Racing’s sports betting operator, Phumelela Gaming and Leisure, reported a 52% jump in aftertax profit to R121m for the financial year ending 31 July 2016.
The sports betting operator declared a 70c final dividend, taking its total dividend for the year to end-July to R1.04 – up 18% from last year’s 88c. Their total income is up 19% to R1.5bn, with the fastest growth coming from the Group’s international operations, which grew 38% to R274m, with domestic operations showing a growth of 15% to R1.2bn.
The Group ended the year with 75 fixed odds retail shops, up from 66 as at January 2016. A 51% investment in Afribet, which operates in the Eastern Cape, became unconditional with effect from February, adding to the Group’s retail footprint. Total capital expenditure in Betting World amounted to R23 million in 2016.
Diversification the key
Phumelela deemed the results ‘pleasing’ and ‘reflective of a strategic imperative in place more than a decade to internationalise and diversify its activities outside of the company’s traditional roots.’
Their annual report stated, “Diversifying and taking South African thoroughbred horseracing to the world has sustained our horseracing business in the face of strong cost pressures and despite the ongoing funding imbalance in respect of horseracing that exists between tote operators and bookmakers. Growth in tote betting on sports other than horse racing, fixed-odds betting and a substantial increase in contribution from international operations, were the drivers of this year’s result.”
While sports betting has proved lucrative, traditional horse-racing operations was cited as contributing a pretax loss of R104m. However, the company stated, “Phumelela continues to invest in South African thoroughbred horseracing. Tote betting volumes are stable, a quality racing experience encourages on-course attendance, particularly for high-profile race meetings. Horseracing is the foundation of our business and despite an economic playing field that is manifestly unfair, we are resolute in playing a key role in ensuring South African racing remains top class. This year we invested a further R51 million on our betting and racing facilities.”
Phumelela called for a ‘fairer funding dispensation for the sport of thoroughbred horseracing’, referring to rival bookmaking organisations, some of which have gone to court claiming Tellytrack overcharges them. Their annual report stated, “Flagrant piracy of the group’s intellectual property by certain bookmakers is unconscionable. Civil and criminal lawsuits have been filed and will continue to be filed against bookmakers unlawfully displaying Tellytrack. As of the date of this report, 274 bookmakers have subscribed to Tellytrack for live horseracing televisual and audio rights whilst 255 bookmakers have subscribed to the live international horseracing televisual and audio rights.”
Group Financial Analysis
In the Group Financial Analysis, Phumelela stated an income increase of 19% to R1 500,8 million, with local income growing by 15% to R1 226,4 million and international income growing by 38% to R274,4 million.
Local net betting income grew by 15% to R965,6 million and other local income grew by 10% to R252,6 million. Other operating income from international operations grew by 33% to R273,8 million. Net income, after investment income of R5,3 million, was 17% higher at R1 497,3 million.
The combination of international pre-tax profits of R75,3 million and international and local equity accounted profits of R94,7 million resulted in total Group pre-tax profit of R128,4 million, an increase of 7% before non-cash impairments and fair value adjustments.
Net attributable income increased by 53% to R121,9 million, assisted by a positive fair value adjustment and a slightly lower effective tax rate. Headline earnings adjustments were minimal with the prior year including a R9 million impairment of the Group’s 26% interest in Betting World Nigeria. Headline earnings increased by 40% to R122,6 million.
To fulfil obligations in respect of shares exercisable in terms of the executive option schemes, the company previously repurchased shares and so the weighted average number of shares in issue was 0,67% lower. Earnings per share therefore grew by 54% and headline earnings per share grew by 41%.
Thanks to exchange rate fluctuations, the Group also benefitted from a foreign exchange gain of R8,2 million.
South African Operations
In terms of local operations, Phumelela reported that Tote betting increased by 3% to R3,4 billion with tote betting on sports other than horseracing increasing by 13% to R1,1 billion and tote betting on horseracing remaining flat at R2,3 billion. Tote betting on sports other than horseracing comprised 32% of the tote betting, up from 29% last year. They stated that Tote betting on local racing now comprises 50% of tote betting with betting on international racing making up the balance at 18%. Interactive is now 30% of tote bets placed.
Interactive is a key component of the Group’s future strategy and the Group will continue to invest in the expansion of this part of its business.
Fixed odds had an excellent year with investment in growth over the past few years manifesting in accelerating profitability at improved margin. Fixed odds betting increased by 25% to R1,8 billion. The Group reflected net fixed odds betting income for the year of R263,1 million – growth of 63% – more than three times what Phumelela earned as recently as five years ago.
Phumelela reported that fixed odds betting on horseracing has shown a very pleasing improvement, a 35% increase since 2014. Other sports and in particular numbers betting, which increased by 54%, continue to grow in popularity.
The expanded retail presence is a big factor in bringing in the punters, with strong growth in betting in provinces such as KwaZulu Natal, Mpumalanga, Eastern Cape and Limpopo. Total operating expenses in the local tote and fixed odds operations grew by 19% to R1 255,2 million. This reflects the growth in retail, IFRS 2 share-based payment charges, human capital spend, and legal and consulting fees associated with combating piracy of the Group’s intellectual property by bookmakers and related legal matters.
A full copy of the report is available here.
You can also watch Rian du Plessis doing a presentation on the results below.
