It has been a year of significant change for Sun International. I am pleased to report that the management team has made significant progress in delivering against the strategy and objectives set in the prior year.
Sun International had reached a plateau around 2010. It was in need of a step change in approach and a new vision to meet the demands of a challenging environment. The board made significant management changes and the new team was given the mandate to critically evaluate the Group’s strategic focus, its portfolio of properties and how it operates. This was not only to respond to the environment but to position the Group for the future.
With the strategy formulated, the Company started to build a senior management team with the necessary competencies to take up the challenge of revitalising the business. Sun International today has a highly skilled and highly experienced international management team, which brings together industry knowledge and global perspectives from South Africa, Australia and Latin America.
Restructuring and rightsizing the organisation to achieve operational efficiencies extended to a review of our business processes and our staffing structures, in terms of flexibility and headcount. This led to a significant restructure in Chile and South Africa. After extended engagement with employees, unions and regulators, I am satisfied that the Group has followed due and fair process and has genuinely consulted with all stakeholders to identify an optimal solution to achieving an agile business without compromising our guest experience.
As this integrated report demonstrates, the Group is becoming leaner and more efficient. The management team has risen to the challenge of taking Sun International into a new era, and is injecting new energy and vitality across its operations. This is already evident in greater strategic alignment across our operations and pleasing results, especially in the second half of the year.
We still have work to do, given that our strategy is focused on building a sustainable foundation for growth over the longer term. With this in mind, the Group is taking a cautious and considered approach in growing the business and implementing change – we are assessing the resultant impact at every stage and will continue to adapt to lessons learnt and changes in our operating environment.
The South African economy remained under pressure throughout the year, and there is broad consensus that this will continue for the foreseeable future. However our task is not just to run a company that does well during good economic periods, but to build a sustainable business that can also weather tough times. Our objective is to produce more-than-acceptable results for shareholders, despite the prevailing economic climate.
The Group has concluded a number of significant transactions over the past year. In South Africa, the Group will acquire a 70% interest in GPI Slots over a two-year period, thereby becoming a significant player in the fast growing limited payout machine market. To facilitate the exit of our Western Cape partner Grand Parade Investments Limited (GPI) out of SunWest and Worcester, we disposed of a 15% interest in these companies to Tsogo which together with its acquisition of the GPI shareholding will result in Tsogo holding a 40% interest in SunWest and Worcester. We retain the majority shareholding as well as the management contract over these two companies. We are extremely proud of our partnership with GPI and the success it has brought both our groups and we wish GPI well in its new endeavours.
Our approved application to amend the Morula casino licence to permit the relocation to Menlyn Maine in Tshwane’s eastern suburbs will see the Group develop a R3 billion integrated casino resort called Time Square at Menlyn Maine. This will become a flagship property for the Group in Gauteng.
Post year end the Group disposed of 80% of its interests in those of its African assets located in Botswana, Lesotho, Namibia and Swaziland, and a 50% interest in its Royal Livingstone and Zambezi Sun operations situated in Zambia to the Minor Group Pcl. (Minor), a reputable Asian hospitality group. A good relationship has been cultivated with Minor over the last year and there is strong alignment between the cultures of the groups, management and strategy. Minor are focused on hotels, which is complementary to our focus on casino-led opportunities. This partnership may lead to broader prospects as we seek other opportunities together in Africa and Asia.
In Latin America, we are acquiring a further 55% stake in Monticello, increasing our interest to 99%. It is a significant investment for Sun International that reflects our commitment to Chile and the region. On 12 September 2014, we opened our newest casino, the Ocean Sun Casino in Panama. Developed at a cost of US$105 million, the property sets a new standard in Panama. We have also secured a casino licence in Cartagena, Colombia, where we will develop a casino at a cost of US$30 million.
Sun International’s governance has always been solid and robust and we have achieved a reputation for being at the forefront of applying governance principles in all that we do including our expansion and development in new territories. This is facilitated by ensuring that no matter what we do or where we operate our business remains underpinned by the pillars of fairness, transparency, accountability and responsibility to all stakeholders. These pillars preserve the Group’s long-term sustainability.
The Group operates in highly-regulated environments, and compliance with the conditions of our casino licences is a fundamental part of our business practice.
The board is satisfied that it complies with applicable governance and regulatory requirements and recognises that sound governance has a positive impact on long-term value creation. We will therefore continue to review and enhance our governance process to ensure ongoing compliance with legislation, regulation and governance codes.
We choose to invest only in markets that are well-regulated and supported by functional compliance structures. More specifically, we encourage proper regulation and enforcement in the best interests of our guests, employees, communities and the sector, and we cooperate with the regulators in all jurisdictions where we operate. The board’s stance in this domain is non-negotiable.
As a leading South African corporate, we take our responsibility to society seriously. We continue to contribute to the wellbeing of communities, especially those in the vicinity of our operations. Again this is more than just compliance as it arises from our objective to be a responsible corporate citizen because we believe business is an integral partner in addressing societal ills.
We continue to improve our performance in our environmental practices, across water and energy usage and waste management. As a key priority for the Group, sustainable environmental and social practices are an integral part of the performance targets for leadership and management.
We consider our employees to be partners in the business and an important stakeholder. The past year has been a difficult environment for all employees due to the section 189A restructuring process. I am, however, pleased that management led from the front and worked closely with employees and unions throughout the process. I look forward to the next phase where we start to rebuild the morale and culture of a great organisation.
The board is pleased to announce the appointment of Mr Enrique Cibie as an independent non-executive director with effect from 22 August 2014. Enrique is a Chilean national and currently serves as a non-executive director on various boards in Chile, having previously served as the chief executive of various Chilean and multinational companies. With the Group’s increasing exposure to Latin America, Enrique’s experiences and in-depth knowledge of business in Latin America will be of significant value to the Group. We look forward to his contribution to Sun International as we internationalise the business.
I extend my thanks to the board for their sage advice and involvement over a particularly challenging year for the Group. To Graeme and his executive management team, thank you for the new energy and direction you are bringing to the Group. I am particularly pleased with the high degree of synergy between the board and management as we work together to take Sun International into a new era. Finally, to the employees across the Group who are the custodians of the Sun International brand, you can be justifiably proud of delivering a solid set of results in the midst of great change. Thank you for your focus and dedication.
MV (Valli) Moosa