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Sun International posts solid performance

21 Oct 2011

JOHANNESBURG, South Africa -- (PRESS RELEASE) -- Despite a difficult and challenging trading environment, leisure group Sun International has reported a 12% increase in revenue and an increase of 1% in EBITDA for the year to 30 June 2011.

Group revenue increased to R8.9 billion (+12%) while comparable revenue (excluding the Federal Palace and adjusting Monticello Grand Casino for the business interruption in 2010) was 5% ahead of the previous year. Casino revenue was 12% ahead of last year at R7 billion, while comparable casino revenue increased by 7% compared to the previous year. EBITDA increased by 1% to R2.6 billion while the EBITDA margin declined 3 percentage points to 29%. Excluding the results of Monticello Grand Casino and the Federal Palace, the EBITDA margin was 33% compared to 36% in the previous year.

Given the group’s performance and strong cash generation, the board has declared a final dividend of 120 cents per share.

Adjusted headline earnings increased by 1% to R512 million, while diluted adjusted headline earnings per share of 504 cents was also 1% higher than last year.

CE David Coutts-Trotter said that in general, average visits and spend per customer had marginally increased compared to the previous year but added that South African customers continued to feel economic pressure.

“We are continuing to invest in the expansion of the business as evidenced by the developments at the Wild Coast and Boardwalk. Capital expenditure was R924 million in the year under review and included a new Salon Prive at Windmill, commencement of the Boardwalk expansion, refurbishments at Wild Coast Sun and Kalahari Sands and other ongoing asset replacement.”

Borrowings decreased by R380 million to R5.9 billion. A further major investment in the future is the replacement of the group’s enterprise gaming system, which will commence in the year ahead and take two years to implement across all the group’s units.

Fluctuations in the Rand, Chilean Peso and Nigerian Naira against the US Dollar during the year resulted in a net foreign exchange loss of R66 million compared to a R15 million loss last year. Tax at R515 million increased by 15% in comparison to last year as a result of the refund received in the prior year. The effective tax rate excluding the minority equity option charge, non-deductible preference share dividends, STC, CGT and prior year over-provisions remained at 36%.

GrandWest continued to feel the effects of a depressed regional economy and achieved revenue of R1 652 million and EBITDA of R625 million, which were 4% and 2% ahead of last year respectively. The EBITDA margin declined 1 percentage point to 38%.

Carnival City’s revenue increased by 1% to R973 million while EBITDA declined by 3% to R295 million, reflecting the weak Gauteng market. This resulted in an EBITDA margin of 30% which was 1% percentage point below last year. Carnival City’s market share declined marginally from 16.4% last year to 16.3% in the current year, while the group’s share of the Gauteng market for the year declined from 20.6% to 20.4%.

Sibaya performed satisfactorily, increasing revenue by 6% to R904 million. EBITDA of R310 million was 5% ahead of last year, while the EBITDA margin declined by 1 percentage point to 34%. Sibaya’s share of the KwaZulu-Natal market at 35.5% was in line with the previous year.

“Our Monticello business has performed very well. Despite increased competition from our competitor in Rinconada, we have grown the business and achieved pleasing results, benefiting from a relatively strong Chilean economy and further growth in the propensity to gamble within the region. Management has been focused both on customer acquisition and retention, and there has been a considerable effort in managing costs to improve margins. Revenue increased by 21% to R1 064 million over estimated revenues for 2010 (based on eight months of actual revenues and four months of insurance claim). EBITDA of R156 million increased by 58% in comparison to last year and as a result the EBITDA margin increased by 3 percentage points to 15%”.

Boardwalk’s revenue increased by 4% to R429 million and EBITDA by 1% to R162 million. The EBITDA margin declined 1 percentage point to 38%.

Demand for hotel accommodation remained weak globally as well as in South Africa particularly in the luxury end of the market where the group is predominantly positioned. In light of this, the group’s performance was reasonable, with rooms revenue of R904 million, up 5% from last year in part due to the full tear trading of the Federal Palace. Overall group occupancy was down 1 percentage point at 66% and the average room rate of R912 was 2% ahead of last year.

Sun City’s room occupancy was 3 percentage points lower at 66% while the average room rate was in line with last year at R1 322. EBITDA declined by 10% to R155 million. The lower EBITDA was primarily the result of stagnant occupancies, higher casino promotional costs and increased property and energy costs.

The Table Bay achieved occupancy of 48% from 53% and the average room rate increased marginally in the current year to R2 060. As a result, EBITDA declined by 23% to R27 million.

The Royal Livingstone and Zambezi Sun achieved an aggregate occupancy of 45% (49%) at an average room rate of US$198, a 5% increase compared to last year. In US dollars, EBITDA was 13% above the previous year.

The Botswana operations achieved revenue of R164 million and EBITDA of R49 million, which was 5% and 2% above last year respectively.

The Federal Palace generated revenue of R149 million and EBITDA of R10 million for the current year. Occupancies of 63% were achieved at an average room rate of US$256. The gaming revenue for the year was R49 million.

Management fees and related income of R612 million was 1% above last year, while EBITDA of R332 million was in line with last year.

Looking to expansions and refurbishments, the second phase of the Wild Coast refurbishment project, completed in December 2010, took the total complement of refurbished rooms to 111. The third phase commenced in January 2011, comprising not only the refurbishment of an additional 182 bedrooms, the convention centre, and main kitchen, but also the construction of a world class waterpark. The total estimated capital expenditure remains at R400 million with final completion scheduled for mid-2012.

At Kalahari Sands, the refurbishment of 173 hotel rooms, the buffet restaurant, kitchen, and back of house areas was completed during the year. The total capital expenditure was R89 million.

The expansion of the Boardwalk commenced in November 2010. The construction of the 870 bay parkade, new conference centre and 135 room, luxury five star hotel is underway with an estimated completion date of December 2012. The conversion of the existing conference centre into the new smoking casino is well underway with an anticipated opening in December 2011. An estimated R595 million will be spent in the 2012 financial year, and the balance of R272 million thereafter.

A significant refurbishment is planned for the Royal Livingstone over the next year.

GrandWest’s initial 10-year casino exclusivity in the Cape Metropole expired during December 2010. The Provincial Government of the Western Cape is still considering whether to permit one of the casino licence holders in the Western Cape to relocate to the Cape Metropole and has engaged interested stakeholders before taking a final decision. There remains insufficient information to assess the potential impact on GrandWest’s revenue and profitability.

The transaction to restructure Sun International’s and GPI’s common interest was approved by Sun International shareholders on 26 August 2011 but remains subject to regulatory and GPI shareholder approvals.

Looking ahead, Coutts-Trotter said the economic environment impacting the group remains generally negative globally and in South Africa, hence hospitality and gaming revenues are only expected to improve marginally in the year ahead. Margins are likely to stabilise and growth in adjusted headline earnings per share is consequently anticipated for the year ahead.

“We continue to make significant investments in human capital development initiatives, our systems and the refurbishment of our properties. The group has a passionate and motivated team to take us forward into the new year.”

“We are actively pursuing further growth opportunities in our current markets and other emerging markets.”

Bridgette Modise has been appointed as an independent non-executive director and Kelebogile Mazwai, the group’s Human Resources Director, has been appointed as an executive director.
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