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Operations in SA are still the foundation of Phumelela's business, though revenues from international operations are rising. CEO Jim Tennant says "there are definitely advantages overseas, such as cheaper bandwidth for Internet sites and foreign exchange advantages. But we are totally dependent on SA racing - it's the one thing people can't take away from us."
In the six months to January 2008, total SA revenue for the horse racing and totalisator agency group was up 17% to R1,34bn. International revenue was up 153% to R 115m, while local revenue increased 1 2% to R122 m.
Share volumes traded are low, though, with shares tightly held between Thoroughbred Horse Racing Trust (36%) and various institutional investors, including Sanlam (33%).
With racing revenues growing globally, Tennant says Phumelela has a first-mover advantage. "We've got the experience, the technology and the relationships." The company recently provided the global betting network for the Dubai World Cup, with 54 totes connected.
International tote betting pools are worth about US$100bn. About 60% of that is generated in the Far East.
Tennant says a team is heading to the East this week to talk to racing companies about possible tie-ups. "Racing is a highly regulated industry and it helps to have a local partner in new countries to navigate the waters. It's a relationship game and there is a long lead time before securing the rights to top race tracks."
Phumelela has the rights for international distribution at 30 leading UK race tracks. It combines live coverage of races from different tracks in SA and the UK, and broadcasts internationally to more than 40 countries on Racing International, an encrypted TV channel.
The company sells the live footage to bookmakers and individual subscribers, earning a fee. It also earns a commission on totes on the betting turnover the races generate.
It also operates retail outlets and SA's national tote. Phumelela stages racing in the Free State, Northern Cape, Eastern Cape and Gauteng.
Tennant says there is opportunity to establish an international 24-hour tote that runs behind Racing International. To do that, the company would need to secure rights to races from centres east and west of SA and from the UK. If this takes off, it would make sense for the company to move more of its business offshore.
"But a portion of income generated internationally from SA racing is ploughed back into local racing," says Tennant. The group focuses on upgrading existing racecourse infrastructure in SA.
The increased investment is paying off. At the Dubai World Cup, the world's richest race, SA-owned or trained horses won three of the six top races.
Operating expenses for the local operations in the six months to January 2008 were R211,2m, up 10% on the comparative period, reflecting the company's investment in upgrading and expansion of its retail network and betting technology. During the year it disposed of the Bloemfontein racecourse and last year terminated its lease of Newmarket.
"The mission is to reduce fixed costs," says Tennant. At Turffontein there are now two grass tracks, which means the 30-36 race meetings each year can be doubled. The Vaal has one grass and one sand track and Kimberley a sand racing surface.
"SA now has racing 364 days of the year," says Tennant. "About 700 horses are being trained at Turffontein, bringing in additional revenue and building up the industry."
The company's inventory line shot up from R0,3m in the six months to January 2007 to R3,5m. Tennant says this is because the company had to reclassify a number of properties it plans to sell. After rezoning approval, this includes 183 residential stands and about 20 townhouse stands in Arlington.
This may not be the best time to sell land, but Tennant says if there is no demand, the company will hold it until the time is right. "The important thing is that the land is in the bank."
Financial Mail
Friday, April 11, 2008
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