Fe­lix Pereira

In­tan­gi­ble as­sets de­clined mar­gin­al­ly to J$644.9 mil­lion from J$650.8 mil­lion pre­vi­ous­ly. The largest com­po­nent, trade­marks and li­cences, de­clined from J$400.7 mil­lion to J$396.8 mil­lion. Good­will was un­changed at J$190 mil­lion. Soft­ware us­age rights fell to J$48.3 mil­lion from the pre­vi­ous lev­el of J$56.4 mil­lion.

To­tal li­a­bil­i­ties rose to J$1.86 bil­lion from the 2013 fig­ure of J$1.68 bil­lion. The ma­jor com­po­nent, trade and oth­er payables, in­creased mar­gin­al­ly to J$1.14 bil­lion from J$1.13 bil­lion. With­in this cat­e­go­ry, the main el­e­ments were trade payables and ser­vice con­trac­tor fees. The for­mer ad­vanced to J$617.2 mil­lion from J$555.6 mil­lion while the lat­ter in­creased from J$130.7 mil­lion to J$162.5 mil­lion as at De­cem­ber 2014.

An­oth­er sig­nif­i­cant com­po­nent, prize li­a­bil­i­ties, rose to J$599.1 mil­lion from J$320.6 mil­lion as at the end of 2013. The 2014 fig­ure saw lo­cal lot­to games bal­ances jump from J$130.8 mil­lion to J$339.5 mil­lion; this fig­ure in­cludes an amount ac­crued for an ad­ver­tised jack­pot of J$175 mil­lion.

In ad­di­tion, the mul­ti-ju­ris­dic­tion­al lot­tery game in­creased to J$255.3 mil­lion from J$188 mil­lion as at De­cem­ber 2013. This game is played in sev­er­al coun­tries out­side Ja­maica, in­clud­ing the Do­mini­can Re­pub­lic, Paraguay and Bar­ba­dos. (Sub­se­quent­ly, on March 6, 2015, the jack­pot of J$179.5 mil­lion (BDS$3.11 mil­lion) was won by a Bar­ba­dos na­tion­al.)

Eq­ui­ty im­prove­ments

Stock­hold­ers' eq­ui­ty ad­vanced to J$4.05 bil­lion from the pre­vi­ous lev­el of J$3.64 bil­lion.

Re­tained earn­ings im­proved by a net of J$402.5 mil­lion to close 2014 at J$2.02 bil­lion. The cur­rent year's prof­it of J$929.9 mil­lion boost­ed this fig­ure while div­i­dends to share­hold­ers of J$527.5 mil­lion low­ered the net re­sult.

With 2,637,254,926 shares out­stand­ing, each share has a book val­ue of J$1.53 (2013: J$1.38).

In­come and prof­its

To­tal rev­enues ad­vanced by 21 per cent to reach J$41.3 bil­lion from 2013's J$34.1 bil­lion.

The largest com­po­nent, Cash Pot, gen­er­at­ed rev­enues of J$26.3 bil­lion ver­sus J$23 bil­lion pre­vi­ous­ly. Two new games al­so made sig­nif­i­cant con­tri­bu­tions. Mon­ey Time, which start­ed in Oc­to­ber 2014, gar­nered J$1.18 bil­lion in rev­enues to the year-end. In ad­di­tion, Top Draw, which start­ed in June 2014, brought in rev­enues of J$759 mil­lion.

How­ev­er, to­tal di­rect ex­pens­es clawed back J$37.59 bil­lion in 2014; this was 22 per cent greater than the J$30.81 bil­lion in­curred for 2013. Among the more sig­nif­i­cant di­rect ex­pens­es were lot­tery and sports bet­ting prizes (2014: J$24.8 bil­lion; 2013: J$20.7 bil­lion), pin codes (2014: J$4.72 bil­lion; 2013: J$3.34 bil­lion) and lot­tery and gam­ing tax­es (2014: J$2.21 bil­lion; 2013: J$1.82 bil­lion).

These changes al­lowed SVL to re­port a 2014 gross prof­it of J$3.72 bil­lion; this was 11.8 per cent greater than the J$3.33 bil­lion earned for 2013.

Op­er­at­ing ex­pens­es de­clined to J$2.65 bil­lion from 2013's J$2.77 bil­lion. Core ex­pens­es, such as staff cost and rental and util­i­ties, did in­crease; the for­mer rose to J$668.9 mil­lion from J$627 mil­lion while the lat­ter moved to J$292.7 mil­lion from J$286 mil­lion.

On the oth­er hand, many ex­pens­es did de­cline. These in­clud­ed pro­fes­sion­al fees, ir­recov­er­able gen­er­al con­sump­tion tax (GCT), lo­cal and for­eign trav­el, com­pli­men­ta­ry to­kens, se­cu­ri­ty and bank charges. The wide range of ex­pens­es that fell sug­gests that a gen­er­al mood of cost con­scious­ness must have in­fused the or­gan­i­sa­tion dur­ing the past year!

These changes al­lowed SVL to reg­is­ter a prof­it from op­er­a­tions of J$1.07 bil­lion; this re­sult is J$510.7 mil­lion or 90.7 per cent greater than the 2013 re­sult of J$563.3 mil­lion.

In line with high­er cash bal­ances, in­ter­est in­come rose to J$75.7 mil­lion from 2013's J$46.4 mil­lion. The slow­er rate of de­val­u­a­tion of the Ja­maican dol­lar dur­ing 2014 con­tributed to a de­cline in net for­eign ex­change gains, which reg­is­tered at a mod­est J$6 mil­lion, down from J$30.7 mil­lion in 2013.

Fi­nance costs al­so moved down to J$16.3 mil­lion from the pre­vi­ous lev­el of J$28.5 mil­lion. Mean­while, oth­er gains, main­ly GTECH re­im­burse­ments and bad debt re­cov­er­ies, came in at J$76.5 mil­lion, down from J$99.2 mil­lion in 2013.

These move­ments saw the pre-tax prof­it for 2014 reg­is­ter at J$1.22 bil­lion; this re­sult was 71 per cent greater than the J$711 mil­lion record­ed for 2013.

Helped by a low­er pri­ma­ry tax rate of 25 per cent and an em­ploy­ment tax cred­it of al­most J$50 mil­lion, the ef­fec­tive tax rate dropped to 23.5 per cent (2013: 32.1 per cent); this re­sult­ed in SVL record­ing an af­ter-tax 2014 prof­it of J$929.9 mil­lion. This was 92.7 per cent greater than the J$482.6 mil­lion record­ed for 2013.

These re­sults trans­lat­ed in­to 2014 EPS of J$0.3526 ver­sus J$0.1830 for 2013.

Seg­ment per­for­mance

Us­ing on­ly about half of SVL's to­tal as­sets, the largest seg­ment, lot­tery, gen­er­at­ed sub­stan­tial­ly all of the com­pa­ny's pre-tax prof­it.

Pin codes gen­er­at­ed a strong im­prove­ment in rev­enues ac­com­pa­nied by a use­ful con­tri­bu­tion to prof­its.

Both gam­ing and hos­pi­tal­i­ty and sports bet­ting ap­pear to be "tread­ing wa­ter" and have not yet be­gun to make a con­tri­bu­tion to the bot­tom line.

Div­i­dends and share price

Dur­ing cal­en­dar 2013, SVL paid div­i­dends to­talling J$0.21. In cal­en­dar 2014, div­i­dends dis­bursed were J$0.23. In March 2015, the Board of SVL agreed to pay a reg­u­lar div­i­dend of J$0.08 and a spe­cial div­i­dend of J$0.23; these pay­ments re­flect the strong re­sults gen­er­at­ed dur­ing 2014.

Al­most ex­act­ly one year ago, on May 6, 2014, SVL's share price was J$2.10. This price closed at J$3.50 on April 29, 2015, re­flect­ing a cap­i­tal ap­pre­ci­a­tion of al­most 67 per cent.

Over the one-year pe­ri­od, in­vestors have en­joyed a to­tal re­turn of J$1.63, com­pris­ing the div­i­dends paid in 2014 of J$0.23 to­geth­er with a cap­i­tal gain of J$1.40. This rep­re­sents a per­cent­age gain of 77.6 per cent. If we were to in­clude the div­i­dends paid or an­nounced in ear­ly 2015, the to­tal re­turns would be much high­er.

Div­i­dends paid with re­spect to the 2014 fis­cal pe­ri­od to­talled J$0.48; when we re­late those pay­ments to the re­cent price of J$3.50, in­vestors de­rive a yield of 13.71 per cent. This high yield strong­ly sug­gests that the share price is (or, was) sig­nif­i­cant­ly un­der-val­ued.

Last Thurs­day, April 30, SVL's Board al­so met to eval­u­ate its first quar­ter's per­for­mance and to de­ter­mine the pay­ment of its first in­ter­im div­i­dend for 2015.

Fu­ture prospects

On April 18, 2011, SVL signed a new con­tract with G-Tech which ex­tends their re­la­tion­ship to 2026. This cre­ates a high lev­el of pre­dictabil­i­ty for the gam­ing in­dus­try in Ja­maica.

One of the so­ci­etal con­tri­bu­tions from this in­dus­try is that it funds a CHASE fund in Ja­maica, which pro­vides fi­nanc­ing for projects in the ar­eas of cul­ture, health, arts, sports and ear­ly child­hood ed­u­ca­tion.

These con­nec­tions with the wider so­ci­ety help mit­i­gate any harm­ful side ef­fects with which the gam­ing (al­co­hol and to­bac­co) in­dus­tries are some­times as­so­ci­at­ed.