Page 17 - Niveus - Integrated report 2013

Niveus commenced trading on the JSE on 10 September 2012. The listing provided
the shareholders of HCI with direct exposure to certain smaller assets of the group,
which were previously undervalued in the group. The appreciation in the share price
following listing validated the underappreciation of the underlying Niveus assets,
with the gaming assets being particularly attractive to investors.
In January 2013, the board decided to sell its interest in Formex to HCI as it became
increasingly clear that the larger group would benefit from a manufacturing hub
where specialised manufacturing management skills could be leveraged.
The remaining assets are broadly divided into gaming and KWV. The performance of
these two assets is at opposite ends of the spectrum. The gaming assets have good
profitability and growth prospects, but are largely focused on South Africa. KWV, on the
other hand, is a break-even business that is significantly exposed to export markets.
Gaming – Vukani
Vukani is the largest contributor to EBITDA in the gaming segment. Vukani contributed
R177 million (R133 million in March 2012) of the gaming EBITDA of R188 million for
the year ending March 2013. The EBITDA growth year on year is in line with forecasts,
even though the machine roll-out is behind expectations due to continued difficulties
in having new machines approved by the respective gambling and betting boards.
During the period management increased the gross gaming revenue (“GGR”) per
machine by 10%.
Fortunately the Gauteng Gambling and Betting Board is now operational again,
and it is expected that new site applications will be approved in this province.
Management continues to engage the other provincial gambling and betting boards
to approve new site applications, but the process remains slow.
The closing number of machines amounted to 4 404 (4 293 in September 2012
and 3 963 in March 2012). The average GGR per machine per month amounted to
R15 632 (R15 679 in September 2012 and R14 159 in March 2012).
Operational costs increased by R26 million to R157 million, a 20% year-on-year
increase. Of this increase, R12,5 million relates to one-off items. We do not expect
this to occur in the following year.
Gaming – GALAXY Bingo
The business growth remains impressive with all the Gauteng sites growing
significantly faster than the provincial gaming growth rate. This growth enabled
Galaxy Bingo to become profitable with a profit before tax of R5 million for
the 12 months to 31 March 2013. The Gauteng sites are now refurbished and the
impact on GGR has been positive.
The group has submitted applications for bingo sites in the Eastern Cape following
the release of a request for proposal (“RFP”) by the Eastern Cape Gambling and
Betting Board. It was awarded two of the fifteen licences in the province. Management
is currently preparing additional bid documents as six licences remain unallocated.
Niveus Investments Limited integrated Report 2013