Sun International pulled out all the cost-cutting stops to offset tough trading conditions in its South African market but was tripped up by a poor start at its new casino in Panama and foreign exchange losses in Nigeria.
Reporting results for the financial year to end-June, CEO Graeme Stephens said Sun would have reported a 27% increase in headline earnings had the performance not been hampered by events in Panama and Nigeria (Sun’s R44m share of unrealised forex losses on dollar-denominated Nigerian minority shareholder loans).
Adjusted headline earnings came in at R754m and diluted adjusted headline earnings at 723c per share — 10% ahead of last year.
Sun underlined its confidence in medium-term prospects by hiking the dividend 13% to 175c per share.
Mr Stephens said that while the startup losses in Panama were expected, the initial trading performance at the Ocean Sun casino was disappointing.
The casino market in Panama is highly competitive, with Sun’s entry largely regarded as a testing of the waters.
“The casino is not yet a year old, so we don’t want to have a knee-jerk reaction. We want to give it time to ramp up, ” said Mr Stephens.
While the Panama setback was disappointing, Sun’s Latin American investment appears to be paying off with the Monticello casino in Chile putting in a strong performance.
Monticello revenue was up 14% in local currency (11% in rand) with casino revenue up 13.4%. The property was close to revenue levels it had achieved before a smoking ban was implemented in March 2013, Mr Stephens said.
Strong revenue growth and cost savings saw earnings before interest, tax, depreciation and amortisation up 33% (28% in rand) to R387m. Ocean Sun, which started trading in mid-September last year, chipped in R140m to revenue. Management was optimistic the Panama property would achieve medium-term revenue projections and profitability, Mr Stephens said.
In SA, Sun’s main casinos, GrandWest (Cape Town), Carnival City (Gauteng) and Sibaya (Durban), all performed better due to earlier cost cutting.
Kagiso Asset Management analyst Dirk van Vlaanderen said the management team at Sun had been exceptionally busy over the past few years in addressing a previously bloated cost base and reshaping the portfolio by weeding out underperforming assets.
“On top of a very tough trading environment, the challenge now is for the management team to bed down the numerous transactions currently pending, thus providing the market with some certainty as to the ultimate shape and direction of the group,” he said.