Tatts continues focus on repositioning wagering business for growth

Australia’s Tatts Group has reported a 19 per cent drop in net profit to AUD$200.4m in its results for the full year ended June 30th, after the company lost its challenge against the Victorian government’s determination to impose a health benefit levy.

Tatts saw a $42.6m levy charged to its discontinued pokies business in July, which related to the final 46 days that the business operated during the 2013 financial year.

As a result, the levy significantly impacted Tatts net profit for the year, which fell 19 per cent to $200.4m. Excluding this one-off charge, net profit would have risen 7 per cent.

“Somewhat disappointingly this strong underlying performance was cruelled by a loss in the group’s challenge to the Victorian Treasurer’s determination to impose a health benefit levy,” said the company in a statement this morning.

In its results for the year, total revenue fell by 3 per cent to $2,868.3m, with a strong performance from its growing digital channel which now contributes 23 per cent of wagering sales and 9 per cent of lottery sales.

Overall lottery revenue was down 4 per cent to $1,922.8m, with a full year’s contribution from SA Lotteries offsetting the “exceptional” jackpot sequence last year. Wagering revenue were down 2 per cent $642.3m, which the company said reflected the competitive landscape, while gaming revenue rose marginally by 0.9 per cent to $114.2m.

Full Year 2013/14 Results

Tatts said that it has invested significantly into its wagering unit, including marketing, branding, retailing and into its online and bookmaking services, which is designed to position the company to “fight-back against the swarm of online competitors.”

“Outperforming the Group’s FY13 result was never going to be an easy task given the exceptional run of lotto jackpots in that year, coupled with the investment ‘ramp-up’ this year in our wagering operation -an essential step to repositioning our business for future success,” said Tatts Group CEO and managing director Robbie Cooke. “So, against that backdrop, I am pleased with the result achieved in the reporting period, which saw the positive combination of record lotteries earnings, online migration and lower funding costs drive our performance.”

Tatts said that a range of new products and initiatives were successfully launched in the year, including multi-jurisdictional scratch-it tickets, Monday Lotto in Queensland, the Autoplay feature enabling customers to set perpetual online entries, a new South Australian website and the trial of the convenience fuel retail channel in Victoria.

“Our wagering renewal program is well advanced and touches all areas of our operation,” continued Cooke. “The deliverables to date include the significant expansion in our bookmaker numbers enabling the launch of our 24/7 fixed-price betting service on all racing codes and upon a wider range of sports.

“It has seen the recruitment of a dedicated eight person wagering marketing team, the engagement of a leading advertising agency and the creation of a new wagering brand ready for launch that will provide a seamless customer experience across all our sales channels.”

Cooke said that the program has lifted its online team to now comprise 52 digital experts who have been working on the company’s next generation wagering site, which is close to launch.

“Work in progress also includes a new retail experience, a new sports betting platform, enhanced self-service terminals and a rewards program,” he added.

Tatts reduced total expenses by 4 per cent to $2,369.9m, which included $1,289.9m paid to government in taxes, and $187.2m of product and programme fees. Other expense were up marginally by 0.3 per cent to $479.7m.

The company generated $498.4m in EBITDA, up 2 per cent year-on-year, with EBIT rising 2 per cent to $414.5m. Net profit for the period fell by 19 per cent to $200.4m.

Tatts board has recommended a final dividend of 5.5 cents per share, taking the total dividend paid in respect of the 2014 financial year to 13.5 cents.

“With a pipeline of exciting initiatives for launch, the group is well positioned for a successful FY15,” said Cooke. “The year has commenced strongly from a trading perspective - with both wagering and lotteries off to a great start.”

Wagering revenue is up 4 per cent with racing up 3 per cent and sports up 18 per cent, benefiting from the World Cup. The lottery business is benefiting from a strong run of jackpots, with six jackpots at or above $15m so far this year.

“Our new wagering web site and brand will launch in the year, which will attract a lift in marketing spend,” continued Cooke. “This spend will be offset, to an extent, by the reduced wagering tax in our core Queensland market. The investment we are making in our wagering business to drive growth will bring a further small contraction in our wagering EBITDA margin.

“Our focus remains on repositioning our wagering business for growth and capturing the sales momentum considered available in our markets.”

Shares in Tatts Group Limited (Co. Data) (ASX:TTS) fell 5.80 per cent to close at $3.41 per share in Sydney earlier this morning.