Tsogo Sun Gaming : Notice of Annual General Meeting – 2021

Contents

NOTICE OF ANNUAL GENERAL MEETING

TSOGO SUN GAMING NOTICE OF ANNUAL GENERAL MEETING 2021

Summarised consolidated financial statements

• BASIS OF PREPARATION

The summarised consolidated financial statements for the year ended 31 March 2021 have been prepared in accordance with the requirements of the JSE Limited Listings Requirements and the requirements of the Companies Act of South Africa applicable to summarised consolidated financial statements. The Listings Requirements require summarised consolidated financial statements to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by Financial Reporting Standards Council, and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. Chief Financial Officer, A Hoyer CA(SA), supervised the preparation of the summarised consolidated financial statements. The accounting policies applied in the preparation of the audited consolidated financial statements, from which the summarised consolidated financial statements were derived, are in terms of IFRS and are consistent with those applied in the previous consolidated financial statements as at 31 March 2020 unless otherwise noted below. The summarised consolidated financial statements should be read in conjunction with the annual financial statements for the year ended 31 March 2021 which were approved by the board on 30 July 2021 and are available online or can be requested from the Company Secretary. The summarised consolidated financial statements are extracted from audited information, but are not themselves audited.The unmodified audit report of PricewaterhouseCoopers Inc. ("PwC"), the independent auditors, on the consolidated financial statements for the year ended 31 March 2021, dated 30 July 2021, is included in the audited financial statements available online on the company's website.

• CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
• 1. New and amended standards adopted by the group
     The group adopted all the new, revised or amended accounting pronouncements as issued by the IASB which were effective for the group from 1 April 2020, the significant accounting pronouncement being the IFRS 16 Leases amendment. No other pronouncements had any material impact on the group.
  2. Amendment to IFRS 16 Leases
     As permitted by IFRS 16, the group early adopted the amendment with effect from 1 April 2020 retrospectively although there was no adjustment necessary to the opening balance of retained earnings at the same date. The International Accounting Standards Board issued amendments to IFRS 16 to simplify how lessees account for rent concessions. As a practical expedient, a lessee may elect not to assess whether a rent concession that meets specific conditions per the amendment is a lease modification. A lessee that makes this election shall account for any change in lease payments resulting from the rent concession the same way it would account for the change applying to IFRS 16 as if the change was not a lease modification. No such relief is provided for lessors. Lessors are required to assess whether rent concessions are lease modifications and, if so, account for them accordingly.
     The practical expedient in the amended standard applies only to rent concessions occurring as a direct consequence of the Covid-19 pandemic, and only if all of the following conditions are met:
  3. 1. the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;
     2. any reduction in lease payments affects only payments originally due on or before 30 June 2021; and
     3. there is no substantive change to other terms and conditions of the lease.

On 31 March 2021, the IASB published additional amendments which adjusted the period from 30 June 2021 to 30 June 2022 which the group will apply.

The group applied the practical expedient to all of its leases where it is a lessee and lease concessions were granted to the group retrospectively with effect from 1 April 2020. This had the effect of reducing lease liabilities for the reporting period ended 31 March 2021 and the group recognised negative variable lease payments in profit or loss, as shown below. All of the lease concessions granted to the group were by way of forgiveness of rentals. There were no deferments of lease rentals. Total lease concessions reducing lease liabilities and recognised in profit or loss:

1. Interest rate benchmark
   Interest Rate Benchmark Reform resulted in amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition
   and Measurement and IFRS 7 Financial Instruments: Disclosures issued by the IASB, and are effective for periods commencing on or after 1 January 2021. As at 31 March 2021, there were no changes to any of the interest rate benchmarks that the group is exposed to. The Financial Stability Board has initiated a fundamental review and reform of the major interest rate benchmarks used globally by financial market participants. This review seeks to replace existing interbank offered rates ("IBORs") with alternative risk-free rates ("ARRs") to improve market efficiency and mitigate systemic risk across financial markets. The South African Reserve Bank has indicated their intention to move away from JIBAR and to create an alternative reference rate for South Africa. This reform is at various stages globally, a suitable alternative for South Africa is only expected to be announced in a few years' time. Accordingly, there is uncertainty surrounding the timing and manner in which the transition would occur and how this would affect various financial instruments held by the group. The group will continue to assess the impact of interest rate benchmark reform as the revised benchmark rates are published.

Summarised consolidated financial statements continued

• STANDARDS ISSUED NOT YET EFFECTIVE

Other than as noted below, the group does not anticipate that any standards or amendments to existing standards that have been published and are mandatory for the group's accounting periods beginning on or after 1 April 2021 or later periods, which the group has not early adopted, would have a material impact on the group.

IFRS 17 Insurance

IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity's financial position, financial performance and cash flows.

The group is in the process of assessing the possible impact on the group's insurance cell captive arrangements of the application of IFRS 17.

IFRS 17 was issued in May 2017 and applies to annual reporting periods beginning on or after 1 January 2023. The impact of IFRS 17 is currently being assessed but is not known at this time.

• IMPAIRMENTS OF NON-CURRENT ASSETS

In terms of IAS 36 Impairment of Assets, the group tests for impairments in accordance with the group's accounting policy. The group makes estimates and assumptions concerning the future. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of non-current assets within the next financial year are discussed below. Impairments and impairment reversals of non-current assets are shown separately in the income statement.

• IMPAIRMENTS OF NON-CURRENT ASSETS continued

4.3 Goodwill continued

Impairment test for goodwill and casino licences (refer note 4.4 for casino licences)

Goodwill and casino licences are allocated and monitored based on the group's CGUs. The outbreak of Covid-19 in the prior year has significantly affected the South African economy and the gaming and hospitality industry. The closure of all the group's casino precincts during the lockdown and the uncertain economic outlook is having a material adverse effect on the group's operations and cash generations in the short to medium term. These factors are taken into account in the impairment testing of goodwill and intangibles, being mainly casino licences, most of which are indefinite lived.

Significant estimate: key assumptions used for value-in-use calculations

The recoverable amount of the CGUs is determined based on the higher of the fair value less cost of disposal and value-in-use. These calculations use management approved cash flow projections based on five-year forecasts. The expected capital cost spend in the CGUs is based on the historical experience of maintaining each property, taking into account current spend, limited to essential maintenance in order to preserve cash. Cash flows beyond the five-year period are extrapolated using the estimated long-term growth rate.

In light of the Covid-19 implications mentioned above, the key assumptions used for value-in-use calculations were reviewed at the reporting period and estimated as follows:

• Trading assumptions - management forecast income, operating expenses and Ebitda margins based on past and current performance and its expectations of market developments. The Covid-19 pandemic and the ongoing regulatory restrictions promulgated, including the imposition of varying curfews, alcohol bans and capacity limitations restricting the group's ability to trade, had a substantial negative impact on the group's results for the year under review, which was offset by a reduction in variable and fixed costs, the most significant of these being gaming levies and VAT, payroll costs, food and beverage and operating equipment costs and advertising and marketing costs. The impact of a third Covid-19 wave has been considered in the group's cash flow forecasts, offset by the governments'vaccination programme. The group continued to implement cost-saving initiatives during the year to provide sustainable benefits. Taking the aforementioned into account, the group's forecast models assume a strong recovery in trading during the 2022 financial year off an extremely low base, particularly due to the cost savings which results in better Ebitda margins. As a result of this, Ebitda is forecast having higher growth rates for 2022 to 2024, levelling off to normal levels with effect from 2025;
• Discount rate - the discount rate is calculated by using a weighted average cost of capital ("WACC") of the respective CGUs. WACC is calculated using a bond risk-free rate and an equity premium adjusted for specific risks relating to the relevant CGUs (share beta and small stock premium). The average pre-tax discount rate has increased in comparison with the prior year due to a higher share beta, market risk rate and small stock premium. The group believes these rates will return to more normal levels over the medium term; and
• Long-termgrowth rate - cash flows beyond the first five-year period are extrapolated using estimated long-term growth rates in order to calculate the terminal recoverable amount. The growth rate estimations consider risks associated with the gaming and entertainment industry in which the CGUs operate and are consistent with forecasts included in publicly reported information specific to the entertainment and hospitality industries in which each CGU operates. The group has revised the long-term growth rate downward by 0.6 percentage points ("pp") to 4.7% compared to the prior year due to the negative effects of Covid-19.

The significant unobservable inputs used in the group's value-in-use calculations as at 31 March 2021 are shown below:

• Expected gaming win for the respective CGUs increases on average 70% for the 2022 financial year, then 7% for 2023 financial year and then levels out to normal trading levels of increases of 3% over the following years (2020: Expected gaming win increased by 67% for the 2022 financial year, then 8% for the 2023 financial year and then to 3% over the following years);
• Expected operating expenditure costs increase on average 64% for the 2022 financial year, then 9% for the 2023 financial year and then levels out to normal trading levels of increases of 4% (2020: Expected operating expenditure cost increased by 33% for the 2022 financial year and then to 4% over the following years);
• Risk-adjusteddiscount rate of an average of 19.3% (2020: 17.5%) pre-tax; and
• Long-termgrowth rate of 4.7% (2020: 5.3%).