South African racing and sports betting operator Phumelela Gaming and Leisure is desperate to raise badly needed capital after reporting the worst results in the company’s 22-year history.
On Friday, Phumelela reported a net loss of R95.8m (US$6.5m) in the 12 months ending July 31, as compared to a R151.7m profit in the previous fiscal year. The company said the 12-month period was the “worst year since the business was first incorporated in 1997.”
The company’s revenue was down 7.6% year-on-year, with a 9.7% decline in its mainstay local betting business offsetting a modest gain in its much smaller international operations.
The company noted that its Betting World and Supabets operations had endured an “unusually high number” of customer-friendly football results that kept margins low, while South Africa’s depressed economy – including the 15% VAT imposed in April 2018 – kept a lid on punters’ discretionary spending.
Non-OTC wagering, which includes both domestic digital operations and Phumelela’s share of the Isle of Man-based Premier Gateway International (PGI) – a tote betting joint venture with Australia’s Tabcorp – accounted for 26% of Phumelela’s betting income. PGI income was up 18% year-on-year.
Horseracing operations are “under considerable pressure,” in part to the province of Gauteng revising its gaming regulations on April 1 to eliminate Phumelela’s 50% cut of the mandatory 6% betting levy on punters’ winnings. This cost the company R26m in the four months since the change and is expected to result in income falling R75m when the current fiscal year ends next July.
Phumelela has responded to all these pressures by cutting its workforce by 15%, closing some of its retail premises and taking a hard line on all other expenses. But domestic racing is at “an unenviable juncture” and Phumelela hopes to dialogue with government and regulators to identify “realistic suggestions that may benefit horseracing” (and, by extension, Phumelela).
The company has also frozen dividend payments, renegotiated payment of its debts and plans to focus on building up its fixed-odds betting operations. Phumelela has secured a new R50m credit facility but without further capital injection and/or some regulatory relief, Phumelela warned that it could be headed for the knackers.
