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| CEO's Report | Page 1 2 3
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An exciting year in which we
benefited from a buoyant economy |
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| Anticipate real growth in disposable income to continue |
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This past year has been an exciting one in which we have
benefited from a buoyant economy. Sun International
has performed well in this environment and we again
anticipate real growth in disposable income to continue in
the year ahead.
With the impact yet to be felt of the rise in interest rates,
rising producer and consumer price inflation, and a
concerning skills shortage, the coming years will be
challenging, although they do not alter the generally
positive economic outlook being forecast for the country.
This scenario has informed the development of our strategic
imperatives going forward, including a renewed focus on
growth and expansion, measures to retain our leadership
position in the tourism and leisure market, and a
comprehensive programme to entrench and enhance our
corporate reputation, brand and image among our key
stakeholders, who are the DNA of a successful modern
business such as ours.
We have continued to invest in the five main focus
areas which we believe give us competitive advantage
in the market place: human capital development, customer
management, marketing and promotional activity,
infrastructure and product research and development.
It remains our foremost objective to be one of the most
admired companies in South Africa, and to be the example
for others to follow, and the natural first choice as partner,
supplier or employer to all our stakeholders, including
customers, employees, shareholders, government and
business partners wherever we do or will do business. |
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| TRADING AND OPERATING PERFORMANCE |
The group achieved an excellent performance in its
gaming operations which benefited from high levels of
disposable income and continuing consumer confidence.
Our gaming operations were not only able to grow
revenue and maintain or improve market share, but were
also able to continue to achieve higher margins through
further efficiencies.
The hotel and resorts division enjoyed a much improved year
with our premier properties Sun City, Table Bay and the Royal
Livingstone at Victoria Falls benefiting from an increased
number of foreign visitors and stronger local demand.
The group achieved strong growth in revenues that were
17% ahead of the previous year at R6,9 billion.
Gaming revenues were up 18% to R5,4 billion with slot
and table revenues 20% and 8% ahead of last year
respectively. The strong revenue growth in gaming 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
growth in contributions from Sibaya, Meropa, Morula and
Botswana. The strength in the slots business is due in part
to our aggressive reinvestment in new slots product,
the group's unique jackpot together with other product
developments and innovative promotions.
Rooms revenue of R776 million was 14% ahead of the
previous year. The overall group occupancy of 74% was
3 percentage points ahead of last year and the average
room rate improved 7% to R792, primarily due to good
growth in the international individual
tourism market.
Costs were well controlled and the EBITDA margin
improved 3 percentage points to 37%, with EBITDA up
27% to R2,6 billion.
Adjusted headline earnings of R814 million were 35%
above last year. The diluted adjusted headline earnings per
share of 719 cents were 33% ahead of last year.
Our improved profitability has resulted in an enhanced
return on equity that increased 11 percentage points to
30% and return on net assets that increased 6 percentage
points
to 32%. |
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| BALANCE SHEET |
The group has for some time explored ways of improving
our balance sheet structure particularly in light of the
strong growth in cash flows and equity value over the last
few years. In this regard the group completed a major
share buy back on 30 July 2007, acquiring 16% of its
equity at a total cost of R2,3 billion. The transaction was
funded by way of a R2,0 billion redeemable preference
share issue which has substantially improved the gearing
of the group, although financing costs will increase in
the forthcoming year due to this increased debt.
Management will continue to look to optimise the balance
sheet to maximise returns to
equity shareholders. |
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| LEGISLATIVE DEVELOPMENTS |
The National Gambling Amendment Bill currently before
Parliament seeks to amend the National Gambling Act
of 2004 to provide for the regulation of interactive
gambling. The Bill was introduced to the Portfolio
Committee on Trade and Industry on 8 August 2007 and at the time of writing, has passed its second reading
in the House of Assembly. CASA made a constructive
contribution to the debate surrounding the Bill during
its passage through public hearings conducted by the
Portfolio Committee on Trade and Industry. The regulation
of interactive gambling may provide some longer term
opportunity for the group although no significant impacts
are anticipated in the next few years.
A number of unlicensed casino operators in the North
West Province have been trading illegally for a number of
years. The industry is challenging the matter before the
courts which is likely to be heard in 2008.
Bingo operators in KwaZulu-Natal (KZN) have requested
the KZN Gambling Board to issue a ruling to allow them
to operate electronic bingo terminals (EBTs). Allied to
this, the High Court in Pretoria is scheduled to hear an
application by casino operators in Gauteng to review a
decision by the Gauteng Gambling Board to license EBTs
in Gauteng. CASA is representing the industry in opposing
these applications.
CASA continues to perform an important role as industry
spokesperson and advocate to a wide range of interest
groups. It has established a sound reputation among its
domestic stakeholders and international counterparts and
enjoys strong support from its members. |
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| BRAND DEVELOPMENT AND POSITIONING |
Sun International positions itself as a successful leisure group
offering superior gaming, hotel, resort and entertainment
experiences, which exceed our customers' expectations
and our competitors' offerings. Sun International's values are
today well entrenched and have come to symbolise luxury,
imagination, energy, adventure and elegance.
We strive to retain leadership of the markets in which
we operate through innovation, an obsession with service
excellence and the delivery of unique, market leading and
customer focused products. |
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| CUSTOMER MANAGEMENT |
Sun International will continue to focus on its mission
to cherish the customer. The group has worked hard to
maintain and build its reputation for meeting and exceeding
customer expectations. We have embarked on an extensive
customer management strategy and programme, with a
renewed focus on customer-centricity, that will guide and
coordinate these efforts over the next three to four years.
We are keen to "do more" to ensure that our customers consistently receive memorable, quality Sun International
experiences that are based on their needs and in line with
our brand promise.
Indicative of the importance we place on customer
management, we recently appointed the group's first ever
chief customer officer, reporting directly to me as chief
executive. And while customers are the responsibility of
every person at Sun International, our chief customer
officer will champion our customer management strategy
throughout the group.
The customer management strategy fundamentally
under pins our business strategy and supports the
achievement of the group's vision and goals. It outlines the
enablement of the right service to be delivered to the right
customers in the right way at the right time and will provide
direction and focus. It is a complex, long-term, ongoing
journey that aims to create market differentiation through
Sun International's ability to manage customer relationships
more effectively.
Our strategy focuses on getting the fundamentals right
every time and making it as easy as possible for our
customers to do business with us. In the next few years,
we will increase our investment in: |
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Our People: empowering them to deliver those
memorable experiences |
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Our Technology and Information: enabling our
staff with the right information and tools to facilitate
customer requests and interactions, and |
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Our Processes: ensuring consistency, innovation
and continuous improvement to address customer
requirements. |
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It further focuses on treating different customers differently,
matched to their unique needs and expectations and it aims
to customise our product offering to meet customer
needs, to engage and interact on a more personal level.
The delivery of superior service and customer experiences
should be to the mutual benefit of the business and
its customers.
A significant initiative to align all of our staff with our
brand promise is progressing well and will be rolled out to
all the properties commencing in early 2008. Various
technology solutions have been identified to assist in the
relationship management component of the project. |
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| GAMING |
We remain South Africa's leading casino operator with a
market share of 43%.
The Golden Valley Casino in Worcester opened at
the end of November 2006 with 183 slot machines.
A 98 room hotel planned for completion in April 2008
will complement the Worcester property's gaming and
entertainment facilities.
The seventh Gauteng licence was awarded at Krugersdorp
on the West Rand and will be operated by a competitor. This
will expand the Gauteng market but will also impact on
the existing operations reliant on the West Rand market.
Carnival City is likely to remain largely unaffected by this
new operation, which is planned to open later this year.
GrandWest enjoyed another strong trading performance
and the property achieved revenue growth of 14%,
increasing EBITDA by 16% to R693 million. The overall
R450 million expansion at GrandWest is nearing completion
with the new smoking Privé, external walkway and fast food
areas having opened to the public in early December 2006
and the 1 124 slot smoking casino and 1 471 bay parkade
opened during June 2007. The current work in progress
is proceeding according to plan with the existing casino
floor currently undergoing refurbishment and upgrading
and due for completion by the end of September. The new
entertainment facilities, including Ten Pin Bowling and the
5 000 seat multi-purpose indoor arena, are scheduled to
open towards the end of October 2007. |
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| The group has been assisting certain BEE empowerment
consortia in their endeavours to obtain gaming licences. |
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Carnival City achieved revenue growth of 16% while EBITDA
increased 24% to R333 million. The Gauteng market grew
14,6% for the year against Carnival City's gaming revenue
growth of 14,9%. Carnival City, together with Morula,
maintained their share of the Gauteng market at 21,9%.
An additional 57 rooms were opened at Carnival City in
April, within the estimated cost of
R50 million, which have
enhanced the product offering and competitiveness of this
property. A R82 million multi-level parkade for over 1 000
vehicles is scheduled for completion in May 2008.
Sibaya had an excellent year, generating revenues of
R684 million and EBITDA of R247 million, 17% and 41%
up on last year respectively, with the EBITDA margin
growing 6 percentage points to 36%. Gaming revenues in
the KZN market grew by 21,2% and Sibaya generated
growth of 23,5% in its gaming revenues over the same
period. Sibaya increased its share of the KZN market to 35%.
The R80 million 118 room Sibaya Lodge opened in October
2006 and has already become very popular. The development
of the nearby King Chaka International Airport will provide
strong impetus to the development of the Sibaya precinct
which augurs well for the longer term prospects of our
business in the area.
The Boardwalk in Port Elizabeth traded strongly with
revenues 13% higher and EBITDA up 19% to R179 million.
Major projects being developed and proposed in and
around Port Elizabeth will provide a solid foundation for
future leisure industry growth.
The Windmill Casino in Bloemfontein enjoyed a very
strong first full year of trading and achieved revenues of
R184 million and an EBITDA of R77 million for the year.
Both Carousel and Morula continued to contribute strongly,
achieving an aggregate revenue of R526 million and an
EBITDA of R144 million. These were 19% and 27% ahead
of last year respectively.
Meropa enjoyed another successful year, benefiting from
the vibrant commercial activity in and around Polokwane
and generating revenues of R199 million and an EBITDA
of R83 million. This represented growth of 25% and
36% respectively.
The group has been assisting certain BEE empowerment
consortia in their endeavours to obtain gaming licences.
An application for a casino in Kuruman in the Northern
Cape has been successful while the result of an application
in Burgersfort in the Limpopo Province has still to
be announced. |
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