Tatts Group chief executive Robbie Cooke says the company will become a more aggressive wagering competitor, with a new website, new brand and increased marketing expenditure, as it attempts to halt a period of underperformance against its rivals.
Mr Cooke, who has been running the Brisbane-based company for just over 18 months, said the wagering division had not received sufficient investment to keep pace in the intensely competitive $26 billion industry.
In the past year, in which wagering revenue fell 2 per cent to $642.3 million and contributed to a 19 per cent fall in net profit to $200.4 million, Mr Cooke has been addressing the underinvestment.
He has increased the size of the team responsible for building digital products from 20 to 52, hired more bookmakers so Tatts can offer betting around the clock, and is poised to announce a new betting brand.
To promote the new website and brand, which will be rolled out to its retail outlets in Queensland, Northern Territory, South Australia and Tasmania, as well as online, Tatts will boost advertising. This will lead to a "small contraction" in wagering margins, Mr Cooke said.
"I'm not uncomfortable with where we are," he told Fairfax Media. "We have done a lot of work in the last 12 months. We have the opportunity with the revised regime in Queensland to step it up and compete."
Pengana Capital fund manager Rhett Kessler said the recent deal that Tatts struck in the sunshine state was "exceptional". The terms agreed to in June provide a 30-year extension to Tatts' monopoly retail licence, lower taxes and lock in a rebate on racefields fees paid to other states.
Some analysts raised concern about increasing expenditure, but Mr Kessler said the new funding regime allowed Tatts to reinvest. "It's quite a clever deal because in my opinion the funding relief is designed to reinvigorate the business," he said.
The lotteries division also suffered a fall in revenue of 4.3 per cent to $1.9 billion, but that was mostly down to the previous year when customers chased a rare series of large, frequent jackpots that were not repeated in 2013-14.
Mr Cooke said in the first seven weeks of this fiscal year, Tatts had returned to a more favourable jackpot run, with six prize pools at or above $15 million, compared to four in the same period last year.
Once the wagering website has launched, Tatts will also unveil a new lotteries website. It also plans to roll out the sale of lotteries to convenience fuel stores after a successful Victorian trial.
Citi analyst Michael Goltsman said more online sales helped margins. "Lotteries earnings before interest and tax margin increased 70 basis points to 14.1 per cent despite softer sales," he said.
The tough net profit result was due to a favourable tax benefit in the previous year not being repeated, as well as a $42.6 million poker machine levy that the company fought unsuccessfully in court. Net profit from continuing operations in the year to June 30 fell 0.3 per cent to $226.6 million, which missed analyst expectations.
The 2013 financial year benefited from a one-off, $16.2 million tax benefit. The previous year also included $19.9 million in net profit from the discontinued Victorian pokies operation, which ran for the first six weeks of financial 2013.
That short pokies operation also cost Tatts $42.6 million from a government levy, used for health and charitable activities. Although Tatts and Tabcorp only operated the state's pokies for 46 days into the new financial year, a legal finding said they had to pay a levy for the full year. Both companies have applied to the High Court for leave to appeal against the judgement.
Disappointed investors pushed the stock down 5.8 per cent to $3.41. The stock had surged in the lead-up to the result, taking full-year gains to 14 per cent against a 10 per cent rise in the benchmark S&P/ASX200 index.
Tatts reported a 7.9 per cent fall in revenue to $2.87 billion, which missed consensus of $2.92 billion. Excluding discontinued operations, revenue fell 2.7 per cent.
Pre-tax profit from continuing operations rose 7.8 per cent to $326.6 million, but one-off items spoilt the result.
Mr Cooke's remuneration for the year increased to $3.1 million, from $1.2 million previously. But the large jump reflects that 2013-14 was his first full year with Tatts, having started in the role on January 14, 2013.
The board declared a dividend of 5.5¢, payable on October 6.
