Tabcorp 2014 full year results

08:08 PM 07 Aug 2014 NZST
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Tabcorp Holdings Limited
Tabcorp Holdings Limited

7 August 2014: OVERVIEW.

  • Statutory Net Profit After Tax (NPAT) $129.9 million, up 2.6% on the prior corresponding period (pcp). This includes:
  • NPAT from continuing operations before significant items $149.4 million, up 7.4%.
  • Loss after tax from discontinued operations $19.5 million[1].
  • Statutory Earnings Per Share (EPS) 17.2 cents per share, in line with pcp.
  • EPS from continuing operations before significant items 19.8 cents per share, up 4.8%.
  • Full year dividend [16] cents per share, fully franked (FY13, 19 cents per share). 
  • EBITDA from continuing operations before significant items $486.1 million, up 4.8%.
  • Revenues $2,039.8 million, up 1.8%.
  • Variable contribution $919.5 million, up 3.8%.
  • Operating expenses $433.4 million, up 2.8%.
  • Portfolio of long-dated licences strengthened with extension of Queensland Keno licence (to 2047) and NSW retail wagering exclusivity (to 2033).
  • Agreement to acquire ACTTAB.
  • Refinancing of bond maturities completed 1 May 2014, resulting in interest savings of approximately $10 million per annum.
  • New senior executive leadership structure in place, with the creation of new roles: COO Wagering and COO Gaming Services & Keno.  

MANAGING DIRECTOR AND CEO COMMENTARY

“The Group’s performance in FY14 demonstrates the benefits of a model that is diversified across four businesses. This result is testament to our market-leading brands and unique multi-product, multi-channel distribution model,” said Managing Director and CEO, David Attenborough.

“The strong performance of our Wagering business was driven by excellent growth in Fixed Odds and Digital wagering. Media and International again delivered a positive earnings result, despite incurring one-off restructuring charges.

“Our Gaming Services business, TGS, has built on the solid foundation laid in its first year in Victoria by successfully entering NSW. TGS is now well placed for further expansion.  Although it was disappointing not to see revenue growth in our Keno business in FY14, it is well positioned to grow in FY15, with new products set for launch.”

Business Results – Continuing Operations Before Significant Items 

Wagering 

Total Wagering business revenues (including the Victorian Racing Industry’s interest) grew 1.8% in FY14{C}{C}{C}[2]{C}{C}{C}. Wagering revenue growth of 2.4% in the second half improved relative to first half growth of 1.3%.   

Operating expenses were $284.0 million, up 0.6%. EBITDA was $282.2 million, up 6.5%. 

By product, Fixed Odds growth was again the highlight with revenues up 26.5% to $511.5 million. This was made up of:

{C}{C}{C}{C}·         {C}{C}{C}Fixed Odds racing revenues of $322.9 million, up 37.0%, primarily driven by an expansion in the number of markets offered and ongoing shifts in customer preferences towards Fixed Odds products.

{C}{C}{C}{C}·         {C}{C}{C}Fixed Odds sports revenues of $188.6 million, up 12.7%.  

Totalisator revenues were $1,262.9 million, down 6.3%, partly impacted by lower premium customer volumes and the shift to Fixed Odds. Luxbet revenues were up 22.5% to $47.9 million and Trackside revenues were $89.3 million, up 1.1%. 

The Soccer World Cup produced revenues across TAB and Luxbet in FY14 of $14.9 million and in FY15 of $10.3 million. TAB’s successful marketing initiatives were driven by the ‘Back Gold’ campaign led by former Socceroos goalkeeper, Mark Schwarzer.   

Tabcorp’s diverse distribution channels allow customers to connect with TAB in multiple ways, differentiating Tabcorp from online-only wagering operators. 

The Digital channel was a driver of Tabcorp’s Wagering growth, with turnover up 18.2% to $2,900.0 million.  Mobile devices made up 54% of Tabcorp’s Digital turnover, up from 35% in FY13. NSW retail turnover was $3,819.1 million, down 1.2%, and Victorian retail turnover was $2,762.2 million, down 4.9%. Performance in the NSW and Victorian retail wagering channels improved in 2H14 relative to 1H14, despite continued soft retail conditions.

Media and International 

Tabcorp’s Media and International business continued to benefit from the expanded export of vision and co-mingling.  Revenues grew 6.2% to $220.4 million. Operating expenses were $123.9 million, up 5.0%, with expense growth partly attributable to the acquisition of Sky’s US vision agent, now rebranded Sky Racing World US, and one-off restructure charges.  EBITDA was $68.5 million, up 2.2%. 

Broadcast rights and racing industry contributions from Tabcorp’s International business were $73.5 million, up 15.6%. 

Tabcorp continues to work towards concluding media rights negotiations for NSW and Victorian thoroughbred racing content and achieving a fair commercial outcome for all parties. 

Gaming Services 

The results of the Gaming Services business reflect a full year contribution compared to the prior year during which TGS was operational for 10.5 months. 

TGS revenues were $98.1 million, up 13.7%. Operating expenses were $31.1 million, up 11.1%, resulting in EBITDA of $67.0 million, up 14.9%.   

TGS made a successful entry into the NSW market during the year, signing up two NSW venues, Kogarah RSL and Auburn Tennis Club. TGS has now established capability to grow the business in NSW in FY15. 

A second half highlight in Victoria, where TGS covers approximately 8,500 electronic gaming machines (EGMs), was the commencement of the in-EGM loyalty scheme. 

Keno 

Keno revenues were $203.9 million, down 0.7%, with Queensland and NSW revenues flat and Victorian revenues up 3.6%. Operating expenses were $41.2 million, up 1.0%.  EBITDA was $72.2 million, down 4.4%.   

An operational highlight was the roll out of Keno Racing to more than 450 Queensland venues. 

Improving the performance of the Keno business is a priority for Tabcorp in FY15. New initiatives planned for delivery include the commencement of jackpot pooling between NSW and Victoria in 1H15, with Queensland to follow.

CAPITAL EXPENDITURE AND INVESTMENTS

Capital expenditure was $133 million, with the major projects being digital and systems enhancements for Wagering and the TGS expansion. Expected capital expenditure in FY15 is $130 million, before the expansion of TGS in NSW and Victorian in-EGM loyalty. The depreciation and amortisation (D&A) expense for FY15 is expected to be approximately $170 million. Capital expenditure and D&A guidance is before the impact of the ACTTAB acquisition.

RACE FIELDS FEES

New Race Fields fee structures have been put in place by the Victorian, Queensland and South Australian racing industries, effective from 1 July 2014.  If these changes had applied to Tabcorp in FY14, and in the absence of any mitigating strategies, the estimated impact would be approximately $12 million before tax.  

SUPREME COURT OF VICTORIA PROCEEDINGS  

Tabcorp has lodged an appeal with the Court of Appeal of the Supreme Court of Victoria against a judgment of the Supreme Court of Victoria handed down on 26 June 2014. The appeal is listed to be heard in October. The judgment relates to Tabcorp’s claim for a payment of $686.8 million from the State of Victoria, which found in favour of the State.

Separately, Tabcorp has applied for special leave to appeal to the High Court of Australia in respect of the Health Benefit Levy judgment of the Court of Appeal of the Supreme Court of Victoria, which was handed down on 1 July 2014.  The Court of Appeal judgment impacted Tabcorp’s FY14 earnings by $19.5 million after tax, which has been disclosed as Discontinued Operations in Tabcorp’s financial statements.

DIVIDEND

The Board has announced a final dividend of [8] cents per share, fully franked and payable on 24 September 2014 to shareholders registered at 14 August 2014.  The full year dividend of [16] cents per share represents [81%] of NPAT from continuing operations before significant items.

The Board today announced that its FY15 target dividend payout ratio will increase to 90% of NPAT.   

STAKEHOLDER BENEFITS

  • Taxes on gambling paid                                             $439.3 million
  • Income generated for racing industry                        $735.0 million
    • VIC                                                                         $342.0 million[1]
    • NSW                                                                       $246.2 million
    • Race fields fees                                                     $73.3 million
    • Broadcast rights and international business           $73.5 million

Income taxes paid and payable          $66.7 million

 

[1] Excludes the impact of the VRI’s share of HBL of $8.9 million.

FY15 PRIORITIES

Mr Attenborough said: “Tabcorp is well placed to drive profitable growth through our diversified portfolio of businesses. This portfolio has been strengthened with the recent agreement to acquire ACTTAB, subject to necessary approvals.  ACTTAB will give Tabcorp new and attractive long-term licences.

“In Wagering, we will continue to integrate our retail and digital offerings, noting our distribution channels work together for overall growth.  Other priorities in Wagering are product expansion and successfully completing the ACTTAB transaction.

“The priority for the Media and International business is to conclude media rights negotiations and expand co-mingling and the export of Australasian racing.

“Now that TGS has entered the NSW market, the business is well placed to demonstrate the value it can generate for licensed venues and increase sign-ups.

“Finally, our Keno business has a clear agenda to improve its performance.  Product expansion and the pooling of jackpots between NSW and Victoria are among the initiatives that will help create a more compelling offer for customers.

“We are well positioned to drive future performance, maintain expense discipline and deliver Return on Invested Capital of 14% by FY16.”

For more information:

Media: Nicholas Tzaferis, GM Corporate Affairs, 03 9868 2529 Financial analysts: Lachlan Fitt, GM Investor Relations and Strategy, 02 9218 1414

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