Hotels in the distressed tourism sector are already up for grabs and more are expected to follow, but for Sun International any deal to buy another hotel would have to be especially convincing.
In an interview this week Sun International CEO Anthony Leeming said while the JSE-listed group would be interested if the right opportunity came along, it would have to be “compelling”.
The group has already been approached by would-be sellers but none of the opportunities had been of interest.
“I think there could be some consolidation, but it’s bold to bet big on hotels. For instance, in the Sandton node, I wouldn’t want another hotel there.
“But we’ve got to be opportunistic if there are opportunities and there are quite a few on the block. There are some operators who are in trouble and are looking for buyers,” said Leeming, who was speaking after the release of results for the year ended December 31.
While Sun International’s debt in SA is at R7bn after reducing it by R1.8bn, Leeming said the group hasn’t “got the sort of strength where we can do whatever we like”.
The hotel business in SA would take some time to recover, but the group believed the leisure sector had “lots of room” for growth, especially in its vacation club concept at Sun City, where members can share vacations at specific properties on a long-term basis.
The concept is only in operation at Sun City at the moment, but Leeming said the group was considering expansion there and in other parts of the country.
“That is where we are going to push a little harder as opposed to capital-intensive big bets on new hotels or hotels that are on the selling block,” he said.
There are some operators who are in trouble.
— Anthony Leemin, Sun International CEO
The year to December had been tough for the group, with the effects of the pandemic and lockdown restrictions resulting in a total group adjusted headline loss of R1.1bn compared to earnings of R763m the previous year.
In response, the group shored up its balance sheet, deferred capital investment and cut operating costs, including retrenching 2,300 of its 9,000 staff.
It also raised R1.2bn from shareholders through a rights issue, closed its Naledi Sun Casino in the Free State and Carousel in the North West, and sold its 65% interest in Sun Dreams in Latin America for $160m (about R2.4bn).
“We did a lot to get the business right and ready. I think we managed to leverage some real efficiencies in the business and the business right now is far more resilient and in a better space to deal with a difficult year,” said Leeming.
“This will be a bit of a year of standing still”, when most of the cash generated will be used to pay interest, as well as being spent on “a bit of capex and debt reduction”.
“As soon as things come back, we feel we are going to be in a good position to benefit and drive the cash flow.”
In terms of further possible retrenchments, Leeming said the group is opting for reduced hours for staff where applicable rather than retrenchment.
He believes the group will be “cash positive” even if the country moves back to level 3 restrictions from its current level 1 in the event of a third Covid wave.
Its casinos and its Sun Slots business, which includes limited payout machines, have been able to generate cash, with hotels overall losing money.
While the number of people visiting its casinos dropped off, by November last year the group was achieving just over 80% of the casino revenue it had reported in the same period in the previous year.
All Weather Capital equity analyst Dumisani Ndlovu said Sun International's results were “indicative of unprecedented tough trading conditions” but the gaming divisions such as Sun Slots “remained a good growth opportunity”.
The number of staff retrenched at Sun International last year.
— IN NUMBERS: 2,300
Ndlovu said the core hotel and casino business remains under pressure as it “will require a successful rollout of vaccines by the government to inspire much-required travel-related confidence.”
Sasfin Securities chief global equity strategist David Shapiro said Sun International had “repositioned its balance sheet”, reduced debt and sold non-core assets in a sector that was in “defensive mode” as the world waits to see whether travel will ever return to normal.
Shapiro, however, believes people will want to travel again and “enjoy themselves”.
He said the hospitality industry is key to the revival of SA’s economy and that it is “exceptionally important that we protect it and support it”.
Leeming said he expects the 2021 year to be about “treading water” and trying to get through any further Covid-19 waves, which he hopes will be short-lived if they do occur.
He said the local leisure market has been picking up and that all things being equal, Sun International is expecting a “good Easter and April” with resorts such as Sun City expected to experience occupancies similar to pre-pandemic levels.
“The key thing here is if there are no changes in restrictions and no complications.”
He said that at Sun City and the Wild Coast Sun, business has been “really good” — at close to full capacity on weekends.
However, its Maslow Hotel in Sandton, for example, which relies on business travel, was experiencing a “tough” environment.
Leeming said the group was still waiting for conferencing and other corporate events to return in full strength
“We have had a few small meetings here and there, but the big conferencing from companies will still take some time to come back.”
Big sporting events such as the planned Lions Rugby tour in July and August also present great potential for hotel groups if they go ahead.
“We have some good block bookings and it [the tour] would be good for us, but we are having to face the fact that there is a reasonable prospect of it being cancelled or taking place in the UK.
“We are holding thumbs but it’s getting closer and closer. It would be very good for us and very sad if we don’t get it.”
