| Thu 28 Feb 2002, 0:00 | | Kersaf - Profit Announcement |
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KERSAF INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1967/007528/06)
JSE Share code: KER ISIN: 000003844
("Kersaf")
PROFIT ANNOUNCEMENT
for the six months ended 31 December 2001
Group income statement
Six months ended Year ended
31 December 30 June
2001 2000 2001
Reviewed Reviewed Audited
%
Rm change Rm Rm
Revenue 1 759 27 1 384 3 174
Direct costs (829) (624) (1 450)
Gross profit 930 22 760 1 724
Indirect costs (513) (390) (852)
EBITDA * 417 13 370 872
Depreciation and
amortisation (190) (108) (295)
Property rentals (30) (19) (63)
Exceptional items (40) (116) (244)
Profit from operations 157 24 127 270
Foreign exchange profits 59 3 27
Interest received 44 31 32
Operating profits 260 61 161 329
Interest expense (162) (35) (136)
Share of associate
companies'
(losses)/profits
- normal (17) 25 132
- exceptional (96) (480) (488)
Loss before taxation (15) (329) (163)
Taxation (47) (80) (91)
Loss after taxation (62) (409) (254)
Minority interests 15 103 31
Net loss for the period (47) (306) (223)
*Earnings before interest, taxation, depreciation and amortisation
Number of shares (000's)
- in issue 90 050 88 950 90 050
- for EPS calculation 90 050 88 676 88 990
- for fully diluted
EPS calculation 90 584 89 678 89 571
Earnings per share (cents)
- headline earnings
per share 61 125 318
- basic loss per share (52) (345) (251)
Fully diluted earnings
per share (cents)
- headline earnings
per share 60 124 316
- basic loss per share (52) (341) (249)
EBITDA margin 24 27 27
Interest cover (times) 2 8 4
Determination of
headline earnings
Attributable loss per
the income statement (47) (306) (223)
Exceptional items 40 116 244
Pre-opening expenses 4 91 144
Goodwill 11 10 29
Net write downs due to
sale and closure of
operations 15 15 11
Costs of restructuring of
the group's interests in
SIHL including the share
registration costs - - 40
Downsizing and
restructuring costs 1 - 14
SIHL dispute legal costs 8 - -
Bid costs recouped (2) - -
Loss on disposal of
SIHL shares 3 - -
Loss on disposal of
interest in subsidiaries - - 6
Associate companies'
exceptional items 96 480 488
Pre-opening expenses 3 14 37
Goodwill - 3 4
Profit on Paradise Island
land sales - (12) (25)
Loss on sale of
Atlantic City - 475 413
Impairment of
cinema assets 73 - 59
Loss on sale of
cinema assets 20 - -
Taxation relief on
the above items - - (8)
Minority interests
in the above items (34) (179) (218)
Headline earnings 55 (50) 111 283
Group balance sheet
31 December 30 June
2001 2000 2001
Reviewed Reviewed Audited
Rm Rm Rm
ASSETS
Operating assets and investments
Operating assets 5 352 4 931 5 128
Goodwill 78 75 81
Investments and loans 3 053 1 853 2 108
8 483 6 859 7 317
Current assets
Accounts receivable and other 440 515 418
Deposits and cash 200 226 238
640 741 656
Total assets 9 123 7 600 7 973
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders' equity 3 510 2 593 2 832
Outside shareholders' interests 1 838 1 547 1 673
5 348 4 140 4 505
Non-current liabilities
Deferred taxation 376 432 376
Borrowings 2 013 2 180 1 858
2 389 2 612 2 234
Current liabilities
Accounts payable and other 761 637 799
Borrowings 625 211 435
1 386 848 1 234
Total liabilities 3 775 3 460 3 468
Total equity and liabilities 9 123 7 600 7 973
Borrowings to total shareholders'
equity (%) 49 58 51
Net asset value per share (Rand) 38.98 29.15 31.44
Capital expenditure 328 1 277 1 590
Capital commitments
- contracted 148 600 473
- authorised but not contracted 655 1 038 823
Market value of listed investments 2 394 1 429 1 752
Directors' valuation of unlisted
investments and loans 597 340 341
Total valuation of investments
and loans 2 991 1 769 2 093
Group cash flow statement
Six months ended Year ended
31 December 30 June
2001 2000 2001
Reviewed Reviewed Audited
Rm Rm Rm
Cash generated by operations before: 439 350 824
Working capital changes (94) 61 229
Pre-opening expenses (4) (91) (144)
Cash generated by operations 341 320 909
Investment income 50 31 36
Interest expense (162) (35) (136)
Taxation paid (68) (58) (104)
Dividends paid (13) (35) (53)
Cash retained from operating activities 148 223 652
Cash utilised in investing activities (522) (1 354) (1 785)
Cash realised from investing activities 47 7 41
Net cash inflow from
financing activities 275 1 136 1 110
Translation gains on cash balances 14 14 20
(Decrease)/increase in cash balances (38) 26 38
Consolidated statement of changes in equity
Foreign
Ordinary currency
shares and Retained translation
share premium earnings reserve Total
Rm Rm Rm Rm
Balances at 30 June 2001 555 1 484 793 2 832
- Net loss for the period
to 31 December 2001 - (47) - (47)
- Foreign currency
translation adjustment - - 725 725
- Transfer from foreign
currency translation
reserve to retained
earnings - 17 (17) -
Balances at
31 December 2001 555 1 454 1 501 3 510
Divisional earnings analysis
Six months ended Year ended
31 December 30 June
2001 2000 2001
Reviewed Reviewed Audited
Rm Rm Rm
Sun International South Africa 9 41 87
Other southern African activities 37 19 25
Management activities 16 32 51
Ster Century (24) (17) (39)
Sun International Hotels - 21 109
City Lodge 9 10 20
Central office and other 8 5 30
55 111 283
This analysis represents the Kersaf share of headline earnings and
excludes the impact of exceptional items (normal and associate).
EARNINGS AND DIVIDEND
Trading conditions continued to be very difficult during the period under
review exacerbated by the events of 11 September and in Zimbabwe. The weak
local economic conditions and consumer confidence have negatively impacted
casino revenues. Some improvement in trading was evident in December 2001
particularly in inbound tourist numbers.
The group's headline earnings per share were 50% lower than last year at
61 cents. This decline in earnings is due to the deterioration in
profitability from the various Sun International and Ster Century operations
as well as the exclusion for the first time of equity accounted earnings
from Sun International Hotels Limited (SIHL) as a consequence of the change
in the basis of accounting for this investment. In the prior period SIHL
contributed earnings of R21 million or 24 cents per share.
Revenues for the period of R1 759 million were 27% higher, with gaming
revenues up 38% and hospitality and other revenues up 8%. The large increase
in gaming revenues was due to the opening of The Boardwalk, GrandWest and
SugarMill casinos in October 2000, December 2000 and February 2001
respectively. Lower than anticipated revenues, particularly in the casinos,
and the very weak trading at the Zambian resort at Victoria Falls, together
with the higher marketing and offshore office costs resulted in a lower
EBITDA margin at 24% and consequently a 13% increase in EBITDA to R417
million. Depreciation charges increased by 76% whilst net interest paid of
R118 million compares to R4 million in the corresponding prior period.
Normal associate losses were R17 million in the period compared to profits
of R25 million in the prior year period primarily as a result of the
exclusion of the SIHL equity earnings and the increased losses of Ster
Century which were worsened by the depreciation of the SA Rand.
Foreign exchange profits were significantly higher due mainly to a US$4
million gain in Sun International Zambia (SIZ) in respect of a SA Rand
denominated loan. The relatively high effective tax rate is primarily due to
unshielded losses in certain of Sun International South Africa (SISA) group
companies.
The most significant exceptional item is the additional impairment charge
taken primarily against certain of the recently completed multiplex cinemas
of Ster Century Europe.
As previously announced to shareholders, no dividends will be declared for
the 2002 financial year.
OPERATIONAL REVIEW
Sun International South Africa's results for the period reflect the impact
of the poor economic conditions in South Africa together with the immediate
effects of the events of September 11th. Group revenues were 29% higher as a
consequence of the new casino openings, with gaming revenues 39% up and
rooms' revenues in line with last year. Carnival City and the Wild Coast Sun
both experienced significant declines in revenues as a result of competitive
activity reducing their market shares. Trading at both The Boardwalk and
GrandWest was well below expectations although SugarMill continues to trade
strongly. SISA's average room occupancy at 65% was in line with the previous
year with the Sun City resort down one percentage point to 72%. Despite the
group's major operations experiencing a decline in operating margins in the
difficult environment, EBITDA was up 27% to R349 million. As a result of
increased capital charges and the high effective tax rate, headline earnings
were 78% lower at R21 million.
The development of the Flamingo casino at Kimberley and the Meropa casino at
Pietersburg is nearing completion and the openings are scheduled for March
and April 2002 respectively. The group is proceeding with certain
preliminary work on the development of its Sibaya casino project at Umdloti
in KwaZulu-Natal.
Other southern African operations with the exception of the Zambian resort
traded very satisfactorily and reflected a 37% increase in earnings
attributable to Kersaf to R26 million. The Zambian operations incurred
losses of R29 million (including depreciation charges of R10 million) if the
foreign exchange gain of R40 million is excluded. Occupancy of only 29% was
due mainly to the resorts being unable to attract any meaningful
international business.
Management activities generated earnings 50% lower at R16 million primarily
due to much lower project fees earned and significantly higher offshore
costs relating to the establishment of an international sales and marketing
infrastructure.
Ster Century Europe (SCE) trading was again weak although there has been
some improvement recently as a consequence of the stronger product line up.
Losses attributable to Kersaf amounted to R20 million. During the period,
SCE opened two complexes in Czech Republic and one in each of Spain and the
UK.
In line with the Kersaf group's strategy of exiting this investment, an
agreement has been signed for the sale of SCE's 8 complexes in Hungary,
Czech Republic and Slovakia for US$18.5 million. This sale should be
completed by the end of April 2002. A separate announcement has been made to
shareholders containing further details of this transaction.
Ster Century Middle East opened its first three multiplexes in Abu
Dhabi,Sharjah and Jordan during the period. To date trading has been below
expectations.
City Lodge experienced improved trading conditions in its market sector with
good increases in rates and new hotel rooms resulting in revenues up 23%.
Fully diluted headline earnings per share reflected a commendable increase
of 17%. Earnings attributable to the Kersaf group were marginally down as a
consequence of the dilution in Kersaf's equity holding in City Lodge from
49% to 39% after conversion of the City Lodge debentures during August 2001.
BALANCE SHEET
Major investment expenditure during the period under review was R124 million
relating to the GrandWest project, R62 million on the Flamingo casino, R55
million on the Meropa casino, R93 million to fund Ster Century Europe and
R111 million to acquire the Sun International brand name. This capital
expenditure was funded by increased borrowings of R274 million, existing
cash resources and operating cash flows.
The net asset value per share has increased by 34% to R38.98 mainly as a
result of the increase in the value of the group's international investments
following the recent devaluation in the SA Rand.
CAPITAL COMMITMENTS
The group currently has capital commitments of R803 million, including a
further R650 million for the Sibaya project which will only be incurred in
future financial years.
LITIGATION
Following the legal action ("SIHL") in New York, the Kersaf group filed
opposing papers during December 2001 in which the jurisdiction of the Courts
of New York were challenged. Further papers will be filed and the matter is
expected to be heard during April 2002. The company's New York lawyers
believe the group will be successful in opposing the matter.
PROSPECTS
The group's hotels and resorts are well placed to benefit from an increase
in foreign tourism to southern Africa. The current situation in Zimbabwe
will result however in the Zambian resort continuing to incur significant
losses in the short term.
The relatively poor local economic conditions and the high real interest
rates are likely to continue to place downward pressure on consumer spending
and hence casino revenues and margins. Nevertheless the new casino
operations will continue to generate significant cash flows.
The recent devaluation of the SA Rand whilst providing significant foreign
exchange gains and enhancing the value of the group's dollar denominated
assets, particularly the investment in SIHL, will further exacerbate the
trading losses of Ster Century and Sun International Zambia.
As a consequence of these factors and together with the change in the basis
of accounting for SIHL and the higher capital charges relating to the new
developments, headline earnings for the year will be materially lower than
in the prior year.
For and on behalf of the Board
DA HAWTON D C COUTTS-TROTTER
Executive Chairman Group Finance Director
26 February 2002
INDEPENDENT REVIEW
The results for the six months ended 31 December 2001 have been prepared in
accordance with Generally Accepted Accounting Practice in South Africa and
on policies, which are consistent with those of the previous period.
The group's auditors, PricewaterhouseCoopers Inc., have reviewed but not
audited the financial information contained in this announcement and their
report is available for inspection at the registered office of the company.
Registered Office Transfer Office
3 Sandown Valley Crescent Computershare Services Limited
Sandown 2nd Floor, Edura
Sandton, 2031 41 Fox Street
Johannesburg, 2001
Directors:
D A Hawton (Executive Chairman), P D Bacon (British), L Boyd,
D C Coutts-Trotter, M P Egan, F W J Kilbourn, I N Matthews,
P J Venison (British) Group Secretary: S A Bailes
