Sun International’s local earnings declined by 48% during the height of Covid-19

Sun International's Carousel Casino .
Sun International's Carousel Casino .

Covid-19 has had a significant impact on Sun International Limited with income from continuing operations declining by 49% from R11.8 billion to R6.1 billion and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) reduced by 72% from R3.2 billion to R897 million.

The hospitality group’s operations were closed for three months (or longer) with its March 2020 trading significantly disrupted.

The 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.

In a recent SENS announcement of its audited financial announcement for the year ended on the 31st of December 2020, the group said it “responded quickly to the crisis, taking decision action to protect liquidity and to minimise cash flow. Key to our response was our engagement and communication strategy with government, regulators, lenders, customers, suppliers, and staff”.

During 2020, the group focused on cost reductions, optimising working capital, prioritising capital investment while negotiating with lenders, service providers, and suppliers for either a waiver, reduction, or deferment of payments.

Formulating and implementing plans to achieve operational efficiencies and restructuring certain parts of the business, the group’s critical actions taken included addressing its short-term liquidity risks, including up to a 60% reduction in payroll costs and deferring all capital investment other than critical spend; announcing the closure of both Naledi Sun and Carousel; articulating plans to restructure certain parts of the group’s business by accelerating the disposal of certain non-core assets, the successful conclusion of the R1.2 billion rights offer and the disposal of the group’s interest in Sun Dreams.

The pandemic and closure of operations

On the 15th of March 2020, President Cyril Ramaphosa declared a National State of Disaster under the Disaster Management Act Regulations with the Alert Level 1 framework following which the local gaming, leisure and hospitality sector went into full lockdown.

In response to the lockdown restrictions in South Africa, which commenced on the 27th of March 2020, all the group’s operations were closed from late March 2020 to the 30th of June 2020.

With the easing of the lockdown restrictions, the South African casino operations were able to resume trading with effect from the 1st of July 2020 subject to strict operational protocols being in place and limitations on the number of guests permitted in the casinos of up to 50% of normal guest capacity. Sun City having recommenced trading in September 2020 once the restrictions on inter-provincial travel were listed with the Maslow Sandton and the Table Bay Hotels resumed operating in October and November 2020, respectively.

Operations in eSwatini remain closed while the group’s operations in Nigeria resumed trading in September 2020.

The South African lockdown regulations which were amended several times, materially impacted Sun International’s operations with their casinos continuing to be impacted by the curfew and trading with reduced capacity.

South Africa

For the first six months of the year (2020), income declined by 55% from the comparative period to R2.5 billion with adjusted EBITDA down by 95% to R80 million.

With the resuming of trading of most of its operations from the 1st of July 2020, income and adjusted EBITDA improved steadily throughout the remaining six months until the move to an adjusted Level 3 lockdown, coupled with the imposition of the 20:00pm curfew and alcohol sales ban in mid-December 2020, which led to a significant drop in activity and cancellation of bookings for the second half of December and into January 2021.

Overall income from the South African operations declined by 48% from the prior year to R6 billion with adjusted EBITDA down by 70% to R984 million.

Due to the extended lockdown and slow recovery, Sun International’s local portfolio 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.

Nigeria and eSwatini

The Federal Palace of Nigeria went into lockdown in April 2020. Although it resumed trading, occupancy remained muted due to the ongoing nature of the pandemic. The group says it remains unclear as to when their operations in eSwatini will be reopened. “We continue to actively consider expressions of interest and to pursue the disposal of our equity interest in both businesses” it said.

Sun International engaged with a South African lending group who agreed to suspend its debt repayments, waived covenant measures and rescheduled debt service costs to mitigate against the impact of the pandemic on its liquidity.

The lender group and Sun International continue to engage on the optimal restructuring of the group’s covenant measures for the longer term and they anticipate this to be finalised by June 2021.

The South African debt (excluding IFRS 16 lease liabilities and IFRS 9 debt modification adjustments) decreased by 21% to R7 billion.

Covid-19 will continue to have a significant impact on the economy which will take some time to recover, and which will impact our trading results. Our gaming side of the business has proven its resilience and we anticipate that we will continue to see improvement in revenues and adjusted EBITDA as the restrictions are eased and ultimately lifted”.

The hotel and resort side, while benefitting from growth in local leisure, will continue to be impacted by the lack of demand in the business, conference, meetings, and international market segments”.

The capital raise as a result of the rights offer, and the proceeds from the disposal of Sun Dreams, has improved our liquidity position from significantly strengthening the group’s balance sheet. These actions and the various operational initiatives which we have undertaken and implemented in the past twelve months, have ensured that the group remains well placed to deal with the current and future Covid-19 challenges and the group is strongly positioned to recover and to grow in the future”.