COMMENTARY
Financial Director’s Report | Richard Hoption
The GPI group results, as set out in these annual financial statements, present for the first time the group’s full year performance as a listed entity.
The accounting policies applied to these financial statements are consistent in every material respect with the audited consolidated financial statements for the year ended 30 June 2008. As more fully detailed in note 2 to these annual financial statements, there are a number of new and amended accounting standards or interpretations, which become effective in the new financial year. These have not been adopted early and are not expected to have a material effect on GPI’s results.
When analysing and comparing GPI’s performance, headline earnings, and not net profit, is the most appropriate measure to use since headline earnings removes distortions caused by International Financial Reporting Standards (“IFRS”) adjustments, such as the negative goodwill from associates and the prior year impairment of investment in associates.
The headline earnings of R96,5 million increased by 14% from last year’s R84,8 million. This was mainly due to the contributions that the additional SunWest shares and the full year benefit of RAH shares have made. This was, however, off-set to an extent by the increased finance costs associated with the preference share borrowings made to finance these acquisitions. The revenue performance of GPI’s main asset, GrandWest, ended the year approximately 6,5% below the prior year, translating into a 9,5% reduction in its operating profit.
Headline earnings per share decreased by 9,9%, mainly due to the increase in the weighted average number of shares in issue from the previous year. More significantly, the group’s net asset value per share has increased by 11% from the previous year.
| Revenue | EBITDA | Operating profit | |||||||
| 2009 | 2008 | % | 2009 | 2008 | % | 2009 | 2008 | % | |
| R million | R million | change | R million | R million | change | R million | R million | change | |
| GrandWest | 1 642 | 1 756 | (6,5) | 675 | 738 | (8,5) | 535 | 591 | (9,5) |
|---|---|---|---|---|---|---|---|---|---|
| Carnival City | 997 | 954 | 4,5 | 351 | 329 | 6,7 | 267 | 252 | 6,0 |
| Sibaya Casino | 810 | 782 | 3,6 | 295 | 294 | 0,3 | 233 | 224 | 4,0 |
| Boardwalk Casino | 418 | 451 | (7,3) | 172 | 185 | (7,0) | 142 | 156 | (9,0) |
| Table Bay | 199 | 197 | 1,0 | 65 | 69 | (5,8) | 33 | 36 | (8,3) |
| Golden Valley | 109 | 87 | 25,3 | 34 | 24 | 41,7 | 14 | 10 | 40,0 |
| Thuo Gaming WC | 188 | 167 | 12,6 | 40 | 38 | 5,3 | 28 | 30 | (6,7) |
| Thuo Gaming KZN | 63 | 33 | 90,9 | 3 | (9) | n/a | (5) | (13) | n/a |
| Source: Sun International Limited SENS announcement/calculations based on Thuo Gaming management accounts | |||||||||
The requirements of being a listed company, together with the need to align GPI with its strategies, has necessitated continual changes and improvements to GPI’s accounting and reporting systems. Nevertheless, operating costs were kept at 7% below those of the last financial year.
Finance costs have increased significantly as a result of the preference shares issued late in the prior financial year (March 2008: R203 million) and early in this financial year (December 2008: R105 million). R22 million of the preference share debt was repaid in March 2009 and interest rates, on which the preference share dividends payable are based, have dropped significantly by some 4,5%. The debt equity ratio of 17,5% as at 30 June 2009 reflects the low level of gearing and shows that there is capacity for further borrowings should the need arise. We monitor our debt covenants and maintain regular communication with our funders.
Cash flow from interest and dividends received increased to R135,3 million compared to R81,8 million in the prior year, mainly due to the prior year SunWest share premium distribution of R43,6 million disclosed in cash flow from investing activities and the first dividends received from RAH in the current year.
The interest cover, based on cash flow from operations before working capital changes plus interest and dividends received, as well as actual finance charges paid, is 5,6 times (2008: 13,2 times). This cover reduces to 4,4 times when both accrued and paid finance charges are used (2008: no change). The reduction in this cover ratio is primarily due to the additional preference shares referred to earlier in this report.
The GPI group holds a large number of Secondary Tax on Companies (“STC”) credits. The change to the dividends tax regime, which has been legislated but not yet implemented, will increase cash flow through the group, although the tax incidence will then fall on the ultimate shareholder.
During the year GPI acquired a further 2,83% of SunWest at a significantly discounted cost of R92,4 million (being the exercise of an option granted to GPI) and increased its stake in Akhona GPI to 75%. Akhona GPI, in turn, increased its investment in Thuo Gaming KZN and Sibaya Casino in the sum of approximately R26 million.
The GPSIT was registered on 25 March 2009. Effective 30 June 2009, the GPSIT purchased 7,6 million GPI shares for R2,00 per share, financed by a loan from GPI. In line with the rules governing the GPSIT, key executives of GPI were granted options, which they exercised, thereby purchasing 1,78 million of these shares at R2,12 with loans advanced by the GPSIT. The remaining shares have been treated as treasury shares.
The total cost of the GPI shares bought back during the year, which have either been cancelled or are being cancelled, and the treasury shares remaining, as described above, amounted to R55,3 million. The effect of the buy-back programme on HEPS will only be fully felt in the new financial year. The buy-back programme has, however, had a positive impact on the net asset value per share.
In conclusion, I would like to thank all who have supported me over the last financial year and look forward to the challenges that the new year ending 30 June 2010 may bring.
Richard Hoption CA(SA)
Financial Director
Cape Town
23 September 2009