Economy, VAT increase impact Sun International interim results

Resort, hotel chain and casino group Sun International [JSE:SUI] saw a 4% growth in income to R7.9bn for the six months ended 30 June 2018.

The group released its unaudited interim results on Monday.

Trading in South Africa during the first half of the year remained challenging due to continued pressure on disposable income, the VAT increase and a deteriorating economic climate, it said in an update to shareholders. 

In June 2018, Sun International concluded an R1.6bn equity raise and used the proceeds to reduce its SA debt.  Although the group remains highly geared, it said it is confident that it will revert to satisfactory debt levels over the next few years.

The group's earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 6% to R2bn, and on a comparable basis by 2% to R1.8bn.

The increase in the VAT rate in SA from 14% to 15% negatively impacted EBITDA by approximately R21m, it said. 

Adjusted headline earnings decreased from R206m to R115m - 44% below the prior corresponding period. This was due primarily to its attributable share of the losses from the Time Square development increasing from R63m in the prior corresponding period to R182m.

Adjusted headline earnings per share were down by 47% at 105 cents per share.

The group pointed out that it has incurred a number of once-off or unusual items that have been adjusted for in headline and adjusted headline earnings.

The board has decided not to declare an interim dividend.

South African operations

SA continues to contribute the majority of the group's income at 69%, with Latin American operations contributing 30% and Nigeria just 1%.
Gaming is the primary contributor to group's income at 73%; alternate gaming contributes 7%; the food and beverage division 9%; rooms 8%; and other income 3%.

In SA, casino operations continue to be impacted by the current economic climate, with comparable casino income increasing by 2%. Sun Slots continued its strong performance with income and EBITDA up by 12% and 11% respectively.

Rooms revenue, which was down by 3%, came under pressure due to the water crisis in Cape Town and the pressure on disposable income, it said.  Sun City, meanwhile, experienced difficult trading conditions, with income down by 3% due to factors like the weak local economy.

The Time Square development achieved income of R582m and EBITDA of R130m respectively. The group is confident that it will continue to gain market share and grow income and EBITDA, it said. 

Wild Coast Sun income and EBITDA increased by 7% and 16% respectively, with the EBITDA margin increasing by 2% to 17%.

The Table Bay hotel was impacted by the water crisis in Cape Town, which resulted in a number of cancellations and a slowdown in bookings. The group is, however, seeing an improvement in forward bookings given the indefinite move of day zero.

The small urban casinos collectively grew their income and EBITDA by 2% and 1% respectively.

Trading in Chile remained subdued while Peru experienced good growth, the group said. Also in Latin America, the company concluded the acquisition of an additional 10% interest in Sun Dreams during May 2018, increasing its interest to approximately 65%.

It further concluded the acquisitions of Thunderbird Resorts in Peru for $26m in April 2018, and the Park Hyatt Hotel and Casino in Mendoza, Argentina for $25.5m in July 2018.


As a result of the subdued local economy and low economic growth experienced in Chile, Sun International expects trading to remain under pressure.

Forward bookings on the hospitality front have also improved which it expects would assist both Sun City and Table Bay.

The group expects the continued focus on maximising efficiencies and reducing costs will help to protect its margins in what it describes as a difficult trading environment. It said it would need to deal with the full impact of the increase in VAT in the second half of the financial year as well as the requirement to permanently employ temporary contract labour workers at its properties in terms of a recent Constitutional Court ruling.

By early afternoon on Monday Sun International shares were trading up 7.85% at R57.70 per share.

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