Sun International's Time Square casino is doing brisk business, but Sun City is under pressure

Sun International's operations in South Africa helped boost its overall earnings, while operations in other geographic markets disappointed.

The hotel and casino group on Monday released its financial results for the six months ended June 30, 2019. Profit after tax increased 5% to R364m. Headline earnings per share was up 4% to 128c and diluted headline earnings per share was up 30% to 136c. No dividend was declared for the period.

Income from its South African operations specifically was up 2% to R5.5bn. The group also attributes the improvements in its earnings before interest, taxation, depreciation, amortisation and restructuring (or EBITDAR) margin, to an increased focus on cost containment measures, efficiencies and the "guest experience". The EBITDAR margin was 27%.

During the period, the group also concluded agreements that would see it increasing its stake in the Sibaya casino in Durban by 22.4% to 87.2%. The transaction is valued at R540m. The group also plans to buy Grand Parade's 30% stake in Sun Slots, making it a wholly-owned subsidiary of Sun International. Sun Slots operates pay-out machine gaming licences in provinces across South Africa. The transaction is valued at R504m.

"Both Sibaya and Sun Slots have been trading well with the above transactions being concluded at attractive valuations and at levels where they will be earnings and cash flow enhancing," the report from the board of directors read.

While the Time Square casino in Tshwane saw a 15% increase in income, Sun City (-6%), Wild Coast (-9%), the Windmill casino (-9%) saw declining income.

Further abroad, income from the group's operations in Latin American countries grew 17% to R2.7bn, however profit declined 40% to R150m. The group will be disposing a 14.94% stake in Chile-based Sun Dreams, reducing its stake to just 50%. This disposal is valued at $86m (about R1.3bn).

The group's operations in Nigeria and Swaziland are still in the red. Despite income growth of 3% to R156m, the operations are still making losses. During the period losses increased 19% to -R44m.

Overall the group has stressed that it has managed to continue trade within its debt covenant levels. It has unused loan facilities of R1.3bn and has managed to reduced debt levels in South Africa from R9.2bn as reported in December 2018 to R8.8bn.

The group does not expect any improvement in trading conditions in the short term, given an "uncertain" international environment, a local economy that's under pressure and low business confidence.

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