South African operator Sun International saw a 19 per cent fall in half-year profit, for the six months to the end of December, citing poor economic conditions in South Africa which gave flat casino revenue growth.
Overall revenue of R5.8bn for the period ended 31 December 2015 was 10.3 per cent ahead of the period ended 31 December 2014 (last year), boosted by insourced food and beverage revenue and the new properties opened in the prior year.
However, revenue growth for the operator’s domestic casinos, a sector in which it still generates 80 per cent of its revenues, came in at 0.6 per cent, well below inflation.
This was offset by growth at its Monticello casino in Chile which grew its revenues by 16.4 per cent.
The operator said: “The ongoing strategic changes in the group continue to make comparisons to prior periods difficult. Key features of the past six months are the strong contributions to revenue from new businesses, in particular the insourcing of food and beverage in South Africa and the new properties in Panama and Colombia.
These same new businesses are yet to contribute meaningfully to EBITDA and at a HEPS level start-up losses, interest charges and the associated new depreciation charges have had a negative impact on earnings. The core South African operations of the group still contribute 80 per cent of revenue (predominantly gaming) and unfortunately the prevailing poor economic conditions in the country have resulted in extremely low casino revenue growth (0.6 per cent), which is well below the level of cost escalation. This has been partially offset by the continued growth of Monticello in Chile, where the positive earnings growth is also amplified by the strengthening of the Peso against the Rand.”
The most poignant part of the six months was though the failed takeover of rival operator Peermont.
Sun International stated: “A major strategic initiative over the past year has been the potential acquisition of Peermont Group (Peermont) with a significant amount of time and effort having been put into the transaction. Following the decision taken in December 2015 by the Competition Commission to prohibit the acquisition, and given that the Competition Tribunal hearings are scheduled to occur only after the transaction deadline of 31 March 2016 for obtaining the Tribunal’s approval, it is anticipated that the transaction will terminate on 31 March 2016.”
This puts a greater focus on Sun International’s Menlyn Maine project with Peermont lifting its objection to the. Sun stated: “The relevant parties are in the process of negotiating to cash settle the note for R675 million on 30 April 2016 in settlement of all claims. This amount has been provided for through the statement of comprehensive income in the period under review. With the anticipated termination of the Peermont acquisition there is no longer any need for the potential rights offer that was announced in 2015.”
The new casino entertainment complex at Menlyn Maine which will open during 2017.
The six months did see the finalisation of the merger of the group’s Latin American (Latam) interests with Dreams. It made significant progress with its Sun City renovation plan and it exercised its option to acquire a further 25 per cent interest in GPI Slots.