Lotteries drive Tabcorp revenue growth in H1

Lotteries and keno helped Tabcorp’s revenues to increase to 4.4% to $2.91bn for the six months ended 31 December, 2019, even as the operator’s wagering vertical faced integration issues and the gaming services vertical struggled.

Of Tabcorp’s $2.91bn in revenue for the first half of its 2019-20 fiscal year, lotteries made up the majority, at $1.47bn, up 13.5%. Keno, meanwhile, brought in a further $117.5m, up 0.9%.

Tabcorp president and chief executive David Attenborough said this growth was driven predominantly by advances in digital lottery sales.

“Another excellent Lotteries & Keno result drove the Group’s earnings growth, and this business continues to go from strength to strength,” Attenborough said. “Lotteries’ digital turnover was up almost 40% with retail up over 5%, evidence of how favourably customers and retail partners are responding to our integrated omni-channel strategy.”

Wagering and media brought in $1.18bn, down 3.7%, on turnover of $8.00bn, down 6.2%. Attenborough said the operator is still adjusting in this area after the acquisition of Tatts Group, which includes the UBET wagering brand, in 2017.

“This was a challenging half for our Wagering & Media business. TAB is competing well while also transforming in a soft market,” Attenborough said. The ex-UBET business does not yet have the broader set of products or services to win customers in a highly competitive environment.

“However, the integration of TAB and UBET is in its final phase and we look forward to providing the superior TAB experience to customers in Queensland, South Australia, Tasmania and the Northern Territory. We remain excited by the opportunity for this business once fully integrated.”

Retail wagering turnover declined 9.0% to $3.61bn from 700,000 active cusotmers, while digital turnover fell 4.9% to $3.41bn. Call centre turnover fell 12.7% to $207.8m and other turnover rose 4.3% to $767.8m.

Of the $1.18bn in revenue from wagering and media, $587.0m came from totalisator racing bets, down 9.0%, while fixed odds racing revenue rose 5.7% to $490.8m.

Sport contributed $121.8m in revenue, a 10.8% decline, which Tabcorp said was largely due to the fact that H1 of 2018-19 included the latter stages of the 2018 Fifa World Cup.

Gaming services contributed $149.0m in revenue, down 4.4% – a figure Attenborough admitted was “unsatisfactory”.

“We are reviewing this business to improve performance and realise its full potential,” he said.

The operator had variable costs, which includes costs of sales, of $1.88bn, up 6.3%. Variable costs were the highest in the lotteries and keno vertical, at $1.17bn. Variable costs from wagering and media came to $706.8m while for gaming services these costs were just $7.0m.

This resulted in a variable contribution – revenue minus variable costs – of $1.03bn, up 1.2%.

Although lotteries and keno brought in more revenue, sports wagering and media had the largest variable contribution at $472.7m, down 5.9%. However, while it did not exceed wagering and media, lotteries and keno’s variable contribution rose 13.0% to $413.0m. The variable contribution from gaming services came to $142.0m.

Tabcorp’s operating costs came to $433.2m, a 0.1% increase. Wagering and media had by far the highest operating costs at $238.9m, down 3.9%. Operating expenses from lotteries and keno came to $118.1m, down 6.2%, and from gaming services $76.1m, up 6.9%.

This resulted in earnings before interest, tax, depreciation and amortization (EBITDA) of $596.5m, up 2.1%. Lotteries and keno contributed $294.9m of EBITDA, wagering and media $233.8m and gaming services $65.9m.

Tabcorp incurred depreciation and amortisation costs of $192.3m, up 10.0%. These costs were largest in wagering and media, where they totalled $95.3m, up 7.0%. For lotteries and keno depreciation and amortisation cost Tabcorp $49.1m, up 12.1% and these costs for gaming services came to $44.6m, up 14.1%.

This led to earnings before interest and tax of $404.2m, down 1.2%. After paying $94.8m, up 9.7%, in interest and $95.9m in tax, Tabcorp’s net result before items that affect comparability – mainly from the 2017 acquisition of Tatts Group – came to $213.5m.

After accounting for these items, Tabcorp’s net profit came to $198.8m, up 10.8%.

“Tabcorp’s diversified group of businesses delivered a solid overall result in the first half of FY20,” Attenborough added.

The operator only provided figures for the six months ending 31 December rather than for the second quarter of the 2019-20 fiscal year.