| Thu 29 Aug 2002, 0:00 | | Kersaf Investments Limited - Reviewed Preliminary |
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Kersaf Investments Limited - Reviewed preliminary profit announcement for the
year ended 30 June 2002
Kersaf Investments Limited
(Registration number 1967/007528/06)
Share code: KER ISIN: ZAE000003844
Reviewed preliminary profit announcement for the year ended 30 June 2002
Group income statement
Year ended
30 June
2002 2001
Reviewed change Audited
Rm % Rm
Revenue 3 719 17 3 174
Direct costs (1 693) (1 450)
Gross profit 2 026 18 1 724
Indirect costs (1 063) (852)
EBITDA 963 10 872
Depreciation and amortisation (415) (324)
Property rentals (68) (63)
Exceptional items (247) (215)
Profit from operations 233 (14) 270
Foreign exchange profits 59 27
Interest income 38 32
Operating profits 330 329
Interest expense (295) (136)
Share of associate companies`
(losses)/profits
- normal (79) 132
- exceptional (122) (488)
Loss before taxation (166) (163)
Taxation (114) (91)
Loss after taxation (280) (254)
Minority interests 76 31
Net loss for the year (204) (223)
Number of shares (000`s)
- in issue 90 050 90 050
- for EPS calculation 90 050 88 990
- for fully diluted EPS calculation 91 695 89 571
Earnings per share (cents)
- headline earnings per share 58 318
- basic loss per share (227) (251)
Fully diluted earnings per share (cents)
- headline earnings per share 57 316
- basic loss per share (223) (249)
EBITDA margin (%) 26 27
Interest cover (times) 2,0 4,0
Determination of headline earnings
Attributable loss per the income
statement (204) (223)
Exceptional items 247 215
Pre-opening expenses 18 144
Net write downs due to sale and
closure of operations 15 11
KZL dispute legal costs 16 -
KZL write down and obligation* 230 -
Provision against non-recoverability
of loan 7 -
Dilution on City Lodge debenture
conversion 38 -
Costs of restructuring of the group`s
interests in KZL including the share
registration costs - 40
Downsizing and restructuring costs - 14
Profit on disposal of aircraft (21) -
FCTR realised on sale of KZL shares (55) -
Bid costs recouped (1) -
Loss on disposal of interest
in subsidiaries - 6
Goodwill (included in depreciation and
amortisation) 24 29
Associate companies` exceptional items 122 488
Pre-opening expenses 4 37
Goodwill - 4
Profit on Paradise Island land sales - (25)
Loss on sale of Atlantic City - 413
Impairment of cinema assets 122 59
Profit on sale of cinema assets (4) -
Taxation relief on the above items 5 (8)
Minority interests in the above items (142) (218)
Headline earnings 52 (82) 283
*This exceptional item arose as a consequence of the adoption of IAS 39 which
resulted in a write down of the group`s investment in KZL to market value,
including the raising of a US$21 million long-term liability in respect of a
contractual obligation to KZL through to 2008. This obligation arose as part of
the formation of KZL in 1993. In prior years this payment was expensed as and
when it was paid.
Group balance sheet
30 June
2002 2001
Reviewed Audited
Rm Rm
ASSETS
Operating assets and investments
Operating assets 5 374 5 128
Goodwill 89 81
Investments and loans 1 854 2 108
7 317 7 317
Current assets
Accounts receivable and other 379 418
Available for sale - Investments 507 -
Deposits and cash 286 238
1 172 656
Total assets 8 489 7 973
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` equity 2 981 2 832
Outside shareholders` interests 1 691 1 673
4 672 4 505
Non-current liabilities
Deferred taxation 395 376
Borrowings 2 023 1 858
2 418 2 234
Current liabilities
Accounts payable and other 752 799
Borrowings 647 435
1 399 1 234
Total liabilities 3 817 3 468
Total equity and liabilities 8 489 7 973
Borrowings to total shareholders`
equity (%) 57 51
Net asset value per share (Rand) 33,10 31,44
Capital expenditure 559 1 590
Capital commitments
- contracted 11 473
- authorised but not contracted 837 823
Market value of listed investments 1 951 1 752
Directors` valuation of unlisted
investments and loans 390 341
Total valuation of investments
and loans and available
for sale investments 2 341 2 093
Group cash flow statement
Year ended
30 June
2002 2001
Reviewed Audited
Rm Rm
Cash generated by operations before: 929 824
Working capital changes (39) 229
Pre-opening expenses (18) (144)
Cash generated by operations 872 909
Investment income 49 36
Interest expense (286) (136)
Taxation paid (129) (104)
Dividends paid (32) (53)
Cash retained from operating activities 474 652
Cash utilised in investing activities (774) (1 785)
Cash realised from investing activities 170 41
Net cash inflow from financing activities 167 1 110
Translation gains on cash balances 11 20
Increase in cash balances 48 38
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 2001 555 1 484 793 2 832
- IAS 39 adjustment - 14 - 14
- Net loss for the year
to 30 June 2002 - (204) - (204)
- Foreign currency translation
reserve realised - - (55) (55)
- Foreign currency translation
adjustment - - 395 395
Balances at 30 June 2002 555 1 294 1 133 2 982
Divisional earnings analysis
Year ended
30 June
2002 2001
Reviewed Audited
Rm Rm
Sun International South Africa 28 87
Other southern African activities 18 25
Management activities 53 51
Ster Century (85) (39)
Kerzner International Limited - 109
City Lodge 22 20
Central office and other 16 30
52 283
This analysis represents the Kersaf share of headline earnings and excludes the
impact of exceptional items (normal and associate).
Commentary
Earnings and Dividend
The improved trading conditions evident in December continued during the
second half of the financial year. The group`s resorts achieved occupancies and
room rates well above those achieved in the previous year, due largely to a
significant increase in inbound tourists. The major casino operations also
experienced improved trading conditions, in particular GrandWest and SugarMill.
Headline earnings per share were 82% lower than last year at 58 cents. This
decline in earnings is due to the lower earnings of Sun International (South
Africa) Limited (SISA) and the higher losses attributable to the Zambian and
Ster Century operations which were exacerbated by the Rand weakness, as well as
the exclusion of earnings from Kerzner International Limited (KZL) (formerly Sun
International Hotels Limited). The exclusion of KZL earnings for the first time
is as a consequence of the change in the accounting for this investment from an
equity accounted basis to an investment basis following the restructuring
consummated on 3 July 2001. In the prior year KZL contributed R109 million to
attributable earnings or R1,22 to headline earnings per share.
Revenues for the year of R3,7 billion were 17% higher, with gaming revenues
up 18% and hospitality and other revenues up 15%. The increase in gaming
revenues was due largely to the Boardwalk, GrandWest and SugarMill casinos
trading for only part of the previous financial year. Weak trading at the
Zambian resort at Victoria Falls, together with the higher offshore marketing
and sales costs resulted in a slightly lower EBITDA margin at 26% and
consequently a 10% increase in EBITDA to R963 million. Depreciation charges
increased by 28% whilst net interest paid of R257 million compares to R104
million last year. Foreign exchange profits were significantly higher due mainly
to a US$3 million gain in Sun International Zambia in respect of a Rand
denominated loan. Normal associate losses were R79 million for the year compared
to profits of R132 million in the prior year, primarily as a result of the
exclusion of the KZL equity earnings and the increased losses of Ster Century,
which were further impacted by the depreciation of the Rand.
As previously indicated to shareholders, no dividend will be declared for the
2002 financial year.
ACCOUNTING POLICIES
The preliminary financial information presented has been prepared in
accordance with South African Statements of Generally Accepted Accounting
Practice (GAAP) and International Accounting Standards (IAS). The accounting
policies used are consistent with those used in the annual financial statements
for the year ended 30 June 2001 with the exception of the adoption of IAS 39
"Financial Instruments: Recognition and Measurement" which became effective
during the current year. IAS 39 has been implemented by Kersaf in advance of the
effective date of the related statement of South African GAAP.
AUDITORS` REVIEW
The company`s auditors, PricewaterhouseCoopers Inc., have reviewed the
preliminary financial information. Their unqualified review opinion is available
for inspection at the company`s registered office.
OPERATIONAL REVIEW
Sun International South Africa`s results for the period reflect a substantial
improvement in trading over the second half of the financial year following the
disappointing trading results achieved in the first half. Group revenues were
16% higher as a consequence of the GrandWest, SugarMill and Boardwalk casinos
only trading for part of the previous year and the strong performance of the
resort division in the second half of the year. Gaming revenues were 18% higher
than last year whilst rooms` revenues were 17% higher after being in line with
last year at the interim stage. Carnival City, Morula Sun, Carousel and the Wild
Coast Sun all experienced declines in revenues as a result of competitive
activity. Carnival City has gained market share over the last six months of the
year as a consequence of more focused marketing and the opening of a smoking
casino. Both the GrandWest and SugarMill operations traded particularly well
over the latter part of the year. Trading at the Boardwalk was disappointing
largely as a result of the stagnant local economy.
SISA`s average room occupancy at 69% was four percentage points above the
previous year at an average rate 14% up on last year. Occupancies at Sun City,
the Table Bay and Zimbali were 4, 6 and 7 percentage points ahead of the
previous year at 75%, 63% and 66%, respectively. The significant turnaround in
the last six months can be attributed to the depreciation in the currency and a
changed perception regarding the safety of the country as well as joint public
and private sector initiatives aimed at stimulating interest in the destination.
SISA`s EBITDA at R787 million was 13% up on last year. As a result of increased
capital charges and the high effective tax rate, headline earnings were 63%
lower at R75 million.
The Flamingo casino at Kimberley was opened in March 2002 and the Meropa
casino in Polokwane was opened in April 2002. The group has approved capital
expenditure of R650 million for the development of its Sibaya casino project at
Umdloti in KwaZulu-Natal, the construction of which is scheduled to commence
toward the end of the 2003 financial year.
Other southern African operations, excluding the Zambian resort, traded well
reflecting a 36% increase in earnings attributable to Kersaf of R52 million. The
Zambian operations incurred losses of R64 million (including depreciation
charges of R23 million) before a foreign exchange gain of R30 million.
Disappointing occupancy at 30% arose primarily as a result of the resort being
unable to attract any meaningful international business due primarily to the
political situation prevailing in neighbouring Zimbabwe.
Management activities generated earnings 4% higher at R53 million despite
much lower project fees and higher offshore international sales and marketing
costs. This was as a consequence of last year`s earnings including an amount of
R17 million relating to the contractual obligation to KZL, while the current
year only includes an imputed interest charge of R5 million (in terms of IAS 39)
relating to this obligation.
Ster Century Europe (SCE) reflected revenue growth of 74% on the last year as
a result of a combination of site openings in the prior year trading for the
full year, new sites opened in the current year, stronger product line up and
improved trading at the more established sites. Losses attributable to Kersaf
amounted to R70 million. The SCE group incurred an EBITDA loss of US$1,9 million
compared to last year`s EBITDA loss of US$5,1 million. Attributable losses
before exceptional items of US$23 million were 71% higher than last year
primarily as a consequence of a currency loss of US$6 million on SCE`s loans
(the corresponding gain on the assets of US$12,8 million was taken directly to
reserves) and sharply higher borrowing costs on the bank facilities and
mezzanine debt. During the period, SCE opened two complexes in each of Czech
Republic and the UK and one in Spain.
In line with the group`s decision to exit from this business, SCE sold its
cinema interests in Hungary and Czech Republic for a consideration of US$16,7
million. The sale of the cinema interests in Slovakia for a consideration of
US$1,8 million is still subject to Slovakian competition clearance. Subsequent
to year-end, SCE completed the sale of its operations in Poland and Greece for a
consideration of US$19,6 million and U10,8 million, respectively. Separate
announcements have been made to shareholders containing details of these
transactions and their impacts on SCE.
Ster Century Middle East opened three multiplexes, two in Sharjah and one in
Jordan, during the year. To date trading has been well below expectations with
losses attributable to Kersaf of R15 million. The final committed site is in
Dubai and is due to open during October this year. A comprehensive restructuring
of this business is currently in process, which is anticipated to improve the
businesses performance. In the year ahead the group will seek to exit this
business.
City Lodge increased revenue by 20% on last year. This was achieved by a one
percentage point increase in occupancy to 72%, good rate growth and a number of
new hotel openings during this year and last year. This revenue growth coupled
with good cost control resulted in a two percentage point increase in operating
margins. Fully diluted headline earnings per share were up 29% on last year.
Earnings attributable to Kersaf at R22 million were R2 million higher despite
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 year included R135 million relating
to the GrandWest project, R102 million on the Flamingo casino, R159 million on
the Meropa casino, R93 million in mezzanine debt financing to fund Ster Century
Europe and R111 million to acquire the Sun International brand name. This
capital expenditure was funded by an increase in borrowings of R190 million,
existing cash resources and operating cash flows.
CAPITAL COMMITMENTS
Capital expenditure for the year ahead is forecast at R206 million, including
R100 million at Sun City for the partial upgrade of the casino floor and a
refurbishment of rooms.
LITIGATION
Further to the previous announcement regarding the law suit against the
company and certain of its subsidiaries which KZL instituted during October
2001, oral arguments of the motion to dismiss the action on the basis of, among
others, the New York Courts lacking jurisdiction to consider the matter, was
heard during June 2002. Judgement is still awaited. The company`s lawyers remain
positive about the prospects of a favorable outcome and consequently no
provision has been made.
PROSPECTS
The group`s hotels and resorts should continue to benefit from the increase
in inbound tourists to southern Africa.
The improved trading conditions experienced at some of the group`s major
casinos will to an extent be offset by further declines in revenues and
profitability of the group`s outlying casino operations and the opening of a new
competitor facility in Durban during December 2002.
Expected strong future earnings growth from the group`s hotel and gaming
operations together with a significant reduction in the losses from the non-core
cinema operations, should result in strong future earnings growth.
Following the board restructure announced to shareholders during June 2002
the group has appointed Investec Bank Limited to undertake a detailed assessment
of the group`s structure and various investments and operations in order to make
recommendations on the medium-term maximisation of shareholder value.
Shareholders will be kept appraised of developments in this regard.
For and on behalf of the board
D A Hawton D C Coutts-Trotter
Executive Chairman Executive Director
29 August 2002
Registered Office Transfer Office
27 Fredman Drive Computershare Investor Services Limited
Sandown Edura
Sandton, 2031 41 Fox Street
Johannesburg, 2001
Directors: D A Hawton (Chairman)*, P D Bacon (British)*, L Boyd, P L Campher,
D C Coutts-Trotter*, M P Egan, I N Matthews, S C Mildenhall, D M Nurek,
E Oblowitz, G R Rosenthal *Executive
Group Secretary: S A Bailes
Date: 29/08/2002 04:00:00 PM Produced by the JSE SENS Department
