Sun International is reviewing Sun City operations after occupancy rates dropped 10%

Sun International says it will review operations at its Sun City Resort in North West Province, after sales and occupancy rates declined in the first half of the year.

Sun City experienced difficult trading conditions, with income down by 6%, Sun International said.

“Trading for the period was volatile with a difficult start to the year following the December hail storm. Trading improved in May and June. However, the outlook remains uncertain,” it said in a report outlining its financial results for the six-month period ended June 2019.

Occupancy for the period was at 61%, down 10% on the prior year with the average room rate down 2%, to R1,807.

The resort was affected by a massive hail storm and flash flooding which caused substantial damage to the hotel rooms, as well as the Sun Central family and entertainment precinct.

Gaming income at R241 million was down 3%. As a result of the difficult trading and the high fixed cost base, Sun International said that adjusted earnings before interest, taxes, depreciation, amortisation, and restructuring or rent (EBITDAR) costs was down by 36% compared to the prior period.

“We will shortly commence with a comprehensive review of Sun City’s operations to achieve operation efficiency and to enhance the guest experience,” the group said.

Income for the iconic resort declined to R740 million, from R784 million in 2018. The group has spent R48 million in refurbishment in the first six months of 2019, with an additional R148 million expected in the second half of the year.

Sun International noted that the local economy continues to underperform, with low GDP growth, high unemployment and an uncertain political landscape.

Despite the difficult environment, income from the South African operations was up 2% from the prior period to R5.5 billion with adjusted EBITDAR up 4% to R1.5 billion reflecting a EBITDAR margin of 27%.

“The margin improvement achieved was through a dedicated focus on efficiencies, cost containment and enhancing the guest experience. We are in the process of reviewing and restructuring our head office, which will result in further efficiencies and cost savings,” it said.

The current period also had the full impact of the 1% increase in the VAT rate, which was increased in April 2018.

Overall, group adjusted headline earnings increased from R115 million to R172 million with adjusted diluted headline earnings per share up by 30% to 136 cents.

Headline earnings per share was up 4% to 128 cents per share, and profit after tax increased 5% to R364 million.

Time Square, Sibaya and Sun Slots performed well with income increasing by 15%, 6% and 13% respectively. SunBet improved significantly with income up 146% and EBITDAR at R20 million from R2 million in the prior period, Sun International said.

Wild Coast (9%), Windmill (9%) and the Maslow (9%) experienced declining income, it said.

The group said that GrandWest’s income and adjusted EBITDAR were down 3% to R1.1 billion and R398 million respectively.

“Although slots handle remained in line with the prior year, the win percentage decreased, resulting in slots gross income decreasing by 3%. Tables performance was impacted by a challenging environment, with a 13% decrease in drop resulting in a 4% decrease in overall tables income,” it said.

Time Square achieved income of R671 million and adjusted EBITDAR of R203 million.

Its casino market share for the six-month period 30 June 2019 was at 14.6%,up from 13.5% reported at 31 December 2018. For the second quarter, market share was at 15.2% and the first five weeks post 30 June 2019 market share was at 17.4%.

The hotel achieved occupancy of 53% at an average room rate of R1,225. “As a result of a focus on costs and efficiency the adjusted EBITDAR margin of 30% improved throughout the period from the 23% achieved in the 2018 comparable period.”

Looking ahead, Sun International said that with the uncertain international environment and local economy under pressure combined with weak local business confidence, it does not anticipate an improvement in trading conditions in the short term.

“Notwithstanding the subdued trading conditions, management will continue to focus on its key strategic objectives and optimising the business. We will place emphasis on improving our operations and guest experience and will continue to take the necessary action on loss-making entities.”

Read: How much money Sun City, Montecasino and other major South African casinos are cashing in

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Sun International is reviewing Sun City operations after occupancy rates dropped 10%