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FINANCE: Sun International See Improved Trading Conditions for Gaming


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Revenue +9% EBITDA +5%

Adjusted HEPS +1% Interim dividend 80 cps

Leading gaming and leisure group Sun International has reported a 9% increase in revenue and a 5% decrease in EBITDA for the six months ended 31 December 2010. An interim dividend of 80 cents per share was declared.

Revenue for the period was 9% up to R4.5 billion, and comparable revenue (excluding the Federal Palace in Nigeria) was 8% higher.

EBITDA of R1.3 billion for the six months was 5% higher than last year with the EBITDA margin declining 1.2 percentage points to 28.3%. The lower margin is due to certain cost increases being ahead of inflation (particularly wages and property costs such as rates, taxes and utilities).

Adjusted headline earnings of R220 million and diluted adjusted headline earnings per share of 215 cents are 2% and 1% above last year respectively. Excluding the impact of foreign exchange movements, adjusted headline earnings increased by 13% on last year.

The results include a charge of R75 million in terms of IFRS 2 – Share Based Payments, which results from an extension to an option previously granted to the minority shareholders to subscribe for their portion of the additional capital contributed to SFI Resorts SA (Monticello).

The strengthening of the Rand and Chilean Peso against the US Dollar resulted in a foreign exchange loss of R79 million (2009: - R16 million). Net interest paid decreased by 8% to R243 million as a result of lower interest rates.

Tax of R233 million increased by 27% due to the tax refund 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 was 34% (2009: 35%).

Sun International CEO David Coutts-Trotter said that trading conditions in the group's casinos had generally stabilised and that demand for gaming had improved in certain locations lifting gaming revenues by 8% to R3.5 billion, with slots revenue at R2.9 billion and tables revenue at R0.6 billion, 9% and 6% ahead of last year respectively.

GrandWest’s revenue was R832 million (6%) and EBITDA was R313 million (3%). The EBITDA margin declined 0.9 percentage points to 37.6%.Carnival City achieved revenue of R488 million, an increase of 3% from last year. EBITDA was in line with last year at R142 million resulting in the EBITDA margin declining 0.9 percentage points to 29.1%. The Group’s share (Carnival City and Morula) of the Gauteng market declined 0.1 percentage point to 20.3%.

Sibaya revenue increased 6% to R449 million while EBITDA was unchanged at R150 million. The EBITDA margin of 33.4% was 1.8 percentage points below last year. Sibaya’s share of the Kwazulu-Natal market was in line with last year at 35.2%. Boardwalk revenue and EBITDA was 11% and 14% ahead of last year at R225 million and R85 million respectively. This resulted in the EBITDA margin increasing 0.9 percentage points to 37.9%.

Revenues at Monticello increased 30% to R512 million whilst EBITDA increased 85% to R67 million reflecting in an improvement in the EBITDA margin of 3.9 percentage points to 13.1%. Costs were impacted to an extent by a strike that lasted for a month during the period.

Rooms revenue at R465 million was 14% ahead of last year (7% excluding the Federal Palace). Group occupancy of 66.9% was 3.2 percentage points lower than last year although average room rates increased by 9% to R897. The decline in occupancies was primarily a result of weaker demand from international markets.

Sun City’s revenue grew 8% to R628 million. Occupancy was stable at 71% and the average room rate was 9% ahead of last year at R1 290. EBITDA was 10% ahead of last year at R74 million with the EBITDA margin 0.2 percentage points ahead of last year at 11.8%.

The Table Bay achieved an 18% increase in average room rate to R2 230. However occupancies declined by 10 percentage points to 44% due to a decline in demand primarily from the markets of the United States and United Kingdom and increased rooms inventory in Cape Town. EBITDA declined by 17% as a result.

The Royal Livingstone and Zambezi Sun achieved an aggregate occupancy of 45% (54%) at an average room rate of US$197, a 7% decline against last year. EBITDA in US dollars was 5% below last year.

Revenue from Botswana was 2% ahead of last year at R83 million. EBITDA was 4% ahead of last year at R26 million resulting in a 0.5 percentage point increase in the EBITDA margin to 31.8%. The Federal Palace in Nigeria generated revenue of R69 million at a 55% occupancy and an average room rate of $256. EBITDA was R4 million with an EBITDA margin of 5.4%.

Management fees and related income of R304 million was 2% higher than last year. EBITDA increased by 5% to R174 million.

The group’s borrowings at 31 December 2010 decreased by R56 million to R6.2 billion from 30 June 2010.

Capital expenditure during the six month period was R481 million, with expansions accounting for R89 million, refurbishments for R140 million and other ongoing asset replacement for R252 million.

The second phase of the Wild Coast Sun refurbishment project was completed in December 2010, with the third phase is now under way. The total estimated capital expenditure remains at R400 million with final completion scheduled for mid-2012. The new salon prive at Windmill Casino in Bloemfontein was completed in November 2010 at a cost of R30 million. The refurbishment of the Kalahari Sands' 173 rooms, restaurant and kitchen will be completed by April 2011 at an estimated cost of R89 million.

During the period, the Eastern Cape Gambling and Betting Board awarded the 15-year gaming licence in Port Elizabeth to Emfuleni Resorts. Boardwalk’s R1-billion expansion has commenced and is targeted for completion by December 2012. This includes the conversion of the existing conference centre into a new smoking casino and a new structure which will accommodate a three level parkade with 870 undercover parking bays, a 135 room five star hotel with the requisite facilities and an international standard conference centre.

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 existing casino licence holders in the Western Cape to relocate to the Cape Metropole and has engaged interested stakeholders before taking a final decision. Sufficient information to assess the potential impacts on GrandWest's revenue and profitability remains unavailable.

Negotiations are still in progress regarding the possible restructuring of Sun International’s and GPI’s common interests in certain Sun International subsidiaries and a further announcement in this respect will be made in due course.

Coutts-Trotter said: “we anticipate that hospitality revenues will remain soft for the rest of the financial year. Gaming revenues have stabilized and are showing signs of improvement at certain units. Monticello and the Federal Palace continue to increase their contribution to the group’s results.

“Growth in adjusted headline earnings per share for the full year (excluding foreign exchange earnings) is anticipated, although this is likely to be below that achieved for the first half.”


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