Signs of support for Tabcorp Ltd yesterday, with the shares up a solid 6% or more, despite reporting a loss of $164.6 million because of the Victorian government’s decision not to compensate the gaming company for terminating its licence in the state.
The loss flowed from a total of $708 million in asset and goodwill write-downs.
The shares rose to a day’s high of $9.25, before settling back to end up 57c, or 6.4%, at $9.17.
It was a rare sign of support for a company whose shareholders have seen its price plunge from a high of $16.60 to a low of $8.32 in the wake of the Victorian government’s surprise decision.
The company said in its 2008 profit announcement that it was taking a $487.7 million charge against the value of the Victorian gaming licences, which reflected the government’s refusal to compensate the company.
Tabcorp wrote down a further $194 million in the carrying value of the company’s wagering business, as the company faced difficulties integrating its NSW and Victorian businesses and losses from the equine influenza (horse flu) outbreak.
The company also will write off $25.8 million against assets that will become redundant after the expansion of the Star City casino in Sydney.
Profit after tax before these non-recurring items was little changed at $516.9 million and operating revenue increased 0.9% to $3.92 billion.
Brokers, Citigroup commented in a note to clients that:
"Reflecting the impact of TVN dispute and EI outbreak on Wagering, difficult integration of NSW TAB, changing competitive environment and uncertain regulatory regime, compounded by the slow pace of change.
"We can’t argue with the logic, but wonder whether the charge might also be designed to send a message on value to the Victorian government in the lead-in to the post-FY12 Wagering License award."
Citigroup warned that this financial year was looking difficult because of ”deteriorating economic conditions which are affecting the Casinos Division, higher interest charges in FY09, rising capex and an annual amortisation of $26.5m for remainder of Vic License will all affect forecasts”.
The company tried to avoid the larger poker machine write-down by asking the Victorian Government for a refund as compensation for the loss of its lucrative duopoly from 2012. The Government refused, so court action looms.
The Tatts Group has already written down the entire $770 million value of its licence and as Citigroup pointed out, Tabcorp will write the total value down over several years if it fails to win compensation from the Victorian Government.
Tabcorp Chairman John Story said in a statement accompanying the results that "In light of the challenges that it has faced, including smoking bans, higher gaming taxes and the outbreak of equine influenza, this was a creditable outcome.
“The decisions taken by the Victorian government in April 2008 have a material impact on the Group.
“As a consequence, the Board has determined to take a provision for the value of the licence refund. We believe this to be prudent, but it should in no way be seen as a change in our strong resolve to pursue our legal entitlement to the refund.
“We have also reviewed the carrying value of our wagering business. The performance of this business has been impacted over several years by the challenges of integrating the Victorian and New South Wales operations, the split picture dispute and equine influenza.
"Whilst management has responded strongly to those challenges in the last year and delivered a positive result, we cannot ignore their cumulative effect on the business. Moreover, we must take into account the changing competitive environment and the uncertainty in the regulatory regime.
"Tabcorp is adapting to the changing competitive conditions aggressively, having regard to the interests of the racing industry on which the business is based.
“Whilst we have every confidence in the future for the wagering business, we consider that an adjustment to its carrying value is called for.
"Finally, the proposed expansion of Star City will render redundant certain elements of the property, the value of which is still carried on the balance sheet. We have written these items off as part of our overall review of the balance sheet,” he said.
“The combined impact of these adjustments on the reported earnings is substantial. We have, however, considered the dividend payment in the context of normalised earnings, and have resolved to maintain the annual dividend at 94 cents per share.
“And while we are conscious of global uncertainty and a softening economy, based on the current outlook for the company we expect that this payment per share can be maintained,” Mr Story said.
Earnings before interest and tax (EBIT) at Tabcorp’s casino division, which includes four venues, fell 4.5% to $368.8 million because of tougher trading conditions in the second half.
The international rebate business in the casino division partly offset losses with a positive win rate contributing $26 million after tax.
Tabcorp will spend $475 million to expand Star City, including a new hotel, expected to be completed in 2011. The expansion was approved after an exclusivity and product concession agreement with the NSW government. That’s up from earlier estimates of more than $300 million.
Tabcorp’s wagering business earnings before interest and tax (EBIT) increased 4.2% to $264.4 million as a 15.9% revenue rise in sports betting offset the losses from the equine influenza outbreak.
Gaming EBIT was little changed at $261.4 million, even though revenue grew by 4.8% because of highe
