Tatts Group (ASX:TTS)

Robbie Cooke
CEO & MD
Market Cap (AUD): 6.77B
Sector: Consumer Discretionary
Last Trade (AUD): 0 +0 (+0%)
Tab Bar

1. About

Tatts Group, as member of the Tabcorp Group, form part of Australia’s largest provider of wagering, lotteries and gaming products and services. It serves customers under the Tatts, Golden Casket, NSW Lotteries, SA Lotteries, UBET, MAX, and George brand names. The company was founded in 1881 and is based in Woolloongabba, Australia. Tatts Group Limited is a subsidiary of Tabcorp Holdings Limited.

2. Business model

 

The Group operates the following divisions:[1]

 

Business

Revenue ($,m)

% of total Revenue

% of (Profit before interest and income tax)

Profit drivers[2]

Tatts Group

 

$2,873.5

100.0%

100.0%

  • Lotteries revenue was $2,112.2m, up 4.9%, benefitting from a favourable jackpot sequence compared to the prior financial year, particularly in 1H18. Digital sales increased 27.8% and accounted for 16.8% of all lottery sales
  • Wagering revenue was $530.0m, marginally down by 0.5%. Totalisator revenue was $ 262.8m, down 6.5%, however there was a 5.6% increase in fixed odds racing revenue ($233.3m) and an 11.6% increase in fixed odds sports revenue ($33.9m). UBET revenue growth turned positive in 2H18 up 1.2% (1H18: -1.9%) and UBET fixed odds revenue growth improved in 2H18 to 9.6% (1H18: 3.5%)
  • Turnover
    from digital channels increased by 12.9%, assisted by a successful Soccer World Cup campaign and
    new products such as UBET’s Tappy
  • Gaming Services revenue grew by 2.1%, supported by increases in value-added MAX services and Ticket In Ticket Out services

3. Strategy

 

The Group’s business strategies :[3]

 

The Company is a member of the Tabcorp Group, one of Australia’s leading gambling entertainment companies, which seeks to deliver sustainable superior returns to its shareholders through the delivery of financial, operational and leadership excellence. As a member of the Tabcorp Group, the Company adopts the Tabcorp Group strategies that are applicable to the Tatts Group’s businesses. In addition to the business strategies as disclosed elsewhere in this Directors’ report, Tabcorp Group’s FY19 priorities include:

  • Deliver the expected benefits from the Tabcorp-Tatts combination
  • Continue to execute on growth opportunities across all businesses
  1. Enhance digital capability and improve consistency of customer digital experience.
  2. Deepen integration of digital technology into retail network.
  3. Deploy new products across all markets for all businesses.
  4. Strengthen customer relationship management capability by effectively integrating systems and
    customer data platforms.
  • Ensure the highest levels of regulatory compliance.
  • Maintain a disciplined approach to operating expenditure, capital investment, and balance sheet management.

4. Markets

 

The Company operates in markets including:[4]

 

Industry (Australia)

Industry Revenue (2018)

Growth Rate (annual 13-18)

Lotteries

$7 billion

0.9%

Horse and Sports Betting

$4 billion

5.1%

5. Competition

 

Major competitors include:[5]

 

  • Tabcorp Holdings Limited (ASX:TAH)
  • Intralot S.A. (OTCMKTS:IRLTF)

6. History

 

1881[6]  

George Adams organized the first Tattersalls public sweep on the Sydney Cup

 

1891  

Sweeps are banned in NSW and George hits the road and heads north to Brisbane where there is no anti-gambling legislation

 

1894  

The Post and Telegraph Act of 1891 is used to stop any post being delivered to Tattersalls

 

1895  

George gets his lucky break when he received an invitation from the Tasmanian Government to conduct a lottery

 

1904  

George Adams died and the estate of the late George Adams is formed and continued to operate as Tattersalls  

 

1954  

Tattersalls secured VIC licenses and moved to Melbourne  

 

1962  

The TAB QLD opened for business

 

1999  

TABQ listed on the ASX

 

2000  

TABQ acquired NT TAB

 

2001  

TABQ acquired SA TAB and changes its name to UNiTAB

 

2002  

TABQ changed name to UNiTAB

 

2004  

UNiTAB acquired Maxgaming NSW

 

2005  

Tattersall's listed on the ASX and acquires Bytecraft

 

2006  

Merger of equals between Tattersall's Ltd and UNiTAB Ltd under the Tattersall's brand

 

2007  

Tattersall's acquired Talarius and Golden Casket and changes it's name to Tatts Group Limited

 

2010  

Tatts Group acquired NSW Lotteries

 

2012  

Tatts Group acquired SA Lotteries and Tote Tasmania

 

2014  

Tatts Group secured QLD wagering deal with 30 years exclusivity and Victorian Instant Scratch-Its return to the Group

 

2015  

UBET is launched 

 

2016  

Tatts Group launched the Lott and MAX and Gaming secured new 15 year NSW CMS license while Talarius is sold to Novomatic

 

2017  

Tatts Group combines with Tabcorp Holdings Limited creating a world-class, diversified entertainment group  

Tabcorp's $11b merger with Tatts Group got green light

 

2018  

Tabcorp completed refinancing of tatts acquisition facility    

7. Team

 

Board of Directors[7]

 

Paula Dwyer – Chairman and Non-Executive Director

David Attenborough – Managing Director and Chief Executive Officer

Bruce Akhurst – Non-Executive Director

Harry Boon – Non-Executive Director

Steven Gregg – Non-Executive Director

Vickki McFadden – Non-Executive Director

Justin Milne – Non-Executive Director

Zygmunt Switkowski AO – Non-Executive Director

 

Management Team

 

David Attenborough – Managing Director and Chief Executive Officer

Merryl Dooley – Chief People Officer

Sean Hughes – Group General Counsel

Damien Johnston – Chief Financial Officer

Clinton Lollback – Chief Risk Officer

Frank Makryllos – Managing Director – Gaming Services

Mandy Ross – Chief Information Officer

Adam Rytenskild – Managing Director – Wagering and Media

Ben Simons – Chief Strategy Officer

Sue van der Merwe – Managing Director – Lotteries and Keno


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8. Financials

 

2018 Full Year Results Presentation

 

Financial Year 2017/18 (ended 30 June)[8]

 

Division

Revenue ($m)

% Change

Profit (before Tax, Depn & Amort) ($m)

% Change

Tatts Group

$2,873.5

3.4%

$161.5

(54.4%)

Total

$2,873.5

3.4%

$161.5

(54.4%)

9. Risk

 

Major risks include:[9]

 

Material Business Risks

Following the implementation of the Tabcorp-Tatts combination on 22 December 2017, Tabcorp Group’s governance arrangements have been applied to the Company and the Company’s risk management functions, processes, and practices have been integrated with those of Tabcorp. Material business risks that could adversely affect the achievement of the financial prospects of the Tatts Group in future financial years are summarised below and are similar to those disclosed in Tabcorp’s 2018 Annual Report dated 8 August 2018. These risks should not be taken to be a complete or exhaustive list of the risks and uncertainties that might potentially affect the Tatts Group. Many of the risks are outside the control of the Tatts Group. There can be no guarantee that the Tatts Group will achieve its stated objectives, that it will meet trading performance or financial results guidance that it may provide to the market, or that any forward looking statements contained in this report will be realised or otherwise eventuate.

 

Compliance risks

Any failure by members of the Tatts Group to meet compliance requirements, standards, values and systems (including, for example, in relation to privacy laws, anti-bribery and corruption laws, and anti-money laundering/counter terrorism financing programs and laws) at operational levels may increase exposure to a compliance failure, potentially leading to the suspension or loss of applicable gambling licences, other civil or criminal penalties and brand damage and loss of future licence or business opportunities. The Tatts Group has a structured approach to managing compliance across its businesses, which following the Tabcorp-Tatts combination has been integrated with the Tabcorp Group’s risk management framework. As part of the process to integrate Tatts and Tabcorp, an operational and functional review of the Tatts business is being conducted. The risk of non-compliance is being mitigated by implementing a detailed integration project plan with key actions to proactively identify and (where needed) update processes to ensure effective and efficient controls are in place. For example, opportunities have been identified to improve the Tatts Anti-Money Laundering/Counter-Terrorism Financing (AML/CTF) program, systems, and controls. The plan is to combine the Tatts and Tabcorp AML/CTF programs during 2020 as part of integration

 

Computer systems and technology security risks

The Tatts Group’s businesses rely on the successful operation of technology infrastructure. A prolonged failure of the computer systems and/or related infrastructure or technology security failure, such as a cyber-attack, could impact upon the Tatts Group’s technology systems and equipment, result in the loss or exposure of information assets, or personal customer data could be wrongfully appropriated, lost or disclosed, which may potentially adversely impact the reputation, operations or financial performance of the Tatts Group. Significant resources are allocated to managing the Tatts Group’s information technology portfolio, including specialist resources dedicated to information security and responding to cyber risks. The Tatts Group’s information security management systems that are in scope are certified against the ISO 27001 standard and all remainder systems are compliant to the standard. The Tatts Group continues to evolve and strengthen its practices to effectively manage technology security risks..

 

Financial instruments – risk management

Market risk

  • Foreign exchange risk: The Group's primary currency exposure is to US dollars as a result of issuing US private placement debt. In order to hedge this exposure, the Group has entered into cross currency swaps to fix the exchange rate on the USD debt until maturity. The Group agrees to pay a fixed USD amount in exchange for an agreed AUD amount with swap counterparties, and to re-exchange this again at maturity. These swaps are designated to hedge the principal and interest obligations of the US private placement debt.
  • Cash flow and fair value interest rate risk: Interest rate risk is the risk that the Group will suffer a financial or economic opportunity loss due to an unfavourable change in interest rates. The Group’s interest rate risk arises from the Group’s variable interest rate bearing assets and liabilities.

 

Credit risk

Credit risk is the risk that the Group will suffer a financial loss due to the inability of a counterparty to meet its financial and/or contractual obligations. Treasury activities generate credit risk arising primarily from investments, and the use of derivative instruments. Credit risk relating to other instruments is not material.

 

Liquidity risk

Liquidity risk is the risk that the Group may not be able to meet its obligations with respect to financial liabilities. Prudent liquidity risk management requires maintaining sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed credit facilities. Group Treasury manages liquidity risk by continuously monitoring forecast and actual cash flows, matching the maturity profiles of financial assets and liabilities, and maintaining appropriate committed funding lines in anticipation of future requirements.