No clouds darkening horizon for Sun International
Sun International, which owns Sun City and the Wild Coast Sun, believes it is in a strong financial position to weather whatever storms may come, including a fifth wave of the pandemic and a possible surge in inflation driven by the Ukraine war.
Following the release of results for the year ended December 31 2021, Sun International CEO Anthony Leeming said this week that while Covid was still a concern, a fifth wave is expected to be less severe than earlier ones, with far less disruption to business.
“Yes, we may have restrictions but even under some of the other restrictions we have traded relatively well. So as long as we don’t go back to extensive curfews and lockdowns, we are optimistic that we can see through any other Covid wave and trade OK,” said Leeming.
But even if the fifth wave is worse than expected, Sun International is on a sound footing.
“We have come through Covid with a clear strategy and a strong balance sheet. With all the work we have done, we believe we are a far better business than we were before Covid and that’s from all facets, from our service, maintenance, our capex cycles, growth prospects in our SunBet [sports betting business] and Sun Slots [limited-payout machines] businesses.
“There are a lot of positives that have come out from the last two years that we can leverage going forward. We are in a far better place to deal with the future and to grow,” said Leeming.
Sun International and other South African companies also face inflation risks, including higher fuel prices, due to the Ukraine war.
Leeming said he hoped that by the time the international tourism season started in September, the war was a thing of the past.
The group’s headline earnings came in at R265m a significant improvement from the R409m loss reported in the previous year. This resulted in headline EPS of 106c from a loss of 234c/share in the prior year.
Income from continuing operations increased 29% to R7.81bn, while the company reported that cost savings of more than R650m contributed to its adjusted earnings before interest, tax, depreciation and amortisation (ebitda) rising 80% to R1.685bn.
The group’s debt, excluding lease liabilities, was further reduced to R7.09bn from R7.63bn previously significantly lower than the R11.1bn at June 30 2020.
The company reported that casino operations and alternative gaming, which make up 80% of group revenue, showed a “significant recovery as lockdown restrictions eased”. The group was able to “defend or grow” market share at most urban casinos, while income generated from its Sun Slots division, which owns six limited payout-machine operators in four provinces, rebounded to preCovid levels.
Sun International said SunBet generated record income during the year and is “rapidly scaling up its premium sports and online betting offering”.
Total resorts and hotels operations income was up 39% in 2021 to R1.56bn from R1.12bn in 2020, but income remained 39% below 2019 levels.
“Overall, the group’s resorts and hotels incurred an adjusted ebitda loss of R56m for the year, significantly improved from an adjusted R158m loss during 2020.”
Sun International had to take drastic action in 2020, including a R1.2bn rights offer and the disposal by Sun Latin America of its 64.94% interest in Sun Dreams for $160m (about R2.4bn) to help reduce debt.
In the wake of the first severe lockdowns it closed Naledi Sun Casino in the Free State and Carousel Casino in the North West, and retrenched 2,300 of its 9,000 staff.
Makwe Masilela, head of Makwe Fund Managers, said no-one knew how severe the next Covid wave would be, but he believed Sun International was “better prepared this time around”. The company had done “remarkably well, moving from a headline loss per share of 234c to a headline profit of 106c”.
“What has caught my attention is that ... they have managed to reduce their debt by 7%. If they continue on that path and they continue to take market share they will be in a good position.”