The Palace at Sun City (Supplied)
- Will the coronavirus make the marketing slogal of a resort like Sun City become a reality?
- Debt is the biggest problem for SA’s big listed leisure companies Sun International and Tsogo Sun, says analyst Anthony Clark.
- At the same time, tourism experts remain optimistic that the need to to travel and be entertained will outlast the coronavirus impact.
The image of a lost city nestled in the Pilanesberg mountains has been used over the years to conjure up an attractive marketing image of the Palace of the Lost City at Sun City.
Now the devastating impact of the coronavirus (Covid-19) pandemic on the tourism and gaming industry since the national lockdown started at the end of March, raises the question whether resorts and casinos like Sun City, might end up really just becoming “lost” destinations.
The strain the industry has been under – even before the unexpected sudden arrival of the coronavirus pandemic – is reflected in the share prices of South Africa’s big listed leisure companies Sun International (owner of Sun City) and Tsogo Sun (split into Tsogo Sun Hotels and Tsogo Sun Gaming). Tsogo’s share price declined 82% over the past five years and that of Sun International by 86% over the same period.
“Sun International has R13 billion in debt and a market capitalisation at present of R1.6 billion. Of that debt, about R8.8 billion is local and the balance offshore…Aggressive expansion and the cost of Times Square in Pretoria and now the impact of the Covid-19 lockdown and restrictions to trading has severely impacted the hotels, hospitality and gaming sector,” Anthony Clark, an independent analyst at Small Talk Daily Research, commented on Monday.
Sun International announced a R1.2 billion rights issue last Friday. For Clark that seems like a drop in the bucket compared to the current operational debt pile. He wonders why Sun International did not raise more, “though such an exercise would have been highly dilutive to shareholders and crushed the share price even further”.
Tsogo Sun has debt of R11.2 billion and a market value of R3.9 billion. In recent results Tsogo saw a drop in profit year-on-year from R1.6 billion to R277 million. Clark points out that a prospects statement for Tsogo stated that the Covid-19 lockdown to date had cost the business R2 billion in lost revenues.
“This is revenue and profit it is unlikely ever to see recovered in the current weak South African consumer economy. With extended weakness already existent in the South African economy even before Covid-19, the wealth destruction seen from the lockdown and the hazard created to the economy from resultant employment loss and business closure, means that an already embattled consumer is unlikely to want to spend money on gaming to the same extend as 2019,” says Clark.
Consumer need to remain?
Sun International CEO Anthony Leeming said on Monday that, before the Covid-19 pandemic hit, they really felt like they were turning a corner at Sun City, despite having had a weak 2019 and SA’s weak economy. Before the pandemic hit, we actually thought things were looking positive in the difficult environment.
“Even before the pandemic and lockdown we had started looking at a potential restructure of Sun City and the closure of Naledi (in the Free State) and Carousel (in North West). Yes, the pandemic will have a short-term impact on Sun City and Sun International. We might have to cut up to about 1 200 jobs at Sun City and another 600 hundred jobs at our other resorts and hotels. Even before the pandemic there was an element of over-staffing at Sun City anyway,” he said.
However, in his view, Sun City is still a viable entity, although he foresees it will be tough for the next year.
Sun International is looking at reducing costs while improving service by working more efficiently and also using technology.
“We are not mothballing Sun City but rather using this time for care and maintenance…we are working to improve our guest offering and service,” said Leeming.
“At some point people are going to want to get away again – even if it is only in about 6 to 8 months’ time – and Sun City is well positioned to fulfil that need again. And here will be world standard hygiene protocols in place.”
As for Sun International itself, to survive the lockdown, salaries had to be cut and costs managed. Yet, Leeming is hopeful that restaurants and casinos might be allowed to reopen again – even as soon as July hopefully. He remains cautiously optimistic.
Regarding the rights issue announced on Friday, he said it is purely about a liquidity issue and not about the business not being able to recover. He foresees – as he says likely at Tsogo Sun as well – a period of low capital spending.
View on the future
Tshifhiwa Tshivhengwa, CEO of the Tourism Business Council of SA (TBCSA), which represents private sector businesses in the industry, believes big resorts like Sun City could have an even brighter future post Covid-19, because of the inclusive, comprehensive value for money offering they can make.
As for visitor confidence, he emphasised that the industry has comprehensive hygiene protocols in place at every level of the tourism value chain.
“No doubt consumers are under pressure, but there is a core group of people who like to travel and would take a break and will still be able to do so. That is why offering value for money and stimulating demand is key,” he says.
Lee-Anne Bac, a director at the specialist tourism unit of international consulting firm BDO, agrees that there is a future for resorts and casinos like Sun City.
“In reality hygiene protocols are all manageable at resorts and casinos. I can see that Sun City still provides that resort experience people will be looking for. The need to travel is still going to be there and the need to get out – and especially if it might not be that easy for South Africans to go overseas anymore,” she says.
“Even international travellers will come back, though it might just take a while for borders to be re-opened and travel confidence to increase.”
* Tsogo Sun prefers not to comment at this stage.