Covid-19 write-downs push Tabcorp to AU$870m FY loss

Australia’s Tabcorp has seen revenue fall 4.8% in its fiscal year ended 30 June, amid disruption caused by the novel coronavirus (Covid-19) pandemic, with a hefty impairment charge resulting in the operator swinging to a loss for the year.

Revenue for the 12 months fell to $5.22bn (£2.86bn/€3.18bn/$3.79bn), with outgoing chief executive David Attenborough saying Covid-19 had been “very challenging for Tabcorp’s people, partners and customers”, and materially affected its FY2020 results.

“Covid-19 restrictions meant that hotels, clubs and TAB agencies were closed for significant periods of time during FY20,” he explained. “This has heavily impacted our Wagering & Media, Gaming Services and Keno operations.”

The Wagering & Media division saw revenue fall 10.1% year-on-year to $2.08bn, after Covid-19 enforced closures and restrictions across all states and territories from 23 March, and the suspensions of domestic and international sport.

During the period the division continued to invest in its digital transformation and substantially completed the integration of UBet, acquired through its deal for Tatts Group.

This investment in digital saw turnover for the channel grow 3.8% to $7.1bn, at a time when retail turnover declined 27.9% to $5.4m, marking the first time the digital contribution exceeded that of retail across a full year.

Following the end of the fiscal year, the migration of UBet customers to a single digital platform was completed. This provides players with a more attractive portfolio of products and services, including digital in-venue betting, as well as extra tote and fixed odds options, Tabcorp said.

Gaming Services also suffered a fall in revenue during the year, dropping 27.3% to $221m. Again, the closure of venues from 23 March hit the division, something further exacerbated by the social distancing protocols in place after reopening.

The division also suffered from contract expirations, contract extensions at lower daily rates, reduced project work and a service contract with communications business Telstra that was not renewed in the first half of the year.

Tabcorp suspended all fees for venues during the Covid-19 closures, as well as furloughing staff and reducing operating and capital expenses.

“We continue to support our venue partners and have waived more than $100m in fees to date,” Attenborough said. “We are focused on ensuring that together we emerge strongly in the post Covid-19 environment.”

Efforts to simplify the Gaming Services business’ operating structure and reduced costs have been implemented following an operational review of the division. A strategic review of this division, announced in February this year, was paused because of Covid-19.

While Wagering & Media and Gaming Services both struggled during the year, Tabcorp’s largest division, Lotteries & Keno, actually grew 2020 revenue, which rose 1.8% to $2.12bn.

This growth, the operator said, reflected its investments in digital and retail channels, as well as an “evolution” of its games portfolio to appeal to more diverse range of customers. This resulted in an additional 400,000 Australians registering to play its lottery games, taking its total customer base for the vertical to 3.7m.

Powerball turnover grew 16%, with Set for Life turnover up 21%. While Tabcorp’s lottery retail network, comprising newsagents and convenience stores, continued trading during the Covid-19 lockdown, retail turnover actually fell 4%. This was more than mitigated by growth in digital turnover, with the channel now accounting for 28% of total lottery turnover, up from 23.5% in FY2019.

Keno, on the other hand, saw revenue decline 14.3%, due to the shut-down of clubs and hotels in New South Wales, Queensland and Victoria during the second half, to 30 June.

The division paid $2.01bn in taxes and levies to state and territory governments over the year.

After a further $1.44bn in commissions and fees were factored in, Tabcorp’s variable contirbution – revenue minus variable costs – came to $1.80bn, down 9.4%. The business’ operating expenses came to $804m, a 6.7% decline on the prior year, which left earnings before interest, tax, depreciation and amortisation of $995m, 11.5% below FY2019.

Depreciation and amortisation charges rose 14.7% to $399m, which resulted in earnings before interest and tax declining 23.2% to $596m. After interest expenses of $193m, and income taxes totalling $132m, Tabcorp’s net profit before exceptional items came to $271m, within the range of $267m to $273m that it announced earlier this month.

However, the business then recorded an $1.09bn goodwill impairment charge. This broke down to a $905m charge for Wagering & Media, then $185m for Gaming Services.

Tabcorp recorded a further $51m in additional exceptional items, comprising $19m in asset impairments, then $18m in costs related to the integration of Tatts, as well as $19m paid to Racing Queensland to settle a point of consumption tax dispute. This partially offset by a $5m tax refund.

As a result Tabcorp’s net loss for the 12 months to 30 June amounted to $870m.

In July, the month following the full year end, revenue was up 2.8%, with Lotteries & Keno’s contribution growing 4.7% and Wagering & Media by 6.8%, though this was reduced by Gaming Services revenue dropping 52.2%.

Attenborough warned that uncertainty surrounding the severity and duration of the disruption caused by Covid-19, with the state of Victoria having gone back into lockdown amid a spike in cases.

“Our focus is on positioning Tabcorp to emerge strongly in the post Clvid-19 environment,” he explained. “It remains a challenging time, especially for the Victorian community which is in the middle of a difficult Stage 4 lockdown. Our priority is to navigate the pandemic by executing strategies that support our people, partners and customers, while maximising value for our shareholders.”

This includes a $600m equity raising drive, to pay down debts and ensure greater financial flexiblity. 

“With the integration of Tatts substantially complete, we are focused in FY2021 on capturing the value from the digital opportunity across Lotteries, Keno and Wagering and on unlocking the value of a more competitive TAB.”