Little demand for gaming subdues Sun - Monday 21st of January 2013

INVESTORS in gaming and leisure group Sun International who were hoping for a swift recovery and a dividend would have been disappointed with the groups interim results released on Friday.

Soft consumer demand and escalating operating costs continued to weigh on the group, which reported a 36% drop in adjusted headline earnings for the six months to December.

While the group forecast some improvement in the second half to June , there was little to smile about in the first half. Total revenue rose 2% to R4,1bn but comparable revenue, which excluded Monticello Casino in Chile, fell 5%. Gaming revenue climbed 5% to R3,22bn, while room revenue fell 14% to R409m.

Earnings before interest, taxation, deductions and amortisation (ebitda) fell 11% to R1,2bn. The editda margin fell 4,5 percentage points to 29,5% due to operating cost inflation and lower margins at Monticello. Excluding Monticello, the ebitda margin was 31,6% (35,4%).

CEO David Coutts-Trotter said prospects for the group and the industry remained subdued.

"No one is predicting a recovery in world tourism anytime soon. Consumers dont appear to be in a better space yet. Employment levels have not improved and increased cost pressures such as the 25% hike in electricity prices is going to reduce the amount of discretionary money consumers have to spend in casinos or hotels. We believe a recovery is still some way off."

Financial numbers may begin to improve in the second half, but it would be off a low base and will not signal a real recovery .

Revenue at Grand West, Suns largest property, fell 6,4% to R787m as editda slipped 11,6% to R303m. Boardwalk saw revenue fall 7% to R202m and ebitda drop 16% to R75m. A better performer was Sibaya Casino in KwaZulu- Natal, where revenue rose 5% to R424m and ebitda to R150m.

Trading at Monticello continued to improve as the final components of the 155-room hotel were completed in the second half of last year.

"Monticellos revenue is showing good growth from quarter to quarter, with a 13% increase in the second quarter compared to the previous quarter. Ebitda of R36m was achieved for the six months compared to a R23m loss last year," Coutts-Trotter said.

Tighter margins at Monticello were due to higher taxes in Chile and because the resort had still to reach its full potential. "Chile is still a new market and it will take some time before the property reaches its full potential."

Room revenue was severely affected by weak demand from the international market and conventions sector . Sun City had occupancies of 71%, down from 81% at the same time last year, which translated to ebitda falling 24% to R68m. The Royal Livingstone and Zambezi Sun in Zambia saw occupancies plunge to 54% (71%) . A stronger rand-dollar exchange rate added to the pressure and ebitda slid 60% to R16m. At The Table Bay low occupancies led to a 55% drop in ebitda of R15m.

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