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Tab's high-growth gaming division is on the verge of profitability, but
capital expenditure and share buyback costs will conspire to keep the company's
total profit flat this year.
Tab yesterday reported a 4.5 per cent increase in profit to a record $76.6
million. Revenue grew 7 per cent to $897.5 million in the year to June. Tab
declared a 13c fully franked dividend for the year.
Tab is forecasting double-digit growth in earnings before interest, tax,
depreciation and amortisation in 2003. Earnings before interest and tax are
tipped to rise 5 to 10 per cent.
Tab warned profit growth would be flat this year, due to higher depreciation
and amortisation charges associated with capital expenditure and the higher
interest expense incurred after Tab borrowed $135 million to fund its recent
buyback.
Managing director Warren Wilson said earnings per share would ``show real
improvement" from the 15.5c recorded in 2002.
Gaming remains Tab's largest opportunity for profit growth. After making a
$4.4 million EBIT loss in 2002, the division is tipped to break even this half
and should make a small profit in the full year. ``There was little or no
contribution from gaming in 2002, so there is still upside coming through
substantially in the gaming side of the business," Mr Wilson said.
Tab has been successfully monitoring the State's 100,000 poker machines since
January 1. Its Maximillions linked jackpot product is recording quadruple the
average floor turnover in Sydney clubs. Tab is trialling its Stash linked
jackpot product for hotels.
Due to the high fixed cost nature of Tab's gaming operations, 60c of every $1
of revenue falls straight to the bottom line. Tab booked $21 million in gaming
revenue last year. Capital expenditure is likely to fall from $39 million to $10
million.
Tab is to make a concerted push into sports betting, after a 93 per cent
increase in fixed-odds turnover gave the company its highest wagering turnover
in eight years. After the phenomenal success of the World Cup, sports betting
has become a ``major focus" for Tab. ``We are going to chase sports betting
very hard," Mr Wilson said.
Excluding the $9.6 million one-off gains Tab made on property sold in 2001
and 2002, both net profit and EBITDA expanded 17 per cent in 2002. Despite the
2002 result being slightly ahead of expectations, TAB shares fell 4c to $3.25
yesterday. ``It's really just a reaction to management's comments flagging flat
profit growth," one gaming analyst said.
Tab bought back 9.8 per cent of its capital in May, and has left the door
open for a further buyback. It will ask shareholders at its annual general
meeting in October to ``refresh" its ability to buy back a further 10 per cent
of capital over the next year. Any further buyback will be on-market.
Tab slashed its capital expenditure by 25 per cent last year to $118.5
million.
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