Gold Reef profits down a quarter

Johannesburg - Gaming and resorts company Gold Reef Resorts [JSE:GDF] on Thursday reported a 23% decline in diluted headline earnings per share to 39.2 cents for the six months ended June 2010 from 50.9 cents a year ago, reflecting difficult trading conditions.  As in previous years, the company did not declare a dividend at the interim period.

Revenue was 1.6% lower at R1.070bn, with food and beverage revenue increasing by 13.3%. Operating profit declined 18.6% to R253m and profit for the period was 22.6% lower at R113m.

CEO Steven Joffe said difficult trading conditions persisted over the last six months and in these circumstances the group's properties have performed well.

"The exception was at Gold Reef City where the tables revenues were impacted. Notwithstanding the decline in profits, our cashflows continued to be very strong," he said.

Joffe added that the economy showing limited signs of recovery in the first half and as anticipated, consumers' disposable income continued to be impacted by high levels of household debt, with contributing factors being the large increases in utility and municipal charges as well as job insecurity.

"As evidence of the quality of the Group's recently refurbished property portfolio, most casinos performed in line with or better than their respective provincial markets. The exception was Gold Reef City Casino where tables revenue fell significantly in response to a marked decline in Prive gaming activity in comparison to the prior comparative period," he said.

The company's response to the economic recession and declining revenues has been to focus on containing cost increases. Consequently, the group had limited opportunities in the current period for further major cost cutting initiatives that had not already been exploited.

Despite this, total costs were well contained but included non-recurring items of R12m relating to the proposed merger with Tsogo Sun Holdings. Further merger costs of approximately R21m are expected to be incurred in the second half of the year, should the transaction be successful, the company said.

Headline earnings per share were impacted by the difficult trading conditions and higher depreciation and amortisation, which increased 10% to R99m due to the recent refurbishment programme and capital expenditure incurred at the properties.

Excluding the effects of the non-recurring costs relating to the Tsogo Sun merger, HEPS fell by 14.9%.

Gold Reef's shareholders have approved the proposed merger with Tsogo Sun and the outstanding conditions precedent include approvals from the competition authorities and the relevant Gambling Boards. Application to the Competition Commission for approval of the merger was submitted on May 17 and continues to be evaluated. The  Commission has requested additional time to consider the proposed merger following which it will be referred to the Competition Tribunal. Applications have also been submitted to the Gambling Boards of all the relevant provinces.

Looking ahead, the group said economic conditions in South Africa remain difficult with limited signs of improvement during the first half of 2010. Relief provided to consumers through interest rate cuts in 2009 is only expected to show its effects in the final quarter of 2010.

"With our refurbished casino portfolio and lean cost structure, we are well poised to benefit from the improved trading conditions when these arise," concluded Joffe.