Amid all the hoopla around BHP Billiton, China and Rio, it's been a miserable start to the 2008 year for gaming giant, Tabcorp.
Wider smoking bans are having an impact, and will continue to do so, the horse flu outbreak has cut into earnings and the company's revamp of its wagering business has been impacted as a result.
It has renewed its Star City Casino arrangement with the NSW Government, at a higher cost, and committed to spending hundreds of millions of dollars in improving the facility but in the scheme of things it, like so many middling to poorly performing industrial stocks, has been left behind in the resources bubble on the market.
Tabcorp yesterday re-affirmed guidance given in October that it expected the country's first equine influenza outbreak to wipe $30 million off annual pre-tax profits.
"2008 will be another tough year for Tabcorp, with the introduction of full indoor smoking bans in New South Wales and Victoria and a further increase in the gaming machine levy in Victoria," Tabcorp managing director, Elmer Funke Kupper told shareholders at the company's AGM in Sydney.
"The impact of equine influenza will be partially offset by the performance of our gaming business, which is performing much better than expected following the introduction of smoking bans.
"The net impact of these two factors on our group earnings will become clearer as the year progresses, and we will provide a further update when we present our half year result in February 2008."
He said the outbreak of horse flu in August had lost about $300 million of turnover compared to last year.
"By the time racing is back to normal, we hope early in 2008, the loss in turnover will grow to approximately $550 million," Mr Funke Kupper said.
The outbreak of equine influenza resulted in the cancellation of racing in Queensland and New South Wales and a ban on the interstate movement of horses between Victoria, NSW and Queensland.
Although there was racing in Victoria, betting was down because the lack of horses from NSW and Queensland had reduced the quality of the fields.
Racing in Sydney is due to restart this weekend and the flu situation in the state continues to improve.
In August when it announced its 2007 earnings and looked forward into 2008 (that was just before the outbreak of horse flu), Tabcorp said it expected normalised earnings before non-recurring items for fiscal 2008 to be broadly in line with last financial year.
That was in fact a downgrade as the expectation had been for a higher outcome this year from the market.
Management had told investors that more work needed to be done improving the NSW wagering business, cutting costs and improving processes.
Tabcorp generated earnings before interest and tax of $895.5 million for 2006-07, which was down 3%, and the net profit of $515.6 million was down almost 4%.
Mr Funke Kupper said that in fiscal 2007 growth in expenses had been unacceptable at 9.1%, outstripping revenue growth of 3.2%.
"Over the last few months, we have taken steps to improve our performance," Mr Funke Kupper said.
"We have brought expenses under control, and will deliver more acceptable expense growth in 2008.
"At the same time, we have simplified the organisation structure and put much greater focus on each of our businesses and the customers they serve."
In the next few months Tabcorp is expecting a decision from the Victorian Government on the future industry structure for Wagering, Gaming and Keno.
"In the case of Wagering and Gaming, Tabcorp has recommended that the Government retains the existing structure of an exclusive totalisator licence and two gaming operator licences," The CEO told the meeting.
"This recommendation is based on the track record of the Victorian industry to deliver great outcomes for customers, industry partners and the Government."
The Victorian Government renewed the Tattersall's lotteries licence but gave the low margin scratchies business (which Tatt's didn't want) to the Greek company, Intralot.
A similar sort of deal is more difficult in wagering, given the economies of scale with the betting pools and the prospect NSW will drop its insistence on a pool for that state.
Tabcorp shares were 18c higher at $15.04.
