It appears that drastic and urgent action will need to be taken to reverse the downward spiral and financial paralysis that KZN horseracing operator Gold Circle currently finds itself in.
The bottom line is that the economic landscape and the commercial environment in which the Company operates continue to reflect decreasing returns for the sustainability of horse racing and betting operations in KwaZulu-Natal.
In a sobering letter to members on Monday, Chairperson Sadha Naidoo outlines the bleak financial state of the Company’s activities and trading for the six months ended 31 January 2023.
It is reported that the comprehensive loss for the period amounted to R25,7 million compared with a loss for the comparative prior period of R5.5 million.
The major areas affecting the current trading loss are summarized as follows:
- Turnover directly generated by Gold Circle through its traditional betting outlets has continued to decline in line with prior years. Gross totalizator turnover decreased from R480 million in 2022 to R447 million in 2023, resulting in reduced commission of R7,2 million. Regrettably, and most importantly, there is nothing to suggest that this trend will be reversed, and as this is one of the Company’s main income streams, the trend and subsequent drain on cash reserves can only be described as alarming.
- Gold Circle’s total operational costs for the period have increased by R16,4 million while operating income has increased by R8,9 million. Stakes have also increased by R6, 9 million in the current period.
- On the positive side, income from investments has seen an increase which is primarily a result of increases in the repo rate directed by the South African Reserve Bank and current equity market trading conditions. However, the current conditions and return on investments are susceptible to shifts in the markets and it goes without saying that as reserves are depleted to fund operating losses, investments are reduced and the related returns will decline.
Taking full cognisance of the current statistical data and now established trends, the Board and management prepared a financial projection for the full year ending 31 July 2023.
This spoke of the inescapable reality that it is estimated that the loss will increase to approximately R65 million for the current year. They declare that not only is this unacceptable, it is also unsustainable.
A full examination of all cost centres has apparently been carried out in an attempt to align the company’s cost structure with its ability to generate income.
Drastic actions are required to mitigate the losses and the drain on crucial reserves and the decision to mothball the Ashburton Training Centre with effect from 01 April 2023, is probably the first of many.
While additional cost saving measures will be fully interrogated and implemented, the Board have reached the conclusion that this will not be sufficient and the stark reality is that at the current loss rate, there is only approximately 3– 4 years’ worth of cash reserves remaining.
The letter continues that the Directors have a fiduciary and statutory obligation to ensure that the Company does not trade recklessly and to protect its assets and meet its liabilities. Those responsibilities go beyond the Company itself. They include the Company’s responsibilities to all stakeholders.
It has been decided that an urgent departure from the present structure and financial paralysis is needed. It thus makes sense that the Board is engaging with potential investors and strategic partners to ensure the continuity of not only the Company but of horse racing in KwaZulu-Natal.
The Board undertakes to fully apprise Members of developments, as and when progress is made on this strategy.
In closing, it is recorded that the proposed amendment to the KZN Gaming and Betting Tax Act is still being considered by the Finance Portfolio Committee of Province and no further information is available for reporting at this time.
However, it remains important to reiterate that if the Amendment Bill is enacted, it will have devasting consequences for Gold Circle and the horse racing industry as a whole. Whilst the Board of Directors continues to engage with the Authorities in opposing the introduction of the Amendment Bill, the very real possibility of the enactment serves only to exacerbate the risks facing the Company. For the last financial year, the (now threatened) revenue stream amounted to R69 million.
Against this desperate background , the Board states that it is actively pursuing solutions.
“Whilst we navigate through these very troubled waters, we ask for your continued support of Gold Circle and KZN Racing,” concludes Naidoo.
