| Wed 28 Feb 2001, 0:00 | | Kersaf - Interim Results For The Six Months Ended |
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Kersaf Investments Limited
(Registration number 1967/007528/06)
Interim profit announcement for the six months ended 31 December 2000
* Revenues up 11% to R1,4 billion
* EBITDA up 19% to R370 million
* Headline earnings of R111 million in line with last year
* Three new casinos opened in South Africa
Group income statement
Year
Six months ended ended
31 December 30 June
2000 1999 2000
Reviewed % Reviewed Audited
Rm change Rm Rm
Revenue 1 384 11 1 244 2 572
Direct costs (624) (569) (1 155)
Gross profit 760 13 675 1 417
Indirect costs (390) (363) (746)
EBITDA* 370 19 312 671
Depreciation and amortisation (108) (86) (194)
Property rentals (19) (22) (42)
Exceptional items (116) (9) (190)
Profit from operations 127 195 245
Foreign exchange profits 3 7 19
Interest received 31 69 80
Operating profit 161 271 344
Interest paid (35) (51) (61)
Share of associate company profits
- normal 25 (36) 39 109
- exceptional (480) (8) 57
(Loss)/profit before taxation (329) 251 449
Taxation (80) (70) (166)
(Loss)/profit after taxation (409) 181 283
Minority interests 103 (58) (96)
(Loss)/earnings attributable to
ordinary shareholders (306) 123 187
*Earnings before interest, taxation,
depreciation and amortisation
Number of shares (000's)
- in issue 88 950 88 650 88 650
- for EPS calculation 88 676 88 650 88 650
- for fully diluted EPS
calculation 89 678 88 660 89 080
Earnings per share (cents)
- headline earnings per share 125 125 266
- basic (loss)/earnings
per share (345) 139 211
Fully diluted earnings
per share (cents)
- headline earnings per share 124 125 265
- basic (loss)/earnings
per share (341) 139 210
Interest cover (times) 8 5 9
Determination of headline earnings
Attributable (loss)/earnings
per the income statement (306) 123 187
Exceptional items 116 9 190
Pre-opening expenses 91 36 77
Goodwill 10 14 22
Net write downs due to sale and
closure of operations 15 (41) 68
Downsizing and restructuring
costs - - 15
Investment written down - - 21
Profit on disposal of interest in
subsidiaries - - (8)
Indirect taxation claims relating
to prior years - - (5)
Associate companies'
exceptional items 480 8 (57)
Pre-opening expenses 14 5 7
Goodwill 3 3 6
Share tender and aborted
leveraged buyout costs - - 10
Desert Inn termination costs - - 16
Profit on Paradise Island
land sales (12) - (96)
Loss on sale of Atlantic City 475 - -
Taxation relief on the
above items - - (14)
Minority interests in the
above items (179) (29) (70)
Headline earnings 111 111 236
Divisional earnings analysis
Six months ended Year ended
31 December 30 June
2000 1999 2000
Reviewed Reviewed Audited
Rm Rm Rm
Sun International Inc 100 74 152
Sun International South Africa 41 33 61
Other southern African activities 19 20 34
Management activities 32 23 34
Sun International Hotels 21 22 78
Ster Century Europe and Middle East (17) (7) (20)
Central office costs and other 4 1 4
20% minority stake* - (18) (39)
City Lodge 10 9 18
Kersaf central office and other 1 28 66
111 111 236
This analysis represents the Kersaf share of headline earnings and excludes the
impact of exceptional items (normal and associate).
*Effective 30 June 2000, Kersaf acquired the 20% minority stake in Sun
International Inc for R425 million. The R18 million in the 1999 period
represents the earnings attributable to this minority stake and has been
separately reflected so as to enable more meaningful comparison of the
divisional earnings.
Group balance sheet
31 December 30 June
2000 1999 2000
Reviewed Reviewed Audited
Rm Rm Rm
ASSETS
Operating assets and investments
Operating assets 4 931 3 412 3 795
Goodwill 75 170 78
Investments and loans 1 853 1 927 2 046
6 859 5 509 5 919
Current assets
Deposits and cash 226 612 200
Accounts receivable and other 515 595 552
741 1 207 752
Total assets 7 600 6 716 6 671
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders' equity 2 593 2 641 2 744
Outside shareholders' interests 1 547 1 937 1 568
4 140 4 578 4 312
Non-current liabilities
Borrowings 2 180 962 1 231
Deferred taxation 432 386 430
2 612 1 348 1 661
Current liabilities
Borrowings 211 5 67
Accounts payable and other 637 785 631
848 790 698
Total liabilities 3 460 2 138 2 359
Total equity and liabilities 7 600 6 716 6 671
Return on ordinary shareholders'
equity (%) 11 9 9
Borrowings to total shareholders'
equity (%) 58 21 30
Net asset value per share (Rand) 29,15 29,79 30,95
Capital expenditure 1 277 467 1 143
Capital commitments
- contracted 600 586 1 439
- authorised but not contracted 1 038 1 375 1 128
Market value of listed investments 1 429 970 1 138
Directors' valuation of unlisted
investments and loans 340 202 290
Total valuation of
investments and loans 1 769 1 172 1 428
Group cashflow statement
Six months ended Year ended
31 December 30 June
2000 1999 2000
Reviewed Reviewed Audited
Rm Rm Rm
Cash generated by operations before: 350 307 641
Working capital changes 61 (143) (211)
Pre-opening expenses (91) (36) (77)
Cash generated by operations 320 128 353
Investment income 31 69 89
Interest expense (35) (51) (61)
Taxation paid (58) (100) (128)
Dividends paid (35) (90) (120)
Cash retained from/(utilised in)
operating activities 223 (44) 133
Cash utilised in investing
activities (1 354) (587) (1 785)
Cash realised from investing
activities 7 15 53
Net cash inflow from financing
activities 1 136 202 743
Translation gains on cash
balances 14 4 34
Increase/(decrease) in cash balances 26 (410) (822)
Consolidated statement of changes in equity
Ordinary Foreign
shares and currency
share Retained translation
premium earnings reserve Total
Rm Rm Rm Rm
Balances at 30 June 2000 527 1 602 615 2 744
- Share issue 8 - - 8
- Losses for period to
31 December 2000 - (306) - (306)
- Dividends paid - (27) - (27)
- Foreign currency translation
adjustment - - 174 174
- Transfer from foreign currency
translation reserve to retained
earnings - 131 (131) -
Balances at 31 December 2000 535 1 400 658 2 593
Commentary
Earnings and dividend
Trading conditions in South Africa were difficult during the period under
review. The negative perceptions created by events in Zimbabwe, HIV/Aids and
the cholera outbreak as well as continuing high levels of crime have impacted
negatively on economic confidence and particularly on international tourism to
the region. The opening of permanent casinos by competitors in Gauteng during
the second quarter diluted the revenues of Sun International's three casinos
catering to this market. This impact was more than offset by the opening of the
Boardwalk casino in Port Elizabeth and GrandWest casino in Cape Town during the
period.
The group's headline earnings per share was in line with last year at 125
cents. The improved profitability attributable to the management and ownership
of the new casino properties in South Africa was offset by disappointing
trading by Ster Century Europe. The divisional analysis has been presented so
as to assist comparison by reflecting the impact of the 20% minority stake in
Sun International Inc acquired by Kersaf effective 30 June 2000. This
additional 20% holding diluted earnings by 4% during the period under review
although the transaction will be significantly earnings enhancing in the future
Revenues for the period of R1 384 million were 11% higher, with the higher
margin gaming revenues 17% above last year. Tight cost controls and a
significant increase in management fee income resulted in EBITDA increasing 19%
to R370 million. Depreciation charges increased by 26% as a result of the
commissioning of the new casinos. Net interest paid of R4 million during the
current six month period compares to the R18 million net interest earned in the
corresponding prior period. This was as a consequence of the funding of the new
casinos together with the R425 million acquisition of the minority stake in Sun
International Inc. Normal associate earnings declined by 36% to R25 million
primarily as a result of higher losses by Ster Century Europe. A R10 million
higher taxation charge in the current year reduced headline earnings to R111
million, in line with last year.
The group incurred a number of exceptional charges during the period, the most
significant of which were the pre-opening expenses relating to the
commissioning of the new casino properties and the loss on the sale of the
Resorts Hotel Casino in Atlantic City by the group's associate Sun
International Hotels Limited.
In line with the previous announcement to shareholders and given the
significant ongoing investment programme in the group, no dividends will be
declared for the 2001 financial year.
Operational review
Sun International South Africa's results for the period reflects the impact on
profitability of the new permanent casinos in Gauteng and the poor conditions
in the hotel and resort industry in South Africa offset by the trading from the
recently opened Boardwalk and GrandWest casinos. Group revenues were 12%
higher, with gaming revenues 18% up and hospitality revenues in line with last
year. Average room occupancy at 65% was two percentage points below last year
with the flagship Sun City resort down
one percentage point to 74%. The improvement in gaming revenues can be
attributed to the Carnival City permanent casino trading for the full six
months compared to three months in the prior year, the opening of the Boardwalk
casino (three months trading) and the GrandWest casino (two weeks trading).
Revenues at both the Carousel and Morula Sun declined following the opening of
the new casinos in Gauteng. Margins improved as a result of the increase in
gaming revenues with a 16% increase in EBITDA to
R275 million. Despite the increased capital charges arising on the new
projects, headline earnings were 22% higher at R96 million.
The Boardwalk casino was opened in October 2000 followed by the retail
component in December 2000, at a total capital cost of R428 million. The
GrandWest casino was opened well ahead of schedule on 19 December 2000, at an
estimated final capital cost of R1,45 billion. Both casinos have traded well to
date and the response from the public has been positive. The Sugarmill
temporary casino located near Durban was opened officially on 1 February 2001
at a capital cost of R200 million. Construction on the permanent Sibaya casino
and resort at Umdloti is scheduled to commence in 2002. The group was recently
awarded a licence for its Meropa casino project at Pietersburg. It is intended
to commence construction of both this R200 million project and the R120 million
Flamingo casino at Kimberley during the final quarter of this financial year.
Other southern African operations experienced subdued trading with revenues
increasing by 4% and EBITDA by 8% to R41 million. Higher taxation charges
resulted in headline earnings being in line with last year. Construction of the
US$56 million two-hotel project at Victoria Falls in Zambia is nearing
completion with opening planned for May 2001. Attributable losses during the
initial trading period are anticipated to be higher than originally forecast in
light of the current situation in Zimbabwe and the resultant negative
perceptions of the region in international tourist markets.
Management activities generated earnings 42% higher primarily due to
contributions from the new casinos and the increased project fees earned on the
major projects that were under way during the period.
Sun International Hotels Limited's headline earnings for the six month period
were down 26% in US Dollar terms due to the depressed gaming revenues at the
Atlantis resort on Paradise Island during the last quarter and the reduced
income from the Mohegan Sun arising from the new fee arrangements which became
effective 1 January 2000. Earnings as reported in SA Rands showed only a 6%
decline on last year due to the significant depreciation of the SA Rand.
Ster Century Europe trading was disappointing over the period with losses
attributable to Kersaf amounting to R15 million. This result was due to new
sites generally taking longer than anticipated to establish themselves, the
poor film product on offer and Euro currency weakness. Since July 2000, Ster
Century Europe has opened a further six cinema complexes in Poland, Greece,
Czech Republic and Slovakia bringing the total now trading to 14. The sale
process continues in line with the group's stated objective of disposing of its
non core assets.
City Lodge experienced improved trading conditions with revenues up 12% and
attributable earnings up 11%. Average room occupancies increased five
percentage points to 74%. Aggressive sales, marketing and pricing strategies
resulted in a small decline in operating margins. The prospect of a marginally
improving hotel industry market and an anticipated firming of room rates across
the industry, together with the opening of three new hotels, should positively
impact earnings in the second half.
Balance sheet
Major investment expenditure during the period under review was R662 million on
the GrandWest project, R248 million at the Boardwalk, R156 million on the
Sugarmill casino, R115 million on the Victoria Falls development and R63
million to fund Ster Century Europe. This capital expenditure was funded by
increased borrowings of R1 093 million, existing cash resources and operating
cash flows.
Capital commitments
The group currently has total capital commitments of R1,6 billion, inclusive of
the Sibaya, Meropa and Flamingo casino developments. Capital expenditures of
approximately R560 million will be incurred in the six months to 30 June 2001.
Prospects
We do not expect a significant upturn in trading conditions in South Africa in
the short term. Despite this and as a result of the recent opening of the new
casinos in Cape Town, Port Elizabeth and Durban we expect a significant
increase in the contributions from both Sun International South Africa and the
management activities in the forthcoming six month period. Furthermore the
earnings of Sun International Hotels Limited are likely to be significantly
higher in US Dollar terms over the next six months as a consequence of the sale
of Atlantic City for which this period of the year was traditionally weak. As a
consequence of the aforementioned and notwithstanding the projected losses in
Ster Century, the group should achieve material growth in headline earnings for
the year to 30 June 2001.
For and on behalf of the Board
DA Hawton D C Coutts-Trotter
Executive Chairman Group Finance Director
27 February 2001
Audit review
The information contained in this report has been prepared in accordance with
Generally Accepted Accounting Practices in South Africa and International
Accounting Standards. The policies adopted are consistent with those adopted in
the 2000 annual financial statements.
The group's auditors, PricewaterhouseCoopers Inc, have reviewed but not audited
the financial information for the six-month period ended 31 December 2000. A
copy of their report is available for inspection at the registered office of
the company.
Registered Office Transfer Office
3 Sandown Valley Crescent Fraser Street Registrars (Pty) Limited
Sandown Ground Floor, Sage Centre
Sandton, 2031 10 Fraser Street
Johannesburg, 2001
Directors: D A Hawton (Chairman), P D Bacon (British), D C Coutts-Trotter, M P
Egan, F W J Kilbourn,
Dr D Konar, I N Matthews
Group Secretary: S A Bailes
