WITH extra money for new private jets and a new events centre for Sydney, Tabcorp tried yesterday to add some shine to its full-year results, which showed falling profits and stagnant revenue.
But the gambling giant's surprise decision to spend an extra $285 million upgrading Sydney's Star City casino failed to impress investors, who may be cautious about the additional risk Tabcorp is taking. The money will pay for two private jets, luxury accommodation and a 3000-seat venue.
Tabcorp is already in the midst of $575 million in capital works at its harbourside casino, partly to redress the fact that it was built facing away from its world-renowned view.
The extra spending is largely an attempt to catch up with James Packer's Crown casino in Melbourne. Tabcorp expects returns on its investment to be about 14.5 per cent.
Since 2008 Crown has announced capital expenditure of $1.6 billion. It has been running a jet since it opened in 1996 and has added two more. The jets bring high-rolling Asian gamblers and their entourages to Australia. It is a lucrative market in which Star City admits it has dropped the ball.
Star City has no jets and has been booking charter flights for clients.
It has also failed to compete in the events market, whereas Crown has hosted such televised awards as the Logies and the AFL Brownlow Medal presentation.
Tabcorp's chief executive, Elmer Funke Kupper, said he was confident the investment in Star City would bring in more patrons. ''What Crown has done over the years is what we haven't done, which is maintain cap ex [capital expenditure], so part of our spend is catch-up,'' he said.
Tabcorp had been using the lure of building an events venue for Sydney to gain permission from NSW government to install an extra 1000 poker machines - again to compete with Crown.
The company is now pushing ahead with the conference and events centre without the extra machines, although the proposed venue is yet to win planning approval.
The full-year results show revenue for Tabcorp was $4219 million, just $8.5 million more than last year. Net profit fell 10 per cent, to $470 million.
Sam Theodore, a gambling analyst with UBS, said the result was slightly disappointing but largely consistent with expectations. He said some investors were concerned about Tabcorp's spending - not just on Star City, but also potentially on Jupiters, in Queensland, in the near future.
''While Tabcorp have given guidance on the returns they're expecting, there a remains risk in execution,'' Mr Theodore said.
Star City's earnings grew but lower earnings from Tabcorp's three Queensland casinos dragged the division down 29 per cent, to $260 million. Tabcorp blamed economic conditions in Queensland.
Wagering earnings rose 4.1 per cent, to $262 million. The football World Cup delivered a total of $22.3 million, including $14.6 million in 2009-10. Earnings from gambling machines and games like Keno, driven by machines in Victoria, fell 1.8 per cent, to $272 million.
Tabcorp shares closed 15¢ lower yesterday, at $6.76. A final dividend of 25¢ will be paid on September 20.
AT A GLANCE
Sales $4.22b flat
Profit $470m -10%
EPS 74c -11.6%
Dividend 25c -5c
