Sun International looks forward to good growth (South Africa)

(source: iafrica August 28, 2006)

Sun International looks forward to good growth
Johannesburg, South Africa 28 August 2006

South African hotel and gaming group Sun International on Monday reported adjusted headline earnings per share (HEPS) of 546c for the year ended June — up 33% from the previous year’s 411c. Its full year diluted HEPS declined to 431c from 500 cents before.

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) (Sisa) minorities during the course of the previous year, diluted adjusted headline earnings per share of 539c were 33% ahead of last year.

The group declared a final dividend of 155c compared with 110c before, making a total dividend of 290c — 45% ahead of last year.

Group revenue — at R5,9-billion — was 16% up on the previous year, while operating profit rose to R1,5-billion from R1,4-billion before. Attributable profit rose to R1,2-billion from R884-million before.

Chief Executive David Coutts-Trotter said that improved levels of disposable income and the relatively stable economic environment benefited customers and this, together with product innovation, had resulted in sustained growth in gaming revenues over the previous year.

Gaming revenue was 18% ahead of last year at R4,5-billion, with both slots and tables showing similar levels of growth. The group enjoyed a buoyant Easter and trading in June had been exceptionally strong, it said.

Strong revenue growth was also the result of an excellent performance from the group’s new Windmill casino in Bloemfontein that opened in September 2005. GrandWest reported a strong performance with revenue rising by 17% to R1,4-billion and Carnival City performed well and maintained its market share at 19% of the Gauteng market.

Sibaya grew revenues 21% for its first full year of trading and improved its overall share of the KwaZulu-Natal market by 1,2 percentage points to 35,5%, while Boardwalk grew revenue 15%.

Resort and other revenues grew 10% for the year, with rooms revenue of R681-million — up 9% on a year ago. Group occupancy of 71% was 2,3 percentage points ahead of last year and the room rate improved 5%.

Sun City’s room occupancy of 75% was in line with last year, while the average room rate of R977 was 5% up. Occupancy at The Table Bay was 70% (63%), with the average room rate of R1 409 rand — up 4%. The higher occupancy was a result of a significant improvement in international incentive volumes and successful local leisure campaigns in the low season, it said.

Occupancy at The Royal Livingstone and Zambezi Sun resort was 68% (62%), with a 6% increase in room rate to $139. Room revenue was 16% ahead in United States dollar terms, with much of the growth attributable to further growth in international visitors.

The group said 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 fee income increased 26% to R482-million, reflecting higher revenues and improved profitability and margins within the group.

Costs of R28-million were incurred in respect of prospecting opportunities in the United Kingdom and Europe, Asia and Africa, it said.

The R425-million GrandWest expansion, which will increase the total number of slot machines from 1, 846 to 2 500, commenced in the last quarter. 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 118-room, R83-million Sibaya Lodge will open during October 2006, it said.

Capital commitments of R1,3-billion rand include the completion of the Sibaya Lodge (R49-million), the forecast spend on GrandWest (R409-million) and completion of the Golden Valley Casino and hotel (R168-million).

An additional 57 hotel rooms and guest parking will be built at Carnival City at a cost of R50-million, while a three-year major refurbishment at the Sun City main hotel and the rooms at the Cabanas will commence shortly at a cost of approximately R200-million.

Coutts-Trotter confirmed that the dispute with the South African Revenue Service relating to the deductibility of pre-opening expenditure had been resolved with no material impact on the group’s overall tax liability.

With regard to the Afrisun Leisure legal claim against the group in respect of the 2003 sale of shares by the group to Grand Parade Investments (GPI), Coutts-Trotter said that the group intended to defend the merits of the claim and was of the view that the basis on which Afrisun Leisure had quantified its alleged damages claim was fundamentally flawed.

The group also confirmed that it had entered into a revised in-principle agreement with GPI whereby GPI will acquire an additional 4% shareholding in SunWest 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 that GPI will ultimately hold a 30% economic interest in SunWest. The group will therefore offer GPI a further 2,46% of the SunWest shares at fair value at a future date.

Subsequent to the year-end, the group increased its offer to acquire the RAH shares from the shareholders of RAH to 530c per share, and that the offer closing date had been revised to September 15 2006.

As at August 28, shareholders representing 53% of the RAH shares in issue had accepted the offer, and the group now owns 55% of the RAH shares, it said.

Looking ahead, Coutts-Trotter said that GDP growth was anticipated to remain healthy and that this should sustain real growth in disposable income. Additionally, continued growth in inbound tourism was also anticipated. Accordingly, the group expects good growth in earnings for both gaming and resorts in the coming year.

He said that Sun International intended to continue to increase the level of dividends at a rate in excess of the earnings growth rate. — I-Net Bridge

Date Posted: 28-Aug-2006