Tabcorp 2017/18 Full Year Result
FY18 Overview – A company-defining year
• Combination with Tatts Group completed, creating a world-class, diversified gambling entertainment group
o Top 50 ASX company
o Annualised revenues in excess of $5bn
o Annualised EBITDA of approximately $1bn
• EBITDA synergies and business improvements from the combination are on track
o Delivered $8m in FY18
o Decisions taken underpin $50m in FY19
o Target remains at least $130m of EBITDA in FY21
• Exited loss-making businesses - Sun Bets exit announced July 2018, Luxbet closure December 2017
• A more sustainable regulatory environment
o Federal legislation passed banning synthetic lottery products
o Wagering point of consumption tax regimes announced
o New advertising restrictions and stronger consumer protections
• Capital management
o Refinanced $1.8bn bridge loan into long-dated maturities in US market
o Full year dividend of 21.0 cents per share, including final dividend of 10.0 cents per share
• Well positioned for growth
o Positive 2H18 performance, driven by Wagering & Media and Lotteries & Keno
o Accelerated digitalisation across the company
o New products launched and licences renewed
FY18 Financial Overview
• Statutory results1
o Revenues $3,828.7m, up 71.4%
o EBITDA $529.4m, up 69.5%
o NPAT $28.7m, up from $20.8m loss in pcp
o EPS2 1.9 cents per share, up from 2.5 cents loss per share in pcp
o Results impacted by significant items expense after tax of $217.5m from Tatts combination,
Sun Bets exit and Luxbet closure
• Results before significant items1, 3
o Revenues $3,828.7m, up 71.7%
o EBITDA $736.4m, up 46.1%
o NPAT $246.2m, up 37.6%
o EPS2 16.6 cents per share, down 22.4%
• Final dividend 10.0 cents per share, fully franked, taking the full year ordinary dividend to
21.0 cents per share, fully franked
• Group pro-forma4
results before significant items
o Revenues $5,109.3m, up 2.5%
o EBITDA $989.2m, up 2.8%
o EBIT $695.6m, up 2.0%
1 Results include Tatts Group from 14 December 2017.
2 EPS calculated using weighted average shares for the period.
3 Tabcorp results before significant items include the Sun Bets operating result in FY18 (treated as a significant item in FY17).
4 Pro-forma results include various adjustments to Tabcorp’s reported results to permit investors to examine the financial performance of the combined group for the year, including 12 months of Tatts results in FY18 and FY17, and excluding Sun Bets in FY18.
GROUP RESULTS1, 2
$m FY18 - FY17 - Change on pcp
Revenues 3,828.7 2,229.6 71.7%
Variable contribution 1,489.9 1,006.3 48.1%
Operating expenses (753.5) (502.2) 50.1%
EBITDA before significant items 736.4 504.1 46.1%
D&A (248.6) (178.7) 39.2%
EBIT before significant items 487.8 325.4 49.9%
Interest (118.6) (68.3) 73.6%
Tax expense (123.0) (78.2) 57.4%
NPAT before significant items 246.2 178.9 37.6%
Significant items (after tax)3
(217.5) (199.7) 8.9%
Statutory NPAT 28.7 (20.8) >100.0%
1. Results include Tatts Group from 14 December 2017.
2. Sun Bets was treated as a significant item in FY17.
3. Significant items expense (after tax) of $217.5m comprise Tatts Group combination $114.6m, Sun Bets exit $90.5m, and
Luxbet closure $12.4m.
BUSINESS RESULTS (PRO-FORMA1)
FY18 ($m) Wagering & Media Change on pcp - Lotteries & Keno Change on pcp - Gaming Services Change on pcp - Group Change on pcp
Revenues 2,461.8 0.6% 2,332.3 4.7% 315.0 (0.1%) 5,109.3 2.5%
Variable contribution 993.8 0.6% 607.8 6.0% 301.1 (0.8%) 1,904.4 2.1%
Operating expenses (542.0) 1.1% (212.9) (1.5%) (149.1) (2.0%) (915.2) 1.4%
EBITDA 451.8 0.1% 394.9 10.5% 152.0 0.5% 989.2 2.8%
D&A (144.8) 4.1% (84.4) 2.6% (65.1) 10.3% (293.6) 4.8%
EBIT 307.0 (1.7%) 310.5 12.9% 86.9 (5.8%) 695.6 2.0%
Opex / Revenue (%) 22.0% 10.1% 9.1% (0.6%) 47.3% (0.9%) 17.9% (0.2%)
EBIT / Revenue (%) 12.5% (0.3%) 13.3% 1.0% 27.6% (1.7%) 13.6% (0.1%)
1. Pro-forma results include adjustments to Tabcorp’s reported results to permit investors to examine the financial performance of the combined group as if the Tatts combination had been in place for the full year.
Full Year Results Presentation for further details.
2. Business results do not aggregate to Group total due to intercompany eliminations and unallocated items. Unallocated items include lease costs of $9.4m for new Brisbane office (FY17: nil).
MANAGING DIRECTOR AND CEO COMMENTARY
"FY18 was a company-defining year for Tabcorp. The combination with Tatts has created a world-class, diversified gambling entertainment group with an attractive portfolio of market-leading brands across wagering, media, lotteries, Keno and gaming services. The integration of the two businesses is on track, with initial business improvements and cost initiatives implemented. We have taken decisions to underpin $50m of EBITDA synergies and business improvements in FY19 and are on target to deliver at least $130m in FY21. We are focused on delivering the substantial value the combination is expected to create for shareholders, customers, the racing industry and venue partners.
“During the year we accelerated digitalisation across the company, launched new products and implemented new licences. The group delivered a positive second half performance and we are well positioned for profitable growth and sustainable returns to shareholders.
“FY18 has also been a year of positive change for the gambling sector. A number of reforms have been introduced which aim to make the industry more sustainable. The introduction of point of consumption taxes, the prohibition of synthetic lottery products, advertising restrictions and improved consumer protection measures are creating a fairer playing field. Tabcorp is very well placed to perform in this improved environment.”
WAGERING & MEDIA
On a pro-forma basis, Wagering & Media revenues and EBITDA were steady. Revenues were $2,461.8m, up 0.6% on the prior corresponding period (pcp) and EBITDA was $451.8m, up 0.1%. The business experienced 2H18 earnings momentum supported by improved variable contribution and expense management, with 2H18 EBITDA growth of 10.4% compared to a 7.6% decline in 1H18.
TAB revenue growth was 2.5%. UBET revenues grew in 2H18 but declined 0.7% for the full year. Media revenues were $167.2m, up 1.2%. The TAB performance relative to UBET highlights business improvement opportunities across UBET’s digital and retail channels, products and yield management.
TAB’s key drivers performed well, with digital turnover of $5,071.8m, up 16.3%, off a larger base, offsetting a decline in retail turnover ($6,033.3m, down 3.3%). Fixed odds products drove revenue growth (racing $680.3m, up 12.7%; sport $244.0m, up 14.4%), more than offsetting the decline in tote revenue ($1,037.5m, down 5.2%).
Tabcorp achieved successful results for the Soccer World Cup. This was supported by an integrated campaign across retail and digital, with 2H18 total business revenues of $17m and 1H19 total business revenues of $9m across the TAB and UBET brands. The World Cup helped boost TAB and UBET active account customer numbers to almost 720,000, up 8.0%.
LOTTERIES & KENO
On a pro-forma basis, Lotteries & Keno revenues were $2,332.3m, up 4.7%. EBITDA was $394.9m, up 10.5%.
Lotteries revenues were $2,112.2m, up 4.9%. The retail network grew sales, while digital sales grew 27.8% and accounted for 17.7% of total lottery sales. Tabcorp has more than 2.9m registered online lottery players. A new Powerball game was launched in April, creating bigger jackpots and more overall winners, in line with consumer demand.
Keno revenues were $220.1m, up 3.5%. During the year Keno launched Mega Millions in Queensland and accelerated its digital expansion. Digital accounted for 3.8% of Keno sales, with 58,000 digital account holders.
On a pro-forma basis, Gaming Services revenues were steady at $315.0m. EBITDA was $152.0m, up 0.5%.
Revenues declined 2.1% in 2H18, partly impacted by the expiry of Tabcorp Gaming Solutions (TGS) venue contracts in Victoria. TGS now has 7,800 electronic gaming machines under contract in Victoria, of which 87% are contracted to 2022 and 11% beyond 2022. During the year, the Victorian Government announced new gaming machine arrangements post-2022, providing certainty to hotels and clubs. As well as attracting new sign-ups, TGS is seeking to transition existing Victorian venue customers to longer-term contracts
beyond 2022. These extensions will support the sustainability of the business, albeit at lower margins.
An operational highlight for the year was MAX’s successful roll-out of the Centralised Monitoring System for gaming machines in NSW.
As previously announced, Tabcorp has exited its agreement with News UK to operate Sun Bets and the business has ceased trading. Tabcorp will make a payment to News UK of approximately A$71m to exit.
Tabcorp has announced a fully franked final dividend of 10.0 cents per share, payable on 14 September 2018 to shareholders on the register at 16 August 2018. The ex-dividend date is 15 August 2018. Reflecting the phasing of integration benefits, the FY19 dividend target is 100% of NPAT before significant items, amortisation of the Victorian wagering licence and purchase price accounting. The Dividend Reinvestment Plan will operate for the final dividend.
The delivery of EBITDA synergies and business improvements from the integration of Tabcorp and Tatts is on track. Initial synergies and business improvements of $8m of EBITDA were delivered in FY18 and all decisions have been taken to deliver $50m in FY19. The target remains at least $130m of EBITDA from synergies and business improvements in FY21.
Mr Attenborough said: “Our focus in FY19 is on managing integration, as well as executing sustainable growth initiatives across each of our three businesses. We will continue to invest in the powerful mix of our digital and retail channels, as well as new product initiatives. Tabcorp is well placed to grow by using our channels, brands and people to consistently deliver great customer experiences.
"We remain very focused on unlocking the benefits from the Tabcorp and Tatts combination for our many stakeholders. A key part of bringing the two businesses together involves building a strong and shared organisational culture. We’re making good progress on this priority.
“We will also continue to prioritise the highest standards of regulatory compliance across the Group and maintain a disciplined approach to operating expenditure, capital investment and balance sheet management.”