Tatts has won operating rights for South Australia’s lottery and keno service for the next 40 years at a cost of $427 million giving it a virtual clean sweep of the lotteries business in Australia.
Tatts said the deal will lift lottery earnings before interest, tax, depreciation and amortization (EBITDA) to more than $300 million in the year ending June 2014, up from $224 million last year, and will immediately lift earnings per share.
“It continues our track record of securing higher margin lottery franchises with longer term arrangements,” said departing chief executive, Dick McIlwain.
The lotteries business will now be the company’s biggest earner after the loss of its poker machine duopoly in Victoria as of August this year.
The company now operates every state and territory lottery aside from Western Australia which is still run by the state government.
Tatts said the Queensland and NSW lotteries will have doubled their EBITDA within four years of its takeover of these businesses and the acquisition of the South Australian lottery is ‘‘anticipated to produce broadly similar outcomes.’’
‘‘The company’s strategy of consolidating state-owned and Tatts’ lottery operations continues to drive significant operating efficiencies and benefits from a single lottery operating system,’’ said Tatts chairman Harry Boon.
South Australian Treasurer Jack Snelling said the Tatts group had paid substantially more than the government’s $400m reserve price for the licence to run lottery and keno services from December 10 this year.
Mr Snelling said while the government would forgo the annual $20 million dividend paid by Lotteries SA, it would still get about $60 million in gambling taxes each year from the sale of lottery products.
Mr McIlwain steps down at the end of the year and will be replaced by Wotif chief executive, Robbie Cooke.
Tatts does not provide earnings guidance but recently said the mid-point of analyst estimates for EBITDA of $489 million – which would translate to a net profit of about $215 million – ‘‘is a reasonable representation of the potential of the company based on trading for the first three months of the financial year.’’
Tatts shares closed 8c higher at $2.91 on Tuesday.
Colin Kruger is a business reporter. He joined the Sydney Morning Herald in 1999 as its technology editor. Other roles have included the Herald's deputy business editor and online business editor.
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