Sun International, South Africa’s second-largest leisure company, saw first-half profit plunge by 21 per cent as revenues plateaued and the cost of cutting back on jobs increased.
Net income for the six months ending December 31 dropped to 302m rand (US$27.6m) from 380m rand a year earlier. Revenue actually increased by 3.6 per cent to 5.41m rand, with casinos revenues increasing by one 1 per cent to 4.22bn rand.
The company confirmed it would expand in Colombia and Panama.
“Trading for the period remained challenging, particularly in South Africa where casino revenue has remained under pressure and at Monticello where the effects of the smoking ban persist,” Sun stated. “The weaker Rand has however given a welcome boost to the tourism industry and to the group’s hospitality revenues. The full benefit of these initiatives and the wider group restructure will only fully reflect in the 2015 financial year. The group is optimistic that it will achieve growth in both EBITDA and adjusted headline earnings.”
In terms of added charges the company said: “Depreciation and amortisation increased 13 per cent due to additional depreciation charges from the new property openings (Boardwalk and Maslow hotels) and the installation of the group’s enterprise gaming system at a number of our properties. Property and equipment rentals increased due to higher variable rentals on the Maslow and Table Bay as a result of improved revenue and profitability as well as an increase in gaming equipment rentals. Employee costs, which were up 13 per cent, include restructuring costs of R39m and the cost of employees of the group’s two new hotels.”
GrandWest revenue was eight per cent ahead of last year at R999m with the local economy benefitting from the increased tourism spend in Cape Town.
Sibaya grew revenue six per cent to R555m through excellent cost control. Encouragingly, Sibaya’s share of the KwaZulu-Natal gaming market of 35.6 per cent has improved over prior years.
Carnival City continued to experience a slowdown with revenue declining six per cent, well below the 1.7 per cent growth in the Gauteng casino market. The decline in revenue is attributed to
increased competition from Electronic Bingo Terminals and Limited Payout Machines in and around Ekurhuleni. Revenue from EBTs and LPMs in Gauteng increased 23 per cent in the 2013 calendar year, which has impacted negatively not only on Carnival City but also Morula. Boardwalk revenue increased 18 per cent to R278m with casino revenue up 11 per cent.
Sun City revenue at R720m was 10 per cent up on last year. As a result of new marketing initiatives gaming revenue was up 15 per cent at R265m.
Wild Coast Sun revenue increased three per cent to R200m with gaming revenue five per cent up at R153m.
Table Bay Hotel had an exceptional six months with revenue 40 per cent ahead of last year at R108m.
The Royal Livingstone and Zambezi Sun’s revenue in local currency was 18 per cent ahead of last year.
Gaborone Sun and the other Botswana operations achieved revenue of Pula82m, 0.3 per cent ahead of last year.
The Federal Palace revenue in local currency was nine per cent below last year at NGN1 682m (R105m) with gaming revenue in line with last year at NGN738m.
Monticello revenue, in Chilean Pesos, was down 22 per cent on last year at CLP35.6bn due to the impact of the anti-smoking legislation.
Two smoking decks were opened towards the end of September and a further two decks in late October. These are starting to have a positive effect on revenue with the decline in gaming revenue slowing to 11 per cent in November 2013 and seven per cent in January 2014.
A comprehensive restructure of Monticello was undertaken in September which has resulted in the EBITDA margin improving from 13.9 per cent in the first quarter to 20.4 per cent in the second quarter. Monticello’s share of the Santiago market increased 3.3 per cent to 70.8 per cent due to the introduction of 218 new slot machines and increased entertainment and promotional activity.
Sun’s stock has fallen by 12 per cent in the past 13 months, in contrast to an 11 per cent upswing at Tsogo Sun Holdings, South Africa’s biggest leisure operator.