Sun International has kept the faith with investors, upping the interim dividend 7.6%, ahead of its earnings growth. And thank goodness for its online business, Sunbet, which is going gangbusters. The FM spoke to CEO Ulrik Bengtsson about the numbers.
Investors are anxious about the prospects for your land-based casinos — with good reason: on an individual basis, only Sun City, Time Square, Meropa and The Maslow actually grew profits. How worried should people be about the prospects for the rest of your portfolio?
I think people should be a lot less worried than they were [before the results] because we have shown that with the right investments and the right operational intensity, we can actually change the trajectory of that entire business. So, we are doing the right things. Now, did everything work that we did? No, it didn’t. Some casinos might have invested a bit too much in bonuses and marketing; others maybe a bit too little. We are taking all those learnings and optimising for the second half of the year. We’re very confident that we have a recipe that works and that will allow us to continue to take market share.
Is there a point at which you will close or get rid of the weakest casinos that you own?
Absolutely. We said already in March that we’re trying to find solutions for our underperforming assets, and it’s clear for everyone to see that those are Windmill, Meropa, Golden Valley and maybe Flamingo. We are in the phase of evaluating what the best path forward is for those, but they’re not part of our core portfolio.
But would you find a buyer for them if everyone else is struggling too?
You’d be surprised what people buy these days. There are various solutions. Selling them outright is one option, but there are also other solutions.
You said Sunbet is the group’s growth engine and its revenue, up 35%, far outpaced that of the national online gaming market, which was 19%. Why did you do that much better? Can that growth continue, and when does its growth start attracting regulator unease?
We’ve executed quite well in Sunbet and it’s really driven by existing customers. For that growth to continue, our product needs to be significantly improved. One of the biggest steps is the new user interface we launched in August. We expect that to power growth for the next six to 18 months. I would anticipate almost perpetual growth in online, but that doesn’t say the regulator won’t pay more attention to this. I think they will, and hopefully we get a situation where national regulation works for everyone — customers, regulators and companies — but regulation that is set up in a way that allows companies to keep growing and paying more taxes.
Have you any confidence that South African regulators will get it right?
That is the million-dollar question. What we’ve learnt is that the only way to get the illegal market under control — you will never eliminate it, but to get it to 5% or less of the total market — you need to have regulation where there are some tangible benefits to being regulated. If there are no benefits, the regulation will be dysfunctional.
What percentage of the market is illegal gambling now?
We think it’s 17%–20% that is being leaked offshore.
There’s market chatter of a management purge at Sun International, and there do seem to be a lot of changes at senior management level. Why was that necessary?
We have embarked on one of the largest capability and upskilling projects in this company’s history and that includes the management team, but it’s across the board. We simply didn’t have the right capabilities to do what we needed to do.
Where were the skills lacking?
We basically had no technology or software engineering skills at all. Now we’ve built our first piece of proprietary in-house technology. And if you look at land-based casinos, we didn’t have the capabilities that understood what a world-class operation looked like, so we brought in people who understand how to run casinos in the modern world. We looked at all kinds of operational capabilities, whether it’s marketing, digital marketing, customer acquisition and so on. We’re encouraged by the fact that despite this large investment in the business, we accelerated our earnings growth in the first half. We’re going to keep this up, and over the [five-year] period we’re going to expand margins.
The second half has begun strongly, with revenue growth ahead of guidance. Can you keep that up?
It’s always nice to be ahead of plan, but it is just a moment in time, so I wouldn’t extrapolate that necessarily to forecast. We’ll take it one step at a time.
