Grow our business
into new areas and
While we believe there is still latent growth to be had from our existing assets, to effectively grow our business we are considering other geographic areas that offer attractive opportunities for casinos. In particular we are focusing on Latin America. We are also looking at the alternative gaming market which continues to experience strong growth.
Given the subdued economic outlook for our core business in South Africa, a focused offshore strategy on higher-growth economies is clearly to our benefit.
Latin America has been a particular area of focus and, in addition to increasing our shareholding to gain control of Monticello, we have also developed and recently opened our casino in Panama and gained approval to proceed with our first project in Colombia. We expect to make further progress in establishing a meaningful presence on the continent in the year ahead. With critical mass starting to develop in Latin America we also hope to appoint a corporate management team in that part of the world which will then free up the South African-based executives to focus on providing strategic input and developing new opportunities – both in Latin America and possibly in Asia, which remains a region in which we would like to gain a presence.
With every new offshore development, we are growing brand recognition which leads to further opportunities being presented. We analyse these against our strategic intent to focus on emerging markets where we are able to compete – either on the basis of risk profile, balance sheet or expertise.
The development of the casino and apartments in the Trump Ocean Club International Hotel and Tower in Panama City, Panama was completed shortly after our year end. The Ocean Sun Casino opened its doors for business on 12 September 2014 and will have its grand opening on 24 October 2014.
The casino has 600 slot machines and 32 tables allocated between the main casino on the ground floor and the “Panaveira” Privé situated on the top floor overlooking the Panama Canal and the city. Both facilities have entertainment and food and beverage offerings.
The development was completed on schedule and within budget.
While we watch every opening with great interest, Panama represents a new market where we do not have the same levels of geographic exclusivity as we do in South Africa and Chile. With this in mind, Panama was structured as a low-risk entry into the market, focusing on the casino component only. Given the great location, excellent product and strong brand association – with Trump International – we are excited by this offering that is without doubt the best casino product in the area.
We wish the new management and employees every success in this exciting new offering for Sun International.
The Group’s application for a casino licence in Cartagena was approved by the Colombian gaming regulator on 28 July 2014. This paves the way for our proposed casino, which forms part of a mixed use development in Cartagena, including a 284-room five star Intercontinental hotel. The casino will be developed at a cost of US$30 million, with 220 slot machines and 16 tables. The Group will lease the casino component of the development, which includes the hotel, convention centre, shops, theatres, apartments and offices.
While relatively small, this opportunity, like Panama, is focused on the casino component only and is a low-risk entry into the very attractive Colombian market. We expect the casino to open towards the end of our 2015 financial year.
As indicated in last year’s report, the proliferation of EBTs in South Africa continues despite objections from land-based casino operators. In effect, EBTs are operated in bingo halls which are mini casinos. We certainly support growing overall gaming revenue, but given that the rollout of EBTs to date has focused on existing catchment areas for land-based casino operators, they do prejudice our existing operations.
As the vast majority of the land-based casinos were invested in and developed on the basis of geographical exclusivity, Sun International and the other casino operators, through the Casino Association of South Africa (CASA), made calls to national government for a national framework to be put in place to regulate EBTs but certain provinces are moving ahead regardless. For example, at the Boardwalk in the Eastern Cape, where we have recently invested almost R1 billion as part of our licence renewal, the gaming board has gone ahead with allowing EBT operators into our catchment area. This new, and unforeseen, commercial challenge makes it harder for us to grow in this market, however we believe that while we undoubtedly will lose some revenue, ultimately the majority of our existing and new players will choose the far superior experience offered at our properties.
To mitigate the risk of EBTs and LPMs in a constrained local economy with a limited pool of players, the Group has taken a defensive stance and has concluded the acquisition of an interest in GPI Slots as detailed below. This gives us the opportunity to participate in this segment, which is growing faster than our existing casinos, while operating within the spirit and framework of local regulations.
As announced on SENS on 13 May 2014, Sun International will acquire up to a 70% interest in GPI Slots, the holding company of GPI’s limited payout gaming operations that own and operate LPMs. GPI Slots presents an excellent vehicle for future growth in LPMs and potentially EBTs. Shareholders voted in favour of the transaction at the general meeting held on 22 August 2014.
The acquisition will be made in three tranches, with an initial acquisition of a 25.1% interest in GPI Slots for a cash consideration of R225 million plus 25.1% of the face value of shareholder loans. The Group has options to acquire a further 25% interest in one year’s time and an additional 20% one year thereafter.
The relevant submissions to the Competition Commission and gambling boards have been made. While the regulatory process may still take some time we expect all approvals to be received by November 2014.
We have developed a broader strategy for EBTs and LPMs, with other opportunities being investigated and pursued.
The acquisition of Powerbet Gaming Proprietary Limited was concluded on 31 October 2013. To align with our brand architecture, it was rebranded as SunBet and the new site was launched. While still small, business levels have grown strongly within this fast-growing industry, with turnover of R13 million over the period 1 November 2013 to 30 June 2014 and showing good potential for growth.
Strategically, SunBet provides an entry for the Group to internet-based gaming in anticipation of online gaming being legalised, with draft legislation reportedly to be announced in the new financial year. Through SunBet, the Group has launched a brand in the market, giving us the opportunity to develop the expertise and offering as legislation evolves. The strategy to drive the sports betting business is being refined and will be implemented in the new financial year.