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SUI
SUI
SUI - Sun International - Profit and Dividend Announcement for the six months
ended 31 December 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 six months ended 31 December 2008
- Revenue +6%
- EBITDA -2%
- Adjusted HEPS -2%
GROUP INCOME STATEMENTS
Six months ended Year ended
31 December 30 June
2008 2007 2008
% Restated Restated
R million Unaudited change Unaudited Audited
Revenue
Casino 3 074 5 2 931 5 845
Rooms 474 13 421 881
Food, beverage and other 474 7 444 892
4 022 6 3 796 7 618
Less: Promotional (62) (59) (117)
allowances
3 960 3 737 7 501
Other income - - 13
Pension fund surplus - - 12
recognition
Employee costs (788) (709) (1 400)
Levies and VAT on casino (664) (624) (1 244)
revenue
Depreciation and (317) (278) (568)
amortisation
Promotional and (290) (279) (522)
marketing costs
Consumables and services (429) (376) (777)
Property and equipment (44) (52) (102)
rental
Property costs (148) (125) (252)
Other operational costs (315) (268) (529)
BEE transaction charge - (182) (182)
Operating profit 965 14 844 1 950
Foreign exchange 65 (22) 69
profits/(losses)
Interest income 40 43 79
Interest expense (361) (289) (601)
Profit before tax 709 576 1 497
Tax (327) (351) (784)
Profit 382 70 225 713
Attributable to:
Minorities 74 122 256
Ordinary shareholders 308 103 457
382 225 713
Number of shares (000`s)
- in issue 88 849 88 504 88 014
- for EPS calculation 88 105 91 185 89 826
- for diluted EPS 89 915 93 389 91 028
calculation
Earnings per share
(cents)
- basic 350 113 509
- headline 351 192 120 524
Diluted earnings per
share (cents)
- basic 343 110 502
- headline 344 117 517
Dividends declared per - 222 480
share (cents)
EBITDA to interest 4,3 5,6 5,4
(times)
Dividend payout (%) - 63,7 64,2
HEADLINE EARNINGS
RECONCILIATION
Profit attributable to
ordinary shareholders 308 103 457
Headline earnings 2 4 10
adjustments
Net loss on disposal and 2 2 14
impairment of property,
plant and equipment and
intangible assets
Loss/(profit) on - 2 (4)
disposal of investments
Tax relief on the above - 6 5
items
Minorities` interests in (1) (4) (1)
the above items
Headline earnings 309 183 109 471
GROUP CASH FLOW STATEMENTS
Six months ended Year
ended
31 December 30 June
2008 2007 2008
R million Unaudited Unaudited Audited
Cash generated by operations 1 344 1 237 2 804
before:
Working capital changes 10 (13) 68
Cash generated by operations 1 354 1 224 2 872
Tax paid (384) (375) (783)
Cash retained from operating 970 849 2 089
activities
Cash utilised in investing (1 035) (645) (1 548)
activities
Cash realised from investing 519 530 484
activities
Net cash outflow from financing (237) (699) (1 305)
activities
Effects of exchange rate 42 (13) 41
changes on cash and cash
equivalents
Increase/(decrease) in cash 259 22 (239)
balances
GROUP STATEMENT OF CHANGES IN EQUITY
Share
capital
Unaudited and Treasury Other
R million premium shares reserves(i)
Balances at 30 June 2008 8 (1 839) (1 170)
Share issue 22
Treasury share options purchased (10)
Treasury share options exercised 56
Employee share based payments 15
Fair value adjustment on available- 5
for-sale investment
Net profit on cash flow hedges 133
Transfer from hedging reserve to (165)
income statement
Acquisition of subsidiary
Disposal of interests to minorities 52
Acquisiton of minorities` interests (4)
Profit
Movement in currency translation 76
differences
Realisation of currency translation (17)
differences
Dividends paid
Balances at 31 December 2008 30 (1 793) (1 075)
Minor-
Unaudited Retained ities`
R million earnings interests Total
Balances at 30 June 2008 3 120 546 665
Share issue 22
Treasury share options purchased (10)
Treasury share options exercised 56
Employee share based payments 15
Fair value adjustment on 5
available-for-sale investment
Net profit on cash flow hedges 10 143
Transfer from hedging reserve to (165)
income statement
Acquisition of subsidiary 357 357
Disposal of interests to 47 99
minorities
Acquisiton of minorities` (3) (7)
interests
Profit 308 74 382
Movement in currency translation (6) 70
differences
Realisation of currency (17)
translation differences
Dividends paid (227) (182) (409)
Balances at 31 December 2008 3 201 843 1 206
(i) Included in other reserves are foreign currency translation reserve, share
based payment reserve, available-for-sale investment reserve, financial
instrument hedging reserve and profits and losses on purchase and sale of non-
controlling interests.
GROUP BALANCE SHEETS
31 December 30 June
2008 2007 2008
R million Unaudited Unaudited Audited
ASSETS
Non current assets
Property, plant and 7 684 6 069 6 229
equipment
Intangible assets 497 339 308
Available-for-sale 48 44 44
investment
Loans and other non current 225 129 76
assets
Pension fund asset 22 10 22
Deferred tax 94 36 31
8 570 6 627 6 710
Current assets
Loans and receivables 89 - 501
Accounts receivable and 857 477 571
other
Cash and cash equivalents 1 109 1 111 850
2 055 1 588 1 922
Total assets 10 625 8 215 8 632
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` 363 15 119
equity
Minorities` interests 843 594 546
1 206 609 665
Non current liabilities
Deferred tax 405 410 412
Borrowings 4 897 4 421 3 821
Other non current 212 154 210
liabilities
5 514 4 985 4 443
Current liabilities
Accounts payable and other 1 447 1 084 1 247
Borrowings 2 458 1 537 2 277
3 905 2 621 3 524
Total liabilities 9 419 7 606 7 967
Total equity and liabilities 10 625 8 215 8 632
Annualised borrowings to 2,61 2,18 2,15
EBITDA (times)
Net asset value per share 4,09 0,17 1,35
(Rands)
Capital expenditure 833 456 861
Capital commitments
- contracted 611 592 1 168
- authorised but not 882 1 541 2 005
contracted
- conditionally authorised - 812 -
1 493 2 945 3 173
SUPPLEMENTARY INFORMATION
Six months ended Year
ended
31 December 30 June
2008 % 2007 2008
R million Unaudited change Unaudited Audited
EBITDA RECONCILIATION
Operating profit 965 14 844 1 950
Depreciation and 317 278 568
amortisation
Other income - - (13)
Pension fund surplus - - (12)
recognition*
BEE transaction charge* - 182 182
Property and equipment 44 52 102
rental
Net loss on disposal and 2 2 14
impairment of property,
plant and equipment and
intangible assets*
Ster Century guarantee - 4 3
provision*
Loss/(profit) on disposal - 2 (4)
of investments*
Pre-opening expenses* 19 7 8
Reversal of Employee 20 18 38
Share Trusts`
consolidation*
EBITDA 1 367 (2) 1 389 2 836
EBITDA margin (%)(ii) 34 37 37
ADJUSTED HEADLINE
EARNINGS RECONCILIATION
Headline earnings 309 183 109 471
Adjusted headline - 201 157
earnings adjustments
Pre-opening expenses 19 7 8
Realisation of management - - (13)
contract
Pension fund surplus - - (12)
recognition
Foreign exchange (19) 8 (11)
(profits)/losses on
intercompany loans
Ster Century guarantee - 4 3
provision
BEE transaction charge - 182 182
Tax relief on the above (3) 16 20
items
Tax on share premium - - 48
distributions received
Minorities` interests in (10) (8) (15)
the above items
Reversal of Employee 27 22 39
Share Trusts`
consolidation(iii)
Adjusted headline 323 (5) 340 720
earnings
Number of shares
(000`s)(iii)
- for adjusted headline 95 036 97 627 96 268
EPS calculation
- for diluted adjusted 96 846 99 831 97 470
headline EPS calculation
Earnings per share
(cents)
- adjusted headline 340 (2) 348 748
- diluted adjusted 334 (2) 341 739
headline
(ii) The EBITDA margin has been calculated on revenue before deducting
promotional allowances.
(iii) 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 IAS
34 - Interim Financial Reporting. The accounting policies applied, other than
described below, to the condensed consolidated financial information are
consistent with those as set out in the annual financial statements for the
year ended 30 June 2008.
The group has adopted hedge accounting prescribed by IAS 39 - Financial
Instruments whereby changes in the fair value of derivative financial
instruments that are designated and effective as hedges of future cash flows
are recognised directly in equity. The ineffective portion is recognised
immediately in the income statement. The effective portion of the gain or loss
on the hedging instrument recognised in equity, is subsequently removed and
included in the income statement in the same period during which the hedged
item affects profit.
The group has historically reflected revenues for complimentary rooms, food
and beverage provided to customers at the internal "selling" price with an
equal amount reflected in marketing and promotional costs. In line with the
requirements of IAS 18 - Revenue, the group has decided to disclose these
expenses as a deduction from revenue and comparative results have been
restated.
EARNINGS AND DIVIDEND
Revenues for the six months to 31 December 2008 were 6% ahead of last year at
R4 billion and 3% higher excluding non-comparable revenue from the new
Monticello Grand Casino and Entertaiment World in Chile. The group achieved
gaming revenue growth of 5% and hospitality and other revenues of 10%. EBITDA
of R1,4 billion for the six months was 2% down on last year and the EBITDA
margin fell 2,6 percentage points to 34%. The margin was impacted by lower
than inflation revenue growth, inflation-driven increases in costs in South
Africa, together with the losses incurred by Monticello in its opening
quarter. EBITDA excluding the Monticello loss was in line with the prior year
which, under current difficult trading conditions, is considered satisfactory.
The prior year results include a BEE transaction charge of R182 million which
recognised the difference between the price at which Grand Parade Investments
Limited was granted an option over 5% of the equity in SunWest International
(Pty) Limited and the estimated fair value thereof.
The weakening of the SA Rand during the period, partially offset by foreign
exchange losses in Chile, resulted in a net exchange profit of R65 million,
compared with a loss of R22 million last year.
The group`s net interest charge increased by R75 million to R321 million. The
higher interest charge results from higher rates compared to last year as well
as the additional funding costs associated with the expansion of GrandWest and
Carnival City together with the Monticello project.
Tax at R327 million was 7% below the comparable period. The overall effective
tax rate however remained high in the period mainly as a result of the non
deductibility of preference share dividends, higher STC charges due to the
timing of dividend payments and the losses incurred by Monticello with no
commensurate tax relief.
Adjusted headline earnings of R323 million were 5% below last year whilst
diluted adjusted headline earnings per share of 334 cents were 2% below last
year.
In light of the funding requirements of Monticello, the deteriorating trading
conditions throughout the group and the requirements to fund the group`s
casino licence application for the Wild Coast Sun and Boardwalk, the board has
resolved to preserve cash flows and not declare an interim dividend.
TRADING
Segmental analysis
R million Revenues
Six months Year ended
to 31 Dec 30 June
2008 2007 2008
Unaudited Unaudited Audited
GrandWest 841 879 1 756
Sun City 590 563 1 147
Carnival City 514 485 954
Sibaya 402 392 782
Boardwalk 217 230 451
Carousel 156 158 318
Wild Coast Sun 153 150 299
Morula 130 123 243
Zambia 125 97 208
Meropa 114 107 215
Windmill 107 101 198
Table Bay 101 90 197
Botswana 95 71 151
Swaziland 93 84 157
Flamingo 66 65 127
Namibia 64 59 120
Golden Valley 54 40 87
Lesotho 50 49 97
Existing operations 3 872 3 743 7 507
Monticello - Chile 97 - -
3 969 3 743 7 507
Management activities 337 327 659
Central office & other 24 29 65
Eliminations (308) (303) (613)
Other income
Other expenses #
4 022 3 796 7 618
Promotional allowances (62) (59) (117)
3 960 3 737 7 501
EBITDA
Year
Six months ended
to 31 Dec 30 June
2008 2007 2008
Unaudited Unaudited Audited
GrandWest 343 363 734
Sun City 89 98 223
Carnival City 180 165 329
Sibaya 142 142 294
Boardwalk 89 93 185
Carousel 43 46 91
Wild Coast Sun 27 30 62
Morula 28 28 55
Zambia 40 29 63
Meropa 45 43 86
Windmill 45 41 80
Table Bay 33 31 69
Botswana 34 24 51
Swaziland 15 13 21
Flamingo 22 23 44
Namibia 18 17 33
Golden Valley 16 11 24
Lesotho 7 9 16
Existing operations 1 216 1 206 2 460
Monticello - Chile (23) - -
1 193 1 206 2 460
Management activities 190 189 380
Central office & other (16) (6) (4)
Eliminations - - -
Other income
Other expenses #
1 367 1 389 2 836
Promotional allowances - - -
1 367 1 389 2 836
Operating profit
Year ended
Six months
to 31 Dec 30 June
2008 2007 2008
Unaudited Unaudited Audited
GrandWest 272 293 591
Sun City 32 47 115
Carnival City 140 125 252
Sibaya 108 107 224
Boardwalk 75 78 156
Carousel 29 34 66
Wild Coast Sun 20 22 47
Morula 16 16 31
Zambia 30 21 45
Meropa 36 35 69
Windmill 35 33 62
Table Bay 16 16 36
Botswana 27 18 39
Swaziland 11 9 12
Flamingo 17 18 33
Namibia 11 9 18
Golden Valley 7 4 10
Lesotho 6 7 12
Existing operations 888 892 1 818
Monticello - Chile (37) - -
851 892 1 818
Management activities 183 185 371
Central office & other (28) (18) (23)
Eliminations - - -
Other income - - 13
Other expenses # (41) (215) (229)
965 844 1 950
Promotional allowances - - -
965 844 1 950
# Items included indicated by * on EBITDA reconciliation.
GAMING
Comparable gaming revenue improved by 2% on last year. The rate of revenue
growth has continued to slow as a direct result of declining disposable
incomes and consumer confidence in the current environment.
GrandWest and Boardwalk experienced particularly difficult trading conditions
due to economic conditions in their specific local markets. Given their
deteriorating revenues, cost containments have been particularly focused at
these operations. GrandWest revenue was 4% below last year and EBITDA 6%
behind last year at R343 million. The EBITDA margin declined marginally to
40,8%. Boardwalk experienced a decline in revenues and EBITDA of 6% to R217
million and 4% to R89 million respectively for the period, the EBITDA margin
however improved marginally to 41%.
Carnival City achieved revenue growth of 6% over last year. EBITDA grew 9% to
R180 million with margins improving to 35% (34%). The group`s share of the
Gauteng market, which includes Morula, remained in line with the comparable
period in the prior year. This was a significant achievement given the opening
of the seventh casino in Gauteng in December 2007.
Sibaya achieved revenues of R402 million and EBITDA of R142 million, 3% ahead
and in line with last year respectively. The EBITDA margin of 35,3% was 0,9
percentage points lower. The overall KwaZulu-Natal market grew by 7% in the
period under review and Sibaya`s share of the market at 35% was one percentage
point below the comparable period in the prior year.
HOTELS AND RESORTS
Rooms revenue of R474 million was 13% ahead of the previous year. An overall
group occupancy of 77% (80%) was achieved, and the average room rate improved
14% due to higher yields and Zambia benefiting from favourable exchange rates.
Sun City`s room occupancy of 81% was 3 percentage points below last year
whilst the average room rate was 12% ahead. The resort generated an EBITDA of
R89 million, which was 9% below last year having been impacted by additional
costs relating to the Million Dollar Poker and Miss SA events which costs are
unlikely to recur.
The Table Bay achieved an occupancy of 69% (72%) for the period, with the
average room rate being 17% ahead of the previous year. This resulted in
overall revenue growth of 12% and EBITDA of R33 million which was 6% ahead of
last year. Costs were significantly impacted by higher property taxes.
The Royal Livingstone and Zambezi Sun achieved an aggregate occupancy of 71%
(79%) at an average room rate of US$178, 5% ahead of last year. Total revenue
was 29% up on last year in SA Rands but flat in US dollar terms.
Trading conditions were relatively buoyant in Botswana and consequently a
strong improvement in revenues and margins was achieved.
MANAGEMENT ACTIVITIES
Management fee and related income of R337 million was 3% above last year
reflecting the difficult trading conditions. EBITDA of R190 million was in
line with the previous year, assisted by lower project investigation costs of
R9,3 million (R16,1 million).
DEVELOPMENTS
The Sun City Main Hotel refurbishment commenced in February 2007 with the
second phase of the rooms refurbishment having been completed in November
2008. The total cost of the refurbishment was R260 million which includes the
cost of replacing infrastructural items such as air-conditioning, plumbing and
electrical items and refurbishing of back-of-house areas, including kitchens.
BALANCE SHEET
The group`s borrowings have increased since June 2008 by R1,3 billion to R7,4
billion predominantly as a result of the Monticello development being
consolidated from 20 August 2008 and further expenditure on this project.
Third party borrowings
31 December 31 December 30 June
R million 2008 2007 2008
SFI Resorts SA (Chile) 1 258 - -
SunWest International (Pty) 837 513 759
Ltd
Afrisun Gauteng (Pty) Ltd 511 367 454
Afrisun KZN (Pty) Ltd 441 369 447
Worcester Casino (Pty) Ltd 193 191 200
Meropa Leisure and 120 98 117
Entertainment (Pty) Ltd
Emfuleni Resorts (Pty) Ltd 117 116 119
Mangaung Sun (Pty) Ltd 68 18 10
Teemane (Pty) Ltd 67 59 69
Central office 3 485 4 033 3 675
7 097 5 764 5 850
Employee Share Trusts 258 194 248
7 355 5 958 6 098
Capital expenditure incurred
during the six months:
R million
Expansionary
Monticello +577
Carnival City - parkade 15
592
Refurbishment
Sun City Main Hotel 54
Other ongoing asset 187
replacement
Total capital expenditure 833
+ Capital expenditure post 20
August 2008.
INTERNATIONAL EXPANSION
Chile
Construction of Monticello located south of Santiago in Chile, is progressing,
with the casino (1500 slot machines and 80 tables) having opened to the public
in October 2008. The very tight deadlines to deliver the casino necessitated a
delay in completing the balance of the project and as a consequence the retail
and entertainment components are scheduled for completion at the end of May
2009 and the hotel is expected to open in August 2009. In light of the global
recession and resultant deteriorating economic conditions in Chile, it will be
necessary to assist with the funding of certain concessionaires for the fast
food and children`s entertainment areas within the retail development. This
will marginally increase the overall projected capital expenditure of US$236
million.
The casino opened as required by the licence and as a consequence, has been
operating in the midst of an active construction site without ancillary
facilities and with certain access constraints. Under these circumstances,
together with the extremely difficult economic conditions, trading to date has
been well below expectations, however, there has been strong support for the
MVG customer loyalty programme and once all the ancillary facilities are open,
visitor numbers and revenues will improve significantly.
Nigeria
The 150 room Federal Palace Hotel opened in August 2008 following the US$10
million upgrade. The gaming laws in Lagos have been promulgated and the
licence to operate a casino is now available.
Due to current economic conditions, the group has elected to delay the
previously planned US$167 million refurbishment of the Federal Palace Towers
hotel and the development of a permanent casino. The group therefore intends
operating both the refurbished five star Federal Palace Hotel and the existing
three star Federal Palace Towers hotel (following minor upgrades to the
latter) and constructing a temporary casino located in the Federal Palace
Hotel at an estimated cost of US$17 million.
The group will invest US$28 million in acquiring a 49,5% interest in the
company which owns and operates the development. The revised project
expenditure of US$24 million and certain once off restructuring costs of US$8
million will be funded through the capital raised and a further US$5 million
loan from the group.
EASTERN CAPE CASINO LICENCES
The Wild Coast Sun`s casino licence expires in August 2009. The group
submitted an application for a new licence to the Eastern Cape Gambling and
Betting Board and the final determination remains outstanding. The bid
proposal includes a R340 million upgrade an enhancement to the resort.
The Boardwalk`s casino licence in Zone 1 of the Eastern Cape expires in
October 2010. A bid for a new casino licence was submitted on 30 January 2009
and includes plans for a five star hotel and conference centre, expanded
gaming facilities and covered parking at an estimated cost of R1 billion. The
announcement of the preferred bidder is expected in August 2009.
DIRECTORATE
Mr DA?Hawton will be retiring from the board of the company from 30 June 2009,
having been chairman since 1989.
The position of chairman, following Mr Hawton`s retirement, will be assumed by
Mr MV?Moosa. As he is not an independent director, the board has appointed Mr
IN?Matthews as lead independent director who will assume this position
simultaneously with the aforegoing appointment.
OUTLOOK
Trading at the group`s gaming operations is expected to remain subdued, whilst
global economic conditions will negatively impact the hotels and resorts in
the second half of the financial year.
The group will benefit from declining interest rates. However this will not
offset the higher interest charges arising from Monticello. In addition, the
extent of foreign exchange gains generated in the second half of the prior
year is unlikely to recur.
Adjusted headline earnings per share for the full year is therefore expected
to be below that achieved for 2008.
The board is committed to ensuring that the group has the appropriate capacity
to fund future opportunities and will consequently review the final dividend
in light of conditions prevailing at the time.
For and on behalf of the board
DA Hawton DC Coutts-Trotter
Chairman Chief Executive
Registered Office: 27 Fredman Drive, Sandown, Sandton 2031
Sponsor: Investec Bank Limited
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
26 February 2009
Date: 26/02/2009 15:30:39 Produced by the JSE SENS Department.
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