Wrap Text
GDF - Gold Reef - Reviewed financial results for the year ended 31 December 2008
("the year")
Gold Reef Resorts Limited
("Gold Reef" or "the Company")
(Registration number 1989/002108/06)
Share Code: GDF
ISIN Code: ZAE000028338
REVIEWED FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008 ("the year")
- Revenue up 29,1%
- Adjusted EBITDAR up 18,3%
- Adjusted headline earnings up 3,9%
- Ordinary dividend of 65 cents per share maintained
Steven Joffe, CEO of Gold Reef Resorts commented:
"Our overall performance has been impacted by weaker consumer spend with our
revenue mix changing and trading volumes contracting in line with the
deteriorating economic environment. This, however, has been partially offset by
the opening of a new casino.
Silverstar Casino made a pleasing contribution to revenue and profit in its
first full year of operation and broadens our participation in the Gauteng
gaming market. The inclusion of Silverstar in our portfolio has also reduced our
dependence on Gold Reef City in our overall revenue and EBITDAR mix.
As anticipated, the increased number of shares in issue following the share
exchange and top-up transactions in 2007 continued to impact our per share
performance though at a reducing rate as contributions from these underlying
operations improve over time.
Looking forward, we expect inflation to moderate and interest rates to continue
declining. We enjoy strong cash flow generation and our businesses are
appropriately geared without onerous debt requirements.
Continuing efforts to grow revenue and protect margin will underpin earnings
growth, benefiting from a reduction in gearing."
Enquiries
Gold Reef Resorts 011 248 6800
Steven Joffe 011 248 6817
Jarrod Friedman 011 248 6823
College Hill 011 447 3030
Johannes van Niekerk 082 921 9110
Ashleigh Dubbelman 082 815 1844
COMMENTARY
Introduction
Following Silverstar Casino`s first full year of trading, total revenue for the
Group increased by 29,1% to R2,2 billion from a restated R1,7 billion in the
prior comparative period. Adjusted earnings before interest, tax, depreciation,
amortisation and rentals ("EBITDAR") increased 18,3% to R904 million with the
margin deteriorating slightly to 41,1%. In response to the challenging operating
environment, focus had been directed to controlling costs in order to preserve
margins.
Net finance costs increased from R23 million in the prior period to R134 million
in 2008, primarily due to increased borrowings to fund property developments.
During the year under review a total of R445 million was spent on capital
expenditure resulting in depreciation and amortisation increasing to R161
million for 2008.
The 69,2 million ordinary shares issued by Gold Reef for the share exchange and
top-up transaction, effective 1 July 2007, afforded Gold Reef full control over
cash flows from material subsidiaries but with a dilutionary effect on earnings
per share ("EPS") and headline earnings per share ("HEPS"), as expected. Future
dilution will reduce with growth in contributions from these underlying
operations.
The current status of BEE ownership in Gold Reef is being reviewed by the
various gaming boards following the Tsogo Sun acquisition as described in more
detail in the Black Economic Empowerment paragraph below.
Basis of Preparation
These reviewed condensed consolidated provisional financial results have been
prepared in accordance with IAS34 - Interim Financial Reporting, AC500 Standards
as issued by the Accounting Practices Board and the requirements of the South
African Companies Act, 1973. The accounting policies are consistent with
International Financial Reporting Standards as well as those applied in the most
recent audited annual financial statements as at 31 December 2007, save for the
early adoption of IFRIC 13 - Customer Loyalty Programmes. IFRIC 13 is only
required for periods beginning on or after 1 July 2008 but Gold Reef has elected
to amend its accounting policies in accordance with IFRIC 13, effective 1
January 2008. Gold Reef now deducts the cost of customer loyalty points from net
gaming win rather than including this cost in promotional and marketing costs.
Comparatives for 2007 have been restated accordingly.
In line with IAS18 - Revenue, the Group has amended the accounting treatment
applied to promotional allowances for complimentary beverages, meals and
accommodation. The revenue and related expenses previously recognised as part of
food and beverage and hotel revenue are now eliminated against the corresponding
promotional costs recognised in gaming expenses. The 2007 comparatives have been
restated accordingly.
Had the above restatements not been made, revenue would have been R2,3 billion,
30,4% higher than the 2007 comparative period. These restatements have had no
effect on EPS, HEPS or EBITDAR. These condensed consolidated provisional
financial results have been reviewed by the Company`s auditors
PricewaterhouseCoopers Inc. and their unmodified review opinion is available for
inspection at the Company`s registered office.
Corporate activity
Black Economic Empowerment
Tsogo Sun has recently acquired a 23,0% stake in the Company from various BEE
shareholders and on the market.
The Board of Gold Reef is concerned that it`s empowerment status has been
compromised as Tsogo Sun is, on a pure flow through principle, less than 50%
black owned. Accordingly, the Board of Gold Reef has petitioned the gaming
boards to confirm that the various empowerment commitments relating to
shareholding specified in the Group`s various gaming licenses remain adequate
after the Tsogo Sun acquisition.
Securities Regulation Panel ("SRP")
On 14 April 2008 the SRP released the reasons for the ruling handed down on 1
February 2008. Based on legal advice the Company has launched review proceedings
in the High Court to obtain an order reviewing, correcting or setting aside the
decision of the SRP.
Financial Results
Consolidated Results
For the 12 months ended 31 December 2008, the Group reported a 29,1% increase in
revenue to R2,2 billion from the restated R1,7 billion in the previous year. The
increase was primarily due to the inclusion of Silverstar Casino, which opened
in December 2007. Net gaming win increased 30,4% to R2,0 billion while food and
beverage revenue increased 52,4% to R32 million from the 2007 restated amount.
EBITDAR for the year increased by 52,2% to R886 million from R582 million in the
prior comparative period. HEPS increased 69,8% to 130,3 cents compared to 76,7
cents for the previous year.
In order to better compare year on year operational growth, adjustments have
been made to EBITDAR and HEPS to eliminate once-off charges relating to pre-
opening expenses at Silverstar and Queens casinos, costs relating to corporate
activity and various non-recurring items.
Adjusted EBITDAR of R904 million increased 18,3% when compared to the prior
comparative period and represented a 41,1% margin on revenue. Adjusted HEPS for
2008 was 136,5 cents, representing a decrease of 9,4%.
Net Group debt increased by R120 million to R1,25 billion which represents a 1,4
multiple of EBITDAR. In order to protect the Company`s earnings from increases
in interest rates, the Group has hedged most of its debt. This resulted in a
saving of R34 million in finance costs for the year.
SEGMENTAL ANALYSIS
Revenue Revenue Revenue Adjusted Adjusted Adjusted
EBITDAR EBITDAR EBITDAR
2008 2007
2008 2007
Rm Rm % Rm Rm %
Gold Reef City Casino 990 994 (0,4) 376 420 (10,5)
Gold Reef City Theme 67 67 - 2 * -
Park
Silverstar Casino 510 25 1 940,0 191 8 2 287,5
Golden Horse Casino 244 226 8,0 110 110 -
Mykonos Casino 112 116 (3,4) 48 54 (11,1)
Garden Route Casino 164 166 (1,2) 80 84 (4,8)
Goldfields Casino 118 108 9,3 53 50 6,0
Queens Casino+ 46 1 4 500,0 7 * -
Gold Reef Management 61 70 (12,9) 16 16 -
Gold Reef Resorts - - - 247 63 292,1
Consolidation and (115) (71) (226) (41)
other group
companies>
2 197 1 702 29,1 904 764 18,3
SEGMENTAL ANALYSIS (CONTINUED)
Adjusted Adjusted CAPEX CAPEX
EBITDAR EBITDAR
Margin Margin
2008 2007 2008 2007
% % Rm Rm
Gold Reef City Casino 38,0 42,3 87 209
Gold Reef City Theme 3,0 - 20 26
Park
Silverstar Casino < 37,5 32,0 282 759
Golden Horse Casino 45,1 48,7 33 16
Mykonos Casino 42,9 46,6 10 4
Garden Route Casino 48,8 50,6 3 11
Goldfields Casino 44,9 46,3 10 45
Queens Casino+ 15,2 - 31 93
Gold Reef Management 26,2 22,9 * *
Gold Reef Resorts - *
Consolidation and (31) (92)
other group
companies>
41,1 44,9 445 1 071
* Amount less than R1 million.
Revenue figures have been restated for the effects of customer loyalty points
in terms of IFRIC 13 as well as the elimination of inter-departmental charges in
terms of IAS 18 - Revenue. For further disclosure regarding these adjustments,
please refer to the "Basis of Preparation" section in the Commentary.
< The large increases in Revenue and Adjusted EBITDAR are due to the fact that
Silverstar Casino traded for a full 12 month period in 2008 whereas in the
comparative period, trading only commenced on 11 December 2007.
+ The large increases in Revenue and Adjusted EBITDAR are due to the fact that
Queens Casino traded for a full 12 month period in 2008 whereas in the
comparative period, trading only commenced on 21 December 2007.
> Included in "Consolidation and other group companies" is the elimination of
Queens Casino`s results due to it being equity accounted.
Operations
Gauteng
The Gauteng gaming market grew 7,8% in the year under review. The opening of
Silverstar Casino, which achieved an 8,5% market share for the year to 31
December 2008, has broadened the Group`s overall participation in this market
and reduced its dependency on Gold Reef City. As a result, Gold Reef has managed
to grow its share of the Gauteng market to 24,5%.
Continuing efforts to consolidate joint opportunities in the Gauteng market, as
well as individually in their respective target markets, will position both Gold
Reef City and Silverstar Casino for optimal growth going forward.
Gold Reef City
Revenue declined by 0,4% to R990 million with footfall 4,3% down. Adjusted
EBITDAR decreased by 10,5% to R376 million, impacted by increased costs driven
by higher inflation. Adjusted EBITDAR represented a margin of 38,0% on revenue.
The theatre incurred a loss of R21 million on worse than expected attendance
figures, impacted by a deteriorating economy. Changes have been made to the
production mix aimed at reducing this loss.
Theme Park Adjusted EBITDAR increased to R2 million on revenue of R67 million,
notwithstanding negative economic conditions exacerbated by unusually heavy
rainfall, which impacted footfall. Revenue for December was buoyed by the
opening of additional food and beverage facilities which are expected to augment
the current offering.
Silverstar Casino
Silverstar Casino delivered pleasing full year results with footfall increasing
following the completion of all facilities. The gaming mix was improved during
the year and the casino now features 784 slots and 24 tables.
Revenue, EBITDAR and market share increased strongly in the second half of the
year as the additional facilities contributed to footfall, generating improved
profitability. Adjusted EBITDAR margin improved from 31,7% for the six months to
June 2008 to 42,8% for the second six months to December 2008 as trading volumes
improved and a realignment of costs took effect. The margin for the twelve
months ended 31 December 2008 was 37,5%.
Capital expenditure for the year amounted to R282 million, bringing the total
cost of the project to R1,1 billion, well within budget.
At 31 December 2008 external debt amounted to R1,3 billion with future de-
gearing expected to have a positive impact on earnings. The debt is repayable
over a 10 year period.
Kwazulu Natal
Golden Horse Casino
Aided by a strong contribution from tables and the newly refurbished Salon
Prive, revenue grew by 8,0% to R244 million from the restated R226 million for
2007. Adjusted EBITDAR remained unchanged at R110 million, affected by
inflationary pressures on costs. The Adjusted EBITDAR margin declined to 45,1%.
Enhancements to the property, which are scheduled for completion in June 2009,
include a refurbishment of the gaming floor, hotel, restaurants and conference
facilities. The revised cost of the project is R81 million and is being funded
out of cash resources.
Western Cape
Slower economic growth and challenging trading conditions depressed consumer
spend in the Western Cape. The gaming market grew 1,1%, taking into account an
increase in gaming positions and facilities in the province.
Mykonos Casino
Revenue at Mykonos Casino contracted by 3,4% to R112 million compared to the
restated R116 million in 2007. Adjusted EBITDAR was down 11,1% to R48 million
from R54 million in the prior comparative period. Consequently, the Adjusted
EBITDAR margin has declined to 42,9%.
The refurbishment is progressing well and should be completed by June 2009. As
part of the refurbishment 22 slots were added to the gaming floor in order to
relieve capacity constraints during the busy holiday season. The refurbishment
is being funded out of cash resources.
Garden Route Casino
Revenue fell marginally to R164 million compared to the restated R166 million
for 2007. Lower trading volumes saw Adjusted EBITDAR decrease 4,8% to R80
million, representing a 48,8% margin on revenue.
Renovations are being planned which will include additional slot machines, food
and beverage and entertainment facilities.
Free State
Goldfields Casino
Improvements to gaming and non-gaming facilities, following the successful
conversion from a temporary to a permanent casino, saw revenue increase 9,3% to
R118 million compared to a restated R108 million for 2007. This increase in
revenue, together with diligent cost control, resulted in Adjusted EBITDAR
increasing 6,0% to R53 million.
Eastern Cape
Queens Casino
Concluding its first full twelve months of trading, Queens Casino generated
revenue of R46 million and Adjusted EBITDAR of R7 million. Food and beverage,
hotel and entertainment facilities were opened during the course of the year.
The review application, instituted against Lukhanji Leisure by Ekuphumleni
Resorts in the Eastern Cape Division of the High Court, was withdrawn.
Future Developments
Vaal River Casino
Gold Reef continues to pursue it`s application for a licence in the Sasolburg
area through a controlling stake in Vaal River Casino Company (Proprietary)
Limited.
Directorate
Following the appointment of two independent non-executive directors, JC Farrant
and ZJ Matlala, and the reconstitution of the Audit and Risk Committee and
Remuneration and Nominations Committee, the Board has appointed Dr EN Banda as
an independent non-executive director, effective 13 March 2009.
In line with best practice the Board intends appointing an independent Chairman
once an independent director has been able to familiarise themself with the
Group.
Prospects
Notwithstanding the impact of the deteriorating global economy, Gold Reef
remains well positioned to benefit from decreasing interest rates and reduced
inflation. Silverstar is expected to contribute further in the coming year.
The Group enjoys strong cash flow generation and the Board believes that its
businesses are conservatively geared. As four of the Group`s interest rate hedge
contracts expire during 2009, Gold Reef will benefit from the decreasing
interest rate cycle anticipated in 2009.
With all our properties expected to be newly refurbished or recently opened by
the end of 2009, limited capital expenditure is anticipated in the short term.
This, coupled with de-gearing, which is expected to enhance earnings growth,
will result in increased cash resources.
Dividend
The Board has declared a dividend of 65,0 cents per share covered 2,1 times by
Adjusted HEPS. From time to time the Board will reconsider dividend cover based
on the Group`s cash flow, gearing and capital requirements. Dividends will be
financed out of Gold Reef`s cash resources after servicing the debt of the
Group`s underlying operations.
The salient dates for the dividend are as follows:
Last day to trade shares cum dividend Wednesday, 8 April 2009
Shares commence trading ex dividend Thursday 9, April 2009
Record date Friday, 17 April 2009
Payment date Monday 20, April 2009
Share certificates may not be dematerialised or rematerialised between Thursday
9, April 2009 and Friday, 17 April 2009, both days inclusive.
Steven Joffe Jarrod Friedman
Chief Executive Officer Financial Director
On behalf of the Board
16 March 2009
Directors: M Krok (Chairman)*; SB Joffe (CEO); AJ Aaron*; MG Diliza*; JC
Farrant>; JS Friedman; A Krok**; MZ Krok*; S Krok**; J Leutgeb*#; ZJ Matlala>; C
Neuberger#;
TM Sadiki, PCM September*; R Vierziger**#
Non-executive director
> Independent director
**Alternate director
#Austrian Citizen
Registered office: Gold Reef City, Gate 4, Northern Parkway, Ormonde, 2091
Transfer secretaries: Link Market Services South Africa (Pty) Limited, 5th
Floor, 11 Diagonal Street, Johannesburg, 2001 (P O Box 4844, Johannesburg, 2000)
Company secretary: JS Friedman
Sponsor: Nedbank Capital
Investor relations: College Hill (Proprietary) Limited
GROUP INCOME STATEMENT
Reviewed Restated
for the for the
year ended year ended
31 December 31 December
2008 2007
% Rm Rm
Revenue 29,1 2 197 1 702
Net gaming win 2 042 1 566
Theme Park 67 67
Food and beverage 32 21
Other 56 48
Other income 1 8
2 198 1 710
Gaming levies and VAT (410) (310)
Employee costs (463) (362)
Promotional and marketing costs (133) (95)
Depreciation and amortisation (161) (153)
Other operating expenses (326) (376)
Operating profit 70,3 705 414
Finance income 80 33
Finance costs (214) (56)
Profit before equity accounted earnings 571 391
Share of loss in associate (8) (1)
Profit before taxation 563 390
Taxation expense (188) (195)
Profit for the year 92,3 375 195
Attributable to:
Equity holders of Gold Reef 145, 358 146
2
Minority interest 17 49
375 195
Number of shares in issue (000) 291 990 291 990
Weighted average number of shares in issue 274 567 239 662
(000)
Earnings per share (cents) 114, 130,3 60,8
2
Diluted earnings per share (cents) 114, 130,3 60,8
2
Dividends per share
Ordinary dividend (cents) - 65,0 65,0
Special dividend (cents) - - 35,0
SUPPLEMENTARY INFORMATION
Reviewed Restated
for the for the
year ended year ended
31 December 31 December
2008 2007
% Rm Rm
EBITDAR reconciliation
Operating profit 705 414
Property and equipment rental 20 15
Depreciation and amortisation 161 153
EBITDAR 52,2 886 582
Weighted average number of shares in issue 274 567 239 662
(000)
EBITDAR per share (cents) 32,8 322,7 243,0
EBITDAR margin % 40,3 34,2
Adjusted EBITDAR reconciliation
EBITDAR 886 582
Pre-opening expenses at Silverstar Casino 3 58
IFRS2 charges resulting from share exchange - 101
and top-up transaction
Impairment of related party balance arising 3 -
out of share exchange and top-up transaction
Costs relating to corporate activity 12 23
Adjusted EBITDAR 18.3 904 764
Weighted average number of shares in issue 274 567 239 662
(000)
Adjusted EBITDAR per share (cents) 3,2 329,1 319,0
Adjusted EBITDAR margin (%) 41,1 44,9
Headline earnings reconciliation
Attributable profit for the year 358 146
Impairment of intangibles - 40
Profit on sale of financial instruments * -
Fair value of land and accounts receivable - (1)
Profit on sale of property, plant and * (1)
equipment
Headline earnings 94,6 358 184
Weighted average number of shares in issue 274 567 239 662
(000)
Headline earnings per share (cents) 69,8 130,3 76,7
Diluted headline earnings per share (cents) 69,8 130,3 76,7
Adjusted headline earnings reconciliation
Headline earnings 358 184
Pre-opening expenses at Silverstar and 2 53
Queens Casino
IFRS2 charges resulting from share exchange - 101
and top-up transaction
Impairment of related party balance arising 3 -
out of share exchange and top-up transaction
Costs relating to corporate activity 12 23
Adjusted headline earnings 3,9 375 361
Weighted average number of shares in issue 274 567 239 662
(000)
Adjusted headline earnings per share (cents) (9,4) 136,5 150,7
* Amounts less than R1 million
GROUP BALANCE SHEET
Reviewed at Audited at
31 December 31 December
2008 2007
Rm Rm
Assets
Non-current assets
Property, plant and equipment 2 545 2 280
Leasehold improvements 123 104
Intangible assets 1 187 1 189
Deferred tax assets 5 47
Investment in associate 31 42
Derivative financial instruments - 43
Share scheme 33 80
3 924 3 785
Current assets
Inventories 19 18
Trade and other receivables 30 75
Cash and cash equivalents 443 332
Amounts owing by related parties * *
492 425
Total assets 4 416 4 210
Equity and liabilities
Capital and reserves
Ordinary share capital 6 6
Share premium 1 860 1 860
Treasury shares (71) (42)
1 795 1 824
Share-based payment reserve 382 378
Other reserves (565) (493)
Retained earnings 799 718
2 411 2 427
Minority interest 43 32
Total equity 2 454 2 459
Non-current liabilities
Interest-bearing borrowings 1 506 1 309
Deferred tax liabilities 54 54
Derivative financial instruments 21 -
1 581 1 363
Current liabilites
Trade and other payables 135 136
Provisions 57 55
Bank overdraft * 15
Current tax liabilities 1 41
Current portion of interest-bearing borrowings 188 139
Amounts owing to related parties * 2
381 388
Total equity and liabilities 4 416 4 210
*Amounts less than R1 million
GROUP CASH FLOW STATEMENT
Reviewed Audited for
for the the year
year ended ended 31
31 December December
2008 2007
Rm Rm
Cash flow from operating activities
Profit before taxation 563 390
Non-cash items and other adjustments 339 285
902 675
Decrease/(increase) in net current assets 45 (63)
Cash flow from operating activities 947 612
Finance income 45 32
Finance costs (214) (56)
Taxation paid (186) (200)
Dividend paid (277) (150)
Net cash generated in operating activities 315 238
Cash flow from investing activities
Additions to property, plant and equipment (422) (1 066)
Additions to leasehold improvements (23) (5)
Proceeds from disposal of property, plant and 3 10
equipment
Investment in intangibles * *
Investment in associate - *
Loans repaid by / (advanced to) associate 3 (43)
Loans (advanced to) / repaid by related parties (2) 2
Net cash effect of share exchange and top-up - (139)
transaction
Net cash utilised in investing activities (441) (1 241)
Cash flow from financing activities
(Repurchase)/issue of shares to share scheme (34) 60
Issue of shares as part of share exchange and top- - 287
up transaction
Decrease/(increase) in share scheme loan 46 (53)
Dividend and loan repayments to outside (6) (14)
shareholders
Increase in interest-bearing borrowings 246 977
Net cash generated by financing activities 252 1 257
Net increase in cash and cash equivalents 126 254
Cash and cash equivalents at beginning of year 317 63
Cash and cash equivalents at end of year 443 317
* Amount less than R1 million.
GROUP STATEMENT OF CHANGES IN EQUITY
Share Reserve Retaine Minorit Total
capital net s
d y equit
of treasury earning interes y
s t
Rm Rm Rm Rm Rm
Balance at 1 January 2007 428 40 720 197 1 385
Issue of shares as part of 1 336 340 - - 1 676
share exchange and top-up
transaction
Effect of share exchange and - (542) - (200)
top-up transaction on group (742)
equity
Transfer between reserves - (2) 2 - -
Issue of shares to share 60 - - - 60
scheme
Recognition of share-based - 12 - - 12
schemes
Fair value adjustment on - 37 - - 37
derivative hedge recognised
in equity during the year
Attributable profit for the - - 146 49 195
year
Dividends paid - - (150) - (150)
Dividends paid to minorities - - - (14) (14)
by subsidiaries
Balance at 1 January 2008 1 824 (115) 718 32 2 459
Net movement between share (29) (5) - - (34)
scheme and participants
Recognition of share-based - 4 - - 4
payments
Fair value adjustment on (67)
derivative hedge released - (67) -
from equity during the year
Attributable profit for the - - 358 17 375
year
Dividends paid - - (277) - (277)
Dividends paid to minorities - - - (6) (6)
by subsidiaries
Balance at 31 December 2008 1 795 (183) 799 43 2 454
"Reserves" comprise of "Share-based payment reserve" and "Other reserves".
These reserves are disclosed separately on the Balance Sheet.
Date: 16/03/2009 07:05:02 Supplied by www.sharenet.co.za
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