The letter dated 5 November 2010 by the Concerned Members Group within Gold Circle and related matters refers.
While I do support the publishing of financial information on a regional basis, where possible and appropriate, I do not believe that doing so in the proposed format is appropriate. In fact, I believe that doing so would be highly misleading and potentially result in users of the information arriving at incorrect financial conclusions.
The whole premise on which the group proposes to allocate costs and is on regional revenues.
Focussing on revenue alone is highly inappropriate for the following reasons:
1. In 2008, when a breakdown of Total Bets Struck was last disclosed in the financials, over 24% of revenue generated in the KZN region was from KZN slots. The entity was however loss making and was subsequently sold.
2. Within the Phumelela regions, the North West and Limpopo have generated higher turnovers than the Eastern Cape, but it is only the last mentioned of the three provinces that has racecourses. It is of far more concern what bets are struck on a region’s racing, rather the location of bets struck.
3. A focus on revenues alone may give the incentive to drive unprofitable business; which could include the opening of as many (potentially unprofitable) branches as possible. Even if these branches are profitable, they may only be marginally so, and may not generate required return on capital, ultimately leading to lower returns for all stakeholders.
I maintain that it is critical to divide the Gold Circle business into the following ‘businesses’, each held accountable against their own set of financials (a subset of financials on a regional basis could then be produced for Racing and Branches within Distribution, although total profitability and returns should be the focus of this business unit. I do not believe it possible for the other business units):
1. Racing
a. Racecourses
b. Stakes
c. Training
2. Tote Management
3. Distribution
a. Branches
b. Internet betting
c. Telebet
d. WAP
4. Investments
a. Betting World
b. KZN slots (retrospectively if required)
c. Media
d. PGE (those portions that cannot be allocated to any of the categories above)
5. Corporate and Other
Some of the businesses units above may not have direct revenues. All units should anyway be allocated market related percentages of tote bets struck for the purposes which the fulfill.
I strongly believe that putting the above in place is the only way to measure performance and would ultimately lead to value creation in the company.
Gregory Cort – via email
