Sandton City in Gauteng in November 2021. Even though the site is located on a mezzanine level, efficient operational support is expected from the new landlord which should support the profitability of the business.

Limited Pay Out Machines ("LPMs")

The LPM division achieved EBITDA of R236 million for the six months despite the restrictive regulations, including curfews and alcohol bans affecting restaurants and bars.

This division performs above pre-Covid levels in terms of gaming win when permitted to operate until 23:00 daily under adjusted level 1 restrictions.

Finance costs

Net fiinance costs (excluding leases) for the period amounted to R398 million, a significant decrease from the prior period reported of R477 million. Interest rate swap hedges amounting to R4.0 billion matured in June 2021, which resulted in an interest cost improvement. With effect from July 2021, R3.5 billion interest rate swap hedges remain in place.

CAPITAL EXPENDITURE, INVESTMENTS AND SALE OF ASSETS

Capital expenditure and investments of R83 million (excluding capital creditors paid during the period but capitalised in the prior financial year end of R30 million) for the period comprised bingo development projects, gaming machine purchases and unavoidable maintenance capex.

With the ongoing cash flow constraints, no major development projects are planned for the second half of the 2022 fiinancial year. Investment opportunities within the industry are continuously being evaluated. Non-core assets to the value of R58 million, comprising mainly surplus land, are held for sale and will be offloaded at acceptable prices.

Commentary continued

DEBT AND COVENANTS

The group achieved the financial covenant resets for the September 2021 period.

The next net leverage requirements are for the net debt to adjusted EBITDA ratio to be lower than 3.8 times, and for the adjusted EBITDA to cover interest by not less than 3 times for the rolling 12 months to December 2021. At the date of this report, the directors are not aware of any circumstances whereby the group should not be able to achieve these December 2021 covenant requirements.

Preliminary approval has been obtained from lenders for a reset of the net leverage covenant of 31 March 2022 to

3.6 times net debt to adjusted EBITDA, if required. This is subject to various additional deliverables by 28 February 2022, including a further reduction of net debt levels to lower than or equal to R9.7 billion and a first partial early repayment of at least R300 million of the three-year term loans and secured notes due in November 2022.

The group has done well to reduce net interest bearing debt and guarantees by R1.5 billion from R11.8 billion as at 30 September 2020 to R10.3 billion at 30 September 2021, notwithstanding the restrictive trading conditions.

The group's focus remains to reduce its medium to long-term debt levels, thereby reducing risk and funding costs.

REGULATORY

Notwithstanding that the group continues to provide significant economic and employment benefits to the provinces in which it operates, it is disappointing to note that various regulators continue to attempt to introduce even more regulatory hurdles for the gaming industry. This is whilst unregulated illegal gambling operations continue to thrive.

DIVIDENDS

The board of directors has not declared an interim dividend in respect of the six months ended 30 September 2021.

PROSPECTS

The country moved to adjusted alert level 2 lockdown on 13 September 2021 and to level 1 on 1 October 2021, resulting in the business gaining an extra hour of peak time trading with each adjustment. The prospects of the group can be best explained by reference to the September and October 2021 month performances, taking into account that the gaming businesses are still required to close at 23:00.

Commentary continued

PROSPECTS continued

Net gaming win achieved for the month of October 2021was the highest yet since Covid-19 was first detected in South Africa, although not yet reaching pre-Covid levels due to time and capacity constraints which are still in place.

The average performance for September and October was:

Net interest bearing debt and guarantees reduced further to R9.96 billion as at 31 October 2021, which is R0.97 billion lower than at the 31 March 2021 year end. The focus to further substantially reduce debt will continue.

The progress being made with the rollout of the Covid-19 vaccine is encouraging and it is hoped that this will assist in limiting the potential for a devastating fourth wave. If this can be achieved, the group is well positioned for an improved performance in the second half of the 2022 financial year. We look forward to the lifting of the National State of Disaster, hopefully during or before the 2023 financial year, so the group can once again trade at full capacity, to the benefit of all our stakeholders.