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Grow our business into new areas and products

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Our strategic priorities in this focus area are:

Actively seek opportunities in high
growth emerging markets
Expand into new product lines
Secure funding for expansion projects
 
As a Group we excel at two core competencies – the operation of casinos and the operation of luxury hotels and resorts. While the hotel business is an important facet, when one analyses the make-up of our earnings we are clearly predominantly driven by gaming – and going forward our hotel portfolio will be increasingly used not just to attract its existing target market (FIT, MICE and local tourism) but also to attract gaming guests – either local or international. We may take on a hotel project from time to time, such as the newly opened Maslow which gives us a presence in Johannesburg, but as we expand into new markets it is likely that it will be led by gaming opportunities, and as we look at new products it is likely that these will be gaming orientated.

With the large number of projects under consideration, we are fortunate to have our own development department headed by Sean Montgomery who currently has around R10 billion of projects under consideration – some may never happen but he plans, designs and costs them all the same. Sean and his team have a successful and long established track record of delivering projects on time and on budget.
 
 

New geographic areas for expansion

Given the fact that there are no new casino licence opportunities in South Africa, for a number of years the Group has explored opportunities for growth outside of its home country.

Sun International will pursue new opportunities through the acquisition or development of appropriate casino assets typically in higher growth emerging markets within our risk appetite and that have appropriate regulatory environments. While we are open to possibilities in more mature markets such as Europe and the USA, we tend to treat opportunities that arise with a degree of scepticism by the time they reach our attention. We have no discernible competitive edge in these "mature" markets and it's generally safe to assume that by the time they have reached us, these opportunities will already have been past a few equally competent operators based in these regions who have turned them down for one good reason or another.

Our real competitive advantage in securing attractive new opportunities stems from the fact that:
  • We have a genuinely global ("1st world") competence in both the development and operation of casinos, hotels and resorts – but we are extremely comfortable operating in emerging markets
  • Our core business is based in an emerging market (South Africa), which gives us a risk profile that enables us to diversify to other emerging markets and actually reduce our overall country risk (whereas other operators with global competence are generally based in mature countries and are typically more risk averse).
 
In looking for new casino opportunities we apply a number of filters to assist us in reaching the correct investment decision. These filters include:
  • General country risk assessment (stability of government, growth prospects, economic drivers etc.)
  • The appropriateness of the gaming legislation in relation to the investment we are making
  • Our ability to operate in a transparent, ethical and responsible manner
  • Our competitive advantage (product/location/regulatory protection/expertise etc.)
  • Whether the opportunity can be expected to contribute a minimum of 5% of Group EBITDA or failing which, is it of strategic importance
  • The absolute quantum of the investment. Currently, we are comfortable that in the region of US$100 million we are not "betting the shop" on one opportunity. Above that we start to look for other ways of structuring the deal including looking for partners if the opportunity is considered too large
  • The feasibility must meet the Group's hurdle rate of approximately 15% in US Dollars for greenfield projects.
 
It's a good time to be looking for new opportunities as recessionary pressures have had the effect of making many countries that were traditionally opposed to the gaming industry more receptive, given the industry's contribution to job creation, tourism and tax revenues.
 

Africa

Our brand is strong in Africa and we have over the years expanded into our neighbouring countries, and more recently further afield to Nigeria. While our product and expertise is in demand on the continent there are very few gaming-led opportunities that meet the criteria set out above. In addition to generally weak regulatory regimes, most African countries have their wealth concentrated in the hands of a very wealthy few and the vast majority are extremely poor. Our gaming business relies on reasonable volume (to eliminate volatility) and therefore a reasonable distribution of wealth. In the absence of this we believe that we should be bringing the high-end players from these countries down to South Africa to our existing properties, rather than investing large amounts in countries where the investment case is not justified.

We have explored the possibility of a hotel-led strategy for Africa but have concluded that we have no real competitive advantage over the many large international hotel groups that are now targeting the continent, and that the return on effort and investment is not warranted relative to other opportunities that we have.

We remain reactive to casino opportunities of reasonable size, particularly in large urban centres and we monitor the fluctuating country risk of those countries where the economic case would be compelling if there was a stable regime and appropriate regulatory environment.
 

Latin America

Despite the current drop in revenue due to the smoking ban, Monticello in Chile has been a success story for the Group and has given us the track record and confidence to look for more opportunities in the region. We have assessed the various countries that offer gaming opportunities and at present believe that Colombia, Panama, Peru and Uruguay have acceptable risk profiles and regulatory environments that warrant us exploring opportunities in these jurisdictions. In the case of Panama and Uruguay, these are small countries that probably only offer the potential for one meaningful property but Chile, Colombia and Peru are large enough to support a multi-property strategy. 

We have made significant progress on a number of initiatives in the region in the past year and as our strategy gains momentum we can expect further opportunities to arise.
 

Chile

We have explored a number of potential acquisition/merger opportunities in the Chilean gaming industry as we believe there are opportunities for consolidation. Given the recent decline in performance of all casinos resulting from the smoking ban and the uncertain time frame for recovery, it is difficult to value businesses currently but we continue to monitor possibilities.
 

Colombia

The Group is in the process of applying for a casino licence in Colombia. Subject to receiving the licence, we have entered into a long-term lease of the casino component in a new mixed-use development in Cartagena. The development also includes a 284 room five star InterContinental hotel, convention centre, shops, theatres, apartments and offices.

We will fit-out and equip the casino with 310 slot machines and 16 tables, at a cost of US$30 million. Planning, design and development of the casino is on schedule. We envisage the construction of the casino to take no longer than nine months to complete once the gaming licence is awarded.

This opportunity provides Sun International with a low-risk entry into Colombia's gaming market, which presents a number of larger, exciting opportunities.
 

Panama

We have previously announced our intention to develop a casino at the Trump Tower in Panama – an iconic development and the tallest building in Latin America. We have spent this year working through various regulatory issues including rezoning certain sections of the building and applying for a casino licence. We have now received all the approvals necessary (including gaming licence approval) and are concluding the acquisition on a freehold basis of the casino component, the penthouse level (to be used as a Salon Privé) and certain apartments in the Trump Ocean Club International Hotel and Tower in Panama City.

The property will be developed at a cost of US$105 million and we will offer approximately 600 slots and 32 tables, allocated between the main casino located on the ground floor and the Privé situated on the 66th floor overlooking the canal and city. Development of the main gaming floor and Salon Privé will now proceed in earnest and we can expect the property to open early in the next financial year.  
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Other geographic areas

Asia represents an obvious and very compelling market – so much so that most large international gaming companies are well represented there already and are well positioned to compete for new opportunities that arise. We have invested a significant amount of management time in understanding the various regions and the basis on which we might successfully compete. We are confident in our ability to develop and operate in Asia, but we are generally constrained by the sheer size of the typical opportunity that arises. The limitation of our balance sheet in relation to other operators in that part of the world means that we have to look to partnerships, management contracts and opportunities that offer the casino-only component. The establishment of a VIP gaming unit to attract Asian players to South Africa will simultaneously give us increased exposure to this part of the world, and with this enhanced understanding and presence our chances of gaining a foothold there are improved.

Outside Asia, we remain reactive to opportunities that present themselves in jurisdictions that we are not actively focusing on. The world increasingly seems to recognise that gaming occurs whether regulated or not. Countries are therefore increasingly considering legalisation and regulation, and our casino offering is perfectly suited to the desires of most governments:
  • We bring a product that offers an integrated entertainment offering – not just gaming but also hotels, food and beverage, live entertainment, promotions, concerts etc.
  • We stimulate not just local demand but also tourism
  • We are developers and invest heavily to create quality assets that are then maintained to the highest standards
  • We are responsible corporate citizens with a strong track record in responsible gaming
  • We are large employers and contribute significantly to tax revenues.
 
In an industry often typified by participants that are sometimes less than scrupulous, we offer governments and other stakeholders an attractive, high quality and low risk alternative. We believe that our track record, combined with our integrity and willingness to explore and understand new markets, will continue to generate a pipeline of new leads and projects for the foreseeable future.
 
 

New products/lines of business

LPMs/EBTs

Our focus on offering our guests unique and exciting experiences is a critical response to mitigate the impact of the proliferation of facilities offering alternative forms of gaming such as LPMs and EBTs. However, as this is an industry segment that seems to be here to stay and gain traction over time, the Group has to consider potential opportunities for entering this market. It is a market generally characterised by fragmentation and small participants which makes meaningful acquisitions difficult, however, we are exploring the options available.
 

Sports betting

imgThe Group's proposed acquisition of a sports betting company provides us with an entry into the online sports betting space and provides our guests with a new product offering. We believe that the sports betting industry in South Africa is in its infancy and offers high growth. More importantly this acquisition provides an opportunity to gain experience in operating in an online environment. It seems likely that in time online gaming will be legalised in South Africa and we believe that this business will position us well for when this happens, both in terms of track record and also in understanding our guests' online preferences. The business to be acquired will be relaunched shortly under the "Sunbet" brand. Our smart card technology and database of gaming customers will facilitate an entry to this segment of the gaming market. 
 

VIP gaming

The Group is looking to target another important customer segment – the high-roller VIP gaming guests who choose to play in the world's leading gaming destinations. We believe that a number of the Group's assets such as The Palace at Sun City, The Table Bay (linked to GrandWest), and The Royal Livingstone (where we have just applied for and been granted a casino licence) match any global destination in their appeal. Importantly, South Africa is directly connected by flights to many destinations that have a proven propensity to enjoy gambling – in particular Asia. We also believe that this strategy will be appropriate to attract wealthy individuals residing in Africa to our existing properties. As our Latin America strategy gains traction we definitely need to understand and compete in the established VIP market in that part of the world (in particular Argentina and Brazil) and the properties that we have, and are developing, are ideally suited for this as they bring a quality of casino not traditionally available in the region.
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