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SUI
SUI
Sun International-Profit and dividend announcement: year ended 30 June 2006
Sun International Limited
Registration no 1967/007528/06
Share code: SUI & ISIN: ZAE000070678
Profit and dividend announcement
for the year ended 30 June 2006
Highlights
Revenue +16%
EBITDA +21%
Adjusted HEPS +33%
Dividends per share +45%
Group income statement
for the year ended 30 June
2006 % 2005
R million Reviewed change Audited
Continuing operations
Revenue 5 949 16 5 139
Casino 4 543 18 3 857
Rooms 681 9 623
Food, beverage and other 725 10 659
Other income 216 230
Employee costs (1 214) (1 102)
Casino - Levies and VAT (948) (813)
Depreciation and amortisation (473) (438)
Promotional and marketing costs (508) (449)
Other operational costs (1 354) (1 202)
BEE transaction charge (219) -
Operating profit 1 449 1 365
Foreign exchange profits 52 35
Interest income 74 71
Interest expense (250) (250)
Profit before taxation 1 325 1 221
Taxation (517) (384)
Profit from continuing operations 808 837
Discontinued operations
Profit from discontinued operations 387 47
Profit 1 195 884
Attributable to
Minority interest 262 220
Ordinary shareholders 933 41 664
1 195 884
Number of shares (000"s)
- in issue 111 930 113 777
- for EPS calculation 107 056 110 484
- for diluted EPS calculation 108 394 112 054
Earnings per share (cents)
- basic 872 601
- headline 437 507
Diluted earnings per share (cents)
- basic 861 593
- headline 431 500
Dividends declared per share (cents) 290 45 200
Interest cover (times) 6.3 5.9
Dividend payout (%) 53.1 48.6
HEADLINE EARNINGS RECONCILIATION
Profit attributable to ordinary 933 41 664
shareholders
Net profit on disposal and closure of - (15)
operations
Profit on disposal of City Lodge (392) -
Impairment and loss on disposal of
property,
plant and equipment 10 -
Currency translation reserve realised (108) (104)
Taxation relief on the above items 22 5
Minority interests in the above items 2 10
Headline earnings 467 (17) 560
Supplementary information
for the year ended 30 June
2006 % 2005
R million Reviewed change Audited
EBITDA RECONCILIATION
Operating profit 1 449 6 1 365
Depreciation and amortisation 473 438
Other income (216) (230)
BEE transaction charge * 219 -
Property and equipment rental 62 72
Net profit on disposal and closure of - (15)
operations *
Indirect taxes relating to prior years (11) 13
*
Impairment and loss on disposal of
property,
plant and equipment * 10 -
Pre-opening expenses * 13 19
Reversal of Employee Share Trusts 16 10
consolidation*
EBITDA 2 015 21 1 672
EBITDA margin (%) 34 33
ADJUSTED HEADLINE EARNINGS
RECONCILIATION
Headline earnings 467 (17) 560
Pre-opening expenses 13 19
Realisation of fair value gains on KZL (83) (73)
shares
Foreign exchange profits on (11) (17)
intercompany loans
Fair value adjustments on loan (25) (47)
origination
Corporate tax rate change on deferred
tax
opening balance - (12)
Indirect taxes relating to prior years (11) 13
BEE transaction charge 219 -
Profit realised on discontinued share - (6)
purchase scheme
Taxation relief on the above items 14 15
Minority interests in the above items 16 22
Reversal of Employee Share Trusts 20 3
consolidation #
Results from discontinuing operations (17) (47)
Adjusted headline earnings 602 40 430
Number of shares (000"s) #
- for adjusted headline EPS calculation 110 218 104 510
- for diluted adjusted headline EPS 111 556 106 080
calculation
Earnings per share (cents)
- adjusted headline 546 33 411
- diluted adjusted headline 539 33 405
# The consolidation of the Employee Share Trusts are reversed as the group
does not receive the economic benefits of the trusts.
Group balance sheet
at 30 June
2006 2005
R million Reviewed Audited
ASSETS
Non current assets
Property, plant and equipment 5 407 5 265
Intangible assets 395 433
Available-for-sale investment 141 141
Investments and loans 302 490
6 245 6 329
Current assets
Accounts receivable and other 325 337
Available-for-sale investment 183 287
Loans 5 16
Cash and cash equivalents 756 589
1 269 1 229
Total assets 7 514 7 558
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders" equity 3 083 3 151
Minority interest 742 693
3 825 3 844
Non current liabilities
Deferred taxation 391 360
Borrowings 1 458 1 584
Other non current liabilities 125 91
1 974 2 035
Current liabilities
Accounts payable and other 847 933
Borrowings 868 746
1 715 1 679
Total liabilities 3 689 3 714
Total equity and liabilities 7 514 7 558
Borrowings to total shareholders" equity (%) 61 61
Net asset value per share (Rand) 29.12 27.08
Capital expenditure 568 981
Capital commitments
- contracted 223 85
- authorised but not contracted 1 053 729
Market value of listed investments 223 898
Directors" valuation of unlisted investments 408 494
and loans
Total valuation of investments and loans and
available-for-sale investments 631 1 392
Group cash flow statement
for the year ended 30 June
2006 2005
R million Reviewed Audited
Cash generated by operations before: 2 074 1 641
Working capital changes (6) 113
Cash generated by operations 2 068 1 754
Taxation paid (598) (374)
Dividends paid (498) (380)
Cash retained from operating activities 972 1 000
Cash utilised in investing activities (651) (1 453)
Cash realised from investing activities 315 439
Net cash (outflow)/inflow from financing (480) 116
activities
Translation gains on cash balances 11 10
Increase in cash balances 167 112
Consolidated statement of changes in equity
Ordinary Other
shares and reserves Retained Minority
R million share Note 1 earnings interest Total
premium
Balances at 1 533 285 1 443 749 4 010
30 June 2005
Restatement (700) 700 -
ito IAS 1
Restatement 2 (33) (10) (41)
ito IAS 16
Restatement 89 (89) -
ito IAS 39
Restatement (86) 35 (46) (97)
ito SIC 12
Reversal of (28) (28)
share option
valuation
Balances at 1 447 (324) 2 028 693 3 844
30 June 2005
restated
- Share issue 248 248
- Share buy (640) (640)
back
- Treasury (192) (192)
shares
purchased
- Treasury (151) (151)
share options
purchased
- Treasury 76 76
share options
exercised
-
Consolidation
of operations
previously 16 16
equity
accounted
- Employee 26 26
share based
payments
- Additional 19 19
minority
funding
- Acquisition (19) (2) (21)
and disposal
of minority
interests
- Net profit 933 262 1 195
for the year
- Foreign 17 (1) 16
currency
translation
adjustment
- Foreign (108) (108)
currency
translation
reserve
realised
- Minority 15 (15) -
interest
prescribed
- Movement on (5) (5)
valuation
reserve
- Dividends (268) (230) (498)
paid
Balances at 788 (413) 2 708 742 3 825
30 June 2006
Note 1: Included in other reserves are FCTR, fair value reserves, share
based payments reserve and reserve for non-controlling interests.
Accounting policies
The preliminary financial information presented has been prepared in
accordance with International Financial Reporting Standards (IFRS). The
accounting policies applied are consistent with those in the annual
financial statements for the year ended 30 June 2005 except for the
adoption of the following standards:
* IAS 1 - Presentation of Financial Statements: the presentation of the
group income statement has been changed to reflect the group"s election to
disclose items of income and expenditure by nature;
* IAS 16 - Property, Plant and Equipment: the reassessment of the useful
lives and residual values of assets did not have a material effect on
either the income statement or the balance sheet;
* IAS 39 - Financial Instruments - Recognition and Measurement: this
resulted in the re-allocation of unrealised gains on the revaluation of
Kerzner International Limited (KZL) shares to reserves, which were
previously disclosed as exceptional items;
* IFRS 5 - Non Current Assets Held for Sale and Discontinued Operations:
this resulted in the revised disclosure of discontinued operations in
respect of the City Lodge disposal;
* SIC 12 - Consolidation - Special Purpose Entities: this resulted in the
consolidation of the Sun International Employee Share Trust and Black
Managers Trust (Employee Share Trusts).
Audit review opinion
These results have been reviewed by the group"s auditors,
PricewaterhouseCoopers Inc., and their unqualified review opinion is
available for inspection at their company"s registered office.
EARNINGS AND DIVIDEND
The group achieved strong growth in revenues, which were 16% ahead of last
year at R5.9 billion. The EBITDA margin improved 1.4 percentage points over
the previous year to 33.9% resulting in EBITDA of R2.0 billion, 21% up on
last year. Gaming revenues grew 18% over the previous year, with
hospitality and other revenues 10% above last year.
The group benefited from the weakening SA Rand during the last quarter,
which resulted in a foreign exchange gain of R52 million, R17 million above
last year.
Taxation at R517 million was 35% ahead of the previous year. The overall
effective tax rate of 39% was 7 percentage points above the previous year,
mainly as a result of the R219 million BEE transaction charge, which is not
deductible for tax purposes.
Adjusted headline earnings of R602 million were 40% above the previous
year. As a result of the increased weighted number of shares in issue due
to the acquisition of the Sun International (South Africa) Limited (SISA)
minorities during the course of the previous year, diluted adjusted
headline earnings per share of 539 cents were 33% ahead of last year.
The board has declared a final dividend of 155 cents per share, which is
41% ahead of the final dividend last year and brings the dividends for the
year to 290 cents, 45% above last year. This is in line with the group"s
policy of increasing the dividend growth rate above that of the earnings
growth rate.
Trading
Segmental Analysis
Revenues EBITDA Operating
Profit
R million 2006 2005 2006 2005 2006 2005
GrandWest 1398 1193 600 501 504 401
Sun City 965 902 160 139 79 64
Carnival City 786 697 268 227 209 162
586 484 175 148 114 86
Sibaya/Sugarmill
Boardwalk 384 334 151 129 122 100
Carousel 251 198 69 44 46 31
Wild Coast 237 223 46 45 30 32
Morula 190 158 44 27 23 17
Meropa 159 142 61 54 45 39
Table Bay 154 134 52 43 18 15
Swaziland 140 135 14 25 6 12
Zambia 140 119 30 22 16 4
Windmill 112 - 40 - 29 -
Flamingo 108 89 39 31 27 20
Namibia 95 96 25 29 10 17
Botswana 93 112 24 35 16 27
Lesotho 79 - 11 - 7 -
Management 482 384 221 166 211 145
activities
Central Office
and
Other 52 112 (15) 7 (32) (10)
Operations
Elimination (462) (373) - - - -
1480 1162
Other Income - - - - 216 230
Other Expenses - - - - (247) (27)
#
5949 5139 2015 1672 1449 1365
# Refer EBITDA reconciliation denoted *
Gaming
Improved levels of disposable income and the relatively stable economic
environment benefited customers and this, together with exciting products,
has resulted in sustained growth in gaming revenues over the previous year.
Gaming revenue was 18% ahead of last year, with both slots and tables
showing similar levels of growth. The group enjoyed a buoyant Easter and
trading in June 2006 was exceptionally strong.
The strong revenue growth was also the result of an excellent performance
from the group"s new Windmill casino in Bloemfontein which opened in
September 2005.
GrandWest generated revenue growth of 17% over last year and EBITDA grew
20% to R600 million, reflecting a further improvement in operating margins
despite the higher effective casino levies.
Carnival City continued to perform well and maintained its market share at
19% of the Gauteng market. EBITDA of R268 million grew 18% on improved
margins.
Sibaya achieved revenues of R586 million and EBITDA of R175 million in its
first full year of trading, 21% and 18% ahead of last year"s revenue and
EBITDA respectively, which had included five months of Sugarmill"s trading.
Margins at Sibaya were below the previous year, mainly as a result of the
non-comparability of the temporary Sugarmill Casino. Sibaya improved its
overall share of the KwaZulu-Natal market by 1.2 percentage points to
35.5%.
Boardwalk continued to trade well, achieving revenue and EBITDA growth of
15% and 17% respectively.
RESORTS AND HOTELS
Rooms revenue of R681 million was 9% ahead of the previous year. The
overall group occupancy of 71% was 2.3 percentage points ahead of last year
and the room rate improved 5% to R737.
Sun City"s room occupancy of 75% was in line with last year, while the
average room rate of R977 was 5% up. The resort generated an EBITDA of R160
million, 15% higher than the previous year.
The Table Bay achieved an occupancy of 70% (63%) for the year, whilst the
average room rate of R1409 was 4% ahead of the previous year. The higher
occupancy was a result of a significant improvement in international
incentive volumes and successful local leisure campaigns in the low season.
The Royal Livingstone and Zambezi Sun resort achieved an occupancy of 68%
(62%), and the room rate of US$139 was 6% ahead of last year. Room revenue
was 16% ahead in US dollar terms, with much of the growth attributable to
further growth in international visitors.
The difficult trading conditions experienced in Botswana, Namibia and
Swaziland continued in the current year. Casino refurbishments at both the
Gaborone Sun and Kalahari Sands impacted on trading during the year.
MANAGEMENT ACTIVITIES
Management fee income of R482 million was 26% ahead of the previous year,
reflecting higher revenues, and improved profitability and margins within
the group. EBITDA of R221 million was 33% higher. Costs of R28 million (R25
million) were incurred during the year in respect of prospecting
opportunities in the United Kingdom and Europe, South East Asia and Africa.
DEVELOPMENTS
The R425 million GrandWest expansion commenced in the last quarter of the
financial year. This project includes enhancements to the existing Salon
Prive (opening December 2006) and the addition of a new smoking casino
(opening June 2007), which will increase the total number of slot machines
from 1846 to 2500. In addition, a 1200 bay parking garage and a multi-
purpose arena are being constructed and are scheduled for completion in May
and September 2007 respectively.
The construction of the Golden Valley Casino at Worcester is progressing
well, with the opening scheduled for November 2006. The estimated cost is
projected at R150 million and a further R60 million has been approved for a
90 room hotel.
The R83 million Sibaya Lodge, comprising 118 three star rooms, will open
during October 2006. The insurance claim relating to the Sibaya Casino
development was satisfactorily settled with the underwriters on an ex
gratia basis.
CAPITAL COMMITMENTS
Capital commitments of R1.3 billion includes the completion of the Sibaya
Lodge at R49 million, the forecast spend on GrandWest of
R409 million and completion of the Golden Valley Casino and hotel of R168
million. An additional 57 rooms at Carnival City have been approved at a
cost of R50 million, due for completion in the final quarter of the new
financial year.
A major refurbishment at the Sun City main hotel and the rooms at the
Cabanas will commence shortly. The expenditure at the Sun City main hotel
includes the refurbishment of the rooms and the replacement of much of the
hotel"s electrical reticulation, plumbing and air conditioning. It will
take place over the next three years at an estimated cost of approximately
R200 million.
The remaining capital commitments of R400 million relate to ongoing asset
replacement and minor expansions.
BALANCE SHEET
The following major transactions took place in the first half of the
financial year:
* In September 2005, the group disposed of its entire shareholding in City
Lodge Hotels, under a scheme of arrangement, for
R627 million, resulting in the group effectively acquiring 8 590 275 of its
own shares as treasury stock.
* In terms of the BEE transaction concluded in December 2005, the group
transferred 2 801 793 treasury shares to Dinokana for no consideration. A
further 1 467 044 shares were sold to Dinokana by the Sun International
Share Option Trust at R75.92 per share. This resulted in a non-recurring
R219 million charge to the income statement.
* During the year, 439 445 KZL shares were disposed of , realising US$29
million. At year end, the group held an effective 232 409 shares in KZL.
Capital expenditure incurred during the year was as follows:
R million
Significant expansions 215
Sibaya Lodge 33
Windmill Casino 99
Golden Valley Casino 42
Vacation Club at Sun City 25
GrandWest Expansion 16
Minor expansions and ongoing asset replacement 353
568
The group"s borrowings, before consolidating the Employee Share Trusts,
declined marginally with the strong cash flow generated being largely used
for capital expenditure and increased dividend payments.
The group"s borrowings are summarised below:
30 June 2006 30 June 2005
Intragroup Third Party Third Party
R million Borrowings Borrowings Borrowings Borrowings
SunWest 332 - 332 504
International
(Pty) Ltd
Emfuleni 169 <15> 154 103
Resorts (Pty)
Ltd
Afrisun KZN 473 - 473 431
(Pty) Ltd
Meropa 69 - 69 74
Leisure and
Entertainment
(Pty) Ltd
Teemane 42 - 42 53
(Pty) Ltd
Afrisun 231 - 231 211
Gauteng (Pty)
Ltd
Mangaung Sun 95 - 95 -
(Pty) Ltd
Central 719 15 734 954
Office
2130 - 2130 2330
Employee 196 - 196 -
Share Trusts
2326 - 2326 2330
CONTINGENT LIABILITIES
Taxation - The group had previously indicated that it was in dispute with
the South African Revenue Service (SARS) over the deductibility of pre-
opening expenditure. As a result of various assessments issued against
group companies, a contingent liability of R36 million had been noted. The
group has since resolved this matter with SARS, with no material impact on
the group"s overall tax liability.
Afrisun Leisure claim - Shareholders were advised in an announcement
released on SENS on 19 May 2006 and in the circular to shareholders dated 2
June 2006 that Afrisun Leisure has instituted legal proceedings against the
group, in which it seeks to void the 2003 sale of shares by the group to
Grand Parade Investments Limited (GPI), or alternatively to seek damages in
respect of a 5.5% shareholding in SunWest International (Pty) Ltd (SunWest)
in the amount of a maximum of R311 million based on Real Africa Holdings
Ltd (RAH"s) estimated market value of the SunWest shares in dispute at June
2003.
The group intends to defend the merits of this claim and is, in any event,
of the view that the basis on which Afrisun Leisure has quantified its
alleged damages claim is fundamentally flawed.
DEVELOPMENTS REGARDING SHAREHOLDING IN SUNWEST
Shareholders were advised in the business update dated 3 May 2006 that the
in-principle agreement with GPI to acquire a further interest in SunWest
remained outstanding due to the conditions precedent being unfulfilled.
The group has entered into a revised in-principle agreement with GPI
whereby GPI will acquire an additional 4% shareholding in SunWest from Sun
International for R83 million, and be granted an option over a further 5%
shareholding in SunWest at a strike price of R165 per share.
The transaction is subject to various approvals, and the lock-in of a 35%
Western Cape BEE shareholding in GPI until 2012. It is the intention of the
parties that GPI will ultimately hold a 30% economic interest in SunWest.
The group will therefor offer to GPI a further 2.46% of the SunWest shares
at fair value at a future date.
ACQUISITION OF REAL AFRICA HOLDINGS
On 24 August 2006, the group announced on SENS that it has increased its
offer to acquire the RAH shares from the shareholders of RAH to 530 cents
per share, and that the offer closing date had been revised to 15 September
2006. As at 28 August 2006, shareholders representing 53% of the RAH shares
in issue had accepted the offer, and the group now owns 55% of RAH shares.
The acquisition consideration is being financed with preference share
funding and borrowings.
DIRECTORATE
Peter Bacon retired and resigned from the board on 30 June 2006.
OUTLOOK
Gross Domestic Product is anticipated to continue growing in the year ahead
and this should support real growth in disposable income. Continued growth
in inbound tourism is also anticipated. As a result, the group expects good
growth in earnings for both gaming and resorts in the coming year and will
continue to increase the level of dividends at a rate in excess of the
earnings growth rate.
For and on behalf of the board
D A Hawton D C Coutts-Trotter
Chairman Chief Executive
Registered Office: 27 Fredman Drive, Sandown, Sandton 2031
Registrar: Computershare Investor Services 2005 (Pty) Ltd, 70 Marshall
Street, Johannesburg, 2001
Directors: DA Hawton (Chairman), DC Coutts-Trotter (Chief Executive)*, H
Adams, RP Becker*, L Boyd, PL Campher, MP Egan, Dr BB Gwagwa, IN Matthews,
LM Mojela, MV Moosa, DM Nurek, E Oblowitz, GR Rosenthal, PEI Swartz
* Executive
Group Secretary: SA Bailes
Declaration of Final Dividend
Notice is hereby given that a final dividend of 155 cents (2005: 110 cents)
per share for the year ended 30 June 2006 has been declared, payable to
shareholders recorded in the register of the company at the closure of
business on the record date appearing below. The salient dates applicable
to the final dividend are as follows:
2006
Last day to trade cum final dividend Friday, 15 September
First day to trade ex final dividend Monday, 18 September
Record date Friday, 22 September
Payment date Tuesday, 26 September
No share certificates may be dematerialised or rematerialised between
Monday, 18 September 2006 and Friday, 22 September 2006, 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
SA Bailes
Group Secretary
www.suninternational.com
Date: 28/08/2006 03:25:20 PM Produced by the JSE SENS Department
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