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Kersaf Investments Limited - Profit And Dividend Announcement For The Year Ended
30 June 2003
Kersaf Investments Limited
(Registration number 1967/007528/06)
Share code: KER ISIN: ZAE000003844
PROFIT AND DIVIDEND ANNOUNCEMENT FOR THE YEAR ENDED 30 JUNE 2003
* Revenue + 13%
* EBITDA + 33%
* EBITDA margin + 4 percentage points
* Adjusted Headline Earnings per Share + 118%
GROUP INCOME STATEMENT
Year ended
30 June
2003 2002
Reviewed Audited
%
Rm change Rm
Revenue 4 214 13 3 719
Direct costs (1 811) (1 692)
Gross profit 2 403 19 2 027
Indirect costs (1 120) (1 064)
EBITDA 1 283 33 963
Depreciation and amortisation (441) (415)
Property rentals (86) (68)
Exceptional items 11 (374)
Operating profits 767 106
Foreign exchange (losses)/profits (116) 59
Continuing operations (142) 44
Discontinuing operations 26 15
Interest received 73 38
Continuing operations 53 23
Discontinuing operations 20 15
Interest expense (297) (295)
Profit/(loss) before equity accounted
earnings 427 (92)
Share of associate companies"
(losses)/profits
- normal (8) (79)
Continuing operations 58 38
Discontinuing operations (66) (117)
- exceptional
Discontinuing operations (30) (122)
Profit/(loss) before taxation 389 (293)
Taxation (190) (114)
Continuing operations (187) (111)
Discontinuing operations (3) (3)
Profit/(loss) after taxation 199 (407)
Minority interests (74) 110
Net profit/(loss) for the year 125 (297)
Number of shares (000"s)
- in issue 90 050 90 050
- for EPS calculation 90 050 90 050
- for fully diluted EPS calculation 91 761 91 695
Earnings per share (cents)
- basic earnings/(loss) per share 139 (330)
- headline (loss)/earnings per share (54) 18
- adjusted headline earnings per share 214 118 98
Fully diluted earnings per share (cents)
- basic earnings/(loss) per share 137 (324)
- headline (loss)/earnings per share (53) 18
- adjusted headline earnings per share 210 97
Dividends declared per share (cents) 75 -
EBITDA margin (%) 30 26
Interest cover (times) 2 2
Determination of headline earnings
and adjusted headline earnings
Attributable earnings/(loss) per the income
statement 125 (297)
Headline earnings adjustments (205) 314
Net write downs due to sale and closure of
operations - 15
Goodwill (included in depreciation and
amortisation)* 8 24
KZL dispute legal costs 2 16
Recognition of KZL long-term obligation
and termination of litigation - 297
Dilution loss on City Lodge debenture conversion - 38
Impairment of goodwill 36 -
Impairment of loan to associate 5 -
Net profits on sale of shares in subsidiaries (43) -
Profit on disposal of aircraft - (21)
Currency translation reserve realised
on sale of KZL shares (213) (55)
Associate headline earnings adjustments 26 118
Impairment of cinema assets 14 122
Loss/(profit) on sale of cinema assets 12 (4)
Taxation relief on the above items 3 4
Minority interests in the above items 2 (122)
Headline (loss)/earnings (49) 17
Adjusted headline earnings adjustments 278 24
Pre-opening expenses - 18
Write down of KZL to market value 74 60
Foreign exchange losses/(gains)
on intercompany loans* 97 (30)
Fair value adjustments to share trust loan 64 -
Post retirement medical aid funding 40 -
Earnings from discontinuing operations* (20) (30)
Provision for gaming levies related to
prior periods 23 -
Other items - 6
Associate adjusted headline earnings
adjustments 70 124
Discontinuing operations - Pre-opening
expenses 4 4
Results from discontinuing operations* 66 120
Taxation relief on the above items (34) -
Minority interests in the above items (73) (76)
Adjusted headline earnings 192 89
* Not included in exceptional or associate
exceptional items
DIVISIONAL EARNINGS ANALYSIS
Year ended 30 June
Attributable
Revenues EBITDA earnings
2003 2002 2003 2002 2003 2002
Rm Rm Rm Rm Rm Rm
Sun International South Africa 3 762 3 294 1 003 787 78 28
Other southern African activities 439 408 106 76 26 (12)
Botswana 139 144 50 59 27 30
Swaziland 134 122 28 24 9 7
Namibia 82 76 28 27 12 12
Zambia 84 66 - (34) (26) (65)
Lesotho 4 4
Management activities 241 202 108 67 52 53
City Lodge 34 22
Central office and other 5 4 66 33 2 (2)
Elimination of intra-group revenues (233) (189) - - - -
4 214 3 719 1 283 963 192 89
This analysis of attributable earnings above represents the Kersaf share of
adjusted headline earnings.
GROUP BALANCE SHEET
Year ended
30 June
2003 2002
Reviewed Audited
Rm Rm
ASSETS
Non current assets
Property plant and equipment 4 595 4 798
Intangible assets 723 664
Investments and loans 774 1 854
6 092 7 316
Current assets
Accounts receivable and other 343 380
Available-for-sale investment 364 507
Loans 143 -
Cash and cash equivalents 349 286
1 199 1 173
Total assets 7 291 8 489
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders" equity 2 470 2 888
Outside shareholders" interests 1 600 1 657
4 070 4 545
Non current liabilities
Deferred taxation 403 395
Borrowings 1 699 2 438
Other 40 -
2 142 2 833
Current liabilities
Accounts payable and other 783 752
Borrowings 296 359
1 079 1 111
Total liabilities 3 221 3 944
Total equity and liabilities 7 291 8 489
Borrowings to total shareholders" equity (%) 49 62
Net asset value per share (Rand) 27.42 32.07
Capital expenditure 352 559
Capital commitments
- contracted 244 11
- authorised but not contracted 812 837
Market value of listed investments 855 1 951
Directors" valuation of unlisted investments
and loans 524 390
Total valuation of investments and loans
and available for sale investment 1 379 2 341
GROUP CASH FLOW STATEMENT
Year ended
30 June
2003 2002
Reviewed Audited
Rm Rm Cash
generated by operations before: 1 168 934
Working capital changes 46 (44)
Pre-opening expenses - (18)
Cash generated by operations 1 214 872
Investment income 93 49
Interest expense (289) (286)
Taxation paid (184) (129)
Dividends paid (81) (32)
Cash retained from operating activities 753 474
Cash utilised in investing activities (720) (774)
Cash realised from investing activities 761 170
Net cash (outflow)/inflow from financing
activities (687) 167
Translation (losses)/gains on cash balances (44) 11
Increase in cash balances 63 48
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 2002 555 1 201 1 132 2 888
- Net profit for the year
to 30 June 2003 - 125 - 125
- Foreign currency translation
adjustment - - (283) (283)
- Foreign currency translation
reserve realised - - (213) (213)
- Fair value loss - (24) - (24)
- Dividends paid - (23) - (23)
Balances at 30 June 2003 555 1 279 636 2 470
COMMENTARY
EARNINGS AND DIVIDEND
The group performed well during the year, in particular, during the first six
months, where revenues were well above the previous year. During the second half
of the financial year, casino revenues were impacted by the new competitor
facility which opened in Durban and occupancies at the group"s major resorts
were affected by the conflict in the Middle East and SARS pandemic.
Adjusted headline earnings per share were 118% higher than last year at 214
cents. The substantial improvement was largely due to the higher earnings of Sun
International South Africa and City Lodge and the reduced losses incurred in the
Zambian resort.
Revenues for the year of R4.2 billion were 13% higher, with gaming revenues
up 15% and hospitality and other revenues up 9%. Strong trading and well-
contained costs resulted in a 4-percentage point increase in the EBITDA margin
to 30%, and a 33% increase in EBITDA to R1.3 billion. Depreciation and
amortisation charges increased by 6% whilst net interest paid of R224 million
was 13% lower than last year. Foreign exchange losses of R116 million relate
primarily to unrealised exchange losses on intercompany loans. Associate
earnings from continuing operations at R58 million were 53% up on last year as a
result of the excellent trading of the City Lodge group.
The group incurred a number of exceptional charges during the year. The most
significant of these were a R64 million fair value adjustment in respect of the
interest free loan to the Sun International Employee Share Trust, a charge of
R40 million for post retirement medical aid funding, and a fair value adjustment
in respect of the group"s investment in Kerzner International Limited ("KZL") of
R74 million. The group transferred R213 million of the foreign currency
translation reserve to exceptional earnings as a consequence of the sale of KZL
shares.
Ster Century Europe Limited (SCE) and Ster Century Middle East Limited (SCME)
have been treated as discontinuing operations and as a consequence, the earnings
and results from these operations have been disclosed separately.
In view of the strong cashflows and growth in adjusted headline earnings, the
board has declared a final dividend of 50 cents per share (2002: nil) bringing
the total dividends declared in respect of the year to 75 cents per share (2002:
nil).
ACCOUNTING POLICIES
The preliminary financial information presented has been prepared in
accordance with South African Statements of Generally Accepted Accounting
Practice (GAAP) and International Financial Reporting Standards (IFRS). The
accounting policies used are consistent with those used in the annual financial
statements for the year ended 30 June 2002. The results have been reviewed by
the group"s auditors, PricewaterhouseCoopers Inc., and their unqualified review
opinion is available for inspection at the company"s registered office.
The calculation of headline earnings has been based upon the Interpretation
of Statement of Investment Practice No. 1, issued by the South African Institute
of Chartered Accountants in December 2002 (circular 7/2002). In terms of this
circular the prior year figures have been restated where applicable.
The group has decided to present "adjusted headline earnings" to assist users
of the group"s financial statements. Adjusted headline earnings exclude certain
items of income or expense so as to enable users to obtain a more meaningful
comparison of the group"s performance with prior periods. These adjustments
include pre-opening expenses, earnings and results from discontinuing operations
and material items considered to be outside of the normal operating activities
of the group and/or of a non-recurring nature.
OPERATIONAL REVIEW
SISA experienced improved trading over the past year, in particular during
the first half of the financial year. The group"s hotels and resorts benefited
from the increase in foreign visitor numbers and the group"s casinos benefited
from the strength of the South African economy. Overall group revenues were 14%
higher, with gaming revenues 16% up and rooms revenues 20% up on last year.
Average room occupancy at 74% was 5 percentage points ahead of last year, with
Sun City in line with last year and the Table Bay occupancies 9 percentage
points up. SISA"s average achieved room rate at R922 was 19% up on last year.
The increase in gaming revenues was due to strong trading at the GrandWest and
the Boardwalk casinos, and the inclusion for the full year of the Meropa and
Flamingo casinos. Margins increased as a result of both the increase in revenues
and cost containment, with a 27% increase in EBITDA to R1 billion. Net interest
costs were R5 million below the previous year, reflecting the strong cash flows
and improved profitability. Adjusted headline earnings of R176 million were 107%
ahead of the previous year.
With effect from 30 June 2003, the group sold a 12% economic interest in
SunWest to Grand Parade Investments, the group"s empowerment partner in the
Western Cape. Effective 1 May 2003 the group sold 30% of the Wild Coast Sun to a
local community trust.
Construction of the Sibaya permanent casino at Umdloti has commenced and is
scheduled for completion in December 2004 at an estimated capital cost of R650
million. An application has been submitted to the Free State Gambling Board to
relocate the licence from Thaba "Nchu to Bloemfontein. Construction of the new
facility will commence in the second half of the forthcoming financial year in
the event of a successful application.
The Department of Trade and Industry (DTI) has recently made available a
revised draft of the proposed National Gambling Bill. The casino industry,
represented by the Casino Association of South Africa (CASA), will be making
representation to the DTI"s Parliamentary Portfolio Committee with respect to
specific areas of concern prior to the finalisation of the bill.
Other southern African operations had a mixed performance, with strong
Trading in Swaziland and Lesotho, offset in part by disappointing trading
Botswana and Zambia. Earnings attributable to Kersaf of R26 million were R38
million higher than the loss incurred in the prior year (excluding foreign
exchange gains and losses on intercompany loans). The Zambian resort incurred a
loss of R26 million (including depreciation charges of R23 million) before a
foreign exchange loss of R64 million. Occupancies rose nine percentage points to
39%. Forward bookings are encouraging and an improved result is anticipated in
the year ahead.
The management activities of Sun International Management Limited (SIML)
generated revenues 19% higher at R241 million as a consequence of the growth in
revenues and profitability. Costs were well maintained and as a result, EBITDA
of R108 million was 61% higher than last year. Amortisation charges of R15
million were R14 million higher than last year due to a R9 million amortisation
charge relating to the acquisition of the minorities" interest in SIML"s
management contracts and a R5 million charge relating to the amortisation of the
Sun International name. Earnings attributable to Kersaf at R52 million were
lower than last year as a result of the higher amortisation charges, a tax
charge of R23 million in the current year against a tax credit of R8 million in
2002 and foreign exchange losses of R6 million in the current year against
profits of R8 million in 2002.
Ster Century Europe has now finalised the sale of all of its operations other
than one complex located in Slovakia which is currently the subject of a sale
process. The Poland and Greece cinema interests were sold in July 2002 for
US$19.6 million and the sale of the Spain operations was concluded on 30 June
2003 for a consideration of E9.3 million. Subsequent to the year-end, the sale
of the UK and Ireland operations was concluded for a consideration of GBP16.9
million.
Ster Century Middle East was comprehensively restructured during the past
year, resulting in the closure of one of the sites and the downsizing of the
other site in Sharjah. Significant rental and cost reductions were achieved and
it is anticipated that SCME will generate positive cashflows going forward. The
conflict in Iraq negatively impacted trading for much of the second half of the
year. The group will continue to seek to exit from this business.
City Lodge"s results for the year were outstanding. Strong demand from
domestic business and leisure travellers, improved inbound tourism and one-off
events such as the World Summit on Sustainable Development and the Cricket World
Cup helped boost occupancies over the previous year by four percentage points to
76%. This increased demand, together with full year contributions from Road
Lodge Kimberley and Town Lodge Polokwane, as well as a nine month contribution
from Road Lodge Cape Town International Airport, resulted in an increase of 12%
in room nights sold. The higher room nights sold and room rate growth resulted
in revenues increasing by 26% to R293 million and EBITDA increasing by 35% to
R153 million. Headline earnings increased by 58% to R88 million and fully
diluted earnings per share were up 56% on the prior year. Earnings attributable
to Kersaf at R34 million were R12 million higher than last year.
BALANCE SHEET
Effective 15 November 2002, the group acquired the minority"s effective 27%
interest in SIML. The consideration paid of US$16,9 million was settled with 850
000 KZL shares. The group"s obligation to dispose of a minimum of two million
KZL shares was discharged during December 2002 when it sold 2 300 000 shares by
way of a public offering, realising US$42 million after costs. The proceeds were
primarily utilised to discharge borrowings including the US$32 million owing to
KZL. A further 509 293 KZL shares were disposed of in the second half of the
year, realising proceeds of US$13.5 million. At year end, the group held 2.3
million KZL shares of which Kersaf effectively owns 1.8 million. In terms of the
arrangement with KZL, the group may dispose of up to 500,000 KZL shares per
quarter through the market and it is likely that further sales will take place
in the new financial year.
Capital expenditure for the year of R352 million (2002: R559 million) was
incurred on various projects, including the establishment of a smoking casino
and refurbishments at Sun City and R80 million on the group"s Sibaya project.
The reduction in net asset value per share is primarily due to the impact of
the stronger Rand on the carrying value of the group"s offshore assets.
The utilisation of the proceeds from the sale of KZL shares to settle
borrowings and the strong cash flows from operations resulted in group
borrowings reducing by R802 million.
SUN INTERNATIONAL EMPLOYEE SHARE TRUST
Sun International"s proposal to establish an Employee Share Trust was
approved by that company"s shareholders and by the relevant provincial gambling
boards. The Trust holds interests in the group and its underlying operations and
will benefit all employees other than management. The trust has been financed by
interest free loans from group companies of R128 million.
We believe this is one of the most comprehensive employee empowerment schemes
implemented in the tourism and leisure sector, which underpins Sun
International"s commitment to transformation in respect of the ownership and
benefits of our industry in South Africa.
ACQUISITION OF FURTHER INTEREST IN SISA
On 6 June 2003, the group announced that it had reached agreement with the
North West Development Corporation to acquire their 18.6% interest in SISA for
R547 million, bringing the group"s effective interest up to 62.2%. The
acquisition has now been approved by the Competition Tribunal and the various
Provincial Gaming Boards and the completion will take place on Monday 1
September 2003. The acquisition will be funded out of proceeds from the sale of
KZL shares and new banking facilities.
PROSPECTS
The group made considerable progress in the disposal of its non core
investments in the year under review. This combined with the acquisition of the
minority"s interest in SIML and the recently announced acquisition of an
additional 18.6% interest in SISA will contribute to the ongoing simplification
of the group"s structure.
The slow down in the domestic economy and continued high real interest rates
will place disposable income under pressure which together with the opening of
the competitive facility in Durban in November 2002 will impact on the group"s
gaming revenues for the first half of the year ahead. Forward bookings at the
groups hotels and resorts are strong and continue to benefit from the increasing
popularity of South Africa as a tourist destination.
The above acquisitions combined with the expected increase in the
contributions from the group"s underlying operations should result in strong
earnings growth in the year ahead.
For and on behalf of the board
D A Hawton P D Bacon
Chairman Chief Executive
29 August 2003
Registered Office Registrar
27 Fredman Drive Computershare Limited
Sandown Investor Services Division
Sandton, 2031 70 Marshall Street
Johannesburg, 2001
Directors: D A Hawton (Chairman), P D Bacon (Chief Executive) (British)*,
D C Coutts-Trotter (Deputy Chief Executive)*, L Boyd, P L Campher,
M P Egan, I N Matthews, S C Mildenhall, D M Nurek, E Oblowitz,
G R Rosenthal
Group Secretary: S A Bailes *Executive
DECLARATION OF FINAL DIVIDEND
Notice is hereby given that a final dividend of 50 cents per share (2002:nil)
for the year ended 30 June 2003 has been declared, payable to shareholders
recorded in the register of the company at the close of business on the record
date appearing below. The salient dates applicable to the final dividend are as
follows:
2003
Last day to trade cum final dividend Thursday, 18 September
First day to trade ex final dividend Friday, 19 September
Record date Friday, 26 September
Payment date Monday, 29 September
No share certificates may be dematerialised or rematerialised between Friday, 19
September 2003 and Friday, 26 September 2003, both days inclusive.
Dividend cheques will be posted and electronic payments made, where
applicable, to certificated shareholders on the payment date. Dematerialised
shareholders will have their accounts with their Central Securities Depository
Participant or broker credited on the payment date.
By order of the board
S A Bailes
Group secretary
29 August 2003
Date: 29/08/2003 02:15:15 PM
Produced by the JSE SENS Department
