Sun International shifts focus to address challenges more efficiently

Time Square at night. (Supplied)
Time Square at night. (Supplied)

Cape Town - Sun International [JSE:SUI] has shown an increase of 19% in total group revenue to R7.6bn, according to its unaudited interim results for the six month period ending June 30 2017, released on Monday.

Group earnings before interest, tax, depreciation and amortisation (Ebitda) for the period increased by 15% from R1.6bn to R1.9bn. Adjusted headline earnings of R206m are 29% below the comparable period with adjusted headline earnings per share down 29% to 198 cents.

Given the difficult trading conditions and a need to reduce high debt levels, the board decided not to declare an interim dividend.

The group reported that the growth in group revenue was attributable to the inclusion in the results of the Latin America-focused Sun Dreams (from June 1 2016), Sun Slots (formerly GPI Slots, from April 1 2016) and the Time Square casino complex in Pretoria (from April 1 2017).

Revenue generated by South African operations - excluding alternative gaming, international business, Time Square and the Morula Sun casino in North West - declined by 1.9% on a comparable basis. Ebitda generated by SA operations, however, declined by 9%, on a comparable basis.

The Sibaya casino in Durban, Sun City, Sun Slots and the Table Bay hotel produced encouraging results with solid Ebitda and revenue growth, according to the group report. Sun International CEO Anthony Leeming told Fin24 he is especially pleased with these results.

Leeming said the group's focus has shifted from a growth and investment phase to getting "back to basics". This involves aspects like a more internal look at service levels, cash flows, operational efficiency and better maintenance. It is also about innovation and better integration in order to be more efficient.

"We have a priority to be good at everything we do. The weak SA economy means consumers are holding back on expenditure - even if they have money to spend," he told Fin24.

"We have done a lot the last few years to refurbish and maintain our properties. A lot of drivers are about offering the right entertainment and service levels and treating VIPs well. One has to make sure you can adapt and change where needed. We are doing that."

Debt

Over the past few years, Sun International has made a number of significant investments including developing Time Square in Menlyn, Pretoria; undertaking significant upgrades at Sun City; and acquiring a 70% equity interest in Sun Slots.

In South America it acquired a minority interest in Monticello, developed the Ocean Sun casino in Panama and the Sun Nao casino in Colombia and merged with Dreams in Chile.

All of these investments and acquisitions were funded with debt, resulting in a significant increase in the group's gearing levels, it said in the interim results report.

At the same time, the SA economy has deteriorated and business confidence has declined. This placed pressure on consumer disposable income, Leeming told Fin24.

Gaming

Leeming said on a like for like basis gaming is down.

"The gaming side is difficult and disappointing in that sense. Other forms of gaming have, for instance, been introduced in SA over the last four to five years, impacting casino spend," he explained.

South America

In Chile, Sun International's biggest focus outside SA, trading has improved at most of the properties other than Iquique and Monticello. Iquique has been affected by strikes in the copper mining industry, for instance.

With the decline in commodity prices, the Chilean economy has also come under pressure although the outlook has improved over the past few months.

The Panama and Colombia operations continue to struggle and are not meeting initial expectations. The group has plans in place to downscale these properties, Leeming told Fin24. Certain assets might be disposed of and there could be an attempt to exit or reduce the term of the Colombia property lease.

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