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Preliminary annual financial results for the year ended 31 July 2018 and dividend declaration
Phumelela Gaming and Leisure Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1997/016610/06)
Share Code: PHM ISIN: ZAE000039269
Phumelela Gaming and Leisure Limited preliminary annual financial results
for the year ended 31 July 2018 and dividend declaration
Phumelela is a multiple product betting and media rights Group of companies with an extensive
international footprint.
Operational features of the year
- South African economic environment continued to deteriorate
- Strong internal focus on improving competitive appeal of all betting offerings
- Voluntary severance programme completed within budget and yielding benefits
- Turn-key and fully odds managed solution for previously disadvantaged individuals gains momentum
- South African horseracing retains wide popular appeal in international markets
Financial features of the year
- 16% rise in weighted average shares reflects the prior year rights issue to fund acquisitions
- Headline earnings up 6% to R155,6 million
- Headline earnings per share down 8% to 154,23 cents
- Normalised headline earnings up 20% to R175,1 million
- Normalised headline earnings per share up 3% to 173,55 cents
- Earnings per share down 9% to 153,78 cents
- Net asset value per share 1012,93 cents
- Final gross dividend per share of 62,00 cents, full year dividend maintained at 104,00 cents
- Continued strong financial position with net debt to equity 22,8%
COMMENTARY
THE YEAR IN PERSPECTIVE
The financial year ended 31 July 2018 marks a significant milestone for Phumelela. This is our first
financial year as a fully-fledged multiple product betting and media rights group of companies.
Supabets and Interbet are jointly controlled assets from which we have the benefit this year of 50%
of the earnings of each company. Furthermore, the newly formed Supaworld, jointly owned by Betting
World and Supabets, contributes a 75% share of earnings to Phumelela.
In a short time, Supabets and Interbet have had a re-energising effect on the Group and, together
with the best of Supabets and Betting World within Supaworld, these companies are expected to have an
increasingly important role in the growth of Phumelela and return for shareholders. We anticipate
performance accelerating in the future as these assets realise their optimal potential.
This has been a very difficult year in South Africa. Trading has been hindered by political
turbulence, militant labour unrest that directly affects the horseracing value chain, criminal
activity that directly cost us in excess of R6 million in lost profitability, a stagnant economy,
low business and consumer confidence, and increasing unemployment. Personal tax rates have risen
yet again, and municipal charges are also rising above inflation, particularly utilities and property
taxes. The rate of VAT was increased to 15% from 14% on 1 April 2018, of which we absorb the
financial cost, estimated at R10 million in a full year, as the take-out ratio after provincial
taxes and levies has not changed.
As a consumer-facing business with a large retail footprint, such negative factors impinge on
discretionary income. In this respect we are not alone. But what we do have within our capability
is to rise above the external circumstances and be as competitive as possible.
In pursuit of our transformation initiatives, Betting World franchises and Tab agencies are being
offered to selected previously disadvantaged individuals that wish to build a future in this
exciting industry. Phumelela provides the necessary funding, training, know-how, and management of
the odds to enable a shop to be up and running within a short period. Our shareholding in Omphe
Tshiamo Investments Proprietary Limited in the North West is an example of what is achievable, and
we see this as being scalable in other provinces subject to new betting licences being available.
Years of diversification have been the hallmark of Phumelela. The recent partnerships with the
Supabets and Interbet teams are but two recent examples of many initiatives we have capitalised on
over the years to ensure we thrive.
We have built a large international business off the excellent South African horseracing that
Phumelela has been pivotal in nurturing at home. International income, through tote betting and media
rights, is the largest contributor this year at 134% of pre-tax profit. As we grow our domestic fixed
odds and tote offering organically and through acquisition, international will nevertheless continue
to contribute a healthy portion of profits, with the foreign currency hedge an additional advantage.
We have revised segmental disclosure to better present our operational transition. These segments
are Betting Operations, Media Operations, and Administrative and Support Services, with the latter
providing shared services. In line with accounting convention, our segments represent wholly or
majority-owned operations on a consolidated basis whilst our equity-accounted associates are
represented within a single line item. The totality of all the businesses is considerably greater
than that reflected on the income statement and balance sheet.
The year had its share of disappointments and challenges but despite this the Group ended the year
on a positive operational and financial note and with a clear strategic purpose. Modernisation and
repositioning for the future included meaningful cost savings, implemented by way of a voluntary
severance programme, aligning the management structure to the way the Group is now managed, and
investing in our retail footprint as we upgrade the customer experience.
The composition of the Board and Board committees has been substantially strengthened, with the
appointment of outstanding individuals. Ms Fikile Magubane, Mr S'celo Mahlalela, Mr Steve Müller and
Ms Lindiwe Rakharebe (pending regulatory approval) bring strong credentials to the Board in their
roles as non-executive directors and members of Board committees. Furthermore, Mr Moses Tembe has
joined the Board as Lead Independent Director, strengthening the role of the Chair and in the spirit
of King IV fulfilling the duties usually assigned to a Deputy Chairman. The Group now has two female
black non-executive directors (with a further appointment pending regulatory approval) and in total
seven black non-executive directors.
SEGMENT REVIEW
The Betting Operations segment comprise over-the-counter ("OTC") retail stores and non-OTC, which
comprises internet and telephone betting in South Africa and internationally. Equity-accounted
income from the jointly owned Premier Gateway International ("PGI") tote operator on the Isle of
Man is included in the non-OTC segment.
Our horseracing operations are reflected within the new Media segment and comprise the selling of
media and data rights of South African horseracing locally and internationally. The local
horseracing operations remain loss making on a stand-alone basis with international profitable and
supported by solid international demand. New Zealand has been added as a territory for commingling
and fixed odds, the Hong Kong Jockey Club imported twelve simulcast race meetings this year, there
was extended simulcast in to Singapore and the Singapore Turf Club is seeking regulatory approval
to promote new simulcasts, and there is expansion of coverage in Greece given that SA product
generates substantially more turnover compared with competitor simulcast content.
Taking Betting World, TAB, Supabets, and Interbet together on a 100% consolidated basis the reach
of the Group is now considerable, with over R8 billion in betting turnover flowing through these
channels.
Income growth in Betting Operations slowed as the year progressed, ending the year marginally higher.
Despite this we nevertheless managed to increase the sports betting turnover, with betting on soccer
dominating and continuing to prove popular. We continue to refine product mix and ensure that odds
management is effective. New international agreements have been concluded in several African
countries.
Whilst the Group's strategic initiatives to drive non-OTC betting turnover are yielding positive
results, largely through the internet and smart devices, physical retail stores remain popular as a
socially appealing gathering place where fellow punters can share tips, celebrate or commiserate.
Betting shops are an important part of our transformation franchise initiative, such as in the North
West. The Supabets and the jointly owned Supaworld outlets are all large format physical stores
that attract a large throng of customers throughout the day. Four Supaworld stores were operating
by 31 July 2018 and we anticipate at least a dozen mega stores being operational within two years.
PGI located on the Isle of Man ended the year strongly in a competitive betting environment and
benefited from securing a major new customer. Revenue from premium customers betting on local
racing improved during the second half. International tote to tote commingled revenue was in line
with the prior year.
GROUP FINANCIAL ANALYSIS
Consolidated net income of R1 563,0 million is in line with the prior year with Betting Operations
contributing 68%, Media 30%, and Administrative and Support Services the balance.
Operating expenses increased by 3% to R1 475,2 million. Excluding the R27,1 million voluntary
severance programme expense, which is a once-off item, combined expenses increased by only 1%,
reflecting tight expense control.
Depreciation and amortisation of R70,4 million decreased by 1% and is allocated 54% to Betting
Operations, 36% to Media, and the balance to Administrative and Support Services. R67,5 million
was spent on acquiring property, plant and equipment during the year.
Operating profit before the cost of the voluntary severance programme was R44,4 million, a 9%
decrease on the R49,0 million in 2017. Including the costs of the voluntary severance programme
operating profit decreased by 65% to R17,3 million.
Finance costs of R34,6 million, up by 70%, reflect higher borrowings arising from corporate
investment activity.
Therefore, the Group incurred a loss before equity-accounted income of R17,3 million compared with
a prior year profit of R28,7 million.
Profits from equity-accounted investees increased by 38% to R169,2 million, 111% of pre-tax profits,
comprising our share of after-tax profits of PGI, Supabets, Interbet, Supaworld, and SW Security.
Share of profits from PGI increased by a pleasing 27% to R112,5 million. Interbet performed to
expectation, growing profits by double digits to R16,6 million. Supaworld made a small loss in its
start-up phase and is budgeted to be profitable next year.
Supabets grew turnover substantially and is gaining market share, although at the expense of margin
in the short term. Profits underperformed due to substantially higher expenditure on marketing
without commensurate turnover growth, betting margin squeeze (impacted by the VAT increase and
smaller take-out margins on the popular win and spin bet offering) and costs associated with
expanding the customer call centre. Supabets' contribution to profits nevertheless doubled to
R40,6 million.
The R546 000 positive non-cash fair value adjustment relates to the investment in Automatic Systems
Limited in Mauritius. These shares are not strategic but given that there is no imminent prospect
of an open market sale they are held as an investment at market value.
Attributable profit for the year was 6% higher at R155,1 million, assisted by a lower income tax
expense. Profit for the year of R151,8 million includes minority interests in the amount of
R3,4 million.
The 16% increase in the weighted number of shares in issue, stemming from the R284 million rights
issue in 2017 to part-fund the acquisition of Supabets, has had a dilutionary effect on per share
earnings.
Earnings per share decreased by 9% to 153,78 cents with diluted earnings per share decreasing by 4%,
also to 153,78 cents.
Headline earnings increased by 6% to R155,6 million and headline earnings per share decreased by 8%
to 154,23 cents. The R2,8 million goodwill impairment that is backed out within headline earnings
relates to Betting World Eastern Cape.
Normalised headline earnings adjusted for the R19,5 million after-tax cost of the voluntary
severance programme increased by 20% to R175,1 million with normalised headline earnings per share
increasing by 3% to 173,55 cents.
Currency effects on the 2018 trading result were negligible.
The weighted average number of shares in issue increased by 16% to 100,9 million and on a fully
diluted basis there was a 11% increase in weighted average shares, also to 100,9 million.
The Group bought back 3,1 million shares for R55,0 million at an average price of R17,49 per share.
In all, 1,6 million shares were issued in terms of the share option scheme. The net effect of these
transactions was to reduce the net issued share capital as at 31 July 2018 to 2% below the net
issued share capital as at 31 July 2017.
A reduction in cash applied to working capital resulted in cash flow from operating activities
improving to R62,9 million. Dividends paid to shareholders amounted to R113,7 million. Net loans
received of R2,4 million compares to a net advance of R24,4 million. Net borrowings raised amounted
to R177,7 million. A total of R79,0 million was paid of the contingent consideration in respect of
Supabets and R8,0 million in respect of Interbet. Net dividends received from equity-accounted
investees amounted to R130,4 million.
The statement of financial position reflects the material corporate activity in the 2017 financial
year, with a considerable addition of cash-generating assets.
Total assets increased to R1 650,7 million and long-term assets increased to R1 338,9 million, with
the value of equity-accounted investments at R690,4 million. Property, plant and equipment is valued
at book of R464,7 million. Goodwill and intangibles of R57,4 million are small in the context of the
entire balance sheet. The investment property valued at R18,7 million is the Arlington Racecourse
in Port Elizabeth.
Included in our definition of gross debt of R345,1 million is a remaining contingent liability on
Supabets of R28,8 million. Cash as at balance sheet date amounted to R114,4 million. Net debt is
therefore R230,7 million compared with R129,2 million last year. The debt to equity ratio of 22,8%
is conservative.
The Group retains its historically strong financial position and has sufficient cash flow and
borrowing capacity to meet its ongoing operational needs.
Return on average equity of 15% on attributable profit is affected by the substantially changed
capital structure, with the Supabets acquisition yet to fully contribute, and the once-off severance
costs. Normalised return on equity is 17%.
SHARE CAPITAL
There has been no change in the authorised share capital of the Company.
Issued share capital decreased by 1 590 422 shares or 2% compared to 31 July 2017. During the year,
3 146 330 shares were purchased as treasury shares and 1 555 908 shares were released in terms of
the share option scheme.
In 2017, issued share capital increased by 16 602 230 rights offer shares, issued in part to fund
the purchase of Supabets SA Holdings Proprietary Limited, whilst a further 8 796 443 shares were
issued to the seller in terms of the Supabets purchase consideration.
At 31 July 2018, issued share capital amounted to 99 969 347 shares, net of 2 531 211 treasury
shares.
SUMMARISED CONSOLIDATED SEGMENTAL ANALYSIS
The Group offers betting opportunities on South African and international sports and numbers, and
sells live media and data of South African horseracing content locally and internationally.
Reporting disclosure corresponds to management reporting lines.
Summarised segmental analysis
Total Betting operations
31 July 31 July 31 July 31 July
% 2018 2017 2018 2017
change R000 R000 R000 R000
Income
Net betting income 949 761 948 603 949 761 948 603
Other income 2 599 620 588 498 108 924 89 753
Investment income (15) 13 547 15 846
Total income 1 1 562 928 1 552 947 1 058 685 1 038 356
Expenses
Intellectual property rights fees 2 191 287 187 140 109 851 110 620
Operating expenses 1 1 256 862 1 245 571 477 181 463 565
Voluntary severance programme expense 27 071
Total expenses 3 1 475 220 1 432 711 587 032 574 185
Profit/(loss) before depreciation and
amortisation and finance costs (27) 87 708 120 236 471 653 464 171
Depreciation and amortisation (1) 70 393 71 207 38 171 38 030
Finance costs 70 34 577 20 323
Profit/(loss) before share of equity-
accounted income (160) (17 262) 28 706 433 482 426 141
Share of profit on equity-accounted
income 38 169 169 122 591 169 169 122 591
Profit/(loss) before revaluation of
investments 151 907 151 297 602 651 548 732
Fair value adjustment to investment (42) 546 946
Profit/(loss) before income tax expense 152 453 152 243 602 651 548 732
Local operations 73 (51 862) (30 044) 490 130 459 947
International operations 12 204 315 182 287 112 521 88 785
Profit/(loss) before income tax expense 152 453 152 243 602 651 548 732
Summarised segmental analysis continued
Administration and
Media support services
31 July 31 July 31 July 31 July
2018 2017 2018 2017
R000 R000 R000 R000
Income
Net betting income
Other income 475 227 457 128 15 469 41 617
Investment income 13 547 15 846
Total income 475 227 457 128 29 016 57 463
Expenses
Intellectual property rights fees 81 436 76 520
Operating expenses 650 301 638 118 129 380 143 888
Voluntary severance programme expense 27 071
Total expenses 731 737 714 638 156 451 143 888
Profit/(loss) before depreciation and
amortisation and finance costs (256 510) (257 510) (127 435) (86 425)
Depreciation and amortisation 25 052 24 419 7 170 8 758
Finance costs 34 577 20 323
Profit/(loss) before share of
equity-accounted income (281 562) (281 929) (169 182) (115 506)
Share of profit on equity accounted income
Profit/(loss) before revaluation of investments (281 562) (281 929) (169 182) (115 506)
Fair value adjustment to investment 546 946
Profit/(loss) before income tax expense (281 562) (281 929) (168 636) (114 560)
Local operations (373 356) (375 431) (168 636) (114 560)
International operations 91 794 93 502
Profit/(loss) before income tax expense (281 562) (281 929) (168 636) (114 560)
CAPITAL COMMITMENTS
Commitments in respect of capital expenditure approved by directors.
2018 2017
R'000 R'000
Contracted for 6 782
Not contracted for 95 979 125 683
Capital commitments will be financed out of cash and cash equivalents on hand or borrowing
facilities as and when required.
INVESTMENTS
Further to the audited annual financial statements dated 6 October 2018, there has been no further
movement with respect to investments.
MATTERS OF CORPORATE INTEREST AND LITIGATION
In terms of disclosure contained in the annual financial statements for the year ended 31 July 2017,
other than disclosed there are no further developments in this regard.
In 2015, the South African Bookmakers' Association applied to the Pretoria High Court to have
totalisator betting on sports other than horseracing declared unlawful. On 7 May 2018 this
application was dismissed by the Pretoria High Court, with costs. The South African Bookmakers'
Association applied for and was granted leave to appeal to the Supreme Court of Appeal.
In 2014, Tellytrack instituted action against Marshalls World of Sport in the Durban High Court in
respect of the infringement of Tellytrack's copyright. On 13 February 2018 this claim was dismissed
by the Durban High Court and on 3 August 2018 leave to appeal to the Supreme Court of Appeal was
granted to Tellytrack.
As a result of proceedings which were instituted in 2014, Phumelela was charged with contravening
condition 10 of its Turffontein race-meeting licence. This condition pertains to the visual broadcasts
of race-meetings. On 31 August 2018, the disciplinary committee issued a preliminary recommendation
to the Gauteng Gambling Board that Phumelela be found guilty of contravening its licence. The
disciplinary committee found that Phumelela is obliged to provide the Tellytrack service to all
bookmakers, regardless of their geographic location, on a cost recovery basis. Phumelela was afforded
an opportunity to make further written submissions to the disciplinary committee. On 19 September
2018, the disciplinary committee confirmed its preliminary recommendation. Phumelela will be afforded
an opportunity to make submissions regarding the sanction to be imposed on it.
If the Gauteng Gambling Board decides to find Phumelela guilty of contravening its licence conditions
in accordance with the disciplinary committee's recommendation, Phumelela has been advised to apply to
the High Court to have such decision reviewed and set aside.
Shareholders are reminded that the outcome of the relevant actions noted under Corporate interests
and litigation, as described in the annual financial statements, remains uncertain and may have an
impact on future earnings.
Shareholders' attention is drawn to the general update following the meeting of the Board of
Directors of Phumelela on 12 July 2018 that was issued on the Johannesburg Stock Exchange News
Service on 18 July 2018. The Board of Directors of Phumelela engaged in initial conceptual
discussions with stakeholders of thoroughbred horses and breeders and the Thoroughbred Trust with
regard to the administration of horseracing in South Africa and tote betting.
These conceptual discussions could result in a change in ownership of the administration of
horseracing and/or tote betting and /or the restructure if they came to fruition but as at the date
of this report there is nothing further to convey.
Kalamojo Trading and Investments Proprietary Limited ("Kalamojo") owns 9 450 000 shares in the Group,
representing 9,22% of the total issued share capital of 102 500 558 shares, including 2 531 211
treasury shares. In the interests of transparency, it is noted that ownership of Kalamojo is jointly
held, equally to the extent of 50%, by Alldam Investment Holdings Proprietary Limited (owned by two
family trusts of which Mr B Kantor, inter alia, is a beneficiary) and Mayfair Speculators Proprietary
Limited and/or entities in which each has a beneficial interest and that each party has a pre-emptive
right of first refusal on their respective shareholdings should one party wish to dispose of their
shares.
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 2018 comprises the Company
and its subsidiaries and the Group's interests in equity-accounted investees and joint operations.
STATEMENT OF COMPLIANCE
The preliminary summarised audited consolidated financial statements are prepared in accordance with
the requirements of the JSE Limited Listings Requirements for preliminary reports, and the
requirements of the Companies Act applicable to summary financial statements. The Listings
Requirements require preliminary reports to be prepared in accordance with the framework concepts
and the measurement and recognition requirements of International Financial Reporting Standards
("IFRS") and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee
and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also,
as a minimum, contain the information required by IAS 34 Interim Financial Reporting.
BASIS OF PREPARATION
The preliminary summarised audited consolidated financial statements do not include all the
information and disclosures required for the audited consolidated financial statements. The
preliminary summarised audited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements. The audited consolidated financial statements for
the Group as at and for the year ended 31 July 2018 were prepared on the going-concern basis and
are available for inspection at the Company's registered office.
The accounting policies applied in the presentation of the preliminary summarised audited
consolidated financial statements are in terms of IFRS and are consistent with those applied for
the year ended 31 July 2017. They are prepared on the historical cost basis, except for certain
financial instruments that are recognised at fair value.
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 2018. The auditors were not engaged to report on the summary financial
statements. 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 is available at the Company's registered office.
The preliminary summarised audited 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. 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. The summarised report is extracted from the audited information
but is itself not audited. The directors take full responsibility for the preparation of the
preliminary results and the financial information is correctly extracted from the underlying annual
financial statements.
SUBSEQUENT EVENTS
There are no significant subsequent events that have an impact on the financial information at
31 July 2018.
RELATED PARTIES
During the year Betting World Proprietary Limited sold four fixed odds licences to Supaworld
Proprietary Limited, a company jointly owned by Betting World and Supabets.
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
Empowerdex has audited the Group as a level 4 with Empowering Supplier status. The Group continues
to identify areas for improvement.
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
With effect from:
- 25 August 2017, Mr Brian Finch resigned from the Board as a non-executive director;
- 6 December 2017, Mr Markus Jooste resigned from the Board as a non-executive director;
- 12 December 2017, Mr Peter Malungani retired from the Board after twenty years of service;
- 13 December 2017, Mr Bernard Kantor, an independent non-executive director, assumed the role of
Chairman;
- 24 January 2018, Mr Steve Müller was appointed to the Board as a non-executive director and on
3 July 2018, appointed as Chairman of the Audit Committee;
- 16 July 2018, Mr Siza Khampepe was appointed as member of the Remuneration and Nominations
Committee;
- 16 July 2018, Ms Nolwandle Mboweni was appointed as member of the Social and Ethics Committee in
addition to her membership to the Audit and Risk Committee;
- 16 July 2018, Mr S'celo Mahlalela was appointed as a non-executive director and member of the
Audit and Risk Committee;
- 14 August 2018, Ms Fikile Magubane was appointed as a non-executive director and member of the
Audit and Risk Committee;
- 17 September 2018, Mr Rian du Plessis resigned from the Board as Group CEO;
- 18 September 2018, Mr John Stuart was appointed as Group CEO;
- 21 September 2018, Mr Moses Tembe was appointed as lead independent director;
- Pending the date of approval of the relevant regulatory authorities, Ms Lindiwe Rakharebe was
appointed as a non-executive director and member of the Social and Ethics Committee.
There are no other changes to the composition of the Board.
The Board expresses sincere thanks to Mr Malungani for his valued contribution and 20 years' loyal
service to the Company as Chairman. The Board also wishes to thank Mr Finch and Mr Jooste for their
contributions. The Board would like to thank Mr Du Plessis for his valued service and contribution
over the past ten years and wishes him every success in his future endeavours. The Board further
welcomes the appointment of Mr Kantor as Chairman, the appointments of Mr Müller, Mr Mahlalela,
Ms Magubane, Ms Rakharebe (pending regulatory approval) and Mr Tembe to the Board and Mr Stuart as
Group CEO.
PROSPECTS
We expect to achieve positive results from the integration of the Supabets sports and numbers
offering in to Betting World retail outlets and a new Betting World website that has a Supabets
sports betting offering, a state of the art in-play betting offering, and a customer loyalty programme.
Supabets will introduce betting on horseracing, both in retail and online, using Betting World's odds
management and software. The TAB website will be powered by software developed by Interbet, our
joint venture online bookmaking business and betting exchange, whilst the Betting World website will
be powered by Supabets.
The increase in VAT has cost the group R4 million in 2018 and will have an annual cost of R10 million
going forward.
We expect to achieve accelerating returns from our investment in Supabets, where excellent synergies
are already being unlocked and shared learnings benefiting both parties. Supaworld is no longer a
concept but a reality and whilst ventures of this nature take time to gain traction we expect to be
profitable in the 2019 financial year. Interbet continues to perform very well and we are delighted
with the investment.
Our Betting Operations in South Africa face challenging economic headwinds but our proactive
initiatives across all the offerings places us in a relatively strong position within the gaming
industry. Our international Betting Operations had a good 2018 and we have further exciting plans
in place. Demand for quality South African horseracing content abroad will remain a positive for the
Media business.
The currency is an external factor beyond our control and so we measure our businesses in local
currencies and budget to achieve real growth in constant currency terms.
The Group is authorised to buy back shares and will consider further purchases from time to time.
The Group is targeting growth in earnings per share.
Any forward-looking statements or forecasts contained in these results have not been reviewed or
reported on by the Group auditors.
CASH DIVIDENDS TO SHAREHOLDERS
Notice is hereby given that the Board has declared a final gross cash dividend from income reserves
of 62,00 cents per share (49,60 cents per share net of dividend withholding tax at a rate of 20%)
payable to shareholders recorded in the register on Friday, 2 November 2018. The issued share
capital at the declaration date is 102 500 558 ordinary shares. Shareholders are advised that the
last date to trade "cum dividend" will be Tuesday, 30 October 2018. As from commencement of business
on Wednesday, 31 October 2018, all trading in Phumelela shares will be "ex dividend". Payment will be
made on Monday, 5 November 2018. Share certificates may not be dematerialised or rematerialised
between Wednesday, 31 October 2018 and Friday, 2 November 2018, both days inclusive. The Company's
tax reference number is 9171/393/84/7.
For and on behalf of the Board
B Kantor JA Stuart
Chairman Chief Executive Officer
Turffontein, Johannesburg
5 October 2018
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Audited Audited
12 months 12 months
31 July 31 July
% 2018 2017
change R'000 R'000
Income 1 526 979 1 520 515
Gross betting income 1 182 525 1 176 913
Net betting income
- Local operations 949 761 948 603
Other operating income
- Local operations 1 283 558 281 654
- International operations 3 316 062 306 844
Investment income
- Local operations (15) 12 928 15 200
- International operations (4) 619 646
Net income 1 1 562 928 1 552 947
Operating expenses and overheads
- Local operations 3 (1 223 305) (1 218 794)
- Voluntary severance programme expense (27 071)
- International operations 5 (224 844) (213 917)
Profit before finance costs, income tax,
depreciation and amortisation (27) 87 708 120 236
Depreciation and amortisation (1) (70 393) (71 207)
Profit from operations (65) 17 315 49 029
Finance costs
- Local operations 70 (34 577) (20 323)
(Loss)/profit before share of profit of
equity-accounted investees (160) (17 262) 28 706
Share of profit of equity-accounted investees 38 169 169 122 591
Profit before fair value adjustment 151 907 151 297
Fair value adjustment to investment 546 946
Profit before income tax expense 152 453 152 243
Income tax expense (93) (707) (9 641)
Profit for the year 6 151 746 142 602
Other comprehensive income net of taxation
Items that may subsequently be reclassified
to profit or loss
- Exchange differences on translation of
foreign subsidiaries 623 (151)
- Remeasurement of defined benefit obligation 1 395
Total comprehensive income for the year 8 153 764 142 451
Profit attributable to:
Ordinary equity holders of the parent 155 112 146 520
Non-controlling interest (3 366) (3 918)
Profit for the year 151 746 142 602
Total comprehensive income attributable to:
Ordinary equity holders of the parent 157 130 146 369
Non-controlling interest (3 366) (3 918)
Total comprehensive income for the year 153 764 142 451
Earnings per ordinary share (cents)
- Basic (9) 153,78 168,46
- Diluted (4) 153,78 160,84
SUPPLEMENTARY STATEMENT OF COMPREHENSIVE INCOME INFORMATION
Audited Audited
12 months 12 months
31 July 31 July
% 2018 2017
change R'000 R'000
Reconciliation of headline earnings
Earnings attributable to equity holders of the parent 6 155 112 146 520
Adjusted for:
Loss/(profit) on sale of property, plant and equipment 3 165 (605)
Impairment of goodwill 2 844
Profit on disposal of intangible assets (6 014)
Tax effect 461 169
Headline earnings 6 155 568 146 084
Headline earnings per share (cents) (8) 154,23 167,96
Diluted headline earnings per share (cents) (4) 154,23 160,36
Net asset value per share (cents) 1 012,93 1 014,17
Dividend to shareholders
Interim dividend
Dividend per ordinary share (cents) 24 42,00 34,00
Final dividend
Dividend per ordinary share (cents) (11) 62,00 70,00
Number of shares in issue (2) 99 969 347 101 559 769
Weighted average number of shares in issue for basic
and headline earnings per share calculation 16 100 868 421 86 974 276
Weighted average number of shares in issue for diluted
earnings per share calculation 11 100 868 421 91 097 698
SUPPLEMENTARY PRO FORMA INFORMATION
The pro forma normalised financial information has been compiled by the directors to illustrate the
impact of the voluntary severance programme on the Group's reported financial performance for the
year 31 July 2018 for illustrative purposed only. This information is the responsibility of the
directors and due to the nature of the information it may not fairly present the Group's financial
position, changes in equity , the results of operations and cash flows.
An unmodified reasonable assurance report has been issued by the Group's auditors KPMG Inc. in
terms of ISAE 3420 Assurance Engagements to Report on the Compilation of the Pro Forma Information
in a prospectus and is available for inspection at the Company's registered office. The pro forma
information has been compiled in terms of the JSE Listing Requirements and the revised Guide on
Pro Forma Information by SAICA.
Audited Audited
12 months 12 months
31 July 31 July
% 2018 2017
change R'000 R'000
Reconciliation of headline earnings to
normalised headline earnings
Headline earnings 155 568 146 084
Voluntary severance programme expense tax effected 19 491
Normalised headline earnings 20 175 059 146 084
Normalised headline earnings per share after the
elimination of the effects of the voluntary
severance programme 3 173,55 167,96
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited Audited
as at as at
31 July 31 July
2018 2017
R'000 R'000
ASSETS
Non-current assets 1 338 850 1 280 609
Property,plant and equipment 464 707 468 388
Goodwill 12 362 15 206
Intangible assets 45 000 51 939
Interest in equity-accounted investees 690 421 638 074
Investments 12 108 11 562
Investment property 18 700 18 700
Long-term loans 63 341 64 309
Deferred taxation asset 32 211 12 431
Current assets 311 824 259 200
Inventories 3 773 2 466
Trade and other receivables 155 679 129 855
Defined benefit fund 14 650 9 029
Income tax receivable 23 348 19 395
Cash and cash equivalents 114 374 98 455
Total assets 1 650 674 1 539 809
EQUITY AND LIABILITIES
Total equity 1 012 624 1 029 993
Share capital and premium 473 786 473 826
Retained earnings 546 092 560 678
Non-distributable reserves 30 (593)
Equity attributable to ordinary shareholders 1 019 908 1 033 911
Non-controlling interest (7 284) (3 918)
Non-current liabilities 301 319 123 370
Deferred taxation liability 872 1 393
Borrowings 300 447 121 977
Current liabilities 336 731 386 446
Trade and other payables 278 118 267 146
Short-term borrowings 1 639 2 400
Contingent consideration liability 28 806 101 434
Income tax payable 24 24
Betting dividends payable 13 965 13 621
Bank overdrafts 14 179 1 821
Total equity and liabilities 1 650 674 1 539 809
SUMMARISED CONSOLIDATED STATEMENTS OF CASH FLOWS
Audited Audited
12 months 12 months
31 July 31 July
2018 2017
R'000 R'000
Net cash outflow from operating activities (94 640) (62 201)
Cash generated from operations 70 716 88 771
Movements in working capital (7 815) (43 022)
Cash generated from operating activities 62 901 45 749
Income tax paid (24 961) (15 082)
Investment income received 9 003 11 957
Finance costs paid (27 849) (17 950)
Dividends paid to shareholders (113 734) (86 875)
Net cash outflow from investing activities (25 101) (250 879)
Acquisition of property, plant and equipment and intangible assets (67 515) (82 223)
Proceeds on disposal of property, plant and equipment and
intangible assets 626 1 664
Investment in equity-accounted investees (3 993) (255 010)
Contingent consideration liability paid (86 979) (330)
Net loans repaid/(advanced) 2 358 (24 432)
Dividend received from equity accounted investee 130 402 109 452
Net cash inflow from financing activities 122 679 332 195
Repayment of finance leases (425)
Net borrowings raised 177 709 58 556
Share capital raised 288 340
Shares repurchased and options issued (55 030) (14 276)
Net increase in cash and cash equivalents 2 938 19 115
Effect of exchange fluctuations on cash and cash equivalents 623 (151)
Cash and cash equivalents at beginning of year 96 634 77 670
Cash and cash equivalents at end of year 100 195 96 634
Make up of balance of cash and cash equivalents
Cash and cash equivalents 114 374 98 455
Bank overdraft (14 179) (1 821)
Cash and cash equivalents at end of year 100 195 96 634
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Non-
capital Trans- Share- con-
and lation Retained holders trolling Total
premium reserves earnings equity interest equity
R'000 R'000 R'000 R'000 R'000 R'000
Balance at 31 July 2016 1 863 (442) 511 630 513 051 513 051
Total comprehensive income for the year (151) 146 520 146 369 (3 918) 142 451
- Profit for the year 146 520 146 520 (3 918) 142 602
- Other comprehensive income (151) (151) (151)
Transactions with owners recorded
directly in equity
- Share issue - Rights offer 288 713 288 713 288 713
- Share issue - Acquisition shares 183 582 183 582 183 582
- Direct listing costs (373) (373) (373)
- Share repurchase (12) (10 588) (10 600) (10 600)
- Shares issued in terms of the
share option scheme 53 (3 729) (3 676) (3 676)
- Share-based payment 3 720 3 720 3 720
- Dividends paid to equity holders (86 875) (86 875) (86 875)
Balance at 31 July 2017 473 826 (593) 560 678 1 033 911 (3 918) 1 029 993
Total comprehensive income for the year 623 156 507 157 130 (3 366) 153 764
- Profit for the year 155 112 155 112 (3 366) 151 746
- Other comprehensive income 623 1 395 2 018 2 018
Transactions with owners recorded
directly in equity
- Share repurchase (79) (54 950) (55 029) (55 029)
- Shares issued in terms of the
share option scheme 39 (39)
- Share-based payment (2 370) (2 370) (2 370)
- Dividends paid to equity holders (113 734) (113 734) (113 734)
Balance at 31 July 2018 2 499 30 546 092 1 019 908 (7 284) 1 012 624
Directors: B Kantor (Chairman), M Tembe (Lead Independent Director),
JA Stuart* (Group Chief Executive), AW Heide* (Finance Director and COO),
P Anastassopoulos, R Cooper, SKC Khampepe, FS Magubane (Ms), SA Mahlalela,
NJ Mboweni (Mrs), VJ Moodley*, SH Müller, Dr E Nkosi, CJH van Niekerk,
JB Walters (*Executive)
Company Secretary: F Moloi (Mrs)
Sponsor: Investec Bank Limited
Registered Office: Turffontein Racecourse, 14 Turf Club Street, Turffontein
Transfer Secretaries: Computershare Investor Services Proprietary Limited
Share Code: PHM
Isin: ZAE000039269
Website: www.phumelela.com
Date: 05/10/2018 07:08:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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