| Tue 8 Mar 2005, 9:06 | | Profit and Dividend Announcement |
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Sun International Limited - Profit and Dividend Announcement for the six
months ended 31 December 2004
Sun International Limited
(Registration number: 1967/007528/06)
Share code: SUI ISIN: ZAE000054995
Profit and Dividend Announcement for the six months ended 31 December 2004
SUN INTERNATIONAL LIMITED
Highlights
- Revenue + 15%
- EBITDA + 21%
- Fully Diluted Adjusted HEPS + 61%
- Dividend per share + 100%
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 applied are consistent with those in the annual financial
statements for the year ended 30 June 2004 except for the discontinuation of
the amortisation of indefinite intangible assets as required by IAS38
(Intangible Assets). Amortisation for the six months to 31 December 2003
amounted to R8 million.
EARNINGS AND DIVIDEND
The group achieved an excellent increase of 61% in fully diluted adjusted
headline earnings per share for the six months to 31 December 2004. This was
due mainly to the continuing strong growth in casino revenues, improved
operating margins and lower borrowing costs.
Good growth in gaming revenues was experienced whilst hotel and resort
revenues remained under pressure particularly at the upper end of the market.
This was largely due to the strength of the local currency and increased
competition from US dollar denominated destinations particularly in the
meetings, incentives, conference and exhibitions (MICE) markets.
Revenue for the six months to 31 December 2004 at R2.5 billion was 15% up on
the previous year. The group`s casinos performed well with gaming revenues
19% ahead of the previous year. Room revenues were however marginally below
the previous year. EBITDA at R809 million was 21% up on the previous year and
the EBITDA margin improved 1.5 percentage points to 32.2%.
Net exceptional income of R126 million include a mark-to-market write up of
the group`s shareholding in Kerzner International Limited (KZL) amounting to
R93 million, a gain on the sale of a 30% shareholding in the Wild Coast Sun
offset by foreign exchange losses on intercompany loans and pre-opening
expenditure incurred on the Sibaya project.
Net interest expense at R85 million was R34 million below the previous year as
a result of lower interest rates and strong operating cash flows. Taxation at
R197 million was however 52% up on the previous year due to the significant
improvements in profitability and the STC charges on the increased dividends
paid by the group.
Associate income from continuing operations at R36 million was 16% up on the
previous year due to the good results from City Lodge offset by a
disappointing contribution from the group`s Lesotho operations which were R3
million below the previous year. The group continues to negotiate the
disposal of its interest in Ster Century Middle East (SCME)
Adjusted headline earnings were 93% higher than last year at R222 million
whilst fully diluted adjusted headline earnings per share were 61% higher at
200 cents as a consequence of the increase in the weighted average number of
shares in issue following the issue of shares for the acquisition of the Sun
International (South Africa) Limited (SISA) minority interests.
In view of the strong operating cash flows and growth in adjusted headline
earnings per share and in line with its previously stated intention of
increasing dividends at a rate in excess of the earnings growth rate, the
Board has declared an interim dividend of 90 cents per share, a 100% increase
on last year.
TRADING
Segmental Analysis
Revenues EBITDA Operating Profit
Unaudited Audited Unaudited Audited Unaudited Audited
Six Months Year Six Months Year Six Months Year
to ended to 31 ended to ended
31 December 30 June December 30 June 31 December 30 June
2004 2003 2004 2004 2003 2004 2004 2003 2004
GrandWest 565 478 1006 229 181 400 179 131 303
Sun City 459 411 818 65 57 128 29 27 70
Carnival City 344 276 570 110 87 180 80 54 115
Sugarmill/ 219 176 363 67 52 118 33 21 56
Sibaya
Boardwalk 162 135 281 61 47 102 46 30 69
Wild Coast 110 96 202 20 17 37 12 9 21
Carousel 101 84 175 25 19 39 16 9 20
Morula 77 74 145 13 15 26 10 12 21
Swaziland 72 69 134 14 15 18 10 12 12
Meropa 67 57 118 25 20 40 15 11 23
Table Bay 63 66 138 18 19 42 5 4 12
Botswana 61 66 122 21 25 43 16 21 35
Zambia 59 47 96 9 4 14 2 <4> <3>
Namibia 50 45 89 17 16 29 11 11 19
Flamingo 43 39 78 15 12 26 8 6 12
SI Management 157 123 251 79 60 118 72 48 89
Central Office
& other 80 87 133 21 25 64 10 4 12
operations
Elimination <177 <147 <243> - - - - - -
> >
2512 2182 4476 809 671 1424 554 406 886
Exceptional - - - - - - 126 214 544
2512 2182 4476 809 671 1424 680 620 1430
GAMING
Gaming revenue for the period was 19% ahead of the previous year driven mainly
by a 21% improvement in slot revenues. This growth can be attributed
primarily to the continuing improvement in disposable income and consumer
confidence.
GrandWest again performed very well achieving an 18% growth in revenues and a
27% improvement in EBITDA compared to the same period last year.
Carnival City increased its marketing effort, event and promotional activity
with the aim of increasing its share of the competitive Gauteng market. The
casino`s gaming revenues were 25% higher than last year compared to a 15%
improvement in the Gauteng market. This improvement resulted in a 26%
increase in EBITDA to R110 million.
Sibaya was successfully opened on 1 December 2004 following the closure of
Sugarmill at the end of November 2004. Early indications are that the new
facility has been well received by the market attracting over 500 000 visitors
in December 2004. Revenue and EBITDA from Sugarmill and Sibaya were 24% and
29% ahead of the same period last year respectively.
Boardwalk continued to enjoy excellent growth in revenues and EBITDA of 20%
and 30% respectively. This can be attributed primarily to the improved level
of economic activity in the Port Elizabeth region.
RESORTS AND HOTELS
Rooms revenue of R313 million was in line with the previous year but after
adjusting for the disposal of Mpekweni and Zimbali Lodge in March and July
2004 respectively, the comparable growth in rooms revenue was 5%.
Sun City achieved an overall occupancy of 77%, 4 percentage points ahead of
the previous year. This improvement was largely the result of the increase
in occupancy at The Cascades which was substantially refurbished in the
previous year. The overall room rate of R918 was unchanged on last year
reflecting the challenging market conditions resulting from the strength of
the local currency.
Table Bay`s occupancy of 59% for the period under review was 5 percentage
points below last year whilst the average room rate at R1330 was marginally
higher. The decline in room occupancy is the result of an increase in the
Cape Town four and five star rooms inventory and the `trading down` being
experienced particularly in the international group market.
The Zambian resort continued to enjoy an improved level of occupancy which at
65% was ten percentage points better than last year. Rooms revenue in US
dollars grew by 33% as the resort benefitted from increased regional and
international demand and the contribution of Dreams, the group`s in house tour
operator.
The contribution to earnings from the group`s operations in Botswana, Namibia
and Swaziland was marginally down on last year due to the generally weaker
economic conditions and the introduction of VAT in Botswana.
SUN INTERNATIONAL MANAGEMENT
Management fee income of R157 million grew 28% on last year mainly as a
result of the improved revenues and trading at the major gaming operations.
Costs were well contained resulting in a 32% improvement in EBITDA to R79
million. The group continues to expense all costs associated with the
investigation of casino license opportunities in the United Kingdom which
totalled R10 million compared to R3 million in the same period last year.
DEVELOPMENTS
The Sibaya development opened at the beginning of December 2004 following the
closure of Sugarmill. The estimated capital cost at R733 million is R83
million higher than the original budget. A proportion of this additional
spend is due to the installation of additional slot machines, the interchange
on the N2 highway and a two week delay in the opening. The balance of the
additional cost is due to the underestimation of the costs by the quantity
surveyors and certain other professional consultants. This is currently under
investigation by management. Construction of the second hotel is expected
to commence in the first half of the 2006 financial year.
The refurbishment of the Morula Casino was completed at the end of January
2005 at a cost of R85 million. The casino floor has been upgraded with the
introduction of the group`s smart card technology which combined with the
extensive refurbishment of the casino will provide customers with a
substantially enhanced product.
The upgrading of the Carousel casino floor to include the introduction of the
group`s smart card technology and the installation of replacement slot
machines has commenced and is scheduled for completion by end of March 2005 at
a cost of R64 million.
Construction of the group`s new casino at Bloemfontein has commenced and the
project is on schedule for completion in the second quarter of the 2006
financial year at an estimated cost of R166 million.
Construction of the second phase of the Sun International Vacation Club at Sun
City is progressing well and advance sales are ahead of target. The estimated
cost of the project remains at R130 million with R41 million spent to date.
The refurbishment of the Sun City Entertainment Centre including the
introduction of the group`s smart card technology was completed in December
2004. The Cascades pool area has also been substantially remodelled
completing the refurbishment of this hotel. Remedial work to the Sun City
Hotel`s mechanical and electrical installations is in progress. The overall
spend at Sun City remains in line with the capital expenditure budget of R77
million for the year.
CITY LODGE
Earnings attributable to Sun International of R22 million were R4 million and
23% higher than the same period last year. Occupancies remained in line with
last year at 77% and the average room rate of R346 was 10% ahead of the same
period last year. EBITDA of R100 million was generated in the period under
review and was 21% ahead of last year. The EBITDA margin of 51.5% improved
1.5 percentage points over the same period last year.
BALANCE SHEET
On 16 August 2004 the group acquired the remaining 37.6% interest in SISA.
The purchase consideration of R1,4 billion was settled by the issue of 26.3
million shares and the payment of R346 million in cash.
During the period 300 000 KZL shares were disposed of realising approximately
US$16 million. At 31 December 2004 the group still held an effective 758 000
shares in KZL.
Zimbali Lodge was disposed of in July 2004 for R77 million. The group has
retained the management contract to manage Zimbali Lodge and the Zimbali
Country Club for a fifteen year period. The group sold 30% of its interest in
the Wild Coast Sun to a local community trust for R25 million effective 1
November 2004 to ensure compliance with its casino licensing obligations. The
group has facilitated this transaction.
Capital expenditure in the six months to 31 December 2004 was R620 million
which included the expenditure on the Sibaya permanent casino of R381 million,
the Sun City refurbishment and casino upgrade of R47 million, the Sun City
Vacation Club expansion of R41 million and the Morula refurbishment of R37
million. The balance of the expenditure related to the ongoing replacement of
assets.
The borrowings of the group have increased mainly as a result of the
completion of the Sibaya project as well as the acquisition of the SISA
minorities in August 2004 and are summarised below:
Rm
Borrowings Intragroup Third Party
Borrowings Borrowings
31 Dec 30 Jun
2004 2004
SunWest International 644 30 614 602
(Pty) Ltd
Emfuleni Resorts (Pty) 201 140 61 70
Ltd
Afrisun KZN (Pty) Ltd 568 368 200 98
Meropa Leisure and 82 - 82 93
Entertainment (Pty) Ltd
Teemane (Pty) Ltd 55 - 55 67
Afrisun Gauteng (Pty) Ltd 206 - 206 242
Central Office 760 <538> 1298 929
2516 - 2516 2101
CONTINGENT LIABILITY
South African Revenue Service (SARS) has challenged the deductibility of pre-
opening expenditure incurred prior to the opening of a new casino or hotel
property. These expenses consist in the main of payroll, training and
marketing costs incurred prior to opening and have historically been allowed
as a deduction for income tax purposes. SARS has recently issued tax
assessments to certain group companies disallowing pre-opening expenditure.
These companies have lodged objections and the group is confident that it can
successfully defend the assessments based on senior counsel`s opinion
supporting the deductibility of the expenditure. Notwithstanding these
opinions it should be noted that the potential exposure could amount to a tax
charge of up to R60 million across the group of which R36 million would be
attributable to Sun International Limited.
OUTLOOK
The group anticipates strong growth in adjusted headline earnings per share
for the full year. The rate of growth in the second half is expected to be
lower than that experienced in the first half of the year given the high level
of earnings in the second half of last year and the impact of the additional
shares in issue.
For and on behalf of the board
D A Hawton P D Bacon
Chairman Chief Executive
7 March 2005
Registered Office Registrar
27 Fredman Drive Computershare Investor Services 2004 (Pty) Ltd
Sandown 70 Marshall Street
Sandton, 2031 Johannesburg, 2001
Directors: D A Hawton (Chairman), P D Bacon (Chief Executive) (British)*, D C
Coutts-Trotter (Deputy Chief Executive)*, H. Adams, L Boyd, P L Campher, M P
Egan, I N Matthews, L M Mojela, D M Nurek, E Oblowitz, G R Rosenthal, P E
Swartz *Executive
Group Secretary: S A Bailes
Declaration of Interim Dividend
Notice is hereby given that an interim dividend of 90 cents (2004: 45 cents)
per share for the six months ended 31 December 2004 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 interim dividend are as follows:
2005
Last day to trade cum interim dividend Wednesday, 23 March
First day to trade ex interim dividend Thursday, 24 March
Record date Friday, 01 April
Payment date Monday, 04 April
No share certificates may be dematerialised or rematerialised between
Thursday, 24 March 2005 and Friday, 1 April 2005, 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
7 March 2005
GROUP INCOME STATEMENT
Six Year
months ended
ended
31 30 June
December
2004 2003 2004
Unaudite Unaudite Audited
d d
%
Rm change Rm Rm
Revenue 2 512 15 2 182 4 476
Casino 1 873 1 569 3 261
Rooms 313 314 621
Food, beverage and other 326 299 594
Direct costs (1 065) ( 939) (1 908)
Gross profit 1 447 16 1 243 2 568
Indirect costs ( 638) ( 572) (1 144)
EBITDA 809 21 671 1 424
Depreciation and amortisation ( 213) ( 226) ( 457)
Property and equipment rentals ( 42) ( 39) ( 81)
Exceptional items 126 214 544
Operating profits 680 620 1 430
Foreign exchange losses ( 21) ( 44) ( 76)
Interest received 19 28 63
Continuing operations 19 24 60
Discontinuing operations - 4 3
Interest expense ( 104) ( 147) ( 277)
Profit before equity accounted 574 457 1 140
earnings
Share of associate profits/(losses)
- normal 36 27 59
Continuing operations 36 31 64
Discontinuing operations - ( 4) ( 5)
- exceptional
Discontinuing operations - ( 2) -
Profit before taxation 610 482 1 199
Taxation ( 197) ( 130) ( 270)
Profit after taxation 413 352 929
Minority interests ( 116) ( 129) ( 285)
Net profit for the period 297 33 223 644
Number of shares (000`s)
- in issue 116 393 90 050 90 050
- for EPS calculation 109 807 90 050 90 050
- for fully diluted EPS calculation 111 264 92 616 90 942
Earnings per share (cents)
- basic earnings per share 270 248 715
- headline earnings per share 252 153 423
- adjusted headline earnings per share 202 59 127 307
Fully diluted earnings per share
(cents)
- basic earnings per share 267 241 708
- headline earnings per share 249 149 419
- adjusted headline earnings per share 200 61 124 304
Dividends declared per share (cents) 90 100 45 125
EBITDA margin (%) 32 31 32
Interest cover (times) 5 3 3
Dividend payout (%) 45 36 41
Determination of headline earnings and
adjusted headline earnings
Net profit per the income statement 297 33 223 644
Headline earnings adjustments ( 26) ( 153) ( 355)
Goodwill (included in depreciation and - 7 16
amortisation)*
Impairment of investments in - 23 19
associates
Net profits on sale of ( 12) ( 171) ( 208)
business/shares in subsidiaries
Release of surplus arising on ( 13) - -
onerous contract provision
Impairment of property, plant and - - 4
equipment
Net profit on disposal of property, - - ( 4)
plant and equipment
Currency translation reserve ( 1) ( 12) ( 182)
realised
Associate headline earnings - 2 -
adjustments
Impairment of cinema assets - 2 -
Taxation charge on the above items 4 13 25
Minority interests in the above 2 53 66
items
Headline earnings 277 101 138 380
Adjusted headline earnings ( 79) ( 23) ( 126)
adjustments
Pre-opening expenses 18 2
Write up of KZL to market value ( 93) ( 90) (183)
Foreign exchange losses on 21 35 56
intercompany loans*
Fair value adjustments to long term - 36 34
liabilities
Earnings from discontinuing - ( 4) ( 4)
operations*
Profit on share option scheme ( 19) - -
Profit realised on discontinued ( 6) - ( 31)
share purchase scheme
Associate adjusted headline - 4 5
earnings adjustments
Results from discontinuing - 4 5
operations*
Taxation relief on the above items 3 ( 10) ( 10)
Minority interests in the above 21 6 28
items
Adjusted headline earnings 222 93 115 277
* Not included in exceptional or
associate exceptional items
Group balance sheet
31 December 30 June
2004 2003 2004
Unaudite Unaudited Audited
d
Rm Rm Rm
ASSETS
Non current assets
Property plant and equipment 5 111 4 724 4 777
Intangible assets 1 348 886 855
Available-for-sale investment 141 143 143
Investments and loans 561 444 471
7 161 6 197 6 246
Current assets
Accounts receivable and other 373 358 343
Available-for-sale investment 349 478 390
Loans 3 52 7
Cash and cash equivalents 386 414 477
1 111 1 302 1 217
Total assets 8 272 7 499 7 463
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` equity 3 882 2 548 2 666
Outside shareholders` interests 724 1 374 1 454
4 606 3 922 4 120
Non current liabilities
Deferred taxation 357 405 364
Borrowings 2 061 1 924 1 760
Other 42 41 40
2 460 2 370 2 164
Current liabilities
Accounts payable and other 751 794 838
Borrowings 455 413 341
1 206 1 207 1 179
Total liabilities 3 666 3 577 3 343
Total equity and liabilities 8 272 7 499 7 463
Borrowings to total shareholders` 55 59 51
equity (%)
Net asset value per share (Rand) 33.35 28.29 29.60
Capital expenditure 620 192 489
Capital commitments
- contracted 254 433 522
- authorised but not contracted 325 560 617
Market value of listed investments 924 924 806
Directors` valuation of unlisted 501 439 433
investments and loans
Total valuation of investments and 1 425 1 363 1 239
loans and available-for-sale
investment
Group cash flow statement
Six months ended Year
ended
31 December 30 June
2004 2003 2004
Unaudite Unaudited Audited
d
Rm Rm Rm
Cash generated by operations before: 786 634 1 316
Working capital changes ( 62) ( 56) ( 6)
Cash generated by operations 724 578 1 310
Investment income 39 41 88
Interest expense ( 104) ( 147) ( 277)
Taxation paid ( 229) ( 72) ( 161)
Dividends paid ( 168) ( 96) ( 232)
Cash retained from operating 262 304 728
activities
Cash utilised in investing (1 082) ( 797) (1 213)
activities
Cash realised from investing 207 484 766
activities
Net cash inflow/(outflow) from 538 92 ( 127)
financing activities
Translation losses on cash balances ( 16) ( 18) ( 26)
(Decrease)/increase in cash balances ( 91) 65 128
Consolidated statement of changes in equity
Ordinary Retained Foreign Total
shares and earnings currency
share premium translati
on
reserve
Rm Rm Rm Rm
Balances at 30 June 2004 505 1 837 324 2 666
- Share issue 1 065 - - 1 065
- Treasury share options ( 16) - - ( 16)
- Net profit for the period - 297 - 297
to 31 December 2004
- Foreign currency - - ( 36) ( 36)
translation adjustment
- Foreign currency - - ( 1) ( 1)
translation reserve realised
- Dividends paid - ( 93) - ( 93)
Balances at 31 December 2004 1 554 2 041 287 3 882
7 March 2005
