Wrap Text
Profit and cash dividend announcement and changes to the board for the year ended 30 June 2016
Sun International Limited
("Sun International" or "the group" or "the company") Registration number: 1967/007528/06 Share code: SUI ISIN: ZAE 000097580
Profit and cash dividend announcement and changes to the board
for the year ended 30 June 2016
Revenue increased 15% to R12.2 billion
EBITDAR increased 6% to R3.4 billion
EBITDA increased 4% to R3.2 billion
Diluted adjusted HEPS decreased 20% to 628 cents
Final gross cash dividend of 135 cents per share
Condensed group statements of comprehensive income
Year ended Year ended
30 June 30 June
2016 2015
R million Reviewed % change Audited
Continuing operations
Revenue 12 186 15 10 553
Other income 18 466
Consumables and services (1 473) (1 081)
Depreciation and amortisation (1 131) (992)
Employee costs (2 464) (2 201)
Impairment of assets - (176)
Levies and VAT on casino revenue (2 388) (2 104)
LPM site owners commission (66) -
Promotional and marketing costs (723) (659)
Property and equipment rentals (202) (145)
Property costs (776) (665)
Time Square settlements (748) -
Monticello purchase price differential (243) (23)
Other operational costs (1 064) (896)
Operating profit 926 2 077
Foreign exchange losses (227) (103)
Interest income 33 51
Interest expense (756) (625)
Share of associates profits 18 20
(Loss)/profit before tax (6) 1 420
Tax (533) (435)
(Loss)/profit for the year from continuing operations (539) 985
Profit for the year from discontinued operations 36 46
(Loss)/profit for the year (503) 1 031
Other comprehensive income:
Items that will not be reclassified to profit or loss
Remeasurements of post employment benefit obligations 4 (9)
Tax on remeasurements of post employment benefit obligations (1) 3
Items that may be reclassified to profit or loss
Net loss on cash flow hedges (21) (2)
Currency translation reserve 220 (57)
Total comprehensive (loss)/income for the year (301) 966
(Loss)/profit for the year attributable to:
Minorities (89) 141
Ordinary shareholders (414) 890
(503) 1 031
Total comprehensive (loss)/income for the year attributable to:
Minorities (60) 126
Ordinary shareholders (241) (129) 840
(301) 966
Total comprehensive (loss)/income attributable to ordinary shareholders arises from:
Discontinued operations 36 41
Continuing operations (277) 799
(241) 840
Year ended Year ended
30 June 30 June
2016 2015
R million Reviewed % change Audited
HEADLINE EARNINGS AND ADJUSTED HEADLINE EARNINGS RECONCILIATION
(Loss)/profit attributable to ordinary shareholders (414) (147) 890
Net (profit)/loss on disposal of property, plant and equipment (3) 7
Profit on disposal of shares in subsidiaries (18) (466)
Impairment of assets - 176
Tax relief on the above items 57 (10)
Minorities' interests on the above items (2) (7)
Headline (loss)/earnings (380) (164) 590
Straightline adjustment for rentals 27 35
Pre-opening expenses 28 36
Time Square settlements 748 -
Transaction costs 52 45
Restructure and related costs - 82
Monticello purchase price adjustment 243 23
Amortisation of Dreams intangible assets raised as part of the PPA 18 -
Dinokana - Employee share based payments expense - 12
Other 18 11
Foreign exchange losses on intercompany and minority loans 233 96
Tax on the above items 13 (17)
Minorities' interests on the above items (353) (111)
Reversal of Employee Share Trusts' consolidation (i) 7 21
Adjusted headline earnings 654 (21) 823
(i) The consolidation of the Employee Share Trust is reversed in the calculation of adjusted headline earnings as the group does not
receive the economic benefits of the trust.
Cents per Cents per
share share
Earnings per share
basic (422) 950
diluted (422) (145) 946
Dividends per share 225 285
Condensed group statements of financial position
Year ended Year ended
30 June 30 June
2016 2015
R million Reviewed Audited
ASSETS
Non current assets
Property, plant and equipment 16 800 11 244
Intangible assets 3 303 738
Equity accounted investments 15 591
Available-for-sale investment 48 48
Loans and receivables 23 17
Pension fund asset 36 36
Deferred tax 365 320
20 590 12 994
Current assets
Accounts receivable and other 2 036 806
Cash and cash equivalents 1 301 507
3 337 1 313
Non current assets held for sale 169 69
Total assets 24 096 14 376
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders' equity before put option reserve 3 896 2 325
Put option reserve* (5 252) -
Ordinary shareholders' equity (1 356) 2 325
Minorities' interests 2 334 421
978 2 746
Non current liabilities
Deferred tax 355 384
Borrowings 9 980 5 347
Other non current liabilities 904 905
Put option liability* 5 252 -
16 491 6 636
Current liabilities
Accounts payable and other 2 497 1 578
Borrowings 4 082 3 371
6 579 4 949
Non current liabilities held for sale 48 45
Total liabilities 23 118 11 630
Total equity and liabilities 24 096 14 376
* Refer to note on put options in the commentary.
Group statements of changes in equity
Ordinary
share-
holders'
Share Treasury Foreign Share Reserve Hedging equity Ordinary
capital shares currency based Available- for non and before put Put share-
and and share translation payment for-sale controlling other Retained option option holders' Minorities' Total
R million premium options reserve reserve reserve interests reserve earnings reserve reserve equity interests equity
Reviewed
FOR THE YEAR ENDED 30 JUNE 2016
Balance at 30 June 2015 295 (542) 163 112 4 (3 136) 1 5 428 2 325 - 2 325 421 2 746
Total comprehensive income for the year - - 175 - - - (16) (400) (241) - (241) (60) (301)
Treasury share options purchased - (2) - - - - - - (2) - (2) - (2)
Net deemed treasury shares sold - (67) - - - - - - (67) - (67) - (67)
Employee share schemes - 13 - 17 - - - 21 51 - 51 - 51
Delivery of share awards - - - - - - - (4) (4) - (4) - (4)
Acquisition and disposal of shares to
minorities as part of the Dreams transaction - - - - - 1 496 - - 1 496 - 1 496 2 114 3 610
SunWest option - - - - - - - - - (1 272) (1 272) - (1 272)
Dreams option - - - - - - - - - (3 980) (3 980) - (3 980)
Acquisition of minorities' interests - - - - - 604 - - 604 - 604 106 710
Subsidiary share issue - - - - - - - - - - - 30 30
Dividends paid - - - - - - - (266) (266) - (266) (277) (543)
Balance at 30 June 2016 295 (598) 338 129 4 (1 036) (15) 4 779 3 896 (5 252) (1 356) 2 334 978
Audited
FOR THE YEAR ENDED 30 JUNE 2015
Balance as at 30 June 2014 309 (1 829) 449 112 4 (2 326) (670) 5 448 1 497 - 1 497 491 1 988
Total comprehensive income for the year - - (42) - - - (2) 884 840 - 840 126 966
Treasury share options purchased - (20) - - - - - - (20) - (20) - (20)
Net deemed treasury shares purchased - 10 - - - - - - 10 - 10 - 10
Treasury shares cancelled (14) 653 - - - - - (639) - - - - -
Treasury shares reversed back to share
capital - 614 - - - - - - 614 - 614 - 614
Employee share schemes - 30 - - - - - 27 57 - 57 - 57
Delivery of share awards - - - - - - - (32) (32) - (32) - (32)
Disposal of shares in African operations - - (117) - - - - - (117) - (117) (62) (179)
Acquisition of minority interests in Monticello - - (127) - - (550) 673 - (4) - (4) 3 (1)
Acquisition of minorities' interests - - - - - (260) - - (260) - (260) 110 (150)
Dividends paid - - - - - - - (260) (260) - (260) (247) (507)
Balance at 30 June 2015 295 (542) 163 112 4 (3 136) 1 5 428 2 325 - 2 325 421 2 746
Supplementary information
Year ended Year ended
30 June 30 June
2016 2015
R million Reviewed Restated
EBITDA RECONCILIATION
Operating profit 926 2 077
Depreciation and amortisation 1 131 992
Net (profit)/loss on disposal of property, plant and equipment* (3) 7
Straightline adjustment for rentals* 27 35
Impairment of assets* - 176
Pre-opening expenses* 28 36
Restructure and related costs* - 82
Transaction costs* 52 45
Time Square settlements* 748 -
Profit on disposal of shares in subsidiaries* (18) (466)
Monticello purchase price adjustment* 243 23
Dinokana - Employee share based payments expense* - 12
Other* 12 10
Reversal of Employee Share Trusts' consolidation* 35 31
EBITDA 3 181 3 060
EBITDA margin (%) 26 29
Number of shares ('000)
- in issue 97 977 98 519
- for EPS calculation 98 214 93 729
- for diluted EPS calculation 98 214 94 040
- for adjusted headline EPS calculation(i) 104 140 104 000
- for diluted adjusted headline EPS calculation(i) 104 140 104 311
(Loss)/earnings per share (cents)
- basic (loss)/earnings per share (422) 950
- headline (loss)/earnings per share (387) 629
- adjusted headline earnings per share 628 791
- diluted basic (loss)/earnings per share (422) 946
- diluted headline (loss)/earnings per share (387) 627
- diluted adjusted headline earnings per share 628 789
Continuing - (Loss)/earnings per share (cents)
- basic (loss)/earnings per share (458) 900
- headline (loss)/earnings per share (424) 580
- adjusted headline earnings per share 593 747
- diluted basic (loss)/earnings per share (458) 897
- diluted headline (loss)/earnings per share (424) 578
- diluted adjusted headline earnings per share 593 745
Discontinuing - Earnings per share (cents)
- basic earnings per share 36 50
- headline earnings per share 37 49
- adjusted headline earnings per share 35 44
- diluted basic earnings per share 36 49
- diluted headline earnings per share 37 49
- diluted adjusted headline earnings per share 35 44
Tax rate reconciliation
(Loss)/profit before tax (6) 1 420
Share of associates profits (18) (20)
Adjusted (loss)/profit before tax (24) 1 400
% %
Effective tax rate (excluding Time Square settlements) 74 31
Preference share dividends (4) (3)
Prior year (under)/over provisions (2) 2
Withholding taxes (1) (1)
Foreign tax rate variation 4 2
Exempt income 1 5
Exempt income - capital gains 16 1
Foreign monetary adjustments and government incentives 4 1
Monticello purchase price adjustment (12) -
Capital allowances and disallowed expenditure (52) (10)
SA corporate tax rate 28 28
EBITDA to interest (times) 4.4 5.5
Borrowings to EBITDA (times) 4.4 2.7
Net asset value per share before put options reserve (Rand) 39.76 23.60
Capital expenditure 2 538 1 714
Capital commitments 4 404 2 974
* Items identified above are included as headline and adjusted headline earnings adjustments impacting operating profit in
the segmental analysis.
(i) The consolidation of the Employee Share Trust is reversed in the calculation of adjusted headline earnings as the group
does not receive the economic benefits of the trust.
Condensed group statements of cash flows
Year ended Year ended
30 June 30 June
2016 2015
R million Reviewed Audited
Cash generated by operations before: 3 236 2 917
Time Square settlements (715) -
Section 189 restructuring costs - (181)
Working capital changes (14) (67)
Cash generated by operations 2 507 2 669
Tax paid (696) (505)
Cash generated by operating activities 1 811 2 164
Purchase of property, plant and equipment (2 461) (1 609)
Purchase of intangible assets (108) (148)
Payment of purchase differential (345) -
Acquisition of shares in subsidiary (272) -
Proceeds on disposal of PPE & Intangibles 82 -
Proceeds on disposal of investment in joint venture 226 -
Proceeds on disposal of subsidiaries - 497
Investment in associates and joint ventures - (330)
Investment income 39 51
Other non current loans raised - (7)
Cash flows from investing activities (2 839) (1 546)
Purchase of treasury shares and share options (70) (10)
Vacation Club timeshare revenue received 193 132
Dividends paid (542) (507)
Interest paid (757) (610)
Sale of treasury shares - 507
Minority shareholders' capitalisation of Worcester 30 -
Disposal of shares in subsidiaries 111 -
Purchase of additional shares in subsidiaries - (1 729)
Movement in borrowings 2 870 1 154
Net cash inflow/(outflow) from financing activities 1 835 (1 063)
Effect of exchange rates upon cash and cash equivalents (12) 1
Increase/(decrease) in cash and cash equivalents 795 (444)
Cash and cash equivalents at beginning of the year 514 958
Cash and cash equivalents at end of the year 1 309 514
Assets held for sale (8) (7)
Cash and cash equivalents at end of the year excluding non current assets held for sale 1 301 507
Commentary
REVIEW OF THE YEAR
The group has made significant progress in terms of its stated strategic objectives. Not only has this brought about a meaningful change in the composition
of the group but it has laid the foundation for future growth. These changes include:
- Acquisition of a further 25% interest in GPI Slots on 1 April 2016 thereby increasing the group's interest to 50.1% and gaining control of the business;
- Completion of the Dreams merger in Latam on 31 May 2016 and gaining control of the business with a 55% interest in the merged entity;
- Disposal of a 10% interest in SunWest (Table Bay hotel, GrandWest casino and Golden Valley casino);
- Near completion of the refurbishment and upgrades to Sun City with the last major project being the refurbishment of the Entertainment Centre due for
completion in November 2016;
- Conclusion of agreements for the disposal of the group's remaining interests in Botswana, Swaziland, Lesotho, Namibia and Zambia;
- Commencement of International VIP Gaming Business (IB);
- Completion of the strategy to insource food and beverage;
- Securing of debt funding for all developments currently underway and completion of the refinancing of the group's South African and Latam debt; and
- Significant progress with the construction of Time Square at Menlyn Maine with the casino on schedule to open in April 2017. Related to this, the
settlement payment of R675 million for Peermont lifting its objection to the Morula casino licence relocation was made in May 2016 (reflected in HEPS and
adjusted out in AHEPS).
These ongoing strategic changes, as with the half year results, continue to make comparisons to prior periods very complex.
The group continues to achieve strong revenue growth, but this is primarily as a consequence of revenue generated by new businesses, in particular the
insourcing of food and beverage in South Africa, the introduction of IB at Sun City, and the properties opened in Panama and Colombia. These new
businesses are yet to contribute meaningfully to EBITDA and at a HEPS level, start-up losses, interest charges and the associated depreciation charges
have had a negative impact on earnings.
In the second half of the financial year we were successful in acquiring control of GPI Slots, which has been consolidated from 1 April 2016. We have now
triggered our call option to move to 70% ownership of the business. We also concluded our merger in Latin America and the results of the Dreams
properties have been consolidated from 1 June 2016 with the group owning 55% of the combined group. From this date the profits and losses from
Monticello, the Ocean Sun Casino and Sun Nao Casino are no longer 100% attributed to Sun International. Agreements for the disposal of our African
portfolio to the Minor group were concluded on 31 March 2016 and so these properties are reflected as discontinued operations up to 31 March 2016 and
going forward the results will no longer be equity accounted.
The income statement below includes adjusted headline earnings adjustments.
30 June 30 June
R million 2016 % 2015
Revenue 12 186 15 10 553
EBITDAR 3 356 6 3 171
EBITDA 3 181 4 3 060
Operating profit 2 068 - 2 070
Foreign exchange profit/(loss) 5 (6)
Net interest (709) 35 (525)
Profit before tax 1 364 (11) 1 539
Tax (465) - (465)
Profit after tax 899 (16) 1 074
Minorities (296) 5 (311)
Attributable profit 603 (21) 763
Discontinued ops and associates 51 60
Adj headline earnings 654 (21) 823
Revenue for the year increased by 15.5% to R12.2 billion with the strong growth driven by the new start-up businesses and acquisitions. Revenue reported
in the second half of the year grew by 21%, in relation to the 10% achieved in the interim results.
The overall growth in group revenue masks the static performance of the core South African operations which still contribute 78% of revenue (predominantly
gaming). Unfortunately the continuing poor economic conditions in South Africa have translated into low casino revenue growth of 0.8%, which is well below
inflation.
Revenue by nature and geographical region:
South Africa Latam Nigeria Total
R million 2016 2015 2016 2015 2016 2015 2016 2015
Casino 7 016 6 962 2 167 1 563 102 107 9 285 8 632
IB 154 21 - - - - 154 21
LPM 233 - - - - - 233 -
Rooms 863 757 28 14 53 53 944 824
Food and beverage 807 484 224 139 47 45 1 078 668
Other 448 374 32 27 12 7 492 408
9 521 8 598 2 451 1 743 214 212 12 186 10 553
The low growth in South Africa has been partially offset by relatively strong results from Monticello in Chile, where the positive earnings growth in local
currency has been further enhanced by the currency translation during the year under review.
We have historically reported EBITDA prior to rental payments (i.e. equivalent to EBITDAR in the table above). The EBITDA line above is reported after
rentals and is now consistent with the convention adopted by other companies in the sector. We have achieved 6% growth in EBITDAR for the year, with a
growth of 13% in the second six months offsetting the 1% decline reported at the half year. After rentals, at an EBITDA level, we have managed to achieve
4% growth for the year (9.6% second half growth offsetting a decline of 1.5% at the half year).
The increased depreciation from new businesses and refurbishments has led to operating profit remaining almost flat year on year. However, significantly
increased interest costs and certain tax adjustments have led to a fall in adjusted headline earnings. Interest costs at R709 million were 35% up on last year
due to the conversion of debt from US$ to Rand, higher Rand based interest rates and the fact that we have debt funded all the investment activity that has
taken place over the last two years on the various projects and acquisitions. The group tax charge in the current year is also disproportionately high with the
increased effective tax attributed to certain tax adjustments, no tax relief raised with respect to the Ocean Sun Casino and Federal Palace losses in the
current year and an increase in the tax rate in Chile. Discontinued operations and associates include the group's share of the earnings from the African units
disposed of (and to be disposed of) to Minor.
Adjusted headline earnings of R654 million for the year are 21% below the prior year with diluted adjusted headline earnings per share down 20% to 628
cents.
In line with the reduction in diluted adjusted headline earnings per share the board has declared a gross final dividend of 135 cents per share (2015: 175
cents).
Adjusted headline earnings adjustments
The group has incurred a number of one off or abnormal items which have been adjusted for in adjusted headlines earnings. The most significant of these
include:
- The Time Square settlements (a total of R748 million) in relation to the objections raised to the Morula casino licence relocation by Peermont and
Goldrush. The interest cost associated with these payments has been taken through the income statement and has not been adjusted for;
- The earn-out payment of R243 million due to the minority shareholders of Monticello bought out by the group as a result of Monticello achieving the
earnings targets set in the transaction agreements. Although this payment is effectively an increase in the purchase price for the minorities interest, in terms
of IFRS 3 it is treated as an expense in the statement of comprehensive income;
- An unrealised foreign exchange loss of R207 million (R102 million attributed to Sun International) incurred on the group's Nigerian subsidiary's US Dollar
denominated shareholder loans; and
- Transactional costs of R52 million.
The table below sets out the consolidated revenue, EBITDA and operating profit by geographical region and the reconciliation between operating profits as
reflected in the Statement of comprehensive income and the income statement above which includes headline and adjusted headline earnings adjustments:
Revenue EBITDA Operating profit
R million 2016 2015 2016 2015 2016 2015
South African operations 9 521 8 598 2 601 2 692 1 809 1 927
Sun International 9 288 8 598 2 546 2 692 1 774 1 927
GPI Slots (consolidated from 1 April 2016) 233 - 55 - 35 -
Latam operations 2 451 1 743 565 336 291 150
Sun International 2 249 1 743 505 336 252 150
Dreams (consolidated from 1 June 2016) 202 - 60 - 39 -
Federal Palace 214 212 15 32 (32) (7)
Total operating segments 12 186 10 553 3 181 3 060 2 068 2 070
Headline and Adjusted headline earnings adjustments impacting operating
profit (1 142) 7
Unadjusted group operating profit 12 186 10 553 3 181 3 060 926 2 077
Segmental review
The implementation and consolidation of the strategic initiatives at various stages throughout the past year makes the current year difficult to analyse and
we have therefore provided a segmental review with the full year's trading of Dreams and GPI Slots. The review is based on actual historic performance as
if the acquisitions had been implemented on 1 July 2014 (i.e. we have included Dreams and GPI Slots for the full 2015 and 2016 financial years).
Consolidation adjustments have been shown to enable reconciliation to the actual results. The segmental review throughout includes all headline and
adjusted headline earnings adjustments.
The table below sets out the operating performance of the group's geographic segments:
South Africa Latam Nigeria Total
R million 2016 2015 2016 2015 2016 2015 2016 2015
Revenue 10 223 8.8% 9 396 4 991 10.2% 4 527 214 0.9% 212 15 428 9.1% 14 135
EBITDAR 2 916 (2.3%) 2 985 1 353 15.8% 1 168 15 (54.5%) 33 4 284 2.3% 4 186
EBITDA 2 765 (3.8%) 2 874 1 315 15.5% 1 139 15 (53.1%) 32 4 095 1.2% 4 045
Operating profit 1 918 (6.4%) 2 050 821 29.1% 636 (26) (>200%) (1) 2 713 1.0% 2 685
PPA adjustment (11) - (11) (6) - (6) (17) - (17)
Operating profit after
PPA 1 918 (6.4%) 2 050 810 29.6% 625 (32) (>200%) (7) 2 696 1.0% 2 668
South Africa
With the inclusion of a full years' revenue from the insourced F&B operations (3 months in the prior year) and the revenue from IB which only commenced in
June 2015 the South African business reflects strong growth in revenue. The weak local economy and the general negative sentiment in South Africa,
however, resulted in the core casino revenue (excluding IB) being only 0.8% up at R7 billion. This was offset by rooms revenue, up strongly by 14%,
benefitting from the weak Rand, with strong growth in international business in particular at the Table Bay and Sun City. Food and beverage revenue at
R807 million was up 67% on last year as a result of the insourcing of these operations.
EBITDAR on a comparable basis was only 0.3% down reflecting good cost control considering the below inflation revenue growth in the gaming business.
Included in EBITDAR in 2015 are management fees of R83 million from Monticello which did not pay any fees in 2016 as a result of the Dreams transaction
(and the profit of Monticello has accordingly been enhanced by the non-payment of fees). Property and equipment rentals include a once off R33 million
charge relating to the temporary convention facilities erected at Sun City, which ensured Sun City retained most of its conference business while the new
permanent facilities were being constructed. The EBITDA margin, down 3.6%, is impacted by the insourcing of the food and beverage business and the
acquisition of GPI Slots. Both of these businesses operate at lower margins, and this will be a feature of the group going forward.
Depreciation on a comparable basis (i.e. excluding GPI Slots) was up 0.8%.
The group recently introduced "freeplay" as a concept to increase playing time for customers identified through our enhanced database analytics. Only the
Gauteng Gambling Board to date has allowed the deduction of freeplay in the calculation of gaming taxes, with the other provinces calculating tax on gross
gaming revenue inclusive of freeplay. This treatment is inconsistent with that given to other casino operators in the same provinces, who have been allowed
to deduct their freeplay equivalent. We are challenging this unfair and inconsistent treatment. The total quantum of additional gaming tax paid on freeplay in
the year under review is R26 million.
South African unit segmental review
Revenue EBITDA Operating profit
R million 2016 2015 2016 2015 2016 2015
Core operations 9 714 9 070 2 658 2 772 1 882 2 034
GrandWest 2 178 2 152 879 912 749 787
Sun City 1 780 1 525 224 293 39 127
Sun City - Vacation club accounting adjustment (124) (115) (99) (98) (99) (97)
Sibaya 1 178 1 143 393 413 322 335
Carnival City 1 108 1 047 343 343 265 264
Boardwalk 604 568 126 167 42 82
Wild Coast 471 430 90 80 34 31
Smaller urban casinos 952 852 295 275 223 207
GPI Slots and SunBet 967 816 214 173 137 111
Management and corporate office 600 652 193 214 170 187
Operations under review 1 038 956 107 102 36 16
Carousel 322 319 66 72 37 42
Table Bay 310 252 66 43 51 29
Morula 218 217 24 32 22 14
Maslow 139 127 (24) (22) (48) (45)
Naledi 24 19 (4) (4) (4) (4)
Fish River 25 22 (21) (19) (22) (20)
10 752 10 026 2 765 2 874 1 918 2 050
Consolidation adjustment for GPI pre acquisition (702) (798) (164) (182) (109) (123)
Intercompany management fees (529) (630)
9 521 8 598 2 601 2 692 1 809 1 927
GrandWest revenue was 1.2% ahead of last year at R2 178 million. Excluding the insourcing of F&B operations, revenue was down 0.8%. Casino revenue
has been under significant pressure declining by 0.8% due to the slowdown in the economy. Costs were well managed with the drop in EBITDA contained to
3.6%. Gaming taxes as a percentage of revenue increased 0.3% to 27.7% as a result of the province not allowing freeplay to be deducted in the levy
calculation (R6.4 million impact on EBITDA). GrandWest's EBITDA margin was down 2.0% to 40.4%.
Sun City revenue (which includes IB revenue and Vacation Club sales) was up 17% compared to last year. Excluding IB and food and beverage revenue,
Sun City revenue was only up 1%. Casino revenue excluding IB revenue was actually down 6.9% at R513 million. Table's revenue at R81 million was down
36% with drop down 2.5% and the hold of 13.9% well below last year. Rooms revenue up 6.7% at R418 million benefitted from a significant increase in
international rooms revenue (up 30% at R145 million).
IB revenue of R154 million was achieved compared to revenue of R21 million in the month of June 2015 when the business commenced. Despite the
impressive IB revenue, the business ended the year reporting EBITDA of only R2 million (R15 million profit in 2015) as a result of unpaid debts at year end
of R68 million, which have been fully provided for. We continue to pursue the payment of these debts and any successful collection will be reflected as
revenue once banked. The group is gaining good traction in this initiative and believes that although potentially volatile, the IB business offers good growth
potential.
Vacation Club sales of R161 million (2015: R139 million) were achieved for the year and, after selling costs, EBITDA of R122 million (2015: R102 million)
was achieved. The accounting treatment, however, requires the revenue and directly related selling costs to be recognised over 10 years thereby reducing
EBITDA for the year by R99 million (2015: R97 million). In addition to the outright sales, nightly rentals of unsold Vacation Club inventory amounting to R47
million (R43 million in 2015) is included in other revenue.
EBITDA was impacted in this year by the one off rental cost of R33 million for the temporary conference facility incurred to preserve the resort's
conferencing business while the Entertainment Centre is being renovated. Depreciation has increased by 12% due to the improvements that have taken
place at Sun City over the past few years.
Sibaya revenue was up 3% to R1 178 million with casino revenue up 0.6% at R1 108 million. EBITDA was impacted by cost escalations higher than the rate
of revenue growth and higher property costs attributed to repairs and maintenance and the purchasing of ported water due to significant disruptions to the
Municipal water supply as a result of the drought in the province. The property will have a number of improvements made in the next year including new
restaurants, the addition of a Sun Park and an expansion to the gaming area which now includes the new Sun Lounge. Further plans are being developed
to upgrade and add new features to the property in order to ensure that it remains relevant to its market.
Carnival City revenue was 5.8% ahead of last year at R1 108 million with strong growth in tables' revenue of 39% to R209 million, however slots' revenue
decreased by 4% to R827 million. A number of initiatives are underway to refurbish the property and increase footfall which include a retail upgrade and the
addition of a Sun Park exhibition and event facility.
The Casino Association of South Africa (CASA), through its legal representatives, is challenging the legal basis of a proposed gaming tax increase in
Gauteng, from the current flat rate of 9% to a sliding scale structure. The proposed increase would result in a significant increase in gaming taxes in
Gauteng. CASA has submitted its comments to the Gauteng Gambling Board (GGB) on the Draft Regulations.
Boardwalk revenue of R604 million was 6.3% up on last year with a 50.7% increase in Rooms' revenue and an increase in F&B revenue which together
contributed R100 million in revenue (2015: R40 million). Casino revenue, which was down 4.7%, was impacted by the weak local economic environment
and in particular by a new Electronic Bingo Terminal (EBT) operation opening and another one being expanded within the Boardwalk's catchment area. The
low casino revenue growth and cost pressures resulted in EBITDA declining 25% to R126 million.
Emfuleni (owner of the Boardwalk) has launched a High Court action challenging the Eastern Cape Gambling and Betting Board decision to authorise
electronic bingo licences within the Boardwalk's casino catchment area. The legal challenge has been made on the basis that the introduction of EBTs
(effectively casinos) breaches the Boardwalk's casino gambling exclusivity, which it secured based on its bid commitment to spend R1 billion at the
Boardwalk.
The groups smaller urban casinos which include Meropa, Windmill, Flamingo and Golden Valley generally performed well together achieving revenue growth
of 12% and EBITDA growth of 7.3%.
GPI Slots continues to perform well with revenue up 17.2% and EBITDA up 20.3% for the year. Despite the good performance, challenges are being
experienced with obtaining approvals from gaming boards for the roll out of new sites.
Management and corporate fees and related income at R600 million were 8% lower than last year due to fees no longer being received from Monticello
(now reflected as increased EBITDA at Monticello) and a reduction in fees from the African properties that were disposed of to the Minor Group on 30
November 2014. The reduction in management fees was partially offset by project fees charged on the Time Square project.
Operations under review
With the opening of Time Square at Menlyn in April next year Morula casino will be closed and Carousel will be severely impacted. Plans are well advanced
to open an independent hotel and gaming school at Morula and in this regard the group has partnered with the International Hotel School. All options,
including disposal are being considered for the Carousel which will need to be downscaled when Time Square opens.
The Table Bay Hotel lease expires in May 2022 and consequently we have commenced discussions to determine the best options for the property, including
the possibility of early renewal. The Table Bay continues to perform well with revenue growth of 23% with international room nights up 14%. Overall
occupancies were up 11% to 74% and the average room rate was up 13%. EBITDA increased by 54% to R66 million and the EBITDA margin improved
4.2% points to 21.3%.
The Maslow is negatively impacting headline earnings, out of proportion to the materiality of the property to the group. With a 7.5% increase in occupancy to
68% and the room rate increasing by 5.2% to R1 182 the property is actually doing relatively well operationally and achieved an EBITDAR profit of R10.2
million, a 28.4% improvement on last year. The financial obligations of the long term lease, however, are onerous and result in the reported annual loss.
The Fish River property is subject to a land claim which we expect will be resolved shortly. We have engaged with representatives of the land claimants and
the land commissioner and believe we are close to finding a solution. Emfuleni which owns and operates the Fish River as a Boardwalk licence condition
cannot afford to continue to subsidise the losses that Fish River incurs, in particular given the significant negative impact the EBT's are having on the
Boardwalk's own profitability.
Latam
In addition to the inclusion of the historic trading of Dreams for the full 2016 and 2015 financial years the 2015 trading has been converted at the 2016
average exchange rate to enable comparisons in Rands.
Revenue EBITDA Operating profit
R million 2016 2015 2016 2015 2016 2015
Monticello 1 925 1 799 571 429 434 284
Dreams SCJ licences 1 571 1 418 525 477 423 354
Dreams Municipal licences 886 892 271 282 184 166
Chile total 4 382 4 109 1 367 1 188 1 041 804
Ocean Sun Casino 287 179 (25) (55) (115) (129)
Sun Nao Casino and Peru 322 239 (27) 6 (105) (39)
Total 4 991 4 527 1 315 1 139 821 636
Dreams PPA adjustment on PP&E (11) (11)
Constant currency adjustment (525) (121) (58)
Consolidation adjustment for Dreams pre acquisition (2 540) (2 259) (750) (682) (519) (417)
Consolidated 2 451 1 743 565 336 291 150
Chile
The group's Chilean properties have now fully recovered from the smoking ban implemented in 2013 and consequently revenue growth, although still good,
is not as strong as seen in recent years. The Chilean economy has also come under pressure with the weakening copper price and currency but is holding
up well with inflation at around 4% and GDP growth of 2%. Overall the Chilean operations achieved revenue growth of 6.6% and EBITDA growth of 15%.
The strong growth in EBITDA is partly due to Monticello not paying any management fees in 2016 whereas last year R83 million was paid.
The Dreams Purchase Price Allocation (PPA) resulted in buildings and intangibles being valued above their book value and consequently a depreciation and
amortisation charge of R212 million for the year (R18 million per month) will be charged in future periods. For adjusted headline earnings the amortisation
on intangibles is added back and consequently included in the table above is depreciation on tangible assets only.
Monticello revenue was up 6.9% with casino revenue up 5.6%. EBITDA was up 32.7% with the abnormal increase due to the non-payment of management
fees. Excluding the impact of the management fees EBITDA was up 8.1% despite significantly higher energy costs which in Chile are priced in US Dollars.
We have recently implemented a restructure with a number of middle management positions removed in order to flatten the operating structure and align it
with that of the Dreams business.
Dreams SCJ licences performed well achieving revenue growth of 10.8% and EBITDA growth of 10.1%. The Dreams Municipal licences did not perform as
well with revenue down 0.7% and EBITDA down 3.9%. The drop in revenue is primarily attributed to the low copper price which has impacted the Iquique
property which is situated in a copper mining area.
Ocean Sun Casino revenue at US$19.6 million is up 60% on the prior year which included 9.5 months trading compared to a full year in 2016. EBITDA for
the period was a loss of US$1.7 million compared to last year's loss of US$3.8 million. In the current year we have deemed it necessary to increase our
provision for bad debts, a common feature of international business, with $0.7 million raised relating to 2015 debtors. At 30 June 2016 our debtors' book net
of provisions stood at $2.8 million. We have recently implemented a restructuring of the business with a number of positions removed in order to flatten the
structures and operating hours have been reduced in the tables operations to match business levels.
The property has been well received by the VIP segment of the market and now has a dominant market share in tables. The biggest challenge to the
business in growing in the international market is restrictions on our banking in Panama where local banks are placing severe restrictions on receiving
money/paying customers and banking cash. We are engaging with the local regulator and a number of banks to resolve the situation as soon as possible.
Progress is being made to open bank accounts outside of Panama which will facilitate the international business.
Sun Nao Casino started trading in May 2015 however revenues are still well below expectations. Not helping matters is that the mixed use shopping
complex in which the casino is situated is still not fully occupied and the related Intercontinental Hotel was still not 100% complete as at 30 June 2016.
Management are working on strategies to increase VIP customer visits and focusing on cost controls and resource maximisation. The project was
undertaken on a short term lease (5 years) to test the Colombian market and to date the experience has been disappointing. The new management team
post the Dreams merger are devising strategies to improve both Panama and Colombia.
Nigerian property
The Federal Palace continues to operate in a difficult environment with the Nigerian economy facing a number of crises including the low oil price, Boko
Haram and a weakening Naira and it has still not recovered from the significant impact that the Ebola epidemic had on the business. Occupancy at 41.6%
was 6.8% below last year with the average room rate up 3.8%. Despite all efforts to keep costs as low as possible EBITDA declined 58%. In addition to the
problems that the country faces, there are a number of issues specific to the local Nigerian partners in the Federal Palace and these have further
exacerbated the problem. After much consideration the Board has determined to exit Nigeria and steps will be taken to achieve this in a manner that does
not erode further value.
Associates, joint ventures and discontinued operations
Following agreements entered into with Minor Hotel Group to dispose of the remaining shareholdings in Zambia, Botswana, Namibia, Lesotho and
Swaziland these equity accounted earnings have been disclosed as part of earnings from discontinued operations. The remaining equity accounted earnings
include our share of earnings from our joint ownership of our corporate office building and earnings from GPI Slots (1 January 2015 to 31 March 2016) prior
to it being accounted for as a subsidiary. GPI Slots' equity accounted earnings for 2016 were R16 million (2015: R7 million).
GROUP BORROWINGS
With the recent number of new projects and acquisitions, in particular the merger with Dreams and the construction of Time Square at Menlyn Maine, a
significant restructure of debt has taken place during the year under review. The group debt is now separately raised and ring fenced to each of Latin
America, South Africa and Nigeria.
To fund the Dreams merger the group raised (at a Latam holding company level) Clp45 billion (R1 billion) 5 year amortising term funding from a consortium
of Chilean banks. The funding has no recourse to the South African balance sheet and covenants are based on the merged Sun Dreams debt and EBITDA.
The Sun Dreams Latam balance sheet is not only ring fenced but is deliberately under-geared in relation to its EBITDA in order to allow for sufficient future
borrowings to fund the bidding for municipal licences as well as a number of new projects/acquisitions that have been identified. Based on the current
pipeline of opportunities there is no foreseeable need for further funding from the group/South African balance sheet.
In South Africa, the group has secured R10.6 billion funding facilities from a consortium of South African funders to refinance its existing South African bank
debt and to complete the Sun City and Time Square developments. The funding includes a 5 year bullet loan of R3.8 billion, 5 year amortising term loan of
R3.2 billion, 2 year revolving credit facility of R1 billion and short term banking facilities of R2.6 billion. The funding is unsecured and debt covenants are
based on the South African debt and EBITDA. The South African debt will peak with the construction of Time Square, and will start to reduce upon opening
of the project. The covenants allow for an increase above 3x EBITDA to cater for the construction of Time Square and it is anticipated that the ratio should
be below 3x EBITDA within a year of the project opening.
The Nigerian debt has always been (and remains) ring-fenced to the Federal Palace, without recourse to the group balance sheet.
The group's borrowings at 30 June 2016 amounted to R14.1 billion which is R5.3 billion above 30 June 2015. The increase in borrowings is largely due to:
- Expenditure on Time Square (R1.5 billion) which includes unrecovered VAT;
- Sun City projects (R406 million);
- Peermont and Goldrush settlements of legal objections amounting to R748 million;
- Debt from the consolidation of Dreams (R1.6 billion) and GPI Slots (R229 million);
- Debt raised for the Dreams merger in the group's Latam holding company (R1 billion) and the GPI Slots acquisition (R275 million); and
- Increase in non-SA debt on translation of their balance sheets due to the weak Rand (R365 million).
Share of debt
R million Total debt Minorities Sun International
South Africa
Subsidiaries 3 161 1 378 1 783
Time Square 2 040 510 1 530
Central Office 4 352 4 352
9 553 1 888 7 665
Nigeria
Shareholder loans 863 437 426
Sun International intercompany (302) (153) (149)
561 284 277
Latam
Subsidiaries 2 922 1 315 1 607
Central office 1 026 - 1 026
3 948 1 315 2 633
30 June 2016 14 062 3 487 10 575
30 June 2015 8 718 1 119 7 599
Capital expenditure incurred during the year
R million
Expansionary
Time Square 1 221
Sun City 268
Sun Nao Casino, Colombia 29
Other expansions 22
1 540
Refurbishment:
Sun City 138
Carnival City 30
Sibaya 9
Other refurbishments 28
205
Other ongoing asset replacement* 751
Enterprise Resource Planning 42
Total capital expenditure 2 538
* Ongoing asset replacement relates primarily to the replacement of gaming and IT equipment.
Project capital expenditure
The table below sets out the capital expenditure on major projects and the expected timing thereof:
Project Spend Forecast to 30 June
R million budget to date 2017 2018
Time Square 4 122 1 261 2 358 503
Sun City 785 411 348 28
Cabanas 130 133 - -
Entertainment Centre 370 132 238 -
Valley of the Waves 85 90 - -
Restaurants 41 35 - -
Sun Park 21 21 - -
Other projects 88 - 85 3
Vacation Club Phase 2 50 - 25 25
Meropa Hotel 74 - 37 37
Enterprise Resource Planning System 162 169 - -
Sun Nao Casino, Colombia 331 235
5 474 2 076 2 743 568
ACCOUNTING POLICIES
The condensed consolidated financial information for the year ended 30 June 2016 has been prepared in accordance with the requirements of the JSE
Limited Listings Requirements and the South African Companies Act No 71 of 2008. The Listings Requirements require provisional reports to be prepared in
accordance with the framework concepts, the measurement and recognition requirements of International Financial Reporting Standards (IFRS), the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee and must also, as a minimum, contain the information required by IAS 34
"Interim Financial Reporting". The accounting policies applied are consistent with those adopted in the financial statements for the year ended 30 June 2015.
REVIEW OPINION
Sun International's condensed consolidated financial information for the year ended 30 June 2016 has been reviewed by the group's auditors,
PricewaterhouseCoopers Inc. This review has been conducted in accordance with the International Standard on Review Engagements 2410, "Review of
Interim Financial Information Performed by the Independent Auditor of the Entity", and their unmodified review opinion is available for inspection at the
company's registered office.
DREAMS AND GPI SLOTS ACQUISITIONS AND PURCHASE PRICE ALLOCATION (PPA)
A PPA in terms of IFRS 3 Business Combinations has been carried out for the acquisition of 55% of Dreams and 50.1% of GPI Slots. Based on the PPA,
goodwill has been recognised and the assets and tangible assets of Dreams and GPI Slots were revalued. The outcome of the PPA, the assets and
liabilities acquired and the goodwill recognised is summarised below:
R million GPI Slots Dreams
Property, plant and equipment 207 3 400
Intangible assets 160 1 292
Current assets 127 216
Other assets - 196
Deferred tax (29) (224)
Non current liabilities (225) (32)
Current liabilities (90) (693)
Net assets 150 4 155
Minorities interests 49,9% (75) 45,0% (1 881)
Goodwill recognised 456 603
Net assets acquired 531 2 877
Acquisition settled through dilution of interests in Latam assets - (2 067)
Previously held associate at fair value (257) -
Consideration settled in cash (274) (810)
Pre acquisition dividend paid - 261
Cash and cash equivalents in entity 77 474
Net cash outflow (197) (75)
The Dreams PPA was carried out in Chilean Pesos (Clp) and has been translated at the exchange rate of Clp44.5 to the Rand as at the merger date of 31
May 2016.
PUT OPTIONS
IFRS requires the group to account for written put options held by non controlling shareholders who have the right to put their shares at fair value in the
event of certain events occurring or not occurring. In terms of IAS 32: Financial Instruments: Presentation, a financial liability is recognised initially at the
present value of the redemption amount and accounted for subsequently at amortised cost. Finance charges are recognised in the statement of
comprehensive income over the contract period up to the final redemption amount and any adjustments to the redemption amount are also recognised as
finance charges in the statement of comprehensive income in terms of IAS 39 para AG8.
Sun International has entered into put arrangements with the Dreams minority shareholders and Tsogo Sun Limited (Tsogo) as further described below.
The group has complied with the IFRS requirements to raise the gross put liability and debit against equity for the put options. The board of directors
however has reservations around the appropriateness of this treatment in view of the fact that:
- The non controlling shareholders have been allocated their share of the net asset value and the debit entry raised against ordinary shareholders equity
represents largely the same non controlling interest. This has significantly reduced the ordinary shareholders equity while the non controlling interest
remains the same;
- The Tsogo put option is subject to conditions outside of Sun International's control which are not expected to occur and therefore the gross liability is
contingent and may not materialise;
- The put options meet the definition of a derivative and should therefore be accounted for as such in which case the gross liability and the related fair value
adjustments related to the gross liability reported through the statement of comprehensive income would not be required; and
- In both cases should the puts be exercised the Group would be satisfied with acquiring the non controlling interests at the raised put value.
The accounting for put options on non controlling interests has been a contentious issue for many years and has been discussed at length at the
International Accounting Standards Board ("IASB") and the International Financial Reporting Standards Interpretations Committee ("IFRS IC"). Many
preparers have expressed their concerns about the accounting as a gross liability and have suggested the accounting treatment should be the same for all
derivatives. The IASB and IFRS IC has undertaken a project on Financial Instruments with Characteristics of Equity project which they have indicated would
address the accounting of put options and this may then change going forward.
Dreams shareholders put option
Sun International and the Dreams shareholders in the merger agreements agreed to a series of put option arrangements which regulate the potential
disposal of the 45% interest in the merged entity held by the Dreams' minority shareholders either by an IPO or otherwise. The put options may be
exercised if no successful IPO is undertaken within a 2 - 4 year period. A liability of R4 billion has been raised for the put obligation and a Put option reserve
for the same amount has been created thereby reducing the group's equity. For accounting purposes the value of the put option was determined based on
the merged businesses agreed value which was increased at 5% for two years and discounted back at a discount rate of 10%. We are actively looking to
increase our shareholding in the Dreams business and should the minority shareholders choose to exercise their put options, the agreed process to
determine the price at that time ensures that the transaction would take place at fair market value.
Tsogo put option
In terms of the restructure agreements of the group's Western Cape assets a put option has been given to Tsogo in the event that any party acquires 35%
or more of the issued ordinary shares of Sun International, triggering a change of control of the company. The Western Cape assets include Worcester and
SunWest. In terms of the put option Tsogo may elect to put its equity interests (20%) in the Western Cape assets to Sun International. Sun International can
elect to either settle the put by the issue of Sun International shares or in cash. A liability has been raised of R1.3 billion in this regard. The liability is
calculated in accordance with the terms of the put option agreement, effectively a 7.5 times EBITDA multiple valuation of the Western Cape Assets, less net
debt, times the 20% shareholding which Tsogo holds. The recent transaction to dispose of the 20% to Tsogo was concluded on a 7.75x EBITDA multiple and
should the put option be exercised we believe there is value in repurchasing at a 7.5x EBITDA multiple.
The Dreams shareholders and Tsogo put liabilities of R5.2 billion are reflected as Put Option liabilities with the related charge debited to a reserve for put
options (equity).
GROUP STATEMENT OF FINANCIAL POSITION
Other significant items included in the statement of financial position at 30 June 2016 that have not been dealt with elsewhere in this report include the
following:
- In accounts receivable is the remaining Tsogo receivable of R525 million relating to the disposal of the 10% interest in SunWest and Worcester and VAT
receivables of R293 million relating primarily to the Time Square development; and
- In accounts payable is a $16 million (R238 million) provision relating to the EBITDA warranty for Ocean Sun Casino which has been accrued for.
UPDATE ON STRATEGIC INITIATIVES
Initiatives to improve operational performance
The insourcing of food and beverage across the South African operations (which commenced in April 2015) has now been operational for over a year and
with the experience built up over the past 15 months we have started process improvements and cost saving initiatives with the aim to lift the business from
the current breakeven situation to drive meaningful profits going forward. The new and improved food and beverage offering is already assisting to drive
footfall to our properties which was one of the key strategic reasons for insourcing.
The past three years have seen significant change in the operations of the business. The major initiatives are now largely bedded down, all major system
changes have been successfully implemented (including the new Enterprise Resource Planning system) and the next phase revolves around extracting
efficiencies from them.
The VIP gaming initiative is ramping up with the business starting to attract increasing interest and visitation. We expect the business in the year ahead to
start generating a more meaningful contribution to profitability. There is potential to grow this business into other regions and in this regard we have started
discussions with the Western Cape Gambling Board and the Gauteng Gambling Board regarding tax concessions required in order for the International VIP
programme to be viable.
Protect and leverage our existing asset portfolio
Sun City
We are into the final stages of the major refurbishment at Sun City with the last of the big projects, being the R370 million refurbishment of the Entertainment
Centre (EC), due for completion in November. The refurbished EC, to be renamed Sun Central, will re-establish Sun City as the premier meeting and
conferencing destination in South Africa and will result in higher mid-week occupancies thereby smoothing the current intra week peaks and troughs.
Over the past few years we have completed a number of significant refurbishments and developments at Sun City which will ensure Sun City remains the
premier integrated resort destination in Africa. The developments over the past few years include the upgrade and refurbishment of the Vacation Club phase
1 units, Cabanas Hotel, Valley of the Waves, the Main Hotel casino and a number of new restaurants and fast food outlets. We continue to focus on staff
efficiencies and optimisation and reviewing outsourced service contracts to not only reduce costs but to improve the overall guest experience.
Total Vacation Club timeshare sales since the relaunch of the Phase one units at 30 June 2016 amount to R403 million (R161 million in the current financial
year) representing 42% of the Phase one inventory. In December 2015 we commenced early bird offers for the extension of the Phase two units where the
contracts expire in 3 years. Take up has been good and to date we have realised sales of R41 million representing just under 10% of the Phase two
inventory. Total sales proceeds for Phase two for 10 year memberships are estimated at R480 million which at a 70% margin will raise approximately R336
million in cash flow for Sun City. The net proceeds from the Vacation Club sales will fund the bulk of the cost of renovating Sun City and as we are only
selling 10 year memberships the units can be sold again at the end of the term with minimum capital expenditure required.
Restructure of our Western Cape assets
In terms of an agreement announced on SENS on 4 April 2016 we concluded the disposal of a 10% shareholding in our Western Cape assets (GrandWest,
Golden Valley and Table Bay) for R675 million to Tsogo Sun with effect from 1 April 2016. Grand Parade Investments, our BEE partner in the Western Cape
assets obtained shareholder approval in June 2016 for a disposal of 10% of these assets which now gives Tsogo an effective 20% economic interest in each
operation.
The transaction allows us to realise a portion of our investment in the Western Cape assets at market value without compromising our control or
management of the assets. The cash proceeds from the proposed transaction are being used to repay debt.
Disposal of the group's African portfolio to Minor
As announced on SENS on 9 May 2016 we concluded agreements with the Minor Hotel Group (Minor) for the disposal of our remaining interests and
investments in Botswana, Namibia, Lesotho, Swaziland and Zambia for a consideration of R394 million. The disposals are subject to final regulatory
approvals before implementation, save for Zambia, where all regulatory approvals were obtained and the transaction was implemented in June 2016 with
Sun International receiving a net consideration of R239 million.
Tourist Company of Nigeria - Federal Palace
Continued setbacks in Nigeria as well as the ongoing shareholder dispute have frustrated all attempts to develop and improve the property. Five of our staff
members who were detained by the Economic and Financial Crimes Commission earlier in the year have still not had their passports returned to them
despite no charges being laid against the individuals, the company or Sun International. As a result of the current environment and issues facing the
company the board has taken the decision to exit our investment in Nigeria. This is however expected to be a protracted process given the challenges we
are facing and to ensure we receive fair value for our investment.
The Boardwalk
We applied to the ECGB to further develop the land at the Boardwalk with the addition of a large high end shopping complex and requested a 20 year
extension of the casino licence in return. The ECGB approved the shopping complex but did not grant the 20 year extension of the casino licence. As a
result we will not be proceeding with the mall development at this stage.
On 10 August 2016 Emfuleni commenced a process of litigation against the Eastern Cape Gambling Board (ECGB) on the basis that the granting of
competing Electronic Bingo Terminal licences in the catchment area of the Boardwalk is in breach of the exclusivity that the Boardwalk should have received
in return for its bid commitment spend of R1 billion at the Boardwalk complex.
Initiatives to grow our business into new areas and new products
South Africa
GPI Slots
The acquisition of a further 25.0% interest in GPI Slots was concluded on 5 April 2016 and consequently Sun International now has a controlling interest in
GPI Slots with a 50.1% shareholding and consolidates the investment. Subsequent to year end we have exercised our option to acquire a further 19.9%
interest which will cost approximately R253 million and will take our shareholding to 70%. The acquisition is still subject to certain gaming board approvals
which are expected by the end of the 2016 calendar year. The total purchase consideration for the three tranches acquired by Sun International will be
approximately R765 million. Given the growth in EBITDA which GPI Slots has achieved over the past two years the acquisition consideration for the 70%
shareholding equates to a historical EBITDA multiple valuation of GPI Slots of 6 times.
Time Square
The Time Square casino and entertainment centre development is making pleasing progress with the casino component remaining on schedule to open in
April 2017. The casino back of house and preparation areas are on schedule for handover to the operations team at the end of November and the casino
furniture, fixtures and equipment are at final approval stage. The Hotel and Arena design is complete to meet the construction critical path. The budget, in
part as a result of rand weakness when securing the imported gaming equipment, has come under some pressure and currently stands at R4.1 billion.
Latam
Merger of the group's Latam assets with Dreams S.A. ("Sun Dreams")
All approvals for the merger were received and accordingly the merger was implemented on 1 June 2016. Sun Dreams is now the largest gaming company
in Latin America with Sun International owning 55%. The size and scale of the merged entity will give the company the profile, critical mass and assets
needed to expand elsewhere on the South American continent including potential opportunities in Peru as well as Brazil, which is expected to commence a
process to license casinos in the next few years. The Dreams executive management team has taken over management of the group's Latam operations
and has already implemented a number of initiatives to reduce costs and improve performance.
The municipal licence bidding process in Chile has commenced with bids due in November 2016 and provides an opportunity for Sun Dreams to bid for new
licences as well as to renew the two municipal licences that exist within our portfolio.
One of the minority shareholders in the merged Sun Dreams entity is a private equity fund which holds 20% of the shares. The fund is seeking to exit over
the next 2 years and this could be achieved through a separate listing in Santiago. Alternatively Sun International could acquire these shares and increase
its shareholding to 75%. Strategically the group would like to increase its interest in the business, subject to valuation and funding considerations and the
potential acquisition of this stake will receive significant strategic focus in the year ahead.
Change of year end
The group will be changing its year end to 31 December to align with its Chilean operations which in terms of statutory requirements must have a 31
December year end. We will report audited results for the 6 months to 31 December 2016 and the next full financial period will be the 12 months to 31
December 2017. Given that the year end has been 30 June, fortunately this change is simply a shift from interim reporting period to final and it will still be
possible to announce and make half year comparisons.
CHANGES TO DIRECTORATE & COMPANY SECRETARY
Mr Nigel Morrison has been appointed as an independent non-executive director of the company with effect from 19 August 2016 subject to regulatory
approval. Mr Morrison has extensive international gaming experience particularly in Australasia, and served as the managing director and chief executive of
Skycity Entertainment Group (from 2008 - 2016) a publicly listed company on both the New Zealand and Australian Stock Exchanges. He also has extensive
experience in international VIP gaming and the board looks forward to his contribution and expertise.
Ms Louisa Mojela having served on the Sun International board for more than 12 years, will retire at the forthcoming annual general meeting by way of
rotation in terms of the Company's Memorandum of Incorporation. Ms Mojela has indicated that she is unavailable for re-election and accordingly will retire
at the 2016 annual general meeting. The board extends its appreciation to Ms Mojela for her many years of dedicated tenure and valuable contributions.
Further to the above changes and as communicated on SENS on 17 June 2016, Ms Chantel Reddiar has resigned as company secretary of Sun
International, with effect from 5 September 2016 and the board thanks her for her commitment and dedicated service, not only as company secretary but in
other roles within the company. The board has progressed its search for the group company secretary and an announcement will be made in this regard
shortly. Mr Anthony Leeming, the chief financial officer of Sun International will act in the capacity of interim company secretary from 5 September 2016 until
such announcement can be made.
OUTLOOK
A large number of our strategic initiatives have now been implemented which not only reduces uncertainty around them but also means that the anticipated
benefits will start to reflect in full in the next financial period. The acquisition of an additional 20% in GPI Slots will increase the proportion of the consolidated
results that flow to shareholders and the opening of the new conferencing facilities at Sun City is expected to improve the resorts performance from January
2017. The major remaining large project currently in progress is Time Square at Menlyn Maine. As the Time Square project opens in phases, commencing
with the casino in April 2017 and culminating with the hotel in March 2018, it will still be some time before we have two financial periods that are directly
comparable.
Despite a slowdown in the Chilean economy we expect continued growth from our portfolio of properties in that country. With the new Latam management
team in place we also expect that the recent restructuring of Panama and Colombia should deliver improved performance from those properties, in particular
if we can also remove the banking constraints on the Panama business.
In South Africa, the economic environment remains a serious concern. We do not anticipate any meaningful growth in gaming revenue until there is a
recovery in the economy and renewed consumer confidence. Rooms and food & beverage are expected to achieve growth but these are relatively small
components of the overall business.
We continue to focus on cost control and in this way we hope to at least maintain EBITDA despite low anticipated gaming revenue growth. We anticipate a
slight improvement in performance from the existing business during the current 6 month period (due to extracting efficiencies) but with the opening of the
Time Square casino in April next year we anticipate meaningful growth in revenue and EBITDA for the full period.
The forward looking information above has not been reviewed or reported on by the company's auditors.
For and on behalf of the board
MV Moosa GE Stephens
Chairman Chief Executive
Registered office:
6 Sandown Valley Crescent, Sandown, Sandton 2196
Sponsor:
Rand Merchant Bank (a division of FirstRand Bank Limited)
Transfer secretaries:
Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg 2001
The profit announcement was prepared under the supervision of the CFO, AM Leeming; BCom, BAcc, CA(SA).
Directors:
MV Moosa (Chairman), IN Matthews (Lead Independent Director), GE Stephens (Chief Executive)*, PD Bacon (British), ZBM Bassa, EAMMG Cibie
(Chilean), PL Campher, Dr NN Gwagwa, AM Leeming (Chief Financial Officer)*, BLM Makgabo-Fiskerstrand, LM Mojela, DR Mokhobo (Director: Special
Projects)*, N Morrison (Australian)#, GR Rosenthal
* Executive
# Only appointed 19 August 2016
Group Secretary
CA Reddiar
22 August 2016
DECLARATION OF FINAL CASH DIVIDEND
Notice is hereby given that a gross final cash dividend of 135 cents per share (114.75 cents net of dividend withholding tax) for the year ended 30 June 2016
has been declared, payable to shareholders recorded in the register of the company at the close of business on the record date appearing below. This
dividend has been declared out of income reserves. The number of ordinary shares in issue at the date of this declaration is 109 086 988 including 4 963
214 treasury shares. The salient dates applicable to the final dividend are as follows:
2016
Last day to trade cum final cash dividend Tuesday, 13 September
First to trade ex final cash dividend Wednesday, 14 September
Record date Friday, 16 September
Payment date Monday, 19 September
No share certificates may be dematerialised or rematerialised between Wednesday, 14 September 2016 and Friday, 16 September 2016 both days
inclusive. Dividend cheques will be posted and electronic payments made, where applicable, to certificated shareholders on the payment date.
Dematerialised shareholders will have their accounts with their Central Securities Depository Participant or broker credited on the payment date.
Sun International Limited's tax reference number is: 9875/186/71/1.
By order of the board
CA Reddiar
Group Secretary
19 August 2016
Date: 22/08/2016 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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