Sun International to invest another R530m in Sun City

Sun International to invest another R530m in Sun City

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Sun International’s Sun City resort, where R2 billion in capital expenditure has been invested in the past 10 years, delivered record earnings to contribute to the JSE-listed hotel, gaming and resort group’s strong financial performance in the year to December.

Sun City delivered record adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) before management fees of R455 million in the year. And now the group plans to pump a further R530 million into the resort, which includes a R350 million upgrade of the Sun City Hotel.

Sun International produced strong financial results despite the economic headwinds and energy crisis in South Africa, which resulted in R60 million in increased diesel costs in the year because of load shedding.

SunBet, the group’s online sports betting website, also delivered record income and profitability to exceed its five-year targets.

Sun City

Sun International is continuing with its capital expenditure at Sun City, which is aimed at maintaining its properties and improving the customer experience as it drives initiatives to grow the international leisure market, particularly in Sun City.

Sun International CEO Anthony Leeming confirmed to Moneyweb on Monday that “a really big refurb” of the Sun City Hotel will start towards the end of this year and only be completed in the 2026 calendar year, while there will also be an upgrade to the Reserve Vacation Club.

Read: Sun International invests R295m in Sun City timeshare expansion [Oct 2022]

Leeming said about R350 million will be spent on the refurbishment of the Sun City Hotel over three financial years and about R180 million on the Reserve Vacation Club upgrade, also over three financial years.

He said this capital expenditure will be funded from the group cash flows and will still get a positive cash flow contribution from Sun City.

Capital expenditure on Sun City in the past 10 years includes:

  • R200 million on the refurbishment of The Cabanas;
  • R100 million on the Sun City casino and public areas;
  • R500 million on the Sun Central conference centre and entertainment and retail areas;
  • R135 million on new slides, the food court and restaurants at the Valley of Waves;
  • R210 million on The Palace rooms and bathrooms refurbishment and new Royal Spa;
  • Vacation Club refurbishments;
  • The addition of 58 Lefika Villas; and
  • Ongoing capital investment in ageing infrastructure of R120 million a year.

‘Big bounce back’ in online and hotels and resorts

Leeming said Sun International experienced good, strong growth in the year to December from online and hotels and resorts, which “is a big bounce back”.

He attributed this partly to the fact that its hotels and resorts are a good destination for a holiday and is anticipating this strong performance from hotels and resorts to continue.

Read/listen: Revenge travel? Cape Town’s international tourism boom

“We have seen it already. Tourism in Cape Town has been significant and will keep going, and Sun City is becoming increasingly popular.

“We have expanded on the Lefika Villas, with sales going very well. We are seeing growth from last year, and there is capacity.

“The big turnaround at Sun City from 2019 until now has really been a cost-driven exercise.

“Operational structures have really improved in a number of respects, and therefore, there is still space on the top line.

“In 2017, we were doing 73% occupancy, but we only achieved 67% occupancy last year, so we still see room to get that occupancy up to 73%, which will increase gaming spend, and the new Lefika Villas will add value,” he said.

A look at the numbers

Sun International on Monday reported a 7% increase in income to R12.1 billion in the year to December from R11.3 billion in the prior year.

South African adjusted Ebitda rose 3.0% to R3.4 billion from R3.3 billion, with the adjusted Ebitda margin improving from 27.2% at half year to 28.1% for the full year.

Adjusted headline earnings per share grew by 5.9% to 468 cents from 442 cents.

A final dividend per share of 203 cents was declared.

Load shedding and renewables

Leeming said if the impact of the net diesel costs attributable to load shedding is excluded, the group would have achieved a 28.9% adjusted Ebitda margin.

He said a renewable energy strategy is being implemented to protect margins and ensure energy security.

Leeming said total diesel costs for the year rose to R128 million from R68 million in the prior year, an 88.2% increase.

He said they have rolled out a 1.4MW solar system at Sun City that is proving very efficient, resulting in “returns of well north of 25%” and savings in electricity costs of about R3 million a year.

Read: Sun City solar plant has already seen R1m in savings [Oct 2023]

Leeming said the group is also doing two 3MW projects at Sibiya and Carnival City and is considering the Discovery wheeling solution, which they hope will provide about 70% of its electricity costs.

“I think ultimately, the more corporates put into the grid, the less likely there is going to be load shedding.

“In that way, the more we commit to green energy, we help the grid itself, and then secondly, use less electricity during the day with solar is the big objective.

“The challenge we have with solar is if it rains in the day, you still need electricity and load shedding is increasingly moving to night time as opposed to day time,” he said.

“It [solar] will help, but it’s not going to be the silver bullet. Ultimately the large wheeling solutions are the way to go, which will help the entire grid.”

Peermont acquisition

In December, Sun International announced it had entered into an agreement to acquire the leading hospitality and entertainment group Peermont Holdings, whose flagship asset is the Emperors Palace Resort, in a transaction valued at R7.3 billion.

Leeming said on Monday this proposed acquisition is unlikely to have a major impact on Sun International’s 2024 financial performance because it is still subject to regulatory approvals and the fulfilment of conditions precedent.

However, Leeming admitted: “I’m excited by the opportunities and look forward to concluding this strategically significant transaction.”

He said this transaction is anticipated to be finalised by about the fourth quarter of 2024.

Read:
Sun International swoops on Peermont Group
Why Sun wants Peermont: Emperors vs GrandWest vs Monte

Although Leeming indicated he does not expect the competition authorities to place any conditions on the transaction, he admitted it was likely “they are going to ask for something, and there is a little bit that we are prepared to do”.

Leeming declined to expand on this but stressed he did not expect the competition authorities to impose any onerous conditions that Sun International are uncomfortable with because then “the deal will fail”.

He said there are clearly opportunities to grow and improve Peermont’s online business by incorporating it into SunBet and “we are quite excited about that”.

Leeming said Sun International wants to scale up and be a bigger business, adding that if the Peermont transaction is approved, it will grow Sun International’s business by 25% to 30%.

“We have got some debt costs but it should be cash positive from day one,” he said.

Shares in Sun International closed relatively flat on Monday, down 0.41%, at R38.76 a share.

Listen to this SAfm Market Update with Moneyweb podcast, where Jimmy Moyaha chats with Leeming about the group’s gambling bonanza: 

You can also listen to this podcast on iono.fm here.

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