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

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