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BUSINESS: Tough Trading Environment Continues

 





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Gaming and leisure group Sun International has reported a 2% increase in revenue and an 11% decrease in EBITDA for the six months ended 31 December 2009. Given trading conditions remaining uncertain in the near term and a continued focus on cash flows and strengthening the balance sheet, no interim dividend was declared.

Revenue for the six months was 2% ahead of last year at R4.1 billion, although comparable revenue (excluding Monticello in Chile) was 5% lower. Gaming revenue grew by 5% while rooms revenue was 14% lower than last year.

EBITDA of R1.2 billion for the six months was down 11% and the EBITDA margin declined 4.5 percentage points to 29.5% due to lower revenue and inflationary increases in operating costs, together with the impact of the lower margins at Monticello. Excluding Monticello, the EBITDA margin was 31.6% (35.4%).

Adjusted headline earnings of R215 million and diluted adjusted headline earnings per share of 213 cents were 33% and 36% below last year respectively.

The strengthening of the Rand and Chilean Peso against the US Dollar resulted in a foreign exchange loss of R16 million compared to a gain of R65 million last year. Net interest paid decreased by R58 million to R263 million, an 18% reduction over last year. This was the result of lower interest rates, although these were partly offset by the additional funding costs of Monticello.

Sun International CEO David Coutts-Trotter said that continuing pressure on consumer disposable income had caused a drop in comparable gaming revenue of 3%. GrandWest and Boardwalk continued to experience difficult trading conditions.

“Monticello’s revenue is showing good growth from quarter to quarter, with a 13% increase in the second quarter ending 31 December 2009 compared to the previous quarter. EBITDA of R36 million was achieved for the six months compared to a loss of R23 million last year.”

Rooms revenue of R409 million declined by 14% over last year with overall group occupancy of 70% (77%) and an average room rate of R824, a decline of 9% on last year. The occupancy decline is due to weaker demand from international markets and the groups and conventions sector, which severely impacted Sun City. Local markets have also shown a decline although not as high as their international counterparts.

Sun City’s room occupancy was 71% (81%) while the average room rate was 3% below last year at R1 188. EBITDA at R68 million declined by 24%. The lower EBITDA was primarily the result of increased indirect costs (including the cost of additional security), increased energy costs and various maintenance initiatives to improve standards.

The group’s borrowings were marginally lower than at 30 June 2009 at R6.3 billion. Capital expenditure during the past six months amounted to R517 million of which about half was on Monticello and expansion at Sibaya. Refurbishments at Lesotho and the Wild Coast Sun had also been undertaken during the six months.

Looking at new developments, Coutts-Trotter said that following the renewal of the casino licence for the Wild Coast Sun, the upgrade and enhancement of the property had commenced. The upgrade and expansion of the casino floor was completed in December 2009 and the rooms refurbishment commenced in January 2010 and will be completed by mid-2012.

The main components of the R140 million refurbishment of the Lesotho Sun hotel, casino and conference facility was completed in early December 2009.

Looking ahead, Coutts-Trotter said that trading conditions are stabilising and some growth in revenue is forecast for the remainder of the year in part due to the anticipated benefits of the 2010 World Cup.

“The expected improved revenue performance, lower interest costs and non-recurrence of the significant foreign exchange movements that occurred in the first half are anticipated to result in an improved earnings performance in the second half. Headline earnings per share for the full year however will be below last year.”


 
 
 
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