R E V I E W O F O P E R A T I O N S. Hotels and Resorts

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1 R E V I E W O F O P E R A T I O N S Hotels and Resorts Our marketing philosophy is to build and leverage the Sun International brand. We proactively deliver innovative, world class services and solutions through technology, creative internal and external communication, relevant pricing and unique product offerings. The Table Bay, Cape Town, Western Cape 25

2 S u n In te r n a t i o n a l A N N UA L R E P O RT Review of operations continued Sun City continues to be South Africa s leading destination resort and conference venue. a b c OVERVIEW International and national market statistics for the group s resorts and hotels for the last two years are reflected in the table below: RESORTS AND HOTELS OCCUPANCIES AND RATES Room nights available (000 s) Room nights sold (000 s) Occupancies achieved (%) 72,0 70,0 Local room nights sold (000 s) Occupancies achieved (%) 50,2 49,5 International room nights sold (000 s) Occupancies achieved (%) 21,8 20,5 Occupancies at the group s resorts improved to 72%, two percentage points ahead of the previous year. This was due mainly to higher room nights sold to gaming customers by 8,2%, sports and promotions business (Women s World Cup of Golf and a full feature movie filmed at the Wild Coast) and improved international business, which grew 6,7%. The average room rate of R807 increased by 4,1% over last year. International and local rates increased on average by 3,2% and 3,4% 26

3 a The Royal Livingstone, Zambia b Port Ghalib, Eqypt c Vacation Club, Sun City d Royal Swazi Sun, Swaziland segments. Additionally, room nights sold through the local leisure campaigns (Sunscape, WinterWarmers and Escape) increased by 96%, due to a specific marketing effort to improve the lower occupancy winter months. MARKETING PHILOSOPHY AND STRATEGY Our hotels and resorts marketing philosophy is to build and leverage the Sun International brand. This is achieved by understanding the current, future and latent needs of global markets. We proactively deliver innovative, world class services and solutions through technology, creative internal and external communication, relevant pricing and unique product offerings. We aim to consistently exceed our corporate objectives with our exclusive network of worldwide partners. d respectively, but the overall increase in volume in the higher yielding international segment (6,7%) resulted in an overall rate increase of 4,1%. The overall rate increase is relatively low but can be attributed to a number of factors: International rates were unchanged at the Zambezi Sun and at The Palace. The new product at the Cascades has been very successful, with international business increasing by 32%. This had an impact on the Palace s business, with international business declining by 6%. Increased volumes in some of the lower yielding segments of the market (e.g. gaming room nights). The Royal Livingstone and Zambezi Sun in Zambia had another extremely successful year, achieving a six percentage point increase in occupancy to 68%. The international fully inclusive traveller (FIT) and Tour Series businesses have been particularly successful and registered room night growth of around 20%. The US market contributed significantly to these two segments. The Table Bay rebounded well against a relatively poor performance last year, with occupancy increasing by seven percentage points to 70% for the year. International room nights sold improved by 12%, with significant volume growth being generated out of the MICE (meetings, incentives, conferences and exhibitions) (20%) and Tour Series (19%) The marketing strategy for Sun International resorts has a strong blend between direct sales and brand building initiatives to drive growth in room nights for both the short and long term. The Take what you need and leave everything else behind campaign ran across the full media spectrum for several years with great success and post campaign research reflects a brand equity loyalty gain well ahead of the competitive hospitality set. In line with a new brand positioning strategy currently under development, conventional media will be restricted to specific advertised product offerings with more emphasis on digital channel strategies. INTERNATIONAL MARKETING OFFICES The direct sales and marketing effort at an international level is mainly driven through the London office. This office is equally responsible for the UK division, representing a 40% contribution to the European revenues. The fully dedicated Sun International office model is based on strong FIT and MICE representation in the UK, France, Germany, Italy, Russia and the USA. Other European offices include Spain, Portugal and the Netherlands. Other international world markets are controlled via agency agreements in specified destinations. These are typically growth markets that will, on merit, potentially be incorporated into the Sun International fold for greater focus. These markets include China, India, the Far East, South America, Africa and the Middle East. The group experienced an extremely good year from an international perspective. Notable highlights were double-digit growth in room nights from North America (11%), India (23%), France (31%), Russia (23%) and China (17%). The Hong Kong market continues to be soft and the downward trend in volumes reflected in the prior year continued by a further 10%. The UK maintained its position as the primary inbound market, responsible for 25% of the group s international revenues. New ventures into emerging markets, namely 27

4 Review of operations continued India, Russia and China, have proved successful, with excellent growth reported. Zambia and Cape Town continue to experience strong demand and this trend is likely to continue in the year ahead. LOCAL MARKETING Domestically, a fully fledged national sales force is in operation and focuses principally on group, association, convention and corporate sectors. All offices are supported by fully staffed marketing, public relations and event departments. The introduction of the new OPERA hospitality suite will provide the sales team with improved information from an inventory and sales management perspective. THE ROUTE OF THE AFRICAN SUN The Route of the African Sun holds particular appeal for the international FIT market that drives high yielding business to Sun International s premier product offerings, specifically the Table Bay in Cape Town, the Palace of the Lost City at Sun City and the Royal Livingstone at the Victoria Falls. These hotels are sold as a single package offering and are actively marketed and sold as the most exciting destinations on the sub-continent. DEVELOPMENTS AND REFURBISHMENTS Sun City Phase 2 of the Sun City Vacation Club was completed in April 2006 with the final 14 units bringing the total to 148 two bed-roomed units. Demand has exceeded expectation with units being 100% sold out by June Zambia The slots operation in Zambia closed in October 2005 due to low demand and low profitability. The space previously occupied by the casino has been converted into additional productive conference space. Table Bay A rooms softs refurbishment was completed in September 2005 at a cost of R13 million and a public areas limited softs refurbishment is scheduled for Gaborone The refurbishment of the casino and the addition of a salon privé were completed during 2006 at a cost of P11,1 million. 74 guest rooms were also refurbished at a cost of P6,2 million. The Letsatsi Casino located near Palapye opened in early 2006 at a cost of P3,9 million. Kalahari The casino was refurbished during 2005 at a cost of N$13,5 million. This included a refurbishment and extension to the casino, a salon privé, a welcome lounge for groups and a new wellness centre. During 2007, a rooms softs refurbishment at a cost of N$12 million will be completed. Egypt The project in Port Ghalib, although behind the original schedule, is progressing well and the projected opening date is October Sun International have a long term management contract for three hotels totalling rooms and a world class 800 seat conference centre. The core project includes a berth marina, several residential developments, a 1,2 km corniche and an international airport. The Raj Restaurant opened in November 2005 in response to increased demand for Halaal cuisine. The Sun Café coffee shop opened in the Sun City Main Hotel in May The Cabanas rooms will undergo a major softs refurbishment at a cost of R23 million over the period August 2006 to February An extensive refurbishment of the Sun City Main Hotel will commence in February 2007 with the project structured into two phases for completion in November The casino, restaurants and public areas will remain operational throughout, with the refurbishment including a redesign of the bathrooms, the replacement of airconditioning, electrical and plumbing services. An extensive capital maintenance and replacement programme of all Sun City s essential infrastructure, including electrical and water services, is being planned over the next five years. 29

5 S u n In te r n a t i o n a l A N N UA L R E P O RT Review of operations continued Dreams generates market demand through tailored marketing campaigns and constant contact with the retail travel trade. DREAMS Dreams was initially set up as a local tour operator dedicated to selling Sun International s Victoria Falls properties for both FIT and group bookings. These properties contributed 94% of the business. Dreams generates market demand through tailored marketing campaigns and constant contact with the retail travel trade. As a licenced tour operator, Dreams has been able to provide the convenience of a full travel package offering to the market, inclusive of flights and added value activities at competitive prices. Consequently, Dreams has played an important role in ensuring the tremendous growth and success of the Zambian resort. Today, the Dreams offering has been expanded to include the full Sun International resorts portfolio. Volumes increased by 11% over the prior year. THE INTERNET Leveraging e-commerce for competitive advantage has become a key component of Sun International s hotels and resorts strategy and is closely aligned to the corporate customer relationship management initiatives. International hospitality trends reflect exponential growth in Internet bookings (28% of all hospitality bookings made are currently attributed to dedicated websites) and Sun International will be 30

6 capitalising on this trend. A refreshed corporate website is planned for launch in 2007 and marketing strategies will be in place to drive both domestic and international demand to the group s hotels and resorts. The customer database is proving to be extremely cost effective in filling valley periods and marketing unique packages to specific target markets. New means of leveraging and digital channel opportunities are being investigated and implemented to tap into latent market demand, including partnership programmes with cell phone operators, linked to loyalty programmes and SMS campaigns. MAJOR EVENTS The Nedbank Golf Challenge was once again a huge success with the event generating international TV exposure for Sun City estimated at 1,4 billion viewers. the Dimension Data Pro-Am Golf Tournament, Skouspel, Miss SA and Miss SA Teen. International shows, including The Black Eyed Peas, Remos and Seal as well as various cycling events and dance competitions were also very successful. These events entrench Sun City s capacity to stage world-class events appealing to a broad spectrum of society. The community social investment strategy took on a new meaning with the inaugural Posi+ive event. Based on a fusion of fashion, art, music and food, the event showcased local and international designers, chefs, artists and entertainers. Sun City successfully raised R1,5 million for the Tapologo AIDS Hospice, an integral part of Sun City s HIV/AIDS initiative. The event attracted a significant amount of press coverage from both the local and international arena. The SABC produced a two-hour production of the event, which was broadcast in prime time in South Africa and across other parts of Africa. The Women s World Cup of Golf was held in January 2006 at the Gary Player Country Club. This event provided the opportunity to expose Sun City to new markets, particularly in the Far East. We are now planning the 2007 event, which promises to be an even bigger spectacle following the success of the 2006 event. Other events that packed Sun City s sporting and entertainment calendar were the second hosting of the FIM Motocross Grand Prix, 31

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