Sun International Optimistic Despite R1.1bn Loss

Despite income from its operations plunging by almost half to R6.1bn as reported in the group’s recent ÿnancial results, Sun International remains optimistic and says the recovery of SA hotels and casinos might be gradual, but it is upbeat about its debt and cash position.

SUN INTERNATIONAL is the owner of landmark casino complexes in South Africa such as Sun City, GrandWest and Boardwalk and the drastic drop in income, largely driven by government-instituted lockdown measures to curb the spread of the covid-19 pandemic virus, saw the group report a R1.1 billion headline loss for the year.

Sun International, along with other gaming and hospitality groups, was forced to shut operations for just more than three months (late March to June) in 2020, but faced ongoing trade restrictions (domestic and international travel bans, liquor bans, curfews, capacity limits due social distancing rules and so on).

Sun City in North West province, the group’s largest property, took the most pain after only being able to reopen in September. This led to the value of the resort, which is home to the Palace of the Lost City and other landmark tourist attractions, being impaired by around R900 million at year-end.

“The Covid-19 pandemic had a significant impact on the group, with all operations being closed for three months or longer and the March 2020 trading significantly disrupted. Income from continuing operations declined by 49% from R11.8 billion to R6.1 billion and adjusted Ebitda [earnings before interest, taxation, depreciation and amortisation] reduced by 72% from R3.2 billion to R897 million,” Sun International says in its JSE results Sens statement. “Our total group adjusted headline earnings declined from R763 million to a loss of R1.1 billion with an adjusted headline loss of 633 cents per share,” it adds.

Unsurprisingly, the group took its biggest hit in the first half of the year to June 2020, when South Africa was under its hardest lockdowns (between late March and June).

Income from its main South African business declined 55% to R2.5 billion for the half-year compared with its corresponding half year to end-June 2019. This led to a 95% plunge in adjusted Ebitda for its 2020 half-year, to R80 million.

With the resumption of trading of most operations from July 1, 2020, Sun International notes that income and adjusted Ebitda improved steadily throughout the remaining six months until the move to adjusted Level 3 lockdown, coupled with the imposition of the 8pm curfew and alcohol sales ban in midDecember 2020.

“This led to a significant drop in activity and cancellation of bookings for the second half of December and into January 2021,” it says.

“As a result of the extended lockdown and anticipated slow recovery we incurred impairment charges of R1.3 billion – being Sun City [R900 million], Boardwalk [R180 million], the Maslow Sandton [R96 million] and intangible assets of R72 million,” it adds.

Commenting on the results in a separate media statement, Sun International CEO Anthony Leeming said the group took key steps during the year to manage the impact of the pandemic on the business.

“[This] ensured that the group was in a strong position to deal with the lockdown and the restrictions imposed on its operations, but more importantly, they have placed the group on a solid footing for a post Covid-19 sustainable recovery,” he noted.

“We worked hard to reduce costs, optimise working capital, prioritise capital investment and negotiate with lenders, service providers and suppliers for either a waiver, reduction or deferment of payments. We formulated and implemented plans to achieve operational efficiencies and restructured certain parts of the business,” he added.

Leeming said Sun International also used the lockdown period to critically assess the group’s operational practices, systems, marketing and guest experience.

“Several initiatives were undertaken which are having and will have a positive impact on the group’s future results,” he stressed.

Measures Sun International took in responding to the pandemic included:…

Addressing short-term liquidity risks, including an up to 60% reduction in payroll costs during lockdown, deferring all capital investment other than critical spend and announcing the closure of the Naledi Sun and…Carousel casinos;

Accelerating the disposal of certain non-core assets;

The successful conclusion of a R1.2 billion rights offer; and,

Disposing of the group’s interest in Sun Dreams in Latin America, which became effective on October 31, 2020.

“The capital raise as a result of the rights offer and the proceeds from the disposal of Sun Dreams has improved our liquidity position and significantly strengthened the group’s balance sheet,” Leeming said.

“These actions and the various operational initiatives which we have undertaken and implemented in the last 12 months have ensured that the group remains well placed to be able to deal with the current and future Covid-19 challenges and has strongly positioned the group to recover and grow into the future.”