Sun International positioned for sustainable recovery post Covid-19 lockdown
CFO Norman Basthdaw expects recovery of the hospitality industry will lag after Covid-19.
Sun International has reported a loss for the six months ended 30 June 2020 due to the significant impact of Covid-19 with all the group’s operations in lockdown from late March to June 2020. However, the group is optimistic that it will recover as it focuses on reducing its debt, reorganising the business and growing its alternate gaming business.
“We operate in the hospitality sector which has been materially impacted by the Covid-19 pandemic and will probably be one of the industries that will lag the recovery,” says Sun International CFO Norman Basthdaw. “In the face of pervasive challenges, Sun International has responded proactively to protect its business in the short term and position the group for sustainable recovery post the Covid-19 lockdown over the long term.”
He explains that 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. “Debt was well under control with the benefits of deleveraging reflecting strongly in the financial results.”
Results for the first two months of the period reported on showed continued progress on this trajectory. However, all the group’s operations in South Africa were in lockdown following the declaration of a national state of disaster on 15 March 2020. Gaming and leisure hospitality nationally remained under full lockdown until 1 July 2020.
With the ease of the lockdown restrictions, the group’s South African casino operations were able to resume trading, subject to strict operational protocols being in place and limitations on the number of guests permitted in the casinos of up to 50 percent of normal guest capacity. “In spite of the extensive restrictions on trading in July we are seeing a positive trend coming back into trading,” Norman says.
The Covid-19 pandemic had a significant impact on the group, with all operations being closed for just over three months and March trading significantly disrupted. Consolidated income declined by 56 percent from R8.5 billion to R3.7 billion and adjusted Ebitda reduced by 96 percent from R2.1 billion to R79 billion. The group adjusted headline earnings declined from R172 million to a loss of R885 million with an adjusted headline loss of 702 cents per share.
In spite of the extensive restrictions on trading, South African casino income was resilient for the month of July, achieving 39 percent of income. “We expect casino results to continue to recover strongly following the lifting of the lockdown,” Norman says.
Casino operations continued to post a strong recovery during the first 27 trading days of August, achieving 56 percent income.
Hospitality properties remained predominantly closed during the month of July. With South Africa having only recently lifted restrictions on travel and leisure, and some international restrictions still in place, the group expects the recovery in hospitality to be slower.
Sun Slots achieved 49 percent of income in the month of July and 74 percent in the first 27 days of August. Following the resumption of several key global sporting competitions, SunBet delivered an exceptionally strong performance under the circumstances, achieving 9 percent and 8 percent of growth in income for July and up to 27 August respectively. “We expect online gaming to continue to be a key source of growth for the business going forward,” Norman says.
Sun International’s finance team made the decision to achieve the timelines set for reporting its results despite offers of extensions. “As much as we could have applied for an extension from the Johannesburg Stock Exchange (JSE) we were confident that we were going to achieve our timeline,” Norman says.
He explains that, at the beginning of lockdown the finance team knew that there was a possibility that they would have to complete the reporting while working remotely. “Our advantage was that we began planning to commence our work much earlier than ordinarily. What became even more important was that we communicated much more regularly to the broader finance community across the group, reemphasising the reporting requirements and timelines.”
He adds that management had to ensure that all the teams were well equipped to work remotely ensuring that there was good connectivity, access to systems and availability of the finance team at the central office to deal immediately with queries and giving guidance.
“What did stand us in good stead to deal with reporting while working remotely was our robust processes that were formulated and continuously improved over the last couple of years,” Norman says. “Our processes were really ‘stress tested’ over this period and while we can make some changes these are minor.”
These robust processes have enabled the finance teams to strive for a work-life balance. “When we return to a level of normality, our intention would be to make working remotely a fair part of our routine as we’ve seen that the productivity of our finance team substantially improves. A key part, however, is the personal interaction with other teams and the broader organisation which will definitely not be ignored.”