Sun International expects improved operational performance to continue

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JSE-listed gaming, hotel and resort group Sun International has declared its first dividend since 2016 after achieving a significant improvement in its operations following the lifting of the last Covid-19 pandemic-related restrictions.

The group on Monday declared a gross cash dividend of 88 cents per share for the six months to end-June.

Sun International CEO Anthony Leeming said he anticipates the improvement in the group’s operational performance to continue for the remainder of the financial year.

Read: Sun International nears pre-pandemic performance

“With our ongoing focus on costs and efficiency, we anticipate a significant improvement in the second half of the year on the prior comparative period and consequently, strong growth in adjusted earnings before interest, tax, depreciation and amortisation [Ebitda] and earnings per share,” he added.

Sun International’s better performance was underpinned by substantial sustainable savings in the group’s cost structure, with the South African operation’s adjusted Ebitda margin improving from 26.8% in 2019 to 29.1% in the six months to end-June.

Leeming said that since the commencement of the Covid-19 pandemic, they have looked at every facet of the business and how they can do things smarter.

“Even with our SMSs to customers, we just reduced the size of them to make them more concise and that saved a lot of money,” he pointed out.

Leeming said the group has achieved more than R700 million in permanent cost savings since 2019 and, although other costs have crept up, the group has got more or at least the same Ebitda than in 2019 on lower revenues.

He confirmed the group has about 2 000 fewer employees than pre-Covid-19 but stressed this reduction is partly attributable to outsourcing restaurants and some food and beverage functions, with some of its former employees still working on the same property.

The closure of the Carousel Casino north of Pretoria in North West province and Naledi Casino in Thaba ‘Nchu in the Free State also contributed to the reduction in employees, he said.

Read:
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Sun International previously expressed its confidence in the growth of alternate gaming, limited payout machines (LPM) and SunBet, its online sports betting website.

Leeming said SunBet generated record income in the six months to 30 June and is well on its way to achieving the aggressive growth targets it set for this business.

He reiterated that the group is on a focused journey to grow SunBet’s current operating market and launch into new markets.

Mauritian investment

Leeming said that post the group’s end-June reporting period, it concluded a 70% investment in a Mauritian company for $3.2 million (R53.88 million).

He added that the company has online sports betting and casino licences to operate in Ghana, Zambia and Kenya, and is in the early stages of rolling out the SunBet operating model and brand in these markets, which have attractive long term growth potential.

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Leeming believes Sun International has a market share of about 4% of the online gaming market.

“The big players in that market have been Lottostar, Betway and Hollywoodbets, and sports betting and online gaming is not our traditional market but as live gaming was launched … I think our market share has already crept up and we’re hoping it’s a little bit more than 4% but 5% to 6%.

“Our target is well north of 12% and, as we enter with new products, the growth we are looking for is probably four or five fold of where we are now,” he said.

Online gaming

According to Leeming, Africa is quite exciting to a lot of the big online gaming companies and Sun International is also excited about the prospects on the continent.

“It will start quite small and it’s going to take a few years but we believe quite strongly that online will have good growth and we are looking at other territories as well. It is still very greenfields for us,” he said.

He added that Sun International received approval to offer slots style games on 1 August 2022 and, to date, income is encouraging despite not yet launching the group’s marketing effort.

“Based on international precedents, we believe online slots has immense potential for driving scale in SunBet and supporting our omni-channel strategy between land-based and online gaming,“ he said.

Interim results

Sun International on Monday reported a 37% growth in income to R5.16 billion in the six months to end-June from R3.76 billion in the previous corresponding period.

Adjusted Ebitda increased by 99% to R1.47 billion from R739 million. Adjusted headline earnings per share improved to 177 cents from the 3 cents loss in the prior period.

SunBet grew income by 37%, sports turnover by 16% and deposits by 64%.

Total resorts and hotels income increased 63% to R1.12 billion compared to the prior comparative period but was still 6% lower than 2019 levels. Overall, resorts and hotels generated an adjusted Ebitda of R152 million compared to the R88 million loss in the prior period.

Read: Grand Parade returns to its gaming roots

Leeming said group resort and hotel occupancies are close to pre-Covid-19 levels.

He said higher rates and occupancies are expected to be achieved at The Palace at Sun City after the refurbishment and addition of a spa are completed in November at a total cost of R208 million.

Leeming said work on the expansion of the GrandWest Hotel from 39 to 103 rooms at a cost of R122 million has commenced and it is anticipated to open in the third quarter of 2023.

He said the sod-turning for the expansion of the Vacation Club with the addition of 58 four- and three-bedroom units at a cost of R250 million will take place in about three weeks.

“We hope to open by the end of next year. Vacation Club has done remarkably well under Covid-19 so we expect it to continue to do well,” he said.

Shares in Sun International rose 1% on Monday to close at R31.21.

Listen to Leeming speaking to Fifi Peters on the group’s latest results (or read the transcript here): 

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