CHIEF
EXECUTIVE’S
REPORT |
| Our goal is to be one of the most admired companies in South Africa and an
example others follow. We are and will remain the formidable competitor. |
| TRADING AND GROUP OPERATING PERFORMANCE |
The past year has seen a slowing in South Africa’s economic growth and growth in
consumer spending. Increasing inflation, in particular energy costs, food costs and
higher interest rates have impacted on disposable income and consumer spending
patterns. These factors have affected gaming revenues in South Africa and the rate of growth
in these revenues has slowed throughout the year.
Notwithstanding this, the group performed satisfactorily.
The group achieved growth in revenue which at R7,6 billion was 10% ahead of last year. Gaming
revenues increased by 9% to R5,8 billion, with slot and table revenues up 9% and 12%
respectively. Rooms revenues grew 14% over last year.
The group’s management activities continued to contribute strongly and generated a greater
proportion of earnings to the group. Management activities are now the second largest
contributor to group profitability, accounting for 13% of EBITDA.
Costs for the group were well controlled and the overall EBITDA margin improved slightly to
37,2%, resulting in an 11% increase in EBITDA to R2,8 billion. |
| |
CASINOS AND GAMING |
| OPERATIONAL OVERVIEW |
| |
Revenue
Rm |
EBITDA
Rm |
EBITDA
margin % |
| |
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
| GrandWest |
1 756 |
1 595 |
734 |
693 |
41,8 |
43,4 |
| Carnival City |
954 |
908 |
329 |
333 |
34,5 |
36,7 |
| Sibaya |
782 |
684 |
294 |
247 |
37,6 |
36,1 |
| Boardwalk |
451 |
435 |
185 |
179 |
41,0 |
41,1 |
| Other gaming operations |
1 285 |
1 172 |
396 |
382 |
30,8 |
32,6 |
| |
5 228 |
4 794 |
1 938 |
1 834 |
37,1 |
38,3 |
|
| |
| |
| The R450 million GrandWest expansion was completed in the first half of the
financial year, with the multipurpose arena and the refurbished non-smoking
casino opening in October and December 2007 respectively. |
| |
EBITDA margins in the gaming division declined by 1,2 percentage
points to 37,1% due mainly to higher effective gaming taxes as
a consequence of ‘fiscal drag’, the higher costs associated with
the enlarged GrandWest operation and higher costs of energy,
property rates and taxes and security. Sibaya improved its EBITDA
margin as a result of increased market share and a full year’s
contribution from the Sibaya Lodge.
GrandWest achieved revenue growth of 10%. The EBITDA margin
of 41,8% was 1,6 percentage points below last year due to
the higher costs associated with the enlarged casino and
entertainment facilities, as well as higher effective casino levies.
Carnival City had a challenging year due to the economic
environment and a more competitive local market following the
opening of the seventh casino in Gauteng. Revenue grew by 5%
and the EBITDA margin declined to 34,5% from 36,7% in the
previous year. The group’s share of the Gauteng market for the
year was 20,9% which, although 0,5 percentage points below
last year, is positive when compared to the 1,4 percentage points
decline in the group’s effective share of gaming positions in the
province. The new multi-level parkade should improve Carnival
City’s position in the very competitive Gauteng market.
Sibaya performed strongly with revenue up 14%. EBITDA grew
19% and the EBITDA margin increased by 1,5 percentage points
to 37,6%. Sibaya continued to improve its overall share of the
KwaZulu-Natal market, which at 36% was one percentage point
ahead of the previous year.
Boardwalk’s revenue grew 4%, reflecting the difficult economic
environment in the Eastern Cape. At 41,0%, the EBITDA margin
remained in line with last year as a result of tighter cost control. |
| |
| LOCAL DEVELOPMENTS |
The R450 million GrandWest expansion was completed in the
first half of the financial year, with the multipurpose arena and
the refurbished non-smoking casino opening in October and
December 2007 respectively. The enlarged casino floor, which was
completed at the end of the 2007 financial year, together with the
additional facilities and attractions, will provide GrandWest with
an excellent base from which to grow into the future.
The R65 million 98 room Golden Valley Lodge in Worcester
successfully opened to the public in March 2008 and trading at
the casino has improved markedly as a result. |
| |
The 1 000-vehicle multi-level parkade at Carnival City was opened
to customers in June 2008 and the improved access was
completed two months later, at a total cost of R85 million.
In Lesotho the conceptual planning of the Lesotho Sun
refurbishment continues with work anticipated to start around
November 2008. The projected spend on the refurbishment of
the property is R160 million over the next two financial years.
The Boardwalk’s casino licence in Zone 1 of the Eastern Cape
expires in October 2010. The Eastern Cape Gambling and Betting
Board (ECGBB) recently issued a draft request for proposals
(RFP) for a casino licence in that zone. The terms of the RFP
are onerous, requiring inter alia a minimum new investment of
R750 million and local empowerment ownership of 35%. The
requirement will result in significant dilution to the existing
shareholders who in addition, will be required to facilitate the
funding of this shareholding. Proposals are expected to be
submitted by December, with the announcement of the preferred
bidder scheduled for June 2009. |
| |
|
| GAMING INDUSTRY IN SOUTH AFRICA |
| The competitive gaming environment in South Africa has
traditionally included casinos, horse-racing and sports betting,
bingo, the national lottery and limited payout machines. Online
gambling, although currently illegal in South Africa, is increasingly
active in the country and is fast becoming a significant competitor. |
| |
|
| |
| |
| South African gaming market revenue |
Sector |
2008
Rm |
% |
2007
Rm |
% |
2006
Rm |
| Casino |
13 095 |
12 |
11 715 |
16 |
10 101 |
| Lottery |
805* |
(62) |
2 146 |
(3) |
2 218 |
| Horse racing |
1 631 |
12 |
1 456 |
24 |
1 175 |
| LPM |
489 |
39 |
352 |
>100 |
167 |
| Bingo |
94 |
48 |
64 |
>100 |
28 |
| Total |
16 114 |
2 |
15 733 |
15 |
13 689 |
| Percentages |
% |
|
% |
|
% |
| Casino |
81 |
|
74 |
|
74 |
| Lottery |
5 |
|
14 |
|
16 |
| Horse racing |
10 |
|
9 |
|
9 |
| LPM |
3 |
|
2 |
|
1 |
| Bingo |
1 |
|
1 |
|
± |
| Total |
100 |
|
100 |
|
100 |
|
Statistics are for the year ended 31 March.
Online revenues are excluded.
Sources: National & Provincial Gambling Boards, Sun International, Uthingo and Gidani.
LPM – Limited Payout Machines.
* Includes 9 months trading. |
| |
| It is included in our market analysis as an estimate for the first
time this year. |
| |
| Casinos |
Silverstar, the new casino on the West Rand in Gauteng opened
in December 2007 with 752 slot machines and 26 tables. The
hotel and certain other facilities opened in March 2008.
The group’s Golden Valley Casino in Worcester and Peermont
Global’s Frontier Inn in Bethlehem both traded for a full year. |
| |
| National Lottery |
| The National Lottery resumed operations in October 2007
and the figures in the table above are thus for nine months.
Notwithstanding this, revenues are well below historic levels and
it is likely to take some time before they return to previous levels. |
| |
| Horse racing |
| Horse racing continues to grow well. |
| |
| Sun International's share of the South African gaming market |
|
GGR |
Total number of gaming positions |
| Province |
2008 |
2007 |
2006 |
2008 |
2007 |
2006 |
| Gauteng |
21% |
21% |
18% |
25% |
28% |
24% |
| Western Cape |
82% |
81% |
82% |
72% |
69% |
66% |
| Eastern Cape |
76% |
77% |
78% |
76% |
76% |
74% |
| Northern Cape |
88% |
88% |
87% |
60% |
60% |
58% |
| Free State |
59% |
60% |
57% |
50% |
52% |
62% |
| Mpumalanga |
– |
– |
– |
– |
– |
– |
| North West |
70% |
70% |
75% |
75% |
76% |
81% |
| Limpopo |
88% |
87% |
86% |
73% |
71% |
67% |
| KwaZulu-Natal |
36% |
35% |
35% |
30% |
30% |
29% |
| South Africa |
44% |
44% |
43% |
43% |
44% |
42% |
|
Statistics are for the year ended 31 March.
Positions are 1 per slot machine and 6 per table.
GCR for Free State, Limpopo, North West & Northern Cape estimated by Sun International as provincial figures are not available.
Sources: National and Provincial Gambling Boards and Sun International. |
| |
| LPMs |
LPMs are now available in five provinces: Limpopo, Western
Cape, Eastern Cape, Mpumalanga and, recently,
KwaZulu-Natal.
Growth in this sector remains strong as new sites are rolled out. |
| |
| Bingo |
| Growth in the bingo sector has arisen mainly from the advent of
the so-called ‘bingo machines’, which in reality are slot machines
and not bingo as defined by gaming law. Legal action taken by
CASA has seen two judgements which will effectively disallow
the operation of these machines under a bingo licence. |
| |
| Market share |
The group has maintained its 44% share of the overall Gross
Gaming Revenue (GGR) of the South African casino market. This
is despite a 1% drop from 44% to 43% fair share of the gaming
positions as a result of the opening of the Silverstar Casino on the
West Rand of Gauteng.
The group fared reasonably well in the two major competitive
markets of Gauteng (Carnival City and Morula) and KwaZulu-Natal
(Sibaya). In Gauteng the group’s share of GGR declined slightly
from 21,4% for the year ended June 2007 to 20,9% for the year
ended June 2008. However at the same time, fair share in gaming
positions declined from 28% to 25%.
Sibaya’s share of the KwaZulu-Natal casino market grew from
35% for the year ended June 2007 to 36% for the current
financial year. Sibaya has enjoyed an improvement in market
share in both slots and tables. The tables increase has been more
marked, with a growth in revenue from the Salon Privé. |
| |
| Casino licences |
The group currently holds 13 of the 40 casino licences in South
Africa of which 38 of the 40 licences have now been issued with
two licences still to be awarded in Limpopo and Mpumalanga.
The group and its partner submitted a bid for the third casino
licence in Limpopo which was to have been situated at Burgersfort.
The regulator ruled that none of the bids submitted for this
licence met their requirements and therefore, the process to
award this licence would be re-started in the near future.
No announcement has been made in respect of the unallocated
licence in Mpumalanga.
There is also one licence in the Free State to be reissued. This
licence is currently held by Sun International (Naledi Sun) pending
the award of the Sasolburg licence which will result in the closure
of Naledi Sun. The Sasolburg licence is currently the subject of
legal action. |
| |
| Casino licences in South Africa at 31 March 2008 |
|
|
|
Competitors |
|
Province |
Total |
Sun
International |
Licences
trading |
Licences
allocated |
Unallocated |
| Gauteng |
7 |
2 |
5 |
– |
– |
| Western Cape |
5 |
2 |
3 |
– |
– |
| Eastern Cape |
5 |
2 |
2 |
1 |
– |
| Northern Cape |
3 |
1 |
1 |
1 |
– |
| Free State |
4 |
2 |
2 |
– |
– |
| Mpumalanga |
4 |
– |
3 |
– |
1 |
| North West |
4 |
2 |
2 |
– |
– |
| Limpopo |
3 |
1 |
1 |
– |
1 |
| KwaZulu-Natal |
5 |
1 |
4 |
– |
– |
| Total |
40 |
13 |
23 |
2 |
2 |
|
