Camilo Thame, Business Reporter
Brian George (left) president and CEO of Supreme Ventures and Chief Financial Officer James Morrison are seen here at the company's annual general meeting in New Kingston last year. - Norman Grindley /Deputy Chief Photographer
Supreme Ventures Limited (SVL) consolidated its lottery operations on January 1 to remedy liquidity problems that the lottery and gaming company has faced for the better part of last year.
The Betting, Gaming and Lotteries Commission (BGLC) two weeks ago, approved the plan for SVL to establish a wholly-owned subsidiary company solely for conducting its licensed games, including Cash Pot, Lucky 5, Dollaz, Pick 3, Lotto and a variety of instant games.
Depressed stock
The SVL stock remained depressed into the New Year, trading at a new low of $1.54 on Wednesday, compared to its listing price last year of $4.08.
The new company, Supreme Ventures Lotteries Limited (SV Lotteries), received approval for the licence to operate, effective January 1, 2007, under which it will be required to "to establish a dedicated bank account into which will be paid funds" ensuring that the cost to operate the games - including prize payouts, BGLC fees and taxes - will always be covered, according to notes to shareholders in SVL's financial statements for the year to October 31.
According to SVL, in response to Financial Gleaner questions through its vice-president of corporate communications, Sonia Davidson, "the company has been maintaining the necessary funds in a separate account over time to meet this anticipated requirement."
The lottery and gaming firm will also raise $500 million through a debenture to be taken up by the parent company, according to SVL, to satisfy the capital requirement of SV Lotteries.
"...As such there will be no need to go back to the market," said Davidson.
The company's profit performance waned by 13 per cent, from $190 million in 2005 to $165 million.
Importantly, the subsidiaries, which inlcude Prime Sports bought out from the Melville family Ñ owners and operator of Chukka Adventures Ñ turned a $13.7 million loss during the year to October 31, down from $158 million profit in 2005.
This was partly as a result of consolidating all lottery games under the umbrella of the company, leaving MoneyGram, the gaming lounges and the hospitality businesses as subsidiaries.
The lottery and gaming firm has had difficulty firming its position in the gaming lounge market, and had to restructure its newest operation, Acropolis, significantly to bring it in line with market demand.
In fact, SVL made $556 million in revenue from its 472 gaming machines across four locations, two in Montego Bay and two in St Andrew, or less than half the turnover the company had put forward as the earnings for 2006, when it went public with its shares last January.
Its lottery business recorded 6.0 per cent growth in revenues over the year, moving from $13.6 billion to $14.4 billion, registering better performance in four of the six games that it offers, including CashPot, which rakes in 79 per cent of the group's lottery revenue.
Lotto and instant games which, combined, contributed just under a tenth of turnover, saw a 17 per cent decline in sales.
Davidson noted that "lottery revenues are a function of the Jackpots during any period."
According to her, in the 2005 financial year there were at least four Lotto Jackpots in excess of $40 million, while only in January last year did the jackpot reach as high as $100 million.
"However, for the rest of the fiscal year the average jackpots won were relatively low which is reflected in the reduction in revenue."
Revenue from sale of pin codes - on-line electronic phone cards available at the terminals - grew by 28 per cent from $550 million to $702 million, reflecting "the increasing demands for prepaid phone cards and it takes advantage of the more that 850 lottery agent locations at which this product is available," according to Davidson.
But it was the higher payout for Cash Pot during the middle of the year, alongside the cost faced by SVL to expand its operations through acquisitions and slow growth in its income streams outside of its lottery business, which caused the company's cash crunch.
First in April, and then in July the company said that it failed the meet the condition of its licence to operate lottery type games, which requires it to have liquid assets of at least 75 per cent of current liabilities.
As at October 31 , SVL in a note to shareholders said it "was not in compliance with this condition."
SVL's current assets were under 75 per cent of its current liabilities, but that was up from 60 per cent in July.
The company came to an agreement with the regulator, Betting, Gaming and Lottery Commission (BGLC) on December 22 on how to "remedy the breach", after having discussions since September 29.
The 75 per cent liquid asset to current liability requirement will be replaced by the dedicated bank account as at January 1.
Average payout for Cash Pot was normal, or 72 per cent for the fiscal year, but dramatic quarter to quarter swings during the April and July quarters, when average payout for Cash Pot ran above 75 per cent, cost the company an additional $180 million, by SVL CEO Brian George's estimate.
It is the volatility of the instant game sector that has pushed the company to invest hundreds of millions in expansion.
SVL had raised $1.85 billion through its private placement in July last year to facilitate, among other things, the companyÕs growth plan over next three years.
In 2005, the gaming company forked out $536 million on acquisitions of subsidiaries, which included the purchase of Coral Cliff Hotel, located in Montego Bay, and spent another $980 million repaying loans.
Included in the loans repayment was that of directors who had financed a $277 million loan in 2004 to inject cash into the company.
Without that injection, the company would only have had $6 million in cash.
SVL ended its 2006 year with cash of $354 million.
camilo.thame@gleanerjm.com
