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GDF
GDF
GDF - Gold Reef - Unaudited Interim Results For The Six Months Ended 20 June
2008 ("the period")
Gold Reef Resorts Limited
("Gold Reef")
(Registration number 1989/002108/06)
Share Code: GDF
ISIN Code: ZAE000028338
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 20 JUNE 2008 ("the
period")
- Revenue up 29,4%
- Adjusted EBITDAR UP 9,7%
- Construction at Silverstar and Queens Casinos substantially completed
COMMENTARY
Introduction
The inclusion of the new Silverstar Casino for the full period saw group
revenue increase 29,4% compared with the same period in the previous year,
notwithstanding challenging trading conditions and pressure on disposable
income that impacted on footfall at the casinos. Increased finance and
depreciation costs, emanating from the newly developed Silverstar and Queens
Casinos and the upgrade of Gold Reef City and Goldfields Casinos, impacted
growth in group earnings.
Earnings before interest, taxation, depreciation, amortisation and rentals
("EBITDAR") reflected 8,5% growth over the same period in 2007. EBITDAR
margins were lower as a result of operational expenditure escalating at a
higher rate than revenue growth. Inflation increased at rates unprecedented
in recent years. This was the major contributing factor to inevitable
increases in expenditure. Nonetheless, costs continued to be well-controlled
relative to inflation. In response to the general economic downturn, focus
has been intensified on improving margins. Aggressive cost controls have
been implemented at all casinos.
As anticipated, the 69,2 million new shares issued by Gold Reef pursuant to
the successful conclusion of its BEE share exchange and top-up transactions
("the BEE transactions"), effective 1 July 2007, had a dilutionary effect on
earnings per share ("EPS") and headline earnings per share ("HEPS"). This
was exacerbated by current economic conditions. Notwithstanding the short
term dilution in earnings, the BEE transactions have resulted in Gold Reef
having a direct black shareholding of more than 25,1% and gaining 100%
control of cash flows from material subsidiaries.
Corporate Activity
As announced on 4 February 2008, the scheme of arrangement proposed by
Fluxrab Investments No. 159 (Proprietary) Limited ("BidCo") to acquire all
the Gold Reef shares held by shareholders failed due to the non-fulfilment
of certain conditions precedent to the proposed transaction, namely the
approval of regional gambling boards had not been secured by the extended
deadline of 17h00 Friday 1 February 2008. As BidCo elected not to extend the
deadline to accommodate these approvals, the proposed transaction lapsed.
As announced on 21 February 2008 Gold Reef entered into discussions with the
Tsogo Sun group regarding a possible offer to acquire the entire issued
share capital of the company. As further announced on 25 April 2008 the
discussions with Tsogo Sun were terminated.
Securities Regulation Panel ("SRP")
On 14 April 2008 the SRP released the reasons for the ruling handed down on
1 February 2008. Based on legal advice the group has launched review
proceedings in the High Court to obtain an order reviewing, correcting or
setting aside the decision of the SRP. Shareholders will be informed of the
outcome of the application in due course.
Financial Results
Basis of Preparation
The unaudited interim financial statements have been prepared in accordance
with IAS34, International Financial Reporting Standards and the requirements
of the South African Companies Act, 1973. The accounting policies are
consistent with those applied in the most recent audited annual financial
statements, save for the early adoption of IFRIC 13 - Customer Loyalty
Programmes. IFRIC 13 is only required for periods beginning on or after 1
July 2008 but Gold Reef has elected to amend its accounting policies in
accordance with IFRIC 13 effective 1 January 2008. Gold Reef now deducts the
cost of customer loyalty programmes from net gaming win rather than
including this cost in promotional and marketing costs.
Had this accounting policy been applied in the previous comparative period,
revenue would have amounted to R831,8 million, R7,4 million lower than the
R839,2 million then reported. All revenue values reported for the previous
reporting periods have been restated to show the effect of the change in
accounting policy. The change will have no effect on EPS and EBITDAR. The
income statement for the year ended 31 December 2007, prior to the
restatement was audited. The restatement has not yet been reviewed by the
company`s auditors.
Consolidated Results
Consolidated revenue increased 29,4% to R1,1 billion from the restated
R831,8 million for the previous comparative period, driven mainly by the
inclusion for the full six months trading of Silverstar Casino. Net gaming
win was up 28,9% to R984,6 million.
Adjusted EBITDAR rose 9,7% to R399,9 million (2007: R364,7 million).
Adjusted HEPS amounted to 58,6 cents (2007: 70,6 cents). Adjustments were
made to EBITDAR and HEPS to eliminate once-off charges relating to pre-
opening expenses at Silverstar and Queens Casinos, various transaction costs
incurred on the BEE transactions and costs relating to the scheme of
arrangement proposed by BidCo and to the discussions with Tsogo Sun. EPS was
55,0 cents compared to 67,8 cents in the same period in 2007. HEPS declined
from 67,4 cents to 54,8 cents.
In addition to the 65 cents per share dividend for the year ended 31
December 2007 declared on 14 March 2008, a special dividend of 35 cents was
declared on the same day. Total dividends, amounting to R277,2 million, were
paid during the period.
SEGMENTAL ANALYSIS
Revenue Revenue Revenue Adjusted Adjusted Adjusted
EBITDAR EBITDAR EBITDAR
June 2008 Restated Change June June Change
June 2007 2008 2007
R000 R000 % R000 R000 %
Gold Reef City 487 995 497 647 (1,9) 167 105 193 671 (13,7)
Casino
Gold Reef City 34 022 32 465 4,8 (1 122) 3 128 (135,9)
Theme Park
Silverstar 240 826 - 76 234 -
Casino
Golden Horse 117 442 110 804 6,0 54 416 50 123 8,6
Casino
Mykonos Casino 56 128 57 399 (2,2) 24 019 26 026 (7,7)
Garden Route 81 445 80 575 1,1 39 401 40 638 (3,0)
Casino
Goldfields 57 709 51 411 12,3 25 557 24 076 6,2
Casino
Queens Casino 20 035 - 798 -
Management 30 281 30 131 0,5 5 319 9 537 (43,5)
companies
Gold Reef - - 10 722 24 735
Resorts
Consolidation (49 879) (28 587) (2 595) (7 281)
1 076 004 831 845 29,4 399 854 364 653 9,7
SEGMENTAL ANALYSIS (CONTINUED)
Adjusted Adjusted CAPEX CAPEX
EBITDAR EBITDAR %
%
June June June 2008 June 2007
2008 2007
% % R000 R000
Gold Reef City Casino 34,2 38,9 47 774 74 867
Gold Reef City Theme (3,3) 9,6 3 108 12 250
Park
Silverstar Casino 31,7 213 519 115 073
Golden Horse Casino 46,3 45,2 9 445 2 079
Mykonos Casino 42,8 45,3 1 582 541
Garden Route Casino 48,4 50,4 1 922 1 744
Goldfields Casino 44,3 46,8 2 950 33 102
Queens Casino 4,0 26 635 -
Management companies 17,6 31,7 16 -
Gold Reef Resorts - -
Consolidation (26 635) -
37,2 43,8 280 316 239 656
Operations
Gold Reef City
The Gauteng gaming market grew by 7,3% during the period. The introduction
of Silverstar Casino and its achieving an 8,0% market share resulted in
negative year on year growth in revenue for the balance of the aggregated
Gauteng market.
Gold Reef City Casino`s revenue of R486,0 million was marginally lower than
the previous comparative period as the loss of market share to Silverstar
Casino outweighed growth in the Gauteng market. EBITDAR of R167,1 million
decreased by 13,7% due to higher maintenance costs and increased payroll,
driven by higher inflation and the impact on trading of the electricity
outages. The newly-opened theatre incurred a loss of R14,2 million for the
period. As the theatre was opened only in the latter half of the previous
year, direct comparison to EBITDAR for the six months ended 30 June 2007 is
not meaningful. The improved Salon Prive was opened during the period to
very positive feedback.
Theme Park revenue increased by 4,2% to R32,3 million, notwithstanding
generally negative economic conditions exacerbated by unusally heavy
rainfall, which impacted on footfall.
Silverstar Casino
The new casino opened for trading on 11 December 2007, with food and
entertainment facilities and the hotel coming on stream at the end of March
2008. The spa facility is due to open shortly, completing the development.
Silverstar Casino features 756 slots and 26 tables.
Revenue at the casino increased steadily through the first six months of
operation as additional facilities were successively opened, reflecting good
trade and generating improving profitability. EBITDAR margins for the casino
were lower than the group average during the period, as anticipated, due to
the initial low revenue base and costs related to the opening. Margins
improved steadily through the period resulting in a closer alignment with
the group average in June 2008. Revenue growth for the six months ahead is
expected to outperform the first half of the year once all facilities are
complete. De-gearing should also have a positive impact on earnings.
Capital expenditure for the period amounted to R214,0 million. A further
R49,3 million is anticipated bringing the total expected cost of the project
to R1,1 billion, well within budget.
Golden Horse Casino
Revenue increased 6,0% to R117,4 million from the restated R110,8 million.
The refurbished Salon Prive contributed to growth, attracting an increased
number of patrons from Durban. Tables showed a 16,4% improvement in
revenue. The casino posted an improved EBITDAR margin of 46,3%.
Golden Horse Casino is launching a R75,0 million improvement project
scheduled for completion in June 2009. This will include a revamp of the
gaming floor, hotel, restaurants and conference facilities.
Garden Route Casino
Garden Route Casino recorded revenue of R81,4 million compared to the
restated R80,6 million for the period ended 30 June 2007. EBITDAR declined
by 3,0% to R39,4 million (2007: R40,6 million) representing a 48,4% margin
on revenue. A development project is in the planning phase and will include
additional food and beverage and entertainment facilities.
Mykonos Casino
Mykonos Casino faced challenging trading conditions which put pressure on
gaming revenue. Revenue fell by 2,2% to R56,1 million compared to the
restated R57,4 million, with EBITDAR down 7,7% to R24,0 million from R26,0
million. A R10 million refurbishment plan has been launched to enhance the
property. Subject to gambling board approval, 22 slots will be added to
relieve capacity constraints during the busy holiday season.
Goldfields Casino
Following the successful conversion from a temporary to a permanent casino,
which helped Goldfields Casino to gain increased market share, revenue rose
12,3% to R57,7 million from the restated R51,4 million. EBITDAR was up 6,2%
to R25,6 million. The addition of non-gaming facilities during the
conversion had the effect of increasing costs and reducing margins.
Queens Casino
The casino opened on 21 December 2007 with the conference centre, hotel and
other entertainment facilities opening during the course of the period.
Queens Casino features 180 slots and 6 tables.
Gaming revenue has reflected growth as the new facilities have opened. The
casino posted revenue of R20,0 million and EBITDAR of R0,8 million for the
period. An improved performance is expected in the six months ahead now that
all facilities are complete.
The review proceedings instigated against, amongst others, the Eastern Cape
Gambling and Betting Board regarding the award of the Queens Casino license
continues.
Future Developments
Vaal River Casino
Gold Reef continues to hold a controlling stake in Vaal River Casino Company
(Proprietary) Limited, the only applicant for a license in the Sasolburg
area. Amendments to the casino licence application were submitted to the
Free State Gambling and Racing Board during the third quarter of 2008.
Directorate
On 24 July 2008 John Farrant and Zanele Matlala were appointed to the board
as independent directors.
With effect from 3 September 2008 the board has reconstituted the Audit and
Risk Committee and the Remuneration and Nominations Committee to comprise
Mrs Matlala and Mr Farrant.
The board is cognisant of the need to appoint further independent directors
and continues to actively identify suitable candidates. In line with best
practice the board intends appointing an independent Chairman once an
independent director has been able to familiarise him/herself with the
group.
Reuel Khoza and Barend Schutte resigned as non-executive directors with
effect from 6 February 2008 and 25 July 2008, respectively. The board thanks
them for their contributions.
Prospects
Notwithstanding the current economic downturn, Gold Reef remains optimistic
that its business can withstand negative economic indicators and continues
to position the group for growth. Further, the revamp of two existing
casinos and opening of two new casinos have effectively ensured that Gold
Reef has a largely `new` portfolio to accelerate growth in an economic
upturn. The two new casinos will continue to contribute in the current year
when the benefits of the first full year of trading will be realised. All
remaining operations are expected to perform soundly.
Gearing is at a manageable level. Virtually all of the group`s interest rate
exposure was hedged prior to the increases in interest rates in 2007/8.
Future de-gearing is expected to impact positively on earnings. Gold Reef
continues to investigate expansion opportunities both in South Africa and
abroad and has adequate borrowing capacity to facilitate future growth.
Dividend
No dividend has been declared for the interim period.
Steven Joffe Jarrod Friedman
Chief Executive Officer Financial Director
On behalf of the board.
3 September 2008
Directors: M Krok (Chairman)*; SB Joffe (CEO); AJ Aaron*; BJ Biyela; MG
Diliza*; JC Farrant>; JS Friedman; A Krok**; MZ Krok*; S Krok**; J
Leutgeb*#; ZJ Matlala>; RT Moloko*; C Neuberger#; PCM September*; R
Vierziger**#
*Non-executive director
>Independent director
**Alternate director
#Austrian Citizen
Company secretary: CRT Paul
Registered office: Gold Reef City, Gate 4, Northern Parkway, Ormonde, 2091
Transfer secretaries: Link Market Services South Africa (Pty) Limited, 5th
Floor, 11 Diagonal Street, Johannesburg, 2001 (P O Box 4844, Johannesburg,
2000)
Sponsor: Nedbank Capital
Investor relations: Envisage Investor & Corporate Relations
GROUP INCOME STATEMENT
Unaudited Restated Restated
for the 6 for the 6 for the 12
months months months
ended 30 ended 30 ended 31
June 2008 June 2007 December
2007
% R000 R000 R000
Revenue 29,4 1 076 004 831 845 1 725 245
Net gaming win 28,9 984 639 763 884 1 565 107
Theme Park 4,2 32 324 31 032 74 095
Food and beverage 76,2 32 573 18 490 41 080
Other 43,5 26 468 18 439 44 963
Other income 204 6 366 8 572
1 076 208 838 211 1 733 817
Gaming levies and VAT (197 739) (151 332) (310 238)
Employee costs (239 678) (167 098) (362 409)
Promotional and (82 172) (50 129) (109 733)
marketing costs
Depreciation and (75 754) (52 997) (152 823)
amortisation
Other operating (178 275) (117 599) (389 337)
expenses
Operating profit 1,2 302 590 299 056 409 277
Finance income 50 557 8 527 37 555
Finance costs (94 579) (24 269) (55 604)
Profit before equity 258 568 283 314 391 228
accounted earnings
Share of loss in (3 678) - (934)
associate
Profit before taxation (10,0) 254 890 283 314 390 294
Taxation expense (95 349) (103 718) (195 307)
Profit for the period (11,2) 159 541 179 596 194 987
Attributable to:
Equity holders of Gold 9,8 151 790 138 190 145 814
Reef
Minority interest 7 751 41 406 49 173
159 541 179 596 194 987
Number of shares in 291 990 220 603 291 990
issue (000)
Weighted average 276 003 203 961 239 662
number of shares in
issue (000)
Earnings per share (18,9) 55,0 67,8 60,8
(cents)
Diluted earnings per (18,9) 55,0 67,8 60,8
share (cents)
SUPPLEMENTARY INFORMATION
Unaudited Restated Restated
for the 6 for the 6 for the 12
months months months
ended 30 ended 30 ended 31
June 2008 June 2007 December
2007
% R000 R000 R000
EBITDAR reconciliation
Operating profit 302 590 299 056 409 277
Property and 10 258 6 044 15 991
equipment rental
Depreciation and 75 754 52 997 152 823
amortisation
EBITDAR 8,5 388 602 358 097 578 091
EBITDAR margin 36,1% 43,0% 33,5%
Adjusted EBITDAR
reconciliation
EBITDAR 388 602 358 097 578 091
Pre-opening expenses 3 527 2 416 57 826
at Silverstar Casino
IFRS2 charges - - 100 790
resulting from share
exchange and top-up
transaction
Transaction costs 180 4 140 4 372
incurred on share
exchange and top-up
transaction
Transaction costs 5 580 - -
incurred during
discussions with Tsogo
Sun Group
Transaction costs 1 965 - 18 927
incurred on the scheme
of arrangement
proposed by Bidco
Adjusted by EBITDAR 9,7 399 854 364 653 760 006
Adjusted EBITDAR 37,2% 43,8% 44,1%
margin
Headline earnings
reconciliation
Attributable profit 151 790 138 190 145 814
Impairment of - - 40 261
intangibles
Fair value - - (867)
adjustments to land
and accounts
receivable
Profit on sale of (466) (662) (1 330)
property, plant and
equipment
Headline earnings 10,0 151 324 137 528 183 878
Headline earnings per (18,7) 54,8 67,4 76,7
share (cents)
Adjusted headline
earnings
reconciliation
Headline earnings 151 324 137 528 183 878
Pre-opening expenses 2 699 2 420 53 183
at Silverstar Casino
and Queens Casino
IFRS2 charges - - 100 790
resulting from share
exchange and top-up
transaction
Transaction costs 180 4 140 4 372
incurred on share
exchange and top-up
transaction
Transaction costs 5 580 - -
incurred during
discussions with Tsogo
Sun Group
Transaction costs 1 965 - 18 927
incurred on the scheme
of arrangement
proposed by Bidco
Adjusted headline 12,3 161 748 144 088 361 150
earnings
Adjusted headline (17,0) 58,6 70,6 150,7
earnings per share
(cents)
GROUP BALANCE SHEET
Unaudited Unaudited Audited at
at 30 June at 30 June 31 December
2008 2007 2007
R000 R000 R000
Assets
Non-current assets
Property, plant and 2 484 326 1 464 220 2 280 196
equipment
Leasehold improvements 105 039 102 037 103 661
Intangible assets 1 188 244 471 397 1 189 423
Deferred tax assets 33 030 38 760 46 788
Investment in associate 48 279 - 42 134
Investment in joint ventures - 37 528 -
Available-for-sale financial - 99 962 -
assets
Derivative financial 106 360 - 43 213
instruments
Share incentive scheme 70 286 25 982 79 812
4 035 564 2 239 886 3 785 227
Current assets
Inventories 20 032 11 186 18 414
Receivables and prepayments 72 114 61 780 74 622
Cash and cash equivalents 230 459 470 421 332 016
Amounts owing by related 204 3 910 67
parties
322 809 547 297 425 119
Total assets 4 358 373 2 787 183 4 210 346
Equity and liabilities
Capital and reserves
Ordinary share capital 5 840 4 412 5 840
Share premium 1 860 132 499 280 1 860 132
Treasury shares (41 968) (75 340) (41 961)
1 824 004 428 352 1 824 011
Share-based payment reserve 383 028 31 781 378 117
Other reserves (441 258) 39 393 (493 699)
Retained earnings 592 815 707 840 718 238
2 358 589 1 207 366 2 426 667
Minority interest 33 142 234 745 32 405
Total equity 2 391 731 1 442 111 2 459 072
Non-current liabilities
Interest-bearing borrowings 1 501 045 564 859 1 309 242
Deferred tax liabilities 54 998 52 993 53 946
1 556 043 617 852 1 363 188
Current liabilities
Trade and other payables 139 795 553 788 136 029
Provisions 63 772 41 234 54 923
Bank overdraft 24 766 2 068 15 420
Tax liabilities 18 341 35 622 40 825
Current portion of interest- 163 486 91 499 139 378
bearing borrowings
Amounts owing to related 439 3 009 1 511
parties
410 599 727 220 388 086
Total equity and liabilities 4 358 373 2 787 183 4 210 346
GROUP CASH FLOW STATEMENT
Unaudited Unaudited Audited for
for the 6 for the 6 the 12
months months months ended
ended 30 ended 30 31 December
June 2008 June 2007 2007
R000 R000 R000
Cash flow from operating
activities
Profit before taxation 254 890 283 314 390 294
Non-cash items and other 147 474 99 908 284 588
adjustments
402 364 383 222 674 882
Decrease/(increase) in working 13 505 (78 655) (63 068)
capital
Cash flow from operating 415 869 304 567 611 814
activities
Interest received 20 276 8 527 32 442
Interest paid (94 579) (24 269) (55 604)
Taxation paid (103 023) (106 468) (199 929)
Dividend paid (277 213) - (150 242)
Net cash (utilised)/generated (38 670) 182 357 238 481
in operating activities
Cash flow from investing
activities
Additions to property, plant (277 001) (239 019) (1 065 315)
and equipment
Additions to leasehold (3 315) (637) (5 329)
improvements
Proceeds from disposal of 748 1 917 9 963
property, plant and equipment
Investment in available-for- - (5 287) -
sale financial instruments
Investment in intangibles (49) - (276)
Investment in associate - - (67)
Loans to associate (9 823) - (43 001)
Loans to joint ventures - (1 248) -
Net (advances to)/repayments by (1 209) (459) 1 886
related parties
Net cash effect of share - - (138 908)
exchange and top-up transaction
Net cash utilised in investing (290 649) (244 733) (1 241 047)
activities
Cash flow from financing
activities
(Purchase)/issue of shares (7) - 59 737
(by)/to share scheme
Issue of shares as part of top- - 287 000 287 000
up transaction
Decrease/(increase) in share 9 526 (498) (54 328)
incentive scheme loan
Dividend and loan repayments to (7 014) (3 556) (13 292)
outside shareholders
Increase in interest-bearing 215 911 185 061 977 323
borrowings
Net cash generated by financing 218 416 468 007 1 256 440
activities
Net (decrease)/increase in cash (110 903) 405 631 253 874
and cash equivalents
Cash and cash equivalents at 316 596 62 722 62 722
beginning of period
Cash and cash equivalents at 205 693 468 353 316 596
end of period
GROUP STATEMENT OF CHANGES IN EQUITY
Share Reserves Retained Minority Total
capital earnings interest equity
net of
treasury
R000 R000 R000 R000 R000
Balance at 1 428 352 40 005 719 892 196 895 1 385 144
January 2007
Recognition of - 5 571 - - 5 571
share-based
payments
Effective
portion of
derivative hedge - 25 598 - - 25 598
recognised in
equity during
the period
Attributable - - 138 190 41 406 179 596
profit for the
period
Dividend - - (150 - (150 242)
declared 242)
Dividends paid - - - (3 556) (3 556)
to minorities by
subsidiaries
Balance at 30 428 352 71 174 707 840 234 745 1 442 111
June 2007
Issue of shares 1 335 922 340 257 - - 1 676 179
as part of the
share exchange
and top-up
transaction
Effect of share - (542 107) - (200 371) (742 478)
exchange and top-
up transaction
on group equity
Transfer - (2 774) 2 774 - -
between reserves
Issue of shares 59 737 - - - 59 737
to share scheme
Recognition of - 6 079 - - 6 079
share-based
payments
Effective - 11 789 - - 11 789
portion of
derivative hedge
recognised in
equity during
the period
Attributable
profit for the - - 7 624 7 767 15 391
period
Dividends paid - - - (9 736) (9 736)
to minorities by
subsidiaries
Balance at 31 1 824 011 (115 582) 718 238 32 405 2 459 072
December 2007
Resolutive (59 737) - - - (59 737)
condition
effected on
issue of shares
to employees
under BidCo
offer
Transfer of 59 730 - - - 59 730
shares to
employees from
share scheme
Recognition of - 4 911 - - 4 911
share-based
payments
Effective - 52 441 - - 52 441
portion of
derivative hedge
recognised in
equity during
the period
Attributable - - 151 790 7 751 159 541
profit for the
period
Dividend - - (277 - (277 213)
declared 213)
Dividends paid - - - (7 014) (7 014)
to minorities by
subsidiaries
Balance at 30 1 824 004 (58 230) 592 815 33 142 2 391 731
June 2008
Date: 03/09/2008 16:06:34 Produced by the JSE SENS Department.
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