Results presentation Audited results for the twelve months ended Rian du Plessis, CEO
Agenda Five year track record Investor proposition Key financial features Key operational features Tellytrack and piracy update Horseracing economics Outlook Appendix detailed data 2
Five year track record Rian du Plessis, CEO
Building a track record of delivery Strategic imperative to expand outside Phumelela s traditional roots Compound annual growth rate in HEPS of 15% Compound annual growth rate in DPS of 9% Return on shareholder equity averages 20% HEPS cents (left axis) DPS cents (left axis) ROE % (right axis) 180 30% 160 25% 140 20% 120 15% 100 10% 80 5% 60 2011 2012 2013 2014 2015 2016 0% 4
Income increases from R0,9 billion to R1,5 billion Compound annual growth rate of 11% Driven by fixed odds, international and acquisition R million 1 600 1 400 1 200 1 000 800 600 400 2011 2012 2013 2014 2015 2016 5
Investing for growth Five year cumulative stay-in-business and expansion investment R530 million (R196 million gross in the past two years alone) Includes recent investments Interbet (26%) and Afribet (51%) Expanding racing visuals and tote betting internationally Retail fixed odds footprint Developing a franchise model Fixed odds software Proposed Supabets (50%) investment an additional R437 million 6
An important source of taxes for the SA fiscus Compound annual growth rate of 8% in VAT, betting tax and income tax A result of successful investment in growing the financial contribution from sports other than thoroughbred horseracing Total taxes paid to government up 17% to R255 million in 2016 Giving back to the SA economy and creating/preserving jobs R million 280 260 240 220 200 180 160 140 120 100 2011 2012 2013 2014 2015 2016 7
Investor proposition Rian du Plessis, CEO
Investor proposition Expansion of broadcast media rights internationally provides quality contractual income of a recurring nature through delivery of a proven SA racing product Transactional income assisted by investment in technology, customer experience, accessibility, acquisition and increased efficiencies International penetration has further potential within existing and new territories for sports in general media rights for SA horseracing content, including online streaming Long term strategic vision combines with management execution - a material proportion of profit barely existed five years ago Cost and capital discipline 9
Key financial features Rian du Plessis, CEO
Key financial features Earnings per share up 54% to 163,62 cents Headline earnings per share up 41% to 164,51 cents Headline earnings up 40% to R123 million Final dividend up 17% to 70 cents for an annual dividend of 104 cents EBITDA not a reflection in isolation of management effort as equity accounted profits reflect crucial executive input: Phumelela and Tabcorp in 50/50 PGI strategic partnership Complementary alliances with local associates Net cash balance of R11,8 million 11
Key operational features Rian du Plessis, CEO
Key operational features local Fixed Odds excelled across all betting streams as strategy increasingly yields anticipated returns operating profits more than trebled 75 fixed odds retail shops Interactive is now 30% of tote bets placed A pleasing contribution from Interbet for 12 months vs. 9 months Tote betting volumes on horseracing were stable for the year Prize monies increased by 7%, reflective of 2015 result 13
Key operational features international Premier Gateway International returned a sterling performance Increased demand for the export of SA horseracing content Win, place and swinger bets commingled into Hong Kong tote wef May Arena Racing Company media rights contributed wef 1 June 2016 Rand averaged R21,43/ vs. R18,11/ 18% adverse move benefitted foreign income translated to rand 47% improvement in pre-tax profit to R163 million 14
Tellytrack and piracy update Rian du Plessis, CEO
Tellytrack and piracy update Piracy of the Group s intellectual property by certain bookmakers is unconscionable Civil and criminal lawsuits have been filed and will continue to be filed 274 bookmakers now subscribe to Tellytrack with 255 bookmakers subscribing to live international televisual Competition Commission has found Tellytrack fee not to be excessive 16
Horseracing economics Rian du Plessis, CEO
Horseracing economics Horseracing remains loss making due to inequitable contributions in the funding of the sport Diversification of income sources has allowed Phumelela to report Group profits and growth Cooperation, fair dealing and a level playing field in the best interests of all Alternative scenario is for Phumelela to unbundle betting operations 18
Proactive strategy to innovate and diversify income streams 200 HORSERACING TOTE BETTING ON SPORT LPM'S SITE OWNER REVENUES FIXED ODDS BETTING WORLD GROUP 150 100 80 113 134 143 70 111 130 99 134 50 0-7 -8 16 16 20 20 22 8 12-50 Pre-tax income per segment R million -100-66 -99 Horseracing comprises cost of racing net of tote revenues from betting thereon and local and international media revenues -150 2013 2014 2015 2016 19
Commercial context a scenario of unbundling betting operations Unbundling Phumelela, Gold Circle and Kenilworth Racing's betting operations Pro-forma financial information Year ended 31 July 2015 R'000 Racing operations Expenditure Stakes 355 313 National Horseracing Authority 56 329 Local media costs 81 481 Racing, training, transport, facilities etc. 355 929 Cost of racing 849 051 Sundry income Stable rentals -13 566 Bookmaker standup and information fees -2 329 Net contribution from race day hospitality/sponsorships -59 509 Sports development levies (3% of punters winnings on bets with bookmakers) -118 724 Net cost of racing before contribution from tote 654 923 Tote contribution Assume bets with tote operators contribute same % as with bookmakers -97 511 International contribution Net international royalties on racing IP -134 366 Share of equity accounted investee IOM -45 637 Net funding shortfall 377 409 To be funded based on pro-rata market share of betting on horse racing - Tote operators (40%) 150 964 - Bookmakers (60%) 226 445 Net funding shortfall 377 409 20
Outlook Rian du Plessis, CEO
Outlook Supabets acquisition to be funded by a rights issue of R284 million - earnings enhancing Strong international demand for a quality 364 day a year SA racing product Opening up new markets to South African punters Arena Racing Company will contribute meaningfully Investment in fixed odds PDI franchises Delivering anticipated returns from investments made in the fixed odds retail footprint - further improvement in profitability expected Targeting another year of real growth in earnings per share 22
Appendix Local Tote and Fixed Odds and International operations data
Group result R'000 2016 2015 % chg Income Income from local operations 1 226 382 1 067 062 15% Income from international operations 274 415 199 143 38% Total income 1 500 797 1 266 205 19% PBITDA 104 569 129 126-19% Profit before equity a/c income 43 098 79 301-46% Equity accounted profit 94 694 47 060 101% Attributable profit 121 944 79 516 53% Headline earnings 122 604 87 834 40% Headline earnings per share cents 164,51 117,06 41% Ordinary dividend per share cents 104,00 88,00 18% Financial position Total assets 943 950 775 839 22% Investment 76 443 117 838-35% Net cash 11 849-5 534-314% Net asset value per share cents 688,33 600,79 15% A satisfactory overall result underpinned by strong growth from international and fixed odds operations A weaker Rand helped lift international Cash generated by operating activities up 52% to R143m Balance sheet remains strong with modest gearing and a substantial reserve borrowing capacity R76m invested in acquisition of assets Dividends from equity accounted investees up 36% to R71m 24
Tote betting and horse racing and broadcasting R'000 2016 2015 % chg Horseracing net betting income 453 977 457 454-1% Other sports net betting income 248 498 221 469 12% Other income * 226 369 219 325 3% Investment income 4 116 1 609 156% Net income 932 960 899 857 4% Stakes (prize monies) 202 871 189 772 7% Operating expenses 790 270 681 335 16% PBITDA -60 181 28 750-309% Depreciation 41 918 37 385 12% Finance costs 9 237 5 065 82% Equity accounted profits 6 447 2 324 177% Pre-tax loss -104 899-11 376 822% Local operations * see appendix for breakdown of income Gambling Board sports development levies, unclaimed dividends & breakages, product fees & commingling levy, LPMs, Tellytrack, stable rentals, hospitality, forex, advertising, etc. Total net betting income grew by 3% to R702m with sports other than horseracing up by a pleasing 12% to R248m Other income up 3% - including LPM s, Gambling Board levies, hospitality, commingling levy, Tellytrack, stabling and forex Prize money up 7% Like-for-like normalised expenses in the local tote operations, excluding stakes and depreciation, grew by 8% Depreciation up 12% on increased investment in racing and betting Interbet positively affected equity accounted income Loss before tax and after equity accounted investees increases to R105m Staging of horseracing and conducting tote betting thereon remains loss-making 25
Local operations Fixed odds (Betting World) R'000 2016 2015 % chg Net betting income 263 076 161 583 63% Other 26 234 10 944 140% Total net income 289 950 172 610 68% Operating expenses 200 835 138 428 45% PBITDA 89 115 34 182 161% Depreciation 19 266 12 150 59% Finance cost 131 763-83% Pre-tax profit 69 718 21 269 228% PBITDA increased by 161% with pre-tax profit up 228% to R70m NBI increases by 63% to R263 million - 33% on horseracing, 47% on numbers bets and 20% on other sports Fixed odds net betting income on sports other than horseracing increased by 39% to R53m, by 92% to R123m on numbers and by 47% to R87m on horseracing 51% equity investment in Afribet expands Betting World to 75 retail outlets Expense growth of 45% reflects substantial business development expenses 26
International operations Horseracing media rights & betting royalties R'000 2016 2015 % chg Net income 274 415 205 798 33% Operating expenses 198 780 139 604 42% PBITDA 75 635 66 194 14% Equity a/c profits 88 247 44 736 97% Pre-tax profit 163 595 110 640 48% PBITDA up 14% and PGI equity a/c profits up 97% PBT up 48% to R164m Pleasing growth in income out of UK, France, Australasia, Greece, Cyprus, Macau and Singapore Tote commingled income up 32%, tote stand alone commission up 31%, fees paid by offshore bookmakers up 45% International comprises 127% of group PBT 27
Group income R'000 2016 2015 % chg Income 1 500 797 1 266 205 19% Net betting income 965 551 840 506 15% Horseracing 541 323 516 975 5% Other sports 301 544 259 627 16% Other 122 684 63 904 92% Other income 526 443 435 685 21% Investment income 5 331 2 074 157% Net income 1 497 325 1 278 265 17% Stakes (prize monies) 202 871 189 772 7% Intellectual property rights fees 104 015 68 453 52% Operating expenses 1 085 870 890 914 22% PBITDA 104 569 129 126-19% Depreciation & amortisation 61 471 49 825 23% PBIT 43 098 79 301-46% Interest expense 9 368 5 828 61% Profit before equity accounted profit 33 730 73 473-54% Equity accounted profit 94 694 47 060 101% Mark to market adjustment ASL 5 578-12 753 Betting World Nigeria impairment -8 545 Group profit before tax 134 002 99 235 35% 28
Local operations Analysis of other local operations income Local Other income R'000 2016 2015 % chg Gambling Board sports development levies 66 856 60 678 10% Unclaimed dividends & breakages 30 020 31 404-4% Products fees/commingling levy 38 331 39 023-2% Limited payout machines 21 841 20 088 9% Tellytrack subscriptions 22 830 20 004 14% Forex 8 072 11 885-32% Stable rentals 8 201 8 223 Miscellaneous* 30 218 28 020 8% Total 226 369 219 325 3% Miscellaneous includes advertising, sales & hospitality and other 29
Local Tote betting handle mix money wagered per year 2011 2016 2 200 R million 2 000 1 800 1 600 1 400 1 200 1 000 800 600 400 1790 1786 1699 17271 7441 731 682 713 678 562 618 618 Significant growth in Sports other than horseracing 288 420 613 819 969 1 093 200 0 LOCAL MEETINGS INTERNATIONAL MEETINGS SPORTS 2011 2012 2013 2014 2015 2016 30
Local Tote betting handle mix percentage share of money wagered per year 2011 2016 70% 60% 50% 40% 65% 61% 56% 56% 52% 50% Sports other than horseracing almost a third of money wagered 30% 20% 10% 25% 25% 23% 18% 19% 18% 10% 14% 21% 26% 29% 32% 0% LOCAL MEETINGS INTERNATIONAL MEETINGS SPORTS 2011 2012 2013 2014 2015 2016 31
Local Tote betting handle placement of bets 80% 70% 74% 72% 69% 68% 60% 50% 40% 30% Interactive more than a quarter 24% 26% 29% 30% 20% 10% 0% 2% 2% 2% 2% ON COURSE BRICKS & MORTAR INTERCATIVE 2013 2014 2015 2016 32
Local Tote betting handle by province 80% 70% 70% 70% 71% 71% 60% 50% Gauteng dominates at 70% plus 40% 30% 20% 10% 0% 5% 4% 4% 4% 8% 7% GAUTENG MPUMALANGA LIMPOPO FREE STATE NORTHERN CAPE 2013 2014 2015 2016 7% 7% 5% 5% 5% 5% 1% 2% 1% 1% 5% 5% 6% 7% 7% 7% 5% 5% EASTERN CAPE NORTH WEST 33
Local Tote betting handle by province percentage change on previous comparative period 10% 8% Growth achieved in most provinces 8,7% 6% 5,9% 5,9% 4% 3,2% 2% 1,0% 1,3% 0% -2% -4% -2,5% GAUTENG MPUMALANGA LIMPOPO FREE STATE NORTHERN CAPE 2016 EASTERN CAPE NORTH WEST 34
Local Tote betting handle percentage change in wagers by placement source on previous comparative period 8% 6% 4% 2% ON COURSE INTERACTIVE BRANCHES AGENTS TOTAL 6,6% 4,0% 3,3% 1,9% 0% -2% -4% -6% -8% -10% -12% -9,8% Interactive growth continuing 2016 35
Fixed Odds betting handle mix money wagered per year 2011 2016 1 000 900 800 700 600 500 400 300 200 R million 615,4624,5 489,0505,4490,0 462,5 Sports handle up by 118% since 2011 316,3 274,3 220,9 168,9178,6 145,1 Exponential growth in Numbers betting 140,6 273,5 575,5 886,9 100 0 HORSERACING SPORTS NUMBERS 14,4 40,4 2011 2012 2013 2014 2015 2016 36
Fixed Odds betting handle mix percentage share of money wagered per year 2011 2016 80% 70% 60% 75% 70% 61% Sports other than horseracing and Numbers betting has risen to over half of money wagered 50% 48% 49% 40% 30% 20% 42% 34% 23% 24% 22% 23% 19% 17% 17% 29% 39% 10% 0% HORSERACING SPORTS NUMBERS 2% 6% 2011 2012 2013 2014 2015 2016 37
Fixed Odds betting handle by province percentage share 40% 35% 30% 32% 31% 31% 29% 34% 28% 25% 24% 23% 22% 20% 15% 19% 16% 16% 18% 12% 10% 9% 9% 8% 8% 8% 5% 0% 5% 2% 1% 1% 1% 0% 4% 2% 2% 5% 1% 2013 2014 2015 2016 38
Fixed Odds handle by province percentage change on previous comparative period 150% 100% 85% 106% r 120% 100% 50% 0% 17% 20% 5% -10% -50% -100% -100% -150% 2016 39
Fixed Odds betting handle percentage change in wagers by placement source on previous comparative period 70% INTERACTIVE RETAIL TOTAL 65% 60% 50% 40% Retail presence stimulates growth 35% 53% 30% 20% 22% 25% 10% 0% -10% -20% -10% 2015 2016 40
Fixed Odds betting handle per year 2011 2016 2000 1800 R million Betting handle up 186% between 2011 and 2016 1827,7 1600 1465,2 1400 1200 1000 800 600 638,5 714,7 809,2 956,9 400 200 0 HANDLE 2011 2012 2013 2014 2015 2016 41
Fixed Odds net betting income per year 2011 2016 300 R million Net betting income up 198% between 2011 and 2016 263,1 250 200 161,6 150 100 88,2 93,4 104,8 114,0 50 0 NET BETTING INCOME 2011 2012 2013 2014 2015 2016 42
Fixed Odds net betting income mix 60% 50% 52% Numbers and sports other than horseracing proving exceptionally popular 47% 40% 40% 37% 43% 39% 33% 30% 29% 24% 20% 19% 17% 20% 10% 0% HORSERACING SPORTS NUMBERS 2013 2014 2015 2016 43
International income by percentage mix 45% Tote combined is over 50% 40% 35% 40% 36% 36% 34% 30% 25% 20% 15% 17% 17% 15% 14% 25% 25% 23% 21% 23% 17% 14% 14% 10% 5% 6% 5% 8% 10% 0% TOTE COMMINGLED TOTE STAND ALONE INTERNET (STREAMING) BOOKMAKERS 2013 2014 2015 2016 ISLE OF MAN (MAINLY COMMINGLED) 44
Net asset value per share in cents per year 2011 2016 800 700 600 500 513 534 572 633 601 688 400 300 200 100 0 NET ASSET VALUE PER SHARE 2011 2012 2013 2014 2015 2016 45
Dividends/distributions and earnings per share in cents per year 2011 2016 180 160 140 146,1 163,6 164,5 132,1 120 100 80 68,0 76,0 88,0 88,0 88,0 104,0 113,6 114,5 106,0 90,9 91,0 82,5 83,2 117,1 60 40 20 0 DIVIDEND/DISTRIBUTION EPS HEPS 2011 2012 2013 2014 2015 2016 46
Phumelela share price relative to other gaming stocks and JSE All Share Index over five years based to 100 Sun International Tsogo Phumelela JSE All Share 160 150 140 130 120 110 100 90 80 70 60 O-13 N-13 D-13 J-14 F-14 M-14 A-14 M-14 J-14 J-14 A-14 S-14 O-14 N-14 D-14 J-15 F-15 M-15 A-15 M-15 J-15 J-15 A-15 S-15 O-15 N-15 D-15 J-16 F-16 M-16 A-16 M-16 J-16 J-16 A-16 S-16 O-16 47
Results presentation Audited results for the twelve months ended Thank you