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SUN INTERNATIONAL ANNUAL REPORT ’10
Debt covenants and gearing capacity
The group’s preference share funding has the following principal debt
covenants:
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Debt to EBITDA of 3 times
EBITDA to interest of 3 times
The calculation of the covenants and the resultant group debt capacity for
the year ended 30 June 2010 are set out below:
EBITDA (Rm) 2 545
Interest expense (Rm) 542
Debt (Rm) 6 065
EBITDA to interest (times) 4.7
Debt to EBITDA (times) 2.4
Additional debt capacity
(at 3 times EBITDA) (Rm) 1 570
Excluding the consolidation of the Employee Share Trusts, which are
excluded in terms of the covenants agreed to, interest bearing debt to
EBITDA increased from 2.3 to 2.4 times and EBITDA to net interest
increased from 4.0 to 4.7 times at 30 June 2010. The calculations clearly
show that the group is operating within its covenants and still has
capacity to raise the funding required for the Boardwalk and Wild Coast
Sun project commitments.
CASH FLOWS
Cash generated by operations, including the proceeds from the business
interruption claim, decreased by 10% to R2 374 million. The net cash
retained from operations after minority dividends, tax and interest
payments was R73 million short of that required to fund the group’s
remaining investing activities and outflow from financing activities and as
a result cash on hand decreased to R721 million.
Set out below is the free cash flow generated by the group:
Rm 2010 % 2009
Cash retained from
operating activities 1 827 2 002
Interest paid (542) (685)
Replacement of PPE (613) (492)
Free cash flow 672 (19) 825
Dividends paid
Minorities (246) (332)
Shareholders – (227)
426 266
Free cash flow at R672 million was 19% down on last year primarily due
to the weaker trading and higher PPE replacement offset by a decrease in
interest paid. Cash of R426 million was retained in the business to fund
expansion projects.
CORPORATE FINANCE ACTIVITIES
The following transactions took place in the financial year:
Acquisition of additional shares in RAH
During the year, the group purchased a further 343 000 shares in RAH for
a purchase consideration of R1.2 million bringing our interest in RAH
to 66.5%.
Acquisition of an interest in TCN
The acquisition of the group’s 49% interest in TCN was completed during
the year. The first tranche of equity was subscribed for on 27 August 2009
for US$12 million giving the group a 29.4% interest in the company and
resulting in TCN being accounted for as an associate. The second tranche
of equity was subscribed for on 26 May 2010 for US$16 million, thereby
increasing the group’s interest to 49%. With the group’s 49% shareholding
and the control exercised through the management contract, Sun International
is deemed to have effective control over the company and as a result the
group has consolidated TCN from that date. To date the group has invested
US$28 million in equity and advanced a loan of US$15 million to the
company.
Restructure of Monticello long term debt
As a result of the slow start to trading at Monticello and the hardening of
debt markets, the group restructured the project’s long term loan. In terms
of the restructure shareholders contributed US$50 million in December 2009
which was used to redeem a portion of the long term debt. The restructure
includes the cancellation of limited shareholder support and the requirement
to fund a debt service reserve. The term of the debt has been extended by
one year and capital repayments will only commence on 31 December 2010.
In the interim period, Monticello is required to apply any excess cash flow
after all debt service requirements and making provision for its cash flow
needs, to early redeem debt up to an amount of approximately US$8 million.
The remaining debt terms are unchanged and there is no further recourse to
shareholders.