The end - RIH Phumelela

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1 week 3 days ago - 1 week 2 days ago #766366 by Over the Air
Over the Air created the topic: The end - RIH Phumelela

This message contains confidential information
Voluntary trading update, trading statement and renewal of cautionary announcement

Voluntary trading update

Operational context

Phumelela Gaming and Leisure Limited (“Group”) has made it clear in previous communications to
shareholders that trading conditions during the 2018 financial year and during the first half of the 2019
financial year were very difficult and were not expected to improve. The Group revealed to shareholders
at the interim results presentation practical interventions to deliver long-term cost savings and to
restructure for commercial realities. Furthermore, the removal of the Group’s 50% share of the 6% levy
on punters’ winnings on fixed-odds bets on horseracing has had an adverse financial effect on the
Group.

Phumelela was entitled to this levy in terms of Regulation 276 of the Gauteng Gambling Regulations,
1997, which the Member of the Executive Council responsible for Economic Development,
Environment, Agriculture and Rural Development (“the MEC”) elected to amend to revoke Phumelela’s
entitlement to a share of the levy. Shareholders are reminded that the Group is trading under cautionary
in respect of an application to have the amendment of Regulation 276 reviewed and set aside. The
most recent cautionary announcement is dated 4 June 2019.

The results for the six months ended 31 January 2019 reflected a considerable deterioration in trading
conditions in local tote and fixed odds operations whilst the local losses on horseracing operations have
increased. Despite international profits, the total loss in Media Operations increased by 35%. An interim
dividend was not declared in order to conserve cash. The results presentation concluded that “it is
impossible to give certainty on trading results for the full year”. Circumstances post the publication of
the half-year results on 29 March 2019 are worse than anticipated, exacerbated by the withholding of
the levy by the Gauteng Government as a result of the amendment to Regulation 276.

Given the above backdrop of uncertainty, and in view of the fact that annual results for the twelve
months ended 31 July 2019 are only scheduled to be published on or about 4 October 2019, the Board,
in the interests of continuing candid communication with shareholders, believes it is necessary to advise
on the situation post the interim results and with respect to guidance for the full year results.

Betting Operations

In South Africa, Betting Operations comprise over-the-counter (“OTC”) retail outlets and non-OTC,
being internet and telephone betting. Phumelela brands include Betting World and Tab whilst the Group
has a 50% interest in Supabets and has a JV with Supabets in Supaworld Proprietary Limited, a
company jointly owned by Betting World and Supabets.

As communicated at the half-year results, there are active interventions to rationalise and optimise the
tote and fixed-odds operations. The costs of right-sizing fall within the 2019 financial year.

The permanent annual cash savings in the rationalised Betting World/Tab is estimated at R60 million,
which will benefit the 2020 financial year and give significant relief to the Group’s financial position.
Whilst there has been growth in total betting turnover for the ten months to 31 May 2019, the mix of the
business has changed, with a switch in betting from the tote to fixed odds, where margin is lower. Across
tote and fixed odds, the combined betting income margin is 1.9 percentage points lower than for the
same period ended 31 May 2018 with fixed odds the most affected. Profits this year are also affected
by the 1% increase in VAT in April 2018.

Although Supabets had a poor March and May, the business remains profitable but is anticipated to
end the year with a reduced profit. The Supaworld JV footprint is growing with Betting World licenses
being deployed as Supabets mega outlets where average turnovers are higher. Supaworld also had a
poor March and May and remains marginally profitable.

Interbet, the local online betting exchange in which the Group has a 50% interest, has continued to
perform well, and year-to-date is recording single-digit growth, which in a depressed consumer
environment is very pleasing.

The Group also records equity-accounted income from the jointly owned Premier Gateway International
tote operator on the Isle of Man, included in the non-OTC segment. This business returned an excellent
result for the first half and is projected to end the year with double-digit growth.

Despite Supabets recording a lower profit for the ten-month period, total profits from equity accounted
associates was higher in real terms.

Media Operations

Media Operations comprise the selling of media and data rights of South African horseracing locally
and internationally and includes the administration of horseracing.

The horseracing operations remain loss-making on a stand-alone basis. This has been the case for
several years, with losses increasing each year.

The loss-making position has been made worse by the removal of the 3% levy due to Phumelela in
terms of Regulation 276, as earlier referred to. The payment of this levy forms part of the agreement
between the Gauteng Government and the racing industry and is intended to ensure the sustainability
of horseracing. Phumelela must shoulder the costs in horseracing but income from other sources is
insufficient to make up for the costs. The 3% levy has been withheld with effect from 1 April 2019 and
deprives Phumelela of over R6 million on average per month in income.

Legal Matters and related

Further to detailed disclosure on legal matters in the first-half results, the following are pertinent.

As discussed above, the MEC amended the Gauteng Gambling Regulations with effect from 1 April
2019. Shareholders are referred to public disclosure in this regard as published via the Stock Exchange
News Service and as updated in the financial results for the six months ended 31 January 2019.

The Group lodged papers on 21 June 2019 in the North Gauteng High Court to have the Public
Protector’s report into thoroughbred horseracing in Gauteng set aside on the basis that the findings of
the Public Protector in the report are unlawful, irrational, unreasonable and unconstitutional.

It is further noted that the Gauteng Gambling Board (“the Board”) and the MEC filed a separate
application, on 8 July 2019, to have the public Protector’s report (alternatively the remedial action)
reviewed and set aside and to have the report remitted to the Public Protector for reconsideration.

The Group intends to lodge papers in the High Court to have the decision by the Gauteng Gambling
Board to find it guilty of contravening condition 10 of its Gauteng Race-Meeting licence reviewed and
set aside. The Board imposed a fine of R5 million, of which R2.5 million has been suspended for 5
years and directed Phumelela to apply to it for the approval of its broadcasting fees.
Financial Position

Given the reduced profitability and withholding of the 3% levy, that has been received for over twenty
years, the Group finds itself in a challenging situation. An accrual of approximately R26 million is
necessary in the 2019 financial year due to the income from the bookmaker levy not being paid since 1
April 2019, with an annual impact of approximately R75 million.

The Group is therefore in breach of covenants in respect of its R300 million in borrowings. Phumelela’s
financial executives are in regular contact with banking executives to keep them apprised of
developments within the business.

No interim dividend was paid, and the Group is in no position to pay a final dividend.

Cash conservation is of the utmost priority as is cutting our coat according to the diminished cloth
available. At the half-year, the Group reported that Directors are cognisant of the fact that the results
have been poor, that funding headroom has been exhausted, and that all measures necessary to
stabilise the position must be taken. Shareholders should be aware that the Board see no positive relief
from external factors anytime soon and that internal remedial measures are the only option.

For the ten month period to 31 May 2019, cash utilised by operations, payment of the final gross cash
dividend declared for the 2018 financial year, together with capital expenditure, was funded and covered
by dividends received from equity accounted investees and asset sales, which included a property and
shares in ASL in Mauritius. A further asset sale is under negotiation and the Group is seeking a fair
settlement.

A provision of R20 million has been made for current right-sizing initiatives.

Capex is under scrutiny. Whilst we subscribe to prudent spending to ensure a competitive estate, recent
negative events mean we must economise in order to be able to maintain necessary capex in future.

The Group is fortunate to have strong international cash flows and profits, which in the year to 31 July
2018 amounted to R204,3 million and which for the six months ended 31 January 2019 amounted to
R113,5 million.

However, it is important to bear in mind that a considerable proportion of international income is a
function of Phumelela in South Africa being able to put up the show and ensure a world-class racing
product for international punters. Should the local operations be in jeopardy, and that includes the
betting operations, the domino effect through the entire horseracing value chain would be disastrous, it
would destroy an already fragile industry and eliminate international income. It is therefore imperative
to take all steps necessary to ensure that we navigate this unprecedented turbulence to keep the show
alive.

Total assets have a carrying value of R1.7 billion, of which R0.7 billion represents equity accounted
investees, including Supabets and Interbet. Equity is at R985 million. Net gearing to total equity is 30%
and net gearing to tangible net asset value is approximately 40%.

In view of the reduced profitability and the withholding of the 3% levy, the carrying value of assets may
have to be reassessed. The deferred taxation asset may have to be impaired.

Permanent annual cash savings of R60 million from the rationalisation of Betting World/Tab, immediate
steps taken to focus on restoring fixed odds margins, and measures to economise on capex, will relieve
the financial position and address the short-term cash deficit.
Restructuring options for the horseracing industry

As mentioned in the half-year commentary, the Board remains open to any realistic and constructive
ideas that may benefit horseracing and the shareholders of Phumelela.
The Group has reopened the conceptual discussions that were terminated last year and is presently
engaging with key stakeholders in the horseracing industry to examine scope for cooperation,
consolidation, and pooling of financial resources. All feasible scenarios are on the table. Shareholders
will be kept informed when we have concrete information to convey.



Trading statement
The Board does not have the required degree of certainty to provide shareholders with detail of the
anticipated range expected for earnings per share and headline earnings per share for the year
ending 31 July 2019. The Board does have the required degree of certainty that earnings per share
and headline earnings per share will be below those of the previous year by more than 20%, hence
this trading statement. With ten months of the financial year behind the Group and given the
deterioration in income and profitability subsequent to the interim period, together with substantial
restructuring costs, it is inevitable that the Group will report a loss for the year.

As and when the Board has the required degree of certainty to provide a further update on this trading
statement, it will do so without delay.

The financial information contained in this voluntary trading update and trading statement has not
been reviewed or reported upon by the Group’s external auditors.



Renewal of cautionary announcement

Further to the announcement dated 4 June 2019, the Company remains under cautionary as
engagements with the Gauteng Member of the Executive Council responsible for Economic
Development, Environment, Agriculture and Rural Development (“the MEC”) and the Gauteng
Gambling Board are still in progress.

Shareholders are advised to continue exercising caution when dealing in the Company’s securities
until a further announcement is made.




Turffontein
12 July 2019
Sponsor: Investec Bank
Last Edit: 1 week 2 days ago by Over the Air.

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1 week 3 days ago #766368 by Over the Air
Over the Air replied the topic: The end - RIP Phumelela
You would wonder why this news was released at the closing bell on a Friday.

Then again maybe with half a brain you wouldn't.

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1 week 3 days ago #766372 by Chris van Buuren
Chris van Buuren replied the topic: The end - RIP Phumelela
I believe they are ripe for a takeover.
No chance they survive in the current model, much longer. Time to delist and give it all up.
Still can't understand why they cry so much over the 6%, which they got out if pity and started to model their business plan on.

I have no sympathy for any if these folks who have let this beautiful industry get raped and pillaged for their master's benefit.

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1 week 3 days ago #766379 by LSU
LSU replied the topic: The end - RIP Phumelela
You have certainly been calling it OTA but I don't take any joy in seeing them struggle. Perhaps a few individuals deserve the swipes but there are many people working for this company, blameless for the current woes, that now have to pay a heavy price in an economy that offers little alternatives. How many families in this industry have already taken a hit and how many more to come. I find it hard to not have compassion for the many and truly hope that most will retain their jobs under a potential new dispensation in future. Giant mistakes have been made and greed has been the driver for many years but only a few have benefited from this mess. I have first hand experience of how unscrupulous and underhand some individuals are that work for P, and how racing has been neglected from a marketing perspective, but I still find it hard to rejoice at the way things are unfolding. On a positive note the corporate model of racing has been shown up for the failure that it is and valuable lessons have hopefully been learnt. There are good people working at P, including many in management, who loves racing and could prove their worth in a new structure. Lets hope that racing can survive this and that pool betting, which still has much more to offer, will be given a new lease on life with a few more inspiring products in future.
The following user(s) said Thank You: Magi

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1 week 3 days ago #766388 by Over the Air
Over the Air replied the topic: The end - RIP Phumelela
Leon this has been a long time coming, and there have been many warnings about the inevitability of this system failing, I am an advocate that the current structure should fall completely along with every single person who benefited from Phumelela's greed. Not one individual currently employed by Phumelela in a management capacity should remain.

As for Larry, well it will be interesting to see how he plays out his end game now that his masters are compromised. My wish is that there will be a TRC of sorts and all the skeletons come out of that closet.

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1 week 2 days ago #766392 by Urbanite
Urbanite replied the topic: The end - RIP Phumelela
No sympathy for Phumelela, the butcher of South African horseracing nor for any of its accomplices, or its sympathizers, or the leeches who have sucked the blood out of South African horseracing.
There is also the matter of returning the 10% shares (even if they have been depreciated) back to the Racing Trust and to hold the Rian's and Larry's, and the "boeties" liable for their transgressions.
One can expect a takeover of this sinking ship by some or other 'bargain' hunters but I doubt they'll be getting the rebates, 'favors' and sympathy their predecessors received.
One also notices that the Jooste and boetie sympathizers have left the building, hopefully for good this time.

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1 week 2 days ago #766400 by mister a
mister a replied the topic: The end - RIP Phumelela
“Corporatisation” came about at the behest of the Gauteng Provincial Government in order for the sport to remain competitive within a burgeoning gambling market that was about to legalise casinos and a national lottery in South Africa.

A critical element of the restructuring was a commitment to rationalise the horseracing infrastructure in order to, inter alia, “facilitate transformation, transparency, accountability and create a sustainable business model”.

The three racing clubs that had run racing in the region until then transferred their assets to the new company, Phumelela, which took over the management of the sport in the province.

Phumelela’s main shareholder, the Thoroughbred Horseracing Trust (26.72% shareholder), is a not-for-profit entity which was formed at the insistence of the Gauteng Provincial Government.

The principal objective of the Trust is to “promote the interest of all persons interested in, and affected by, the sport of thoroughbred horseracing in South Africa with a view to the long-term viability of the sport”.

Based on this I believe anyone who has an interest in racing or anyone who is affected by the sport of thoroughbred horseracing in South Africa can go to the specialized Commercial crimes unit or a similar unit and open an inquiry into the financial aspects of Phumelela and other entities dealings within the racing structure

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1 week 2 days ago #766409 by Urbanite
Urbanite replied the topic: The end - RIP Phumelela
Mister a, i was told that the Trust's shareholding was set at 33% (a third).
I see it is down to about 25% now.

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1 week 2 days ago #766410 by Muhtiman
Muhtiman replied the topic: The end - RIP Phumelela

Urbanite wrote: Mister a, i was told that the Trust's shareholding was set at 33% (a third).
I see it is down to about 25% now.


.....has been like that for some time now....:huh:

My idea of "help from above" is a sniper on the roof
and a higher power is a hell fire missile armed drone.

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1 week 2 days ago #766424 by mister a
mister a replied the topic: The end - RIP Phumelela
Racing needs a Commission Of Inquiry, broader aspects are selling of assets, purchase price of Super bets, reduced shareholding of trust

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1 week 2 days ago #766440 by RA Stranger
RA Stranger replied the topic: The end - RIP Phumelela
..Mr A what would be the point, no one would admit to anything....water under the bridge...can the whole ill conceived concept and start again....:huh:

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1 week 2 days ago #766441 by mister a
mister a replied the topic: The end - RIP Phumelela
"A critical element of the restructuring was a commitment to rationalise the horseracing infrastructure in order to, inter alia, “facilitate transformation, transparency, accountability and create a sustainable business model”.

Were ary of the objectives attained? , I like the transparency and accountability bit,,

Hahahaha transparency and accountability hahahaha,, the joke is on racing, courtesy of the RA boards and the Trust members

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1 week 2 days ago - 1 week 1 day ago #766455 by Garrick
Garrick replied the topic: The end - RIP Phumelela
More importantly - How might all of this play out?

One of the options which the operator might have to institute is a reduction in stakes. That should prove pretty terminal for the following reasons :

1.) Jockeys & Trainers base their 'takeouts' on stakes earned. Jockeys have already previously arbitrarily increased their % of stakes earned largely because the base remained stagnant.
2.) That extra % that trainers charge their owners when horses earn (bonus for groom, sheep for staff, catchup for arrear child support, arrear green fees, arrear bond & car payments etc.) did not develope by accident. It too was due to the below inflation rate that stakes rose by over the last 20 years.

In both of the above instances it is reasonable to assume that both trainers and jockeys would consequently be wanting an even bigger % of the smaller figure if stakes were to be cut.

This should prompt an absolute stampede out of ownership accompanied by a massive drop in what the (delusional?) remaining owners are prepared to offer for future yearlings.

I don't even want to think what might happen to the over production of foals which cannot find owners.

3.) Breeders need not worry about export protocols. They had best change to other livestock QUICKLY simply to survive whilst dear Adrian (once again) sheepishly (no pun intended) advises that the date for the lifting of export restrictions has been pushed back. Again. If this goes on any longer your will find 'export protocols' listed alongside 'rainbow' under definitions.

It is quite remarkable that this operator has mismanaged this activity to the brink of ruin when it carried no risk and made absolutely no direct contribution to the creation, raising and nurturing of its core material - the horse.
Last Edit: 1 week 1 day ago by Garrick.

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1 week 2 days ago #766469 by mister a
mister a replied the topic: The end - RIP Phumelela
Makes sense the thought you have put across Garrick, the mismanagement part I saw first hand all the years since 2004 with the rejection of Formgrids, thousands of punters using it across the globe and they destroy something that was working for the industry, so I saw how they were willing to destroy anything and i had many many attempts appealing to anyone and everyone from the RA to Phumelela even to members of the Trust and they all turned their eyes and ears away, some past RA members supported me but their efforts were nullified by the clique who had a copy website built and they put up very soon after the hacking of Formgrids, those who turned a blind eye did not stop to consider that if they destroyed a website that had showcased over 100 million pages of SA horseracing then obviously they were destroying other aspects of the game as well,, they saw the cheese but they never saw the trap, those that supported the clique are just as guilty but obviously now they distance themselves from racing current state

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1 week 1 day ago - 1 week 1 day ago #766471 by Over the Air
Over the Air replied the topic: The end - RIP Phumelela
The saying "beware of Greeks bearing gifts" may prove to be very prophetic. Garrick rightly asks the question whom of the inevitable vultures circling the Phumelela carcass will benefit from this disaster. The Supabets deal has many questions that need answering. Five years ago Phumelela had no debt. They paid R400m for 50% stake in a lemon. What due diligence was done, who did it, and whom were responsible for the decision to acquire Supabets? It is this transaction along with the highly irregular funding methods that deserves a lot of attention when the questions are asked.

If I had a mischevious mind I may be asking whether this outcome was anticipated by the people who put the deal together. The rat then jumped ship.
Last Edit: 1 week 1 day ago by Over the Air.

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1 week 1 day ago #766473 by Over the Air
Over the Air replied the topic: The end - RIP Phumelela
I was looking at the RA 2018 financials and comparing them to previous years.

The RA's asset value has been declining rapidly over the past few years. When you look at past financials the RA had more money in the bank. Supabets acquiring raising it's head again?

Does anyone know why a R70 million loan was made by the RA to its subsidiary Randjesfontein which has the only business of owning property, with no fixed terms of repayment? That is if a loan was really made and not used to hide losses or undisclosed liabilities. I remind you that Randjesfontein is utilised and managed by Phumelela and they collect rentals from the trainers there. For this they pay the princely sum of R25000 per annum, incidentally the identical amount the RA pay for their hovel in little Nigeria.

Follow the dots people.

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1 week 1 day ago #766474 by mister a
mister a replied the topic: The end - RIP Phumelela
Send an email requesting the answers, they have to comply, remember the stipulations at conception

"A critical element of the restructuring was a commitment to rationalise the horseracing infrastructure in order to, inter alia, “facilitate transformation, transparency, accountability and create a sustainable business model”.
The RA together with the Trust and Phumelela were structured and formed together and the above was penned and recorded at the time also

The principal objective of the Trust is to “promote the interest of all persons interested in, and affected by, the sport of thoroughbred horseracing in South Africa" so they all have to be forthcoming and answer all questions to fulfill the requirements of their structure,

"transparency and accountability"

They are answerable to anyone with an interest in Horseracing, anyone affected by horseracing, grooms, punters, owners, breeders Jockeys, tots operators, bookmakers, the structure was put in place to SERVE racings participants and not for them to rule over and devour the fruits and self enrichment protected by the sentence I have heard countless times "I dont owe you an explanation, I dont answer to you"

Well you do, you answer to anyone and everyone affected by the sport of horseracing, the structure was put in place to protect the sport and its participants not to create you a high powered job with crazy salaries and perks, living off racing, but you are smart guys and quickly manipulated those around you and set yourselves up nicely at the expense of the other participants of racing sailing on in the privatised 8 Star luxury cruise liner

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African Betting Clan is established for the upliftment of the sports punter, who enjoys a bet on horseracing, football and other sports, enabling them to voice their views and opinions on all aspects of the sport of their choice, free of charge. Everyone who joins the CLAN, can discuss a multitude of sports events with a view to increasing the knowledge-base of all interested parties. Horse Racing is by far the most represented sport and we welcome the views of the many owners, trainers, punters and all racing stakeholders, all of whom post their contributions on our discussion forums. Members glean what they want to and discuss selections for the day and the general well being of the sport.

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