Sun International Derives Another Strong Performance

Sun International released its half-year results today, delivering another set of exceptional results for the first half of 2023 and building on its strong performance achieved in 2022.

Key highlights: 

• Income for the first six-months up 11.7% to R5.8 billion
• Adjusted EBITDA up by 5.6% to R1.6 billion
• Adjusted headline earnings up by 10.1%  to 197 cents per share from 179 cents per share
• Sunbet generated recorded income, up by 138.4% exceeding its 5-year targets
• Sun City achieves exceptional perfomance, income up by 25.5% and EBITDA margin up 6.4%
• The group is in a strong financial position with South African debt at R5.9 billion, with debt to adjusted EBITDA at 1.8 times
• Interim cash dividend of 148 cents per share, up by 68.2% totalling R388 million

Income for the six-month period ended 30 June 2023 was up 11.7% to R5.8 billion compared to the prior period. Despite a significant increase in diesel costs and other cost pressures, disciplined cost management contributed to adjusted EBITDA being up by 5.6% to R1.6 billion. Adjusted headline earnings improved from R444 million to R482 million, with adjusted headline earnings per share increasing by 10.1%  from 179 cents per share to 197 cents per share for the review period.

Gaming income, which makes up 78.0% of group income, showed continued sustained growth with income up 6.6%. Despite the difficult economic climate and increased competition, casino income proved resilient and increased by 3.2%. Sun Slots’ operations were impacted by load shedding with income slightly behind the prior comparative period. SunBet generated record income during the review period,  up by 138.4% on the first half of 2022 and is well on its way to achieving the aggressive growth targets set for this business.

Sun International CE Anthony Leeming said: “Although economic conditions in our operating environment remains challenging, our business has proven to be resilient, and we anticipate that we will continue to improve earnings in the second half of the year."

The group is in a strong financial position with South African debt (excluding IFRS 16 lease liabilities) at R5.9 billion. South African debt to adjusted EBITDA and interest cover of 1.8 times and 5.7 times respectively, are well within the group’s lenders’ covenants of  less than 3.25 times and greater than 3.0 times respectively.

This was despite the group paying a gross final dividend during the review period of R632 million for the year ended 31 December 2022, as well as experiencing a heightened interest rate environment.

“This is evidence of the strong cash generation by the group as well as its prudent allocation of capital. We continue to prioritise increasing free cashflows and disciplined capital allocation to maximise shareholder value within a set of fundamental capital allocation principles. Our balance sheet is in a strong position with unutilised facilities of R2.3 billion."

The adjusted EBITDA margin was impacted by an increase in net diesel costs of R60 million and the relatively higher growth in income from resorts and hotels which operates at a structurally lower margin than urban casinos. Overall, the adjusted EBITDA margin reduced from 28.7% in 2022 to 27.2%. Excluding the impact of the net diesel costs attributable to load shedding, the group would have achieved a 28.2% adjusted EBITDA margin, broadly in line with the first half of 2022. A renewable energy strategy is being implemented to protect margins and ensure energy security.

Net external interest increased  by 40.3% from the prior comparative period as a result of JIBAR increasing by approximately 3.5%. The reduction in minorities’ share of earnings is attributable to the strong performance of wholly owned subsidiaries, namely Sun City and SunBet.

Interim cash dividend

In line with Sun International’s dividend strategy to provide its shareholders with an appropriate, sustainable pay-out over the long term while maintaining a targeted debt to adjusted EBITDA ratio of two times and a dividend pay-out ratio of 75% of adjusted headline earnings per share on a sustainable basis, the board has resolved to pay a gross interim cash dividend of 148 cents per share totalling R388 million.

SunBet has continued its strong growth trajectory and is exceeding its 5-year targets. Overall, income was up 138.4% for the period. Adjusted EBITDA increased from R14 million during the prior comparative period to R90 million in the review period, a 542.9% increase, underscoring the ground-breaking milestones for the business. Active players continued to grow with additional games being offered and the overall player experience being enhanced.

At the end of the review period, SunBet achieved substantial growth across key performance indicators against 2022, which included:

•          unique active players up 702.8%;

•          first time depositors up 469.2%; and

•          deposits up 216.2%.

Leeming said: “SunBet offers the group significant and exciting growth potential, with the added advantage of the business model being self-funding and capex light, and with this in mind, we continue to invest in people and marketing in order to significantly increase our share of the fast-growing online gaming market. We have made significant improvements to registrations, customer deposits and withdrawal processes as well as an overhaul of the customer contact centre. Our customers are now able to interact with us seamlessly and we are well positioned operationally for higher volumes of business.“

Urban casinos income was up 4.2%, despite a challenging operating environment due to load shedding and the resultant increase in diesel costs, with adjusted EBITDA, pre-management fee, of R1.1 billion for the review period. The adjusted EBITDA margin of 34.7% was down 2.8% on 2022.

The group continues to focus on customer acquisition and retention, customer experience and margin improvement and has made considerable investments in each of these areas.

There was a continued strong recovery in both international and local business in the resorts and hotels segment of the group. Domestic leisure, conferencing and sports and events revenues continue to grow while international leisure business recovered strongly in the review period.

Total resorts and hotels income was up 26.9% to R1.4 billion on the prior comparative period. Overall, an adjusted EBITDA, pre-management fee, was up 64.4% to  R314 million from the R191 million in the prior period. The adjusted EBITDA margin of 22.0% reflects a substantial improvement from the 17.0% achieved in 2022 and represents meaningful progress towards the long-term target for the group.

Load shedding resulted in a decline in game play and footfall at Sun Slots sites which was the major contributor to the lower-than-expected results during the period. A number of interventions have been deployed to counter the impact of power outages which result in less game time.

During the review period, Sun Slots income reduced from R730 million to R717 million, and adjusted EBITDA reduced from R191 million to R166 million.

Leeming said: “Our balance sheet remains strong, and we are focused on efficiencies as we look to protect and grow our income and margins. SunBet is achieving record numbers in terms of income and all key indicators and will deliver another step change this year as this business continues to scale at a rapid pace. Our resort and hotel properties have continued to perform exceptionally well, and we anticipate another good year from them in 2023. Urban casinos and LPM operations are demonstrating continued resilience despite the tough operating environment.

“With the strong momentum that we have achieved and having the right leadership in place, we will ensure that our strategy continues to deliver the required results.“