Sun International’s Sun City achieves record profitability during 2023

Sun City Resort.

Sun International has published its audited group financial results for the year ended December 2023 reporting a 7% increase in income to R12.1 billion for the year with its South African earnings before interest, taxes, depreciation, and amortization (EBITDA) up 3% to R3.4 billion.

The group’s adjusted headline earnings increased by 4.6% on the prior year to R1.1 billion with its adjusted headline earnings of 468 cents per share, up 5.9%.

Overall, the gaming market in South Africa grew for a third successive year to R55.8 billion gross gaming revenue. Its gaming income, which makes up 76.8% of total group income, showed continued sustained growth with income increasing by 3.3%. Casino income proved resilient, decreasing by 1% only.

However, SunSlots’ operations were impacted by load shedding with income slightly behind the prior year. SunBet generated record income during FY2023, up 116.2%, ahead of its aggressive growth targets. Resorts and hotels income achieved exceptional growth, increasing by 17.4% with Sun City achieving record profitability and net positive cash flow contributions to the group (adjusted EBITDA, pre-management fees of R455 million).

The adjusted EBITDA margin was impacted by increased diesel costs of R60 million compared to the prior year and relatively higher growth income from its resorts and hotels, which operate at a structurally lower margin than urban casinos. Overall, its adjusted EBITDA margin improved from 27.2% at the 2023 half year, to 28.1% for the full year. Excluding the impact of the net diesel costs, Sun International would have achieved a 28.9% adjusted EBITDA margin. The group is implementing a renewable energy strategy to protect its margins and to ensure energy security.

The group’s net external interest increased by 19% compared to the prior year due to JIBAR increasing by approximately 2.7%. The reduction in minorities’ share of earnings is attributable to the strong performance of its wholly owned subsidiaries namely Sun City and SunBet.

Its South African debt (excluding IFRS 16 lease liabilities) was R5.7 billion, down from R5.9 billion as at the 31st of December 2022, with debt to adjusted EBITDA at 1.7 times. The debt levels take into account the payment of the 2022 final dividend of R632 million and the interim dividend of R388 million.

In late December 2023, the group announced its proposed acquisition of Peermont Holdings Proprietary Limited, a hospitality and entertainment group of companies which operates eleven properties across South Africa and Botswana, in addition to the online sportsbook, PalaceBet.

The strategic merits of the proposed acquisition include an increase in the contribution of land-based and online gaming income; the opportunity to leverage off Sun International’s SunBet management team’s expertise to accelerate the online and sports betting business; the ability to leverage off combined synergies to drive margin enhancement opportunities and capital efficiencies; to conclude a transaction of scale and to rapidly de-gear and to maintain an attractive dividend pay-out ratio,

The proposed transaction was put to vote by shareholders on the 4th of March 2024 which was overwhelmingly approved. The transaction is now awaiting regulatory approvals and the fulfilment of the remaining conditions precedent.

Its board has resolved to pay a final gross cash dividend of 203 cents per share totalling R532 million, bringing its total dividends for the year to 351 cents per share totalling R920 million and equating to a dividend yield of 9% as at 15th of March 2024.