Wednesday, January 26

Sun International receives R235m business interruption payment, with more to come


JSE-listed hotel and resort group Sun International settled a Covid-19 related business interruption insurance claim of R500 million.

Sun International Chief Executive Officer Anthony Leeming said Monday that the claim was successfully settled and resolved at five of its operating units in which the insurance claim exceeded the maximum insured loss.

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He said the revenue from these claims of R235 million, which accrued as of June 30, 2021, was received during August 2021 and anticipates that the remaining claims of approximately R260 million will be settled shortly.

Leeming said the 500 million rand of the deal will be used to pay off the debt.

He said it is probably one of the largest business interruption insurance claims resolved, but emphasized that the group had a cash flow loss of approximately R3.5 billion during the 18-month period.

Recovery

Sun International significantly reduced its Covid-19 pandemic-induced loss in the six months to June 2021 and is optimistic about achieving a turnaround to a profit by the end of the year.

Read: The casino always wins

The group reported an improvement in overall earnings adjusted to a loss of R7 million in the six months to the end of June from the loss of R885 million in the corresponding prior period.

Leeming said the second half of the financial year will be stronger for the group, but that it started in July with everything closed due to Covid-19.

“We have to catch up first. We are quite optimistic as long as there are no restrictions.

“December should be a good month for us and the rest of the months should be good except July. I would definitely like to see us positive by the end of the year, ”he said.

Listen: CEO Anthony Leeming discusses Sun International’s results

Leeming said that international business travel and foreign tourism are not huge for Sun International, but they are still important, particularly as the Table Bay Hotel is primarily a foreign business and is losing around R100 million in earnings before interest, taxes, depreciation and amortization (Ebitda) just that and also “a little bit” at The Palace at Sun City.

Read: V&A Waterfront recovers after blocking hits

He said the local conference and exhibition business is probably the most important thing to the group’s hotel travel market.

“That is quite important for us at Sun City and it is key to get it back. I think he will recover quite strongly.

“People want to get out there and start interacting and having fun, again only once Covid-19 has been eliminated,” he said.

Gaming

Leeming added that the group’s core casino business, which accounts for around 70% of profits, has shown resilience and anticipates a continuation of the improvement in Ebitda as Covid-19 restrictions are further eased and, ultimately they are eliminated.

Read: Soccer bosses buy license to Sun International’s Carousel casino

He said the group’s alternative gaming operations remain an exciting growth platform and are now making a significant contribution to the group.

Overall revenue from South African operations improved by 52% to R3.7 billion compared to the previous period, with an adjusted Ebitda of R89 million to R749 million.

Casino revenue from South African operations increased by 61% compared to the corresponding period in 2020.

Leeming said commerce was negatively impacted by the imposition of curfew hours and restrictions on alcohol service, while limited capacity resulting from machines turned off caused challenges during peak periods.

Alternative gaming overall revenue increased from R303 million to R608 million, with an adjusted Ebitda of R56 million to R152 million.

Group results

Sun International’s adjusted overall loss per share improved to three cents from a loss of 702 cents in the prior period.

The group’s debt was significantly reduced to R7.6 billion from R11.1 billion in June 2020.

“The capital increase following the rights offering concluded in 2020, as well as the sale and implementation of Sun Dreams last year, have improved our liquidity position and have significantly strengthened the group’s balance sheet,” he said.

Leeming said the plan is to reduce debt a bit more.

Plans

He said the group continues to interact with stakeholders about the disposition and / or development of the group’s vacant land to generate shareholder value, with the proceeds being used to further pay off debt.

Leeming said these discussions are in various stages and relate to the Carousel, Carnival City, Time Square, GrandWest and Sibaya properties.

He said it is difficult to quantify how much the group will raise from this, adding that it has had offers of up to R200 million for the Carousel land, but “they were not real” and believes it is worth around R150 million.

Read: Sun International’s Carousel Casino Gated Property For Sale

Leeming said that a fairly large piece of land in GrandWest was probably worth between R30 million and R40 million, while “slow development” over five years on a large piece of land in Carnival City will result in “small amounts of money coming in all the time.” .

He said the group has undertaken a major restructuring and reduced the cost base at Sun City and believes it “has an Ebitda of 450 million to 500 million rand in good years”, although that is “a time of rest.”

Leeming said the group is investing in Sun City, with 180 million rand to spend on a massive upgrade and room upgrades at The Palace over a two-year period.

The group is also considering an expansion of the third phase of Vacation Club which will be staggered and will cost around 100 million rand, but this investment still requires board approval.

Leeming said that the Covid-19 pandemic and the ongoing restrictions imposed on the business and its activities will continue to have a significant impact on the South African economy, which will take some time to recover.

“This will have an impact on our business results, but South Africa’s vaccination program is on track and infection rates are expected to decline over time, which bodes well for our business,” he said.

Shares of Sun International rose 0.72% on Monday to close at R18.24.


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