CHIEF EXECUTIVE’S REVIEW

Financially, we posted a solid set of results with group income up 4% to R17.2 billion, primarily driven by above-market organic growth from key operations in South Africa and the impact of acquisitions made in Latin America (Latam) during the prior year. Adjusted EBITDAR was marginally up on the prior year at R4.6 billion with pleasing margin expansion in South Africa, offset by the impact of unexpected social unrest in Chile.

We continued to reduce group debt levels. Total South African debt amounted to R8.8 billion (excluding lease liabilities) at 31 December 2019, reflecting a R384 million net debt reduction after acquiring the minority interests in Sibaya for R593 million. Latam’s debt levels reduced to R3.9 billion from R4.9 billion. We will continue reducing group debt levels, with a target debt: adjusted EBITDAR ratio of between 2 - 2.5 times in South Africa and Latam respectively.

We are in the business of creating lasting memories for our customers. To do that, we structured the business around them, concentrating on our three distinct customer segments: hotels and resorts, casinos and alternative gaming (SunSlots and SunBet). During the second half of 2019, we implemented a simplified central-office and group-operational structure, with a renewed focus on our customer segments. The revised structure will enhance the guest experience, improve operational efficiencies, and support continued margin improvement at our casino and hotel properties.

As part of these changes we appointed Graham Wood as chief operations officer: resorts and hotels. Graham is highly experienced and will bring a wealth of knowledge and industry experience to Sun International. We are in the process of looking for a chief operations officer: gaming, following the resignation of Thabo Mosololi. We also created a business support division head and appointed Michael Wilson to this role. This division will include certain central support services and will play a key role in leading innovation, technology and optimising digitalisation; to achieve our strategic objectives.

Service is a key differentiator in this challenging and increasingly competitive environment. Our people create the human connection for our customers, offering them memorable experiences so they always return. We use technology to enable efficient processes and to ensure seamless customer experiences no matter which properties they visit. To this end, we continue to focus on digitising our systems and operating environment, so they are more integrated to further enhance the customer experience. We are also reviewing our customer satisfaction measurement systems (Inquba and ReviewPro) by expanding the questionnaires to collect more consistent and granular information on our customer experiences across our hotels, resorts and casinos.

This integration also drives efficiencies and accountability. The group’s workforce scheduling system was instrumental in improving employee scheduling and productivity based on business demand. Going forward, we will focus on implementing defined and agreed productivity standards to improve employee productivity and the management of working hours, especially with our permanent part-time employees. Margin improvements were noted in our food and beverage division and the system integration also resulted in enhanced stock control and management. We continue to explore world-class gaming systems to ensure we remain innovative, relevant and continue to enrich our customer experience. We completed the installation of Playtech’s Neon gaming system at the Park Hyatt Hotel, Casino & Spa in Mendoza Argentina during February 2020. We will monitor the system’s performance and functionality before deciding on a standard system across our Latam operations.

We concluded several strategic transactions during 2019. In South Africa, we increased our shareholding in Sibaya from 64.8% to 87.2% for a total consideration of R593 million. In addition, we will shortly increase our SunSlots’ shareholding from 70% to 100% for an amount of R504 million. These transactions effectively simplify Sun International’s shareholding in these assets and reduce cash leakage by reducing minority dividends. Over time, they will be cash accretive and assist to further deleverage our debt.

In Latam, we concluded an agreement to dispose of a 14.9% interest in Sun Dreams for US$86 million, which would have resulted in our partner in Sun Dreams (Pacifico Sur Limitada (Pacifico)) and ourselves owning 50% each, however, the transaction did not close.

Given the current uncertainty in global markets linked to a depressed local economy and subdued consumer confidence, we do not anticipate an improvement in trading conditions in the short term. Notwithstanding the subdued trading conditions, management will continue to focus on its key strategic objectives, including creating ongoing efficiencies and optimising business opportunities. We will place emphasis on improving our operations and customer experience and will continue to take the necessary action on loss-making entities. Maslow Time Square is expected to gain further market share as well as grow income and adjusted EBITDA and we will focus on growing our alternative gaming business.

Aside from the various challenges faced in Latam, we are focusing on our current operations to improve their performance and will leverage off Chile and Peru’s positive GDP growth forecast. We continue exploring further growth opportunities in Latam, including the online market, where several countries are in the process of regulating this industry.

On 23 March 2020 South Africa’s State President, Cyril Ramaphosa, declared a nationwide lockdown with effect from midnight on Thursday, 26 March 2020 until midnight on Thursday, 16 April 2020, to curb the spread of the coronavirus pandemic. Subsequent to the President’s lockdown announcement, we have closed all our South African hotels and casinos on 24 March 2020 and 25 March 2020 until the end of the lockdown period. During the lockdown period, the group will operate on a limited staff basis to ensure the general maintenance and security of properties. We have engaged with our union, employees, suppliers, service providers and concessionaires and significant action is being taken to reduce costs during the lockdown.

In accordance with the Chilean Superintendency of Gambling Casinos regarding the COVID-19 outbreak, all our Chilean casinos, along with the hotels and food and beverage operations were closed on 18 March 2020.

The relevant authorities have also closed our operations in Peru, Argentina, Colombia and Panama and at this stage it is not certain when they will be allowed to reopen. The measures taken are in accordance with the instructions of the pertinent authorities, in order to ensure the containment of the spread of the virus. The authorities will continue to monitor the situation to determine when we will be permitted to reopen.

While Sun International continues to engage with its various lenders to ensure that its credit facilities are maintained, the full financial impact of this coronavirus on the group will only be able to be determined once the lockdown has been uplifted and its ramifications properly assessed. Shareholders will be kept apprised of developments in this regard.

Notwithstanding these extraordinary and uncertain times, Sun International’s board and management remain fully committed to ensuring the future viability and sustainability of the group and are taking every reasonable step to minimise the impact on our employees, suppliers and business partners.

We remain committed to providing excellent customer service and continue to live according to our values and the SunWay culture.