Chief Financial Officer's review

Rob Huddy

We measure our creation of shareholder value through the increase in adjusted headline earnings per share and the generation of free cash, our efficiency through Ebitdar margin and our financial risk through our net debt:Ebitdar ratio and unutilised net facilities.

The results for the year ended 31 March 2016 reflected continued pressure on the consumer due to the weak macro-economic environment and poor consumer sentiment, although revenues during the last quarter were significantly up on the prior year.


This report should be read in conjunction with the summarised consolidated financial statements on page 79 to page 85 and the consolidated financial statements available separately on our website which set out the financial position, results and cash flows for the group for the financial year ended 31 March 2016.

Commentary on the organic growth during the year is included in the segmental operational performance on pages 57 to 59.

Commentary on inorganic growth is included on pages 60 to 61.

Commentary on net interest-bearing debt and interest rate and currency risk management is included in the financial strength and durability section on page 48.

    Income R12.3 billion   8%    
    Ebitdar R4.5 billion   8%    
    Ebitdar margin 37.0%   (0.2pp)    
    Adjusted HEPS 196.5 cents   12%    
    Dividends in respect of the year 98.0 cents per share   10%    
    Free cash flow R2.0 billion   8%    
    Net debt R9.2 billion  
    Net debt:Ebitdar 2.0 times  
    Investment activities R2.0 billion  
    Unutilised net facilities R4.8 billion  

   31 March
      31 March
      % change
on 2015 
Income  12 283        11 343          
Gaming win  7 361        6 976          
Rooms  2 784        2 453        13    
Food and beverage  1 353        1 203        12    
Other  785        711        10    
Ebitdar  4 543        4 223          
Gaming  3 429        3 265          
Hotels   – South Africa  920        830        11    
              – Offshore  192        137        40    
Foreign exchange losses  (23)       (21)       (10)   
Corporate  25        12          
Ebitdar margin  37.0%        37.2%        (0.2pp)   
Long-term incentives  (46)       (95)       52    
Property rentals  (219)       (210)       (4)   
Amortisation and depreciation  (812)       (733)       (11)   
Exceptional items  (58)       (143)       59    
Finance costs (net) (857)       (681)       (26)   
Associates and joint ventures  29        25        16    
Income tax  (774)       (680)       (14)   
Non-controlling interests  (18)       (34)       47    
Attributable earnings  1 788        1 672          
Adjustments  93        103        10    
Adjusted headline earnings  1 881        1 775          
Weighted number of shares in issue (m) 957        1 014          
Adjusted HEPS (cents) 196.5        175.0        12    
* Variance not meaningful                     

Trading performance
Trading during the financial year reflected continued pressure on the consumer due to the weak macro-economic environment and poor consumer sentiment, although revenues during the last quarter were significantly up on the prior year. Year-on-year growth was achieved in both casino and hotel revenues and the trading results were positively impacted by various expansionary projects, including the acquisition of hotel businesses from Liberty by Cullinan, the expansion of Silverstar and the closure for refurbishment of Southern Sun Maputo and Garden Court De Waal during the prior year, offset by the closure of the Riverside Sun and Sabi River Sun hotels for refurbishment during the current year.

Total income for the year of R12.3 billion ended 8% above the prior year with a 6% growth in gaming win, assisted by a 13% growth in rooms revenue and a 12% growth in food and beverage revenue.

Operating expenses including gaming levies and VAT and employee costs but excluding property rentals, exceptional items and long-term incentives increased by 9% on the prior year. The increase was mainly due to non-organic growth in the business as a result of acquisitions and expansions, increased marketing, promotional and administered costs (property rates, water and electricity) and increased offshore overheads as a result of the weakening of the Rand against both the US Dollar and the Euro, offset by savings initiatives.

Ebitdar at R4.5 billion for the year was 8% up on the prior year. The overall group Ebitdar margin of 37.0% is 0.2pp down on the prior year.

Long-term incentives
The long-term incentive expense at R46 million is R49 million below the prior year charge and values the liability (including dividend adjustments) by reference to the company's share price which is adjusted for management's best estimate of the appreciation units expected to vest and future performance of the group.

Rentals, amortisation and depreciation
Property rentals at R219 million are 4% up on the prior year mainly due to the inclusion of Holiday Inn Sandton and Crowne Plaza Rosebank rentals effective 1 March 2016, contractual increases and the weakening of the Rand against the US Dollar, offset by the acquisition of the Garden Court Polokwane hotel building.

Amortisation and depreciation at R812 million is 11% up on the prior year due mainly to the capital spend during the current and the prior year and the acquisition of the hotels in Cullinan from Liberty.

Exceptional items and adjustments
Exceptional losses for the year of R58 million comprises the pre-opening costs of R12 million during the period hotels were closed for refurbishment, capital asset disposals and impairments and loan impairments of R26 million, transaction costs of R26 million and restructure costs of R2 million, net of the profit on disposal of an investment property of R8 million. Exceptional losses for the prior year of R143 million comprises the IFRS 2 Share-based Payment charge on the executive facility amounting to R118 million, pre-opening costs of R19 million during the period hotels were closed for refurbishment, capital asset disposals and impairments and loan impairments of R17 million, a marketing fee income write off of R16 million (refer associates and joint ventures below) and transaction and restructure costs of R11 million, offset by the gain recognised on the change in other long-term employee benefits of R38 million. Refer to the table on page 82.

Net finance costs
Net finance costs of R857 million are 26% above the prior year due to the increase in debt and reduction in net cash to fund the growth strategy and the share buy-back in the prior year, and a charge in respect of the Cullinan put option of R7 million (2015: R8 million credit).

Share of profits of associates and joint ventures
The share of profit of associates and joint ventures of R29 million improved by R4 million on the prior year mainly due to a full year's earnings from Redefine BDL, offset by the group's share of a joint venture's marketing fee reversal of R20 million in the prior year.

The effective tax rate for the year at 30.4% is impacted by the increase in the capital gains tax (‘CGT') inclusion rate on deferred tax of R54 million and non-deductible expenditure such as casino building depreciation, offset by foreign exchange losses on the US Dollar denominated loans in the local currencies. The comparative effective tax rate of 28.8% was impacted by non-deductible expenditure such as casino building depreciation, non-deductible foreign exchange losses and the IFRS 2 Share-based Payment charge, offset by the tax holiday at Southern Sun Ikoyi.

Non-controlling interests
Profit attributable to non-controlling interests of R18 million is R16 million below the prior year mainly due to the prior year acquisition of 15% of Garden Route Casino, 49% of One Monte and reduced profits at Southern Sun Maputo due to local currency losses on the US Dollar denominated loans and at Cullinan due to an adjustment in the interest rate on shareholders' loans, and the increased deferred tax charge referred to above.

Group adjusted headline earnings for the year ended 31 March 2016 at R1.9 billion are 6% above the prior year. The adjustments include the reversal of the post-tax impacts of the exceptional losses noted above in addition to the reversal of the remeasurement of the Cullinan put option in finance costs and the CGT inclusion rate deferred tax adjustment referred to above, net of non-controlling interests. The weighted average number of shares in issue decreased due to the buy-back of 133.6 million ordinary shares on 28 August 2014 and the resultant adjusted headline earnings per share is 12% up on the prior year at 196.5 cents.

Cash flow

   31 March
   31 March
   % change
on 2015 
Cash generated from operations  4 376     3 868     13    
Dividends received  51             
Net interest paid  (801)    (715)         
Income tax paid  (657)    (537)         
Operating equipment  (71)    (63)         
Maintenance capital expenditure  (945)    (749)         
Free cash flow  1 953     1 811       
Dividends paid  (878)    (947)         
Investment activities  (962)    (2 045)         
Share buy-back       (3 019)         
Other  56     25          
Increase in net interest-bearing debt  169     (4 175)      
Opening net interest-bearing debt  (9 211)    (4 439)      
Acquired with acquisitions  3     (508)         
Accrued interest, prepaid borrowing costs and currency moves  (209)    (89)         
Closing net interest-bearing debt  (9 248)    (9 211)         

Cash generated from operations for the year improved by 13% on the prior year to R4.4 billion. Free cash for the year increased by 8% due to the increased cash generated from operations offset by increased finance costs and taxation payments and increased maintenance capital expenditure, including major hotel and casino refurbishments during the year. Cash flows utilised for investment activities of R1.0 billion consisted mainly of expansion capital expenditure and the acquisitions and investments described under the inorganic growth section on page 60.

Balance sheet derivative financial instruments

During the prior year the group entered into a call option over Liberty's 40% shareholding in Cullinan and Liberty has a corresponding put option, both exercisable at the fair value of the shares. A financial liability for the put option and a corresponding debit to transactions with non-controlling interest was recognised on initial recognition. At the end of each reporting period the liability is remeasured and the increase or decrease recognised in the income statement. The non-current liability, included in derivative financial instruments, has been remeasured to R492 million at 31 March 2016 (2015: R485 million) with the increase of R7 million (2015: R8 million decrease) recognised in finance costs. A discounted cash flow valuation was used to estimate the liability.


A final gross cash dividend of 67.0 cents per share in respect of the company's 2016 year end was declared and the dividend was paid on 20 June 2016. The number of ordinary shares in issue was 957 388 870 (excluding treasury shares). The dividend was subject to a local dividend tax rate of 15%, which resulted in a net dividend of 56.95 cents per share to those shareholders who were not exempt from paying dividend tax. The company's tax reference number is 9250039717.

The total dividends declared in respect of the 2016 financial year amounted to 98.0 cents per share which is 10% up on the 2015 financial year and which equates to 50% of fully diluted adjusted HEPS.

Subsequent events

There are no matters or circumstances arising since 31 March 2016, not otherwise dealt with in the financial statements, other than the progress noted on the HPF transaction on page 61, that would materially affect the operations or results of the group.

Looking ahead

Given the weak state of the South African economy and many of the commodity-focused countries in which the group operates, trading is expected to remain under pressure. However, the fourth quarter of the financial year was strong in both the gaming and particularly the South African hotel environment. The sustainability of this performance is uncertain and will depend on how these economies perform going forward, including the impact of changes in commodity prices, and the level of policy certainty that the government is able to instil in areas ranging from visa regulations to gaming taxes and administered costs.

The opening of Sun International's casino relocated to Menlyn in Pretoria, scheduled for the first half of 2017, will negatively impact gaming win at Montecasino and Silverstar.

RB Huddy
Chief Financial Officer

19 August 2016