Wrap Text
Audited summary group financial statements for the
year ended 31 December 2018
Sun International Limited
(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)
REGISTRATION NUMBER: 1967/007528/06
SHARE CODE: SUI | ISIN: ZAE 000097580
("SUN INTERNATIONAL" OR "THE COMPANY")
AUDITED
SUMMARY GROUP FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018
INTRODUCTION
Trading in South Africa remained subdued with continued downward pressure on the consumer due to the economic environment, the one percent VAT increase and a weakening rand. With the shift
in strategy to focus on operating as efficiently and optimally as possible and despite the increase in VAT, which cost the group R44 million before tax, comparable adjusted EBITDA was down
1% and revenue was up 1% compared to the prior year. In Chile, trading improved in the second half of the year from a disappointing first half to achieve good growth in revenue and
adjusted EBITDA.
We addressed the high debt levels in the South African business through a R1.6 billion equity raise in June 2018 and strong cash flow generated from operations. As a result, our South
African debt reduced from R11.4 billion at 31 December 2017 to R9.2 billion at 31 December 2018 and our debt:adjusted EBITDA ratio reduced from 3.7 to 3.0. We will continue to focus on
reducing debt with a target debt:adjusted EBITDA ratio of below 2.5 times.
In Latam, we concluded the acquisition of an additional 10% interest in Sun Dreams during May 2018 at a purchase price of R832 million, increasing our interest to approximately 65%. We
further concluded the acquisitions of Thunderbird Resorts in Peru for R317 million (USD26 million) in April 2018 and the Park Hyatt Hotel, Casino & Spa in Mendoza, Argentina for R333
million (USD25 million) in July 2018. Both these acquisitions were concluded at attractive valuations and will contribute positively to the group's performance. Disappointingly, we only
secured one of the five municipal licences, which we bid for in Chile. While our bids all met the minimum bid criteria, we lost to a competitor whose economic offer (additional tax) was
substantially above ours, and at levels which would not generate satisfactory returns for us.
We continue to deal with loss-making entities and in this regard have commenced with the restructure of the Boardwalk and Carousel operations. Time Square achieved pleasing growth, with
casino income up 19% in the second half of the year. With the opening of the Maslow hotel in April 2018, Time Square is now fully operational and we anticipate that it will continue to
gain further market share and achieve strong growth in revenue and adjusted EBITDA.
FINANCIAL OVERVIEW
For the year ended 31 December 2018
The management statement of comprehensive income below includes adjusted headline earnings adjustment
R million 2018 % 2017*
Income 16 420 7 15 351
Adjusted EBITDA 4 357 5 4 143
Adjusted operating profit 2 816 4 2 698
Foreign exchange profit (8) 90 (81)
Net interest (1 176) 14 (1 033)
Profit before tax 1 632 3 1 584
Tax (665) 12 (595)
Profit after tax 967 (2) 989
Minorities (503) 1 (506)
Attributable profit 464 (4) 483
Share of associates 8 >100 2
Continuing adjusted headline earnings 472 (3) 485
Discontinued operations (107) 41 (181)
Adjusted headline earnings 365 20 304
* The prior year comparative financial information was restated to reflect the discontinued operations of Panama and Colombia, as required by IFRS 5: Non-Current Assets Held for Sale
and Discontinued Operations.
For the year under review, group income increased by 7% to R16.4 billion. South African comparable income (excluding Time Square, management companies, Fish River, Carousel and Morula) was
up 1% compared to the prior year. In Latam, income increased by 6% on a comparative basis with Monticello income up by 14%. As a result of a decision taken to exit the Sun Nao Casino in
Colombia and Ocean Sun Casino in Panama, these operations were accounted for as discontinued for the year.
Group adjusted EBITDA increased by 5% to R4.4 billion and, on a comparable basis, increased with 2% to R3.8 billion. The increase in the VAT rate from 14% to 15% negatively impacted
adjusted EBITDA by approximately R44 million.
Interest charges were 14% higher due to the completion of the Time Square Maslow hotel (opened April 2018) and the arena (opened November 2017) where interest is no longer capitalised, as
well as the acquisition of the 20% shareholding in Sun Dreams and the Latam acquisitions. Partly offsetting the higher interest charges was the interest saved on the debt which was repaid
through the proceeds of the R1.6 billion rights offer.
Due to the group's attributable share of the losses from Time Square increasing from R254 million in the prior year to R310 million, continuing adjusted headline earnings operations
decreased from R485 million to R472 million, 3% below the prior year. Adjusted headline earnings per share was up 4% to 316 cents per share.
Due to the continued under performance of Sun City, which is defined as a cash-generating unit (CGU) that falls under our South African operations, an impairment indicator was identified.
A pre-tax discount rate of 13.34% and a terminal growth rate of 5.30% was used for the value-in-use calculation that resulted in an impairment of R306 million.
HEADLINE AND ADJUSTED HEADLINE EARNINGS ADJUSTMENTS
Headline earnings adjustments include the following:
- profit on disposal of assets of R12 million;
- loss on the Colombian assets of R41 million;
- impairment charge of R306 million on Sun City; and
- net impairment of Panama assets of R31 million.
Adjusted headline earnings adjustments include the following:
- reversal of a Colombian onerous lease provision of R31 million;
- forward exchange contract losses relating to the Times Square development of R75 million;
- foreign exchange profit on inter-company loans of R44 million;
- the straightlining of the Maslow and head office building lease expense of R13 million;
- amortisation of R102 million of the Sun Dreams intangible assets raised as part of a purchase price allocation adjustment;
- an increase in the value of the Tsogo Sun put options of R27 million;
- tax on the above items of R118 million; and
- minorities' interest in the above items of R67 million.
Income by nature and geographic segment
For the year ended 31 December 2018
South Africa Latam Nigeria Group
R million 2018 % 2017 2018 % 2017* 2018 % 2017 2018 % 2017*
Casinos 7 639 3 7 411 4 261 13 3 759 60 5 57 11 960 7 11 227
Sun Slots 1 162 10 1 060 - - - - - - 1 162 10 1 060
SunBet 77 57 49 - - - - - - 77 57 49
Rooms 990 1 976 292 30 224 47 15 41 1 329 7 1 241
Food and Beverage 903 (2) 921 450 34 335 41 - 41 1 394 7 1 297
Other 483 4 465 15 88 8 - (100) 4 498 4 477
11 254 3 10 882 5 018 16 4 326 148 3 143 16 420 7 15 351
South Africa continues to contribute the majority of the group's income at 69%, with Latam contributing 30% and Nigeria 1%. Gaming is the primary contributor to group income at 73%,
Alternate Gaming contributes 8%, Food and Beverage 8%, Rooms 8% and other income 3%.
The table below sets out the consolidated income, adjusted EBITDA and adjusted operating profit, by geographical region, as reflected in the table above, which includes headline and
adjusted headline earnings adjustments and the reconciliation to depreciation and amortisation and operating profit in the statement of comprehensive income.
Adjusted depreciation Adjusted
Income Adjusted EBITDA and amortisation operating profit
R million 2018 % 2017* 2018 % 2017* 2018 % 2017* 2018 % 2017*
South African operations 8 585 - 8 596 2 227 (3) 2 289 (713) - (712) 1 514 (4) 1 577
Alternate Gaming 1 239 12 1 109 295 18 251 (67) 21 (85) 228 37 166
Comparable South African operations ** 9 824 1 9 705 2 522 (1) 2 540 (780) 2 (797) 1 742 - 1 743
Time Square 1 247 51 827 305 66 184 (236) (49) (158) 69 >100 26
Carousel 163 (34) 246 (15) <(100) 28 (18) - (18) (33) <(100) 10
Morula - (100) 38 (1) 75 (4) - 100 (1) (1) 80 (5)
Fish River - (100) 21 (1) 95 (21) - (100) (2) (1) 96 (23)
Management companies 569 (4) 593 175 (9) 193 (25) - (25) 150 (11) 168
Inter-company management fees (549) - (548) - - - - - - - - -
South Africa 11 254 3 10 882 2 985 2 2 920 (1 059) (6) (1 001) 1 926 - 1 919
Latam* 5 018 16 4 326 1 363 12 1 215 (457) (10) (414) 906 13 801
Nigeria 148 3 143 9 13 8 (25) 17 (30) (16) 27 (22)
Total continuing operations 16 420 7 15 351 4 357 5 4 143 (1 541) (7) (1 445) 2 816 4 2 698
Headline and adjusted headline adjustments impacting operating profit - - - - (102) 32 (148) (550) (3) (538)
Total 16 420 7 15 351 4 357 5 4 143 (1 643) 3 (1 593) 2 266 5 2 160
* The prior year comparative financial information was restated to reflect the discontinued operations of Panama and Colombia as required by IFRS 5: Non-Current Assets Held for
Sale and Discontinued Operations.
** Comparable South African operations exclude Time Square, Carousel, management companies, Morula and Fish River.
The segmental review throughout includes all headline and adjusted headline earnings adjustments. The table below sets out the operating performance of the group's geographic segments.
South Africa Latam Nigeria Group
R million 2018 2017 2018 2017* 2018 2017 2018 2017
Income 11 254 10 882 5 018 4 326 148 143 16 420 15 351
Adjusted EBITDA 2 985 2 920 1 363 1 215 9 8 4 357 4 143
Adjusted operating profit 1 926 1 919 925 820 (14) (19) 2 837 2 720
PPA adjustment - - (19) (19) (2) (3) (21) (22)
Adjusted operating profit/(losses) after PPA 1 926 1 919 906 801 (16) (22) 2 816 2 698
* The prior year comparative financial information was restated to reflect the discontinued operations of Panama and Colombia as required by IFRS 5: Non-Current Assets Held for
Sale and Discontinued Operations.
Summary Group Financial Statements
For the year ended 31 December 2018
1. INDEPENDENT AUDIT
The summary group financial statements have been derived from the audited group financial statements. The directors of the company take full responsibility for the preparation of the
summary group financial statements and that the financial information has been correctly derived and is consistent in all material respects with the underlying group financial statements.
The summary group financial statements for the year ended 31 December 2018 have been audited by our auditor PricewaterhouseCoopers Inc., who has expressed an unmodified opinion thereon.
The auditors also expressed an unmodified opinion on the group financial statements from which the summary group financial statements were derived. The individual auditor assigned to
perform the audit is Johan Potgieter. The auditor's report does not necessarily cover all the information contained in the summarised financial results. Shareholders are therefore advised
that, in order to obtain a full understanding of the nature of the auditor's work, they should obtain a copy of that report, together with the group financial statements from the
registered office of the company. These documents will be available from the company's registered office from 18 March 2019. The group financial statements will be available on the
company's website, suninternational.com on or about 29 March 2019.
The company's external auditor has not reviewed or reported on the forecasts included in these summary group financial statements.
2. ACCOUNTING POLICIES
The summary group financial statements are prepared in accordance with the requirements of the JSE Listings Requirements for preliminary financial statements and the requirements of the
South African Companies Act, No 71 of 2008, as amended, applicable to summary financial statements. The JSE Listings Requirements include preliminary reports which have been prepared in
accordance with the framework concepts, the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the Financial Pronouncements as issued by the
Financial Reporting Standard Council (FRSC), and also, as a minimum, contain the information required by IAS 34: Interim Financial Reporting. The accounting policies applied in the
preparation of the group financial statements from which the summary group financial statements have been derived, are in terms of IFRS and are consistent with those accounting policies
applied in the preparation of the previous group financial statements, unless otherwise stated. The summary group financial statements should be read in conjunction with the group
financial statements for the year ended 31 December 2018, which have been prepared in accordance with IFRS.
The operations in Panama and Colombia were disclosed in the current year as discontinued operations. The prior year comparative financial information was restated to reflect Panama and
Colombia, as required by IFRS 5: Non Current Assets Held for Sale and Discontinued Operations.
3. STANDARDS IMPLEMENTED
IFRS 9: Financial Instruments
The adoption of IFRS 9: Financial Instruments from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. In
accordance with the transitional provisions in IFRS 9(7.2.15) and (7.2.26), comparative figures have not been restated.
The adoption of IFRS 9 had the following impact on the group:
- a change in the classification of the measurement categories for financial instruments; and
- a change from the IAS 39 incurred loss model to the expected credit loss (ECL) model to calculate impairments of financial instruments.
The group's management has assessed which business models apply to the financial assets held by the group and has classified its financial instruments into the appropriate IFRS 9
categories as follows:
- loan receivables with a contractual period greater than 12 months, are mainly represented by preference shares issued within the group and enterprise development loans;
- trade receivables consisting mainly of large tour operators; and
- casino debtors consisting of a small group of VIP customers.
Trade receivables
Due to the intrinsic nature of trade receivables, where they should mature within a period of less than 12 months, the group has adopted the simplified approach to measuring expected
credit losses, which uses a lifetime expected credit loss allowance for all trade receivables. This approach included the following:
- separating different categories of trade receivables with similar loss patterns;
- calculating default rates within specific time frames over a specific year using historical credit loss experience; and
- adjusting the default rates with forward looking macro-economic forecasts.
Applying the expected credit loss model resulted in a decrease of the loss allowance by R28 million on 1 January 2018 (loss allowance balance at 31 December 2017 was R263 million) for
trade receivables at amortised cost and an increase in the allowance by R3 million to R238 million in the current reporting period.
R million 1 January IFRS 9 31 December
2018 Adjustment 2017
Under IFRS 9 as previously
reported
Statement of financial position extract
Non-current assets
Loans receivable 60 - 60
Trade and other receivables 436 28 408
Available-for-sale financial assets - - -
Current assets
Loans receivable 3 (3) 6
Other reserves extract
Retained earnings 25 25 -
Financial asset carried at amortised cost arising from inter-company loans repayable on demand
Most of the debt instruments within the group represent inter-company loans that eliminate in these consolidated financial statements. However, the process described below has been
consistently applied to all financial assets throughout the group.
Financial assets with fixed repayment terms
Includes those debt investments held at amortised cost with fixed maturity dates. The effect on 31 December 2017 has been adjusted against opening retained earnings as evidenced above.
Management has assessed the credit risk of these loans and based upon the factors listed below, considered them to be low risk, and that there has not been a significant increase in the
credit risk relating to these loans in respect of the following:
- there have been no significant financial difficulties noted with the issuer or the borrower;
- there have been no breach of contracts or defaults by the borrower;
- it is not probable that any of the borrowers will enter bankruptcy or other financial reorganisation;
- there is still an active market for the borrowers; and
- no existence of deep discounts on the financial assets concerned.
Therefore these loans are considered to be stage 1 loans in terms of IFRS 9 and the impairment provision is determined as 12 months expected credit losses through the application of the
formula PD% x LGD% x EAD.
- the probability of default (PD) - that is, the likelihood that the borrower would not be able to repay in the very short payment period;
- the loss given default (LGD) - that is, the loss that occurs if the borrower is unable to repay in that very short payment period; and
- the exposure at default (EAD) - that is, the outstanding balance at the reporting date.
The PD percentage was supplied by external actuarial consultants after a review of the individual financial statements of the entity concerned. The process and model used in determining
these percentages varied under 5%.
The LGD was calculated after considering the existence of collateral, guarantees and letters of support given by group companies. The EAD is simply the outstanding balance at the reporting
date.
Equity instruments carried at fair value through other comprehensive income
The group historically accounted for available for sale investments in terms of IAS 39 at fair value. In terms of IFRS 9: Available-for-Sale investments are measured at fair value through
other comprehensive income. The only available-for-sale investment the group held was impaired in the prior financial year, thus the IFRS 9 effect was assessed as immaterial.
Financial instruments carried at fair value through profit and loss (FVPL)
The group does not have any financial instruments that are carried at FVPL.
Financial liabilities
The group identified the following financial liabilities and assessed them against the following IFRS 9 criteria, with no change in the measurement or classification of these liabilities:
- borrowings;
- forward purchase liability (put liability);
- derivative liability; and
- contract and other liabilities.
No changes were made to the above liabilities.
IFRS 15: Revenue From Contracts With Customers
The group has adopted IFRS 15, fully retrospectively from 1 January 2018.
Revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services.
Management performed a detailed assessment of each revenue stream in terms of the following criteria:
- the unique contract with the customers was identified;
- the various performance obligations in the contract were separately identified;
- the transaction price for the contract was determined; and
- the transaction price was allocated to the various separately identifiable performance obligations.
We were satisfied that revenue is recognised once the relevant performance obligations are met.
The following 4 income streams were identified and assessed against the scope of IFRS 15 and IFRS 9:
1) Net gaming win, including limited pay out machines (LPMs) and online sports betting income
Gaming transactions represent an agreement between the customer and Sun International whereby, based on the outcome of an event (such as the results of accumulated cards in a hand of play
for a table game or the outcome of the individual bet on a slot machine game) either the gaming entity retains the amount bet by the customer or the bet is returned to the customer along
with an additional amount effectively representing the gaming entity's side of the bet in the agreement. Accordingly a single bet transaction either results in a net inflow of
consideration to the gaming entity or a net outflow of amounts to the customer. Accordingly, the amount recognised and reported for gaming transactions is the difference between gaming
wins and losses. This is referred to as net gaming win or loss.
Fixed-odds wagering contracts resulting in the generation of the net gaming win or loss, are typically outside the scope of the revenue standard for IFRS reporting entities. Under IFRS,
when a gaming entity takes a position against its customer, the resulting unsettled position is likely to meet the definition of a derivative. Therefore, those contracts should be
accounted for under the financial instruments standards rather than the revenue standard.
Bets placed by customers (cash in) and winnings paid to customers (cash out) are separately identifiable. However the VAT is levied on the net win by applying the tax fraction over the net
gaming win and provincial gaming levies. These costs are included in net gaming wins and are disclosed separately on the face of the statement of comprehensive income as direct costs.
2) Hotel and conferencing
The revenue derived from hotel rooms is included in Rooms revenue. Revenue is recognised as the performance obligations are met over time as the services are rendered.
Payments for the above services rendered are either received in advance, upon check out or through the utilisation of customer loyalty programs.
Management is satisfied that IFRS 15 has no material impact on how hotel revenue is currently recognised.
3) Food and Beverage
Revenue from Food and Beverage is recognised at a point in time, when the goods are provided to the customer.
Payments for the above services rendered are either received in advance, upon check out, upon purchase of product or through the utilisation of customer loyalty programs. Management is
satisfied that IFRS 15 has no material impact on how Food and Beverage revenue is recognised.
4) Other revenue
The revenue derived from the below revenue streams, are included in other revenue and are not considered to be part of the main revenue-generating activities of the entity. Revenue is
recognised as performance obligations are met over time, and include the following:
- other conferencing and entertainment revenue;
- management fee income;
- membership revenue;
- merchandise revenue;
- entrance fee revenue; and
- time share revenue.
Management is satisfied that IFRS 15 has no material impact on the current manner in which revenue is recognised.
The following income streams are excluded from the scope of IFRS 15:
- net gaming wins (included in total "income");
- rental income (included in "other income");
- dividend income (included in "other income"); and
- concessionaire income (included in "other income").
Transition to IFRS 15
Due to the nature of the group's revenue, management assessed the IFRS 15 impact as immaterial to revenue recognised in the current and prior years. Management's assessment included an
assessment of the impact of IFRS 15 on the group's customer loyalty programme which it assessed as insignificant. Therefore, no adjustments were recorded besides the reclassification of
net gaming wins as "income" on the face of the statement of comprehensive income for the current and prior financial year.
4. HYPERINFLATION
IAS 29: Financial Reporting in Hyperinflationary Economies, has been applied by Nuevo Plaza Hotel Mendoza S.A., a subsidiary of Sun International, whose functional currency is the
Argentine peso. The economy of Argentina was assessed to be hyperinflationary, effective 1 July 2018, and hyperinflation accounting has been applied, as if the economy has always been
hyperinflationary. The results of this entity have been adjusted in terms of the measuring unit currency at the end of the year. The monetary gains or losses were immaterial for the
current year.
The financial statements of the group entity whose functional currency is that of a hyperinflationary economy is adjusted in terms of the measuring unit currency at the end of the
reporting period. As the presentation currency of the group is that of a non-hyperinflationary economy, comparative amounts are not adjusted for changes in the price level or exchange
rates in the current year. Differences between these comparative amounts and current year hyperinflation adjusted equity balances are recognised in other comprehensive income. The carrying
amounts of non-monetary assets and liabilities are adjusted to reflect the change in the general price index from the date of acquisition to the end of the reporting period. An impairment
loss is recognised in profit or loss if the restated amount of a non-monetary item exceeds its estimated recoverable amount. Gains or losses on the net monetary position are recognised in
profit or loss. All items recognised in the statement of comprehensive income are restated by applying the change in the general price index from the dates when the items of income and
expenses were initially earned or incurred. At the beginning of the first period of the acquisition date, the components of equity, except retained earnings, are restated by applying a
general price index from the dates the components were contributed or otherwise arose. These restatements are recognised directly in equity as an adjustment to opening retained earnings.
Restated retained earnings are derived from all other amounts in the restated statement of financial position. In the current year the restatement is reflected at acquisition date in the
statement of financial position and equity. At the end of the first period and in subsequent periods, all components of equity are restated by applying a general price index from the
beginning of the period or the date of contribution, if later. All items in the statement of cash flows are expressed in terms of the general price index at the end of the reporting
period.
Accordingly, the results, cash flows, and financial position of the group's subsidiary Nuevo Plaza Hotel Mendoza S.A. have been expressed in terms of the measuring unit currency at the reporting date.
A detailed table of indices is published monthly by the Government Board of the Argentine Federation of Professional Council of Economic Sciences and the extract below was used in our assessment.
Date Base year General price index Inflation rate (%)
31 December 2018 11 July 2018 2 178,61 12,70%
5. STANDARDS ISSUED NOT YET IMPLEMENTED
The group has evaluated the effect of all new standards, amendments and interpretations that have been issued but which are not yet effective. Based on the evaluation, management does not
expect these standards, amendments and interpretations to have a significant impact on the group's results and disclosures.
IFRS 16: Leases
IFRS 16 was issued in January 2016 and will be adopted by the group on 1 January 2019. It will result in almost all leases being recognised on the statement of financial position by
lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals is
recognised. The only exceptions are short-term and low-value leases (such as leases of operating equipment etc.). The group intends to apply the simplified transition approach and will not
restate comparative amounts for the year prior to first adoption. All right-of-use assets (including property leases) will be measured at the amount of the lease liability on adoption
(adjusted for any prepaid or accrued lease expenses).
The group has set up a project team which is currently assessing the impact of this standard and the impact on the future annual financial statements. The group plans to elect the
practical expedient to not reassess the definition of leases.
As at the reporting date, the group has non-cancellable operating lease commitments of R1.4 billion. Of these commitments, approximately R59 million relate to short-term, low value leases
which will continue to be recognised on a straight-line basis as expense in profit or loss.
For the remaining lease commitments, the group will recognise a right of use asset which will initially be measured at the amount of the future lease liability plus any initial direct cost
incurred. The group will also record the corresponding lease liability which will initially be measured at the present value of the lease payments payable over the lease term, discounted
at the rate implicit in the lease. We expect this to result in an increase in current and long-term liabilities, and an increase in non-current assets.
The most significant operating leases that the group has pertain to the following properties:
- the Maslow Sandton (Maslow segment);
- the head office building (management companies segment);
- the Table Bay property (Table Bay segment);
- New York Casino in Peru (Peru excluding Thunderbird segment);
- Pachanga Independencia Casino in Peru (Peru excluding Thunderbird segment); and
- Luxor Casino in Peru (Thunderbird segment).
The adoption of the standard will result in a change in the presentation of lease payments in the statement of comprehensive income. The lease payments currently disclosed as operating
expenses, will in future, under the right-of-use model, be disclosed as depreciation and interest expense will be recognised separately. Operating cash flows will increase and financing
cash flows are expected to decrease as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities.
The group's activities as a lessor are not material, however some additional disclosures will be required in the following reporting period.
SUMMARY GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2018
R million Audited Audited
Year ended Year ended
31 December 31 December
2018 2017*
Continuing operations
Net gaming wins 13 199 12 336
Revenue 3 221 3 015
Income 16 420 15 351
Consumables and services (1 633) (1 649)
Depreciation and amortisation (1 643) (1 593)
Employee costs (3 187) (2 923)
Impairment of assets (306) (93)
Levies and VAT on casino revenue (3 393) (3 089)
LPM site owners commission (327) (299)
Promotional and marketing costs (1 015) (998)
Property and equipment rentals (215) (187)
Property costs (806) (722)
Other operational costs (1 629) (1 638)
Operating profit 2 266 2 160
Foreign exchange gains/(losses) 37 (111)
Interest income 77 34
Fair value adjustment to put liability (27) (223)
Interest expense (1 253) (1 088)
Share of profit of investments accounted for using the equity method 8 2
Profit before tax 1 108 774
Tax (547) (495)
Profit for the year from continuing operations 561 279
Loss for the year from discontinued operations (210) (291)
Profit/(loss) for the year 351 (12)
* The prior year comparative financial information was restated to reflect the discontinued operations of Panama and Colombia as required by IFRS 5: Non-Current Assets Held for Sale
and Discontinued Operations, as well as for IFRS 15 net gaming wins, which was previously disclosed as revenue.
R million Audited Audited
Year ended Year ended
31 December 31 December
2018 2017*
Other comprehensive income:
Items that will not be reclassified to profit or loss
Remeasurements of post-employment benefit obligations (20) 51
Tax on remeasurements of post-employment benefit obligations 6 (14)
Net loss on Time Square hedge - 66
Items that may be reclassified to profit or loss
Net profit/(loss) on cash flow hedges 26 (27)
Currency translation reserve 195 (78)
Total comprehensive profit/(loss) for the year 558 (14)
Profit/(loss) for the year attributable to: 351 (12)
Minorities 358 231
Ordinary shareholders (7) (243)
Total comprehensive profit/(loss) for the year attributable to: 558 (14)
Minorities 434 210
Ordinary shareholders 124 (224)
Total comprehensive profit/(loss) attributable to ordinary shareholders arises from: 124 (224)
Continuing operations 258 (43)
Discontinued operations (134) (181)
* The prior year comparative financial information was restated to reflect the discontinued operations of Panama and Colombia as required by IFRS 5: Non-Current Assets Held for Sale
and Discontinued Operations.
6. HEADLINE EARNINGS AND ADJUSTED HEADLINE EARNINGS RECONCILIATION
For the year ended 31 December 2018
R million Audited Audited
Year ended Year ended
31 December 31 December
2018 2017*
Loss attributable to ordinary shareholders (7) (243)
Net loss on disposal of property, plant and equipment 29 13
Profit on disposal of shares in joint ventures and associates - (27)
Net impairment of assets 337 92
Fair value adjustment on investment held for sale - 43
Tax on the above items (89) (12)
Minorities' interests in the above items (24) (41)
Headline earnings 246 (175)
Straight-line adjustment for rentals 13 20
Pre-opening expenses 3 48
Transaction costs - 43
Amortisation of Sun Dreams intangible assets raised as part of PPA 102 148
Fair value adjustment on put option liabilities 27 223
Interest on Time Square note - 22
Additional Goldrush payment - 6
Foreign exchange (profit)/losses on inter-company loan (44) 27
Forward exchange contract losses 75 -
Onerous lease provision reversal (31) 50
Provision for remaining licence conditions - Fish River - 20
Restructuring and related costs - 43
Fair value of debenture - 6
Other** 46 17
Tax relief on above items (29) (89)
Minorities' interest in the above items (43) (105)
Adjusted headline earnings^^ 365 304
Continuing adjusted headline earnings 472 485
Discontinued adjusted headline earnings (107) (181)
Basic and diluted (loss)/earnings per share Cents per Cents per
share share^
Loss/(earnings) per share
basic (6) (243)
diluted (6) (243)
Diluted adjusted headline earnings per share 316 304
* The result pertain to continuing and discontinued operations.
** Other includes various non-recurring exceptional items.
^ The group has restated the prior year's weighted average number of shares to reflect the effect of Rights Offer as required by IAS 33: Earnings per Share.
^^ The measure of reporting profit for each segment, that also represents the basis on which the chief operating decision maker reviews segment results, is adjusted EBITDA. Adjusted
EBITDA is defined as earnings before interest (which includes gains and losses on foreign exchange transactions), tax, depreciation and amortisation, and is also presented before
recognising expenses which are of an unusual and infrequent nature as a result of unforeseen and atypical events.
SUMMARY GROUP STATEMENT OF FINANCIAL POSITION
AS AT 31 December 2018
R million Audited Audited
Year ended Year ended
31 December 31 December
2018 2017
ASSETS
Non-current assets
Property, plant and equipment 17 099 18 196
Intangible assets 3 142 2 695
Equity-accounted investments 27 18
Pension fund asset 33 32
Deferred tax* 248 912
Trade and other receivables 278 214
20 827 22 067
Current assets
Inventory 170 170
Accounts receivable and other^ 1 418 1 333
Cash and cash equivalents 938 696
2 526 2 199
Assets held for sale 946 170
Total assets 24 299 24 436
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders' equity before put option reserve 3 764 2 058
Put option reserve (1 286) (4 651)
Ordinary shareholders' equity/(deficit) 2 478 (2 593)
Minorities' interests 1 808 2 899
4 286 306
Non-current liabilities
Deferred tax* 444 950
Borrowings 10 551 11 737
Other non-current liabilities** 1 054 1 007
Put option liability 1 331 4 838
13 380 18 532
Current liabilities
Accounts payable and other 2 420 2 206
Borrowings 4 115 3 259
6 535 5 465
Liabilities held for sale 98 133
Total liabilities 20 013 24 130
Total equity and liabilities 24 299 24 436
^ The opening balance for retained earnings and accounts receivables were restated due to the effect of IFRS 9. Refer to standards implemented.
* The movement in the net deferred tax position of the group relates to the capitalisation of the Time Square development cost that was previously included in work in progress.
Acquisition of subsidiaries in Latam also had a further effect on the net deferred tax position.
** The accrual of the defined benefit liabilities ceased with effect from 1 October 2017 for all active members and 30 June 2018 for pensioners resulting in a gain of R29 million in
the statement of comprehensive income after transferring the pensioner retirement benefit obligation of R415 million and its related plan assets. Therefore there is a Rnil fund obligation
relating to the pension fund as at 31 December 2018. An unallocated fund surplus of R411 million remains in the fund at year-end.
SUMMARY GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2018
R million Share Treasury Foreign Share- Available- Reserve Hedging Retained Ordinary Put option Ordinary Minorities' Total
capital and shares and currency based for-sale for non- and other earnings shareholders' reserves shareholders' interests equity
premium share translation payment reserve controlling reserve equity before equity
options reserve reserve interests put option
reserve
Audited
FOR THE YEAR ENDED 31 DECEMBER 2018
Balance at 31 December 2017 295 (424) 126 89 - (2 386) 5 4 353 2 058 (4 651) (2 593) 2 899 306
IFRS 9 adjustment - - - - - - - 25 25 - 25 - 25
Restated balance at 1 January 2018^ 295 (424) 126 89 - (2 386) 5 4 378 2 083 (4 651) (2 568) 2 899 331
Total comprehensive income for the year - - 119 - - - 12 (7) 124 - 124 434 558
Treasury shares purchased - (7) - - - - - - (7) - (7) - (7)
Reclassification of share options - 37 - (38) - - - 1 - - - - -
Employee share schemes - - - 34 - - - - 34 - 34 - 34
Rights issue 1 598 - - - - - - - 1 598 - 1 598 - 1 598
Acquisition of minorities' interests - - (134) - - (117) - 183 (68) 3 365 3 297 (575) 2 722
Capitalisation of loan to minorities interest - - - - - - - - - - - (533) (533)
Dividends paid to minorities - - - - - - - - - - - (417) (417)
Balance at 31 December 2018 1 893 (394) 111 85 - (2 503) 17 4 555 3 764 (1 286) 2 478 1 808 4 286
Audited
FOR THE YEAR ENDED 31 DECEMBER 2017
Balance at 31 December 2016 295 (604) 165 116 4 (2 411) (54) 4 502 2 013 (4 651) (2 638) 3 171 533
Correction of PPA misallocation - - - - - 235 - - 235 - 235 (235) -
Dreams SA merger PPA finalisation adjustment - - - - - 131 - - 131 - 131 - 131
Balance at 31 December 2016 restated 295 (604) 165 116 4 (2 045) (54) 4 502 2 379 (4 651) (2 272) 2 936 664
Total comprehensive income for the year - - (39) - - - 59 (243) (223) - (223) 209 (14)
Treasury shares purchased - (11) - - - - - - (11) - (11) - (11)
Employee share schemes - 27 - (27) - - - 1 1 - 1 - 1
Time Square SPV - - - - - (84) - - (84) - (84) 84 -
Fair value adjustment on investment held for sale - - - - (4) - - - (4) - (4) - (4)
Disposal of interest in Botswana, Namibia and Lesotho operations - - - - - (257) - 257 - - - - -
Release of share options reserve - 164 - - - - - (164) - - - - -
Dividends paid to minorities - - - - - - - - - - - (330) (330)
Balance at 31 December 2017 295 (424) 126 89 - (2 386) 5 4 353 2 058 (4 651) (2 593) 2 899 306
^ The opening balance for retained earnings was restated due to the effect of IFRS 9. Refer to standards implemented.
SUMMARY GROUP STATEMENT OF CASH FLOWS
For the year ended 31 December 2018
R million Audited Audited
Year ended Year ended
31 December 31 December
2018 2017*
Cash generated by operations before: 4 278 3 602
Vacation Club timeshare sales 145 158
Cash generated by operations 4 423 3 760
Tax paid (711) (769)
Net cash generated by operating activities 3 712 2 991
Purchase of property, plant and equipment (880) (2 558)
Disposal of property, plant and equipment 123 32
Purchase of intangible assets (171) (43)
Acquisition of subsidiaries, net of cash acquired (586) -
Disposal of investment in joint venture - 121
Investment income received 77 34
Net cash flows utilised in investing activities (1 437) (2 414)
Cash paid for the purchase of treasury shares (7) (11)
Purchase of additional non-controlling shareholding in subsidiaries (678) -
Dividends paid to minorities (417) (330)
Interest paid (1 258) (1 204)
Increase in other non-current liabilities 47 90
Increase in loan to non-controlling interest (673) -
Capital raised through Rights Offer 1 598 -
(Decrease)/increase in borrowings (600) 487
Net cash flows utilised in financing activities (1 988) (968)
Effect of exchange rates upon cash and cash equivalents (14) (34)
Increase/(decrease) in cash and cash equivalents 273 (425)
Cash and cash equivalents at beginning of the year 709 1 134
Cash and cash equivalents at end of the year* 982 709
Assets held for sale (44) (40)
Cash and cash equivalents at end of the year excluding non-current assets held for sale 938 669
Cash flows from discontinued operations (11) 5
* The prior year comparative financial information was restated to reflect the discontinued operations of Panama and Colombia as required by IFRS 5: Non-Current Assets Held for
Sale and Discontinued Operations.
7. SUPPLEMENTARY INFORMATION
For the year ended 31 December 2018
R million Audited Audited
Year ended Year ended
31 December 31 December
2018 2017*
ADJUSTED EBITDA RECONCILIATION
Continuing operating profit 2 266 2 160
Depreciation and amortisation 1 643 1 593
Net profit/(loss) on disposal of property, plant and equipment** (12) 13
Straight-line adjustment for rentals*** 13 20
Impairment of assets** 306 92
Pre-opening expenses*** 3 48
Transaction costs - 43
Profit on disposal of shares in associates and subsidiaries** - (27)
Onerous lease provision - 50
Restructure and related costs - 43
Provision for remaining licensing conditions - Fish River - 20
Additional Goldrush payment - 6
Fair value adjustment on investment held for sale - 43
Forward exchange contract losses*** 75 -
Other*** 63 39
Adjusted EBITDA 4 357 4 143
Adjusted EBITDA margin (%) 27 27
* The prior year comparative financial information was restated to reflect the discontinued operations of Panama and Colombia as required by IFRS 5: Non-Current Assets Held for
Sale and Discontinued Operations.
** Items identified above are included as headline adjustments.
***Items identified above are included as adjusted headline earnings adjustments impacting operating profit in the segmental analysis. Other includes various non-recurring
exceptional items. The measure of reporting profit for each segment, that also represents the basis on which the chief operating decision maker reviews segment results, is adjusted EBITDA.
Adjusted EBITDA is defined as earnings before interest (which includes gains and losses on foreign exchange transactions), tax, depreciation and amortisation, and is also presented before
recognising expenses which are of an unusual and infrequent nature as a result of unforeseen and atypical events.
Audited Audited
Year ended Year ended
31 December 31 December
2018 2017*
Number of shares ('000)
- for basic EPS/HEPS/adjusted HEPS 115 360 100 079
- for diluted EPS/HEPS/adjusted HEPS 115 377 100 079
Earnings/(loss) per share (cents)^
- basic (6) (243)
- headline 213 (175)
- adjusted headline 316 304
- diluted basic (6) (243)
- diluted headline 213 (175)
- diluted adjusted headline 316 304
Continuing - earnings/(loss) per share (cents)^
- basic 110 (62)
- headline 287 7
- adjusted headline 410 486
- diluted basic 110 (62)
- diluted headline 287 7
- diluted adjusted headline 409 486
Discontinued - loss per share (cents)^
- basic loss per share (116) (181)
- headline loss per share (74) (182)
- adjusted headline loss per share (94) (182)
- diluted basic loss per share (116) (181)
- diluted headline loss per share (74) (182)
- diluted adjusted headline loss per share (93) (182)
* The prior year comparative financial information was restated to reflect the discontinued operations of Panama and Colombia as required by IFRS 5: Non-Current Assets Held for Sale
and Discontinued Operations.
^ The group has restated the prior year's weighted average number of shares to reflect the effect of Rights Offer as required by IAS 33: Earnings per Share.
Audited Audited
Year ended Year ended
31 December 31 December
2018 2017*
TAX RATE RECONCILIATION
Profit before tax 1 108 774
Share of associates' losses (8) (2)
Adjusted profit before tax 1 100 772
% %
Effective tax rate 61 103
Preference share funding (3) (6)
Depreciation on non-qualifying buildings (2) (4)
Non-deductible expenditure - expenses incurred to produce exempt income - (1)
Other non-deductible expenditure (5) (20)
Movement in put options (1) (13)
Exempt income - dividend income - 7
Exempt income - other (lessor contribution, associated income and disposal of income earning structure) - 2
Tax incentives 1 1
Deductible foreign withholding taxes - (1)
Chilean capital indexed to inflation tax adjustment (8) -
Utilisation of tax losses not previously recognised 2 -
Tax losses not meeting recognition criteria (16) (44)
Discontinued operation - (tax losses not meeting recognition criteria) (7) -
Adjustment for current tax of prior periods 7 4
Rate change (1) -
South African corporate tax rate 28 28
OTHER METRICS
Adjusted EBITDA to interest (times) - South Africa 3,2 3,3
Borrowings to adjusted EBITDA (times) - South Africa 3,0 3,7
Net asset value per share (Rand) 31,3 2,8
Capital expenditure (R million) 1 050 2 591
Capital commitments (R million) 1 496 1 771
* The prior year comparative financial information was restated to reflect the discontinued operations of Panama and Colombia as required by IFRS 5: Non-Current Assets Held for Sale
and Discontinued Operations.
8. SEGMENT REVIEW
For the year ended 31 December 2018
The South African segment review is set out below:
Income Adjusted EBITDA Adjusted operating profit
R million 2018 % 2017 2018 % 2017 2018 % 2017
GrandWest 2 214 3 2 155 868 2 850 727 1 721
Sun City 1 672 (3) 1 731 205 (14) 237 (8) <(100) 26
Sibaya 1 289 2 1 269 430 (2) 439 360 (6) 385
Carnival City 961 (2) 980 231 (9) 254 163 1 162
Boardwalk 532 (4) 552 95 - 95 23 (15) 27
Wild Coast Sun 498 4 481 95 2 93 47 2 46
Meropa 308 2 302 94 (2) 96 74 (1) 75
Windmill 273 7 255 95 20 79 75 32 57
Flamingo 165 (4) 172 40 (15) 47 26 (21) 33
Golden Valley 170 (3) 176 32 (18) 39 17 (26) 23
Table Bay 341 (4) 354 78 (12) 89 59 (16) 70
The Maslow 142 (4) 148 (35) (59) (22) (47) (18) (40)
Naledi 20 (5) 21 (1) 86 (7) (2) 75 (8)
South African casinos 8 585 - 8 596 2 227 (3) 2 289 1 514 (4) 1 577
Sun Slots 1 162 10 1 060 287 15 249 222 34 166
SunBet 77 57 49 8 >100 2 6 >100 -
Comparable South African operations* 9 824 1 9 705 2 522 (1) 2 540 1 742 - 1 743
Time Square 1 247 51 827 305 66 184 69 >100 26
South African operations including Time Square 11 071 5 10 532 2 827 4 2 724 1 811 2 1 769
Carousel 163 (34) 246 (15) <(100) 28 (33) <(100) 10
Fish River - (100) 21 (1) 95 (21) (1) 96 (23)
Morula - (100) 38 (1) 75 (4) (1) 80 (5)
Management companies 569 (4) 593 175 (9) 193 150 (11) 168
Inter-company management fees (549) - (548) - - - - - -
11 254 3 10 882 2 985 2 2 920 1 926 - 1 919
* Comparable South African operations exclude Time Square, Carousel, management companies, Morula and Fish River.
Net gaming wins Revenue from contracts with customers
Total net
gaming wins Tables Slots Alternate Gaming income Total revenue Rooms Food & Beverage Other Total income
R million 2018 2017* 2018 2017* 2018 2017* 2018 2017* 2018 2017* 2018 2017* 2018 2017* 2018 2017* 2018 2017*
South African operations 8 878 8 520 1 457 1 343 6 182 6 068 1 239 1 109 2 925 2 910 990 976 903 921 1 032 1 013 11 803 11 430
GrandWest 2 121 2 066 347 327 1 774 1 739 - - 93 89 2 2 62 61 29 26 2 214 2 155
Sun City 512 577 113 127 399 450 - - 1 160 1 154 495 498 363 388 302 268 1 672 1 731
Sibaya 1 199 1 183 292 289 907 894 - - 90 86 18 14 65 62 7 10 1 289 1 269
Time Square 1 096 744 314 223 782 521 - - 151 83 25 - 96 66 30 17 1 247 827
Carnival City 891 901 163 162 728 739 - - 70 79 5 6 46 50 19 23 961 980
Boardwalk 439 452 52 48 387 404 - - 93 100 38 36 41 50 14 14 532 552
Wild Coast Sun 387 373 68 52 319 321 - - 111 108 39 39 40 37 32 32 498 481
Carousel 144 225 11 19 133 206 - - 19 21 5 6 - - 14 15 163 246
Meropa 271 275 32 29 239 246 - - 37 27 10 4 26 21 1 2 308 302
Table Bay - - - - - - - - 341 354 263 270 70 76 8 8 341 354
Windmill 260 243 45 45 215 198 - - 13 12 - - 13 12 - - 273 255
Sun Slots 1 162 1 060 - - - - 1 162 1 060 - - - - - - - - 1 162 1 060
Morula - 36 - 4 - 32 - - - 2 - - - 2 - - - 38
Flamingo 150 158 12 10 138 148 - - 15 14 - - 13 14 2 - 165 172
Golden Valley 152 160 8 8 144 152 - - 18 16 5 3 11 12 2 1 170 176
SunBet 77 49 - - - - 77 49 - - - - - - - - 77 49
Maslow - - - - - - - - 142 148 84 88 54 57 4 3 142 148
Other operating segments 17 18 - - 17 18 - - 4 24 1 10 3 13 - 1 21 42
Management and corporate office - - - - - - - - 568 593 - - - - 568 593 568 593
Nigerian operations 60 57 11 10 49 47 - - 88 86 47 41 41 41 - 4 148 143
Latam operations 4 261 3 759 798 720 3 463 3 039 - - 757 567 292 224 450 334 15 9 5 018 4 326
Monticello 1 692 1 546 489 466 1 203 1 080 - - 212 127 8 16 199 111 5 - 1 904 1 673
Dreams SCJ licences 1 227 1 180 84 86 1 143 1 094 - - 354 352 159 178 193 174 2 - 1 581 2 367
Dreams Municipal licences 739 756 74 87 665 669 - - 84 79 27 30 53 49 4 - 823 -
Chile total 3 658 3 482 647 639 3 011 2 843 - - 650 558 194 224 445 334 11 - 4 308 4 040
Sun Chile office - - - - - - - - - 9 - - - - - 9 - 9
Dreams Peru excluding Thunderbird 287 277 85 81 202 196 - - 1 - - - - - 1 - 288 277
Thunderbird 189 - 56 - 133 - - - 5 - - - 5 - - - 194 -
Mendoza 127 - 10 - 117 - - - 101 - 98 - - - 3 - 228 -
Inter-company management fees - - - - - - - - (549) (548) - - - - (549) (548) (549) (548)
Total 13 199 12 336 2 266 2 073 9 694 9 154 1 239 1 109 3 221 3 015 1 329 1 241 1 394 1 296 498 478 16 420 15 351
* The prior year comparative financial information was restated to reflect the discontinued operations of Panama and Colombia as required by IFRS 5:Non-Current Assets Held for Sale and
Discontinued Operations, as well as for IFRS 15 net gaming wins, which was previously disclosed as revenue.
Income streams are reported on separately as below:
Income outside the scope of IFRS 15:
Tables and Slots: Income from casino gambling operations.
Alternate Gaming income: Income from Sun Slots (including LPM gaming wins) andSun Bet
IFRS 15: Revenue from Contracts with Customers:
Food and Beverage: Revenue from bars, restaurant and conferencing operations.
Rooms: Revenue from hotel rooms operations.
Other: Revenue from entertainment, conferencing, Vacation Club and other.
GrandWest's income increased 3% to R2.2 billion and adjusted EBITDA increased 2% to R868 million. Slots income was up 2% while tables income was up 6%.
Sun City experienced difficult trading conditions, with income down 3%. Tables were impacted by a lower drop, while slots continued to come under pressure in the local market following the
opening of a third Electronic Bingo Terminal (EBT) outlet in Rustenburg in October 2017. Rooms revenue was 1% lower than the prior year with occupancy down 5% at 67% and the average room
rate up 3% at R1 823. Occupancy was partly impacted by the severe hailstorm on 15 December 2018 which resulted in the resort temporarily losing a number of rooms. Included in Sun City's
results is a business interruption claim of R25 million as a result of the storm. As a result of the lower income and the high fixed cost base, adjusted EBITDA was down 14% compared to the
prior year.
Sibaya income increased by 2% while adjusted EBITDA decreased by 2%, impacted by the VAT increase and legal fees for litigation relating to the award of the EBT licences in the province.
We continue to challenge the award of these licences on the basis that the correct process has not been followed. The Sibaya Prive and Food and Beverage refurbishments were completed
during the third quarter of the year.
Time Square achieved income of R1.3 billion and adjusted EBITDA of R305 million. Casino market share for the year was at 13.5% although for the second half of the year market share was
14.2% reflecting steady growth, which has continued in the early part of 2019 where revenue for January and February were up 9% and 32% respectively. The hotel achieved occupancy of 48% at
a room rate of R1 197.
Carnival City income decreased 2% with adjusted EBITDA down 9%. Although the property experienced an increase in footfall, average spend continued to drop. The Carnival City Prive and a
number of the hotel rooms will be refurbished during 2019.
Boardwalk's income decreased 4% with casino income down by 3% and adjusted EBITDA in line with the prior year following certain restructures and cost-cutting initiatives. The property is
currently undergoing a comprehensive restructure which will result in further cost reductions.
The shopping mall development is progressing, albeit at a slower pace than we would have preferred. We currently have two experienced retail mall developers who have expressed interest in
investing in and developing the mall. The development will likely commence in the second half of 2019.
Wild Coast Sun increased income by 4% and adjusted EBITDA by 2%. We submitted our bid for the casino licence renewal on 31 January. The current licence expiring in August 2019.
The Table Bay was impacted by the water crisis in Cape Town, which resulted in a number of cancellations and a slowdown in bookings, in the first half of the year. The situation has
however improved and we have noticed a pickup in bookings towards the end of the year. Room occupancy decreased by 6% to 69% and the average room rate improved by 6% to R3 188.
The small urban casinos, which include Meropa (Limpopo), Windmill (Free State), Flamingo (Northern Cape) and Golden Valley (Western Cape) collectively grew their income by 1% while
maintaining adjusted EBITDA in line with the prior year.
The Carousel has been severely impacted by Time Square, resulting in income declining by 34%. We have received approval from the North West Gambling Board to restructure operations. The
restructure will result in the closure of the tables department, a reduction in slots to 400 and a reduction in headcount. Consultations with the union have commenced.
Sun Slots continues to trade well with income and adjusted EBITDA increasing by 10% and 15% respectively.
Management fees and related income of R569 million remained in line with the comparative period, due primarily to lower development fees. Management company costs of R402 million were
R24 million higher than the prior year, largely due to the roll out of shared services and the insourcing of our own creative and design team.
The Latam segment review is set out below:
Depreciation and
Income Adjusted EBITDA amortisation Operating profit
R million 2018 2017 2018 2017 2018 2017 2018 2017
Monticello 1 904 1 674 573 417 (168) (152) 405 265
Sun Dreams SCJ licences 1 581 1 532 612 586 (38) (35) 574 551
Sun Dreams municipal licences 823 834 287 303 (37) (47) 250 256
Sun Chile office - 9 (8) 8 - - (8) 8
Central office* - - (193) (132) (154) (145) (348) (276)
Chile operations 4 308 4 049 1 271 1 182 (397) (379) 873 804
Peru excluding Thunderbird Resorts 288 277 32 33 (39) (35) (7) (3)
Comparable operations** 4 596 4 326 1 303 1 215 (436) (414) 866 801
Thunderbird 194 - 25 - (11) - 14 -
Mendoza 228 - 36 - (10) - 26 -
Total continuing operations 5 018 4 326 1 363 1 215 (457) (414) 906 801
* PPA adjustment included in central office.
** Comparable operations excludes Thunderbird, Mendoza, and the two discontinued units:
Ocean Sun and Sun Nao.
Our Latam operations performed well with income growing 6% to R4.3 billion and adjusted EBITDA increasing 8% to R1.3 billion. Sun Dreams' growth was achieved on the back of a strong second
half with revenue up 16% and adjusted EBITDA up 12%. Monticello revenue was up 8% and adjusted EBITDA 12% in the second half. The increase in income is partly due to Monticello being
closed in July 2017 for 12 days following the unfortunate shooting incident. Monticello benefited from a new arena which opened in June 2017 and a refresh of its restaurant offering.
Monticello's adjusted EBITDA also improved due to certain costs being moved from Monticello to the central office to align with other Sun Dreams' properties. Iquique, which is located in a
copper mining region, was impacted by a stagnating local economy as well as a lack of investment in the property due to the imminent expiry of the current licence in 2020 when the casino
will be relocated to new premises.
The Peruvian operations (excluding Thunderbird Resorts) increased income by 4% while adjusted EBITDA remained in line with the prior comparative period. Thunderbird Resorts, which
acquisition was effective 11 April 2018, generated revenue of R194 million and adjusted EBITDA of R25 million. The acquisition of the Park Hyatt Hotel, Casino & Spa in Mendoza, Argentina
became unconditional on 11 July 2018 and has performed ahead of expectations in US dollar terms with a strong performance from the hotel. Its US dollar based income was offset partly by
the casino that was impacted by the weak currency.
The closure of the International VIP Business and the 66th floor of the Ocean Sun Casino in Panama led to a decrease in income and a significant reduction in costs. We are pursuing
opportunities to dispose of the business but until we do so we will continue to operate the casino. Following the closure of the Sun Nao Casino in Colombia, we opened a few small low-cost
slot halls utilising the machines and tables from the Sun Nao Casino. The group will dispose of these operations to another Colombian operator and will take a minority stake in the
business. We settled the outstanding rental for the Sun Nao Casino at USD1.5 million, USD2.3 million below what we had provided for. Both the Colombian and Panama operations are accounted
for as discontinued operations.
9. Group borrowings
For the year ended 31 December 2018
Sun
R million Total debt Minorities International
South Africa 9 174 1 310 7 864
SunWest 728 256 472
Afrisun Gauteng 608 32 576
Afrisun KZN 276 92 184
Emfuleni 507 76 431
Wild Coast 234 70 164
Meropa 74 21 53
Teemane 73 18 55
Windmill 74 20 54
Golden Valley (12) (4) (8)
Sun Slots 24 7 17
Time Square 5 070 722 4 348
Management and corporate 1 518 - 1 518
Nigeria 602 305 297
Shareholder loans 927 470 457
Sun International inter-company debt (325) (165) (160)
Latam 4 890 1 461 3 429
Sun Dreams 4 103 1 461 2 642
Sun Chile 787 - 787
31 December 2018 14 666 3 076 11 590
31 December 2017 14 995 2 654 12 341
Debt covenants
South Africa Sun Dreams
Actual Covenant Actual Covenant
Debt to adjusted EBITDA 3.0x 3.5x 3.0x 4.5x
Interest cover 3.2x 3.0x
BORROWINGS
In June 2018, Sun International concluded an equity capital raise through a renounceable rights offer (Rights Offer) when it successfully raised an amount of R1.6 billion. The funds from
the Rights Offer were utilised to settle debt.
Sun International's borrowings as at 31 December 2018 were R14.7 billion, decreasing from R15.0 billion in December 2017. South African debt reduced from R11.4 billion at 31 December 2017
to R9.2 billion due to strong cash flows and the Rights Offer. Latam debt, however, increased following the raising of a 10-year bond by Sun Dreams for the acquisition of a minority's 20%
interest in Sun Dreams, which was funded by Sun Dreams.
The group's statement of financial position remains resilient and the operations continue to generate strong cash flows. The group continues to trade within its debt covenant levels. The
group has unutilised borrowing facilities of R1.4 billion and available cash balances of R938 million.
10. Capital expenditure
For the year ended 31 December 2018
December
12 months
R million Actual
South African operations
Expansionary
Time Square 126
Refurbishment and ongoing
Sun City 134
GrandWest 110
Sibaya 72
Sun Slots 105
Time Square 14
Other 187
622
Total South African capital expenditure 748
Latam operations
Expansionary 85
Refurbishment and ongoing 205
Total Latam capital expenditure 290
Nigerian operations
Refurbishment and ongoing 12
Total group capital expenditure 1 050
11. Acquisition of subsidiaries
For the year ended 31 December 2018
Peru acquisition
Sun Dreams finalised the acquisition of Thunderbird Resorts in Peru on 11 April 2018, for a purchase consideration of R317 million (USD26 million). The acquisition included net assets of
R192 million, intangible assets of R118 million and goodwill recognised of R7 million. Revenue and profit and loss from acquisition date of R194 million and R29 million respectively was
accounted for by Sun Dreams. Had the acquisition date been effective from the beginning of the year, revenue of R258 million would have been accounted for and profit and loss would have
been Rnil. Thunderbird Resorts consists of 857 slot machines and 50 tables. The acquisition has allowed Sun Dreams to strengthen its position in Peru and diversify its asset base in
Latam.
Argentina acquisition
On 29 June 2018, Sun Dreams entered into an agreement to acquire 100% of the issued share capital of the Park Hyatt Hotel, Casino & Spa in Mendoza, Argentina, for a purchase price of R333
million (USD25 million) and a potential earn out payment of R35 million (USD2.6 million). The acquisition included net assets of R11 million, intangible assets of R273 million and goodwill
recognised of R84 million. Revenue and profit and loss from acquisition date of R228 million and R25 million respectively were accounted for by Sun Dreams. Had the acquisition date been
effective from the beginning of the year, revenue of R342 million and profit of R47 million would have been accounted for. The Park Hyatt Hotel, Casino & Spa comprises of 186 rooms, 695
slot machines and 19 tables and the transaction became unconditional on 11 July 2018.
The acquisition of this hotel and casino is aligned with the board's strategy of diversifying the group's assets across Latam and extending the average length of the licences of the group.
The casino licence is valid for a 20-year period.
DIVIDENDS
Given the need to reduce the high debt levels, the board has decided not to declare and pay a dividend for the year ended 31 December 2018.
UPDATE ON STRATEGIC INITIATIVES
Tourist Company of Nigeria (TCN)
The board of the TCN - Federal Palace - has been reconstituted with the Securities Exchange Commission (SEC) of Nigeria appointing two directors thereto. Deloitte was mandated by the SEC
to conduct an investigation pertaining to the shareholder dispute, submitted a summarised version of its findings to the SEC after affording TCN an opportunity to comment thereon, in
December 2018. We await feedback from Deloitte and the SEC in this regard. We continue to review all opportunities to exit our investment in Nigeria.
Chile municipal licence bidding process
Shareholders are referred to the announcement released on SENS on 12 June 2018, regarding the outcome of the Chilean Municipal Licence Bidding process. As previously reported, Sun Dreams
submitted bids for the two municipal licences that it currently holds, namely Iquique and Puerto Varas and for an additional three licences. On Friday, 8 June 2018, the SCJ adjudicated the
bidding process in respect of the five Chilean municipal licences.
The bid for the Iquique municipal licence was awarded to Sun Dreams for a further period of 15 years. Although Sun Dreams' bids met the minimum bid requirements, the remaining four
licences were not awarded to Sun Dreams. The economic offers submitted by the successful bidder would not have delivered acceptable rates of return as required by the boards of Sun Dreams
and Sun International for similar projects of this nature.
Sun Dreams has launched a court challenge with regards to the award of the Puerto Varas and Pucon licences to Enjoy. It is the view of Sun Dreams and its legal team that the bids that were
awarded did not comply with all of the prescribed legal and technical requirements.
SUNWEST EXCLUSIVITY
The Western Cape Government gazetted draft legislation on 28 February 2018 to establish three zones for casinos in the Cape Metropole and to allow for the relocation of casino licences.
The legislation includes changes to the gaming tax tables and conditions for relocation, which will entail additional taxes and fees; obligations to mitigate any negative impacts that
relocating a casino may have on the area from where the casino relocates; and provides for economic opportunities for designated groups that reside in the area to which the casino will
relocate.
We have submitted comments on the draft legislation and simultaneously engaged with a number of stakeholders, which included the media, local municipalities in Worcester, Caledon and
Mykonos, and other interested stakeholder groupings.
SMOKING LEGISLATION
The Department of Health published the Draft Control of Tobacco Products and Electronic Delivery Systems Bill 2018 (the Draft Bill) for public comment. The Draft Bill, inter alia, proposes
prohibiting any person from smoking in an enclosed public place or an enclosed workplace. The operation of casinos falls within the scope of this provision. The effect of the Draft Bill is
that casinos may no longer be permitted to designate separate, indoor smoking areas/rooms. We have engaged with the gaming regulators on the matter and the Casino Association of South
Africa (CASA) and have made submissions on the Draft Bill.
GAMING TAXES
Proposed amendment to the Gauteng casino tax regulations
On 14 January 2019, the MEC responsible for Economic Development, Environment, Agriculture and Rural Development for the Gauteng Province amended Regulation 85 of the Gauteng Gambling
Regulations, 1997. The amendment purported to introduce a new tax regime for casinos in Gauteng. Prior to the amendment, Regulation 85 provided that casino licensees were liable to pay a
gaming tax amounting to 9% of each licensee's gross weekly gambling income. In terms of the amendment, gaming taxes were to be determined with reference to a sliding scale of gross gaming
revenue. The taxes were due to be implemented with effect from 1 April 2019.
CASA, on behalf of its members, vigorously opposed the implementation of the amendment resulting in the MEC's office agreeing to withdraw the implementation of the amendment and recommence
the process, including conducting an updated assessment to determine the effect such a proposed tax would have on the Gauteng casino industry.
South African national gaming tax
It was announced in the 2019 budget speech presented by the Minister of Finance that draft legislation introducing a gambling tax in the form of a 1% on gaming income levy would be
published for public comment. This tax had been previously proposed and we will comment on the draft legislation when published.
Peru gaming taxes
According to a decree published in September 2018, from 1 January 2019, casinos will have to pay a monthly consumption tax levied against each machine and gaming table they offer on their
premises. The specific amounts will vary according to the level of gaming income reported by each machine or table. This represents an estimated additional tax of 4.8% to the current 12%
tax on gross gaming income. The gaming industry has declared this decree unconstitutional and illegal, and has launched a legal challenge.
ADDITIONAL CASINO LICENCE
In 2015, the Minister of Trade and Industry published a notice increasing the number of casino licences in South Africa from 40 to 41. The Casino Association of South Africa (CASA) opposed
the Minister's actions on the grounds that the Minister failed to comply with the prescripts of the National Gambling Act, 2004. CASA failed in its attempts to overturn the Minister's
decision in the North Gauteng High Court. A further appeal to the Supreme Court of Appeal was also unsuccessful. CASA is awaiting counsel's opinion on its prospects of success should the
matter be taken on appeal to the Constitutional Court.
CHANGES TO THE BOARD OF DIRECTORS, APPOINTMENTS TO COMMITTEES AND CHANGES TO IMPORTANT FUNCTIONS OF DIRECTORS
On 5 September 2018, Messrs JA Mabuza and VP Khanyile were appointed as non-executive directors of Sun International, with Mr JA Mabuza being appointed as the deputy chairman of the board,
while Ms ZP Zatu was appointed as an additional non-executive director to the Sun International board on 23 November 2018.
Mr DR Mokhobo, who was previously an executive director of Sun International, resigned from the board on 5 September 2018, while retaining his executive responsibilities. The board
expresses its thanks to Mr Mokhobo for his valuable contributions made while serving as a director.
In terms of an announcement released on SENS on 6 February 2019, Mr MV Moosa, the present chairman of the board, advised that he would be retiring as a director of Sun International on 14
May 2019 and would be succeeded as chairman by Mr JA Mabuza.
Effective 31 August 2018, Mr S Sithole was appointed as a member of Sun International's investment and remuneration committees. On 22 November 2018, Mr JA Mabuza was appointed as an
additional member to Sun International's remuneration, nomination and investment committees, while Mr VP Khanyile was appointed as an additional member to the social and ethics committee.
Ms ZP Zatu was appointed as an additional member to Sun International's audit committee on 23 November 2018.
At a board meeting held on 15 March 2019, Mr JA Mabuza was appointed as the chairman of the Sun International nomination committee with effect from 14 May 2019 and following the retirement
of Mr MV Moosa.
ANNUAL GENERAL MEETING
Sun International's 35th annual general meeting will be held at the Maslow Hotel, corner of Grayston Drive and Rivonia Road, Sandton, Johannesburg on Tuesday, 14 May 2019 at 09h00 (South African
time). Further details of the company's annual general meeting will be contained in Sun International's annual statutory report to be posted to shareholders on or about Friday, 29 March 2019.
OUTLOOK
We are confident that the positive steps taken by the government to deal with corruption and state-owned entities will have a positive impact on the South African economy. However; we do
not anticipate a tangible improvement in the short term. Consequently, we expect continued pressure on disposable income and hence trading to remain subdued. Time Square is expected to
gain further market share and grow revenue and adjusted EBITDA. We will continue to focus on improving our operations and guest experience and will take the necessary action on loss-making
entities.
Trading in Latam and in particular in Chile, is expected to remain positive with Chile's GDP forecast to grow at a rate of 4% during 2019. We expect our new operations in Peru and
Argentina to contribute positively in the first half of 2019. However, interest costs in Latam will increase following these acquisitions and the acquisition of the minority interest in
Sun Dreams. We will continue exploring further growth opportunities in Latam, including in the online space, where a number of countries are going through the process of regulating this
industry.
The proceeds from the rights offer will continue to reduce interest costs in South Africa in the first half of 2019, although the number of shares in issue has increased.
INDEPENDENT AUDITOR'S REPORT ON THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
To the Shareholders of Sun International Limited
Opinion
The summary consolidated financial statements of Sun International Limited, contained in the accompanying Sun International Limited audited summary group financial statements, which
comprise the summary group statement of comprehensive income, the summary group statement of financial position as at 31 December 2018, cash flows and changes in equity for the year then
ended, and related notes, are derived from the audited consolidated financial statements of Sun International Limited for the year ended 31 December 2018.
In our opinion, the accompanying summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial statements, in accordance with
the requirements of the JSE Limited Listings Requirements for preliminary reports, as set out in Note 2 to the summary consolidated financial statements, and the requirements of the
Companies Act of South Africa as applicable to summary financial statements.
Summary consolidated financial statements
The summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards and the requirements of the Companies Act of South
Africa as applicable to annual financial statements. Reading the summary consolidated financial statements and the auditor's report thereon, therefore, is not a substitute for reading the
audited consolidated financial statements and the auditor's report thereon.
The audited consolidated financial statements and our report thereon
We expressed an unmodified audit opinion on the audited consolidated financial statements in our report dated 18 March 2019. That report also includes communication of key audit matters.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period.
Directors' responsibility for the summary consolidated financial statements
The directors are responsible for the preparation of the summary consolidated financial statements in accordance with the requirements of the JSE Limited Listings Requirements for
preliminary reports, set out in Note 2 to the summary consolidated financial statements, and the requirements of the Companies Act of South Africa as applicable to summary financial
statements.
Auditor's responsibility
Our responsibility is to express an opinion on whether the summary consolidated financial statements are consistent, in all material respects, with the audited consolidated financial
statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810 (Revised): Engagements to Report on Summary Financial Statements.
Other matters
We have not audited future financial performance and expectations expressed by the directors included in the commentary in the accompanying summary consolidated financial statements and
accordingly do not express an opinion thereon.
PricewaterhouseCoopers Inc.
Director: Johan Potgieter
Registered Auditor
Johannesburg
18 March 2019
For and on behalf of the board.
MV Moosa AM Leeming N Basthdaw
Chairman Chief Executive Chief Financial Officer
Registered office
6 Sandown Valley Crescent, Sandown, Sandton 2196
Sponsor
Investec Bank Limited
Transfer secretaries
Computershare Investor Services (Pty) Ltd, 1st Floor, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
The report was prepared under the supervision of the chief financial officer, N Basthdaw; BCompt (Hons), CTA, CA(SA), MCom, HDip Company Law.
DIRECTORS
MV Moosa (chairman), JA Mabuza (deputy chairman), PL Campher (lead independent director), AM Leeming (chief executive)*, PD Bacon (British), N Basthdaw (chief financial officer)*, EAMMG
Cibie (Chilean), GW Dempster, Dr NN Gwagwa, CM Henry, VP Khanyile, BLM Makgabo-Fiskerstrand, S Sithole, ZP Zatu
* Executive
GROUP COMPANY SECRETARY
AG Johnston
15 March 2019
suninternational.com
Date: 18/03/2019 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
