COMMENTARY

• Chairman’s Message
• Chief Executive’s Review
• Financial Director’s Report
• Directorate and management

• CORPORATE OVERVIEW
  • Vision and mission
  • Highlights and graphs
  • Four-year financial review
• COMMENTARY
• GOVERNANCE AND SUSTAINABILITY
  • Corporate governance report
  • Group structure
  • Sustainability report
• ANNUAL FINANCIAL STATEMENTS
  • Directors' approval
  • Company secretary
  • Independent auditor's report
  • Directors' report
  • Income statements
  • Balance sheets
  • Group statement of changes in equity
  • Company statement of changes in equity
  • Cash flow statements
  • Notes

Chief Executive’s Review | Adrian Funkey

Introduction

This annual report covers my first full year as GPI’s Chief Executive and I have been privileged in that time to work with a team whose loyalty and enthusiasm has been a source of great support to me. It is a measure of that dedication that, in a period of the most severe economic stringency, GPI has been able to grow its headline earnings and its net asset value.

Financial review

During the year under review GPI’s headline earnings grew by 14%, although headline earnings per share decreased by 9,9% due to the increased weighted average number of shares in issue. Revenues declined and this is primarily due to lower management fee income generated by Western Cape Casino Resort Manco (Pty) Limited (“Western Cape Manco”). Operating costs, however, reflect a saving compared to last year, which is pleasing given that 2009 was GPI’s first full year as a listed company with a larger portfolio of assets.

GPI’s share of associate income increased substantially this year. This growth is attributed to GPI’s increased stake in SunWest and a full year of earnings from Real Africa Holdings Limited (“RAH”). Thuo Gaming Western Cape (Pty) Limited (“Thuo Gaming WC”) performed well during the year, growing its revenues by 12%, although earnings declined slightly due to increased administration and personnel costs, as well as higher capital charges incurred on introducing new slot machines and refurbishing selected Limited Pay-out Machines (“LPM”) sites.

Of course, GPI has not been immune to the impact of the global economic slow-down and the erosion of household disposable income. However, GPI’s increased exposure to SunWest more than off-set the negative impact of the decline in GrandWest’s revenue and profit.

Our balance sheet remains essentially healthy, with GPI’s net asset value per share growing by 11%. GPI’s relatively low level of debt will also enable us to take full advantage of opportunities for further growth and expansion when they arise. This will stand us in good stead for when the economic environment improves, as we believe it must inevitably do within the medium term.

Investment review

During the past year, GPI has continued to increase its stake in the casino and the LPM sectors, and details of these transactions are contained in this annual report, with the highlights briefly as follows:

Increased stake in SunWest
GPI increased its direct stake in SunWest – which owns and operates GrandWest Casino and The Table Bay Hotel – by 2,83% at a cost of R92,4 million, bringing our directly owned stake to 29,24%. The option price of R165 per SunWest share represents a substantial discount to the underlying fair value of these shares. The group’s effective interest including the share held by RAH equals 33,52%.

Increased stake in Thuo Gaming KZN and Sibaya Casino
Through our associate, Akhona Gaming Portfolio Investments Holdings (Pty) Limited (“Akhona GPI”), we increased our indirect stake in the Sibaya Casino and Thuo Gaming KZN. Akhona GPI is comprised of a powerful women’s group in the KZN market led by Gugu Nzimande. They were part of the original consortia to invest in Dolcoast Investments Limited (“Dolcoast”), Sun International’s empowerment partner in the exceptionally well-positioned Sibaya Casino in KZN. GPI advanced the funds required for Akhona GPI to follow its pre-emptive rights in Dolcoast and for it to acquire 100% of the shares in Wild Rush, which owns 10% of Thuo Gaming KZN. In return Akhona GPI issued GPI additional shares, with GPI’s economic stake increasing from 50% to 75% during the year.

Share buy-back
During 2009 it became obvious to the management and board of GPI that the most attractive investment available, and which also carried the lowest level of risk, was to buy back our own shares. We did this successfully and managed to buy back 27 million GPI shares at an average price of R2,18 per share.

Operational Review

GrandWest

2009 proved to be a challenging year for GrandWest. Fresh from an expansion to its footprint and the inclusion of the state-of-the-art Grand Arena, which seats more than 5 000 people, GrandWest was unable to escape the clutches of the global economic downturn. Furthermore, with Cape Town, the bedrock of South Africa’s international tourist market, absorbing the full brunt of the slow-down in tourism, revenues unfortunately declined for the first time.

The management team at GrandWest has been proactive in focusing on extracting better levels of productivity and operational efficiency. It is through this focus that much of the damage to GrandWest’s earnings as a consequence of the decline in revenue was curtailed. It has also afforded the team with the opportunity to take stock of its strengths, weaknesses, opportunities and threats and we are confident that the resulting strategy will see a far greater focus on providing customer value throughout the guest experience in the next few years. We are confident that, by rewarding GrandWest’s guests with a much enhanced overall experience, they too will reward GrandWest with much more of their discretionary spend.

GPI extends its appreciation and thanks for the hard work and dedication of the outgoing General Manager, Graham Vass who has retired, and extends a warm welcome to his replacement, Mike van Vuuren, who comes with a wealth of knowledge and experience in the urban casino industry. We are confident that Mike will bring fresh energy and creativity to the GrandWest team and that GrandWest will flourish under his leadership.

I would also like to thank GPI’s non-executive directors on the SunWest board, Alex Abercrombie, Nombeko Mlambo, Ralph Freese and our Chairman, Hassen Adams, for the incredible contribution and support shown for this business during this difficult time and for the leadership and direction they have provided through their participation on this board. It is also important to thank our partners Sun International Limited (“Sun International”) for their support and focus on this very important asset in both our respective portfolios.

The Table Bay Hotel

The Table Bay Hotel’s occupancy came under pressure with the fall in overseas visitors to Cape Town. This was, however, to an extent mitigated by a higher room rate, which grew by 11% compared to last year. Higher operating costs did, however, result in a decline in operating profits from this operation.

RAH

The RAH investment which occurred in the last month of the 2008 financial year was pivotal in securing GPI’s listing. It is most pleasing that RAH has performed relatively well during the year, as it comprises the best of the new urban casino assets within the Sun International portfolio. It is interesting that both Carnival City and Sibaya Casino managed to grow revenues in 2009 despite the poor conditions and, as a consequence, GPI will receive a substantial dividend from this investment in respect of its 2009 performance.

Worcester Casino

While Worcester Casino (Pty) Limited (“Golden Valley”) has yet to make a contribution to GPI’s earnings, which is due to the fact that it has operated from inception with no equity contributions from the shareholders, it grew its revenues by 25% and its EBITDA by 42% in 2009. The new hotel was incredibly well received and has been instrumental in allowing Golden Valley to tap into the lucrative Cape Town market.

Akhona GPI

While Akhona GPI’s contribution to earnings is still small, it is well positioned for good growth in the short to medium term due to its stake in Dolcoast (Sibaya Casino) and the fact that Thuo Gaming KZN is still in the very early stages of its development.

Thuo Gaming WC

As I have already mentioned, Thuo Gaming WC enjoyed a good year from a revenue growth perspective. However, much of this was off-set by higher operating costs and capital charges. A lot of focus is now being placed on cost-effectiveness and efficiency in the year ahead, given that the roll-out of machines is nearing capacity.

GPI management and systems review

Human capital and systems
On the human capital front, Richard Hoption has been appointed as Financial Director of GPI and has also assumed the responsibilities of Company Secretary from Ralph Freese, who has performed this role with distinction since 27 December 2002. Much work has gone into the development of new and improved systems to ensure that GPI maintains the highest standards of governance. Knowledge management is key in an organisation like ours and we have focused our attention on developing GPI’s knowledge base and systems. We operate with a small team and are mindful of the importance of containing the growth in operating costs. Nevertheless, leveraging this know-how is critical.

During the year we established an operating company, GPI Management Services (Pty) Limited (“GPI Management Services”). It is our intention to grow GPI’s revenues in future and we will look to position the business to achieve this in a responsible and commercially sound manner.

Share incentive trust
At the last AGM our shareholders approved the Grand Parade Share Incentive Trust (“GPSIT”) and I am pleased to report that GPI commenced with the implementation of this scheme during the financial year. My executive team and I would like to take this opportunity to thank you, our shareholders, for approving the scheme and the GPI remuneration committee and board for seeing to it that the scheme was properly implemented during the year, culminating in the grant and exercise of share options to key executives and management. The scheme was designed with growth in mind and considerable attention is being paid to taking this scheme to a much higher level in terms of best practice. We hope, in so doing, to ensure that we have an efficient and effective means of incentivising and retaining GPI’s key management and staff as the business grows into the future.

Challenges and risks

Some challenges and risks do face us going forward:

• Being in the midst of a recession has been a challenge and while we are confident that the worst is behind us from the credit crisis perspective there is still much uncertainty regarding the pace of a recovery. This will clearly impact on our results either way.
• We have mitigated our minority position through our participative philosophy and we feel that through our knowledge and experience in the gaming and leisure industry and through our representation and participation on the board of these entities, together with ensuring the necessary protections in our shareholder’s agreements with our majority partners, that this risk has been significantly curtailed.

Sustainability

As is clear from our sustainability report, sustainability is core to our investment and operating strategies. For this reason, the sustainability report is integral to communicating how GPI is facilitating transformation within the company, as well as its social and environmental performance in the communities and economies in which the group conducts its business.

It provides our stakeholders with a more detailed and comprehensive account of GPI’s corporate social responsibility activities. It thus constitutes the company’s non-financial audit of our sustainability policies and practices, allowing us to benchmark more accurately our performance and our future planning.

The future

As for our future focus, GPI will continue to take a medium- to long-term view with regard to expanding its portfolio, taking advantage of strategic investment opportunities that present themselves, as we have in several instances over the past year. We are fortunate in that we are in a position to be selective about where we invest, which places the company in a competitive position. As always, our strategy will be to provide stable and sustainable performance for our shareholders, and for that reason we shall continue to invest in companies and ventures where GPI can hold significant influence and which are strongly cash-generative.

I have no doubt that next year’s 2010 Soccer World Cup will not only accelerate South Africa’s economic recovery, but will act as a boost to our investments in the hotel and leisure sector. Since its establishment as a black-owned and controlled investment group in 1997, GPI has firmly established itself as a substantial player in South Africa’s tourism, leisure and gaming sectors. Our 2008 listing on the JSE marked a further step towards corporate maturity, opening new opportunities for our thousands of investors to participate in the continued growth and development of GPI.

In terms of our more specific strategic business objectives for the coming year, we are confident that our increased exposure to carefully chosen urban casinos and the LPM industry positions GPI well for growth when the economy turns. We have a strong balance sheet with low levels of debt, which is a good position to be in, particularly in a pressing economic environment.

In summary

GPI has continued to display resilience in the face of the current recession. While many companies at home and abroad have been able to do little more than stand still and await a return to profitability and an end to the world’s current economic crisis, GPI has maintained an active programme of growth and expansion and is firmly on the move.

I believe that GPI’s long-term prospects remain positive. We have a stable of great investments with upside potential and a number of further opportunities have presented themselves. We’re in the perfect position to take advantage of these and to continue to generate cash from our current investments to the benefit of all our shareholders.

In conclusion

In conclusion, I would like to thank all our stakeholders for your support and also a special thanks to the management and staff of all the business operations we are invested in for their continued loyalty, dedication, passion and commitment in advancing the interest of their key stakeholders and GPI in particular.


Adrian Funkey
Chief Executive Officer

Cape Town, 23 September 2009