We have extracted the Directors’ Statement from the 2019 abridged report for Sun Limited (SUN.mu), listed on the Stock Exchange of Mauritius:
In the financial year ended 30 June 2019, the Group benefitted from the resilience of La Pirogue in Mauritius and the increased revenue base from Kanuhura, in the Maldives, which showed significant growth rates of 12% and 28% respectively. These performances helped to mitigate the impact of the increasingly challenging operational environment in Mauritius, characterised by low growth in tourist arrivals, with a marked decline in the number of Chinese tourists and by foreign exchange rate volatility. This was coupled with the implementation of the first phase of refurbishment works at Sugar Beach, which started in August 2018. Consequently, the year-on-year decrease in Group revenue at Rs 6.6 billion was contained to Rs 32m versus the prior year, on a comparable basis (adjusting for the impact of IFRS15 on FY19). Sluggish market conditions largely accounted for the decline in Group room occupancy, down 3.6 percentage points to 71%, which also reflects the reduced room inventory resulting from the ongoing refurbishment at Sugar Beach.
In this demanding context, the Group was able to deliver a 5% growth in average daily rate at Rs 9,869 in line with its strategy. Furthermore, the cost containment plan put in place since January 2019 to address a changing business environment, generated significant savings for Sun properties and together with positive contributions from La Pirogue and Kanuhura, led to a normalised EBITDA of Rs 1.260bn, down by only Rs 30m versus the prior year. Normalised EBITDA margin remains stable at 19% of Group revenue.
As previously stated, management re-assessed the recoverable amounts of cash generating units (CGUs) to which goodwill has been allocated. Given the growing uncertainties around Brexit, slower than projected economic growth in Europe, geopolitical tensions and a reduction in air traffic out of Asia likely to affect the Group’s future cash flows and profits, a non- cash impairment charge of Rs 1.88 billion has been booked in the audited financial statement, primarily corresponding to the impairment of the goodwill, property, plant and equipment of Kanuhura. In view of the intense sectoral competition in the Maldives, characterised by an increased supply of rooms, the overall performance of Kanuhura was still below target and with the downward revision of the profit and cash flow projections for this resort, an impairment loss, as detailed above, was booked. Additionally, the deferred tax asset previously accounted for was reversed to the tune of Rs 110m, resulting in a total taxation charge for the Group of Rs 201m, compared to Rs 87m for the preceding year. These exceptional and non-recurring items translated into a loss after tax of Rs 1.89 billion for the Group in the year under review. Normalised profit after tax was Rs 166 million compared to Rs 194 million in the prior year.
Group free cash-flow was supported by a tight monitoring of capital expenditure and is not affected by the above referred non-cash impairment charges. While it has been adversely impacted by the above mentioned impairment charges, the Group’s balance sheet structure remains robust, with the net debt to shareholders’ equity ratio (“gearing”) at 48.1% compared to 43.1% in the previous year and continues to fully comply with the Group’s financial covenants.
Sun Limited, with at the helm its newly appointed CEO, Mr Francois Eynaud, will ensure that a new momentum is given to its sales and marketing strategy in order to drive its top line to optimal levels.
In parallel, renewed efforts towards cost management and cash flow generation will remain a key focus to further enhance the company’s resilience. The management team in place, under the leadership of Mr Eynaud, is confident that the Group can be revitalised and rise up to the challenges ahead despite the current challenging environment.
Based on the actual results of the first two months of the new financial year, the Board expects the Group’s financial performance during the first quarter of the current financial year to be marginally below last year’s results. This is mainly due of the reduced room inventory linked to the refurbishment of the Sugar Beach.
By Order of the Board
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