Sun International: Profit & Dividend Announcement for the six months to 31 December 2008
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Sun International: Profit & Dividend Announcement for the six months to 31 December 2008
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Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2009-02-27
EBITDA stays constant with prior year excepting Chile; Carnival City retains Gauteng market share despite increased competition; Rooms revenue grows 13% despite downturn.
Revenue + 6% Adjusted HEPS - 2% EBITDA - 2%
Sun International has reported a 6% increase in revenue and a 2% decrease in EBITDA for the six months ended 31 December 2008. But for losses at its Monticello operation in Chile, EBITDA would have remained in line with the prior period last year, a satisfactory achievement in the current economic climate.
In light of the funding requirements of Monticello, the deteriorating trading conditions throughout the group and the requirements to fund the group’s casino licence applications for the Wild Coast Sun and Boardwalk, the board has resolved to preserve cash flows and not to declare an interim dividend.
Revenues for the six months to 31 December 2008 were 6% ahead of last year at R4 billion and 3% higher excluding revenue from the new Monticello Grand Casino and Entertainment World in Chile. The group achieved gaming revenue growth of 5% and hospitality and other revenues of 10%. EBITDA of R1.4 billion was 2% down on last year and the EBITDA margin fell 2.6 percentage points to 34%. The margin was impacted by lower than inflation revenue growth, inflation-driven increases in costs in South Africa, together with the losses incurred by Monticello in its opening quarter.
Adjusted headline earnings of R323 million were 5% below last year while diluted adjusted headline earnings per share of 334 cents was 2% below last year.
The prior year results include a BEE transaction charge of R182 million which recognised the difference between the price at which Grand Parade Investments was granted an option over 5% of the equity in SunWest International and the estimated fair value.
The weakening of the SA Rand during the period, partially offset by foreign exchange losses in Chile, resulted in a net exchange profit of R65 million, compared with a loss of R22 million last year.
The group’s net interest charge increased by R75 million to R321 million. The higher interest charge results from higher rates compared to last year as well as the additional funding costs associated with the expansion of GrandWest, Carnival City and the Monticello project.
Tax at R327 million was 7% below the comparable period. The overall effective tax rate however remained high in the period mainly as a result of the non deductibility of preference share dividends, higher STC charges due to the timing of dividend payments and the losses incurred by Monticello with no commensurate tax relief.
Sun International CEO David Coutts-Trotter said that comparable gaming revenue improved by 2% on last year and that the slower rate of growth was due to declining disposable incomes and consumer confidence.
“GrandWest in Cape Town and Boardwalk in Port Elizabeth experienced particularly difficult trading conditions due to economic conditions in their specific local markets. Given deteriorating revenues, cost containments have been particularly focused at these operations. GrandWest revenue was 4% below last year and EBITDA down 6% at R343 million. The EBITDA margin declined marginally to 40.8%. Boardwalk experienced a decline in revenues and EBITDA of 6% to R217 million and 4% to R89 million respectively with the EBITDA margin improving marginally to 41%.
“Carnival City achieved revenue growth of 6%, EBITDA grew 9% to R180 million with margins improving to 35% (34%). The group’s share of the Gauteng market remained in line with the comparable period in the previous year. This was a significant achievement given the opening of the seventh Gauteng casino in December 2007.
“Sibaya achieved revenues of R402 million and EBITDA of R142 million, 3% ahead and in line with last year respectively. The EBITDA margin of 35.3% was 0.9 percentage points lower. The overall KwaZulu-Natal market grew by 7% and Sibaya’s share of the market at 35% was one percentage point below comparable period in the prior year.”
Rooms revenue was up 13% to R474 million. An overall group occupancy of 77% (80%) was achieved, and the average room rate improved 14% due to higher higher yields and Zambia benefiting from favourable exchange rates.
Sun City’s room occupancy of 81% was 3 percentage points below last year with the average room rate 12% ahead. The resort generated an EBITDA 9% lower at R89 million due to additional costs relating to the Million Dollar Poker and Miss SA events, which costs are unlikely to recur. The Table Bay achieved occupancy of 69% (72%) for the period, with the average room rate being 17% ahead of the previous year. This resulted in overall revenue growth of 12% and EBITDA growth of 6% to R33 million. Costs were significantly impacted by higher property taxes.
The Royal Livingstone and Zambezi Sun achieved an average occupancy of 71% (79%) at an average room rate of US$178, 5% ahead of last year. Total revenue was up 29% in ZAR but flat in US$. Trading conditions were relatively buoyant in Botswana and consequently a strong improvement in revenues and margins was achieved.
Management fee and related income of R337 million was up 3%, reflecting difficult trading conditions. EBITDA of R190 million was in line with the previous year, assisted by lower project investigation costs of R9.3 million (R16.1 million).
The phased Sun City Main Hotel refurbishment had been completed by November 2008 at a total cost of R260 million, including the cost of replacing infrastructural items.
The group’s borrowings have increased since June 2008 by R1.3 billion to R7.4 billion, mainly as a result of the Monticello development being consolidated from 20 August 2008 and further expenditure on this project. Capital expenditure incurred during the six months amounted to R833 million, R577 million of which was the spend from the date of consolidation (20 August) on Monticello.
Construction of the US$236 million Monticello Casino and Entertainment World, located south of Santiago in Chile, is progressing. The casino (1500 slot machines and 80 tables) opened to the public in October 2008 while the retail and entertainment components are scheduled for completion at the end of May and the hotel in August. Given the current economic climate in Chile, it will be necessary to assist with the funding of certain concessionaires in respect of the fast food and children’s entertainment areas which will marginally increase projected capital expenditure.
The casino opened as required by the licence and has been operating in the midst of an active construction site, which has affected trading. However, there has been strong support for the MVG customer loyalty programme and management is confident that once all the ancillary facilities are open, visitor numbers and revenues will improve significantly.
The 150-room Federal Palace Hotel opened in August 2008 following a US$10 million upgrade. The gaming laws in Lagos have been promulgated and the licence to operate a casino is now available. Due to current economic conditions, the previously planned US$167 million refurbishment of the Federal Palace Towers hotel and the development of a permanent casino will be delayed and in the interim, the group intends operating both the refurbished five star Federal Palace Hotel and the marginally upgraded three star Federal Palace Towers hotel and constructing a temporary casino in the Federal Palace Hotel at an estimated cost of US$17 million.
Sun International will invest US$28 million in acquiring a 49.5% interest in the company which owns and operates the development. The revised project expenditure of US$24 million and certain once off restructuring costs of US$8 million will be funded through the capital raised and a further U$5 million loan from the group.
The Wild Coast Sun’s casino licence expires in August 2009. The group has submitted an application for a new licence to the Eastern Cape Gambling and Betting Board and the final determination remains outstanding. The bid proposal includes a R340 million upgrade and an enhancement to the resort.
The Boardwalk’s casino licence in Zone 1 of the Eastern Cape expires in October 2010. A bid for a new casino licence was submitted on 30 January 2009 and includes plans for a five star hotel and conference centre, expanded gaming facilities and covered parking at an estimated cost of R1 billion. The announcement of the preferred bidder is expected in August 2009.
Trading at the group’s gaming operations is expected to remain subdued, while global economic conditions will negatively impact hotels and resorts in the second half of the financial year.
“The group will benefit from declining interest rates, although this is not expected to offset the higher interest charges arising from the Monticello project. In addition, the extent of foreign exchange gains generated in the second half of the prior year is unlikely to recur.
“As a consequence, adjusted headline earnings per share for the full year are expected to be below that achieved for 2008.
“The board is committed to ensuring that the group has the appropriate capacity to fund future opportunities and will consequently review the final dividend in light of conditions prevailing at the time.”
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