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Phumelela Gaming and Leisure Limited - Financial Report
Phumelela Gaming and Leisure Limited
(Registration number 1997/016610/06)
Audited Financial Results for the 12 months ended 31 July 2002
* empowerment and listing successfully achieved
* attributable earnings up by 207%
* headline earnings per share up by 390%
"These results reflect the solid foundation build over the last 3 years of
focussed business restructuring. The Group is poised for growth and will apply
for its listing to move to the main board". - M P Malungani
Abridged Income Statements
2002 2001
R`000 R`000
Betting turnover 1 490 241 1 511 516
Operating profit before depreciation and interest 31 061 14 130
Depreciation 10 544 13 033
Operating profit 20 517 1 097
Net interest (paid)/received (1 357) 523
Profit before taxation 19 160 1 620
Taxation 386 2 385
Profit after taxation 19 546 4 005
Attributable to outside shareholders 2 136 -
Net profit from ordinary activities 17 410 4 005
Extraordinary items - 1 666
Earnings attributable to ordinary shareholders 17 410 5 671
Earnings attributable to ordinary shareholders 17 410 5 671
Adjusted for:
Extraordinary items - (1 666)
Surplus on disposal of property, plant and equipment (1 911) (613)
Impairment of
Newmarket Racecourse 1 100 -
Amortisation of goodwill 89 -
Headline earnings 16 688 3 392
Number of shares in issue 70 000 285 280
Weighted average number of shares 13 655 076 280
Earnings per share (cents) 127 *42
Headline earnings per share (cents) 122 *25
Earnings per share based on number of
shares in issue at year end (cents) 25 *8
*Pro forma based on number of shares as for 2002
Abridged Balance Sheet
2002 2001
R`000 R`000
ASSETS
Non-current assets 161 251 204 252
Property, plant and equipment 152 153 201 867
Goodwill 5 269 -
Deferred taxation 3 829 2 385
Current assets 27 283 18 513
Inventories 1 239 1 651
Trade and other receivables 19 113 16 275
Cash and cash equivalents 6 931 587
Total assets 188 534 222 765
EQUITY AND LIABILITIES
Capital and reserves 74 038 33 940
Share capital and premium 22 688 -
Capital reserve - 13 957
Accumulated profit 51 350 19 983
Non-current Liabilities 60 810 141 285
Retirement benefit obligations 19 985 24 985
Interest bearing borrowing 700 800
Racing Association loan 30 125 115 500
Grant for industry transformation 10 000 -
Current Liabilities 53 686 47 540
Trade and other payables 45 780 42 138
Provisions 7 360 5 402
Taxation 546 -
Total equity and liabilities 188 534 222 765
Abridged Cash Flow Statements
2002 2001
R`000 R`000
Cash generated by operations 29 148 9 079
Increase in working capital (2 745) (13 247)
Cash generated by operating activities 26 403 (4 168)
Net interest, investment income and taxation (1 869) 962
Net cash inflow/(outflow) from operating activities 24 534 (3 206)
Net cash outflow from investing activities (20 453) (12 116)
Net cash inflow from financing activities 2 263 -
Net movement in cash and cash equivalents 6 344 (15 322)
Cash and cash equivalents at beginning of year 587 15 909
Cash and cash equivalents at end of year 6 931 587
Statement of changes in group equity
Share Share Capital Accumulated
capital premium reserve profit Total
R`000 R`000 R`000 R`000 R`000
Balance at
31 July 2001 restated - - 13,957 19,983 33,940
Issue of share capital 1,750 33,250 - - 35,000
Grant for industry
transformation - (10,000) - - (10,000)
Share issue expenses - (2,312) - - (2,312)
Movement in reserve - - (13,957) 13,957 -
Net profit for the year - - - 17,410 17,410
Balance at 31 July 2002 1,750 20,938 - 51,350 74,038
COMMENTS
REVIEW OF RESULTS AND FINANCIAL POSITION
The board considers the earnings attributable to ordinary shareholders of
R17,4 million for the year ended 31 July 2002 to be a good achievement. During
the year betting tax was brought more in line with other forms of gaming in
Gauteng and Limpopo. The flow through effect to earnings together with benefits
from major cost reduction initiatives were largely responsible for the
improvement over the previous year. Betting turnover of R1490,2 million was
R44,1 million higher than the Prospectus forecast and consequently the earnings
forecast of R12,2 million was surpassed by 43%.
On 5 November 2001 the acquisition of TAB North West (Pty) Ltd became
unconditional and Phumelela took over management control. Their results have
been consolidated from that date. Without this investment, betting turnover
would have declined by 9%. In terms of the acquisition agreement R8,1 million
was paid on 29 June 2002 to the shareholders for the 90% of the share capital
not previously owned.
Competition for the discretionary Rand remained fierce and was heightened
following the introduction of the midweek lottery draw. Modest economic growth
plus high inflation and interest rates have also impacted on consumer spend.
These factors and the strike by certain branch staff over the introduction of
variable pay with the temporary closure of the affected branches for 4 months
contributed to the betting turnover decline.
The introduction of variable based remuneration, the outsourcing of non-core
activities and the closure of Gosforth Park Racecourse on 2 February 2002,
reduced operating costs.
The revised Investment Agreement with the Racing Association, The Thoroughbred
Horseracing Trust and empowerment shareholders, which was signed in April 2002,
dealt inter alia with the sale of North Rand Training Centre (Pty) Ltd to the
Racing Association for R60,0 million and options over Newmarket Racecourse for
R20,0 million. If Newmarket Racecourse is sold to the Racing Association their
loan account will reduce by the R20,0 million. The corresponding reduction in
property after the sale of North Rand Training Centre (Pty) Ltd was partially
offset by capital expenditure mainly on information technology and the second
Turffontein racetrack.
The balance sheet with total assets of R188,5 million remains strong. Current
assets are tightly managed and interest bearing debt is nominal. The R5,4
million goodwill arising on the acquisition of TAB North West (Pty) Ltd will be
amortised over the expected useful life of 5 years.
The grant for industry transformation to the Racing Association/The
Thoroughbred Horseracing Trust is payable out of the proceeds from the sale of
the Gosforth Park Racecourse. The Gosforth Park disposal agreement for R18,5
million was signed on 6 September 2002.
GAMING TAXATION
The Gauteng Province reduced their gaming tax from 3,5% to an effective 1,6%
of betting turnover on 1 April 2002 and Limpopo reduced their gaming tax from
approximately 9% to 3,5% of betting turnover on 19 October 2001. No relief has
yet been forthcoming from Mpumalanga where the rate is unacceptably high at
approximately 9% of betting turnover.
SEGMENTAL ANALYSIS
The group operates in one business segment, horse racing, and almost entirely
in one geographic segment, South Africa.
NATIONAL TOTALISATOR POOLS
Commingling of exotic pools with Gold Circle started in December 2001 and full
commingling of all bet types commenced on 18 April 2002 under the brand name
SAFTOTE. National totalisator pools have benefited the South African horse
racing industry.
DIVIDEND
No dividend was declared for the year ended 31 July 2002.
LISTING
Subsequent to the successful offer of 19 250 000 ordinary shares to the racing
public at 50 cents per share, which was 15 times over subscribed, 70 000 285
ordinary shares were listed on the JSE Securities Exchange in the Development
Capital Market on 14 June 2002. Prior to the listing 19 250 000 ordinary shares
were sold to black empowerment shareholders at 50 cents per share. Application
will be made for the listing to move to the Main Board.
ACCOUNTING POLICIES
The annual financial statements are prepared on the historical cost basis in
accordance with South African Statements of Generally Accepted Accounting
Practice and incorporate accounting policies that are consistent with those
applied in the prior year except for AC116 on employee benefits, which was
adopted in the current year.
SOCIAL RESPONSIBILITY
Phumelela is an empowerment company with employment equity and training
programmes in place and due consideration is given to the previously
disadvantaged when awarding contracts. A R10,0 million grant will be made to
the Racing Association/The Thoroughbred Horseracing Trust for the transformation
of the industry including affirmative schemes for the work riders. Phumelela
has agreed to sponsor the SAPS Mounted Unit with R7 million over the 5 years
ending July 2004. The SAPS Mounted Unit has proved to be highly successful in
combating crime.
PROSPECTS
The benefits from cost reduction measures, the lower provincial tax in Gauteng
and Limpopo, better configured racing fixtures with national pools underpinning
betting turnover, have created a sound foundation for a further profit
improvement in the next year.
AUDIT
The annual financial statements have been audited by Ernst & Young Chartered
Accountants (SA) and their unqualified audit report is available for inspection
at Phumelela`s registered office.
The Board notes with regret the untimely death, on 13 September 2002, of Mr
Jos Tsanwani, the sole practitioner of our joint auditor Tsanwani & Company and
extends sincere condolences to the family.
DIRECTORATE
For and on behalf of the Board
M P MALUNGANI B D MEHL
Chairman Chief Executive
Johannesburg
25 September 2002
Directors: M P Malungani (Chairman), B D Mehl (Chief Executive),
S E Abrahams, K J Hlongwane, B Kantor, S Khampepe,
K E Latilla, J S Tennant, G J Thula, J B Walters
Company Secretary: A F Wintour
Share code: PHM ISIN: ZAE000039269
Registered Office: Turffontein Racecourse, 14 Turf Club Street,
Turffontein
Date: 25/09/2002 04:02:16 PM Produced by the JSE SENS Department
