South Africa's largest horse racing operator, Phumelela Gaming and Leisure, said on Friday that the removal of the group's 50 percent share of the 6 percent levy on punters’ winnings on fixed-odds bets on horse racing was threatening its profitability for the year to the end of July.
Public Protector Busisiwe Mkhwebane ordered the Gauteng Gambling Board in May to stop the 3percent levy paid to Phumelela.
The group said in a trading update on Friday that the levy had been withheld from April 1, depriving it of income of more than R6million a month, on average. Phumelela expects this to negatively impact its profits by R75m a year.
The group has challenged the public protector's findings. On June 21, it lodged papers in the North Gauteng High Court to have the report into thoroughbred horse racing in Gauteng set aside on the basis that the findings of the public protector in the report were unlawful, irrational, unreasonable and unconstitutional.
The group also admitted that it is in breach of covenants in respect of its R300m on its borrowings.
However, Phumelela said it was taking necessary steps to engage with the banks.
“Phumelela’s financial executives are in regular contact with banking executives to keep them apprised of developments within the business,” the group said.
Phumelela’s divisions include horse racing, betting operations, media operations and international.
The horse racing operation continues to make losses for the group and it said it had been continuing for years.
“The loss-making position has been made worse by the removal of the 3 percent levy due to Phumelela in terms of Regulation 276. 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 horse racing. Phumelela must shoulder the costs in horse racing but income from other sources is insufficient to make up for the costs,” the group said.
As a result, Phumelela expects earnings per share (Eps) and headline earnings per share (Heps) to decline by more than 20 percent compared with last year.
“With 10 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,” the group said.
Phumelela has provision of R20m for current right-sizing initiatives.
Its international operation continues to make profits, with cash flows and profits for the year to the end of July 2018 amounting to R204.3m and for the six months to the end of January this year amounting to R113.5m.
The group expects to release its results on or about October 4.
Phumelela's share price fell by 4.17 percent to close at R4.60 a share on Friday.