Phumelela faces business rescue
• Survival in doubt as it battles regulatory changes and economic slump
Horse-racing operator Phumelela Gaming & Leisure is on the brink of liquidation, warning staff on Monday that even if it gets new capital, any injection is likely to be part of a business rescue plan. The country’s largest horse-racing group is seeking to raise capital as it battles for survival in the wake of SA’s Covid-19 lockdown, which has added pressure to a local gaming industry already hit by regulatory changes and an economy that was in recession for the last six months of 2019. The share price of Phumelela, which has a market cap of R75m, has dropped about 59% since January.
Horse-racing operator Phumelela Gaming & Leisure is on the brink of liquidation, warning staff on Monday that even if it gets new capital, any injection is likely to be part of a business rescue plan.
The country’s largest horseracing group is seeking to raise capital as it battles for survival in the wake of SA ’ s Covid-19 lockdown, which has added pressure to a local gaming industry already hit by regulatory changes and an economy that was in recession for the last six months of 2019. The share price of Phumelela, which has a market cap of R75m, has dropped about 59% since January.
LETTER
In a letter to staff seen by Business Day, group CEO John Stuart warned on Monday that if a capital raising agreement were not reached soon, the company would need to decide if there is a reasonable prospect for the group to be rescued.
“The board’s current view is that even if financial relief can be obtained, a relief package should be negotiated as part of a business rescue plan,” the letter read.
The group reported on Monday that its loss for the six months to end-January from local operations had almost doubled to R115.1m, from R61.4m previously, as Phumelela swung into a loss for the period.
International profits helped offset the fall in local profits, but the group said its survival ultimately depends on discussions within the industry regarding a national reorganisation, and new capital.
Phumelela is currently in the hands of the government in terms of determing when racing will resume, and is hoping the state will come on board, chairperson Moses Tembe said.
The National Horseracing Authority (NHRA), which is coordinating efforts in the industry, has asked the government to allow racing to resume on May 1, but has not received a response. It is also seeking clarification on rules regarding the transport of live animals after SA’s lockdown rules were eased slightly on Friday. The authority noted that the government has been inundated with thousands of different requests.
The Covid-19 pandemic has had a detrimental effect on revenue, closing some betting shops and halting racing, and Phumelela has already warned that if the lockdown were extended into May, an estimated 40,000 jobs dependent on the industry would be at risk.
The group is battling the withdrawal in April 2019 of its 50% share of the 6% levy on winnings from fixed-odds bets in Gauteng. This has cost it about R75m per year, and it is continuing to engage with provincial authorities on the matter, Phumelela said.
The group reported a headline loss of R886,000 in its six months to end-January, compared with a headline profit of R68m in the prior comparative period. Headline earnings is a widely used profit measure in SA, stripping out exceptional items to give a better indication of the underlying performance of a business.
The group’s international operations brought in net profits of R113.1m, only slightly lower than in the previous comparative period.
Net debt stood at R323.3m at end-January, which compares unfavourably with the group’s R87m market capitalisation.
The share price closed 8,7% down at 73c.