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Digital wagering turnover growth continues for Tabcorp
04 Aug 2017 | Tabcorp 

Tabcorp 2016/17 Full Year Results

A strategically important year for Tabcorp

o Announced and significantly progressed the combination with Tatts Group, which is expected to complete by the end of 2017

o Acquired Intecq, a complementary gaming systems and monitoring business

o Launched our UK start-up, Sun Bets

o Continued to invest in and embed scalable risk management and regulatory compliance capability; settled the AUSTRAC civil proceedings

o Ongoing digital expansion; strengthened retail partnerships through digital commissions model and launch of Keno digital offer

Financial overview

o Statutory result: NPAT loss of $20.8m (EPS -2.5 cents per share), adversely impacted by significant items after tax of $199.7m

o Significant items (after tax) comprise AUSTRAC civil proceedings $61.8m, AFP Cambodia investigation $1.9m, proposed combination with Tatts $53.9m (including the impact of the Tatts cash-settled equity swap), Intecq acquisition $4.9m, Sun Bets operating loss $47.6m, Sun Bets assets impairment $20.7m and Melbourne premises relocation $8.9m

o Results before significant items1

o Revenues $2,229.6m, up 1.9%, within guidance ($2,220m - $2,240m)

o EBITDA $504.1m, down 2.3%, within guidance ($500m - $510m)

o NPAT $178.9m, down 3.8%, within guidance ($173m - $180m)

o EPS 21.4 cents per share, down 4.5%

o Final dividend 12.5 cents per share, fully franked, taking the full year ordinary dividend to 25.0 cents per share, fully franked, up from 24.0 cents per share in the pcp

Business overview

o Core businesses - TAB, Media, Gaming Services and Keno - performed well

o Increase in operating expenses driven by the acquisition of Intecq and investments in technology, capability, marketing, risk and compliance. A thorough review of the cost base is underway

o Wagering & Media

o The key digital and fixed odds performance metrics in core TAB business remained very strong, with double digit turnover growth
o Overall Wagering & Media performance impacted by underperformance in Luxbet and Trackside

o Gaming Services

o Continued geographic expansion with the signing of Panthers Group in NSW and Intecq acquisition
o TGS now has approximately 10,650 EGMs under contract

o Keno

o Ongoing transformation of Keno, with launch of Keno jackpot pooling in Queensland. Keno now pooling jackpots across all Tabcorp jurisdictions (ACT, NSW, Queensland and Victoria)
o Introduced new Keno Mega Millions game in NSW and ACT; digital play in-venue commenced in NSW

1
In line with the trading update provided on 20 June 2017. Refer to ASX release ‘Tabcorp provides updates on Tabcorp/Tatts transaction and trading performance’.


GROUP RESULTS 

$m FY17 FY16 Change

Revenues 2,229.6 2,188.7 1.9%
Variable contribution 1,006.3 984.5 2.2%
Operating expenses (502.2) (468.7) 7.1%
EBITDA before significant items 504.1 515.8 (2.3%)
D&A (178.7) (178.6) 0.1%
EBIT before significant items 325.4 337.2 (3.5%)
Interest (68.3) (69.9) (2.3%)
Tax expense (78.2) (81.4) (3.9%)
NPAT before significant items 178.9 185.9 (3.8%)
Significant items (after tax)2
(199.7) (16.2) >100%
Statutory NPAT (20.8) 169.7 (>100%)

NOTES:
1. Results include 7 months contribution from Intecq following December 2016.
2. Significant items (after tax) of $199.7m comprise AUSTRAC civil proceedings $61.8m, AFP Cambodia investigation $1.9m,
proposed combination with Tatts $53.9m (including the impact of the Tatts cash-settled equity swap), Intecq acquisition $4.9m,
Sun Bets operating loss $47.6m, Sun Bets assets impairment $20.7m and Melbourne premises relocation $8.9m.

BUSINESS RESULTS

$m FY17 FY16 Change

Revenues 2,229.6 2,188.7 1.9%
Variable contribution 1,006.3 984.5 2.2%
Operating expenses (502.2) (468.7) 7.1%
EBITDA before significant items 504.1 515.8 (2.3%)
D&A (178.7) (178.6) 0.1%
EBIT before significant items 325.4 337.2 (3.5%)
Interest (68.3) (69.9) (2.3%)
Tax expense (78.2) (81.4) (3.9%)
NPAT before significant items 178.9 185.9 (3.8%)
Significant items (after tax)2
(199.7) (16.2) >100%
Statutory NPAT (20.8) 169.7 (>100%)

NOTES:
1. Wagering & Media results exclude Sun Bets which has been treated as a significant item in FY17.
2. Results include 7 months contribution from Intecq from December 2016.
3. Excluding the impact of the Intecq acquisition, Group operating expense growth was 4.6%.


MANAGING DIRECTOR AND CEO COMMENTARY

"FY17 was a strategically important year for Tabcorp as we reshaped the business for growth. We made investments in acquiring Intecq, establishing Sun Bets and progressing the combination with Tatts, which we expect to complete by the end of the year,” Tabcorp Managing Director and CEO, David Attenborough, said.

“We also strengthened Tabcorp’s risk management and regulatory compliance capability, which is scalable in the context of the proposed combination with Tatts.

“These are significant initiatives we have undertaken to better position Tabcorp to deliver sustainable growth.

“At the same time, we accelerated our digital investment in our Wagering and Media and Keno businesses, while Gaming Services continued to expand geographically.

"The increase in operating expenses was driven by the acquisition of Intecq and planned investments in capability, technology, marketing, risk and compliance. We expect our investment in these areas to reduce the risk associated with the Tatts integration.”

WAGERING & MEDIA

Wagering & Media revenues were $1,873.0m in FY17, in line with FY16. EBITDA was $350.0m, down 8.4%.

The core TAB business performed well against its key performance metrics in FY17. Total TAB turnover growth was 1.9%, underpinned by the growth in digital turnover of 13.9%. Total TAB fixed odds revenue growth was 15.0%, including 20.8% growth in racing.

In an increasingly competitive landscape media revenues grew 1.9% and all key racing broadcast rights were secured for continued broadcast on Sky Racing.

The Wagering & Media performance includes the impact of Luxbet (which recorded an EBITDA loss of $8m and an EBIT loss of $13m) and a 14.6% decline in Trackside revenues. A strategic review of Luxbet is underway, while a review of Trackside’s product and marketing activity has been completed, with new initiatives planned for FY18. Wagering & Media earnings were also impacted by a 6.0% growth in operating expenses, which will be addressed as part of a thorough review of the Tabcorp group cost base.

GAMING SERVICES

Gaming Services revenues, which include seven months of Intecq trading, were $143.9m in FY17, up 34.2%.EBITDA was $82.1m, up 17.1%.

Excluding Intecq, revenues were up 7.8% and EBITDA was up 4.0%. Growth has been driven by the commencement of a number of new venues in NSW, including Panthers Group from February 2017. The integration of Intecq is on track, including the realisation of expected synergies.

KENO

Keno revenues were $212.7m in FY17, up 2.0% against FY16. EBITDA was $72.0m, up 2.4%.

Keno achieved total turnover growth of 3.6%, with strong performance in NSW, Victoria and ACT, which was partially offset by softness in Queensland. A range of new customer initiatives have recently been introduced, including the launch of Mega Millions in NSW and the ACT and a digital offer, including in-venue play in NSW.

Keno has signed up 13,400 digital account customers.

SUN BETS

The UK start-up Sun Bets recorded an FY17 EBITDA loss of $46.2m. Following the establishment phase, the leadership and operations have been reset to improve the positioning of the business for FY18. Sun Bets is focusing on customer acquisition and product development in FY18.

DIVIDEND

Tabcorp has announced a fully franked final dividend of 12.5 cents per share, taking the full year FY17 dividend to 25 cents per share. The FY18 dividend target is 90% of NPAT before significant items, amortisation of the Victorian Wagering and Betting Licence and Sun Bets.

PROPOSED COMBINATION WITH TATTS GROUP

Tabcorp and Tatts remain committed to the combination and are continuing to progress the transaction.

Scheme documentation is expected to be released in September 2017, with a meeting of Tatts’ shareholders to vote on the combination expected to be held in October 2017. We expect to complete the transaction in the last quarter of 2017.

The Federal Court is scheduled to hear the ACCC and CrownBet’s applications for a judicial review of the Australian Competition Tribunal’s authorisation of the combination on August 28 and 29.

The judicial review will focus on discrete points of law rather than the factual findings of the Tribunal. Tatts has joined Tabcorp in opposing these applications.

RACING INDUSTRY RETURNS AND TAXES

Tabcorp’s Wagering & Media operations returned $813.0m to the Australian racing industry, up 3.3%. This again demonstrates Tabcorp’s role as a core part of the structure of Australian racing and the largest financial contributor.

Tabcorp paid $406.3 million in Australian state and territory gambling taxes and GST in FY17 and $45.7 million in income taxes.

CONCLUSION

Mr Attenborough said: "Our plan for FY18 centres on completing the combination with Tatts. At the same time, we have a clear set of priorities to drive performance in our core businesses and benefit from the strategic initiatives we delivered in FY17. We will continue to focus on maintaining a disciplined approach to operating expenses and capital expenditure and delivering sustainable returns for our shareholders and partners."


 
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