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Reviewed condensed consolidated financial statements for the year ended 31 December 2016
Sun International Limited
("Sun International" or "the group" or "the company") Registration number: 1967/007528/06 Share code: SUI ISIN: ZAE 000097580
REVIEWED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2016*
* The year ended 31 December 2016 covers the period 1 July 2016 to 31 December 2016.
Condensed group statements of comprehensive income
Audited
Reviewed Unaudited Year ended
31 December 31 December 30 June
R million 2016 2015 2016
Continuing operations
Revenue 7 670 5 837 12 186
Other income - - 18
Consumables and services (920) (724) (1 473)
Depreciation and amortisation (788) (531) (1 131)
Employee costs (1 474) (1 226) (2 464)
Impairment of assets (269) - -
Levies and VAT on casino revenue (1 446) (1 121) (2 388)
LPM site owners commission (146) - (66)
Promotional and marketing costs (485) (355) (723)
Property and equipment rentals (117) (80) (202)
Property costs (380) (385) (776)
Time Square settlements - (747) (748)
Monticello purchase price differential - (195) (243)
Other operational costs (823) (458) (1 064)
Operating profit 822 15 926
Foreign exchange (losses)/profit (82) 254 (227)
Interest income 20 20 33
Fair value adjustment to put option liability 247 - -
Interest expense (542) (349) (756)
Share of equity accounted profits 1 32 18
Profit/(loss) before tax 466 (28) (6)
Tax (256) (303) (533)
Profit/(loss) for the period from continuing operations 210 (331) (539)
Profit for the period from discontinued operations 4 4 36
Profit/(loss) for the period 214 (327) (503)
Other comprehensive income:
Items that will not be reclassified to profit or loss
Remeasurements of post employment benefit obligations - - 4
Tax on remeasurements of post employment benefit obligations - - (1)
Items that may be reclassified to profit or loss
Gross (loss)/profit on cash flow hedges (50) 1 (21)
Currency translation reserve (151) 205 220
Total comprehensive profit/(loss) for the period 13 (121) (301)
Profit/(loss) for the period attributable to:
Minorities 109 118 (89)
Ordinary shareholders 105 (445) (414)
214 (327) (503)
Total comprehensive profit/(loss) for the period attributable to:
Minorities (235) 147 (60)
Ordinary shareholders 248 (268) (241)
13 (121) (301)
Total comprehensive profit/(loss) attributable to ordinary shareholders arises from:
Discontinued operations 4 2 36
Continuing operations 244 (270) (277)
248 (268) (241)
HEADLINE EARNINGS AND ADJUSTED HEADLINE EARNINGS RECONCILIATION
Profit/(loss) attributable to ordinary shareholders 105 (445) (414)
Net profit on disposal of property, plant and equipment (9) (24) (3)
Profit on disposal of shares in subsidiaries - - (18)
Impairment of assets 269 - -
Tax (relief)/expense on the above items (48) 4 57
Minorities' interests on the above items (28) - (2)
Headline earnings/(loss) 289 (465) (380)
Straightline adjustment for rentals 10 16 27
Pre-opening expenses 4 13 28
Time Square settlements - 747 748
Transaction costs 4 19 52
Monticello purchase price adjustment - 195 243
Amortisation of Dreams intangible assets raised as part of the PPA 104 - 18
Other (9) 1 18
Foreign exchange losses/(profits) on intercompany and minority loans 80 (234) 233
Interest on Time Square Note 43 - -
Discount on Tsogo settlement 20 - -
Fair value adjustment on put options (247) - -
Tax on the above items 42 60 13
Minorities' interests on the above items (111) - (353)
Reversal of Employee Share Trusts' consolidation (i) 3 5 7
Adjusted headline earnings 232 357 654
(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 Cents per
share share share
Earnings/(loss) per share
basic 107 (453) (422)
diluted 107 (452) (422)
Dividends per share - 90 225
Diluted adjusted headline earnings per share 223 343 628
Condensed group statements of financial position
Restated
Reviewed Unaudited Year ended
31 December 31 December 30 June
R million 2016 2015 2016
Assets
Non current assets
Property, plant and equipment 17 371 12 424 16 984*
Intangible assets 2 959 789 3 251*
Equity accounted investments 16 615 15
Available-for-sale investment 48 48 48
Loans and receivables 24 21 23
Pension fund asset 33 36 36
Deferred tax 878 329 365
21 329 14 262 20 722
Current assets
Accounts receivable and other 1 480 1 019 2 036
Cash and cash equivalents 1 123 656 1 301
2 603 1 675 3 337
Non current assets held for sale 170 77 169
Total assets 24 102 16 014 24 228
Equity and liabilities
Capital and reserves
Ordinary shareholders' equity before put option reserve 2 013 1 857 2 703*
Put option reserve (4 651) - (5 252)
Ordinary shareholders' equity (2 638) 1 857 (2 549)
Minorities' interests 3 171 434 3 671*
533 2 291 1 122
Non current liabilities
Deferred tax 820 392 343*
Borrowings 10 731 5 221 9 980
Other non current liabilities 936 754 896
Put option liability 4 651 - 5 252
17 138 6 367 16 471
Current liabilities
Accounts payable and other 2 599 2 510 2 505
Borrowings 3 786 4 798 4 082
6 385 7 308 6 587
Non current liabilities held for sale 46 48 48
Total liabilities 23 569 13 723 23 106
Total equity and liabilities 24 102 16 014 24 228
* These amounts have been restated due to the finalisation of Dream's IFRS 3 purchase price allocation (PPA). Property, plant and equipment (R184
million), ordinary shareholders equity (R74 million), minority interests (R70 million) were increased whereas intangibles (R52 million) and deferred tax
liabilities (R12 million) were decreased. More details on the changes will be provided in the annual financial statements.
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* 31 DECEMBER 2016
Balance at 30 June 2016 - restated 295 (598) 337 129 4 (2 228) (15) 4 779 2 703 (5 252) (2 549) 3 671 1 122
Total comprehensive income for the year - - 182 - - - (39) 105 248 - 248 (235) 13
Net deemed treasury shares sold - (36) - - - - - - (36) - (36) - (36)
Employee share schemes - 30 - (13) - - - - 17 - 17 - 17
Increase in SunWest option - - - - - - - 14 14 (14) - - -
Decrease in Dreams option - - - - - - - (261) (261) 261 - - -
Foreign exchange on put option - - (354) - - - - - (354) 354 - - -
Acquisition of minorities' interests - - - - - (183) - - (183) - (183) (79) (262)
Dividends paid - - - - - - - (135) (135) - (135) (186) (321)
Balance at 31 December 2016 295 (604) 165 116 4 (2 411) (54) 4 502 2 013 (4 651) (2 638) 3 171 533
Audited
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 as previously shown 295 (598) 338 129 4 (1 036) (15) 4 779 3 896 (5 252) (1 356) 2 334 978
Correction of PPA misallocation # - - - - - (1 267) - - (1 267) - (1 267) 1 267 -
Dreams merger PPA finalisation adjustment - - (1) - - 75 - - 74 - 74 70 144
Balance at 30 June 2016 - restated 295 (598) 337 129 4 (2 228) (15) 4 779 2 703 (5 252) (2 549) 3 671 1 122
Unaudited
FOR THE SIX MONTHS ENDED 31
DECEMBER 2015
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 - - 177 - - - - (445) (268) - (268) 147 (121)
Treasury share options purchased - (3) - - - - - - (3) - (3) - (3)
Net deemed treasury shares purchased - (49) - - - - - - (49) - (49) - (49)
Vested employee share awards - 4 - (4) - - - - - - - - -
Employee share based payments - - - 31 - - - - 31 - 31 - 31
Release of share based payment reserve - - - (21) - - - 21 - - - - -
Delivery of share awards - - - - - - - (4) (4) - (4) - (4)
Subsidiary share issue - - - - - - - - - - - 30 30
Dividends paid - - - - - - - (175) (175) - (175) (164) (339)
Balance at 31 December 2015 295 (590) 340 118 4 (3 136) 1 4 825 1 857 - 1 857 434 2 291
# An amount of R1 267 million relating to the Non controlling reserve was in error allocated to minorities in the provisional PPA workings. This has been corrected by restating the opening balances of Minorities' interest and
the Reserve for non controlling interest.
* The year ended is for the period 1 July 2016 to 31 December 2016.
Supplementary information
Audited
Reviewed Unaudited Year ended
31 December 31 December 30 June
R million 2016 2015 2016
EBITDA RECONCILIATION
Operating profit 822 15 926
Depreciation and amortisation 788 531 1 131
Net (profit)/loss on disposal of property, plant and equipment* (9) (24) (3)
Straightline adjustment for rentals* 10 16 27
Impairment of assets* 269 - -
Pre-opening expenses* 4 13 28
Transaction costs* 4 19 52
Time Square settlements* - 747 748
Profit on disposal of shares in subsidiaries* - - (18)
Monticello purchase price adjustment* - 195 243
Other* (4) 1 12
Reversal of Employee Share Trusts' consolidation* 16 21 35
EBITDA 1 900 1 534 3 181
EBITDA margin (%) 25 26 26
Number of shares ('000)
- in issue 97 903 98 128 97 977
- for EPS calculation 97 925 98 319 98 214
- for diluted EPS calculation 97 932 98 371 98 214
- for adjusted headline EPS calculation (i) 104 140 104 140 104 140
- for diluted adjusted headline EPS calculation (i) 104 147 104 191 104 140
Earnings/(loss) per share (cents)
- basic earnings/(loss) per share 107 (453) (422)
- headline earnings/(loss) per share 295 (473) (387)
- adjusted headline earnings per share 223 343 628
- diluted basic earnings/(loss) per share 107 (452) (422)
- diluted headline earnings/(loss) per share 295 (473) (387)
- diluted adjusted headline earnings per share 223 343 628
Continuing - earnings/(loss) per share (cents)
- basic earnings/(loss) per share 103 (455) (458)
- headline earnings/(loss) per share 291 (475) (424)
- adjusted headline earnings per share 219 341 593
- diluted basic earnings/(loss) per share 103 (454) (458)
- diluted headline earnings/(loss) per share 291 (475) (424)
- diluted adjusted headline earnings per share 219 341 593
Discontinuing - earnings per share (cents)
- basic earnings per share 4 2 36
- headline earnings per share 4 2 37
- adjusted headline earnings per share 4 2 35
- diluted basic earnings per share 4 2 36
- diluted headline earnings per share 4 2 37
- diluted adjusted headline earnings per share 4 2 35
Tax rate reconciliation
Profit/(loss) before tax 466 (28) (6)
Share of associates profits (1) (32) (18)
Adjusted profit/(loss) before tax 465 (60) (24)
% % %
Effective tax rate (excluding Time Square settlements) 55 (166) 74
Preference share dividends (4) 23 (4)
Prior year over/(under) provisions 1 17 (2)
Withholding taxes - 20 (1)
Foreign tax rate variation 1 (20) 4
Exempt income 17 (7) 1
Exempt income - capital gains - (3) 16
Foreign monetary adjustments and government incentives 1 (27) 4
Monticello purchase price adjustment - 118 (12)
Reversal of deferred tax assets (20) - -
Capital allowances and disallowed expenditure (23) 73 (52)
SA corporate tax rate 28 28 28
EBITDA to interest (times) 3.8 4.9 4.4
Borrowings to EBITDA (times) 3.8 3.2 4.4
Net asset value per share (Rand) 21.45 18.92 27.59
Capital expenditure 2 218 1 009 2 538
Capital commitments 3 385 4 582 4 404
* Items identified above are included as headline and adjusted headline 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
Audited
Reviewed Unaudited Year ended
31 December 31 December 30 June
R million 2016 2015 2016
Cash generated by operations before: 1 788 1 575 3 236
Time Square settlements - - (715)
Vacation Club timeshare sales 83 103 161
Working capital changes 560 (641) 18
Cash generated by operations 2 431 1 037 2 700
Tax paid (190) (282) (677)
Cash generated by operating activities 2 241 755 2 023
Purchase of property, plant and equipment (2 185) (955) (2 461)
Purchase of intangible assets (52) (70) (108)
Payment of purchase differential - - (345)
Acquisition of shares in subsidiaries - - (272)
Proceeds on disposal of PPE and intangibles 33 75 82
Proceeds on disposal of investment in joint venture - - 226
Investment income 20 26 39
Cash flows from investing activities (2 184) (924) (2 839)
Purchase of treasury shares and share options (36) (52) (70)
Dividends paid (321) (340) (543)
Interest paid (516) (349) (734)
Minority shareholders' capitalisation of Worcester - 30 30
Acquisition of shares in GPI Slots (262) - -
Disposal of shares in subsidiaries - - 111
Movement in borrowings 994 989 2 830
Net cash (outflow)/inflow from financing activities (141) 278 1 624
Effect of exchange rates upon cash and cash equivalents (91) 45 (13)
(Decrease)/increase in cash and cash equivalents (175) 154 795
Cash and cash equivalents at beginning of the period 1 309 514 514
Cash and cash equivalents at end of the period 1 134 668 1 309
Assets held for sale (11) (12) (8)
Cash and cash equivalents at end of the year excluding non current assets held for sale 1 123 656 1 301
Commentary
INTRODUCTION
Stakeholders are referred to the profit and dividend announcement released on SENS on 22 August 2016, when Sun International Limited announced
that it would change its year end to 31 December in order to align with its Chilean operations' statutory requirements. Accordingly, these year-end
results are for the period 1 July to 31 December 2016. The next full financial period will be for the 12 months ending 31 December 2017. In the tables
throughout this report the columns headed 31 December 2015 and 31 December 2016 are for the six-month period there ended.
During the period under review, the group continued to make good progress regarding its strategic initiatives including:
- the integration of the Sun International Latin American (Latam) operations with Dreams S.A. operations (for more information, refer to the SENS
announcement on 1 June 2016);
- the acquisition of a further 19.9% in GPI Slots bringing its total holding to 70%, and thereby increasing its exposure to the fast growing Limited
Payout Machine (LPM) market (for more information refer to the SENS announcement on 17 November 2016);
- progressing the development of Time Square in Menlyn, Tshwane with the project expected to open to the public on time and within budget;
- opening of the upgraded and refurbished entertainment and conference centre, Sun Central, at Sun City;
- refinancing of its South African and Latam debt, with the group remaining within its debt covenants at year-end; and
- various cost cutting initiatives in both South Africa and Latam have resulted in below inflation cost growth during the review period.
FINANCIAL OVERVIEW
The income statement below includes adjusted headline earnings adjustments.
Year ended
31 December 31 December 30 June
R million 2016 % 2015 2016
Revenue 7 670 31 5 837 12 186
EBITDA 1 900 24 1 534 3 181
Adjusted operating profit 1 216 21 1 004 2 068
Foreign exchange (loss)/profit (2) (111) 18 5
Net interest (476) 46 (326) (709)
Profit before tax 738 6 696 1 364
Tax (249) 4 (240) (465)
Profit after tax 489 7 456 899
Minorities (260) 95 (133) (296)
Attributable profit 229 (29) 323 603
Discontinued ops and associates 3 (91) 34 51
Adjusted headline earnings 232 (35) 357 654
For the period under review, group revenue increased by 31% to R7.7 billion with the growth in revenue attributable to the inclusion of Dreams S.A. and
GPI Slots' operations for the full period.
The group's South African revenue continues to be affected by difficult trading conditions linked to an uncertain macro-economic environment and
reduced consumer spend. South African comparable revenue (excluding GPI Slots) was flat off the back of lower casino revenue. Sun City and Table Bay
continued to benefit however from an increase in international tourism which helped boost rooms' revenue by 14%.
Revenue growth in Chile has slowed over the past six months with Sun Dreams' (including the Dreams S.A. properties for the prior period) revenue up
1% in local currency. Monticello was impacted by the relocation of the toll road to the Santiago side of Monticello, making it more costly to reach the
property, whilst Iquique, which is located in a copper mining region, was impacted by the weak copper price.
Revenue by nature and geographic segment
South Africa Latam Nigeria Total
Year Year Year Year
ended ended ended ended
31 Dec 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun
R million 2016 2015 2016 2016 2015 2016 2016 2015 2016 2016 2015 2016
Casino 3 488 3 586 7 016 2 061 952 2 167 32 51 102 5 581 4 589 9 285
International Business (30) (11) 154 - - - - - - (30) (11) 154
LPM 540 16 233 - - - - - - 540 16 233
Rooms 482 423 863 110 9 28 17 31 53 609 463 944
Food and beverage 444 423 807 280 100 224 17 27 47 741 550 1 078
Other 225 209 448 - 15 32 4 6 12 229 230 492
5 149 4 646 9 521 2 451 1 076 2 451 70 115 214 7 670 5 837 12 186
Earnings before interest, tax, depreciation and amortisation (EBITDA) for the period increased by 24%. On a comparable basis, (excluding the consolidated GPI Slots and Dreams S.A. operations) EBITDA decreased by 12%.
Interest charges are significantly higher due to the conversion of US Dollar debt in late 2015 to Rand based debt with higher effective interest rates, R27 million of unamortised debt raising costs expensed on the refinance of
the Latam debt and the consolidation of the GPI Slots and Dreams S.A. results.
Minorities' share of earnings has increased with the disposal of a 10% interest in SunWest and Worcester and the consolidation of GPI Slots and Dreams S.A. results.
The table below sets out the consolidated revenue, EBITDA and operating profit by geographical region and the reconciliation between operating profit 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
Year Year Year
ended ended ended
31 Dec 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun
R million 2016 2015 2016 2016 2015 2016 2016 2015 2016
South African operations 5 149 4 646 9 521 1 279 1 292 2 601 845 904 1 809
Sun International 4 633 4 646 9 288 1 152 1 292 2 546 757 904 1 774
GPI Slots (consolidated from 1 April 2016) 516 - 233 127 - 55 88 - 35
Latam operations 2 451 1 076 2 451 622 224 565 386 104 291
Sun International 1 071 1 076 2 249 203 224 505 67 104 252
Dreams (consolidated from 1 June 2016) 1 380 - 202 419 - 60 319 - 39
Federal Palace 70 115 214 (1) 18 15 (15) (4) (32)
Total operating segments 7 670 5 837 12 186 1 900 1 534 3 181 1 216 1 004 2 068
Headline and adjusted headline earnings adjustments impacting
operating profit - - - - - - (394) (989) (1 142)
Unadjusted group operating profit 7 670 5 837 12 186 1 900 1 534 3 181 822 15 926
Adjusted headline earnings of R232 million for the year are 35% below the prior year with diluted adjusted headline earnings per share down 35% to 223 cents.
Headline and adjusted headline charges include the following:
- impairment charges of R208 million of the Carousel and Morula assets (R156 million after tax) as a result of the likely negative impact Time Square will have on Carousel's revenue and R61 million (R34 million attributed to
the group) of the Sun Nao Casino assets due to its continued underperformance;
- a reduction in the fair value of the put options of R247 million as a result of a reduction in the fair value of the underlying investments to which the put options are related;
- interest charges of R43 million (R23 million attributable to the group after tax) on the debt raised for the Time Square settlements (with Peermont and Gold Rush) which will be adjusted for up until the opening of Time
Square;
- a present value charge of R20 million on the early settlement of the Tsogo note relating to the 10% disposal of SunWest and Worcester;
- an unrealised forex loss of R80 million (R45 million after tax attributable to the group) on US Dollar denominated shareholder loans owed by the Federal Palace property in Nigeria;
- reversal of deferred tax assets of R87 million (R47 million attributable to the group) of Ocean Sun Casino and Sun Nao Casino; and
- amortisation of R104 million of Dreams S.A. intangibles (R41 million after tax attributable to the group). As indicated in the Profit and Dividend announcement for the financial year ended 30 June 2016, the intangibles
recognised on the Dreams S.A. purchase price allocation will be amortised with the amortisation charge being recognised as an adjusted headline earnings adjustment.
Given the difficult trading conditions and the need to complete strategic group initiatives, particularly Time Square, and the need to reduce debt levels, the board has decided not to declare a dividend for the period under
review.
SEGMENTAL REVIEW
The implementation and consolidation of strategic initiatives makes the current period difficult to analyse and we have therefore provided a segmental review with the full periods trading of Dreams S.A. and GPI Slots. The
review is based on actual historic performance as if the acquisitions had been implemented on 1 July 2015 (i.e. we have included Dreams S.A. and GPI Slots for the 2015 and 2016 financial periods under review).
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
Year Year Year Year
ended ended ended ended
31 Dec 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun
R million 2016 2015 2016 2016 2015 2016 2016 2015 2016 2016 2015 2016
Revenue 5 149 5 115 10 223 2 451 2 371 4 991 70 115 214 7 670 7 601 15 428
EBITDA 1 279 1 405 2 765 622 614 1 315 (1) 18 15 1 900 2 037 4 095
Adjusted operating profit 845 980 1 918 389 379 821 (13) (1) (26) 1 221 1 358 2 713
PPA adjustment - - - (3) - (11) (2) (3) (6) (5) (3) (17)
Operating profit after PPA 845 980 1 918 386 379 810 (15) (4) (32) 1 216 1 355 2 696
South Africa
The current economic climate in South Africa continued to impact negatively on the group's core casino operations, with casino revenue down 2.7% following weaker than expected December 2016 trading. While the
group's International VIP Gaming Business (IB) experienced an increase in volumes, this was offset by a low win percentage. GPI Slots continues to trade well, with revenue up 10%.
With comparable revenue (excluding IB and GPI Slots) flat on the prior corresponding period, EBITDA from South African operations was down 8%. EBITDA was also impacted by a R34 million charge incurred relating to the
temporary conference centre at Sun City whilst renovations were underway.
Revenue EBITDA Operating profit
Year Year Year
ended ended ended
31 Dec 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun
R million 2016 2015 2016 2016 2015 2016 2016 2015 2016
GrandWest 1 105 1 129 2 178 440 453 879 369 385 749
Sun City 896 821 1 627 78 107 222 (20) 18 37
Sun City - IB (30) (11) 153 (55) (19) 2 (55) (19) 2
Sun City - vacation club accounting adjustment (60) (55) (124) (40) (34) (99) (40) (34) (99)
Sibaya 581 602 1 178 186 201 393 159 165 322
Carnival City 526 561 1 108 141 171 343 102 132 265
Boardwalk 289 308 604 49 65 126 8 24 42
Wild Coast 244 242 471 43 44 90 18 16 34
Meropa 167 158 316 59 52 110 48 42 90
Windmill 138 148 289 47 49 97 37 39 77
Flamingo 91 94 182 25 29 57 17 23 43
Golden Valley 85 83 165 17 13 31 10 6 13
GPI Slots and Sunbet 540 484 967 129 110 214 90 73 137
Management and corporate office 295 300 600 97 114 193 77 104 170
Carousel 158 165 322 31 37 66 17 23 37
Table Bay 167 143 310 37 28 66 29 20 51
Morula 107 113 218 15 10 24 13 1 22
Maslow 78 70 139 (8) (13) (24) (20) (25) (48)
Naledi 12 12 24 (1) (2) (4) (2) (2) (4)
Fish River 15 14 25 (11) (9) (21) (12) (10) (22)
5 404 5 381 10 752 1 279 1 406 2 765 845 981 1 918
Consolidation adjustment for GPI pre acquisition - (468) (702) - (112) (164) - (77) (109)
Intercompany management fees (255) (267) (529) - - - - - -
5 149 4 646 9 521 1 279 1 294 2 601 845 904 1 809
GrandWest (Western Cape)
Lower gaming revenues resulted in a revenue reduction of 2%. Costs were well managed with the decrease in EBITDA contained to 3%. A Sun Park
(events and exhibition facility) has been opened and will help drive significant footfall. Upgrades to the gaming floor have taken place including the
establishment of a Sun Lounge (VIP gaming area).
Sun City (North West)
Total revenue increased by 7% with gaming revenue up 3% and rooms revenue up 10%. EBITDA decreased by 48% predominantly as a result of a
non-recurring rental cost of R34 million for the temporary conferencing facility mentioned above. Excluding this rental cost, EBITDA would have
increased by 1%.
Sun Central was opened in November 2016 following a R375 million refurbishment and upgrade of the conference and entertainment centre. Hotel
occupancy levels have increased and the conferencing facility is almost fully booked for the 2017 financial year.
A number of cost saving initiatives and process streamlining are underway with the resultant benefit expected to materialise in the 2017 calendar year.
Sibaya (KwaZulu-Natal)
Revenue decreased by 4% and EBITDA decreased by 8% with costs, excluding gaming levies and VAT, in line with the previous year. The property will be
opening new restaurants and a Sun Park while an expansion of the gaming area is under review.
Carnival City (Gauteng)
Despite increased footfall, gaming revenue at Carnival declined by 8% largely as a result of a reduction in average spend and a 16% drop in tables'
revenue. Overall costs excluding gaming taxes were down 1%. EBITDA declined by 18%.
The property is currently undergoing a refresh of its retail and food and beverage offering and a Sun Park exhibition and eventing facility has been
completed.
Boardwalk (Eastern Cape)
Competition from Electronic Bingo Terminal (EBT) operations within the Boardwalk's catchment area and a weak regional economy, continue to impact
gaming revenues. Revenue decreased by 5% and EBITDA by 24%. Costs excluding gaming taxes were up by 2%.
Other Casinos
The smaller urban casinos which include Meropa (Limpopo), Windmill (Free State), Flamingo (Northern Cape) and Golden Valley (Western Cape)
generally performed satisfactorily with revenue flat on the prior period and EBITDA growth of 3%.
A new 60 room hotel at a cost of R74 million is currently under construction at Meropa with an expected opening around August 2017.
Morula and Carousel
As previously communicated, the current casino at Morula will be closed as the licence is being relocated to Time Square and Morula itself will be
closed. Options, including the selling or downscaling of the Carousel are being considered, as it will be impacted by Time Square.
Management and Corporate office
Management fees and related income of R295 million were 2% lower than last year, primarily due to the lower EBITDA of the operating units. The
reduction in management fees was partially offset by project fees charged on the Time Square project. Costs increased by 6% with EBITDA declining by
15%. With the opening of Time Square certain head office staff will be relocated to that operation.
Nigeria
The environment in Nigeria continues to deteriorate and as a result, revenue during the period, decreased by 39% while EBITDA recorded a loss of R1
million compared to the prior corresponding period's R18 million profit.
Latin America
The integration of Sun International's Latin American operations and Dreams S.A. is progressing well.
The table below includes the historic trading of Sun Dreams for the full 30 June 2016 financial year and six month period ended 31 December 2015 and has converted these periods at the average exchange rate for the year
ended 31 December 2016 to enable comparisons in Rands.
Revenue EBITDA Operating profit
Year Year Year
ended ended ended
31 Dec 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun 31 Dec 31 Dec 30 Jun
R million 2016 2015 2016 2016 2015 2016 2016 2015 2016
Monticello 952 956 1 905 262 277 565 193 211 430
Dreams SCJ licences 809 781 1 555 304 289 520 285 262 419
Dreams Municipal licences 432 435 877 159 160 268 132 130 182
Central office - - - (63) (54) - (104) (120) -
Chile total 2 193 2 172 4 337 662 672 1 353 506 483 1 031
Ocean Sun 101 148 300 (40) (17) (26) (83) (59) (120)
Sun Nao 17 20 45 (20) (24) (39) (33) (38) (67)
Peru 140 145 278 20 13 12 (1) (7) (39)
Total 2 451 2 485 4 960 622 644 1 300 389 379 805
Dreams PPA adjustment on PP & E - - - - - - (3) - (11)
Constant currency adjustment - (114) 31 - (30) 15 - (16) 16
Dreams pre acquisition - (1 295) (2 540) - (390) (750) - (259) (519)
Consolidated 2 451 1 076 2 451 622 224 565 386 104 291
Chile
In local currency the Chilean operations, other than Iquique and Monticello, generally performed satisfactorily. Overall revenue from Chile increased by
1% and EBITDA was down by 1.5%. As mentioned, the operation in Monticello was impacted by the relocation of the toll road whilst Iquique, which is
located in a copper mining region was impacted by the weak copper price.
Management has reduced costs at Iquique which should have a positive impact on margins going forward. At Monticello, the casino system was
replaced in July 2016 and a new arena, additional smoking terrace and bar are currently under construction and due for completion by June 2017.
Panama
Due to the restrictive banking practices in Panama, the VIP operations of the Ocean Sun Casino during the period under review have been kept to a
minimum. This situation was largely resolved towards the end of 2016 which should have a positive impact on trading going forward.
A second very small operation, Sun Down Town, was opened to increase reach and to use underutilised slot machines. The premises are rented on a
short term trial basis.
BORROWINGS
The group's borrowings at 31 December 2016 amounted to R14.5 billion, R455 million above the 30 June 2016 levels. The increase in borrowings is
primarily attributable to:
- the purchase of a further 19.9% interest in GPI Slots (R262 million);
- expenditure on Time Square (R1.2 billion), offset by
- receipt of proceeds from the 10% sale of SunWest and Worcester to Tsogo in the prior period (R505 million); and
- Foreign Currency Translation Reserve movement on debt in foreign subsidiaries (R493 million reduction).
The group continues to remain within its debt covenants.
Share of debt
R million Total debt Minorities Sun International
South Africa
Subsidiaries 3 137 917 2 220
Time Square 3 313 828 2 485
Central Office 4 167 - 4 167
10 617 1 745 8 872
Nigeria
Shareholder loans 801 406 395
Sun International intercompany (282) (143) (139)
519 263 256
Latam
Subsidiaries 2 478 1 126 1 352
Central office 903 - 903
3 381 1 126 2 255
31 December 2016 14 517 3 134 11 383
30 June 2016 14 062 3 487 10 575
The group has unutilised borrowing facilities of R1.6 billion and available cash balances of R767 million.
Project capital expenditure
The table below sets out the capital expenditure on major projects and the expected timing thereof:
Project Spend Forecast to 31 December
R million budget to date 2017 2018 2019
Time Square 4 225 2 425 1 371 429 -
Sun City 483 387 76 25 -
Entertainment Centre 370 351 24 - -
Other projects 63 36 27 - -
Vacation Club Phase 2 50 - 25 25 -
Monticello arena, smoking deck and bar 177 20 157 - -
Meropa Hotel 74 12 62 - -
4 959 2 844 1 666 454 -
SUBSEQUENT EVENTS
On 15 February 2017 Menlyn Maine exercised their right to acquire a 14.25% interest in Time Square. In terms of the agreement Menlyn Maine has a put
option against the company for its 14.25% interest in Time Square which is exercisable on 30 June 2020.
The disposal of the Lesotho shareholding was completed on 16 February 2017 and the disposal of the remaining Namibian shareholding and
management contract was completed on 23 March 2017.
UPDATE ON STRATEGIC INITIATIVES
Time Square
The construction of the new casino and entertainment complex, Time Square at Menlyn Maine, Tshwane is well advanced with an expected opening of
the casino on 1 April 2017. The arena public opening is scheduled for November 2017 and the hotel in March 2018. To date, the cost of the
development is in line with its R4.2 billion budget.
GPI Slots
During November 2016, Sun International acquired a further 19.9% interest in GPI Slots for a consideration of R262 million, taking its shareholding in the
company to 70%. The revenue and profits from GPI Slots have been consolidated from 1 April 2016. The total purchase consideration for the three
tranches acquired by Sun International was R765 million. Given the growth in EBITDA the acquisition consideration equates to a historical EBITDA
multiple valuation of six times.
Chile municipal licence bidding process
The bidding process for the Chile municipal casino licences has been delayed following their High Court's decision to hear objections from a number of
third parties. The court's ruling is expected imminently and if any amendment in legislation is required the process will be further delayed. As a result of
the delay, the municipal licences will be extended to 31 December 2018 in the event a new licence is not ready to operate before then. Sun Dreams is
planning on bidding to renew its two licences, as well as bid for additional licences.
Sun Dreams shareholders' put options
One of the minority shareholders in Sun Dreams has issued notice to the company requesting Sun Dreams to list on the Santiago or New York stock
exchange through an initial public offering (IPO). On condition that appropriate market conditions exist, Sun International has the option to list Sun
Dreams or if it chooses not to do so, the minority shareholder who requested the IPO will have the right to exercise its put option against the Company.
If Sun Dreams conducts an IPO, the minority shareholders' put options will fall away. Strategically the group would like to increase its interest in this
business, subject to valuation and funding considerations.
Disposal of the group's Africa portfolio to the Minor group
Final regulatory approval for the implementation of the disposal of the group's remaining interests in Botswana, Lesotho and Swaziland remain
outstanding. As noted under subsequent events, the disposal of the Lesotho shareholding was completed on 16 February 2017 and the group received
R19 million relating to this portion of the transaction. The disposal of the remaining Namibian shareholding and management contract was completed
on 23 March 2017 and R35 million was received. The group is still expecting to receive R133 million in respect of the balance of interests in the Minor
transaction.
Tourist Company of Nigeria - Federal Palace
As announced on 22 August 2016, Sun International is pursuing its decision to exit this investment.
CORPORATE GOVERNANCE
The group continues to embrace and implement best corporate governance practices, including the recommendations set out in King III, and has
satisfied itself that during the period under review, it has complied in all material respects with the provisions of King III as well as with the Listings
Requirements of the JSE. The group has commenced with applying the principles contained in King IV.
CHANGES TO DIRECTORATE
On 3 October 2016, Ms CM Henry was appointed as an independent non-executive director of the company and has also been appointed as a member
of the audit committee. On 21 November 2016, Ms L Mojela and Mr NB Morrison retired as non-executive directors.
Mr AG Johnston was appointed as the permanent group company secretary with effect from 16 November 2016 replacing Mr AM Leeming as the
interim company secretary on that same day. Mr GE Stephens stepped down as Chief Executive with effect from 31 January 2017 and Mr AM Leeming
was appointed as the Chief Executive on 1 February 2017.
On 24 March 2017, Mr N Basthdaw was appointed as the new Chief Financial Officer and an executive director of the company.
OUTLOOK
Sun International expects gaming revenue in South Africa to remain under pressure as a result of ongoing subdued economic conditions, increased
personal income taxes and reduced disposable income. Hotel occupancy is however anticipated to grow for the remainder of the year and will be
boosted by the refurbished conference and entertainment centre at Sun City, where forward bookings for conferences are well up on last year. The
opening of the casino at Time Square in April 2017 is expected to have a positive impact on the group's performance going forward.
In Latin America, the Chilean economy, although still experiencing low GDP growth, is showing positive signs of an improvement with an increase in
the copper price and low inflation and interest rates. Although trading in the early part of 2017 has remained subdued it is expected to pick up towards
the end of the year.
Taking into account current trading conditions and the group's levels of indebtedness, the primary focus for the foreseeable future will be to reduce
debt and ensure the successful implementation and integration of recent acquisitions.
ACCOUNTING POLICIES
The condensed consolidated financial information for the period ended 31 December 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 Financial Pronouncements as issued by the Financial
Reporting Standards and must also, as a minimum, contain the information required by IAS 34 "Interim Financial Reporting". The accounting policies
applied in the preparation of the condensed consolidated financial statements are in terms of IFRS and are consistent with those adopted in the
financial statements for the year ended 30 June 2016.
REVIEW OPINION
Sun International's condensed consolidated financial information for the year ended 31 December 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.
ANNUAL GENERAL MEETING: ANNUAL STATUTORY REPORT: INTEGRATED ANNUAL REPORT
Sun International's 33rd annual general meeting will be held at The Maslow Hotel, Corner of Grayston Drive and Rivonia Road, Sandton, Johannesburg
on Wednesday, 14 June 2017 at 09h00. Further details regarding the company's annual general meeting will be contained in Sun International's 2016
annual statutory report to be posted to shareholders during or about the middle of April 2017. Given the short time period which has elapsed since
posting the company's previous integrated annual report (21 October 2016), no further integrated annual report will be delivered to shareholders in
respect of the period under review.
For and on behalf of the board
MV Moosa AM Leeming
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, 1st Floor, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
The profit announcement was prepared under the supervision of the Chief Executive, AM Leeming; BCom, BAcc, CA(SA).
Directors:
MV Moosa (Chairman), IN Matthews (Lead Independent Director), AM Leeming (Chief Executive)*, PD Bacon (British), ZBM Bassa, N Basthdaw (Chief
Financial Officer)*, PL Campher, EAMMG Cibie (Chilean), CM Henry, Dr NN Gwagwa, BLM Makgabo-Fiskerstrand, DR Mokhobo*, GR Rosenthal
* Executive
Group Company Secretary
AG Johnston
24 March 2017
Date: 27/03/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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