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[SYDNEY] Australia's largest betting company, Tabcorp Holdings Ltd, on Thursday revealed steeper than expected losses at its British online betting startup, casting doubt over a key plank of its growth strategy.
Alongside Tabcorp's A$6.2 billion (US$4.73 billion) bid for lotteries group Tatts Group, the Sun Bets startup is key to Tabcorp's efforts to cut its exposure to Australian betting as international rivals erode its market share.
But Tabcorp said in a filing to the stock exchange that Sun Bets, its biggest venture outside Australia, had made a A$21.3 million loss before interest, tax, depreciation and amortisation for the half ended Dec 31.
That was 2.5 times worse than the loss forecast by Deutsche Bank before the result, and contributed to a four percent fall in Tabcorp's share price as investors reassessed its broader growth strategy.
Tabcorp also warned it expected to report a further A$15 million EBITDA loss from Sun Bets in the second half. "The 'one-off' spending may have further to run," APP Securities private wealth adviser Matthew Felsman said, adding that wagering growth also had disappointed the market.
Tabcorp reported a 5 per cent rise in underlying net profit to A$102.7 million for the half, which was below analyst expectations because the Sun Bets losses were unexpectedly categorised as one-off costs.
The Melbourne-based company also reported one-off costs related to its Tatts bid and legal costs associated with a claim it did not comply with money-laundering regulations.
Tatts shares fell 1 per cent, reflecting the primarily scrip nature of Tabcorp's offer.
Sun Bets, launched in August and linked to News Corp's top-selling The Sun newspaper, is meant give Tabcorp a foothold in the A$7 billion annual British online gaming market. News receives an undisclosed share of the Tabcorp revenues.
Tabcorp Chief Financial Officer Damien Johnston told analysts the venture needed 1.5 per cent of the British online betting market to break even. But he did not say when that was expected to occur, and Sun Bets' revenues were just A$1.5 million during the half.
Tabcorp has been focusing on growing its online offering amid a reduction in trackside and retail betting in Australia, as consumers switch to digital channels owned by Tabcorp as well as foreign rivals like William Hill and Ladbrokes Coral Group.
Tabcorp is buying Tatts to give it exposure to the more stable earnings from lotteries as well as combining their wagering businesses.
Tatts in December rejected a takeover from a consortium including KKR and Macquarie Group. The group has not ruled out making a new offer.