Tabcorp AGM and first quarter 2021 update

Tabcorp Holdings Ltd held its Annual General Meeting and updated the first quarter of the 2021 financial year on Tuesday announcing a net profit after tax and before significant items of $271 million.

After significant items, which included a $1.09 billion non-cash goodwill impairment charge relating to the Wagering & Media and Gaming Services businesses, Tabcorp recorded a statutory net loss after tax of $870 million.

"The impairment charge reflected a reassessment of the value of our wagering and gaming businesses in light of the potential impact of the pandemic, the level of competitive intensity and structural changes including the possible acceleration of retail contraction in a digital-centric market," said Chairman Paula Dwyer.

David Attenborough, Managing Director and Chief Executive Officer, commented that the Covid-19 pandemic presented one of the toughest challenges in the careers of Tabcorp executives.

"Tabcorp’s diversification and our investments in digital transformation helped us manage these challenges, with a strong performance from our Lotteries business, and good digital growth in Wagering and Keno," he said.

"However, the pandemic materially impacted our results. Group revenue was down 4.8% to $5.2 billion, and EBITDA before significant items was down 11.5%. The biggest impact came from the retail closures across our Wagering & Media, Keno and Gaming Services operations.

"Despite implementing a range of initiatives to cut costs, protect earnings and conserve cash, Group EBITDA was down $142 million in the second half," he said.

Attenborough said that the pandemic had severely impacted many of venues who distribute Tabcorp's products are family-run hotels, TAB agencies or small clubs with a "devastating impact on their cash flows".

"We have waived more than $130 million in contracted fees to these venues so far for things like equipment charges and Sky Racing subscriptions. We need our venue partners to be successful and sustainable and these actions have been about coming through this stronger, together," he said.

"As well as navigating COVID-19, we also substantially completed the integration of Tabcorp and Tatts. The migration of ex-UBET account customers to the TAB platform was executed seamlessly post-year end. This was the most important integration milestone and means ex-UBET customers now receive the TAB customer offer.

"The integration is on track to deliver on our final target of $95 million in total cost synergies by the end of this financial year, with $86 million delivered to the end of FY20.

"With the integration program substantially complete, we are shifting the Group into an optimisation phase. We have commenced an enterprise-wide three-year program that is targeting substantial cost savings as well as enhancing operational capability, process improvement and overall efficiency.

"Initiatives underway include marketing efficiencies and agency rationalisation in the Wagering & Media business, and the operational review of Gaming Services, which includes some restructuring," he said

Lotteries & Keno revenues were $2.9 billion, up 1.8%, and EBITDA was $542 million, up 5.7%, a pleasing result given the number of large jackpots of $15 million-plus in the prior year.

Wagering & Media revenues were $2.1 billion, down 10.1%, and EBITDA was $371 million, down 19.5%.

"We have been seeing a progressive migration from retail to digital wagering over the past decade, in line with changing consumer habits. However, COVID-19-enforced venue closures have accelerated this shift," said Attenborough.

"Retail remains an important part of our strategy. The convergence of our retail business with the fastgrowing digital channels gives us a unique competitive advantage. However, we were more exposed to Covid-19’s disruption than the digital-only operators, with our entire retail network closed at various times.

Pleasingly, turnover through Wagering’s digital channels grew 44% in the final quarter of FY20, compared to the pcp. A similar rate of growth was achieved in the first quarter of FY21. We are very focused on strengthening our unique customer experience with investment in brand, personalisation, marketing offers and the digital-in-venue experience.

"Media, too, is an important differentiator. Signing deals with major American sports leag ues strengthens our position in this fast-growing market.

"We were also pleased recently to secure Queensland racing’s media rights for the next decade, underpinning Sky as racing’s long-term pre-eminent broadcaster. 

"The wagering sector continues to be incredibly competitive. But with the integration of TAB and UBET largely behind us, we are now in a much stronger position to unlock the value from a more competitive TAB," he said.

Gaming Services revenues were $221 million, down 27.3% and EBITDA was $84 million, down 42.5%.

Trading update for the first quarter of FY21. 

At a Group level, revenues were down 5.7% on the prior corresponding period.

In terms of the three business units:

• Lotteries & Keno revenues were down 6.9% on the pcp, which had strong jackpot sequences.
On a like-for-like jackpot basis, sales across the portfolio of games were up circa 15% to 30% on pre COVID-19 levels.

• Wagering & Media revenues were up 2.9% on the pcp, despite the decline in retail and reduced net yields. Wagering account revenue was up 47%.

• And Gaming Services revenues were down 55.2% on the pcp, impacted by the closure of licensed venues, particularly in Victoria.

An interim dividend in respect of the first half of FY20 of 11 cents per share, fully franked, was paid to shareholders in March this year. As part of securing covenant testing relief, the Board resolved not to pay a final dividend for FY20. 

Both Dwyer and Attenborough retire from the business with Steven Gregg succeeding Dwyer as Chairman at the end of this year. Gregg has served as a Director of Tabcorp since 2012. Attenborough retires in the first half of calendar year 2021 and the Company is well advanced in a global search for his replacement,