It comes as no surprise that Sun International has scrapped its full-year dividend.
The gaming and hotels group is, after all, set to release the terms of a R1.5bn rights offer with borrowings at R15bn as of the year ended December, R11.4bn of that attributable to its SA balance sheet.
Whether the rights offer will be enough to give Sun International some breathing room is another matter.
The group’s results, released on Monday, read like a catalogue of bad investment choices. It’s been forced to close its Sun Nao casino in Colombia, as well as its nascent International VIP businesses here and in Panama, for which it had high hopes not even two years ago.
Sun has applied to the Eastern Cape gaming board to restructure its Boardwalk casino, and has taken the decision to close the Fish River Sun. Worst of all, its new Menlyn, Pretoria-based property, Time Square, which opened in April 2017 and on which it has lavished R4.2bn, is trading "well below expectations".
For the period under review, Time Square incurred a loss after tax of R345.2m, of which R296m is attributable to the group.
That all adds up to a 41% slide in adjusted headline EPS to 298c. One-offs include R50m to end the Sun Nao property lease, R43m to close Sun Nao, Morula and Fish River, and R92m to impair assets.
Lentus Asset Management portfolio manager Nic Norman-Smith says it’s "very concerning" that Time Square has had such a rocky start, notwithstanding the obvious consumer stress that Sun International should have expected.
Sun is pinning a turnaround on the opening this month of Time Square’s hotel, which it hopes "will have a significant impact on visitation to the property and an increase in casino revenue".
There are some positives though: Sun City, arguably still its flagship resort, had an "exceptional" year, lifting revenue by 11% and earnings before interest, tax, depreciation and amortisation (Ebitda) by 22% as occupancy rates rose to 72%. Cape Town’s Table Bay Hotel grew sales by 6% and Ebitda by 19%.
Understandably, it’s too early to say if the improvement in SA’s outlook following President Cyril Ramaphosa’s election will immediately be felt in discretionary expenditure and, in particular, discretionary consumer spending on gaming. As a result, management is taking "further steps" to cut costs and steady margins.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.