Sun International hopeful of resuming dividend payments

Group bounces back from pandemic.
Boardwalk Casino in Nelson Mandela Bay. Casino operations and alternate gaming deliver 80% of Sun International’s revenue. Image: Supplied

JSE-listed hotel and resort group Sun International rebounded strongly from the negative impact of Covid-19 and is hopeful about reinstating dividend payments by its next interim financial results reporting period.

The group on Monday reported strong growth in revenue and adjusted earnings before interest, tax, depreciation and amortisation (Ebitda), a recovery to headline earnings from a prior loss, and a significant reduction in group debt in the year to end-December 2021 – despite the substantial impact of Covid-19 related restrictions on its operations.

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Sun International CEO Anthony Leeming believes the group will be paying a dividend by the end of its next interim financial reporting period if trading continues the way it has in January and February this year.

“Our debt to Ebitda cover is dropping very quickly so we do believe it can come off quite quickly and we can pay dividends in the not too distant future,” he said.

Leeming said Sun International’s debt-to-Ebitda ratio will be below 2 if trading just continues along 2019 levels.

“South African gaming income in January and February 2022 was in line with 2019 and Ebitda is well up on 2019, which demonstrates we are entering a more normalised trading environment,” he said.

Leeming attributed the increase in group adjusted Ebitda for this year to embedded cost savings across gaming and resorts and hotels.

Sustainable cost savings of more than R650 million contributed to continuing adjusted Ebitda increasing by 80% to R1.685 billion in the year to end-December.

Leeming said these cost savings were achieved by the staff rationalisation it started in 2020, which resulted in 2 000 employees leaving the group, most voluntarily, while it had also not replaced staff at certain levels.

He said a lot of other savings had been achieved in every facet of the business, including its cleaning, security, marketing and communication contracts.

Leeming said some staff will be coming back in some instances as activities increase in the group’s operations but it now, for instance, has a flexible pool at Sun City that can be brought in when there are conferences or exhibitions while these staff were previously guaranteed a minimum amount of hours of work.

Sun International’s income from continuing operations increased by 29% to R7.8 billion from R6.05 billion in the year to end-December.

Gambling

Casino operations and alternate gaming, which make up 80% of group revenue, showed a significant recovery as lockdown restrictions eased.

Read: Soccer bosses buy Sun International’s Carousel casino licence

Leeming said casinos have always been the bigger part of the business and what has increased over time is alternate gaming, limited payout machines and its SunBet online sports betting offering.

“Casinos will always be the biggest part by a long way with hotels and leisure around the 20% level but slowly reducing,” he said.

“We do see SunBet growing very strongly and offering the group significant and exciting growth potential. We are talking high double-digit growth over the next few years.

“With this in mind, we continue to invest in people and marketing to significantly increase our share of the fast-growing online gaming market,” he said.

The numbers

Total group headline earnings improved from a loss of R409 million to earnings of R265 million, equivalent to headline earnings of 106 cents per share from a loss of 234 cents per share in the prior year.

Overall casino operations generated adjusted Ebitda of R1.43 billion for the year, which is 37% below levels achieved in 2019.

However, the casino operations achieved 56% of the 2019 adjusted Ebitda at a margin of more than 30%.

Total resorts and hotels operations income increased by 39% to R1.56 billion from R1.12 billion in 2020 but remained 39% below 2019 levels.

Overall, the group‘s resorts and hotels incurred an adjusted Ebitda loss of R56 million for the year, which is a significant improvement from an adjusted Ebitda loss of R158 million in 2020.

Sun City

Leeming is bullish about the future viability of both Sun City and the Wild Coast Sun.

He said Sun City has done “really well” from a leisure perspective but the mid-week conferences have been missing although they are coming back “quite quickly”.

Leeming said Covid-19 has taught the group that people need to interact a lot more and if there is a move to work from home there “might be a greater need to have conferencing”.

“This year we have got quite a lot of conferences, especially the mid-size from 300 to 400 people, not the large, large ones, which will come back at a point in time,” he said.

Leeming said Sun City is a lot bigger than the Wild Coast Sun, has a lot more components to it and is a lot more expensive to run.

He said the group has plans to refurbish The Palace of the Lost City at Sun City to eventually increase occupancies and rates and expand Sun Vacation Club timeshare.

“We definitely believe that Sun City is viable. Will it be a high margin business like a casino? No.

“Can it get to 20% margins? We believe it can and then we will be making more than enough money to refurbish and hand money back to shareholders.

“So we definitely see great potential and a great future,” he said.

Wild Coast Sun

Leeming said the Wild Coast Sun has rebounded very strongly because it is a local leisure and gaming demand destination and not that dependent on the conferences and meetings business.

“We see a lot of potential there and to beat pre-Covid-19 levels. At the same time, we are also exploring a bit more from the conference market and are seeing the benefit,” he said.

Travel outlook

Deloitte said in its 2022 travel outlook that this year is about more than simply watching air passenger volumes increase and hotel occupancy rates pick up as visitors return to cities and beaches.

“Some trip types will fare better than others, and some demographic groups will lag others,” it said. “The pandemic has brought changes to the way we live and work. Some of those changes are likely to continue to affect travel once the health crisis subsides.”

Shares in Sun International rose 0.38% on Monday to close at R23.59.

Listen: Fifi Peters chats to Leeming about Sun International’s latest results

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Why did the citizens have to bail out this company with covid relief payments?

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