Gaming giant Tabcorp’s first-half profit has slumped by 58 per cent, mostly due to costs associated with the $11 billion merger with Tatts Group and the poor performance of online wagering and gaming business Sun Bets in the UK.
Tabcorp’s net profit for the six months to December 31 fell to $24.6 million, from $58.9 million in the prior corresponding period, following a post-tax hit of $57.4 million from one-off items.
The results include an 18-day earnings contribution of $27.3 million from Tatts Group, which Tabcorp took over on December 14, 2017.
The Tatts contribution was mainly based on a strong performance in lotteries.
The one-off items included Tatts Group acquisition costs of $59.3 million.
Also, Tabcorp has set aside $52.2 million in provisions and impairments for Sun Bets, which has been struggling in its first year of operation.
Sun Bets, a joint venture with News UK, recorded an earnings loss of $22.5 million in the first half, and Tabcorp says the future of the JV business remains under review.
Tabcorp chief executive David Attenborough said Sun Bets was struggling to gain traction because it had not yet been able to offer the games, live betting and wagering experience needed to differentiate itself from more than 400 operators.
“To date we’ve not achieved that and, therefore, our performance is unsatisfactory,” Mr Attenborough said.
Tabcorp’s underlying profit, which excludes the one-off items, was down 20 per cent to $82 million, from $102.7 million a year ago.
The underlying result was partly weighed down by an 11.6 per cent drop in earnings from Tabcorp’s wagering and media division – the group’s biggest.
That division’s results were affected by higher-than-expected costs and a softening in revenues and yields in racing during November and December when more favourites won.
Mr Attenborough said that in the first half, Tabcorp had worked at reshaping itself to compete in the changing gambling landscape by widening its operations through the acquisition of Tatts and exiting online bookmaker Luxbet.
“We’ve entered the second half with a focus on delivering the substantial synergy and business improvement benefits that the combined group presents,” he said.
“At the same time, we will focus on driving momentum across all businesses.”
Tabcorp expects the combination with Tatts to deliver at least $130 million in benefits to earnings in the first full year after integration, which is expected to take two years and, the company says, is progressing well.
Citi analyst Rohan Sundram said Tabcorp’s underlying profit and the earnings result in the wagering division had both missed market expectations.
Tabcorp shares dropped 35 cents, or 6.9 per cent, to $4.76.
TATTS MERGER COSTS, SUN BETS HURT TABCORP
* First-half profit down 58.2pct to $24.6m
* Revenue up 18.7pct to $1.38bn
* Interim dividend down 1.5 cents to 11 cents, fully franked