Tabcorp (ASX:TAH) shares plummeted over 20% on Wednesday after the company announced a significant non-cash impairment charge of $1.37 billion for its wagering business. This write-down, which is more than double the size of a similar impairment in February, reflects the challenges facing the gambling industry in Australia.
The company attributed the increased impairment to several factors, including slower-than-expected market recovery, rising inflation and interest rates, increased operating expenses, and a tightening regulatory environment. These factors have combined to reduce consumer spending on wagering activities.
New CEO Gil McLachlan’s arrival may also have contributed to the substantial write-down. Analysts often refer to this as “kitchen sinking,” where a new CEO re-evaluates a company’s finances and takes significant steps to address underlying issues.
In addition to the impairment, Tabcorp reported a net loss of $1.36 billion for the year ending June 30, compared to a profit of $67 million the previous year. Group revenue declined by 3.9%, and earnings (before the impairment) fell by 18.7%.
The company has also announced a final dividend of 0.3 cents per share, down from 1 cent a year ago. The full-year dividend is now 1.3 cents per share, significantly lower than the 2.3 cents paid for the previous fiscal year.
Tabcorp warned that franking credits will not recommence for some time due to tax losses incurred in the current fiscal year.
McLachlan acknowledged that the company will not be able to meet its previously set growth targets. He will need to reassess the company’s strategy to navigate the challenging market conditions.
The company expects the macroeconomic environment to remain difficult for consumers, and the regulatory landscape is likely to continue tightening. This suggests that the soft wagering market may persist for a longer period than initially anticipated, particularly as efforts to control the promotion of sports betting intensify.