So much for the idea that gambling is a recession-proof industry; it hasn’t been in the US where many casinos have collapsed and yesterday industry giant Tabcorp revealed results that confirm it wasn’t in the year to June 30, with sluggish spenders and more intense competition cutting into the profit line.
The ending of the federal government’s stimulus spending, the more cautious consumer and the impact of the high dollar on inbound tourism, plus rising competition from online betting websites (sports betting and gaming) have cut into returns.
Plus a bit of luck for high value gamblers at the Star City casino in Sydney.
Earnings were down and remain substantially below the $540 million earned in 2006 and the $522 million earned last year.
Tabcorp said revenue was up fractionally at $4.22 billion, but reported profit fell 10% to $469.5 million, while "normalised" profit was down 3.8% at just over $477 million, which, the company said, "includes $29 million after tax impact from additional race fields charges and higher gaming taxes in Queensland. Result (also) benefited from one-off tax credits totaling $29 million".
Tabcorp said the fall in the reported net profit reflected "fluctuations in the win rate in the VIP Rebate Business in the Casinos division." (That is, the big time punters won more than expected).
Final dividend is 25c a share, compared to 30c last year and will be paid on capital expanded by an issue.
Interim dividend was cut to 30c from 35c. That makes a total for the year of 55c a share, down from 65c.
The company told the market yesterday that to try and counter the rising pressure on its gambling and casino business, it was going into conventions, while continuing to expand its Sydney casino licence, which was part of a deal with the NSW Government.
The new convention centre will only be a couple of kilometres away from the Darling Harbour centre and will cost around $285 million, taking its spend on the revamp of Star City and the new facilities to $860 million. (Another report from the company said $960 million.)
The original refurbishment cost for Star City was around $465 million, according to a Tabcorp statement at the start of last year.
The shares reacted negatively to news of the weak profit and extra spending at Star City, with an early fall of around 3.5%, before a small bounce that left them off 2.1%, or 15c, at $6.76.
The Sydney move by Tabcorp comes after Melbourne’s Crown casino, controlled by James Packer, this week revealed plans for the massive redevelopment of the Southbank promenade along the Yarra River in Melbourne that will increase the casino’s floor space and create new gaming areas.
Tabcorp’s full-year results from the three casinos in Queensland fell 29% to $139 million on an earnings before interest, tax, depreciation and amortisation (ebitda) basis.
But Tabcorp reported a 10% rise in ebitda at Star City to $219 million.
In the wagering business, earnings before interest, tax, depreciation and amortisation rose 4% to $262 million, while the Victorian gaming business (poker machines) saw a 1.8% fall in ebitda to $272 million.
Chairman John Story said gaming markets in Victoria, where Tabcorp owns half the state’s poker machines, and Queensland, where it holds three casinos, had declined in the past financial year, ‘‘reflecting the economic circumstances’’.
As the government stimulus money ran out, this decline amplified, he said in yesterday’s statement.
The company blamed its fall in overall profits to its VIP casino gamblers being luckier this year than last.
In the previous year, the win rate for Tabcorp was above its theoretical level by $25.5 million, while in 2010 the win rate was $7.7 million below the theoretical level.
The additional investment at Star City, where renovations are already underway, will include a 3000-seat events centre overlooking part of Sydney Harbour. The project will require state government approval.
It will also fund two private aircraft to bring VIPs from Asia and improvements to VIP gaming facilities.
CEO Elmer Funke Kupper said in the statement that "trading conditions are likely to remain challenging in the near term and that Tabcorp is well placed to benefit from an improving economy.
"In 2010, we saw significant variations in the growth rates of the gaming markets in which Tabcorp operates. Whilst recent trading shows improved activity levels, it is too early to be confident that all markets will return to growth this year.
"This will depend on an improvement in economic activity and discretionary spending. Our growth in market share puts us in a good position."
