Thousands of jobs on the line at Sun City and other popular hotels and casinos in South Africa

Gaming and hotel group Sun International suffered a brutal first half of the year, with headline losses for the six months ended June 2020 declining 615% to R885 million, from headline earnings of R172 million in the same period in 2019.

Group income was 56% lower at R3.7 billion, from R8.46 billion before, while Ebitda was down 96% at R79 million, from R2.14 billion the year before.

Sun International said that operations were severely affected by the Covid-19 pandemic and lockdown, which saw most of its hotels and gaming venues shut down between March and June 2020.

However, it said that operations were strained before the crisis hit – though it said it was making progress in reversing that trend before lockdown.

“The group’s ongoing efforts to manage costs, implement efficiencies and improve the customer experience were bearing fruit prior to the onset of the Covid-19 pandemic, with the group achieving growth in revenue, adjusted Ebitda and the adjusted Ebitda margin,” it said. ”

Debt was well under control with the benefits of deleveraging reflecting strongly in the financial results.”

In responding to the outbreak, Sun International said it moved to protect balance sheet liquidity and minimise cash outflow, while also reducing costs. Short-term liquidity risk was addressed through negotiating debt deferrals, and a R1.2 billion partially renounceable rights offer.

“The resumption of trading for the casinos under the current level further improves the liquidity outlook for the group,” it said. “Once a stable business environment returns, the business will continue with its progress on deleveraging its balance sheet, simplifying its complex group structure and growing its attractive alternate gaming business.”

South Africa

South African operations were hit particularly hard over the period, the group noted, writing up around R1.2 billion in impairments across some of its biggest assets.

This includes R900 million at Sun City, which carried the bulk of the impairments, followed by R180 million at the Boardwalk, R99 million at the Maslow, Sandton, and R12 million at Sun Dreams – which the group is currently in the process of disposing its investment in.

Income from the South African operations declined by 55% from the prior period.

Most of the operations across the group’s portfolio have become loss-making, after largely being profitable in the same period in 2019.

Retrenchments

As a result of strained operations – though not necessarily tied to the Covid-19 outbreak and lockdown – on 10 June 2020, Sun International informed its trade union, Saccawu that it would undertake a Section 189A retrenchment exercise, impacting approximately 2,300 employees, with an estimated cost of R280 million.

“This retrenchment exercise will particularly impact Sun City, Maslow Sandton, Boardwalk, The Table Bay and the Wild Coast and would likely have occurred irrespective of the Covid-19 pandemic,” it said.

The Covid-19 pandemic has had an impact on the retrenchment process, it said.

The 60 day consultation process which would have initially ended on the 18 August 2020 was extended to allow a voluntary retrenchment and early retirement exercise to be undertaken, in order to reduce the impact of the number of employees that will potentially be retrenched under the Section 189A exercise.

“This latter exercise, agreed by the Union on 17 August 2020, will take approximately 2 weeks to be completed. Thereafter, the group will resume and conclude the Section 189A consultation process with the union. Certain retrenchments at the various affected units will require gaming board approval and may take a little longer to implement,” it said.

Outlook

Sun International said that the Covid-19 pandemic and lockdown will continue to have an impact on operations, with a slow recovery anticiapted.

Most of the group’s bars and restaurants in the casinos, although permitted to re-open under lockdown level 2, have remained closed due to limited demand and the various restrictions on the sale and distribution of alcohol.

Given the restrictions on inter-provincial travel up until 18 August 2020, the Sun City casino has also remained closed. The initial impact of the curfew saw an immediate drop off in gaming revenue which improved towards the end of July and has continued to improve in August.

Hospitality properties remained predominantly closed during the month of July, given the restrictions on inter-provincial travel for leisure in South Africa. With the recent announcement of the move to level 2, allowing all inter-provincial travel to resume, Sun City will open again on 2 September 2020.

“Given, the ongoing restrictions in international travel, we expect the recovery in hospitality to be slower and as such The Table Bay and the Maslow Sandton will remain closed until there is sufficient demand to justify their reopening,” it said.

Read: Warning from South African businesses: more retrenchments on the way