Peermont Global CEO encouraged by strong fourth quarter

PEERMONT Global Group, the gaming group that operates Emperors Palace, has reported a 1,8% increase in revenue to R2,67bn for the year to end-December, with contributions from some of its smaller properties making up for its larger operations, which last year lacked the business generated by the Soccer World Cup in 2010.

Most “encouraging” for the group was the “strong performance” in the fourth quarter of last year, Peermont CEO Anthony Puttergill said last week. Revenue added almost 7% and earnings before interest, tax, depreciation and amortisation rose 14%.

“That is really the positive effect of growth returning at Emperors combined with the benefits of our cost-saving programmes of last year. We cut R50m in costs last year, which exceeded our budget of R33m,” Mr Puttergill said.

Emperors Palace accounts for up to 62% of total group revenue.

Gaming depends on consumers feeling wealthy and being inclined to spend their disposable income on leisure activities.

Before the crisis the sector was regarded as “recession resistant”, Absa Asset Management analyst Chris Gilmour said.

But the sector has been hard hit since the global financial crisis dented consumer confidence. “What has surprised me is that if you go back, gaming was always viewed as recession resistant but that has not proved to be the case, the sector has taken a lot of punishment and that may be because people are so strapped for cash,” he said.

Adding to Peermont’s woes is its mountain of debt, which has to be restructured if the group hopes to be in a position to invest in future growth prospects rather than surrender them to its competitors.

In the year under review Peermont had to pay R717,3m in finance expenses, slightly more than the year before, when it paid R708,2m.

A debt-restructuring committee had been formed, Mr Puttergill said, and it hoped to conclude its work by the end of this calendar year.

About R4,2bn in debt must be repaid in April 2014. The group hoped to refinance this debt in SA and switch the debt from euros to rand, Mr Puttergill said. This would cut the interest costs on this portion of debt almost in half.

The group also had a deeply subordinated shareholder loan that will not fall due before 2037, which it wanted to restructure to give it more breathing room, Mr Puttergill said.

To accomplish this, says an analyst who asked not to be named, both shareholders and bondholders of Peermont would need to share the pain of the restructuring by taking some losses and injecting more capital into the business.

Mr Puttergill said that while the business was technically insolvent, because of the deeply subordinated loan worth R4,09bn, the group was generating strong cash flows from its operations.

In the 12 months to December 31, Peermont generated R996,9m in cash, up from R930m a year earlier, the company said recently.