CHAIRMAN’S
REPORT |
| The past year was characterised by challenging economic conditions…
but despite this, acceptable results were achieved for the year. |
The past year was characterised by challenging economic conditions. Continued
increases in food prices, energy costs and interest rates have significantly impacted
consumer spending patterns and available disposable income.
The casino operations in South Africa were impacted by this trend, but despite this, acceptable
results were achieved for the year. The hotels and resorts operations have experienced a pleasing
increase in inbound tourism with resultant strong occupancies. |
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| A CHALLENGING TRADING YEAR |
The group achieved reasonable growth in revenue, which at R7,6 billion was 10% ahead of last
year. Gaming revenue grew 9% and hospitality and other revenue 12%. EBITDA of R2,8 billion
was 11% up on last year and the EBITDA margin improved from 36,9% to 37,2%.
The group’s net interest charge increased by R286 million over last year to R522 million, arising
primarily from the additional funding in respect of the R2,3 billion share buy back in July 2007
and higher prevailing interest rates. |
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| Construction of the Monticello casino project located to the south
of Santiago in Chile is progressing well with the casino opening
in October 2008. |
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| THE LOST CITY, Golf course |
MORULA |
THE TABLE BAY |
SIBAYA, Lodge |
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Adjusted headline earnings of R720 million were 12% below
the previous year due primarily to the increased borrowing
costs. However, diluted adjusted headline earnings per share
of 739 cents were 3% ahead of last year due to the lower
number of shares in issue following the share buy back.
The board has declared dividends for the year of 480 cents per
share, 20% ahead of last year and aligned with the group’s
stated intention to continue increasing the dividends payable
to shareholders. |
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| LOCAL DEVELOPMENTS |
| The group completed a number of developments, including the
expanded GrandWest casino and facilities costing R450 million,
the 98 room Golden Valley Lodge in Worcester at a cost of
R65 million and the 1 000-vehicle multi-level parkade at Carnival
City at a cost of R85 million. The second phase of the Sun City
Main Hotel refurbishment comprising 170 rooms and certain
back of house areas is due for completion in November 2008. |
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| INTERNATIONAL EXPANSION |
Construction of the Monticello casino project located to the south
of Santiago in Chile is progressing well with the casino opening in
October 2008. The retail and entertainment elements will open in
December 2008 and the 150 room hotel in May 2009.
The total estimated project cost has been revised to US$236 million,
principally due to the significant strengthening of the Chilean
Peso against the US Dollar.
The existing Federal Palace Towers Hotel on Victoria Island,
Lagos, Nigeria, has been under the group’s management since
October 2007. The refurbished 150 room Federal Palace Hotel
was officially opened on 1 August 2008. Sun International
provided a loan of US$10 million to complete this refurbishment.
The terms of the gaming licence have been finalised with the
Lagos State authorities and the enabling regulations are in the
process of being approved by the State Legislature. The licence is
expected to be issued shortly, following which the group will
acquire a 49,5% equity interest in the business for US$38 million.
This project will provide the group with an entry into a fast
developing and relatively affluent section of the Nigerian market and
will further diversify our earnings from a geographical perspective. |
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| REAL AFRICA HOLDINGS |
Sun International acquired a controlling interest in RAH on
15 September 2006. The group accumulated an additional
4,4% in RAH during the year, resulting in its total shareholding
increasing to 65,7%.
GPI acquired a shareholding of 30,6% in RAH during the year
which has resulted in the free float of RAH reducing to 3,7%, a
matter which is under consideration. |
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| SHARE BUY BACK |
| The share buy back was concluded on 30 July 2007, resulting in
the purchase by the group of 16 084 833 shares at a price of
R145,35 per share. The transaction was funded by way of a
R2 billion issue of preference shares and internally generated
cash flows. |
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| BLACK ECONOMIC EMPOWERMENT AND
OUR PARTNERSHIPS |
We are committed to the transformation of the group through
broad-based empowerment and have various partners at
operational level as well as at group level, where the Dinokana
consortium has a shareholding in Sun International Limited. In
addition, employees participate in the success of the group
through the Sun International Employee Share Trust.
Our success in attaining a number of licences in the regulated
gambling industry in South Africa has enabled us to significantly
enhance the wealth and influence of our various BEE partners
throughout the country. This wealth creation has increased substantially over the past few years in line with the growth and
performance of our operations.
We have committed considerable resource and effort in fulfilling
the previously stated intention of increasing our partner’s, GPI,
interest in SunWest, the group’s most significant business. GPI
acquired an additional 4% in SunWest from SISA for R83,4 million
on 28 November 2007, and exercised its option from SISA over
2,46% in SunWest at R425 per share on 14 December 2007.
The option granted by SunWest for GPI to acquire a further 5%
in SunWest at R165 per share, which expires in 2010, was
partially exercised on 15 August 2008, resulting in GPI subscribing
for 560 000 shares representing eighty percent of the option.
The group’s effective economic interest in SunWest after the
exercise of the entire option will be 59,9%.
Compliance with the BBBEE Codes has been a priority over the
past year and to this end the industry together with CASA have
engaged the Provincial Licensing Authorities in an endeavour to
arrive at industry goals over an acceptable period. |
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| CORPORATE GOVERNANCE |
Sun International remains committed to and endorses the
application of the principles of good corporate practices and conduct. Considerable emphasis is placed on the identification
and management of risks facing the group and our risk management philosophy is well embedded in all our processes.
The Sun International board remains mindful of the need to
achieve a balance between conformance and performance, leadership and control, thereby fostering an entrepreneurial
culture within acceptable risk levels, aimed at promoting value
creation. At all times the group observes its broader obligations
to society in terms of environmental, economic and social
sustainability, and an acknowledgment that transformation at all
levels is a fundamental business imperative. |
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| SOCIAL RESPONSIBILITY AND SUSTAINABILITY |
Sun International believes that long term value for all our
stakeholders will be created by adopting a holistic approach
in which economic, social and environmental performance is
measured within a framework of corporate governance and
ethics of the highest standard.
We actively support the communities in which we operate by
working with community members to promote upliftment and
socio-economic development. The group contributes 2% of net
profits to its corporate social investment projects. The group is
developing its approach to enterprise development and will
continue to identify suitable projects requiring support.
Increased consumer awareness of global environmental issues and
the growing demand for environmentally responsible tourism
products worldwide has led to greater management commitment
to sustainability. Improved staff and guest awareness has resulted in
some significant achievements and the group’s environmental
management remains ahead of any of its competitors. The need
for more efficient use of resources in addressing the challenges
created by climate change remains an immediate objective. |
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| DIRECTORATE |
Leslie Boyd passed away on 28 March 2008. He will be
remembered for his knowledge, incisiveness and contribution
and will be greatly missed by his colleagues on the board.
Peter Swartz and Hassen Adams resigned from the board on
11 February and 26 August 2008 respectively and the board
thanks them for their contributions to the group. Sadly, Peter
Swartz passed away on 23 September 2008. |
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| OUR PEOPLE |
The investment we make in our people contributes significantly
to our ability to retain market leadership in the gaming and
leisure sector. The global demand for key human resources
makes it increasingly challenging to retain such people in the
organisation and the group has not been immune to this
challenge. We are confident that we will continue to attract and
retain key people in the organisation.
We are making progress in achieving our employment equity
targets and are committed to the ongoing training and
development of our employees.
I would like to thank the non-executive directors, the management
and all our people for their support, commitment and hard work
during this challenging year. |
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| PROSPECTS FOR 2009 |
Trading conditions in the group’s South African casino operations
are expected to remain challenging in the year ahead. With the
international tourism market remaining relatively buoyant, the
group should however benefit from an improved contribution
from hotels and resorts.
The Chilean and Nigerian operations are expected to contribute
in the year ahead to significant growth in revenue and EBITDA.
The increased capital charges relating to these investments will
however temper growth in adjusted headline earnings per share.
It remains the intention of the group to continue increasing the
dividends payable to shareholders at a rate ahead of earnings
per share growth. |
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Buddy Hawton
Chairman |
