Sun International feels force of market difficulties and regulatory upheaval but hope for progress remains

Sun International, progress, south africa, debt, tax

Difficult trading conditions and an uncertain regulatory future in South Africa have taken their toll on Sun International’s interim results but hope prevails for a positive resolution to both.

When South African casino giants Sun International announced that it would be closing loss making properties and streamlining its portfolio amidst rising debts earlier this year it was the first indication that its H1 report was not going to be the most positive.

Despite these well-documented operational issues the company saw overall income rise by four percent up to $550m (R7.9bn) and adjusted operating profits grow by four percent to total $83m (R1.2bn) in the six months up to 30 June 2018.

The interim results presentation read: “Trading in South Africa during the first half of the year remained challenging with continued pressure on disposable income, a VAT increase and a deteriorating economic climate.”
In this time of economic turbulence in South Africa the company has sought to shift its operational focus and realign corporate strategy as to prioritise efficiency and optimise practices.

“The benefits of this strategy are clearly demonstrated in the results from the South African operations where we have managed to hold com- parable EBITDA in line with the prior corresponding period. This was despite comparable income only being up by one percent, significant cost pressures and a one percent increase in the South African VAT rate,” read the report.

“In June 2018, we concluded the R1.6 billion equity raise and used the proceeds to reduce South African debt. While the equity raise has improved our debt covenants, the group remains highly geared. As a result of the group’s strong cash generation, we are confident debt will continue to reduce and we will revert to satisfactory debt levels over the next few years.”

Gaming income was up two percent for the period and South African operations only increased by one percent, whilst a number of exceptional items and an increase in fiscal burdens saw post-tax profits drop eighteen percent to $24.65m (R355m).

“We continue to deal with loss making entities and in this regard plan to restructure the Boardwalk and Carousel operations. Applications for the required approvals have been submit- ted to the respective gaming boards.

Time Square has experienced a significant increase in activity although income for the comparable period (April – June) is only marginally up on the prior corresponding period. Recent trading has however been encouraging with July and August 2018 gaming income up by 32 percent and 33 percent respectively.”

The company’s consolidation practices should prove fruitful in the coming years even if current reports don’t make for the most positive of readings.

The closing of loss making entities, the repositioning of current licences and a streamlined financial profile are all positive moves at a time when the South African regulatory environment is in a state of flux.

A recent proposal that seeks to radically alter the nation’s gaming landscape has been resoundingly panned by operators, members of parliament and indus- try professionals.

Brought forward by the Department of Trade and Industry the National Gam- bling Amendment bill was labelled “a complete mess” by Cape Town-based gaming lawyer Garron Whitesman who claimed that it was “based on very flawed, unrealistic and nonsensical policies.”

However, a recent parliamentary meeting sparked heated debate over the bill and has been hailed as a watershed moment regarding the future of South African gaming regulation.

Change remains all but a certainty but early indications from both the ruling African National Congress and the opposing Democratic Alliance suggest that the plans laid down by the Department of Trade and Industry are unlikely to survive true to form.