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Sun International takes decisive action amidst perfect SA storm - CEO

Cape Town - Sun International [JSE:SUI] reported revenue growth of 12% and an increase in earnings before interest, tax, depreciation and amortisation (EBITDA) of 13%.

The hotel, gaming and entertainment group announced its year-end results on Monday. It attributes revenue growth to the inclusion of the results of Sun Dreams (as from 1 June 2016), Sun Slots (as from 1 April 2016) and Time Square (as from 1 April 2017).

Focused cost control and enhanced efficiencies in South Africa helped grow EBITDA from a decline in the first half to growth in the second half. SA revenues improved in the second half compared to the first half, from a 1% decline to 2% growth, resulting in flat revenues for the year.

The group is pleased with the results of Sibaya, Sun City, Sun Slots and the Table Bay, which grew revenue and EBITDA. Time Square’s results are described as disappointing, while GrandWest's revenue was in line with the prior year, with EBITDA dropping by 2%.

Operational performance in Latin America was subdued and largely attributable to a low growth economy and a tragic shooting incident which took place at Monticello in July 2017.

The group incurred a number of once-off or abnormal items that have been adjusted for in headline and adjusted headline earnings, both of which were 41% below the prior year.

Group chief executive Anthony Leeming said in a statement that decisive action has been taken to address underperforming operations and to focus on both cost control and increasing efficiencies.

“We’ve made significant investments over the last few years in both SA and Latin America. The refurbishment of Sun City and the acquisition of Sun Slots have met expectations. However, other developments have fallen well short, increasing our debt and debt ratios significantly," said Leeming.

"Economic growth in SA and Latin America has slowed, political uncertainty has increased and social challenges, particularly in SA, are at an all-time high. Together, this has created the perfect storm, putting pressure on consumer spending and slowing gaming revenue growth.”

At the same time, the business has proven its resilience, in his view, and remains cash generative and positive in terms of future opportunities.

"In these difficult times, we’ve shifted our focus, realigned our strategy and we’re committed to getting the basics right as well as operating at optimal efficiency and ensuring we exceed our guests’ expectations,” said Leeming.

“We have closed loss making operations including, the Fish River Sun, Sun Nao Casino in Colombia and the International VIP Businesses in both SA and Panama.""

The group also downscaled the Ocean Sun Casino in Panama by closing the 66th floor casino and significantly reduced staff. Furthermore, it has applied to the Eastern Cape Gaming Board to restructure the Boardwalk and is in the process of addressing the performance of the Carousel.

Other business initiatives

The Time Square hotel will be opening on time and within budget this month.

Shareholding in Sun Dreams will increase from 55% to 65%. Sun Dreams submitted bids for two municipal casino licences in Chile that it currently holds and for an additional three licences. Decisions on the licence bids are due in June 2018.

Sun Dreams is also awaiting regulatory approval regarding its acquisition of Thunderbird Resorts in Peru for $27m. This will strengthen the group’s position in Peru and diversify its asset base in Latin America, according to Leeming.

Draft legislation in the Western Cape affecting SunWest’s exclusivity is being assessed.

Raising capital

As previously announced to shareholders, the company is looking to embark on an exercise to raise capital in order to de-risk its balance sheet. With the proceeds it will aim to repay debt and reduce its interest charge.

A stronger balance sheet and capital structure will also provide management with the headroom to focus on the business, according to Leeming.

Given the need to reduce the high debt levels, the board has decided not to declare a dividend for the year ended 31 December 2017.

“The mood in South Africa has definitely lifted. However, we don’t expect this to translate immediately into an increase in discretionary spend or spend on gaming but should have a positive effect in the medium term,” said Leeming.

“Closing loss making entities will have a positive impact, as will the interventions we’ve put in place at the Ocean Sun Casino, the Boardwalk and the Carousel. We are anticipating much improved performances from these operations.”

The group is expecting increased footfall and improved revenue and EBITDA at Time Square, following the opening of the arena a few months ago and the imminent opening of the hotel.

The major refurbishment at Sun City is expected to continue to deliver benefits, while a stronger rand and the drought may deter some tourists and put pressure on The Table Bay in Cape Town.  

“The Chilean economy is also showing signs of recovery, assisted by the recent change in government. Gaming revenues have stabilised and Monticello is starting to reflect revenue growth compared to the prior year," said Leeming.

The addition of Thunderbird Resorts in Peru will contribute positively. A successful outcome for Sun Dreams in the municipal licence bidding process in Chile will also have a significant impact.”

He emphasised that this is not an easy economic environment in which to trade. However, in his view, the group has the right plan in place, has taken the necessary steps and is completely focused on the job at hand.

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