Omnichannel gaming, travel and leisure group Sun International says it will challenge the looming smoking law changes as they go “too far” and pose a risk to the profitability of its casinos.
The health department recently resurrected the Tobacco Bill by placing it before the portfolio committee on health, the firm told investors on Monday. The bill, which aims to deter children and youth from using tobacco products, looks to encourage users to quit and protect non-smokers from tobacco smoke exposure.
The bill is set to outlaw smoking in enclosed public places or the workplace and gives the minister powers to prohibit smoking in public, commercial and private spaces, while banning all domestic and cross-border advertising, promotion and sponsorship of tobacco-related products.
Sun International said early signs were pointing to a cabinet committed to putting the legislation into effect. However, it said widespread feedback and complaints from industry groups such as the Casino Association of SA (Casa) could see the matter before the courts. The group said it would contest certain aspects of the bill.
“Though we support some parts of the bill,” CEO Anthony Leeming told Business Day, “we believe it is going too far and as a result, we are challenging it.”
He said, however: “At the same time we are assessing the changes that will need to be made to our properties to accommodate a no-smoking environment.”
Close competitor Tsogo Sun, which owns Gold Reef City and Montecasino among its gambling assets, has also previously warned that the bill, if passed into law, would result in job losses and reduced capital investment, as well as lower taxes for the government.
As it is, JSE-listed Sun International, which operates within four segments — resorts and hotels, SunBet, Sun Slots and urban casinos — has been grappling to fully recover from pandemic-induced restrictions with the new laws posing yet another threat.
Its urban casino portfolio comprises 13 gaming houses in eight provinces including Grand West, Sun City, Time Square and Carnival City.
In the six months to end-June casino segment income at the group’s four largest casinos grew 2.2% while smaller regional casino growth remained a challenge, Sun International said.
Overall, urban casino income was up just 0.5%.
“Our larger properties have continued to grow and protect margins, while regional properties lacked top-line income growth,” Sun International said.
Leeming said the larger properties benefited from having more significant non-gaming components such as arenas, a large choice of restaurants, movies and retail “which all help to drive footfall”.
He said however that with the expected improvement in the economy “our smaller casinos’ performance will improve”.
The group’s interim overall continuing income climbed 5% to R6bn, while adjusted headline earnings per share (HEPS) rose 9.1% to 215c.
In line with the group’s dividend strategy — which aims to maintain a dividend payout ratio of 75% of adjusted HEPS — the board, chaired by Sam Sithole, approved an interim cash dividend of 161c per share, up 8.8%.
This was largely thanks to SunBet, its online gambling unit acquired in early 2023, remaining a cash cow. The subsidiary achieved a record-high interim income of R512m, a 71.8% increase year on year.
Sun International is banking on the continued upward trajectory of its thriving resorts and hotels businesses, as well as its online gaming for future growth.
It said as the gaming industry was experiencing dynamic changes, through Sunbet, it would continue leveraging its strong brand and market presence to expand its customer base and enter new online markets across Africa.
While Sun Slots’ income fell 4.3% to R686m, the company said it was determined, through a range of initiatives, to arrest this decline.
“The industry is in discussion to increase the minimum bet and max payout which has remained at R5 and R500 since inception,” said the CEO.
“In addition, we expect to roll out more type B licences (up to 30 positions) and have installed some better-performing gaming products.”
The group reported a robust financial position, with a moderate decline in SA debt to R5.4bn from R5.7bn a year ago.
This brought Sun International’s debt to adjusted earnings, before interest, tax, depreciation and amortisation (ebitda) ratio — an important gauge of companies’ liquidity and financial health — down to 1.6, and “well within the bank covenant of three or less”.
Sun International’s share price rose 2.47% to R44.72 on Monday, taking its gains for the year so far to 9%. It troughed at a low of just R7.21 during the height of the pandemic.
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