Sun International rooms revenue falls 14%

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Sun International has reported a 2% increase in revenue and an 11% decrease in EBITDA for the six months ended 31 December 2009. Given trading conditions remaining uncertain in the near term and a continued focus on cashflows and strengthening the balance sheet, no interim dividend was declared.

Revenue for the six months was 2% ahead of last year at R4.1-billion, although comparable revenue (excluding Monticello in Chile) was 5% lower. Gaming revenue grew by 5% while rooms revenue was 14% lower than last year.

EBITDA of R1.2-billion for the six months was down 11% and the EBITDA margin declined 4.5 percentage points to 29.5% due to lower revenue and inflationary increases in operating costs, together with the impact of the lower margins at Monticello. Excluding Monticello, the EBITDA margin was 31.6% (35.4%).

Adjusted headline earnings of R215 million and diluted adjusted headline earnings per share of 213 cents were 33% and 36% below last year respectively.

The strengthening of the Rand and Chilean Peso against the US Dollar resulted in a foreign exchange loss of R16-million compared to a gain of R65-million last year. Net interest paid decreased by R58-million to R263-million, an 18% reduction over last year. This was the result of lower interest rates, although these were partly offset by the additional funding costs of Monticello.

Tax at R184-million, a decrease of 44%, included a tax refund of R53 million relating to prior years' assessments. The effective tax rate, excluding non deductible preference share dividends, STC and the tax refund, was 35% due primarily to the tax losses incurred by Monticello and other permanent differences.

Sun International CEO David Coutts-Trotter said that continuing pressure on consumer disposable income had caused a drop in comparable gaming revenue of 3%. GrandWest and Boardwalk continued to experience difficult trading conditions. GrandWest's revenue at R787-million and EBITDA at R303 - million were 6% and 12% below last year respectively with the EBITDA margin declining by 2.3 percentage points to 38.5%. Boardwalk experienced a decline in revenue of 7% to R202-million and in EBITDA of 16% to R75-million. As a result the EBITDA margin declined 3.9 percentage points to 37.1%.

Carnival City achieved revenue of R472-million, a decline of 8% from last year. With the EBITDA margin decreasing 5 percentage points, EBITDA decreased by 21% to R142 million. Some disruption on the casino floor due to refurbishment and the depressed local market conditions resulted in a marginal loss of marketshare, particularly in the first quarter, which has been recovered in recent months. Sibaya's revenue increased 5% to R424 million and EBITDA by 6% to R150 million. The EBITDA margin of 35.4% was in line with last year. The KwaZulu-Natal market grew by 3% in the period and Sibaya's marketshare of 36% was 1 percentage point higher than last year.

"Monticello's revenue is showing good growth from quarter to quarter, with a 13% increase in the second quarter ending 31 December 2009 compared to the previous quarter. EBITDA of R36 million was achieved for the six months compared to a loss of R23 million last year."

Rooms revenue of R409-million declined by 14% over 2008 with overall group occupancy of 70% (77%) and an average room rate of R824, a decline of 9%. The occupancy decline is due to weaker demand from international markets and the groups and conventions sector, which severely impacted Sun City, our Zambian operations and The Table Bay. Local markets have also shown a decline although not as high as their international counterparts.

Sun City's room occupancy was 71% (81%) while the average room rate was 3% below last year at R1 188. EBITDA at R68 million declined by 24%. The lower EBITDA was primarily the result of increased indirect costs (including the cost of additional security), increased energy costs and various maintenance initiatives to improve standards.

The Table Bay achieved occupancy of 54% (69%). The average room rate achieved was in line with the previous year despite both declining demand and new supply in the five-star market in Cape Town. EBITDA declined by 55% due to the lower occupancy levels.

The Royal Livingstone and Zambezi Sun achieved an aggregate occupancy of 54% (71%) at an average room rate of US$171, a 4% decline against last year. EBITDA in US dollars was 53% below last year, whilst EBITDA in Rand declined by 60% on last year.

Revenue from Botswana declined by 15% to R81 million and EBITDA by 26% to R25 million. This decline is as a direct result of the prevailing economic conditions in Botswana which have led to a decline in disposable income. This decline was further exacerbated by the 10% strengthening in the value of the Rand against the Botswana Pula.

Our current 29% investment in Nigeria is treated as an associate. The process of acquiring the balance of the shares and ultimately owning a 49% interest is nearing completion. On completion, the group will have invested US$28-million in equity and advanced a loan to the company of US$15-million. The loss reported of R3-million is due to the low occupancy achieved of 30%, a direct result of the depressed investment and business environment, including the impact of the slowdown in the oil and gas sectors on the Nigerian market.

Management fees and related income of R298-million was 12% lower than last year. EBITDA of R166 million was 13% lower than last year. Included in revenue are development fees of R15 million compared to R25 million last year.

The group's borrowings were marginally lower than at 30 June 2009 at R6.3 billion. The Chilean facilities have been restructured resulting in the shareholders repaying and funding US$50 million of the long term facility. Capital expenditure during the past six months amounted to R517-million of which about half was on Monticello and expansion at Sibaya. Refurbishments at Lesotho and the Wild Coast Sun had also been undertaken during the six months.

Looking at new developments, Coutts-Trotter said that following the renewal of the casino licence for the Wild Coast Sun, the upgrade and enhancement of the property had commenced. The upgrade and expansion of the casino floor was completed in December 2009 and the rooms refurbishment commenced in January 2010 and will be completed by mid-2012.

The main components of the R140 million refurbishment of the Lesotho Sun hotel, casino and conference facility were completed in early December 2009.

The final components of the Monticello development in Chile were completed in the period with the retail and entertainment facilities opening in October 2009 and the 155-room hotel in December 2009. The overall capital expenditure increased by US$15 million to US$262 million, mainly due to cost escalations, the significant weakening of the US Dollar and additional capitalised interest.

The 200-slot and 8-table casino at the Federal Palace hotel in Nigeria was opened during December 2009 and the conference facility during January 2010 at a cost of US$19-million. Trading at the casino commenced slowly during the holiday season but has shown encouraging growth since the launch of the first major promotion and the associated communications plan.

The Boardwalk's casino licence in Port Elizabeth expires in October 2010. The Boardwalk was announced as the preferred bidder during September 2009 and the conditions attached to the licence are still to be finalised with the Eastern Cape Gambling and Betting Board. The project includes plans for a five-star hotel and conference centre, expanded gaming facilities and covered parking at an estimated cost of R1-billion. The project will commence in late 2010 and is likely to be completed in 2012.

Looking ahead, Coutts-Trotter said that trading conditions are stab
ilising and some growth in revenue is forecast for the remainder of the year in part due to the anticipated benefits of the 2010 World Cup.

"The expected improved revenue performance, lower interest costs and non-recurrence of the significant foreign exchange movements that occurred in the first half are anticipated to result in an improved earnings performance in the second half. Headline earnings per share for the full year however will be below last year."

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