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SUI
SUI
SUI - Sun International - Profit and Dividend for the Year Ended 30 June 2007
Sun International Limited
("Sun International" or "the group" or "the company")
Registration no 1967/007528/06
Share code: SUI
ISIN: ZAE000097580
Profit and Dividend Announcement for the year ended 30 June 2007
+17% Revenue
+27% EBITDA
+33% Adjusted HEPS
+38% Dividends per share
www.suninternational.com
Group income statement for the year ended 30 June
2007 % 2006
R million Reviewed change Audited
Continuing operations
Revenue 6 937 17 5 949
Casino 5 359 18 4 543
Rooms 776 14 681
Food, beverage and other 802 11 725
Other income 85 216
Pension fund surplus recognition 10 -
Employee costs (1 317) (1 214)
Levies and VAT on casino revenue (1 133) (948)
Depreciation and amortisation (518) (473)
Promotional and marketing costs (577) (509)
Consumables and services (683) (587)
Property and equipment rental (74) (62)
Property costs (224) (222)
Other operational costs (472) (482)
Impairment of investment (97) -
BEE transaction charge - (219)
Operating profit 1 937 34 1 449
Foreign exchange (losses)/profits (10) 52
Interest income 77 74
Interest expense (313) (250)
Profit before taxation 1 691 1 325
Taxation (669) (517)
Profit from continuing operations 1 022 26 808
Discontinued operations
Profit from discontinued operations - 387
Profit 1 022 1 195
Attributable to
Minorities 224 262
Ordinary shareholders 798 933
1 022 1 195
Number of shares (000`s)
- in issue 104 589 105 488
- for EPS calculation 104 864 107 056
- for diluted EPS calculation 106 800 108 394
Earnings per share (cents)
- basic 761 872
- headline 829 90 437
Diluted earnings per share (cents)
- basic 747 861
- headline 814 431
Dividends declared per share (cents) 400 38 290
EBITDA to interest (times) 10.9 11.4
Dividend payout (%) 54.7 53.1
HEADLINE EARNINGS RECONCILIATION
Profit attributable to ordinary 798 933
shareholders
Net loss on disposal and impairment of
property, plant and equipment 2 10
Profit on disposal of City Lodge - (392)
Impairment of investment 97 -
Currency translation reserve realised - (108)
Taxation relief on the above items 2 22
Minorities` interests in the above (30) 2
items
Headline earnings 869 86 467
Supplementary information for the year ended 30 June
2007 % 2006
R million Reviewed change Audited
EBITDA RECONCILIATION
Operating profit 1 937 34 1 449
Depreciation and amortisation 518 473
Other income (85) (216)
Pension fund surplus recognition(v) (10) -
BEE transaction charge(v) - 219
Property and equipment rental 74 62
Indirect taxes relating to prior - (11)
years(v)
Net loss on disposal and impairment of
property, plant and equipment(v) 2 10
Impairment of investment(v) 97 -
Pre-opening expenses(v) 8 13
Reversal of Employee Share Trusts` 20 16
consolidation(v)
EBITDA 2 561 27 2 015
EBITDA margin (%) 37 34
ADJUSTED HEADLINE EARNINGS
RECONCILIATION
Headline earnings 869 86 467
Pre-opening expenses 8 13
Realisation of fair value gains on KZL (84) (83)
shares
Pension fund surplus recognition (10) -
Foreign exchange losses/(profits) on 2 (11)
intercompany loans
Fair value adjustments on loan (1) (25)
origination
Indirect taxes relating to prior years - (11)
BEE transaction charge - 219
Taxation relief on the above items 12 14
Minorities` interests in the above (3) 16
items
Reversal of Employee Share Trusts` 21 20
consolidation(vi)
Results from discontinuing operations - (17)
Adjusted headline earnings 814 35 602
Number of shares (000`s)(vi)
- for adjusted headline EPS 111 306 110 218
calculation
- for diluted adjusted headline EPS 113 242 111 556
calculation
Earnings per share (cents)
- adjusted headline 731 34 546
- diluted adjusted headline 719 33 539
(vi)The consolidation of the Employee Share Trusts is reversed as the group does
not receive the economic benefits of these trusts.
Group balance sheet at 30 June
2007 2006
R million Reviewed Audited
ASSETS
Non current assets
Property, plant and equipment 5 883 5 407
Intangible assets 361 395
Available-for-sale investment 44 141
Pension fund asset 10 -
Loans and receivables 159 302
Deferred taxation 25 17
6 482 6 262
Current assets
Non current asset held for sale 164 -
Available-for-sale investment - 183
Loans and receivables 1 5
Accounts receivable and other 398 334
Cash and cash equivalents 1 089 756
1 652 1 278
Total assets 8 134 7 540
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` equity 2 348 3 083
Minorities` interests 642 742
2 990 3 825
Non current liabilities
Borrowings 2 271 1 458
Other non current liabilities 139 125
Deferred taxation 394 408
2 804 1 991
Current liabilities
Accounts payable and other 1 065 856
Borrowings 1 275 868
2 340 1 724
Total liabilities 5 144 3 715
Total equity and liabilities 8 134 7 540
Borrowings to EBITDA (times) 1.39 1.15
Net asset value per share (Rand) 22.45 29.13
Capital expenditure 972 568
Capital commitments
- contracted 385 223
- authorised but not contracted 961 1 053
- conditionally authorised(ii) 2 250 -
Market value of listed investments - 223
Directors` valuation of unlisted 378 408
investments and loans
Total valuation of investments and
loans and
available-for-sale investments 378 631
(ii) Refer to commentary on Chile and
Nigeria.
Group cash flow statement for the year ended 30 June
2007 % 2006
R million Reviewed change Audited
Cash generated by operations before: 2 488 2 048
Working capital changes 120 (6)
Cash generated by operations 2 608 28 2 042
Taxation paid (704) (598)
Cash retained from operating 1 904 1 444
activities
Cash utilised in investing activities (1 941) (651)
Cash realised from investing 424 315
activities(iii)
Net cash outflow from financing (48) (952)
activities(iv)
Translation (losses)/gains on cash (6) 11
balances
Increase in cash balances 333 167
- (iii) Included in above is investment income of R77 million (2006:
R74 million).
- (iv) Included in above are interest paid of R292 million (2006: R232
million) and dividends paid of R581 million (2006: R498 million).
Consolidated statement of changes in equity
Ordinary
shares and Other Retained Minority
R million share reserves earnings interest Total
premium (vii)
Balances at 30 June 789 (414) 2 708 742 3 825
2006
- Share buy back (92) (92)
- Treasury share (150) (150)
options purchased
- Employee share 11 11
based payments
- Additional minority 1 1
funding
- Acquisiton and
disposal of
minority interests (864) (99) (963)
- Profit 798 224 1 022
- Foreign currency
translation
adjustment (9) (2) (11)
- Release of fair
value reserve
on realisation (84) (84)
- Dividends paid (357) (224) (581)
- Other 12 12
Balances at 30 June 547 (1 360) 3 161 642 2 990
2007
- (vii) Included in other reserves are foreign currency translation
reserve, fair value reserves, share based payments reserve and profit
and losses on purchase and sale of non-controlling interests.
Accounting policies
The condensed consolidated financial information has been prepared in accordance
with the recognition and measurement criteria of all applicable statements and
interpretations of International Financial Reporting Standards ("IFRS") and is
presented in terms of the disclosure requirements set out in IAS 34 - Interim
Financial Reporting. The accounting policies applied to the condensed
consolidated financial information are consistent with those as set out in the
annual financial statements for the year ended 30 June 2006 except for the
adoption of the interpretation as set out below:
Following the approval in September 2006 by the Financial Services Board of the
surplus apportionment exercise relating to the Sun International Pension Fund
("SIPF"), as at 31 December 2006 the group was required, in terms of IAS 19:
Employee Benefits, to recognise a defined benefit asset of R142 million arising
from the actuarial valuation surplus existing within the Fund.
IFRIC Interpretation 14 - IAS 19 - The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction ("IFRIC 14") was issued in July 2007,
effective for financial years commencing on or after 1 January 2008. Sun
International has early adopted IFRIC 14, based on which the directors have
determined that Sun International does not have an unconditional right to a
refund of the surplus existing in the SIPF as at 30 June 2007. However, certain
future economic benefits are considered to be available to the group in this
regard and accordingly an asset of R10 million has been recognised at 30 June
2007.
Audit review opinion
The condensed consolidated financial information for the year ended 30 June 2007
has been reviewed by the group`s auditors, PricewaterhouseCoopers Inc., and
their unqualified review opinion is available for inspection at the company`s
registered office.
Earnings and dividend
The group achieved strong growth in revenues, which were 17% ahead of last year
at R6,9 billion. Gaming revenues grew 18% and hospitality and other revenues
12%. EBITDA of R2,6 billion was 27% up on last year and the EBITDA margin
improved 3 percentage points to 37%.
As reported in the interim announcement the group has impaired the carrying
value of its 24,8% investment in the Cape Town International Convention Centre,
resulting in a charge of R97 million.
The SA Rand strengthened during the year resulting in an exchange loss of R10
million, compared with a profit of R52 million in the prior year.
The net interest charge in the group increased by R60 million over last year to
R236 million. This arose from additional funding requirements following the
acquisition of 61,3% of Real Africa Holdings Limited ("RAH") in September 2006
and the repurchase of 899 400 shares in the first half of the year.
Taxation at R669 million was 29% higher than the previous year and the overall
effective tax rate was in line at 40%.
Adjusted headline earnings of R814 million were 35% above the previous year. The
diluted adjusted headline earnings per share of 719 cents were 33% ahead of last
year.
The board has declared a final dividend of 215 cents per share bringing the
total dividends per share for the year to 400 cents, 38% above last year. This
is in line with the group`s stated intention of increasing the dividend growth
rate above that of the earnings growth rate.
Trading Segmental analysis
Revenues EBITDA Operating profit
R million 2007 2006 2007 2006 2007 2006
GrandWest 1 595 1 398 693 600 594 504
Sun City 1 059 965 190 160 89 79
Carnival 908 786 333 268 268 209
City
Sibaya 684 586 247 175 181 114
Boardwalk 435 384 179 151 151 122
Carousel 295 251 88 69 65 46
Wild Coast 274 237 55 46 39 30
Morula 231 190 56 44 32 23
Meropa 199 159 83 61 68 45
Windmill 184 112 77 40 60 29
Zambia 181 140 51 30 33 16
Table Bay 173 154 63 52 34 18
Swaziland 148 140 19 14 10 6
Flamingo 125 108 47 39 37 27
Botswana 118 93 34 24 19 16
Namibia 102 95 29 25 10 10
Lesotho 92 79 17 11 7 7
Golden 46 - 14 - 6 -
Valley
Management 586 482 278 221 269 211
activities
Central
office and
other 64 52 8 (15) (3) (32)
operations
Elimination (562) (462) - - - -
Other income - - - - 85 216
Other expenses(i) - - - - (117) (247)
6 937 5 949 2 561 2 015 1 937 1 449
(i) Refer EBITDA reconciliation denoted (v).
Gaming
Gaming revenue improved 18% to R5,4 billion, with slot and table revenues 20%
and 8% ahead of last year respectively. The strong revenue growth can be
attributed in part to a full year`s trading from the Windmill Casino in
Bloemfontein, the opening of the Golden Valley Casino in Worcester in November
2006 and strong contributions from Sibaya, Meropa, Morula and Botswana.
GrandWest generated revenue growth of 14% over last year and EBITDA grew 16% to
R693 million, reflecting further improvement in operating margins despite the
higher effective casino levies.
Carnival City continued to perform well, with revenue growth of 16% over last
year, while EBITDA of R333 million grew 24% on improved margins. The group`s
share of the Gauteng market, which includes Morula, remained in line with the
previous year at 22%.
Sibaya achieved revenues of R684 million and EBITDA of
R247 million, 17% and 41% ahead of last year respectively. The improvement in
the EBITDA margin of 6 percentage points to 36% was in part due to the exclusion
of food and beverage revenues, which generate lower margins, as a consequence of
a change in the outsourcing contract, and a general improvement in operating
efficiencies. Sibaya retained its share of the KwaZulu-Natal market at 35%.
Boardwalk continued to trade well, achieving revenue and EBITDA growth of 13%
and 19% respectively.
Hotels and resorts
Rooms revenue of R776 million was 14% ahead of the previous year. The overall
group occupancy was 74% (71%) and the average room rate improved 7% to R792
mainly due to good growth in the international individual tourism market.
Sun City achieved an occupancy of 79% (75%) and the average room rate of R1 048
was 7% ahead of last year. The resort generated an EBITDA of R190 million, 19%
ahead of last year, which is particularly pleasing given the closure of 170
rooms in February 2007 as part of the Main Hotel refurbishment programme.
The Table Bay achieved an occupancy of 72% (70%) for the year, whilst the
average room rate of R1 558 was 11% ahead of the previous year. The EBITDA
contribution of R63 million improved 21% as a result of better margins.
The Royal Livingstone and Zambezi Sun achieved an aggregate occupancy of 74%
(68%), and an average room rate of US$154, 11% ahead of last year. Revenue was
16% ahead in US dollar terms, with much of the growth attributable to a further
increase in international visitors.
Trading in Botswana improved significantly during the year as a result of an
improvement in the economy and a higher market share, following the
refurbishment programme to the casino, rooms and certain public areas in 2006.
Management activities
Management fee income of R586 million was 22% ahead of the previous year,
reflecting the higher revenues and improved profitability and margins within the
group. EBITDA of R278 million was 26% higher than that of last year and a margin
of 47% (46%) was achieved. Costs of R41 million (R28 million) were incurred
during the year in respect of pursuing opportunities in Africa, Chile, the
United Kingdom and Russia.
Developments
The GrandWest expansion is nearing completion. The smoking casino opened at the
end of June 2007 and has been exceptionally well received by customers. The
existing casino main floor is currently undergoing a significant upgrade and the
5 000-seat arena will be opened in October 2007. The overall cost of the
expansion remains in line with forecast at R450 million.
Construction commenced in February 2007 on the 98 room Golden Valley Hotel in
Worcester which is anticipated to cost R65 million and is expected to be
completed during April 2008.
The 118 room Sibaya Lodge was completed at a cost of R80 million and opened in
October 2006.
The additional 57 rooms at Carnival City were successfully opened in April 2007
within the projected cost of R50 million. Construction of an R82 million multi-
level parkade for over 1000 vehicles has commenced and is scheduled for
completion in May 2008.
The Sun City Main Hotel refurbishment commenced in February 2007. The first
phase of 170 rooms will be completed in November 2007 in time to cater for the
holiday season. The balance of the rooms will be refurbished in 2008 with
completion anticipated in November 2008. The total cost of the Sun City Main
Hotel refurbishment has been estimated at R260 million which includes the cost
of replacing infrastructure and refurbishing back of house areas. The Cabanas
refurbishment was successfully completed in February 2007 at a cost of R24
million.
Balance sheet
In terms of the offer made to RAH shareholders,shareholders holding 58,1%
accepted the offer and together with the shares acquired in the market, the
group now owns 61,3% of RAH. The total consideration paid amounted to R1 183
million and the excess of the purchase consideration over net book value of R850
million was recognised in reserves.
The group`s borrowings have increased by R1,2 billion since 30 June 2006,
arising primarily from the RAH transaction and the capital expenditure incurred
at GrandWest and Golden Valley.
The remaining Kerzner International Limited shares were disposed of and realised
R183 million.
Third party borrowings
30 June 30 June
R million 2007 2006
SunWest International (Pty) Ltd 448 332
Emfuleni Resorts (Pty) Ltd 133 154
Afrisun KZN (Pty) Ltd 434 473
Meropa Leisure and Entertainment (Pty) Ltd 61 69
Teemane (Pty) Ltd 48 42
Afrisun Gauteng (Pty) Ltd 266 231
Mangaung Sun (Pty) Ltd 44 95
Worcester Casino (Pty) Ltd 131 -
Central Office 1 787 734
3 352 2 130
Employee Share Trusts 194 196
3 546 2 326
Capital expenditure incurred during the year
R million
Expansionary:
GrandWest 346
Golden Valley Casino and Hotel 99
Sibaya Lodge 30
Carnival City Hotel extension 47
522
Refurbishment:
Sun City Main Hotel 66
Expansionary and refurbishment spend 588
Ongoing asset replacement 384
Total capital expenditure 972
Settlement of litigation
Shareholders were advised in an announcement released on SENS on 27 July 2007
that Sun International (South Africa) Limited ("SISA") had agreed to an out of
court settlement with Afrisun Leisure Investments (Proprietary) Limited
("Afrisun") in respect of the claim brought against SISA by Afrisun. The claim
was settled at R110 million and Afrisun has subsequently withdrawn the legal
proceedings.
Developments regarding shareholding in SunWest
Shareholders have previously been advised that the group has entered into a
revised Memorandum of Understanding with Grand Parade Investments Limited
("GPI") whereby GPI will ultimately hold a 30% economic interest in SunWest. The
parties have now signed binding agreements and are in the process of fulfilling
a number of suspensive conditions, including obtaining various regulatory
approvals. A further announcement will be made to shareholders in due course.
Share buy backs
Purchased during the year
During the first half of the year, the group purchased 899 400 shares at an
average price of R102,03. The shares have been delisted from the JSE Limited and
represented 0,8% of the group`s issued share capital.
Post balance sheet event
On 30 July 2007 the group purchased 16 084 833 shares at a price of R145,35,
representing 13.8% of the group`s issued share capital. The purchased shares
have been dealt with as follows:
Number of Value
shares (Rm)
Delisted and cancelled 11 323 838 1 646
Held as treasury shares 4 760 995 692
16 084 833 2 338
The number of shares now in issue totals 105 494 769, including 10 549 477
shares held as treasury shares.
The transaction was funded by way of a R2.0 billion issue of redeemable
preference shares together with funding sourced from internally generated cash
flows.
Offshore expansion opportunities
United Kingdom
The single regional casino awarded to the City of Manchester was not sanctioned
by parliament and it appears that licences will no longer be awarded for
regional casinos.
Chile
The group announced in March 2007 that it had entered into an agreement with
International Group of Gaming and Resorts Chile S.A. and Novomatic AG to acquire
a 40% equity interest in a Chilean entity (San Francisco Investment S.A.). This
entity holds a 15-year casino licence with a 70 km exclusivity zone in Region
VI, located approximately 55 km south of Santiago.
The involvement of the group remains subject to the final approvals from the
country`s regulator. Once approved, the group will contribute US$45 million for
its equity interest in the venture, and will benefit from development management
and long-term consultancy agreements. The development comprises a casino with 1
500 slot machines and 80 tables, a large conference centre, a 150-room hotel,
bars and restaurants, and other entertainment facilities.
The project is estimated to cost US$200. Construction on the project has
commenced and the casino is scheduled for opening in September 2008.
Nigeria
The group is presently finalising agreements with its partners in Lagos and the
parties are in the process of finalising the gaming licence.
The group will have a 49% interest in the existing Federal Palace Hotel property
on Victoria Island, which has 394 rooms in two hotels, and will benefit from
long-term development and management agreements. The project involves
refurbishing the property and adding a casino with 500 slot machines and 24
tables, a conference centre, restaurants and other entertainment facilities. The
estimated cost of the project is US$120 million.
Sun International has undertaken to assume operational responsibility for the
existing hotels from October 2007 and to provide bridging finance of US$10
million in order to commence the refurbishment of the property. Once the licence
is awarded, the group will acquire its equity interest for US$38 million.
Egypt
The hotels at Port Ghalib located on the Red Sea, for which the group has a
management agreement, are anticipated to open in November 2007. The project
comprises a deluxe hotel and two four star hotels totalling 948 rooms and an
international convention centre.
Outlook
The economic outlook remains positive in the year ahead despite the higher
levels of inflation and interest rates, which are likely to temper the growth in
consumer spending. Real growth in disposable income is nevertheless anticipated,
as is continued growth in inbound tourism.
The group expects good growth in EBITDA from its hotels, resorts and casinos in
the coming year. However, the additional financing costs attributable to the
share buy back implemented in July 2007, will significantly impact adjusted
headline earnings per share.
It is the intention of the group to continue increasing the dividends payable to
shareholders.
For and on behalf of the board
DA Hawton DC Coutts-Trotter
Chairman Chief Executive
Registered office
27 Fredman Drive, Sandown, Sandton 2031
Registrar
Computershare Investor Services 2005 (Pty) Ltd, 70 Marshall Street, Johannesburg
2001
Directors
DA Hawton (Chairman), DC Coutts-Trotter (Chief Executive)*, H Adams, RP Becker*,
L Boyd, PL Campher, MP Egan, Dr NN Gwagwa, IN Matthews, LM Mojela, MV Moosa, DM
Nurek, E Oblowitz, GR Rosenthal, PEI Swartz *Executive
Group Secretary
SA Bailes
Declaration of final dividend
Notice is hereby given that a final dividend of 215 cents (2006: 155 cents) per
share for the year ended 30 June 2007 has been declared, payable to shareholders
recorded in the register of the company at the close of business on the record
date appearing below. The salient dates applicable to the final dividend are as
follows:
2007
Last day to trade cum final dividend Friday, 14 September
First day to trade ex final dividend Monday, 17 September
Record date Friday, 21 September
Payment date Tuesday, 25 September
No share certificates may be dematerialised or rematerialised between Monday, 17
September 2007 and Friday, 21 September 2007, both days inclusive. Dividend
cheques will be posted and electronic payments made, where applicable, to
certificated shareholders on the payment date. Dematerialised shareholders will
have their accounts with their Central Securities Depository Participant or
broker credited on the payment date.
By order of the board
SA Bailes
Group Secretary
29 August 2007
Date: 29/08/2007 14:59:01 Produced by the JSE SENS Department.
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