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SUI
SUI
SUI - Sun International Limited - Profit and Dividend Announcement for the year
ended 30 June 2008
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 2008
+10% Revenue
+11% EBITDA
+3% Adjusted HEPS
+20% Dividends per share
Group income statements
for the year ended 30 June
2008 % 2007
R million Reviewed change Audited
Revenue 7 618 10 6 937
Casino 5 845 9 5 359
Rooms 881 14 776
Food, beverage and other 892 11 802
Other income 13 85
Pension fund surplus recognition 12 10
Employee costs (1 400) (1 317)
Levies and VAT on casino revenue (1 244) (1 133)
Depreciation and amortisation (568) (518)
Promotional and marketing costs (639) (577)
Consumables and services (777) (683)
Property and equipment rental (102) (74)
Property costs (252) (224)
Other operational costs (529) (472)
Impairment of investment - (97)
BEE transaction charge (182) -
Operating profit 1 950 1 1 937
Foreign exchange profits/(losses) 69 (10)
Interest income 79 77
Interest expense (601) (313)
Profit before taxation 1 497 1 691
Taxation (784) (669)
Profit 713 (30) 1 022
Attributable to:
Minorities 256 224
Ordinary shareholders 457 798
713 1 022
Number of shares (000`s)
- in issue 88 014 104 589
- for EPS calculation 89 826 104 864
- for diluted EPS calculation 91 028 106 800
Earnings per share (cents)
- basic 509 761
- headline 524 (37) 829
Diluted earnings per share (cents)
- basic 502 747
- headline 517 814
Dividends declared per share (cents) 480 20 400
EBITDA to interest (times) 5,4 10,9
Dividend payout (%) 64,2 54,7
HEADLINE EARNINGS RECONCILIATION
Profit attributable to ordinary 457 798
shareholders
Net loss on disposal and impairment of
property,
plant and equipment and intangible 14 2
assets
Profit on disposal of investments (4) -
Impairment of investment - 97
Taxation relief on the above items 5 2
Minorities` interests in the above (1) (30)
items
Headline earnings 471 (46) 869
Group cash flow statements
for the year ended 30 June
2008 % 2007
R million Reviewed change Audited
Cash generated by operations 2 805 2 488
before:
Working capital changes 67 120
Cash generated by operations 2 872 10 2 608
Taxation paid (783) (704)
Cash retained from operating 2 089 1 904
activities
Cash utilised in investing (1 547) (1 941)
activities
Cash realised from investing 483 424
activities
Net cash outflow from (1 305) (48)
financing activities
Translation gains/(losses) on 41 (6)
cash balances
(Decrease)/increase in cash (239) 333
balances
Group Statement of Changes in Equity
for the year ended 30 June
Share
capital
and Treasury Other
R million premium shares reserves(i)
Balances at 30 June 2007 1 551 (1 004) (1 360)
- Share buy back (1 543) (736)
- Treasury share
options purchased (99)
- Employee share
based payments 28
- BEE transaction charge 121
- Disposal of interests
to minorities 168
- Acquisition of
minorities` interests (186)
- Profit
- Currency translation
differences 59
- Dividends paid
- Share premium
distribution to minorities
Balances at 30 June 2008 8 (1 839) (1 170)
Retained Minorities`
R million earnings interests Total
Balances at 30 June 2007 3 161 642 2 990
- Share buy back (111) (2 390)
- Treasury share
options purchased (99)
- Employee share
based payments 28
- BEE transaction charge 61 182
- Disposal of interests
to minorities 40 208
- Acquisition of
minorities` interests (80) (266)
- Profit 457 256 713
- Currency translation
differences 7 66
- Dividends paid (387) (292) (679)
- Share premium
distribution to minorities (88) (88)
Balances at 30 June 2008 3 120 546 665
(i) Included in other reserves are foreign currency translation reserve, share
based payment reserve and profit and losses on purchase and sale of non-
controlling interests.
Group balance sheets
at 30 June
2008 2007
R million Reviewed Audited
ASSETS
Non current assets
Property, plant and equipment 6 229 5 883
Intangible assets 308 361
Available-for-sale investment 44 44
Pension fund asset 22 10
Loans and receivables 76 159
Deferred taxation 31 25
6 710 6 482
Current assets
Non current asset held for sale - 164
Loans and receivables 501 1
Accounts receivable and other 571 398
Cash and cash equivalents 850 1 089
1 922 1 652
Total assets 8 632 8 134
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` equity 119 2 348
Minorities` interests 546 642
665 2 990
Non current liabilities
Borrowings 3 821 2 271
Other non current liabilities 210 139
Deferred taxation 412 394
4 443 2 804
Current liabilities
Accounts payable and other 1 247 1 065
Borrowings 2 277 1 275
3 524 2 340
Total liabilities 7 967 5 144
Total equity and liabilities 8 632 8 134
Borrowings to EBITDA (times) 2,15 1,39
Capital expenditure 861 972
Capital commitments
- contracted 1 168 385
- authorised but not contracted 2 005 961
- conditionally authorised - 2 250
3 173 3 596
Directors` valuation of loans and receivables
and available-for-sale investment 621 368
Supplementary information
for the year ended 30 June
2008 % 2007
R million Reviewed change Audited
EBITDA RECONCILIATION
Operating profit 1 950 1 1 937
Depreciation and amortisation 568 518
Other income (13) (85)
Pension fund surplus (12) (10)
recognition*
BEE transaction charge* 182 -
Property and equipment rental 102 74
Net loss on disposal and
impairment of property,
plant and equipment and 14 2
intangible assets*
Ster Century guarantee 3 -
provision*
Profit on disposal of (4) -
investments*
Impairment of investment* - 97
Pre-opening expenses* 8 8
Reversal of Employee Share 38 20
Trusts` consolidation*
EBITDA 2 836 11 2 561
EBITDA margin (%) 37 37
ADJUSTED HEADLINE EARNINGS
RECONCILIATION
Headline earnings 471 (46) 869
Pre-opening expenses 8 8
Realisation of management (13) -
contract
Realisation of fair value gains - (84)
on KZL shares
Pension fund surplus (12) (10)
recognition
Foreign exchange (11) 2
(profits)/losses on
intercompany loans
Fair value adjustments on loan - (1)
origination
Ster Century guarantee 3 -
provision
BEE transaction charge 182 -
Taxation relief on the above 20 12
items
Taxation on share premium 48 -
distributions received
Minorities` interests in the (15) (3)
above items
Reversal of Employee Share 39 21
Trusts` consolidation(ii)
Adjusted headline earnings 720 (12) 814
Number of shares (000`s)(ii)
- for adjusted headline EPS 96 268 111 306
calculation
- for diluted adjusted headline 97 470 113 242
EPS calculation
Earnings per share (cents)
- adjusted headline 748 2 731
- diluted adjusted headline 739 3 719
(ii) The consolidation of the Employee Share Trusts is reversed as the group
does not receive the economic benefits of the trusts.
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 IAS34 - 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 2007.
Audit review opinion
The condensed consolidated financial information for the year ended 30 June 2008
has been reviewed by the group`s auditors, PricewaterhouseCoopers Inc., and
their unmodified review opinion is available for inspection at the company`s
registered office.
Earnings and dividend
The group achieved satisfactory growth in revenue, which at R7,6 billion was 10%
ahead of last year. Gaming revenue grew 9% and hospitality and other revenue
12%. EBITDA of R2,8 billion was 11% up on last year and the EBITDA margin
improved to 37,2% (36,9%).
The results include a BEE transaction charge of R182 million which reflects the
difference between the price at which Grand Parade Investments Limited (GPI) was
granted an option over 5% of the equity in SunWest International (Pty) Limited
(SunWest) and the estimated fair value.
Rand weakness during the year resulted in an exchange gain of R69 million,
compared with a loss of R10 million in the previous year.
The group`s net interest charge increased by R286 million over last year to R522
million, arising primarily from the additional funding in respect of the R2,3
billion share buy back on 30 July 2007 and higher prevailing interest rates.
Taxation at R784 million was 17% higher than last year. The overall effective
tax rate increased significantly due to the non-deductibility of the BEE charge
and the significant additional preference share dividends.
Adjusted headline earnings of R720 million were 12% below the previous year due
primarily to the increased interest charge. However, the diluted adjusted
headline earnings per share of 739 cents were 3% ahead of last year due to the
lower number of shares in issue as a result of the share buy back.
The board has declared a final dividend of 258 cents per share bringing the
total dividends for the year to 480 cents per share. This is 20% ahead of last
year`s dividends, and in line with the group`s stated intention to continue
increasing the dividends payable to shareholders.
Trading
Segmental analysis
Revenue
R million 2008 2007
GrandWest 1 756 1 595
Sun City 1 147 1 059
Carnival City 954 908
Sibaya 782 684
Boardwalk 451 435
Carousel 318 295
Wild Coast 299 274
Morula 243 231
Meropa 215 199
Zambia 208 181
Windmill 198 184
Table Bay 197 173
Swaziland 157 148
Botswana 151 118
Flamingo 127 125
Namibia 120 102
Lesotho 97 92
Golden Valley 87 46
Management activities 659 586
Central office & other 65 64
Eliminations (613) (562)
Other income
Other expenses#
7 618 6 937
EBITDA Operating Profit
R million 2008 2007 2008 2007
GrandWest 734 693 591 594
Sun City 223 190 115 89
Carnival City 329 333 252 268
Sibaya 294 247 224 181
Boardwalk 185 179 156 151
Carousel 91 88 66 65
Wild Coast 62 55 47 39
Morula 55 56 31 32
Meropa 86 83 69 68
Zambia 63 51 45 33
Windmill 80 77 62 60
Table Bay 69 63 36 34
Swaziland 21 19 12 10
Botswana 51 34 39 19
Flamingo 44 47 33 37
Namibia 33 29 18 10
Lesotho 16 17 12 7
Golden Valley 24 14 10 6
Management activities 380 278 371 269
Central office & other (4) 8 (23) (3)
Eliminations - - - -
2 166 1 969
Other income 13 85
Other expenses# (229) (117)
2 836 2 561 1 950 1 937
# Refer EBITDA reconciliation denoted*.
Gaming
Gaming revenue improved 9% to R5,8 billion with slot and table revenues up 9%
and 12% respectively. The rate of revenue growth has slowed compared to recent
years mainly as a result of the prevailing economic conditions.
GrandWest achieved revenue growth of 10% and an EBITDA margin of 41,8% which was
1,6 percentage points below last year due to higher costs associated with the
enlarged casino and entertainment facilities, as well as higher effective casino
levies.
Carnival City had a challenging year as a result of less buoyant economic
conditions and a more competitive local market following the opening of the
seventh casino in Gauteng. As a consequence of these conditions, revenue grew by
5% and the EBITDA margin declined to 34,5% (36,7%). The group`s share of the
Gauteng market for the year was 20,9% which, although 0,5 percentage points
below last year, is positive when compared to the 1,4 percentage points decline
in the group`s effective share of gaming positions in the province. The 1000-
vehicle multi-level parkade opened in June 2008 and trading levels have
subsequently shown positive trends.
Sibaya performed strongly with revenue up 14%, EBITDA up 19% and a 1,5
percentage points increase in the EBITDA margin to 37,6%. Sibaya grew its share
of the provincial market by one percentage point to 36%.
Boardwalk`s revenue grew 4%, reflecting the difficult economic environment in
the Eastern Cape, but maintained the EBITDA margin at 41,1% following good cost
controls.
Hotels and resorts
Rooms revenue of R881 million was 14% ahead of the previous year with overall
occupancy of 76% (74%) and the average room rate achieved of R850 ahead by 7%.
The good revenue performance by the hotels and resorts was attributable to
strong growth in international visitor numbers across all major market segments.
Sun City achieved an occupancy rate of 84% (79%) and an average room rate of R1
157, 10% ahead of last year. Improved cost control resulted in an increased
margin and EBITDA which was 17% ahead of the previous year.
The Table Bay grew occupancies 2 percentage points to 74% and the average room
rate by 12% to R1 739. EBITDA was 10% above the previous year reflecting a small
deterioration in margin as a consequence of higher property rates and taxes.
The Royal Livingstone and Zambezi Sun grew aggregate occupancy to 76% (74%) at
an average room rate of US$178 (+16%) as the resort gained popularity with
internatinal visitors.
Management activities
Management fee income grew 12%, reflecting significantly higher development and
technical fees as a result of the Monticello casino project in Chile. EBITDA was
up 37% and the EBITDA margin improved substantially from 47% to 58%, largely due
to higher fees and lower project costs (R28 million vs R41 million) in light of
both the Russia and United Kingdom opportunities no longer being pursued.
Developments
The R450 million GrandWest expansion was completed in the first half of the
year, with the multipurpose arena and the refurbished non-smoking casino opened
in October and December 2007 respectively.
The R65 million 98-room Golden Valley Lodge in Worcester was successfully opened
in March 2008 and trading at the casino has improved markedly as a result.
The 1000-vehicle multi-level parkade at Carnival City was opened to customers in
June 2008 and the improved access was completed two months later, at a total
cost of R85 million.
The second phase of the Sun City Main Hotel refurbishment comprising 170 rooms
and certain back of house areas is due for completion by November 2008. The cost
of the total refurbishment is expected to be within the original estimate of
R260 million.
Balance sheet
The group`s borrowings have increased by R2,6 billion to R6,1 billion mainly due
to the share buy back completed on 30 July 2007 when the group acquired 16 084
833 shares at a price of R145,35 per share.
Third party borrowings
30 June 30 June
R million 2008 2007
SunWest International (Pty) Ltd 759 448
Afrisun Gauteng (Pty) Ltd 454 266
Afrisun KZN (Pty) Ltd 447 434
Worcester Casino (Pty) Ltd 200 131
Emfuleni Resorts (Pty) Ltd 119 133
Meropa Leisure and Entertainment (Pty) Ltd 117 61
Teemane (Pty) Ltd 69 48
Mangaung Sun (Pty) Ltd 10 44
Central office 3 675 1 787
5 850 3 352
Employee Share Trusts 248 194
6 098 3 546
The group debt to EBITDA ratio was 2,2 times, well within the group`s debt
covenant of 3 times.
Capital expenditure incurred during the year
R million
Expansionary
GrandWest 94
Carnival City Parkade 85
Golden Valley Lodge 58
Meropa 16
253
Refurbishment
Sun City Main Hotel 160
Ongoing asset replacement 448
Total capital expenditure 861
International expansion
Chile
Construction of the Monticello casino project located to the south of Santiago
in Chile is progressing well with the casino scheduled to open in October 2008.
The retail and entertainment elements will open in December 2008 and the 150
room hotel in May 2009.
The total estimated project cost has been revised to US$236 million, principally
due to the significant strengthening of the Chilean Peso against the US Dollar.
The project spend to year end was US$96 million which has been funded by Sun
International and Novomatic AG by way of loans. During August 2008 US$120
million eight year debt funding was secured, the loans were repaid and the
company was capitalised in the amount of US$65 million. The balance of the
capital expenditure will be funded through internally generated cash flows and
short term debt financing.
Nigeria
The existing Federal Palace Towers hotel on Victoria Island, Lagos has been
under the group`s management since October 2007. The refurbished 150 room
Federal Palace Hotel was officially opened on 1 August 2008. Sun International
provided a loan of US$10 million to complete this refurbishment.
The terms of the gaming licence have been finalised with the Lagos State
authorities and the enabling regulations are in the process of being approved by
the State Legislature.
The licence is expected to be issued shortly, following which the group will
acquire a 49,5% equity interest in the operation. It is now planned to establish
a temporary casino of 200 slots and 10 tables within the Federal Palace Hotel to
open early in 2009. The 230-room Federal Palace Towers Hotel will continue to
trade until December 2008, after which it will be closed for a comprehensive
upgrade, together with the construction of a permanent casino (300 slots and 24
tables), as well as additional restaurants, meeting and entertainment facilities
and a spa. The inclusion of the temporary casino in the project has increased
the total cost to US$167 million of which US$90 million will be funded by debt.
It is planned to open these facilities by the end of 2010.
Changes to shareholding in SunWest
Shareholders were advised in an announcement released on SENS on 15 October 2007
that Sun International had entered into agreements with GPI whereby GPI will
ultimately hold a 30% direct economic interest in SunWest.
In terms of this transaction, GPI acquired an additional 4% in SunWest from Sun
International (South Africa) Limited (SISA) for R83,4 million on 28 November
2007, and exercised its option from SISA over 2,46% in SunWest at R425 per share
on 14 December 2007.
The option granted by SunWest for GPI to acquire a further 5% in SunWest at R165
per share, which expires in 2010, was partially exercised on 15 August 2008
resulting in GPI subscribing for 560 000 shares representing eighty percent of
the option. The group`s effective economic interest in SunWest after the
exercise of the entire option will be 59,9%.
Eastern Cape casino licences
The Wild Coast Sun`s casino licence expires on 31 August 2009. The group has
submitted its application for a new licence in respect of this operation to the
Eastern Cape Gambling and Betting Board (ECGBB). The bid proposal includes a
R340 million upgrade and enhancement to the resort, and the announcement of the
ECGBB decision is scheduled for October 2008.
The Boardwalk`s casino licence in Zone 1 of the Eastern Cape expires in October
2010. The ECGBB recently issued a draft request for proposal (RFP), for a casino
licence in that zone. The terms of the RFP are onerous, requiring inter alia a
minimum new investment of R750 million and Zone 1 empowerment ownership of 35%.
The requirement will result in significant dilution to the existing shareholders
who in addition will be required to facilitate the funding of this shareholding.
Submissions are expected to be required by December, with the announcement of
the preferred bidder scheduled for June 2009. The group is presently assessing
its response to the RFP.
Directorate
Leslie Boyd passed away on 28 March 2008. He will be remembered for his
knowledge and incisiveness and will be greatly missed by his colleagues on the
board.
Hassen Adams resigned from the board on 26 August 2008 and the board thanks him
for his contribution to the group.
Outlook
Trading conditions in the group`s South African casino operations are
anticipated to remain challenging in the year ahead. With the international
tourism market remaining relatively buoyant, the group should however benefit
from an expected improved contribution from hotels and resorts.
The Chilean and Nigerian operations are expected to contribute in the year ahead
to significant growth in revenue and EBITDA. The increased capital charges
relating to these investments will however temper growth in adjusted headline
earnings per share for the year ahead.
It remains the intention of the group to continue increasing the dividends
payable to shareholders at a rate ahead of earnings per share growth.
For and on behalf of the board
DA Hawton DC Coutts-Trotter
Chairman Chief Executive
Registered office:
27 Fredman Drive, Sandown, Sandton 2031
Transfer secretaries:
Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg 2001
Directors:
DA Hawton (Chairman), DC Coutts-Trotter (Chief Executive)*, RP Becker*, PL
Campher, MP Egan, Dr NN Gwagwa, IN Matthews, LM Mojela, MV Moosa, DM Nurek, E
Oblowitz, GR Rosenthal *Executive
Group Secretary:
SA Bailes
Declaration of final dividend
Notice is hereby given that a final dividend of 258 cents (2007: 215 cents) per
share for the year ended 30 June 2008 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:
2008
Last day to trade cum final Thursday, 18 September
dividend
First day to trade ex final Friday, 19 September
dividend
Record date Friday, 26 September
Payment date Monday, 29 September
No share certificates may be dematerialised or rematerialised between Friday, 19
September and Friday, 26 September 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
28 August 2008
Sponsor: Investec Bank Limited
Date: 28/08/2008 14:00:01 Produced by the JSE SENS Department.
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