Group revenue at R6,9-billion was 17% up on the previous year, contributing to a 3 percentage point improvement in the EBITDA margin to 37%.
EBITDA at R2.6-billion was 27% up on the previous year. Adjusted headline earnings of R814 million were 35% above the previous year. The diluted adjusted headline earnings per share of 719 cents were 33% ahead of last year. A final dividend of 215 cents per share was declared bringing the total dividends per share for the year to 400 cents, 38% above last year.
Chief Executive David Coutts-Trotter said that gaming revenue had improved 18% to R5.4 billion, with slot and table revenues 20% and 8% ahead of last year respectively.
“This strong revenue growth can be attributed in part to a full year’s trading from the Windmill Casino in Bloemfontein, the opening of the Golden Valley Casino in Worcester in November 2006 and strong contributions from Sibaya, Meropa, Morula and Botswana.”
Total capital expenditure for the year was R972 million and included expansions and refurbishments. The group’s borrowings increased by R1.2 billion for the year, arising primarily from the RAH transaction and the capital expenditure incurred at GrandWest and Golden Valley. GrandWest generated revenue growth of 14% over last year and EBITDA grew 16% to R693 million, while Carnival City recorded revenue growth of 16% over last year with EBITDA of R333 million growing 24% on improved margins.
The group’s share of the Gauteng market, which includes Morula, remained in line with the previous year at 22%. Sibaya recorded revenues of R684 million and EBITDA of R247 million, 17% and 41% ahead of last year respectively, with Sibaya retaining its share of the KwaZulu-Natal market at 35%. Boardwalk continued to trade well, achieving revenue and EBITDA growth of 13% and 19% respectively.
Rooms revenue of R776 million was 14% ahead of the previous year, with the overall group occupancy achieving a 3 percentage point increase to 74% and the average room rate improving by 7% to R792 mainly due to good growth in the international individual tourism market.
Sun City’s occupancy improved to 79% with a 7% increase in the average room rate. Given the closure of 170 rooms in February during refurbishment, the resort’s EBITDA of R190 million (19%) was particularly pleasing.
The Table Bay achieved occupancies of 72% (70%) for the year, with an average room rate of R1558 (up 11%), and a 21% improvement in EBITDA to R63 million. The Royal Livingstone and Zambezi Sun achieved an aggregate occupancy of 74% (68%), and an average room rate of US$154, 11% ahead of last year.
Revenue was 16% ahead in US dollar terms, with much of the growth attributable to a further increase in international visitors. Management fee income increased 22% to R586-million, reflecting higher revenues and improved profitability and margins within the group. EBITDA of R278 million was 26% higher.
Costs of R41-million (R28-million) were incurred in respect of pursuing opportunities in the UK, Chile, Africa and Russia.
The GrandWest expansion is nearing completion, with the smoking casino having opened in June. The existing casino main floor is currently undergoing a significant upgrade and the 5000-seat arena will be opened in October 2007. The overall cost of the expansion remains in line with forecast at R450 million.
Construction commenced in February on the 98-room Golden Valley Hotel in Worcester due to open in April 2008 at an anticipated cost of R65 million, while the 118-room Sibaya Lodge opened in October 2006 at a completed cost of R80 million. The additional 57 rooms at Carnival City were opened in April 2007 within the projected cost of R50 million. Construction of an R82 million multi-level parkade for over 1000 vehicles has commenced and is scheduled for completion in May 2008.
The R260 million Sun City Main Hotel refurbishment commenced in February 2007. The first phase of 170 rooms will be completed in November 2007, while the balance of the rooms will completed by November 2008.
Looking to expansion beyond South Africa, Coutts-Trotter said that the single regional casino awarded to the City of Manchester had not been sanctioned by parliament and that it appeared that licenses would no longer be awarded for regional casinos.
In March 2007 the group had entered into an agreement to acquire a 40% equity interest in a Chilean entity. The involvement of the group remains subject to the final approvals from the country’s regulator and once approved, the group will contribute US$45 million for its equity interest in the venture.
“Sun International will benefit from development management and long-term consultancy agreements. The development comprises a casino with 1500 slot machines and 80 tables, a large conference centre, a 150-room hotel, bars and restaurants, and other entertainment facilities. The project is estimated to cost US$200 million. Construction on the project has commenced and the casino is scheduled for opening in September 2008.”
The group is presently finalising agreements with its partners in Lagos, Nigeria and the parties are in the process of finalising the gaming licence. The group will acquire a 49% interest in the existing Federal Palace Hotel property on Victoria Island for US$38 million, and the group will benefit from long-term development and management agreements. The project involves refurbishing the existing property and adding a casino with 500 slot machines and 24 tables, a conference centre, restaurants and entertainment facilities. The estimated cost is US$120 million.
Sun International has undertaken to assume operational responsibility for the existing hotels from October 2007 and to provide bridging finance of US$10 million in order to commence the refurbishment of the property. Capital commitments for the new financial year amounts to some R385 million of capital expenditure contracted, R961 million which has been authorized but not yet contracted, and conditionally authorized capital expenditure of R2 250 million which relates to the group’s plans for both Nigeria and Chile.
The group acquired 61.3% of RAH for a total consideration of R1 183 million and the excess of the purchase consideration over net book value of R850 million was recognised in reserves. The group has entered into binding agreements with Grand Parade Investments Limited (GPI) whereby GPI will ultimately hold a 30% economic interest in SunWest. The parties are in the process of fulfilling a number of suspensive conditions, including obtaining various regulatory approvals.
Looking ahead, Coutts-Trotter said that the economic outlook remained positive in the year ahead despite the higher levels of inflation and interest rates, which were likely to temper the growth in consumer spending. Real growth in disposable income was nevertheless anticipated, as is continued growth in inbound tourism.
“The group expects good growth in EBITDA from its hotels, resorts and casinos in the coming year. However, the additional financing costs attributable to the share buy back implemented in July 2007, will significantly impact adjusted headline earnings per share. It is our intention to continue increasing the dividends payable to shareholders.”
