GPI had concluded a "relationship agreement" with a company in Germany that made gaming machines, Mr Adams said.
"We have spent some time looking at manufacturing (gaming) machines and we have a machine manufacturing licence," Mr Adams said. Manufacturing could begin within six months, he said.
LPMs were mostly manufactured and assembled in countries such as the US, Spain and Germany, he said, and being able to manufacture the machines locally could cut the cost of the equipment by 20%-50%.
Manufacturing LPMs would allow GPI to become more vertically integrated, putting it in a position to supply itself with the machines it needed.
"It makes sense if they can produce the LPMs cheaper than they buy them now and (still) have a good relationship with the German technology partner," Matthew Kreeve, a portfolio manager at Element Investment Managers, which holds GPI shares, said yesterday.
He said GPI "has amassed intellectual property and won valuable market share" in the LPM market, which would support its growth ambitions. "It's important to realise that these licences are perpetual, unlike some other gaming licences."
Mr Adams said setting up the plant to build the "boxes" for the LPMs and importing the circuitry and motherboards from Europe to start the manufacture of its own machines would cost about R100m. The plant would also have the capability to service, maintain and refurbish LPMs for its own business and other operators.
Once established, the plant could produce "slot machines, tote machines and other types of machines that have similar mechanisms, even vending machines". Mr Adams said an aggressive growth target has been set for its LPM footprint.
"LPM doesn't work for smalltime operators; they can't get the efficiencies out of machines as an operator which has its own central services, and that is where we are going into," he said.
GPI has about 3000 LPMs across Gauteng, the Western Cape and KwaZulu-Natal. "We want to grow to 5000 by the end of this year," Mr Adams said, and the group would seek to enter other provinces such as the Free State and Eastern Cape.
Reaching this target would be a stretch and, if GPI managed it, it would have done "very well", Mr Kreeve said. "Rolling out LPMs is not an easy business, but they are over the hardest initial phase and they should be able to roll out new machines faster now," he said.
"The sunk costs are behind them and the earnings should come straight through.
"LPM gaming is growing nicely but most people haven't even noticed that business yet.
"You get it for very little considering the value of the GrandWest stake they own with Sun International and the cash on the balance sheet."
Last year, GPI and Sun International simplified their common investments and cross-shareholdings in gaming assets. Sun increased its stake in SunWest, which operates Cape Town's GrandWest Casino, to 69,8% from 59,7%. Sun also bought GPI's 31% stake in Real Africa Holdings, an investment company with shares in Sun International assets.
Source: Business Day
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