McLachlan scraps Tabcorp’s strategy after $1.4b shock loss

Tabcorp’s new boss, Gillon McLachlan, will overhaul the wagering company’s strategy following its $1.36 billion loss for the 2024 financial year, and has dismissed its existing growth targets as unrealistic.

The bottom line of the ASX-listed wagering behemoth was hit by increased operating costs and a $1.38 billion write-down of the company’s South Australian and NSW assets, its second over the 12 months to June 30. Tabcorp had already booked a $732 million impairment in February, but said the business kept suffering from poor trading due to the cost-of-living crisis and increased regulation, coupled with higher costs.

Tabcorp boss Gillon McLachlan plans to overhaul the group’s strategy.Credit: Eamon Gallagher

Revenue fell 3.9 per cent to $2.39 billion in the period, while operating earnings slid almost 20 per cent to $318 million, the company said in a statement to the ASX on Wednesday morning. Tabcorp’s share price slumped more than 11 per cent to 50¢ in late-morning trade.

The former AFL boss started his tenure at Tabcorp this month, and has discarded its three-year strategy known as “TAB25”, saying it was unrealistic. The group had been targeting a 30 per cent share of the digital wagering market and aimed to reduce its operating costs to $600 million.

McLachlan told analysts he was not yet ready to commit to new targets or unveil a new strategy as he was only 18 days into leading the group, but that it was clear TAB25’s strategy was underpinned by incorrect assumptions. He said it was important to be realistic about the company’s prospects.

Financial results for the TAB have been worse than expected.Credit: Natalie Boog

“We’re seeing persistent inflation and inflated costs of regulation, which is sticky in our cost base,” he said. “The underlying assumptions of the [TAB25] strategy have been proven not to be correct,” he said.

“Today’s results demonstrate a competitive performance in the soft market conditions we face. [...] There’s no doubt the business is more competitive than it was at the [2022 demerger from The Lottery Corporation], but it’s not where it ultimately needs to be. It will require change, but the goal remains unchanged.”

McLachlan warned it was unlikely the challenges befalling the major players in the wagering industry would shift any time soon, so investors should not expect high returns from this December half.

“In the near term, we expect the macroeconomic environment to remain challenging. Given expectation of the interest rates remaining elevated and the high inflation levels that persist, the regulatory environment will also continue to tighten,” he said.

The company will pay a final dividend of 0.3¢ per share, taking its payout to shareholders for the year to 1.3¢ per share, down 43.5 per cent from last year’s return.

McLachlan replaced former chief Adam Rytenskild, who left in disgrace after an external law firm found he’d spoken inappropriately about a Victorian regulator. Rytenskild denies the allegations and is now suing Tabcorp for unfair dismissal.

Rytenskild says he was forced to resign and as a result was paid under half his $2.1 million salary for the 2024 financial year, $839,540 when accounting for annual leave and long service leave. All up he was paid $3.3 million for the year when accounting for a $500,000 termination payment, but could have been entitled to significantly more if he had not stepped down.

Taylor Collison analyst Andrew Orbach said the wagering market wasn’t playing out as expected, with big operators such as Tabcorp and Sportsbet underperforming, while smaller firms such as PointsBet have gained market share.

“Tabcorp needs a second brand. The TAB brand will not resonate with 20-something-year-old sports punters. Ever,” Orbach said in a note to his clients.

“It’s unlikely Tabcorp can turn this around organically in any period of time,” he continued, arguing the group needs to consider acquiring another business over the next six to 12 months.

“[They] need it for brand, team, tech and scale reasons. Seems obvious,” Orbach said.

Barrenjoey analyst Matt Ryan said it was a mixed result. “On the positive side, wagering performance looks better than expected, while cost growth appears higher than expected,” he told clients. Barrenjoey has a 78¢ price target on Tabcorp.

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