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Phumelela Gaming Heps down 8%

Full-year net profit up to R155.1 million.
Selling the media and data rights of South African horse racing overseas makes a healthy contribution to profits. Picture: Moneyweb

Phumelela Gaming & Leisure released its preliminary annual financial results for the year ended July 31, 2018, with headline earnings per share (Heps) down 8%.

This is the first time multiple product betting and media rights figures have been consolidated, with the gaming and leisure company reporting a consolidated net income of R1.563 billion for the year to end-July – betting operations contributing 68%, and media 30%.

The group reported an increase in operating expenses, which went up 3% to R1.475 billion. This excluded a once-off R27.1 million voluntary severance programme expense.

Phumelela CEO John Stuart, former head of its international operations, replaced Rian du Plessis, a close friend of former Steinhoff International CEO Markus Jooste, who resigned last month after 10 years at the helm. Jooste’s horse-management company Mayfair Speculators was the second-biggest shareholder in Phumelela through Kalamojo Trading & Investments.

Diversification to the rescue

Phumelela’s international income, through ‘tote betting’ and media rights, remained the largest contributor this year, accounting for 134% of pre-tax profit. The group was quick to note the advantages of foreign exposure, saying in a statement: “As we grow our domestic fixed odds and tote offering organically and through acquisition, international will nevertheless continue to contribute a healthy portion of profits, with the foreign currency hedge an additional advantage”.

“Had Phumelela not diversified its revenue stream a few years ago, it would not have much of a business,” says Samantha Steyn, portfolio manager at Cannon Asset Managers. “That’s been one of the things management has done well – diversify revenue.”

The international drive was spearheaded by horse racing operations selling the media and data rights of South African horse racing locally and internationally. While the local horse racing operations remain loss-making on a stand-alone basis, the international segment remained profitable supported by international demand. In the last financial year, the Hong Kong Jockey Club imported 12 simulcast race meetings. Earlier, Singapore too extended simulcast and the Singapore Turf Club is seeking regulatory approval to promote new simulcasts.

Supabets and Interbet – star performers

The results were buoyed by the performance of Supabets and Interbet, which are jointly controlled by Phumelela and have increased earnings by 50%. Furthermore, the newly formed Supaworld, jointly owned by Betting World and Supabets, contributed a 75% share of earnings to Phumelela.  

In a presentation to investors, Stuart noted that “Supabets and Interbet have had a re-energising effect on the group. Together with the best of Supabets and Betting World within Supaworld, these companies are expected to have an increasingly important role in the growth of Phumelela.”  

Supabets and the jointly owned Supaworld outlets, which are large format physical stores, attract masses of customers throughout the day with four Supaworld stores operating by July this year.

The gaming company expressed concern over the latest Vat increase, saying that it cost the group R4 million in 2018 and will have an annual cost of R10 million going forward. “The company is trying to absorb as much as it can as the consumer is under pressure and not all costs can be passed on,” says Steyn. “Phumelela is taking some of the hit here and that’s why we see the R10 million forecast.”

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