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PHM - Phumelela Gaming and Leisure Limited - The Group`s audited summarised

Release Date: 30/09/2011 07:06
Code(s): PHM
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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 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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