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Cape Town - Horseracing and betting company Phumelela Gaming & Leisure [JSE:PHM] achieved “solid progress in all business areas” for the six months to January 31 2016, CEO Rian du Plessis said on Friday.
He added that these results were achieved despite a backdrop of low economic growth and continued pressure on consumers and while investing in diversification and international growth. Despite the higher cost of staging thoroughbred horseracing, Phumelela continues to invest in the long-term sustainability of the sport. Investments in complementary activities yielded improving returns, bolstering cash flow and the group financial position.
Phumelela has acquired 51% of Afribet, a retail bookmaker licensed in the Eastern Cape. Suspensive conditions were fulfilled post the half-year end. In addition, the group has agreed to the purchase – subject to conditions – of 50% of the equity in Supabets.
Total income rose 19% to R786.5m and Du Plessis said the group’s 26% stake in Interbet proved highly beneficial. SA income grew 18% to R659.7m with local net betting income up 18% to R497.1m with other income up 6% to R119.6m. Other operating income from international operations rose 26% to R132.2m. Rand weakness proved beneficial on translation of offshore earnings, generating a foreign exchange gain of R9.6m.
Net income, including investment income of R0.5m, was 17% higher at R749.5m. Key drivers were Phumelela’s 50% investment in Premier Gateway International on the Isle of Man and the export of live broadcasts of SA horseracing to six continents.
International and local equity accounted profits rose 119% to R43,4 million while Group pre-tax profit grew 27% to R75,2 million. Pre-tax profits from tote betting on sports other than horseracing, fixed odds betting and limited pay-out machines rose 34% to R128m. Even so, local operations made a R7m loss.
“Losses on our traditional business of staging horseracing and conducting tote betting thereon give financial context to our legal fight against piracy of the Group’s intellectual property (IP) by certain bookmakers,” said Du Plessis.
Net betting income from local tote and fixed odds operations rose 18%. Other income from local operations rose 6%. Rising tote volumes were driven by betting on sports other than horseracing. This now accounts for 33% of tote bets.
Total operating expenses in local tote and fixed odds operations rose 21%, reflecting retail growth, share-based payment charges for options, incentive payments and legal and consulting fees.
Earnings per share (EPS) rose 32% to 87.18 cents, with headline earnings per share (Heps) up 33% at 87.21c. An interim dividend of 34c was declared - an increase of 21%.
"Trading conditions are expected to remain challenging in SA, but Phumelela has strong prospects of continued growth thanks to the continued success of its diversification strategy and the potential for increased penetration of offshore markets," said Du Plessis.
“Recent acquisitive activity strengthens our position in the fixed odds market. In the final two months of the current financial year we also expect to draw significant benefit from our landmark agreement – signed in December 2015 – with UK-based Arena Racing Company (ARC)."
In addition, he expects continued positive results are expected from investment in a broader Betting World retail footprint. Furthermore, Interbet’s results will be included in the full year in 2016 compared with nine months in 2015.
“With a strong balance sheet, there is substantial headroom for investment in new growth vectors. Phumelela is vigorously pursuing diversification and expansion opportunities locally and abroad," said Du Plessis.
