It’s all a bit of a gamble: Sun International’s unsurprising losses

Like so many other companies in the leisure, hospitality and financial sectors, Sun International’s results for the six months to June are a far sight better than this period last year, but remain well off the same period in 2019.

The company delivered income up 51% from 2020 to R3.7-billion, well off the R5.5-billion earned in 2019. Adjusted operating profit rose more than 100% to R288-million, up from 2020, but again, less than the R901-million earned in 2019. And adjusted headline earnings improved from a loss of R703-million to a loss of R4-million.

Sun International chief executive, Anthony Leeming, was upbeat, noting that the group’s core casino business, which represents about 70% of earnings, had proven its resilience. 

“We anticipate that we will continue to see improvement in income and adjusted Ebitda as the restrictions are eased further and ultimately lifted.”

The stand-out number in the results was the growth in the alternate gaming operations, which the group sees as a strategic growth area, in the longer term counterbalancing any decline in the land-based casino business. Sun Slots achieved a strong recovery in trading following the easing of the alcohol ban and relaxation of curfew hours in the last week of January 2021.

SunBet, Sun International’s online gambling platform, grew strongly, with high levels of new player acquisitions and deposits. The resumption of international sport has contributed to overall numbers which exceed those of the previous two years. At the end of the period under review, the group reported new player acquisitions up by 51% against 2020 and 143% compared to 2019; turnover up 69% compared to 2020 and 32% against 2019, and deposits up to R229-million, which represents an increase of 81% against 2020 and 31% against 2019.

Overall Alternate Gaming income increased from R303-million to R608-million, with adjusted Ebitda up from R56-million to R152-million for the period under review compared with the prior period.

This business is now almost the same size, from a revenue perspective, as the resorts and hospitality business, but margins are considerably higher — unsurprising considering the cost of running and maintaining Sun International’s extensive range of lodges. 

While the easing of lockdown restrictions to alert Level 1 increased domestic leisure travel demand into destinations such as Sun City and the Wild Coast Sun, the business reported an earnings loss of R88-million. 

The big gorilla in the Sun empire is the land-based casino operation, which grew earnings to R672-million from R129-million in the prior period. Trading was affected by the imposition of revised curfew hours and restrictions on the serving of alcohol. 

Unlike its smaller competitor Tsogo Sun, Sun International entered the pandemic on the back foot, with a restructuring process under way to cut costs and reduce debt. Despite the limitations imposed by the Covid-19 lockdowns, group debt has been reduced from R11.1-billion on 30 June 2020 to R7.6-billion on 30 June 2021, following the completion of Sun’s R1.2-billion rights offer in July 2020, and Sun Latam’s (99.2% owned by Sun International) disposal of its 64.94% equity interest in Sun Dreams for $160-million in November 2020.

The group has also settled Covid-19 business interruption claims for five of its operating units where the insurance claim exceeded the maximum insured loss. The proceeds from these claims of R235-million were received during August 2021. The group expects to settle another R260-million worth of claims in the coming months.  

While Leeming is confident that the group has now cut its cloth to fit, the pandemic and the ongoing restrictions imposed on the business and its activities will continue to have a significant impact on the South African economy. 

“This will impact on our trading results, but the South African vaccination programme is well under way and infection rates will hopefully reduce over time, which bodes well for our business.”

The share price moved marginally on the results, but investors are confident that the business restructuring will deliver results, with the share having rerated over the last year, rising to R18.24, from R10.97 a year ago. BM/DM