| Fri 30 Sep 2011, 7:06 | | PHM - Phumelela Gaming and Leisure Limited - The Group`s audited summarised |
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PHM
PHM
PHM - Phumelela Gaming and Leisure Limited - The Group`s audited summarised
preliminary consolidated financial statements for the year ended 31 July 2011
Phumelela Gaming and Leisure Limited (Incorporated in the Republic of South
Africa)
(Registration number 1997/016610/06)
Share code: PHM
ISIN: ZAE000039269
("Phumelela" or "the Company")
The Group`s audited summarised preliminary consolidated financial statements for
the year ended 31 July 2011
? PBT FROM INTERNATIONAL OPERATIONS UP 43%
? ONGOING PBT FROM FIXED ODDS OPERATIONS UP 14%
? PBT FROM OTHER LOCAL OPERATIONS DOWN 18%
? ONGOING GROUP PBT UP 4%
? HEPS UP 5%
? CASH RESERVES OF R133 MILLION
? DIVIDEND MAINTAINED
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Audited Audited
31 July 31 July
% 2011 2010
change R`000 R`000
Income
- Local operations 4 787 886 754 269
- International operations 95 287 95 274
4 883 173 849 543
Net betting income
- Local operations 4 620 727 596 493
International operations 55 45 595 29 375
Net betting income 6 666 322 625 868
Other operating income
- Local operations 5 152 248 144 883
- International operations (21) 52 140 65 707
Investment income
- Local operations (9) 2 615 2 880
- International operations 390 36
Net income 873 715 839 374
Operating expenses and overheads
- Stakes (3) (153 863) (157 986)
- Local operations 9 (527 756) (485 452)
- International operations (12) (60 667) (69 270)
Profit before interest, income tax, 4 131 429 126 666
depreciation and amortisation
Depreciation and amortisation (33 062) (32 803)
Profit from operations 5 98 367 93 863
Finance costs
- Local operations (452) (781)
- International operations (61)
Profit before share of profit of 5 97 854 93 082
equity accounted investee
Profit on step up of Betting World 4 443
becoming a subsidiary
Share of profit of equity accounted
investee
- Automatic Systems Limited 336 1 028
Profit before income tax 98 190 98 553
Income tax expense (31 429) (30 485)
Profit for the year (2) 66 761 68 068
Other comprehensive income/(expense)
- Exchange differences on translating 747 (1 017)
foreign operations
Total comprehensive income for the 1 67 508 67 051
year
Profit attributable to:
Equity holders of the parent 62 359 63 338
Non-controlling interest 4 402 4 730
Profit for the year (2) 66 761 68 068
Total comprehensive income
attributable to:
Equity holders of the parent 63 106 62 321
Non-controlling interest 4 402 4 730
Total comprehensive income for the 1 67 508 67 051
year
Earnings per share (cents)
- Basic (2) 82,50 83,79
- Diluted basic (2) 82,08 83,43
SUPPLEMENTARY STATEMENT OF COMPREHENSIVE INCOME INFORMATION
Audited Audited
31 July 31 July
% 2011 2010
change R`000 R`000
Reconciliation of headline earnings
Earnings attributable to equity (2) 62 359 63 338
holders of parent
Adjusted for:
Net loss on disposal of property, 719 234
plant and equipment
Tax effect (201) (66)
Profit on step up of Betting World (4 443)
becoming a subsidiary
Tax effect 622
Headline earnings 5 62 877 59 685
Headline earnings per share (cents) 5 83,19 78,96
Diluted headline earnings per share 5 82,76 78,62
(cents)
Net asset value per share (cents) 3 513,01 497,52
Distributions to shareholders
Interim distribution/ dividend
Distribution out of share premium 7,5
(cents)
Dividend per ordinary share (cents) 25,0 17,5
Final dividend
Dividend per ordinary share (cents) 43,0 43,0
Number of shares in issue 75 586 838 75 586 838
Weighted average number of shares in 75 586 838 75 590 417
issue for basic and headline earnings
per share calculation
Weighted average number of shares in 75 974 871 75 917 090
issue for diluted earnings per share
calculation
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited Audited
31 July 31 July
2011 2010
R`000 R`000
ASSETS
Non-current assets 393 941 378 558
Property, plant and equipment 338 999 325 340
Intangible assets 46 340 44 717
Interest in equity accounted investee 3 811 4 266
Investment 891 891
Deferred tax asset 3 900 3 344
Current assets 210 548 198 438
Inventories 5 799 5 738
Trade and other receivables 70 334 68 212
Income tax receivable 1 414 6 943
Cash and cash equivalents 133 001 117 545
Total assets 604 489 576 996
EQUITY AND LIABILITIES
Total equity 410 791 394 682
Share capital and premium 1 890 1 890
Retained earnings 386 159 375 199
Non-distributable reserves (283) (1 030)
Equity attributable to ordinary 387 766 376 059
shareholders
Non-controlling interest 23 025 18 623
Non-current liabilities 7 165 5 670
Deferred tax liability 5 346 3 851
Retirement benefit obligations 1 819 1 819
Current liabilities 186 533 176 644
Trade and other payables 176 711 164 521
Short term loans from non-controlling 5 362 8 968
interest
Contingent consideration liability 3 000 3 000
Income tax payable 1 460 155
Total equity and liabilities 604 489 576 996
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited Audited
31 July 31 July
2011 2010
R`000 R`000
Net cash inflow from operating activities 67 243 82 153
Cash generated from operations 129 584 123 279
Movements in working capital 10 007 39 905
Cash generated from operating activities 139 591 163 184
Taxation paid (23 441) (32 034)
Investment income 3 005 2 916
Finance costs (513) (511)
Distributions to shareholders (51 399) (51 402)
Net cash outflow from investing activities (48 181) (64 234)
Acquisition of Betting World (9 507)
Acquisition of property, plant and equipment (47 874) (55 853)
Acquisition of intangible assets (5 948) (2 556)
Proceeds on disposal of intangible assets 402
Proceeds on disposal of property, plant and 4 265 2 986
equipment
Dividend received from equity accounted 974 696
investee
Net cash outflow from financing activities (3 606) (555)
Issue of share capital 14
Share re-purchases (89)
Decrease in short term loans (3 606) (480)
Net increase in cash and cash equivalents 15 456 17 364
Cash and cash equivalents at beginning of year 117 545 100 181
Cash and cash equivalents at end of year 133 001 117 545
Foreign currency denominated monetary assets 46 773 27 008
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Non-
distributable
capital premium reserves
R`000 R`000 R`000
Balance at 31 July 2009 1 890 (13)
Issue of share capital - options 14
exercised
Non-controlling interest on equity
accounted investee becoming a
subsidiary
Share based payment
Share re-purchases (14)
Total comprehensive income for the (1 017)
year
- Profit for the year
- Foreign currency translation (1 017)
reserve
Dividends paid to equity holders of
parent
Balance at 31 July 2010 1 890 (1 030)
Total comprehensive income for the 747
year
- Profit for the year
- Foreign currency translation 747
reserve
Dividends paid to equity holders of
parent
Balance at 31 July 2011 1 890 (283)
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (cont)
Retained Equity Non- Total
earnings attributable controlling equity
to ordinary interest
shareholders
R`000 R`000 R`000 R`000
Balance at 31 July 2009 362 103 363 980 363 980
Issue of share capital - 14 14
options exercised
Non-controlling interest on 13 893 13 893
equity accounted investee
becoming a subsidiary
Share based payment 1 235 1 235 1 235
Share re-purchases (75) (89) (89)
Total comprehensive income 63 338 62 321 4 730 67 051
for the year
- Profit for the year 63 338 63 338 4 730 68 068
- Foreign currency (1 017) (1 017)
translation reserve
Dividends paid to equity (51 402) (51 402) (51 402)
holders of parent
Balance at 31 July 2010 375 199 376 059 18 623 394 682
Total comprehensive income 62 359 63 106 4 402 67 508
for the year
- Profit for the year 62 359 62 359 4 402 66 761
- Foreign currency 747 747
translation reserve
Dividends paid to equity (51 399) (51 399) (51 399)
holders of parent
Balance at 31 July 2011 386 159 387 766 23 025 410 791
Review of Results
Group results
Local trading conditions remained challenging whilst Rand strength and the
termination of the Racing UK (RUK) rights agreement in the previous year
impacted negatively on international operations. Despite this Group total income
rose by 4% to R883,2 million (2010: R849,5 million).
A strong performance by the Group`s Isle of Man (IOM) Tote operation helped lift
net betting income by 6% to R666,3 million (2010: R625,9 million) with local
operations up 4% to R620,7 million (2010: R596,5 million) and the IOM Tote up
55% to R45,6 million (2010: R29,4 million).
Other operating income comprising, inter alia, bookmakers` levies, unclaimed
dividends and breakages, stable rentals, limited payout machines (LPM`s) and
local and international broadcasting levies/fees decreased by 3% to R204,4
million (2010: R210,6 million), primarily due to the termination of the RUK
rights agreement in the previous year. Notably bookmaker levies increased by 14%
to R40,6 million (2010: R35,7 million) whilst income from LPM`s increased by a
pleasing 56% to R11 million (2010: R7,1 million) benefitting from an increased
LPM footprint in Gauteng.
Investment income increased by 3% to R3 million (2010: R2,9 million) abated by
increased foreign currency denominated assets and a softening in investment
returns.
Operating expenses and overheads were well contained, in particular
international operations that benefitted from Rand strength and the loss of the
RUK rights, and increased by 4% to R742,3 million (2010: R712,7 million).
Profit before finance costs, income tax, depreciation and amortisation increased
by 4% to R131,4 million (2010: R126,7 million).
The Group`s depreciation and amortisation charge increased by 1% to R33,1
million (2010: R32,8 million).
Profit before income tax (PBT), which includes a R4,4 million profit on step up
of Betting World becoming a subsidiary in the previous year, decreased
marginally to R98,2 million (2010: R98,6 million). However, PBT from the Group`s
international and ongoing fixed odds operations increased by a pleasing 43% and
14% respectively.
Attributable earnings decreased by 2% to R62,4 million (2010: R63,3 million).
Headline earnings and headline earnings per share (HEPS) increased by 5% to
R62,9 million (2010: R59,7 million) and 83,19 cents per share (2010: 78,96 cents
per share) respectively. Diluted HEPS also increased by 5% to 82,76 cents per
share (2010: 78,62 cents per share).
LOCAL OPERATIONS
Income from local operations increased by 4% to R787,9 million (2010: R754,3
million) with income from fixed odds up 7% to R87,4 million (2010: R81,6
million) and income from totalisator, racing and other operations up 4% to
R700,5 million (2010: R672,7 million).
After a moderate start, totalisator betting handle gradually gained momentum in
the second half assisted by the launch of the new `All to come` and `Soccer 10`
bets, an upgraded betting platform and an 8% increase in betting handle on
Vodacom Durban July day resulting in an overall increase of 3% to R2,76 billion
(2010: R2,68 billion).
Totalisator betting handle in bricks and mortar outlets increased marginally
year on year whilst betting handle on-course and via interactive channels
(internet, telephone and mobile platforms) increased by 5% and 9% respectively.
Totalisator betting handle on local and imported horseracing increased by 2% to
R2,47 billion (2010: R2,41 billion) and on the Group`s soccer pools by 7% to
R287,6 million (2010: R269,5 million). Growth in soccer pools was however
curtailed by a decline in the number of betting opportunities to 448 (2010: 475)
with increased betting opportunities offered in the previous year due to the
2010 Soccer world cup tournament fixtures.
Net betting income increased by 4% to R620,7 million (2010: R596,5 million) with
fixed odds up 8% to R77 million (2010: R71,4 million) and totalisator operations
up 3% to R543,7 million (2010: R525,1 million).
Operating expenses and overheads increased by 6% to R681,6 million (2010: R643,4
million). Excluding stakes which decreased by 3% to R153,9 million (2010: R158
million), operating expenses and overheads increased by 9% to R527,8 million
(2010: R485,4 million) primarily due to employee, marketing and advertising,
security, water and electricity, fuel and regulatory compliance costs.
PBT from local operations, which includes a R4,4 million profit on step up of
Betting World becoming a subsidiary in the previous year, decreased by 17% to
R59,9 million (2010: R71,9 million).
Excluding the R4,4 million profit on step up of Betting World becoming a
subsidiary in the comparative period, PBT from local operations decreased by 11%
with Betting World up 14% to R17,3 million (2010: R15,2 million) and
totalisator, racing and other operations down 18% to R42,6 million (2010: R52,2
million).
INTERNATIONAL OPERATIONS
Despite the loss of the RUK rights and the Rand appreciating by approximately 8%
against the major trading currencies, international operations continued to
excel through the IOM Tote operation and from strategic relations forged with
Australia, Italy and the UK who collectively make up 32% (2010: 20%) of
international revenue for the year under review.
Bar the IOM Tote, Australia is now international operation`s biggest customer
followed by the UK, Italy and Singapore. Effective from 1 June 2011 the UK`s
standing will be significantly enhanced by the agreement concluded with
Satellite Information Services Limited (SiS) for the licence rights to South
African racing data, audio and visual broadcasts. The agreement is for a five
year term at an annual consideration double that received from the previous
licensee.
Net betting income from the Group`s Isle of Man totalisator operation increased
by 55% to R45,6 million (2010: R29,4 million), the benefits of increased betting
volumes on enhanced customer betting opportunities flowing through, whilst
income generated from other international initiatives was negatively impacted by
the loss of the RUK rights and decreased by 21% to R52,1 million (2010: R65,7
million).
Operating expenses and overheads were positively impacted by the loss of the RUK
rights, Rand strength and savings achieved on consultants and satellite
communication costs decreasing by 12% to R60,7 million (2010: R69,3 million).
The Group`s share of profit from its equity accounted investee, Automatic
Systems Limited (ASL - a company listed on the Mauritius Stock Exchange and one
of two licensed totalisator operators on the island) decreased by 67% to R336
000 (2010: R1 million). ASL`s earnings were impacted by strong competition from
the Lottery and the licensing of fixed odds operations.
PBT increased by 43% to R38,3 million (2010: R26,7 million) and equates to 39%
(2010:28%) of the Group`s PBT.
FINANCIAL POSITION
The Group has total assets of R604,5 million (2010: R577 million) including cash
resources of R133 million (2010: R117,5 million) and insignificant gearing. The
Group`s net asset value per share increased by 3% to 513,01 cents per share.
Cash generated from operations increased by 5% to R129,6 million (2010: R123,3
million) and was utilised to pay income tax of R23,4 million (2010: R32 million)
and dividends of R51,4 million (2010: R51,4 million). A further R53,8 million
(2010: R58,4 million) was utilised for capital expenditure and software
development. Net cash outflows from financing activities totalled R3,6 million
in short term loan repayments.
SHARE CAPITAL
There was no movement in share capital during the year under review.
CAPITAL COMMITMENTS
Commitments in respect of capital expenditure approved by directors.
2011 2010
R`000 R`000
Contracted for 4 221 2 817
Not contracted for 55 400 45 740
REPORTING ENTITY
Phumelela Gaming and Leisure Limited is a company domiciled in South Africa. The
summarised consolidated financial statements as at and for the year ended 31
July 2011 comprises of the company and its subsidiaries and the Group`s
interests in equity accounted investees.
STATEMENT OF COMPLIANCE
The summarised preliminary consolidated financial statements have been prepared
in accordance with the recognition and measurement criteria of IFRS, its
interpretations adopted by the International Accounting Standards Board (IASB),
the presentation and the disclosure requirements of IAS 34 - Interim Financial
Reporting, South African Statements and Interpretations of Statements of
Generally Accepted Accounting Practice (AC 500 series), the Listings
Requirements of the JSE Limited and the requirements of the South African
Companies Act.
The Board is committed to the highest standards of corporate governance
throughout the Group, endorses the recommendations set out in King III and
supports the Code of Corporate Practices and Conduct set out therein.
BASIS OF PRESENTATION
The summarised consolidated financial statements are presented in South African
Rands rounded to the nearest thousand on the historical cost basis, except for
certain derivative financial instruments that are recognised at fair value.
The accounting policies are those presented in the annual financial statements
for the year ended 31 July 2011 and have been applied consistently to the
periods presented in these consolidated financial statements and by all Group
entities. During the year under review the Group adopted all IFRS and
interpretations effective and deemed applicable to the Group. None of these
standards and interpretations had a material impact on the results.
REPORTS OF THE INDEPENDENT AUDITORS
The unmodified audit reports of KPMG Inc., the independent auditors, on the
annual financial statements and the summarised financial statements contained
herein for the year ended 31 July 2011, dated 29 September 2011, are available
for inspection at the registered office of the Company.
CONDENSED SEGMENTAL ANALYSIS
The Group stages and broadcasts horseracing events and offers betting
opportunities on both South African and international product in two geographic
segments, namely South Africa and the rest of the world. The reporting segments
are set out as local and international operations with local further segmented
into fixed odds and totalisator and other operations.
Audited Audited
31 July 31 July
% 2011 2010
change R`000 R`000
LOCAL
Excluding fixed odds
Income 4 700 500 672 689
Net income 4 688 712 664 661
Stakes (3) (153 863) (157 986)
Operating expenses 9 (463 358) (426 018)
Profit before depreciation and amortisation (11) 71 491 80 657
Depreciation and amortisation (28 876) (28 410)
Profit before finance costs and taxation (18) 42 615 52 247
Finance costs 33 (36) (27)
Profit before income tax (18) 42 579 52 220
Fixed odds
Income 7 87 385 81 580
Net income 8 85 882 79 595
Operating expenses 8 (64 397) (59 434)
Profit before depreciation and amortisation 7 21 485 20 161
Depreciation and amortisation (11) (3 750) (4 208)
Profit before finance costs and taxation 11 17 735 15 953
Finance costs (45) (416) (754)
Profit from operations 14 17 319 15 199
Profit on step up of Betting World becoming a 4 443
subsidiary
Profit before income tax (12) 17 319 19 642
INTERNATIONAL
Income 95 287 95 274
Net income 4 99 120 95 118
Operating expenses (12) (60 667) (69 270)
Profit before depreciation and amortisation 49 38 453 25 848
Depreciation and amortisation (436) (185)
Profit before finance costs and taxation 48 38 017 25 663
Finance costs (61)
Profit from operations 48 37 956 25 663
Share of profit of equity accounted investee (67) 336 1 028
Profit before income tax 43 38 292 26 691
TOTAL FOR THE GROUP
Income 4 883 172 849 543
Net income 4 873 715 839 374
Stakes (3) (153 863) (157 986)
Operating expenses 6 (588 423) (554 722)
Profit before depreciation and amortisation 4 131 429 126 666
Depreciation and amortisation (33 062) (32 803)
Profit before finance costs and taxation 5 98 367 93 863
Finance costs (513) (781)
Profit before share of equity accounted 5 97 854 93 082
investee
Share of profit of equity accounted investee (67) 336 1 028
Profit from operations 4 98 190 94 110
Profit on step up of Betting World becoming a 4 443
subsidiary
Profit before income tax 98 190 98 553
SUBSEQUENT EVENTS
There are no significant subsequent events that have a material impact on the
financial statements at 31 July 2011.
On 1 July 2011, Phumelela and Gold Circle received notice from the Competition
Commission of a complaint lodged by Africa Race Group (Pty) Limited alleging,
inter alia, price fixing and market allocation. The Company has submitted a
formal response to the allegations.
The report on the review of the South African gambling industry prepared by the
Gambling Review Commission and submitted to the Minister of Trade and Industry
was published in July 2011. The Group submitted its comments on the Commission`s
recommendations on 9 September 2011. The most important part of the Group`s
submission is its request for a levelling of the playing field between the Group
and Gold Circle`s Totalisator operation on the one hand and bookmakers on the
other. The Group has submitted that bookmaker betting approximates 46% of total
betting on horseracing, but contributes only 14% towards the funding of the
sport and has requested that government urgently addresses this imbalance.
With effect from 1 August 2011, Tabcorp Holdings Limited (Australia) acquired
joint ownership of the Group`s Isle of Man Totalisator operation establishing a
strategic partnership with Phumelela Gold Enterprises.
Subject to certain conditions precedent, the Company has reached an agreement to
acquire a further 41% shareholding in Betting World (Pty) Limited (a fixed odds
bookmaking concern) for R38 million. Upon completion Betting World will be a
wholly owned subsidiary of the Group.
De-merger discussions between the KwaZulu-Natal and Western Cape chapters of
Gold Circle are at an advanced stage. Since the Gold Circle Western Cape
business ("GCWC") is not considered viable as a standalone entity it is
envisaged that upon the de-merger, the business and assets of GCWC will be
acquired by the Thoroughbred Horseracing Trust, the owners of thoroughbred
horses in the Western Cape will be eligible to become members of the Racing
Association and the day to day racing and betting operations of GCWC will be
outsourced to Phumelela. The simultaneous transactions, once agreed between the
parties, will be subject to such members`, trustees and regulatory approvals as
may be required.
SOCIAL RESPONSIBILITY
The Group recognises that it has a responsibility to the broader community to
act in a socially responsible manner, for the benefit of all South Africans.
Contributions to selected training, sports and community service related
projects continue. The Group has adopted appropriate BEE and employment equity,
training and procurement policies.
In April 2011 the Group was awarded "AA" (Level Three Contributor) status by
Empowerdex (Economic Empowerment Rating Agency).
DIRECTORS
With effect from 1 October 2010, Messrs. V J Moodley and J A Stuart were
appointed to the Board as executive directors. There were no other changes to
the composition of the Board during the year under review.
PROSPECTS
The parlous state of global economies and the potential impact of a further
recession in the USA and Europe on the South African economy is uncertain.
However the Group`s international operations will benefit from a full year of
the new contract with SiS, should the Rand remain at present levels against the
British Pound and the Euro, the Group`s earnings from offshore will also
benefit. The Group has recently launched the Rugby5 bet and initial pools have
exceeded expectations. The Group`s soccer pool bets continue to grow and the
recently launched Soccer10 bet has been very successful. It is hoped that the
government will address the imbalance between the Tote and bookmaker betting and
their respective contributions to the funding of the sport. Whilst this should
have a positive effect on the Group`s earnings, it is not realistically expected
during the course of this financial year. Management is targeting growth in
earnings. This forecast has not been reviewed or reported on by the Company`s
auditors.
DIVIDEND TO SHAREHOLDERS
The Board has resolved to maintain the dividend during recessionary conditions
provided that this is justified by operational cash flows. To the extent that
profit increases, the Board intends to return to a more conservative dividend
cover. Notice is hereby given that the Board has declared a final dividend of 43
cents per share payable to shareholders recorded in the register on Friday, 21
October 2011. Shareholders are advised that the last date to trade "cum
distribution" will be Friday, 14 October 2011. As from commencement of business
on Monday, 17 October 2011 all trading in Phumelela shares will be "ex
distribution". Payment will be made on Monday, 24 October 2011. Share
certificates may not be dematerialised or rematerialised between Monday, 17
October 2011 and Friday, 21 October 2011, both days inclusive.
For and on behalf of the Board
M P MALUNGANI W A du PLESSIS
Chairman Group Chief Executive
Johannesburg
29 September 2011
Directors: M P Malungani (Chairman), W A du Plessis* (Group Chief Executive), A
W Heide* (Finance Director and COO), R Cooper, M J Jooste, B Kantor, S K C
Khampepe, N J Mboweni (Mrs), V J Moodley*, Dr E Nkosi, M L Ramafalo*, J A
Stuart*, C J H Van Niekerk, J B Walters (*Executive)
Company Secretary: A F Wintour
Registered Office: Turffontein Racecourse, 14 Turf Club Street, Turffontein
Transfer Secretaries: Computershare Investor Services (Pty) Limited
Sponsor: Investec Bank Limited
Web site: www.phumelela.com
Date: 30/09/2011 07:06:57 Produced by the JSE SENS Department.
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