Gambling on revival to put shine back on Sun
Sun City opens doors after nearly six months but Covid casts heavy shadow over group
● Sun International, the owner of Sun City and other top hotels and casinos, is battening down the hatches for the coming year as it prepares to rebuild its businesses in an industry that could take anywhere from one to two and a half years to recover.
This means no expansion plans or taking advantage of bargains in a hotel and leisure sector devastated by the Covid-19 pandemic and the economic fallout.
But CEO Anthony Leeming said the group has “taken appropriate action and is well positioned to see through the Covid crisis and achieve a strong recovery”.
“The business is very resilient.”
Speaking after the release of results for the six months to June, Leeming said that although potentially lucrative deals may exist because the sector is in crisis, the group doesn’t “have the balance sheet to just go out and buy and be a bit more opportunistic”.
“You’ve got to take care of what you’ve got until there is more certainty in the environment. Covid-19 is not a thing of the past. You’ve seen it in France, Germany and Spain ramping up. Are they going to get it back under control or not? When is the vaccine coming?
“I’m sure there’s some great deals if you look hard. If we had the balance sheet and the strength we would do so, but we don’t. We will keep monitoring the market, but we just don’t have capacity to go and take advantage of the environment. Shareholders right now are saying listen, just get your business right and we’ll have another look at where we are in a year’s time.”
Jobs to be lost
The group has had to make difficult decisions, including undertaking a retrenchment process in SA, which could affect 2,300 jobs. It employs 9,000 staff in SA.
More than 50% of these retrenchments are at Sun City, which reopened this week after being closed for nearly six months. The group will also look to cut 1,000 jobs out of its workforce of just under 4,000 in Chile.
Sun International also had to undertake a R1.2bn rights issue during the period to bolster its balance sheet, as well as sell assets, including its 65% interest in Sun Dreams in Latin America for $160m (about R2.6bn).
The economic fallout of the pandemic is reflected in the group’s half-year results. Consolidated income fell 56% from R8.5bn to R3.7bn, while earnings before interest, tax, depreciation and amortisation dropped by 96% to R79m from R2.1bn.
Group adjusted headline earnings declined to a loss of R885m from earnings of R172m in the same period last year.
Sun International was cushioned by the fact that 80% of its revenue comes from gaming. But although casinos were allowed to open from July, the curfew and liquor ban negatively affected their performance.
“If you look at what we did in July, of those that were open, we made about 39% of prior-year revenue excluding Sun City.”
August has seen more of an improvement in the casino operations, which delivered about 59% of the revenue they provided at the same time last year.
Leeming said the group will achieve cost savings of more than R500m across the business in the coming year in SA. Due to all the measures it had put in place it was “cash positive” in July, even with assets such as Sun City, the Table Bay hotel and the Maslow Sandton being closed.
Now, as the group prepares to ramp up its
You’ve got to take care of what you’ve got until there is more certainty Anthony Leeming
CEO Sun International
hotels, Leeming said it can “withstand quite a few months of difficult trading”.
The opening of Sun City this week is also a positive, with Leeming saying the resort is the “jewel in the crown in terms of name, but not in terms of profitability”. The property’s fixed costs are high, so if it isn’t open it bleeds cash. The group also undertook to pay all staff during the lockdown, although it introduced pay cuts across the board.
The Maslow Sandton opens on October 1 and The Table Bay hotel will open on November 1.
As far as Sun City is concerned, Leeming said the group does not expect to start making a lot of money immediately at the resort. The focus is to rebuild the business. Part of this will be to reposition it more around local leisure because its traditional midweek corporate business and conferencing, as well as foreign visitors, are down significantly.
But Sun City may be a “little better off because of the way it is positioned”, Leeming said. He believes companies, in a year’s time, will want to “start getting people together” for conferences. “I am certainly optimistic that more work from home requires more conferencing and more get-togethers and the business could shift.”
Sasfin Securities deputy chair David Shapiro said it is difficult to predict what shape businesses will be in when SA emerges from the Covid-19 crisis and whether they will be hosting conferences. But he believes “there will be a desire to travel and have these large-scale trade fairs and places where people can gather”.
Sun International is probably in a better position than other hotel groups because it is not just reliant on business or foreign travel to its resorts, he said.
“Their casinos around the country rely on local travel, and I think people are going to want to travel.”