| Fri 31 Aug 2001, 0:00 | | Kersaf Investments Limited - Profit Announcement F |
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2001
Kersaf Investments Limited
(Registration number 1967/007528/06)
Share code: KER ISIN code: ZAE000003844
PROFIT ANNOUNCEMENT FOR THE YEAR ENDED 30 JUNE 2001
* Revenues +23% to R3,2 billion
* EBITDA +30% to R872 million
* Headline earnings +20% to R283 million
Group income statement
Years ended
30 June
2001 2000
Audited % Audited
Rm change Rm
Revenue 3 174 23 2 572
Direct costs (1 450) (1 155)
Gross profit 1 724 22 1 417
Indirect costs (852) (746)
EBITDA 872 30 671
Depreciation and amortisation (295) (194)
Property rentals (63) (42)
Exceptional items (244) (190)
Profit from operations 270 245
Foreign exchange profits 27 19
Interest received 32 80
Operating profit 329 344
Interest paid (136) (61)
Share of associate company profits
- normal 132 109
- exceptional (488) 57
(Loss)/Profit before taxation (163) 449
Taxation (91) (166)
(Loss)/Profit after taxation (254) 283
Minority interests 31 (96)
(Loss)/earnings attributable to
ordinary shareholders (223) 187
Number of shares (000's)
- in issue 90 050 88 650
- for EPS calculation 88 990 88 650
- for fully diluted EPS calculation 89 571 89 080
Earnings per share (cents)
- headline earnings per share 318 20 266
- basic (loss)/earnings per share (251) 211
Fully diluted earnings
per share (cents)
- headline earnings per share 316 265
- basic (loss)/earnings per share (249) 210
Interest cover (times) 4 9
Determination of headline earnings
Attributable (loss)/earnings
per the income statement (223) 187
Exceptional items 244 190
Pre-opening expenses 144 77
Goodwill 29 22
Net write downs due to sale and
closure of operations 11 68
Cost of restructuring of the group's
interests in SIHL including the
share registration cost 40 -
Downsizing and restructuring
costs 14 15
Investment written down - 21
(Loss)/profit on disposal of interest
in subsidiaries 6 (8)
Indirect taxation claims relating
to prior years - (5)
Associate companies' exceptional items 488 (57)
Pre-opening expenses 37 7
Goodwill 4 6
Share tender and aborted
leveraged buyout costs - 10
Desert Inn termination costs - 16
Profit on Paradise Island land sales (25) (96)
Loss on sale of Atlantic City 413 -
Impairment of cinema assets 59 -
Taxation relief on the above items (8) (14)
Minority interests in the above items (218) (70)
Headline earnings 283 20 236
Divisional earnings analysis
Years ended
30 June
2001 2000
Audited Audited
Rm Rm
Sun International Inc 253 152
Sun International South Africa Limited 87 61
Other southern African activities 25 34
Management activities 51 34
Other international activities (39) (20)
Sun International Hotels 109 78
Central office costs and other 20 4
20% minority stake* - (39)
City Lodge 20 18
Kersaf central office and other 10 66
283 236
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 R39 million in the 2000 financial
year 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
30 June
2001 2000
Audited Audited
Rm Rm
ASSETS
Operating assets and investments
Operating assets 5 128 3 795
Goodwill 81 78
Investments and loans 2 108 2 046
7 317 5 919
Current assets
Deposits and cash 238 200
Accounts receivable and other 418 552
656 752
Total assets 7 973 6 671
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders' equity 2 832 2 744
Outside shareholders' interests 1 673 1 568
4 505 4 312
Non-current liabilities
Borrowings 1 858 1 231
Deferred taxation 376 430
2 234 1 661
Current liabilities
Borrowings 435 67
Accounts payable and other 799 631
1 234 698
Total liabilities 3 468 2 359
Total equity and liabilities 7 973 6 671
Borrowings to total shareholders'
equity (%) 51 30
Net asset value per share (Rand) 31,44 30,95
Capital expenditure 1 590 1 143
Capital commitments
- contracted 473 1 439
- authorised but not contracted 823 1 128
Market value of listed investments 1 752 1 138
Directors' valuation of unlisted
investments and loans 341 290
Total valuation of investments
and loans 2 093 1 428
Group cashflow statement
Years ended
30 June
2001 2000
Audited Audited
Rm Rm
Cash generated by operations before: 824 641
Working capital changes 229 (211)
Pre-opening expenses (144) (77)
Cash generated by operations 909 353
Investment income 36 89
Interest expense (136) (61)
Taxation paid (104) (128)
Dividends paid (53) (120)
Cash retained from operating activities 652 133
Cash utilised in investing activities (1 785) (1 785)
Cash realised from investing activities 41 53
Net cash inflow from
financing activities 1 110 743
Translation gains on cash balances 20 34
Net increase/(decrease)
in cash balances 38 (822)
Consolidated statement of changes in equity
Ordinary
shares Foreign
and currency
share Retained translation
premium earnings reserve Total
Rm Rm Rm Rm
Balances at 30 June 2000 526 1 603 615 2 744
- Ordinary share issues 29 - - 29
- Losses for the year ended
30 June 2001 - (223) - (223)
- Dividends - (27) - (27)
- Foreign currency translation
adjustment - - 309 309
- Transfer from foreign
currency translation reserve
to retained earnings - 131 (131) -
Balances at 30 June 2001 555 1 484 793 2 832
Commentary
Earnings and Dividend
Trading conditions in southern Africa deteriorated significantly during the
last six months of the year and particularly during the final quarter. Poor
local economic conditions and lower consumer confidence have negatively
impacted casino revenues whilst deteriorating perceptions of southern Africa
have reduced inward bound tourism to the region. The effects of these
factors were offset by the opening of the GrandWest casino in Cape Town, the
Boardwalk casino in Port Elizabeth and the Sugarmill temporary casino in
Durban.
The group's headline earnings per share were 20% higher than last year at
318 cents. This improvement is primarily the result of the improved
profitability attributable to the management and ownership of the new casino
properties in South Africa. The increased earnings from Sun International
Hotels Limited ("SIHL"), assisted by the depreciation in the SA Rand, were
partially offset by increased losses of 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 enhanced earnings by 3%
during the year under review.
Revenues for the year of R3.2 billion were 23% higher, with gaming
revenues 38% above last year. Tight cost controls and an increase in
management fee income resulted in EBITDA increasing by 30% to R872 million.
Depreciation charges increased by 52% as a result of the commissioning of
the new casinos. Net interest paid of R104 million during the current year
compares to the R19 million net interest earned in the previous year. 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 increased by 21% to R132 million as a result of
good performances by SIHL and City Lodge offset in part by the higher losses
of Ster Century Europe. The taxation charge was significantly lower, due
largely to a R35 million deferred tax asset raised by the Sun International
(South Africa) Limited group ("SISA") relating to tax losses, the
realisation of which is probable in the foreseeable future.
The group incurred a number of exceptional charges during the year, the
most significant of which were the pre-opening expenses relating to the
commissioning of the new casino and hotel properties, the impairment in
value of certain of the multiplex cinemas of Ster Century Europe and the
loss on the sale of the Resorts Hotel Casino in Atlantic City by SIHL.
In line with previous indications to shareholders and given the
significant ongoing investment programme in the group, no dividends have
been declared for the current year. It is likely that dividend payments will
resume for the 2003 financial year.
Operational Review
Sun International South Africa's results for the year reflect the impact on
profitability of the new permanent casinos in Gauteng, the deteriorating
consumer confidence in South Africa and reduced tourism offset by the
trading from the recently opened Boardwalk, GrandWest and Sugarmill casinos.
Group revenues were 27% higher, with gaming revenues 39% up and hospitality
revenues just 4% up on last year. Average room occupancy at 65% was two
percentage points below last year with the flagship Sun City resort down
four percentage points to 71%. The improvement in gaming revenues is due to
the opening of the Boardwalk casino (nine months' trading), the GrandWest
casino (six and a half months' trading) and the Sugarmill casino (five
months' trading). Revenues at the Carousel, Morula Sun and Wild Coast Sun
declined following the opening of new casinos in their respective markets.
Margins improved as a result of the increase in gaming revenues with a 34%
increase in EBITDA to R699 million. Despite the increased capital charges
arising on the new projects, headline earnings were 40% higher at R200
million.
The Boardwalk casino was opened in October 2000 followed by the retail
component in December 2000 at a total capital cost of R444 million. Trading
has been below expectations over the last six months, due in part to the
weak economy in that region. The GrandWest casino was opened well ahead of
schedule during December 2000, at a total capital cost of R1,45 billion.
Trading to date has been satisfactory. The Sugarmill temporary casino was
opened at the beginning of February 2001 and to date trading has been
strong. Construction on the permanent Sibaya casino and resort at Umdloti is
likely to commence in 2002. Construction has commenced on the group's
Kimberley and Pietersburg casino projects with the estimated capital costs
at R110 million and R190 million respectively. Both casinos are anticipated
to open during the final quarter of the 2002 financial year.
Other southern African operations traded satisfactorily with an increase
in revenues and profitability from the existing operations. The overall
result was negatively impacted by the R14 million loss incurred by the
Zambezi Sun and Royal Livingstone hotels at the Victoria Falls in Zambia
which opened during the final quarter of the year. The total capital
expenditure on this project was US$52 million. The attributable losses over
the next year are likely to be higher than originally forecast in light of
the worsening situation in Zimbabwe and the consequent negative perceptions
of the region in international tourist markets. With effect from 30 June
2001, the group acquired the 18% minority shareholding in the Kalahari Sands
in Namibia for R9,5 million.
Management activities generated earnings 51% higher primarily due to
contributions from the new casinos and the project fees earned on the major
projects which were in progress during the year.
Sun International Hotels Limited's earnings before exceptional items were
up 17% in US Dollar terms due primarily to the positive impacts of the
disposal of the loss making Atlantic City casino. Earnings as reported in SA
Rands were 39% higher due to the significant depreciation of the SA Rand. As
previously announced to shareholders, the group has entered into agreements
which, inter alia, achieve the following:
* the restructure of its shareholding in SIHL;
* disposal of its SIHL shares over time, with a minimum of 2 million shares
to be disposed of by 30 June 2002;
* the acquisition of the world-wide rights to the Sun International brand
name; and
* the release of the group from its restraint of trade obligations.
In terms of this arrangement, effective 1 July 2001, SIHL is no longer
considered an associate of the group and therefore Kersaf's holdings in SIHL
will in future be accounted for as an investment. For the year ended 30 June
2001, this change in accounting treatment would have reduced the group's
earnings per share by 122 cents to 196 cents.
Ster Century Europe experienced difficult trading conditions in common
with the industry woldwide. In addition new sites took longer than
anticipated to establish themselves which, combined with the weakness of the
Euro currency, resulted in the losses attributable to Kersaf of R33 million.
During the year, Ster Century Europe opened a further eight cinema complexes
in the United Kingdom, Poland, Greece, Czech Republic, Slovakia and Spain,
bringing the total now trading to 15. As previously reported to
shareholders, the sale process has been discontinued and a refinancing
package is currently being finalised. The group remains committed to the
disposal of this non-core asset in due course.
City Lodge experienced mixed trading conditions with an encouraging
improvement during the first nine months of the year followed by a
disappointing decline in occupancy during the last quarter. Average room
occupancies for the year increased by two percentage points to 71%. The
increase in occupancy and good average room rate growth combined with the
new hotels helped increase revenues 16% on last year whilst higher capital
charges resulted in attributable earnings 14% higher than last year. Two new
hotels are due to open during the next financial year with a number of other
potential opportunities under consideration.
BALANCE SHEET
Major investment expenditure during the year under review was R752 million
at GrandWest, R264 million at the Boardwalk, R180 million on the Sugarmill
casino, R250 million at Victoria Falls and R142 million to fund Ster Century
Europe. This capital expenditure was funded by increased borrowings of R995
million, existing cash resources and operating cash flows.
CAPITAL COMMITMENTS
The group currently has total capital commitments of R1,3 billion, inclusive
of the Sibaya project, the Meropa casino at Pietersburg and the Flamingo
casino at Kimberley. Capital expenditures of approximately R458 million will
be incurred in the year to 30 June 2002.
PROSPECTS
The adverse trading conditions in southern Africa are anticipated to
continue for the foreseeable future with the consequent pressure on revenues
and margins. The new casino properties will, however, contribute to further
significant growth in revenues and EBITDA in the year ahead. Notwithstanding
these improvements, higher capital and taxation charges are likely to result
in headline earnings being lower than in the current year (after adjusting
the 2001 year for the SIHL equity accounted earnings).
The group's new casino developments are strongly cash generative and the
medium-term earnings prospects for the group remain excellent.
STRATE
The company has been advised by the JSE Securities Exchange South Africa
("JSE") that its shares will be transferred to the STRATE system on 15
October 2001. Trading for electronic settlement will commence on 5 November
2001, with electronic settlement taking place from 12 November 2001.
Existing share certificates will no longer be good for delivery for
transactions entered into on the JSE on or after 5 November 2001.
For and on behalf of the Board
DA Hawton D C Coutts-Trotter
Executive Chairman Group Finance Director
31 August 2001
Registered Office Transfer Office
3 Sandown Valley Crescent Fraser Street Registrars (Pty) Limited
Sandown Ground Floor, Sage Centre
Sandton, 2031 10 Fraser Street
Johannesburg, 2000
Directors:
D A Hawton (Executive Chairman), P D Bacon (British), D C Coutts-Trotter,
M P Egan, F W J Kilbourn, I N Matthews
Group Secretary:
S A Bailes
