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Sun International's earning up 10% to 732c

Resorts and gaming group Sun International reported a 10% rise in diluted headline earnings per share to 732c for the year to June‚ from 665c a year ago. Adjusted diluted earnings were 18% higher at 715c from 606c before.
The company said that in light of a subdued second-half particularly in terms of trading and the number of expansion projects being considered the board has declared a final dividend of 155c - up from last year's 150c, taking the total dividend to 265c for the year‚ a rise of 10% on the previous year.

Revenue was 8% higher at R10.3bn. The company said that after an encouraging start to the financial year‚ trading slowed‚ with gaming revenue from the South African operations growing only 3% in the second half compared with 7% in the first half. Revenue was further affected by the introduction of a smoking ban in Chile‚ with effect from March.

Earnings before interest‚ tax‚ depreciation and amortisation (Ebitda) were 11% higher at R2.9bn with the Ebidta margin increasing from 27.8% to 28.6%. The continued weakening of the rand resulted in foreign exchange profits of R57m being realised‚ compared with R79m in the prior year.

Adjusted headline earnings of R740m and diluted adjusted headline earnings per share of 715c were 20% and 18% higher‚ respectively. Excluding the impact of foreign currency movements and standard tax on companies‚ adjusted headline earnings per share increased by 14%.

Hospitality growth strong


Group chief executive Graeme Stephens said that in broad terms‚ the hospitality side of the South African business (in particular occupancy levels) had shown significant improvement but the gaming operations were reflecting growth more in line with that of the economy - which seemed to be a trend facing the gaming and hospitality markets generally.

The performance of the non-South African operations was good and endorsed the strategy for seeking growth in offshore markets.

While the impact of the smoking ban in Chile was disappointing‚ a recovery was expected in the medium-term - and the learning curve would be useful in the event of more stringent anti-smoking legislation being introduced in SA.

SA continues to contribute around three-quarters of group revenue‚ with 83% coming from gaming.

Rooms' revenue grew strongly‚ assisted by the opening of the Boardwalk and Maslow hotels in December 2012 and January 2013 respectively.

On a comparative basis‚ rooms' revenue was up 11% for the year. Room nights sold increased by 7.3%‚ leading to occupancies of 62.7% (on the increased rooms inventory) at an average daily rate (ADR) of R1‚075‚ which was up 6% on 2012's prices.

Further growth potential


Monticello's revenue‚ in Chilean pesos‚ was flat‚ with high growth in the first eight months offset by a significant decline in the last four months due to the impact of the new anti-smoking legislation.

In rand terms‚ Monticello represents 15% of Sun International's revenue and‚ due to the strong peso‚ it grew its reported revenue in rand terms by 18% for the full year despite the smoking ban. The construction of new smoking decks is nearing completion and this is expected to lead to a recovery in revenue over the medium term.

Regarding the pipeline of new developments‚ Stephens said Sun International announced in July that it had submitted an application to the Gauteng Gambling Board to amend its Morula casino licence and relocate the casino to Menlyn‚ Tshwane. The aim of this was to maximise the potential of this licence.

The public had until 16 August to submit objections to the application and these were now being addressed‚ after which the gambling board will make a decision. If approved‚ the group plans to create a new R3bn urban entertainment destination‚ to be known as Time Square on Menlyn Maine in Tshwane's eastern suburbs.

The development is part of a new large-scale‚ mixed-use "Green City" Menlyn Maine project under development.

The R30m acquisition of Powerbet Gaming‚ as announced in the group's third-quarter trading update‚ is close to completion. The last remaining condition for the acquisition is the approval of the transaction by the Western Cape Gambling and Racing Board. The group said the entry into sports betting positioned it well in the event of online gaming being legalised in SA.

Lain America


In Panama‚ as previously announced‚ the group is to buy the casino component‚ the penthouse level (Salon Privé)‚ and certain apartments in the Trump Ocean Club International Hotel and Tower in Panama City. The casino will have about 600 slot machines and 32 tables. Sun International has submitted a gaming licence application and is awaiting its approval.

The company says components of the transaction are on track and registration of the rezoned components of the building has been completed. The group said it was ready to proceed with the development‚ as soon as the licence is approved. The property is expected to open by September next year.

The group is in the process of applying for a casino licence in Colombia and has entered into a long term lease for the casino component in a new mixed-use development in Cartagena. "We are also considering opportunities in other parts of Latin America including Uruguay and Peru‚" Stephens said.

In the forthcoming year‚ Stephens said that in the absence of a significant improvement in the current South African economic environment the group anticipates trading to remain subdued. Gaming revenue will be affected by a full year's trading under the smoking ban in Chile while rooms revenue is expected to reflect continued growth off fairly low levels.

Given the outlook for low revenue growth there will be an increased focus on efficiencies and costs with the intent to improve margins and Ebitda.

Looking forward Stephens said the company has an exciting pipeline of new opportunities and while these will not make a significant impact in the 2014 financial year they position the group for good growth thereafter.
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