Flush GPI sees royal time for Burger King

The mar­ket’s had about as much ap­petite for Grand Pa­rade shares as you might for a stale Burger King bun. The casino busi­ness is still mint­ing cash but the com­pany is push­ing into restau­rants in­stead. IM’s Gi­uli­etta Talevi spoke to CEO Alan Keet

Financial Mail - Investors Monthly - - Front Page - Alan Keet CEO of Grand Pa­rade

QJust

why are you so keen to sell off these cash-gen­er­at­ing gam­ing as­sets? A A few takes on it: one is the casi­nos con­cerned. We are get­ting pe­nalised heav­ily around the un­cer­tainty of the re­lo­ca­tion li­cence in the Western Cape, so when the op­por­tu­nity came to sell 40% of our as­sets, we jumped at it. Sec­ond, the casi­nos — as with ev­ery­thing con­sumer-fac­ing — are un­der pres­sure and we de­cided we wanted fo­cus on the food busi­ness, which is equally un­der pres­sure cur­rently, but per­haps it has more of an up­side once the econ­omy turns. We’ve said that our growth strat­egy comes from the Grand Foods busi­ness — Burger King, Dunkin’ Donuts and Baskin Rob­bins. In estab­lish­ing Burger King [we took on] quite a high level of gear­ing. We’re sit­ting on about 36%, which we’re un­com­fort­able with in this en­vi­ron­ment, and we want to re­duce that to a more palat­able 20%-30%. So re­al­is­ing the SunWest as­sets will help us to achieve all of those things. On the slots side, it’s still a good busi­ness — we’re very com­fort­able with it — but about 2½ years ago we just felt we were look­ing for a strate­gic part­ner. We’ve had a long­stand­ing re­la­tion­ship with Sun In­ter­na­tional, so they were the most log­i­cal [part­ner] and they made it ob­vi­ous they wanted to get into the al­ter­na­tive gam­ing space. We just de­cided, bet­ter the devil you know than the one you don’t — we’d ei­ther com­pete with them or we could join them and hope to ex­tract value and keep our 30% (in Grand Pa­rade Slots) and en­joy the growth down the line. QLast

year the com­pe­ti­tion com­mis­sion blocked Tsogo Sun’s moves to buy 40% of Grand West from Sun In­ter­na­tional, in which you have a stake, so you were likely to score big. But you’ve now re­jigged that deal, and Tsogo’s of­fered to buy 20% in­stead. Will this fly? A There’s noth­ing legally that should pre­vent it. There’s no com­pe­ti­tion com­mis­sion ap­proval re­quired, only our share­hold­ers. There are no con­di­tions prece­dent from the gam­ing board ei­ther. Typ­i­cally, when you’re sell­ing shares in a gam­ing as­set, you need to get ap­proval from the var­i­ous gam­ing boards. QYou

talk about be­ing pe­nalised by un­cer­tainty. What do you mean? And how bad is the reg­u­la­tory en­vi­ron­ment? A There’s un­cer­tainty as to whether Grand West will still en­joy an ex­clu­sive li­cence to op­er­ate in the Western Cape. There are five casino li­cences and there’s been talk since be­fore 2010 about al­low­ing one of the other li­cences to re­lo­cate to the metropole. And that un­cer­tainty has led the mar­ket to dis­count the val­u­a­tion for Grand West.

Gam­ing is an en­vi­ron­ment driven by com­pli­ance — which is not nec­es­sar­ily bad. If you have a li­cence, you have a cap­tive mar­ket. But we just de­cided that we were quite happy to ex­change our in­ter­est in the casi­nos for cash so we can ex­pand our food busi­ness. QHav­ing

said that, you’ve now bought al­most 5% of an Aus­tralian gam­ing ma­chine maker, Atlas Gam­ing. Why? A Part of our strat­egy around the limited-pay­out ma­chines and the man­u­fac­tur­ing of gam­ing ma­chines was the rea­son we bought into Atlas. If we are in gam­ing — be­cause we’ll still have 30% in slots and 15% in the casino in­dus­try — part of the cost in­puts in both of those in­dus­tries is gam­ing ma­chines. So with Atlas we’re able to de­sign, and through Grand Tel­lumat [owned by Grand Pa­rade] to man­u­fac­ture. QWhat

about your other in­vest­ments? You took on debt to buy your 10% stake in Spur, and now the div­i­dends aren’t cov­er­ing your fi­nance charges. Surely that’s not sus­tain­able? A In the next 18 months that will re­verse as our debt comes down and Spur’s div­i­dend in­creases. We bought the shares on the back of a BEE trans­ac­tion so we did get a favourable price which has kept us locked into the trans­ac­tion. We’re still happy to hold the 10%. And the short­fall on the earn­ings and fund­ing is some­thing we’re happy to man­age. QWhat’s

the lock-in pe­riod for Grand Pa­rade? A It’s a five-year lock-in, so we’re just more than a year into the trans­ac­tion. QIt

sounds as if the com­mit­ment you’ve taken on un­der the mas­ter fran­chise li­cence agree­ment with Dunkin’ Donuts

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