Sun International bets on expansion
With Covid-19 restrictions lifted and tourism on the up, the company is growing its offerings
● In its first major capacity expansion at Sun City in 17 years, Sun International is investing nearly R300m to accommodate up to 400 additional people at the iconic resort’s Vacation Club complex.
The move is part of the JSE-listed gaming, casino and hotel group’s strategy to improve existing assets through expansion or additions as it positions itself to “remain the number one leisure and conference destination in SA” after the lifting of Covid-19 restrictions.
The group is also planning to significantly expand its online gaming brand SunBet to increase its market share in SA and the rest of Africa.
In an interview with Business Times after the release of results for the six months ended June, CEO Anthony Leeming said the addition of 58 three- and four-bedroom units at Vacation Club at a cost of R295m was expected to be completed by the end of next year. The units form part of the club’s third phase.
The well-known Vacation Club, where members can share holidays at specific properties on a long-term basis, was launched in 1991, with the introduction of the second phase taking place in 2005.
Explaining how it worked, Leeming said members bought a five- or 10-year right for a unit for “an off-peak or peak period”, giving them the right to use the unit for that period, while paying annual levies.
“And then at end of the period it reverts back to Sun International and we resell it. The good thing about it is it is always in good shape. We always reinvest back into the product and keep it at the highest standards.”
Leeming said because Vacation Club offered clients full access to Sun City, it had proved “very popular” and helped drive activity at the complex’s restaurants, casino and golf course.
The latest development comes as the group undertakes a major refurbishment of The Palace, which Leeming says is the most significant upgrade at the five-star hotel in 30 years.
The refurbishment, which includes the addition of a spa and gym, will be completed in November, at a cost of R208m. Of this, R54m was incurred last year, while R67m was spent during the results period under review. Another R87m is earmarked to be spent in the second half of the financial year.
In a statement accompanying its results, Sun International said the group expected to “achieve higher rates and occupancies following the completion of the refurbishments”.
Leeming said Sun City was a “huge asset” which had been significantly invested in as “we believe in its potential to generate cash flow well in excess of its capital requirements and its potential for much higher earnings”.
“We are happy to invest and grow the product to get to the optimal level. We are excited about Sun City’s potential.”
Expansion at GrandWest Hotel in Cape Town had also begun, “from 39 keys to 103 keys at a cost of R122m”. Of this, some R27m would be spent in the current year, with the remaining amount in 2023. This is expected to be completed in the third quarter of 2023.
The company said the existing 39-room hotel “achieves an occupancy of 99% and can accommodate only a limited number of top-end customers”.
Even with this focus on its existing portfolio, Leeming said the company would be interested in acquisitions if the right deal came along, but it did not intend making any large investments.
Sun International reported a strong recovery across its gaming, casino and hotel assets, and declared its first dividend — 88c
per share — in six years. The dividend came as the group reported that adjusted earnings before interest, tax, depreciation and amortisation almost doubled to R1.5bn.
Gaming income from casinos and its Sun Slots and SunBet business, which together make up about 82% of group income, had experienced a “significant recovery”, up about 30% on the same period last year.
Total resorts and hotels income was up 63% to R1.123bn on the prior comparative period.
Sanlam Private Wealth portfolio manager Nick Kunze said Sun International had delivered a “really solid set of results”, which was no mean feat considering its business had been in the “absolute eye of the storm” during the pandemic.
Given the effect severe lockdowns had on people’s movements, as well as on domestic and foreign tourism, Kunze said “you couldn’t have had a worse business to run under those circumstances if you tried”.
Not only did Sun International declare a “very generous dividend”, it was backed by strong cash flows, he added.
“This business can only go from strength to strength as the Covid-19 laws get stripped back around the world and more foreign tourists come in amid a weaker rand overall. I think this business is setting itself up quite nicely for recovery.”
Leeming said it was “hard to believe where we are today”.
“We have delivered on all the hard work and, over the past couple of years, have put the business in a really strong financial and operational position,” said Leeming.
The pandemic, particularly the initial hard lockdowns in early 2020 that shut South African casinos and hotel resorts, had a major effect on groups such as Sun International.
At the time, to shore up its balance sheet, the group deferred capital investment and cut operating costs, including retrenching 2,300 of its 9,000 staff. It also had to raise R1.2bn from shareholders through a rights issue, closed its Naledi Sun Casino in the Free State and Carousel in the North West, and sold its 65% interest in Sun Dreams in Latin America for $160m (about R2.4bn at the time).
We have delivered on all the hard work and put the business in a really strong financial and operational position Anthony Leeming
Sun International CEO