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Tabcorp flags uncertain year as H1 profit dips

Published 8:40 AM, 4 Feb 2010 Last update 5:47 AM, 5 Feb 2010

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By a staff reporter, with Reuters/AAP

Tabcorp Holdings Ltd has reported a two per cent dip in net profit for the first half of fiscal 2010, after revenue was held back slightly by soft trading in the company's Queensland casinos.

The company also cautioned that the outlook for the rest of the year to June 2010 remained shaky.

“We expect conditions to remain somewhat uncertain for the remainder of the 2010 financial year as government stimulus measures are wound down and higher interest rates affect discretionary income," Tabcorp chief executive Elmer Funke Kupper said.

"In this environment, we will maintain our current focus on operational performance and deliver the key investment programs we have under way," Mr Funke Kupper said.

The company's net profit fell to $257.9 million in the six months to December from $263.2 million a year earlier, but beat an average of five analysts' forecasts at $251 million.

“Overall, this is a sound result in variable economic conditions and a difficult regulatory environment. The company is progressing initiatives and investments in each of the operating divisions that are showing promise and provide a good foundation for growth in the coming years,” Tabcorp chairman John Story said.

The company also flagged that 2010 would be an important year for the company, particularly in wagering, as greater clarity was expected to emerge in the regulatory environment.

"We expect that the Victorian Government will award the post-2012 Victorian wagering licence. These events will allow us to chart the future direction of the company with greater clarity,” Mr Funke Kupper said.

Tabcorp said it had incurred new race fields charges in wagering and higher gaming taxes in its Queensland casinos totalling $13 million after tax.

These new charges were offset by a lower effective income tax rate in the first half, primarily due to research and development tax credits and the release of provisions following resolution of the long-running Star City pre-paid rent dispute with the Australian Taxation Office (ATO).

The company is also trying to fill a looming hole in its earnings from 2012, when it is due to lose its duopoly on gaming machines in the state of Victoria, by spending $575 million to spruce up and expand its Star City casino complex in Sydney.

Its shares have fallen 3.2 per cent over the past six months lagging a 6.6 per cent rise in the broader market over the same period.

Tabcorp declared a half-year dividend of 30 cents per share, which will be fully franked and payable on 22 March 2010 to shareholders registered at 15 February 2010.

Tabcorp shares closed flat at $7.05, against a 0.56 per cent decline in the benchmark index.

Expansion plans

Meanwhile, the gaming giant has said it sees expansion opportunities in casinos in Queensland.

"In the casinos, we continue to see significant expansion opportunities, and Star (Star City casino in Sydney) is the evidence that that is important," Tabcorp chief executive Elmer Funke Kupper told analysts in a market briefing on Thursday.

"And that's not surprising.

"Other casinos around the country that are investing in expansion are seeing those results.

"We really would like to do more in Queensland as well over the coming years because we believe particularly the Gold Coast will benefit from expansion investments."

In Queensland, Tabcorp operates the Conrad Jupiters casino on the Gold Coast, the Conrad Treasury in Brisbane and Jupiters Townsville.

"The upside at the Gold Coast, we think, is substantial. It's very strong growth area, it's a very large market, we've got a good position, but the property needs that expansion and work," Mr Funke Kupper said.

It would be more difficult to expand the Treasury casino in Brisbane because it was in a heritage building.

Tabcorp said that in the first half, gaming markets in Queensland and Victoria had contracted.

"The gaming market in Victoria experienced much tougher conditions, following several years of strong growth," the company said.

Revenues from the Victorian gaming business fell by 1.1 per cent although market share increased to 53.2 per cent.

Mr Funke Kupper told The Australian Financial Review newspaper that he did not plan to split the company's casino and wagering divisions in the next two to three years, because it would provide little benefit to shareholders.

"The reality is if you look at the next two to three years I can see the cost of a move like that ... but I cant see material benefits," Mr Funke Kupper said.




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