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Trading Statement and Business Update
SUN INTERNATIONAL LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1967/007528/06)
Share code: SUI
ISIN: ZAE000097580
("Sun International" or “the Company”)
TRADING STATEMENT AND BUSINESS UPDATE
INTRODUCTION
The Sun International group (“the group”) is currently finalising its results for the financial year ended
31 December 2017, which are expected to be released on the Stock Exchange News Service of the
JSE Limited (“SENS”) on or about 19 March 2018.
Shareholders are reminded that in terms of announcements released by the Company on SENS on
22 August 2016 and 24 February 2017, Sun International has changed its financial year-end from 30
June to 31 December, in order to align with its Chilean operations.
Accordingly and for purposes of the trading statement below, the expected earnings per share ranges
for the year ended 31 December 2017 are compared against the unaudited pro-forma results for the
prior corresponding period, 1 January 2016 to 31 December 2016 (“the prior corresponding period”).
For ease of reference, the prior corresponding period unaudited pro-forma results are set out below.
TRADING STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2017
Shareholders are advised that a reasonable degree of certainty exists that the Company’s headline
earnings per share for the financial year ended 31 December 2017 is expected to be a loss of between
161 cents per share and 196 cents per share compared against the prior corresponding period’s
headline earnings profit of 382 cents per share. Basic earnings per share for the financial year ended
31 December 2017 is expected to be a loss of between 260 cents per share and 232 cents per share
compared against the prior corresponding period’s profit of 139 cents per share. Furthermore
shareholders are advised that Sun International’s adjusted diluted headline earnings per share is
expected to be a profit of between 268 cents per share and 328 cents per share against the prior
corresponding period’s profit of 503 cents per share.
Earnings were impacted by not accounting for the full deferred tax asset on the losses of Sun Time
Square and the group having to consolidate the BEE trusts’ 10% interest in Sun Time Square resulting
in the group effectively accounting for 86% of the losses. With the closing of the International VIP
business in South Africa and at the Ocean Sun Casino in Panama, the group has provided against
potential bad debts of R52 million in South Africa and R47 million from the Ocean Sun Casino.
The reconciliation between basic earnings per share (EPS) and headline earnings per share (HEPS) is
primarily due to:
- profit on disposals of shares in subsidiaries of R27 million (R22 million attributed to the group);
- impairment of assets of R92 million (R55 million attributed to the group); and
- fair value adjustment on a held for sale investment of R43 million (R28 million attributed to the
group).
In determining expected diluted adjusted headline earnings per share (AHEPS) the following
significant adjustments have been made to HEPS:
- an onerous lease contract provision in Colombia of R50 million relating to the Sun Nao
Casino;
- bid and transaction costs of R43 million relating to the Latin American operations’ municipal
bids and Sun Dreams S.A. merger;
- restructuring expenses of R43 million relating to Sun Nao Casino, Morula and Fish River Sun
closures;
- expensing of the remaining bid commitment of R20 million relating to the Fish River Sun;
- foreign exchange loss on inter-company loans of R27 million;
- pre-opening expenses of R48 million;
- interest of R22 million incurred up to the opening of the Sun Time Square casino which related
to the payment made to Peermont;
- the straight lining of the Maslow and head office building lease expense of R20 million;
- amortisation of R149 million of the Sun Dreams S.A. intangible assets raised as part of a
purchase price adjustment;
- an increase in the value of the Sun Dreams S.A. and Tsogo put options of R223 million;
- tax on above items of R88 million; and
- minorities interest on above items of R106 million.
BUSINESS UPDATE
Overall, the financial performance of the South African and Latin American operations has continued
to be affected by challenging trading conditions attributable to, among others, the political uncertainty
and weak business confidence in South Africa, a low growth Chilean economy and consumers who
have less disposable income to spend on entertainment and gaming. While the South African
operations produced a pleasing recovery during the second six months of the year under review, the
performance of the Latin American operations has remained subdued. In particular, our Chilean
operations were negatively impacted by the shooting incident at Monticello. Due to the continued
underperformance of the Ocean Sun Casino in Panama, its operations have been scaled down while
its VIP business has been closed. Sun Nao Casino in Colombia, which has continued to incur losses,
was closed in December 2017.
Shareholders are referred to the announcements released by the Company on SENS on 30 May 2017
and 15 November 2017 which provided details regarding Sun International's intention to increase its
shareholding in Sun Dreams S. A. from 55% to 65%. This transaction is pending finalisation of the
funding agreements and it is envisaged that it will be implemented by the end of March 2018.
Furthermore, Sun Dreams S.A. is still awaiting regulatory approvals pertaining to its acquisitions of
certain casino interests and land in Peru.
Sun Time Square
The Sun Time Square Casino and the arena at Menlyn, Pretoria opened on 1 April 2017 and
1 November 2017 respectively and achieved total revenue of R827 million and EBITDA of R184
million, for the nine months ended 31 December 2017. Although trading has improved marginally, Sun
Time Square is trading behind expectations and at present its share of the Gauteng gaming market is
approximately 13%. The 238 key hotel is anticipated to open on or about 1 April 2018.
As a result of disappointing trading and a high interest charge, Sun Time Square has incurred a
significant loss before tax. Due to the size of this loss we have not been able to justify the raising of the
full deferred tax asset and consequently there was limited tax relief from the losses.
Borrowings
Sun International’s borrowings as at 31 December 2017 was R15 billion of which R11.4 billion was
attributable to the South African balance sheet. The debt to EBITDA ratio in terms of the covenant
calculations was 3.7 x at 31 December 2017. Sun International has outstanding capital investment
commitments of approximately R230 million (2018) to complete Sun Time Square. The Company’s
balance sheet remains resilient and the group continues to generate strong cash flow from operations,
which has resulted in the group trading within the debt covenant of 4x debt : EBITDA.
Proposed Rights Offer
In recent years, Sun International has concluded a number of transactions and projects, which
included:
- the opening of the Ocean Sun Casino in Panama and the Sun Nao Casino in Colombia;
- the merger of its Latin American operations with that of Dreams S.A., including the acquisition
of a controlling interest in the merged entity;
- the acquisition of 70% of Sun Slots (formerly GPI Slots);
- the construction of Sun Time Square; and
- the refurbishment of a number of Sun International’s existing hotels and casinos.
All of the above projects and acquisitions were funded through debt and following the merger with
Dreams S.A. in 2016, the group reorganised its debt, which was separately raised, and ring -fenced in
South Africa, Latin American and Nigeria.
Due to the difficult trading conditions and Sun Time Square trading behind expectations, the group
renegotiated its South African debt covenant levels for June 2017 and December 2017. Although
trading has improved marginally at Sun Time Square and the group met its debt covenants at 31
December 2017, the Board has nevertheless deemed it prudent to embark on a capital raise exercise
of R1.5 billion in order to de-risk the Company’s balance sheet. Accordingly, the proceeds from the
proposed rights offer will be used to repay debt, thereby creating headroom in relation to relevant debt
covenants. A stronger balance sheet and capital structure will also afford management greater
operational freedom and the ability to focus its time and efforts on the stated ‘back to basics’ strategy.
In addition, the proposed rights offer will reduce Sun International’s interest charge as rates are based
on Sun International’s prevailing debt metrics.
The proposed rights offer is intended to be completed on the terms and subject to the conditions to be
stipulated in the rights offer circular to be posted to shareholders following the release of the
Company’s financial results for the 12 months ended 31 December 2017. Further details relevant to
the proposed rights offer will be announced to Shareholders on SENS in due course.
This business update and trading statement has not been reviewed or reported on by Sun
International’s external auditor.
UNAUDITED PRO FORMA CORRESPONDING FINANCIAL INFORMATION
A B C=A-B D C+D
Audited Unaudited Pro forma Audited Pro forma
12 months 6 months 6 months 6 months 12 months
ended ended ended ended ended
30 June 31 December 30 June 31 December 31 December
Rm 2016 2015 2016 2016 2016
Continuing operations
Operating profit 926 15 911 822 1,733
(Loss)/profit before tax (6) (47) 41 466 507
Tax (533) (303) (230) (256) (486)
Loss for the period from continuing operations (539) (350) (189) 210 21
Profit for the period from discontinued operations 36 23 13 4 17
Loss for the year (503) (327) (176) 214 38
- -
Minorities (89) 118 (207) 109 (98)
Ordinary shareholders (414) (445) 31 105 136
Loss for the period attributable to: (503) (327) (176) 214 38
Adjusted for :
(Loss)/profit attributable to ordinary shareholders (414) (445) 31 105 136
Net (profit)/loss on disposal of property, plant and equipment (3) (24) 21 (9) 12
Profit on disposal of shares in subsidiaries (18) - (18) - (18)
Impairment of assets - - - 269 269
Tax (relief)/expense on the above items 57 4 53 (48) 5
Minorities' interests on the above items (2) - (2) (28) (30)
Headline (loss)/earnings (380) (465) 85 289 374
Number of shares ('000)
- in issue after excluding deemed treasury shares 97,977 97,977 97,903 97,903
- for EPS calculation 98,214 98,214 97,925 97,925
- for diluted EPS calculation 98,214 98,214 97,932 97,932
- for adjusted headline EPS calculation (i) 104,140 104,140 104,140 104,140
- for diluted adjusted headline EPS calculation (i) 104,140 104,140 104,147 104,147
Earnings per share (cents) - recalculated
- basic earnings/(loss) per share 32 107 139
- headline earnings/(loss) per share 87 295 382
- adjusted headline earnings per share 280 223 503
- diluted adjusted headline earnings per share 280 223 503
Notes to the Pro Forma Income Statement.
1. The group pro forma income statement and earnings per share have been prepared for
purposes of comparison to the review period.
2. The group pro forma income statement was derived by deducting the unaudited, published
results for December 2015 from the audited results for June 2016, to get to six months ending
June 2016 figures. The audited six months ending December 2016 results were added to June
2016 six months to derive the full twelve-month December 2016 pro forma results.
3. The minority share of attributable earnings was impacted by their share of a significant
Nigerian foreign exchange loss on intercompany loan.
4. The Directors of Sun International, as at the date of this announcement, collectively and
individually, accept full responsibility for the accuracy of the information given in this pro forma
group income statement and certify that, to the best of their knowledge and belief, there are no
other facts, the omission of which would make any statement in this pro forma group income
statement false or misleading and all reasonable enquiries to ascertain such facts have been
made and that this pro forma group income statement contains all information required by the
Listing Requirements of the JSE Limited.
By order of the Board.
Johannesburg
9 March 2018
Sponsor to Sun International
INVESTEC BANK
Date: 09/03/2018 05:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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