Lottery offsets wagering weakness for Tabcorp in FY results

14 August 2019

Australia’s Tabcorp has reported revenue of AUD$5.5bn (£3.08bn/€3.32bn/$3.71bn) for its financial year ended 30 June, 2019, strong growth in lottery revenue offsetting a decline in revenue from its Wagering & Media division over the year.

On a pro-forma basis, looking at the combined results of Tabcorp and Tatts for the prior year, revenue was up 8.7% year-on-year. From the date of the closing of the Tatts acquisition on 14 December 2017, and with Tabcorp’s 2017-18 results restated to reflect the discontinuation of the Sun Bets joint venture, revenue was up 45.9%.

The majority of revenue came from Tabcorp’s Lotteries and Keno division, which accounted for $2.9bn, or 52.2%, of the group total. This represented a 22.8% year-on-year increase.

Powerball proved the standout performer, accounting for 28% of the division’s revenue, with the game benefitting from product improvements to increase jackpots.

“We have been focused on driving sustainable growth through investments in our digital and retail channels, as well as game innovation,” Tabcorp chief executive and managing director David Attenborough said. “The new Powerball game reinvigorated the Australian lottery market, delivering bigger jackpots more often.”

This resulted in increased cross-sell to other games, such as the Monday and Wednesday lotto draws (27% of revenue, with Saturday Lotto draws) and Set for Live (8% of revenue).

Digital revenue was up 73.5% year-on-year, and now accounts for 23.5% of lottery revenue, while active registered players increased 22.2% to 3.3m over the year.

The Wagering and Media division, however, endured a difficult year. Pro-forma revenue fell 3.6% year-on-year to $2.3bn. When the Victorian racing industry’s share from its joint venture with Tabcorp was factored in, revenue amounted to $2.4bn, down 4.4% year-on-year.

Wagering and Media turnover for the year fell 1.2% to $16.1bn, with declines in stakes through retail and call centres offset by a 7.7% rise in digital turnover to $6.8bn. Digital now accounts for 44.6% of TAB revenue.

UBet, the wagering business acquired through the Tatts merger, struggled most, with revenue down 7.2% to $517.1m, though Tabcorp noted that it this decline had slowed following the acquisition. UBet still remains a retail-first business, with digital betting only accounting for 34.1% of revenue.

Attenborough said integrating the legacy TAB and acquired UBet businesses had been the division’s focus in FY19, with UBet expected to be fully aligned with the TAB by the second half of the operator’s 2020 financial year.

The Max gaming services business, meanwhile, saw revenue fall 3.5% to $304.0m. This was blamed on the expiry of contracts in Victoria.

After revenue-related costs were stripped out, Tabcorp’s variable contribution for the year amounted to $2.0bn, up 3.9% year-on-year. A marginal rise in operating costs to $914.5m left earnings before interest, tax, depreciation and amortisation of $1.1bn, up 7.6% on a pro-forma basis.

Attenborough noted that the integration programme to combine the Tabcorp and Tatts businesses had delivered EBITDA synergies of $64m over the year. This was ahead of the mid-year target of $55m, leaving the operator on track to realise between $130m and $145m in synergies by FY21.

Once depreciation and amortisation of $304.1m was stripped out, earnings before interest and tax  were up 9.3% year-on-year at $760.6m. Net profit for the year leapt to $362.5m once interest expenses, taxes and significant items - including Sun Bets - were factored in.