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Preliminary Consolidated Financial Statements for the year ended 31 July 2014
Phumelela Gaming and Leisure Limited
(Incorporated in the Republic of South Africa)
Registration number: 1997/016610/06
Share code: PHM ISIN: ZAE000039269
The Group’s summarised preliminary consolidated financial statements
for the year ended 31 July 2014
Key features of the trading year
Profit before tax from international operations up 47%
Earnings per share up 29% to 146 cents
Headline earnings per share up 15% to 132 cents
Final dividend of 60 cents declared
Fixed odds retail footprint increased by 42% to 57 outlets
Growing attendance at local thoroughbred horserace meetings
Summarised consolidated statement of comprehensive income
% Audited Audited
change 12 months 12 months
31 July 31 July
2014 2013
R’000 R’000
Income
- Local operations 7 967 406 901 797
- International operations 99 224 703 113 029
17 1 192 109 1 014 826
Gross betting income
- Local operations 6 927 253 875 827
Net betting income
- Local operations 5 746 591 707 853
Other operating income
- Local operations 7 195 421 182 356
- International operations 105 234 466 114 137
Investment income
- Local operations (30) 1 228 1 753
- International operations 1 587 42
Net income 17 1 179 293 1 006 141
Operating expenses and overheads
- Stakes 6 (186 299) (175 689)
- Local operations 10 (729 641) (661 529)
- International operations 271 (162 147) (43 734)
Profit before finance costs, income tax,
depreciation and amortisation (19) 101 206 125 189
Depreciation and amortisation (1) (39 373) (39 885)
Profit from operations (28) 61 833 85 304
Finance costs
- Local operations 52 (1 183) (779)
Profit before share of profit of equity-accounted investees (28) 60 650 84 525
Profit on conversion of equity-accounted investee to investment 11 135
Share of profit of equity-accounted investees 117 57 983 26 705
Profit before income tax expense 17 129 768 111 230
Income tax expense (23) (19 373) (25 257)
Profit for the year 28 110 395 85 973
Other comprehensive income net of taxation
Items that may subsequently be reclassified to profit or loss
- Foreign currency translation reserve (250) (3 313) 2 204
Item that will never be reclassified to profit or loss
- Remeasurement of defined benefit obligation 1 223
- Tax effect (342)
Total comprehensive income for the year 22 107 963 88 177
Profit attributable to:
Ordinary equity holders of the parent 29 110 409 85 871
Non-controlling interest (14) 102
Profit for the year 28 110 395 85 973
Total comprehensive income attributable to:
Ordinary equity holders of the parent 22 107 977 88 075
Non-controlling interest (14) 102
Total comprehensive income for the year 21 107 963 88 177
Earnings per ordinary share (cents)
- Basic 29 146,07 113,61
- Diluted 26 139,13 110,85
Supplementary statement of comprehensive income information
% Audited Audited
change 12 months 12 months
31 July 31 July
2014 2013
R’000 R’000
Reconciliation of headline earnings
Earnings attributable to equity holders of parent 29 110 409 85 871
Adjusted for:
Profit on conversion of equity-accounted
investee to investment (11 135)
Net loss on disposal of property, plant and equipment 804 901
Tax effect (225) (252)
Headline earnings 15 99 853 86 520
Headline earnings per share (cents) 15 132,10 114,46
Diluted headline earnings per share (cents) 13 125,83 111,69
Net asset value per share (cents) 11 633,04 571,58
Dividend to shareholders
Interim dividend
Dividend per ordinary share (cents) 28,00 28,00
Final dividend
Dividend per ordinary share (cents) 60,00 60,00
Number of shares in issue 75 586 838 75 586 838
Weighted average number of shares in issue for basic
and headline earnings per share calculation 75 586 838 75 586 838
Weighted average number of shares in issue for diluted
earnings per share calculation 79 356 413 77 466 301
Summarised consolidated statement of financial position
Audited Audited
as at as at
31 July 31 July
2014 2013
R’000 R’000
ASSETS
Non-current assets 567 518 495 400
Property, plant and equipment 426 712 404 467
Goodwill 12 362 12 227
Intangible assets 48 733 45 529
Interest in equity-accounted investees 34 954 15 765
Investments 18 263 718
Long-term secured loan 19 929 7 434
Deferred taxation asset 6 565 9 260
Current assets 220 537 149 028
Inventories 5 849 5 629
Trade and other receivables 114 705 81 089
Pension fund surplus 973 1 568
Income tax receivable 4 106 542
Cash and cash equivalents 94 904 60 200
Total assets 788 055 644 428
EQUITY AND LIABILITIES
Total equity 478 791 432 345
Share capital and premium 1 890 1 890
Retained earnings 477 250 427 477
Non-distributable reserves (643) 2 670
Equity attributable to ordinary shareholders 478 497 432 037
Non-controlling interest 294 308
Non-current liabilities 9 397 3 734
Deferred taxation liability 2 555 2 074
Retirement benefit obligations 1 660
Borrowings 6 317
Finance lease liability 525
Current liabilities 299 867 208 349
Trade and other payables 285 999 197 464
Borrowings 2 400
Contingent consideration liability 4 056 3 000
Income tax payable 408 741
Betting dividends payable 7 004 7 144
Total equity and liabilities 788 055 644 428
Summarised consolidated statements of cash flow
Audited Audited
12 months 12 months
31 July 31 July
2014 2013
R’000 R’000
Net cash inflow from operating activities 40 724 66 706
Cash generated by operations 103 360 124 747
Movements in working capital 22 685 26 787
Cash generated by operating activities 126 045 151 534
Income tax paid (20 436) (26 131)
Dividends paid to shareholders (66 517) (59 713)
Interest received 2 815 1 795
Finance costs paid (1 183) (779)
Net cash outflow from investing activities (11 293) (105 731)
Acquisition of property, plant and equipment and intangible assets (66 565) (104 423)
Proceeds on disposal of property, plant and equipment and intangible assets 2 244 440
Dissolution of Phumelela Gold Enterprises joint operation 24 031
Investment in equity-accounted investee and investment (9 650)
Loans advanced (12 495) (22 721)
Dividend received from equity-accounted investees 51 142 20 973
Net cash inflow from financing activities 8 586
Repayment of finance leases (131)
Short-term finance raised 8 717
Net increase/(decrease) in cash and cash equivalents 38 017 (39 025)
Effect of conversion of foreign operations on cash and cash equivalents (3 313) 2 204
Cash and cash equivalents at beginning of year 60 200 97 021
Cash and cash equivalents at end of year 94 904 60 200
Summarised consolidated statements of changes in equity
Non- Equity
distri attributable Non-
Share butable Retained to ordinary controlling Total
capital reserves earnings shareholders interest equity
R’000 R’000 R’000 R’000 R’000 R’000
Balance at 31 July 2012 1 890 466 401 319 403 675 206 403 881
Total comprehensive income
for the year 2 204 85 871 88 075 102 88 177
- Profit for the year 85 871 85 871 102 85 973
- Foreign currency translation
reserve 2 204 2 204 2 204
Transactions with owners recorded
directly in equity
- Dividends paid to equity holders (59 713) (59 713) (59 713)
Balance at 31 July 2013 1 890 2 670 427 477 432 037 308 432 345
Total comprehensive income for
the year (3 313) 111 290 107 977 (14) 107 963
- Profit for the year 110 409 110 409 (14) 110 395
- Remeasurement of defined
benefit obligation 881 881 881
- Foreign currency translation
reserve (3 313) (3 313) (3 313)
Transactions with owners recorded
directly in equity
- Share-based payment 5 000 5 000 5 000
- Dividends paid to equity
holders (66 517) (66 517) (66 517)
Balance at 31 July 2014 1 890 (643) 477 250 478 497 294 478 791
Review
Group results
For the first six months of the financial year, during which earnings per share increased by 32%,
the Group’s result was underpinned by a very pleasing performance from international operations.
This positive momentum continued in the second half with a weaker Rand providing a further
benefit.
The results of the local operations reflect the negative impact of reduced betting on
international racing and high legal costs.
The legal costs were incurred in answering complaints lodged with the Competition Commission
and the Public Protector against Phumelela and Tellytrack’s reply to complaints lodged at
certain gambling boards.
Following the refusal by bookmakers to pay a fair value for the right to display
international content in their betting shops, the international racing operators instructed
Tellytrack to remove their content from Multichoice’s channel 239 and to make such content
available only to bookmakers who were prepared to pay for the rights to commercially exploit
the content.
Consequently, the Group’s customers who could not watch live international racing from home
reduced their betting on international racing content.
Despite these negative factors detracting from local earnings in the second half, the
Group nevertheless produced a very satisfactory result for the year with profit after
tax increasing by 28% to R110,4 million and headline earnings increasing by 15% to
R99,9 million.
The Group now holds a direct investment in Automatic Systems Limited (Mauritius) rather than
indirectly through Phumelela Gold Enterprises (“PGE”) with the result that a profit of
R11,1 million on unbundling was recorded. This profit is excluded from headline earnings.
International operations in foreign currency are fundamentally important to the financial
wellbeing of Phumelela and continue to enjoy real growth. The weakness of the South African Rand
further enhanced this contribution. Profit before tax from international operations increased
by 47% to R142 million, benefiting from the export of South African thoroughbred horseracing
media rights together with the concomitant betting thereon and from the Group’s Isle of Man
joint operation.
Local operations made a loss of R12,6 million compared with a profit before tax of R14,3 million
in the prior year. Horse racing and tote betting thereon continues to be loss making with tote
betting on sports other than horseracing and fixed odds contributing positively to Group
profitability. Litigation involving the Tellytrack joint operation, in which Phumelela has a 61%
interest, has been time consuming and costly and a related effect has been a reduction in
turnover and earnings derived from local betting on international race meetings.
Nevertheless, local on-course attendances, betting and hospitality have shown encouraging growth
during the year with on-course attendance up by 20%. Tote betting on sports other than
horseracing increased by 34% and now exceeds tote betting on international horseracing.
Costs associated with growing the retail footprint of Betting World had a temporary negative
effect on fixed odds profitability but the appropriateness of the growth strategy was reinforced
by a 95% increase in the fixed odds numbers betting handle.
Income from local operations increased by 7% to R967 million. With effect from 1 August 2013
the PGE international joint operation was dissolved and accounted for as a wholly owned
operating division. The prior year reflects a 61% proportional consolidation. As a result, on
a similar comparative basis international income increased by 21% to R225 million and total
income for the Group increased by 10% to R1,2 billion.
Total net betting income from local totalisator and fixed odds operations increased by 5% to
R747 million. Net betting income from tote operations, assisted by a 34% increase in tote bets
on sports other than horseracing increased by 5% to R633 million, while net betting income from
fixed odds operations increased by 9% to R114 million.
Other operating income increased by 16% on a similar comparative basis to R430 million. This
income includes commission received from international totes and off-shore bookmakers for the
rights to display and bet on South African racing, gambling board levies, unclaimed dividends
and breakages, Tellytrack subscriptions, share of profits from Limited Payout Machines (“LPMs”)
installed in retail outlets and stable rentals.
Local operating expenses increased by 10% to R730 million and on a similar comparative basis
international expenses increased by 21%.
Stakes paid out on horseracing increased by 6% to R186 million.
Profit before finance costs, income tax, depreciation and amortisation was R101 million for
the year versus R108 million on a similar comparative basis in the prior year.
The Group’s share of profit from equity-accounted investees, primarily from Premier Gateway
International Limited (Isle of Man), was R58 million compared with R44 million in the prior
year on a similar comparative basis.
Operational review of local operations
The provision of increased weekly betting opportunities resulted in a 33% increase in net
tote betting income on soccer to R189 million.
A 17% fall in tote betting handle on international racing was due to weather-related
disruptions and the suspension of the visual broadcast of content on the Tellytrack channel
at the instruction of the international content service providers. As a consequence, net
betting income on local and imported horseracing content fell by 4% to R444 million.
By year end Betting World had 57 outlets, an increase of 42%, and its bespoke fixed odds
betting software is fully operational. Fixed odds betting handle increased by 18%, of which
48% (61%) was on horseracing, 23% (22%) on other sports and 29% (17%) on numbers. Betting
margins were negatively impacted by unfavourable horseracing and soccer results, with the
result that net betting income on horseracing decreased by 17% to R46 million and on other
sports by 1% to R20 million. Net betting income on numbers benefited from the retail
expansion, increasing by 61% to R49 million.
Other income increased by 7% to R195 million with LPM income up 6% to R18 million, gambling
board levies down 2% to R53 million, unclaimed dividends and breakages up 2% to R30 million
and royalties/commingling fees up 8% to R37 million.
Operating expense growth of 10% was elevated by investment in the retail expansion and legal
and consultancy fees in relation to the Tellytrack/bookmakers dispute.
Operational review of international operations
Increased revenues from major trading partners were due to increased demand
for South African racing and concomitant betting thereon and Rand weakness.
The Group has focused on expanding South African content abroad and has the advantage that
horserace meetings are staged and visual content exported 364 days a year. Inbound
horseracing content supplements local content.
Licence fees payable for South African racing content increased by 25%, while normal operating
expenses increased by 21%. Expenses include legal and consultant fees and host track fees paid
to generate the increased income.
Financial position
The Group has cash on hand of R95 million, up from R60 million in the prior year, and negligible
short-term borrowings.
Of the total assets of R788 million, property, plant and equipment accounts for R427 million at
carrying value.
Net asset value per share has increased by 11% to 633,04 cents.
Cash generated from operations, after retention of cash from working capital, amounted to
R126 million. From this, R20 million was utilised for payment of income tax, R67 million for
dividends to shareholders, R67 million for capital expenditure and a further R12 million was
extended to Kenilworth Racing as a bridging finance loan.
The dissolution of the PGE joint operation resulted in an increase in cash reserves of
R24 million. Dividends received from equity-accounted investees amounted to R51 million.
Share capital
There was no movement in authorised or issued share capital during the year under review.
Summarised consolidated 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 tote and other operations.
SUMMARISED SEGMENTAL ANALYSIS
Proforma
similar
comparative
value*
% 12 months 12 months % 12 months
change 31 July 31 July change 31 July
2014 2013 2013
R’000 R’000 R’000
LOCAL
Excluding fixed odds
Income 7 831 567 777 178 7 777 178
Net betting income 5 632 592 603 052 5 603 052
- Horseracing (4) 443 746 461 046 (4) 461 046
- Other sports 33 188 846 142 006 33 142 006
Other income 6 184 849 173 659 6 173 659
Investment income (25) 999 1 334 (25) 1 334
Net income 5 818 440 778 045 5 778 045
Stakes 6 (186 299) (175 689) 6 (175 689)
Operating expenses 9 (625 009) (575 965) 9 (575 965)
Profit before depreciation and amortisation (73) 7 132 26 391 (73) 26 391
Depreciation and amortisation (16) (28 039) (33 281) (16) (33 281)
Loss before finance costs and income tax expense 203 (20 907) (6 890) 203 (6 890)
Finance costs (20) (626) (779) (20) (779)
Loss from operations 181 (21 533) (7 669) 181 (7 669)
Share of profit of equity-accounted investee 474
Loss before income tax expense 175 (21 059) (7 669) 175 (7 669)
Fixed odds
Income 9 135 840 124 619 9 124 619
Net betting income 9 113 999 104 801 9 104 801
- Horseracing (17) 45 720 54 847 (17) 54 847
- Other sports (1) 19 503 19 727 (1) 19 727
- Other 61 48 776 30 227 61 30 227
Other income 22 10 572 8 697 22 8 697
Investment income (45) 229 419 (45) 419
Net income 10 124 800 113 917 10 113 917
Operating expenses 22 (104 632) (85 565) 22 (85 565)
Profit before depreciation and amortisation (29) 20 168 28 352 (29) 28 352
Depreciation and amortisation 74 (11 198) (6 433) 74 (6 433)
Profit before finance costs and income tax expense (59) 8 970 21 919 (59) 21 919
Finance costs (557)
Profit before income tax expense (62) 8 413 21 919 (62) 21 919
Proforma
similar
comparative
value*
% 12 months 12 months %
change 31 July 31 July change 12 months
2014 2013 31 July
R’000 R’000 2013
R’000
INTERNATIONAL
Income 99 224 702 113 029 21 185 293
Other income 105 234 466 114 137 25 187 110
Investment income 1 587 42 69
Net income 107 236 053 114 179 26 187 179
Intellectual property rights fees (82 504) 33 (62 004)
Operating expenses 82 (79 643) (43 733) 11 (71 694)
Profit before depreciation and amortisation 5 73 906 70 446 38 53 481
Depreciation and amortisation (20) (136) (171) (51) (280)
Profit from operations 5 73 770 70 275 39 53 201
Profit on conversion of equity-accounted investee to investment 11 135
Share of profit of equity-accounted investees 115 57 509 26 705 31 43 779
Profit before income tax expense 47 142 414 96 980 47 96 980
TOTAL FOR THE GROUP
Income 17 1 192 109 1 014 826 10 1 087 090
Net betting income 5 746 591 707 853 5 707 853
- Horseracing (5) 489 466 515 893 (5) 515 893
- Other sports 29 208 349 161 733 29 161 733
- Other 61 48 776 30 227 61 30 227
Other income 45 429 887 296 493 16 369 466
Investment income 57 2 815 1 795 55 1 822
Net income 17 1 179 293 1 006 141 9 1 079 141
Stakes 6 (186 299) (175 689) 6 (175 689)
Intellectual property rights fees (82 504) 33 (62 004)
Operating expenses 15 (809 284) (705 263) 10 (733 224)
Profit before depreciation and amortisation (19) 101 206 125 189 (6) 108 224
Depreciation and amortisation (1) (39 373) (39 885) (2) (39 994)
Profit before finance costs and income tax expense (28) 61 833 85 304 (9) 68 230
Finance costs 52 (1 183) (779) 52 (779)
Profit before share of equity-accounted investee (28) 60 650 84 525 (10) 67 451
Profit on conversion of equity-accounted investee to investment 11 135
Share of profit of equity-accounted investees 117 57 983 26 705 32 43 779
Profit before income tax expense 17 129 768 111 230 17 111 230
* The proforma supplementary information for the 12 months ended 31 July 2013 represents what the figures would have been had
the PGE joint operation been dissolved and replaced by the Tellytrack joint operation on 1 August 2012 (similar comparative
basis). It is provided to enable users to better understand the results of the Group.
Capital commitments
Commitments in respect of capital expenditure approved by directors.
2014 2013
R’000 R’000
Contracted for 4 939 2 162
Not contracted for 97 856 81 600
Capital commitments will be financed out of cash and cash equivalents on hand or borrowing
facilities as and when required.
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 2014 comprises of
the Company and its subsidiaries and the Group’s interests in equity-accounted investees
and joint operations.
Statement of compliance and presentation
The summary consolidated financial statements have been prepared in accordance with the
framework concepts, the recognition and measurement requirements of IFRS, the presentation
and the disclosure requirements of IAS 34 Interim Financial Reporting, the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting
Pronouncements as issued by the Financial Reporting Standards Council, the Listings
Requirements for preliminary reports of the JSE Limited and the requirements of the South
African Companies Act applicable to summary financial statements. The financial information
does not include all the information required for full annual financial statements and
should be read in conjunction with the consolidated financial statements of the Group as at
and for the year ended 31 July 2014.
The summarised consolidated financial information is presented in South African Rand rounded
to the nearest thousand, which is the Company’s functional and Group’s presentation currency.
They are prepared on the historical cost basis, except for certain derivative financial
instruments that are recognised at fair value.
The accounting policies applied in the presentation of the summarised consolidated financial
information are in terms of International Financial Reporting Standards and are consistent
with those applied for the year ended 31 July 2013, except for new standards and
interpretations that became effective on 1 August 2013 and deemed applicable to the Group.
The adoption of these standards and interpretations had a limited effect on the results for
the year and did not require the restatement of any prior year figures.
In preparing these summarised preliminary consolidated financial statements, management make
judgements, estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and expense. Actual results may differ
from these estimates.
The significant judgements made by management in applying the Group’s accounting policies
and the key sources of estimation uncertainty were the same as those that applied to the
consolidated financial statements as at and for the year ended 31 July 2013.
Significant accounting policies
Except as described below, the accounting policies applied in these summarised preliminary
consolidated financial statements are the same as those applied in the Group’s consolidated
financial statements as at and for the year ended 31 July 2013. The following changes in
accounting policies are expected to be reflected in the Group’s consolidated financial
statements as at and for the year ended 31 July 2014.
Changes in accounting policies
The Group has adopted the following new standards and amendments to standards, including any
consequential amendments to other standards, with a date of initial application of 1 August
2013.
IFRS 10 - Consolidated Financial Statements
IFRS 11 - Joint Arrangements
IFRS 13 - Fair Value Measurement
IAS 19 - Employee Benefits
The nature and the effect of the changes are further explained below.
IFRS 10 - Consolidated Financial Statements
IFRS 10 addresses the divergence arising from the control-based principles in IAS 27 and
the risks and rewards based approach in SIC 12, and in addition, provides greater
guidance on de facto control.
Management has reassessed the control conclusion for each of its investees at 1 August
2013. No changes were identified and the adoption of this new standard has thus had no
impact on the financial results.
IFRS 11 - Joint Arrangements
IFRS 11 identifies two types of joint arrangements, joint operations and joint ventures,
and prohibits the use of proportionate consolidation for joint ventures.
Management has re-evaluated the Group’s involvement in the various joint arrangements
and no changes in the accounting treatments were identified.
IFRS 13 - Fair Value Measurement
IFRS 13 is a single cohesive standard consolidating the principles of fair value
measurement and disclosures for financial reporting.
In accordance with the transitional provisions of IFRS 13, the Group has applied
the new fair value measurement guidance prospectively. Notwithstanding the above,
the change had no significant impact on the measurements of the Group’s assets
and liabilities.
IAS 19 - Employee Benefits
The revised IAS 19 changes the accounting for defined benefit plans and termination
benefits. The most significant change relates to the accounting for changes in
defined benefit obligations and plan assets. All actuarial gains and losses are
recognised immediately through other comprehensive income in order for the net
pension asset or liability recognised in the consolidated statement of financial
position to reflect the full value for the plan deficit or surplus. Furthermore,
the interest cost and expected return on plan assets used in the previous version
of IAS 19 are replaced with a “net interest” amount, which is calculated by
applying the discount rate to the net defined benefit liability or asset.
The adoption of the changes to this statement have had a limited impact on the
results of the Group as previously reported. No adjustment has been made to the
results for the year to 31 July 2013 as the amounts are considered to be
immaterial. The impact of the change in policy have been included in the results for
the year to 31 July 2014.
The Board endorses the recommendations set out in King III and supports the Code of
Corporate Practices and Conduct set out therein.
Mr B McLoughlin CA(SA), Chief Financial Officer, was responsible for supervising the
preparation of the annual financial statements and preparing the summarised financial
statements.
Report of the independent auditors
The auditors, KPMG Inc., have issued their opinion on the Group’s consolidated financial
statements for the year ended 31 July 2014. The audit was conducted in accordance with
International Standards on Auditing. They have issued an unmodified opinion. A copy of
the auditors’ report together with a copy of the audited consolidated financial statements
are available at the Company’s registered office.
These summarised provisional consolidated financial statements have been derived from
the Group’s consolidated financial statements and are consistent in all material respects
with the Group’s consolidated financial statements. These summarised provisional
consolidated financial statements have been audited by the Group’s auditors who have
issued an unmodified opinion. The auditors’ report does not necessarily report on all of
the information contained in this announcement. Any reference to future financial
information included in this announcement has not been reviewed or reported on by the
auditors. Shareholders are advised, that in order to obtain a full understanding of the
nature of the auditors’ engagement they should obtain a copy of that report together
with the accompanying financial information from the Company’s registered office.
Subsequent events
There are no significant subsequent events that have an impact on the financial
information at 31 July 2014.
Corporate interests
As reported previously, Phumelela and Gold Circle received notice on 1 July 2011, from the
Competition Commission (the 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 and awaits the Commission’s findings. The directors
consider the possibility of an outflow of resources as remote.
On 9 September 2014 the Gauteng, KwaZulu-Natal and Western Cape bookmaker associations
issued a press release containing details of notices issued to a number of regulatory bodies
and including a legal opinion asserting that certain totalisator bets offered by Phumelela,
Gold Circle and Kenilworth Racing are unlawful. The bet types offered by the totalisator
operators on sports other than horseracing are exempted from the provisions of the Lotteries
Act and have been authorised and approved by the relevant provincial gambling boards. In
2003 the Minister of Trade and Industry and the National Lotteries Board instituted criminal
and civil proceedings against Phumelela, in which they applied for an order declaring that
Phumelela was contravening the Lotteries Act. The applicants withdrew the civil application
on 25 June 2004 and tendered Phumelela’s taxed party and party costs. During the financial
year ended 31 July 2014, provincial betting taxes amounting to approximately R31 million
were paid over to all provinces on these totalisator bets. Phumelela has instructed its
legal advisers to answer these notices in the appropriate forums and to take all such
steps as are available to it to protect its interests.
Share option schemes
Shareholders are advised that the Board intends to acquire shares to fulfil obligations in
respect of shares that may be exercisable as per the executive and CEO option schemes. The
purchase of these shares will be funded from the Group’s surplus cash reserves.
Litigation
Phumelela is a respondent in an application instituted by Almenta (Pty) Limited and others
in the High Court of South Africa, Gauteng Division, Johannesburg, for, inter alia, an order
directing Phumelela not to alter the status quo as at 31 January 2014, with regard to the
broadcasting of horseracing events.
Phumelela is a respondent in a Competition Commission complaint by the Africa Race Group
which has been referred by the complainant to the Competition Tribunal.
Related parties
With effect from 1 August 2013, the Phumelela Gold Enterprises (PGE) joint operation
between Gold Circle (GC) and Phumelela (PGL) was dissolved. Concurrently PGL, GC and
Kenilworth Racing (KR) concluded:
the Tellytrack Partnership Agreement to operate, for the exclusive benefit of the
partnership, the Tellytrack Channel;
a substitute Sport Administration Agreement to regulate the administration of the
sport; and
a Licence Agreement whereby GC and KR grant PGL the right to use and exploit their
commercial rights and intellectual property internationally (excluding South Africa
and Namibia) for 10 years from the effective date. In consideration for these rights,
PGL shall pay GC 24,96% and KR 14,04% of profits derived from international
operations.
As a result the international business previously accounted as a division of PGE and
proportionately consolidated at 61% was transferred to PGL as a separate operating
division and is now accounted for at 100%.
During the year, the Group unbundled its indirect investment in Automatic Systems
Limited (Mauritius) held through Phumelela Gold Enterprises and now holds a direct
interest.
As a consequence comparative information for international operations may be
misleading. A revised comparison is set out in the condensed segmental analysis as
proforma information.
Other than reported above, there have been no significant changes in related-party
relationships since the previous year.
Other than in the normal course of business, there have been no significant transactions
during the year with equity-accounted investees, joint operations and other related
parties.
Social responsibility
Phumelela is a proud AAA Level 2 contributor.
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.
Directors
There were no changes to the composition of the Board during the year under review.
Company Secretary
The Group is sad to announce that the Company Secretary Mr R Gopaul passed away suddenly on
Monday, 29 September 2014. Mr AW Heide, the current Financial Director and COO has been
appointed interim Company Secretary.
Prospects
The Group’s international operations, tote bets on sports, other than horseracing and fixed
odds numbers betting, continue to grow. A proactive strategy to diversify and offer innovative
betting opportunities internationally has become an essential component of the growth and
financial success of Phumelela.
Further opportunities for international development have been identified, including sports
betting, and Phumelela will continue to be a leading platform to betting customers for South African
and international betting.
Under consideration are further initiatives that support the competitive appeal of South
African thoroughbred horseracing, which has shown an encouraging renewal of interest, growth
and on-course attendance.
Phumelela remains committed to achieving a more equitable contribution to the cost of funding
the sport of South African horseracing between bookmakers and totalisator operators. We fully
support the Tellytrack initiatives to replace the current model, whereby mere local broadcast
production costs are recovered and nothing is paid to international operators, to a model where
a fair economic return is earned by South African as well as international racing operators from
bookmakers who commercially exploit the live racing picture for betting purposes. Although 174
bookmakers have lawfully subscribed for Tellytrack’s services, numerous other bookmakers, who are
insisting that Tellytrack must continue to be made available to them on a mere cost recovery basis,
have found unlawful means to obtain and display South African and certain international racing in
their betting shops. Tellytrack has instituted civil proceedings and is in the process of instituting
criminal proceedings against such bookmakers and is determined to take all such measures as are
open to it to protect its intellectual property rights, however long it takes and irrespective
of cost.
The Group continues to target real growth in earnings per share.
Any forward looking statements of forecasts contained in these results have not been reviewed
or reported on by the Group auditors.
Cash dividend to shareholders
Notice is hereby given that the Board has declared a final gross cash dividend from income
reserves of 60 cents per share 51 cents per share net of dividend withholding tax at a rate
of 15%) payable to shareholders recorded in the register on Friday 31 October 2014. There are
no STC credits available for utilisation. The issued share capital at the declaration date is
77 101 885 ordinary shares. Shareholders are advised that the last date to trade
“cum distribution” will be Friday 24 October 2014. As from commencement of business on
Monday 27 October 2014 all trading in Phumelela shares will be “ex dividend”.
Payment will be made on Monday 3 November 2014. Share certificates may not be
dematerialised or rematerialised between Monday 27 October 2014 and Friday 31 October 2014,
both days inclusive. The Company’s tax reference number is 9171/393/84/7.
For and on behalf of the Board
MP Malungani WA du Plessis
Chairman Chief Executive Officer
Turffontein, Johannesburg
3 October 2014
Directors:
MP Malungani (Chairman), WA du Plessis* (Group Chief Executive), AW Heide* (Finance Director
and COO), R Cooper, MJ Jooste, B Kantor, SKC Khampepe, NJ Mboweni (Mrs), VJ Moodley*, Dr E Nkosi,
ML Ramafalo*, JA Stuart*, CJH van Niekerk, JB Walters
(*Executive)
Acting Company Secretary:
AW Heide
Sponsor:
Investec Bank Limited
Registered Office:
Turffontein Racecourse,
14 Turf Club Street,
Turffontein
Transfer Secretaries:
Computershare Investor Services (Pty) Limited
Share code: PHM
ISIN: ZAE000039269
Website: www.phumelela.co.za
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