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SUI
SUI
SUI - Sun International Limited - Profit and dividend announcement for the six
months ended 31 December 2006
Sun International Limited
(Incorporated in the Republic of South Africa)
(Registration number : 1967/007528/06)
Share code: SUI
ISIN: ZAE000070678
Profit and Dividend Announcement for the six months ended 31 December 2006
Highlights
Revenue + 15%
EBITDA + 23%
Adjusted HEPS + 32%
Dividend per share + 37%
ACCOUNTING POLICIES
The preliminary financial information has been presented and prepared in
accordance with International Financial Reporting Standards (IFRS) and complies
with IAS 34, Interim Financial Reporting. The accounting policies applied are
consistent with those in the annual financial statements for the year ended 30
June 2006.
EARNINGS AND DIVIDEND
The group continued to generate good growth in revenues with all business units
contributing strongly. Group revenue of R3.4 billion was 15% ahead of last year,
which resulted in a 23% increase in EBITDA to R1.2 billion.
The EBITDA margin at 36% was two percentage points better than last year.
Expenditure was well controlled, although levies and VAT on casino revenues were
17% ahead of the previous year primarily due to fiscal drag.
In terms of IAS 19: Employee Benefits, the group has been required to recognise
an asset of R142 million resulting from a valuation surplus in the Sun
International Pension Fund, despite the uncertainty as to whether some or all of
this surplus will accrue to the group in the future.
The Cape Town International Convention Centre Company (CONVENCO) has impaired
the carrying value of its buildings. Therefore, in terms of IAS39 - Financial
Instruments : Recognition and Measurement, the group has impaired the carrying
value of its 24.6% investment in CONVENCO, resulting in a charge of R97 million.
Interest expense of R168 million was R55 million higher than last year,
reflecting increased interest rates and the additional debt incurred to fund the
Real Africa Holdings Limited (RAH) acquisition.
Taxation of R359 million was 48% higher than last year and the effective rate of
35% was in line with last year after adjusting for the CONVENCO impairment
charge and the BEE transaction cost.
Adjusted headline earnings of R373 million were 37% up on the previous year.
The diluted adjusted headline earnings per share of 328 cents were 32% above
last year.
The board has declared an interim dividend of 185 cents per share, a 37%
increase on last year which is in line with the group`s stated intention of
increasing dividends at a rate higher than the earnings growth rate.
TRADING
Segmental Analysis
Revenues EBITDA
Unaudited Audited Unaudited Audited
Six Months to Year Six Months to 31 Year
31 December ended December ended
30 June 30 June
R Million
2006 2005 2006 2006 2005 2006
GrandWest 778 689 1 398 336 290 600
Sun City 538 488 965 93 78 160
Carnival City 437 389 786 154 126 268
Sibaya 318 289 586 103 81 175
Boardwalk 208 187 384 84 73 151
Carousel 150 120 251 44 31 69
Wild Coast 135 116 237 28 21 46
Morula 108 94 190 23 22 44
Meropa 93 78 159 38 29 61
Zambia 91 70 140 24 15 30
Windmill 90 40 112 37 14 40
Table Bay 85 73 154 30 23 52
Swaziland 78 75 140 12 11 14
Flamingo 63 53 108 25 20 39
Botswana 57 50 93 17 16 24
Namibia 54 47 95 15 13 25
Lesotho 48 41 79 11 6 11
Golden Valley 12 - - 4 - -
Management
Activities 278 231 482 145 125 221
Central Office 24 36 52 (6) (8) (15)
Eliminations (265) (223) (462) - - -
3 380 2 943 5 949 1 217 986 2 015
Operating Profit
Unaudited Audited
Six Months to
31 December
Year ended
30 June
R million 2006 2005 2006
GrandWest 285 242 504
Sun City 44 38 79
Carnival City 123 97 209
Sibaya 72 52 114
Boardwalk 70 58 122
Carousel 33 20 46
Wild Coast 20 13 30
Morula 12 12 23
Meropa 30 22 45
Zambia 16 8 16
Windmill 29 9 29
Table Bay 16 7 18
Swaziland 8 6 6
Flamingo 20 13 27
Botswana 11 12 16
Namibia 7 7 10
Lesotho 9 4 7
Golden Valley 2 - -
Management
Activities 140 120 211
Central Office (20) (26) (32)
Eliminations - - -
Other Income 84 97 216
Pension Fund
Surplus Recognition
142 - -
Other Expenses# (113) (229) (247)
1 040 582 1 449
#Items included indicated by * on EBITDA reconciliation.
GAMING
Casino revenue was 16% ahead of last year primarily due to increased levels of
disposable income.
GrandWest achieved revenue growth of 13% over the previous year and EBITDA grew
16% to R336 million, reflecting improved margins despite higher casino levies.
Carnival City generated revenue growth of 12%. However, market share was diluted
to 17.1% in the six months, 0.5 percentage points lower than the previous year,
due to a decline in tables volumes. Margins nevertheless improved with EBITDA
of R154 million (+22%).
Sibaya achieved revenues of R318 million (+10%), with gaming revenues 14% ahead
of last year. Food and beverages revenues which were previously accounted for
in revenue, are no longer as a consequence of a change in the outsourcing
contract for these operations. EBITDA at R103 million was 27% higher than last
year with the overall EBITDA margin improving significantly to 32% due to
increased efficiencies and the contract amendment.
Boardwalk achieved revenues of R208 million (+11%), while EBITDA of R84 million
was 15% better.
HOTELS AND RESORTS
Rooms revenue of R386 million was up 16% on the previous year. The overall
group occupancy of 73% was up 2.1 percentage points and the room rate of R777
was 10% up, due mainly to good growth in the international individual tourist
market, particularly at the Table Bay and Royal Livingstone.
Sun City`s room occupancy of 79% was three percentage points above last year and
the average room rate of R1 016 for the resort was 9% higher.
The Table Bay achieved an occupancy of 70%, up four percentage points, and a
room rate of R1544, which was 11% higher.
The Royal Livingstone and Zambezi Sun in Zambia enjoyed a 75% occupancy, six
percentage points above last year at an average room rate of US$148 (+9%).
MANAGEMENT ACTIVITIES
Management fee income of R278 million was 20% ahead of the previous year,
reflecting the favourable trading conditions enjoyed by the group. EBITDA of
R145 million was up 16%, resulting in an EBITDA margin of 52.2%, marginally
below last year. The reduced margin is the result of increased costs of R23
million associated with investigating various opportunities in Africa, the UK
and Russia (2005 : R12 million).
DEVELOPMENTS
The GrandWest expansion has progressed well and the new smoking prive, external
walkway, ground level of the parkade and new fast food areas were opened to the
public in early December 2006. The project remains in line with the original
programme with the smoking casino due for completion in June 2007 and the arena
in October 2007. The forecast cost of the project has been increased from R425
million to R450 million due to higher building costs, mainly as a result of
increases in raw materials such as steel and copper and a deterioration in the
exchange rate.
The Golden Valley casino at Worcester was completed within the targeted spend of
R150 million. The 183 slot casino has traded satisfactorily and a further R65
million will be spent on a 98 room hotel which will complement the casino
facilities. Construction commenced in February 2007 and will be completed by
the end of the calendar year.
The 118 room Sibaya Lodge was opened in October 2006 and has been well received.
The project was completed at a cost of R80 million.
Construction on the additional 57 rooms at Carnival City commenced in August
2006 and is scheduled for completion in April 2007 at a cost of R50 million.
The phased R200 million Sun City Hotel refurbishment commenced in February 2007
and will be completed in November 2009. The R23 million refurbishment to the
Cabanas rooms is due for completion in the fourth quarter of the current
financial year.
BALANCE SHEET
The offer made by the group to acquire all the issued share capital of RAH
closed on 15 September 2006. Shareholders holding 58.1% of the company accepted
the offer and together with the 12 193 698 RAH shares acquired in the market,
the group now controls 61.5% of RAH. The total consideration paid for the RAH
shares, including costs, amounted to R1 183 million. The excess of the purchase
consideration over net book value of R850 million was taken directly to
reserves.
The group`s borrowings have increased by R1.3 billion since 30 June 2006,
reflecting the RAH transaction and the capital expenditure incurred at
GrandWest, Golden Valley, Sibaya and Carnival City.
The remaining Kerzner International Limited shares were disposed of and realised
R183 million.
Third Party Borrowings 31 December 30 June
R million 2006 2006
SunWest International (Pty) Ltd 392 332
Emfuleni Resorts (Pty) Ltd 140 154
Afrisun KZN (Pty) Ltd 460 473
Meropa Leisure and Entertainment (Pty) 69 69
Ltd
Teemane (Pty) Ltd 49 42
Afrisun Gauteng (Pty) Ltd 245 231
Mangaung Sun (Pty) Ltd 64 95
Worcester Casino (Pty) Ltd 131 -
Central Office 1 923 734
3 473 2 130
Employee Share Trusts 194 196
3 667 2 326
Capital expenditure incurred during the six months:
R million
Expansionary:
GrandWest 140
Golden Valley Casino 101
Sibaya Lodge 32
Carnival City 5
278
Ongoing asset replacement and minor expansions 187
465
CONTINGENT LIABILITY
Shareholders have previously been advised that Afrisun Leisure Investments (Pty)
Ltd (Afrisun) has instituted legal proceedings against Sun International (South
Africa) Limited (SISA). Afrisun seeks to void the transactions entered into
between SISA and Grand Parade Investments Limited (GPI) and between SISA and
Business Venture Investments No. 575 (Pty) Ltd (BVI) in June 2003 and to ask for
certain consequential orders, 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 RAH`s estimated market value of the SunWest
shares in dispute as at June 2003.
The legal claim is proceeding and SISA continues to defend the claim.
DEVELOPMENTS REGARDING SHAREHOLDING IN SUNWEST
Shareholders have previously been advised that the group and SISA have entered
into a revised Memorandum of Understanding with GPI and BVI whereby GPI will
acquire an additional 4% shareholding in SunWest from Sun International for R83
million and be granted an option by SunWest over a further 5% shareholding in
SunWest at a strike price of R165 per share.
The transaction remains subject to the fulfilment of a number of conditions
precedent, including various regulatory and shareholder approvals and the lock-
in of a 35% Western Cape BEE shareholding in GPI until 2012.
It remains the intention of the parties that GPI will ultimately hold a 30%
economic interest in SunWest, and the group will therefore offer a further 2.46%
of the SunWest shares to GPI, at fair value, at a future date.
SHARE BUY BACK
During the six months under review the group repurchased 899 400 shares at an
average price of R102.03. The shares have been delisted from the Johannesburg
Stock Exchange and represented 0.76% of the group`s issued share capital.
OFFSHORE EXPANSION OPPORTUNITIES
Russia
A new gambling dispensation has been introduced in the Russian Federation in
terms of which casinos will only be permitted in four remote zones. In the
event that further zones are legislated, the group will continue to investigate
the potential Moscow region opportunity, together with our Russian partners.
United Kingdom
The single regional casino has been awarded, subject to parliamentary
ratification, to the City of Manchester. The City has indicated that it will
conduct a competitive bid process to appoint a developer and operator for the
casino. The group is awaiting notification of the process and is likely to
proceed with a bid.
Nigeria
Further progress on the opportunity in Lagos has been made at both state and
federal levels and it is anticipated that a decision on this potential
investment is likely to be made during the course of this calendar year.
OUTLOOK
Continued good growth in casino revenues is expected in the second half of the
year and the group`s hotels and resorts should benefit from the ongoing growth
in inbound tourism. As a result, the group expects similar growth in EBITDA
from its operations for the full year. Earnings were however significantly
enhanced in 2006 by an exchange gain of R52 million (47.3 cents per share) which
is not currently anticipated to recur this year and accordingly, growth in
adjusted headline earnings per share for the full year is likely to be below
that achieved in the first six months of the year.
DECLARATION OF INTERIM DIVIDEND
Notice is hereby given that an interim dividend of 185 cents (2005: 135 cents)
per share for the six months ended 31 December 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 interim dividend are as follows:
2007
Last day to trade cum interim dividend Thursday, 15 March
First day to trade ex interim dividend Friday, 16 March
Record date Friday, 23 March
Payment date Monday, 26 March
No share certificates may be dematerialised or rematerialised between Friday, 16
March 2007 and Friday, 23 March 2007, 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 the Central Securities Depository Participant or broker credited
on the payment date.
By order of the board
SA Bailes
Group Secretary
20 February 2007
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: D A Hawton (Chairman), D C Coutts-Trotter (Chief Executive)*, H
Adams, R P Becker*, L Boyd, P L Campher, M P Egan, Dr N N Gwagwa, I N Matthews,
L M Mojela, M V Moosa, D M Nurek, E Oblowitz, G R Rosenthal, P E I Swartz
*Executive
Group income statement
Year
Six months ended ended
31 December 30 June
2006 2005 2006
Unaudited Unaudited Audited
%
R million change
Continuing operations
Revenue 3 380 15 2 943 5 949
Casino 2 594 16 2 232 4 543
Rooms 386 16 334 681
Food, beverage and 400 377 725
other
Other income 84 97 216
Pension fund surplus 142 - -
recognition
Employee costs (661) (610) (1 214)
Levies and VAT on (546) (468) (948)
casino revenues
Depreciation and (253) (235) (473)
amortisation
Promotional and (293) (260) (508)
marketing costs
Other operational costs (716) (667) (1 354)
Impairment of (97) - -
investment
BEE transaction charge - (218) (219)
Operating profit 1 040 582 1 449
Foreign exchange (11) (29) 52
(losses)/profits
Interest income 57 26 74
Interest expense (168) (113) (250)
Profit before taxation 918 466 1 325
Taxation (359) (242) (517)
Profit from continuing 559 224 808
operations
Discontinued operations
Profit from - 380 387
discontinued operations
Profit 559 604 1 195
Attributable to
Minorities 96 135 262
Ordinary shareholders 463 469 933
559 604 1 195
Number of shares
(000`s)
- in issue 104 589 105 805 105 488
- for EPS calculation 105 135 108 167 107 056
- for diluted EPS 107 132 109 564 108 394
calculation
Earnings per share
(cents)
- basic 440 434 872
- headline 503 98 437
Diluted earnings per
share (cents)
- basic 432 428 861
- headline 494 97 431
Dividends declared per 185 37 135 290
share (cents)
Interest cover (times) 6.5 6.1 6.9
Dividend payout (%) 55.4 53.8 53.1
HEADLINE EARNINGS
RECONCILIATION
Profit attributable to 463 469 933
ordinary shareholders
Net loss on disposal 1 4 -
and closure of
operations
Profit on disposal of - (395) (392)
City Lodge
(Profit)/loss on (4) 2 10
disposal and impairment
of property,plant and
equipment
Impairment of 97 - -
investment
Currency translation - - (108)
reserve realised
Taxation relief on the - 27 22
above items
Minority interests in (28) (1) 2
the above items
Headline earnings 529 106 467
SUPPLEMENTARY INFORMATION
Year ended
Six months ended 30 June
31 December
2006 2005 2006
R million Unaudite Unaudited Audited
d
%
change
EBITDA RECONCILIATION
Operating profit 1 040 79 582 1 449
Depreciation and 253 235 473
amortisation
Other income (84) (97) (216)
Pension fund surplus (142) - -
recognition
BEE transaction - 218 219
charge *
Property & equipment 37 31 62
rental
Net losses on - 4 -
disposal and closure
of operations *
Indirect taxes - - (11)
relating to prior
years *
(Profit)/loss on (4) 2 10
disposal and
impairment of
property,plant and
equipment *
Impairment of 97 - -
investment*
Pre-opening expenses* 6 5 13
Reversal of Employee 14 6 16
Share Trusts`
consolidation*
EBITDA 1 217 23 986 2 015
EBITDA margin (%) 36 34 34
ADJUSTED HEADLINE
EARNINGS
RECONCILIATION
Headline earnings 529 106 467
Pre-opening expenses 6 5 13
Realisation of fair (84) (81) (83)
value gains on KZL
shares
Pension fund surplus (142) - -
recognition
Foreign exchange 4 16 (11)
losses/(profits) on
intercompany loans
Fair value - (16) (25)
adjustments on loan
origination
Indirect taxes - - (11)
relating to prior
years
BEE transaction - 218 219
charge
Taxation relief on 53 12 14
the above items
Minority interests in (4) 22 16
the above items
Reversal of Employee 11 2 20
Share Trusts`
consolidation #
Results from - (12) (17)
discontinuing
operations
Adjusted headline 373 37 272 602
earnings
Number of shares
(000`s) #
- in issue 111 031 112 072 111 930
- for adjusted 111 577 108 400 110 218
headline EPS
calculation
- for diluted 113 574 109 797 111 556
adjusted headline EPS
calculation
Earnings per share
(cents)
- adjusted headline 334 251 546
- diluted adjusted 328 32 248 539
headline
# The consolidation of the Employee Share Trusts are reversed as the group does
not receive the economic benefits of the trusts.
Group balance sheet
31 December 30 June
2006 2005 2006
Unaudited Unaudited Audited
R Million
ASSETS
Non current
assets
Property, plant 5 613 5 381 5 407
and equipment
Intangible 372 411 395
assets
Available-for- 208 141 141
sale investment
Pension fund 142 - -
asset
Loans and 194 289 302
receivables
6 529 6 222 6 245
Current assets
Accounts 411 372 325
receivable and
other
Available-for- - 190 183
sale investment
Loans and 5 - 5
receivables
Cash and cash 993 705 756
equivalents
1 409 1 267 1 269
Total assets 7 938 7 489 7 514
EQUITY AND
LIABILITIES
Capital and
reserves
Ordinary 2 291 2 894 3 083
shareholders`
equity
Minorities` 609 768 742
interest
2 900 3 662 3 825
Non current
liabilities
Deferred 425 397 391
taxation
Borrowings 2 461 1 718 1 458
Other non 133 106 125
current
liabilities
3 019 2 221 1 974
Current
liabilities
Accounts payable 813 808 847
and other
Borrowings 1 206 798 868
2 019 1 606 1 715
Total 5 038 3 827 3 689
liabilities
Total equity and 7 938 7 489 7 514
liabilities
Borrowings to 126 69 61
total
shareholders`
equity (%)
Net asset value 21.90 27.35 29.23
per share (Rand)
Capital 465 350 568
expenditure
Capital
commitments
- contracted 471 159 223
- authorised but 506 688 1 053
not contracted
Market value of - 190 223
listed
investments
Directors` 407 499 408
valuation of
unlisted
investments and
loans
Total valuation 407 689 631
of investments
and loans and
available-for-
sale investments
Group cash flow statement
Year
Six months ended ended
31 December 30 June
2006 2005 2006
Unaudited Unaudited Audited
R Million
Cash generated 1 173 959 2 048
by operations
before:
Working capital (76) (34) (6)
changes
Cash generated 1 097 925 2 042
by operations
Taxation paid (381) (348) (598)
Cash retained 716 577 1 444
from operating
activities
Cash utilised in (1 415) (451) (651)
investing
activities
Cash realised 327 256 315
from investing
activities
Net cash 576 (256) (952)
inflow/(outflow)
from financing
activities
Translation (9) (10) 11
(losses)/gains
on cash balances
Cash acquired 42 - -
through
acquisition of
subsidiary
Increase in cash 237 116 167
balances
Consolidated statement of changes in equity
Ordinary Other Retained Minority Total
shares reserves earnings interest
and Note 1
share
premium
R Million
Balances at 30 June 2006 788 (413) 2 708 742 3 825
- Share buy back (92) (92)
- Treasury share options (54) (54)
purchased
- Employee share based 10 10
payments
- Acquisition of minorities (859) (106) (965)
interest
- Profit 463 96 559
- Foreign currency (12) (2) (14)
translation adjustment
- Fair value adjustment (84) (84)
- Dividends paid (164) (121) (285)
Balances at 31 December 2006 642 (1 358) 3 007 609 2 900
Note 1: Included in other
reserves are FCTR, fair value
reserves, share based
payments` reserve and reserve
for non-controlling
interests.
Date: 20/02/2007 15:00:03 Produced by the JSE SENS Department.
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