Tabcorp Holdings Limited (TAH) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Tabcorp Holdings Limited Full Year Results for 2021. [Operator Instructions] But without further ado, I'll hand the conference over to your first speaker for today, Managing Director and Chief Executive Officer, David Attenborough. Thank you, and please go ahead.

Thank you. Good morning all, and welcome to Tabcorp's Full Year Results Presentation for FY '21. And I'm David Attenborough, CEO. And joining me on the call today are our CFO, Adam Newman; and the heads of our 3 businesses, Sue van der Merwe from Lotteries & Keno; Adam Rytenskild from Wagering & Media; and Paul Carew from Gaming Services. We'll first take you through the presentation lodged with the ASX this morning, and then we are happy to take questions. And I hope that wherever you're dialing in from that you're managing through the restrictions as well as you can. So on to Slide 3. Despite the disruption of the last 12 months, our businesses proved resilient and delivered a strong group result. Revenues were up almost 9% on the pcp, and we achieved 11% growth in EBITDA before significant items. The work we've done on our balance sheet and our strong operational cash flows have improved our gearing, and we're pleased to announce a final dividend of $0.07 per share. I'd like to call out the efforts of our teams and our partners in retail and the racing industry and acknowledge the ways they've worked together through the lockdowns and interruptions, doing so with care and with customer front of mind. Lotteries & Keno produced another record result and continued its strong growth trajectory since the Tabcorp-Tatts merger. And we were pleased to see Wagering & Media deliver a stronger underlying performance, off the back of the work the team has done in enhancing Tab's customer proposition. And Gaming Services continues to be our business, impacted the most by trading restrictions. With an eye to the proposed demerger, this result has demonstrated the resilience, quality and potential of our businesses to compete and grow as stand-alone listed companies. Moving on to Slide 4, which shows the group P&L. NPAT before significant items grew 47% and whilst EPS before significant items of $0.179 per share was up 37%. And although Gaming Services has made good progress in simplifying and streamlining the business, the significant ongoing COVID impacts have given rise to a further noncash goodwill impairment of $122 million. Slide 5 breaks down the $112 million increase in group EBITDA. The strong Lotteries & Keno results and the improvement in Wagering & Media were the biggest contributors, partially offset by the heavily COVID-impacted Gaming Services business. Net operating expense growth of 1.3% reflected our continued focus on cost management and the benefits of the 3S optimization program and synergies. The increase in OpEx relates primarily to technology costs associated with greater digital penetration. I'll now hand you over to Adam Newman.

Thanks, David, and good morning, everyone. If we can now move to Slide 6, and we'll discuss our capital metrics and our balance sheet. We've made good progress in reducing our gearing during the course of the year, and we ended the year with gross debt-to-EBITDA at 2.4x, and this compares to 3.8x at June last year. We're happy with our capital settings, especially in light of the current uncertainties around the latest wave of COVID restrictions, and we believe that they provide a strong platform as we move into the demerger. The lower CapEx for the year and the improved earnings enabled us to increase our return on invested capital. And as we look forward to next year, we actually expect BAU CapEx to again be below $200 million. You will remember that there was no final dividend paid last year. And as David has mentioned, our final dividend for FY '21 will be $0.07 per share. This brings our full year dividend to $0.145 per share. This will be fully franked at a payout ratio of 80%, which is at the top end of our target range. We can now move to Slide #7 and with integration complete and having achieved a cost synergy target of $95 million, our focus shifted to our optimization program. And we refer to this internally as 3S. This program delivered $30 million in actual EBIT savings for FY '21, which was above expectations. 2/3 of these savings were in OpEx with the remainder spread between variable contribution in D&A. If we look at some of the key contributors to the savings, we ended the year with a significantly smaller retail agency footprint and then -- we started the year with, and we worked hard to reshape our workforce. The majority of the savings for the year were generated both in Wagering & Media and in Gaming Services businesses, and we are targeting $20 million to $25 million in EBIT savings for FY '22. We'll now move to our business unit update, and I'm going to hand over to our Lotteries & Keno MD, Sue van der Merwe. Sue?

Thanks, Adam, and good morning, everyone. I'll be talking to Slide 10 to 13. So starting on Slide 10. Well, I'm very pleased to be able to talk to you once again about a record result for Lotteries & Keno. We did face a tough comp for -- from FY '20, and the team delivered a full suite of initiatives to reach the record EBITDA number. For -- Lotteries FY '21 is best described as the year of the base games. The result was driven from a combination of things, well-executed game changes, effective marketing campaigns and the continuation of our focus on customer experience and digital innovation. As you can imagine, life entertainment became even more important for many Australians in the last 12 months. And we've seen this in our customer numbers with our active registered players now up to 3.8 million. We had a significantly low level of jackpot offers compared to last year, but we did manage to offset that by actively managing jackpot sequences to maximize game performance overall. Keno was a strong contributor to our earnings growth over the year, rebounding from what was a challenging FY '20. Keno continues to be an important part of our diversified product mix and something that I believe is a key feature of our Lotteries & Keno business going forward. We remain focused on OpEx. And we're investing in revenue-generating and customer-focused activities and those that support our digital growth. Slide 11 shows the tough comp that we were cycling for Powerball and Oz Lotto with 3 more $50 million plus jackpots in FY '20. And it's worth noting that those 3 Powerball jackpots were actually over $100 million or more with a cumulative $400 million less in overall jackpot offers. So in that context, the jackpot game performance was quite pleasing with strong like-for-like growth. A highlight of this year's results is the standout performance of Saturday Lotto. It's the oldest lottery game. Arguably, some of our most loyal customers. So the successful execution of the game change in October is a real credit to the team. The double-digit year-on-year growth across the rest of the lottery game portfolio and Keno is further evidence of a well-balanced and healthy product portfolio. And it shows how well we manage the group of games as a whole. As you'd expect, digital share continued to grow, up to 33% for Lotteries in FY '21, driving margin expansion, and up to 15% for Keno. We see retail as a valuable distribution channel across the business. And while news agents and other lottery retailers weren't as impacted as heavily as others on the high street, we made sure that they were supported through retail-focused marketing campaigns and also customer information around COVID. In Keno, our licensed venue channel was unfortunately impacted by closures, and we worked with our industry partners to support them as well. Slide 12 outlines some of the key initiatives that we implemented in the year and also what we're prioritizing in FY '22. And all of our initiatives have the customer at the center of our thinking. And the initiatives that we have in our plan are about making our proposition compelling and making it easier for customers to buy when, where and how they wish. So we have a number of initiatives around product, brand, community and customer. Product enhancements across the portfolio remain a focus for Lotteries. FY '21 benefited from a full year of the previous Set for Life change and also the Saturday change that we made in October '20. And as we flagged at the half, the next game change will be to Oz Lotto in FY '22. Under brand, in addition to the important focus we put on our product brands, we also continue to build The Lott brand. So in the half, we completed the full extension of the brand refresh. And that entails new contemporary branding elements, and we've rolled those out across all of our digital assets and communication mediums. And I'm sure if you're a user of the app, you would have seen some of those exciting new elements coming to the fore when you open up the app. In FY '22, we're building on that further with an extended community focus, and we'll be reinforcing the positive positioning of our lottery business. In terms of customer, we're currently working on expanding the experience design work that we've implemented in digital. And we're doing that for both our Lotteries, retail and Keno licensed venue channels. And we'll also deliver the next part of our contact center transformation program, which will support new contact channels and give us operational efficiencies. The second area I'll touch on, on this slide is channel. Wide accessibility to our products, customer convenience and an engaging channel are so important for us. In Lotteries, we continue to evolve the mix in our retail channel, responding to customer expectations. And in July, we completed the national rollout of our omnichannel retailer model when we launched into South Australia. In Keno, we're supporting our venue partners through the challenges of COVID, and we'll be progressing with the implementation of cashless payments in venues in FY '22. Digital innovation across both Lotteries & Keno continues. We made good progress with our payment strategy with 2 major initiatives delivered. PayPal was successfully implemented, offering an alternative option for our customers. And a move to the associated Braintree payments gateway is also delivering cost savings. And finally, in Victoria, we're anticipating the outcome on the review of our license, which expires in 2022. On to Slide 13 and our focus for ongoing growth. Our strategy is proven and it's working, and we intend to continue to build on it. Something I'm particularly proud of is the way in which we've successfully embedded customer-led thinking into the business, and it's showing in our results. And that, together with our vision to have digital thinking integrated into all parts of our strategy has underpinned our success. The business is in a very healthy position, and I and our team are energized about continuing the momentum we have. And finally, I want to call out the importance of community to our Lotteries & Keno business. We're very conscious of the value of reinforcing the positive role that Lotteries, in particular, has always played in the community. And I hope many of you saw our new campaign during the Olympics, promoting our Lotteries fund so many community initiatives. It's a new and fresh way of communicating the message. It's a very authentic approach, and I certainly received lots of positive feedback about it already. So if you haven't seen it, please look out for us on air. So that's all for me. Thank you. And I'll now hand you to Adam Rytenskild, MD of Wagering & Media.

Thank you, Sue, and good morning all. On to Slide 14. This results for Wagering & Media represents good improvement in underlying performance, despite the significant disruption that impacted us throughout the year. The COVID interruptions are unique to our business as both a venue and digital operator. However, the team continues to manage the business effectively in terms of both the customer response and operational mitigations. We've worked with the racing industry and our venue partners throughout the year. And I want to recognize the significant effort that's gone into keeping things going safely and effectively. With the TAB and UBET integration now done, we're a better and improving business, a stronger digital business and with a more attractive customer proposition. Importantly, we had strong revenue growth across each of our 3 business segments, Wagering, Media and International. Wagering turnover was up circa 17%. However, lower yields and higher generosities did reduce the revenue conversion. Media performed well, driven by growth in digital distribution. And International revenues also increased, partly as a result of its acquiring full ownership of the tote pooling hub, PGI. And note that this did have a mix impact on VC margins. During COVID, the International business seized the opportunity to increase the export of Australian racing when many other racing jurisdictions had less product. This underlines the benefit of having a strong portfolio of International media rights and extensive distribution arrangements across more than 50 countries. We have now complemented this with our North Dakota license, enabling Tabcorp to pool bets placed by American punters on Australian product. And while it's not material today, it's a precursor to providing more Australian racing to U.S. punters and strengthening our U.S. presence. Cost reduction has been a real focus and was well managed, given we were cycling the final quarter of FY '20 when the group was preserving cash and concentrating on navigating the onset of COVID. On to Slide 15. Our quarterly active digital users were up on each period, with the highest acquisition growth amongst 18 to 35 year olds. This group made up almost half of our new customers for the year and supports our play to be the home of U.S. sports. Our tracking study shows customers now see us as leaders in this space across the big 3 U.S. sports. And we've long been the home of Australian racing. And when we acquire new customers through sport, we then work to introduce them to racing as well. Notwithstanding of being an abnormal period, we saw signs of some stabilization in our digital share. And it's worth noting that our digital share is actually higher when venues are open. This highlights the customer response to our integrated offer and bodes well for our strategy to create a unique multichannel customer experience that will be especially important in a postlockdown era. Net yields are down 140 basis points versus the prior year. After above-average gross yields in FY '20 and elevated generosities in the first half, the net yield in the second half was more consistent with our target run rate. Generosities remain high in a very competitive market. However, we were more efficient and effective with our spend due to the personalization and technology investment we've made in this space. This does, however, remain a challenge for us as our competitors have a significant margin advantage in the current market landscape. Finally, on this slide, the pie chart shows well-diversified profit contributions from the 3 segments of our business. This is a key point to note as we think about Wagering, Media and Gaming Services as a stand-alone company after the proposed demerger. Slide 16 illustrates work undertaken over the past 2 years to build a better business and stronger customer proposition. The business has always had a powerful combination of assets, but it's what we've done in recent years to bring these together for the customer that's important for future growth. In Media, we've strengthened Sky's commercial model and built on our strategy to be the aggregator of top racing content by expanding long-term rights partnerships with both New South Wales and Queensland racing. We now have a suite of key long-term rights agreements to distribute racing vision in Australia and to more than 50 countries internationally. The Sky and TAB customer experience is becoming even more deeply integrated. We've also created a personalized viewing experience for racing purists with our over-the-top media capabilities. Sky Racing Active registered customers grew 55% in the year, and it's a highly engaged customer base. We have a well-established International business, which we will continue to look to grow. Acquiring the remaining 50% of PGI has given us full ownership of a 24/7 tech and customer gateway that co-mingles with most major totes around the world. Our Sky Racing World business has contracts with over 450 venues and online operators in the U.S. And in TAB, we have a brand that has powerful front-of-mind awareness when customers think about Wagering. We're now better at harnessing the data we have, and the customer now sees a much more tailored product. This is a result of our investment in the Adobe Experience customer management platform. We're also continuing to optimize and digitally integrate the venue network to create a differentiated experience. As we know, after 14 lockdowns around the country, human beings are social and TAB is uniquely placed to offer a destination where people can come together in person, with friends to bet whether it be with cash or digitally. Initiatives such as cash flow spending venues are taking shape as our venue and digital integration continues. And Venue Mode is transforming the customer experience by giving them exclusive offers when punting digitally in TAB venues. And I have to say customers love it, 1 in 3 of our digital customers visited a venue and used Venue Mode throughout the year. Slide 17 outlines the key areas we're focused on for growth. We want to continue to create an experience for customers that's unique in the market, harnesses our assets and aligns with shifting habits and behavior in a postpandemic world. What that means for the TAB customer is that our 4,500 venues are places they can go to feel connected while they enjoy their racing and sports. When betting with TAB, they get rewarded for that choice through a personalized experience and creative offers through innovative concepts like Venue Mode. And they get the best combination of in-person and digital features across products, media and content. That's why TAB is best placed to be far bigger than the bet and rise above the more transactional digital-only customer relationship. However, in a COVID-impacted market, what is now more evident than ever is that structural reform is needed for the sustainability of the industry into the future, reformed to ultimately benefit customers, racing, governments and the thousands of pubs and clubs. These are small businesses and significant employers in Australia. The way Wagering is regulated in Australia is fundamentally inequitable and benefits foreign-owned online operators. These are large, multinational companies targeting customers through aggressive promotion and deep generosity and marketing pockets. All funded by the fact they pay less than half the fees to the local racing industry than TAB does on a relative basis. Every time COVID shut down retail venues, the trends are exacerbated and Australia ultimately loses. These operators are enjoying structurally and materially higher margins because of their lower payment obligations, and that's not sustainable and it's not in the best interest of the Australian consumer or community. So we're focused on ensuring the industry here is well funded and sustainable. Finally, we're also increasingly looking at targeted expansion options, including in the U.S. Our capability in assets, including strong tote and fixed odds capability, and a large portfolio of vision rights provides a platform for this expansion. To sum up, we're feeling really confident in the capability we've built and the business' growth prospects. This business has demonstrated long-term resilience. And while lockdowns do impact us when they occur, our focus is on creating long-term growth through a stronger business in Australia and targeted expansion. We are now more sustainable and more competitive with a truly integrated digital and venue offer and more efficient cost base. Thank you. I'll now hand you over to Paul Carew, who heads up Gaming Services.

Thanks, Adam, and good morning to everybody on the call. For your reference, we're now on Slide 18. The financial impact on Gaming Services was significant in FY '21, as you'd expect for a B2B operator that services venues heavily disrupted by COVID-19. In fact, it's worth noting there are only 27 days in the year that we were able to bill our services at 100%. Our Victorian contracts typically represent around 35% of Gaming Services revenue in a normal year, and it's Victoria that experienced the most lockdown and restrictions in FY '21. All of this reflected in the 15% decline in full year EBITDA. We waived around $76 million in contracted fees to the impacted venues, and that's the lion's share of the $95 million that Tabcorp Group provided in fee relief in FY '21 and directly supported our customers and the industry. We had 14 separate lockdowns in the country last year, and they were largely in the states where we have our biggest presence, and it made it illegal essentially for our venues to trade. So naturally, COVID has created a lot of uncertainty and that's the main driver of the impairment charge, which we see, which reflects reduced expectations for new business opportunities and contract extensions. Our monitoring business, regulatory services recovered with second half revenues getting back to more normal levels. And we also continue to make good progress in implementing our plan to streamline the business and make it more efficient. Part of that has been simplifying the operating structure and that helped deliver the significant decrease in OpEx that you see. Results in the short term, however, will still be negatively impacted by the current lockdowns, including a $5 million to $10 million revenue impact in July. And again, it's worth noting that even when hotels and clubs can resume trading, the density restrictions in place mean that we're not immediately billing at 100%. So we don't see an immediate resumption to full revenue when they open. Moving on to Slide 19. The driving force of the plan that we've been implementing has been to simplify and be more efficient in how and what we deliver to market. And the CapEx and OpEx reduction you see is evidence of that delivery. The team is making good progress in making our field services activities leaner and more responsive with initiatives such as streamlining the supply chain and moving from a state base to a national approach in everything we do. This restructure is being completed, and we have a new leadership team in place. At the same time, we do see some opportunities in the sector with an emphasis largely around regulatory services and monitoring products and licenses. Thank you, and I'll now hand you back to our CFO, Adam Newman.

Thanks, Paul. If everyone can now move to Slide #21. And I spoke earlier about the strength of our balance sheet, and this slide just provides some more detail. The reduction in debt that you can see on the slide is a result of a combination of 4 items. Firstly, the improved operating cash flows for the year; secondly, the lower capital expenditure; third, the sale of our Jumbo stake and surplus properties; and last, last year's equity raise. Cash conversion was again over 100%, and this highlights the very cash-generative nature of our businesses, which we consider to be a key strength. All of the deferred New South Wales lotteries taxes have now been repaid. And as we are fully hedged on our U.S. dollar-denominated debt, the impact of the exchange rate movements that you see on the slide there are offset by derivatives on the balance sheet. We now move to the next slide, Slide #22, and I'll provide a bit more detail around our debt maturity profile and our capital expenditure. We do have a U.S. private placement note that's due for repayment in April of next year. And the balance of the remaining private placement notes are long-dated with expiries of between 5 and 15 years. Under the proposed demerger, the U.S. private placement notes will be allocated to Lotteries & Keno, and we consider this to be appropriate when you consider the long-dated licenses and infrastructure-like characteristics of that particular business. Our bank debt, however, will be allocated between the 2 entities with Lotteries & Keno targeting gearing at 3.5 to 4x and Wagering & GamingCo targeting gearing of between 1 and 1.5x. It is worth noting that we have in excess of $900 million in unused facilities as at the end of the financial year. CapEx was lower this year by approximately $100 million, and this was due to a combination of 3 things: firstly, the impact of the pandemic; the completion of integration; and the ongoing focus on capital management. We did invest significantly less capital in our Gaming Services business due to COVID. You've heard Paul talk about the impact of venue closes and density restrictions impacting our revenue in that business. However, this did enable us to pause our contractual obligations that exists with regards to investing in gaming machines. Thank you. I'll now hand back to David to go through the final slide.

Thanks, Adam. Well, the current extended COVID-19 restrictions across the Eastern seaboard have had a significant impact on our July 2021 revenues, as you can see on Slide 24. The lockdowns have meant the closure of licensed venues and TAB agencies impacting TAB, Gaming Services and Keno. Thankfully, news agents and fuel convenience stores continue to trade, which limits the impact on our Lotteries business. We have highlighted the number of days lost in retail venues due to lockdown closures in July. New South Wales Metro followed by Victorian Metro were the most impacted and remain so. The net revenue impact on Lotteries & Keno has been negligible. But for Wagering & Media, it was circa $30 million to $40 million net of transfer to digital. In Gaming Services, the impact was around $5 million to $10 million as, once again, we immediately suspended fees to pubs and clubs temporarily closed in these jurisdictions. And around $9 million of the impact at a group level relates to foregone venue fees. As for the full year impact, that's going to be contingent on the length and extent of further restrictions. And we intend to provide a further trading update at the AGM. On Slide 25, we provide an update of our demerger timetable. We are executing across many of the work streams and plan to complete the demerger by June 2022. The next update to the market on progress is expected to be at our AGM in October. And you'll see that we are currently planning for the court hearings, scheme booklet release and the demerger scheme meeting to take place in April and May next year. So as we conclude on Slide 26, we're pleased with how the businesses have managed the period, evidenced by the strong operational results. It shows our core businesses are in a strong position to compete on a stand-alone basis in the future. Our priorities are very much about managing through the current restrictions and ensuring the proposed stand-alone businesses carry momentum upon demerger. That means not only managing the operational fiscal impacts on our businesses, but focusing on our people and the recovery of our business partners. What we've observed is that demand for entertainment has been strong when restrictions have been lifted. There is a lot of resilience in the venue network. We know people value social connection and the venues many of our products are in supply that -- they supply that demand. We're with corporate Australia in wanting to see this country achieve the highest possible vaccination rate as quickly as possible so we can safely reopen Australia. And finally, in FY '22, we are very focused on executing the demerger and ensuring the 2 businesses are set up for long-term success. Thank you, and we'll now open the lines for questions.

[Operator Instructions] But your first question today comes from the line of Desmond Tsao from Goldman Sachs.

First question maybe just on Lotteries. As you highlighted, a very strong and record Lotteries result. On Slide 12, you flagged the Oz Lotto game changes as an agenda item in FY '22, along with digital innovation. Look, maybe if you can provide a bit more color around these items. And if you could just clarify, does it actually mean you're going to implement and go live sometime in FY '22 with respect to the Oz Lotto game changes, given you said that you plan to finish the R&D process by FY '21? Yes, if you can just give us a bit of a feel for the quantum and the timing on that, that will be very helpful, particularly given how impactful Powerball game changes were a few years ago.

Thanks, Desmond. I'll pass those questions across to Sue.

Thanks, David. Desmond, thanks for the question. The Oz review is part of our ongoing focus on game evolution, and you've seen us implementing a number of changes really over the last few decades. As always, the change has been carefully and well researched. And it's about finding the right combination of features across matrix, price and price levels as we've done previously. So we've -- at the point now where we've completed the game design and we've completed the consumer research, and we've actually gone through a number of different research phases to make sure that we've got it right. We'll be using the successful formula that we've used before in terms of the right level of player benefits from the change and also around reinforcing the unique positioning of the brand. So for this one, it's about -- it's a jackpot game. So obviously, in terms of what we are looking at for a change, it's about making sure that we reinforce that jackpot positioning. I can't discuss the specifics of the change yet, we still have to go through regulatory approvals for that. But what I can say is it's a meaningful change, but it's not a Powerball. It's more than evolutionary change, more probably akin to what we've done previously on game changes. And in terms of timing, we're planning it for implementation on the back end of FY '22.

Great. No, that's super helpful, Sue. Second question, perhaps on ROIC. Now I appreciate it's been a difficult past 18 months with the pandemic and then now the proposed demerger, but I thought you delivered a pretty strong improvement on the ROIC front to 7.9% in '21 and you've flagged further improvement target. Now I guess my question is where you think this could get to over the next 12 months as you head into the demerger. And if you could perhaps give us an indication of the ROICs across the 2 proposed stand-alone businesses, that will be very helpful as well.

Adam Newman, perhaps you could respond to that.

Yes. Thanks, David. Thanks, Desmond, for the question. Yes, there -- obviously, we've had a focus on our return on invested capital. We view to sort of getting it above our overall cost of capital. We're not giving forward-looking guidance from a ROIC perspective and not at this stage in relation to each individual divisions either at the present point in time. But nonetheless, you're right, we have been pleased with the progression that we've been able to deliver in this financial year.

Your next question comes from the line of Larry Gandler from Credit Suisse.

A few questions for me. Just on -- I guess I'll start with Wagering. The question relates to the comment about having to restructure the industry. Over the years, we've heard similar sort of comments. What's different now in terms of urgency and the new approach? What will be different than prior years where you've discussed this issue?

Thanks, Larry. I'll pass that to Adam Rytenskild.

Thanks, Larry. I think the key difference is -- well, there's a couple. One is, I think, COVID has accelerated and exacerbated the need for change for all the reasons I mentioned. The other is we have a license process that's commenced in Victoria. And there's a great opportunity for the government to think about that license with the racing industry in the context of what's sustainable for the next era. And also potentially with WA if a license becomes available there. So -- and I think that the acceleration from COVID and those 2 states looking at license structures for the future.

And do you think that catalyzes changes in other states?

It has the potential to. I think ultimately, the shape of industry funding is -- it's something that with the changes we've seen across the market and the fact that what we contribute to racing versus other operators that plays out across every state, so I think there is the potential for that change. But I think it starts with those license processes in Victoria and WA.

Okay. Great. And my second question, I guess, just coming on to Oz Lotto, Sue. I think you indicated in the past that it would not be -- that change would not be as impactful as the Powerball change. Perhaps you can just give us some context about what sort of impact that change will have.

Larry, thanks. Not giving guidance in particular around the impact of the change. I think all I can do is reiterate what I said to Desmond, which was the change is not intended to be as significant as Powerball, but it is about reinforcing the jackpot positioning of the game. So -- and we have considered change across all of the different features of the game, such as matrix and price in a similar way to what we did for Powerball and what we've done for some of the other game changes. So expect to see it to be, as I said, a meaningful change, incorporating changes to a number of the different elements and focused on retaining the game's position as a strong jackpot game.

Your next question comes from David Fabris from Macquarie.

I've got a couple of questions. So I'll start off with the first one. When we look at the revenue share within digital Wagering on Slide 15, it looks like it's stabilized on a gross yield basis. How does it look on a net basis after considering generosities? Are you still holding share sequentially? Maybe you could talk to those trends for us.

I'll pass that through to Adam. Thanks.

Sorry, I was meant to pause there. Our -- we -- whilst our generosities are heightened as a percentage of turnover, we tend to pay less, contribute less because we've got lower margins, and we're managing, obviously, the overall P&L. So we don't see those net yields as much as we do the gross yield that we provide that information on, but the fact that we generally spend less in terms of the percentage of turnover on generosities than other operators to, it would translate favorably from a share perspective.

Okay. Got you. And just on my second question, just looking at the cost optimization program, is that something we can think of beyond FY '22? I get it that the business is -- are demerging. Or is this a program that ends this fiscal year?

I'll pass that to Adam Newman to answer.

Yes, it's a good question. Obviously, when we did this program up -- originally, we had a focus over the 3 years. And post this current year, we'll be in demerger land, so it will be a different landscape that we've got at the end of the day. I think each of the individual businesses will have a pipeline of initiatives, and I wouldn't see any reason why that -- they wouldn't necessarily be executed as stand-alone entities. However, there probably are some, I don't know, tweaking of the pipeline a bit because there will be some enterprise-wide initiatives we've currently got in our pipeline that may or may not be as relevant for demerging at the end of the day. And so probably just to ensure, I would say continuing on, but that's really going to be a decision for the respective management team [ of the demerging entities at the end of the day ].

Yes. Got you. And does it become harder to pull out costs from here? Obviously, you've probably got the low-hanging fruit currently. Is that how we think about it?

Yes. Sorry, David. Hello? You were cutting out a bit for us on this end. Could you mind just repeating the question?

Yes. Just with that -- with the cost out program there and thinking about it, you've probably caught the low-hanging fruit early. Is it going to get harder from here to take costs out? Or we can -- can we assume that kind of run rate going forward?

Sort of a bit of both, I suppose, at the end of the day. Yes, as you progress through these programs, they do get more difficult to deliver, they tend to be long in nature and a little bit more complex. The program, as we start to roll into years 2 and 3, is a bit more -- I mean, obviously, we've still got some work to do in the retail agency footprint aspect of it and reshaping our workforces, which were big contributors this year that will be contributors going forward. But it -- I think your overall observation is correct as you start to move through these programs, they do get a little on the tougher side.

Okay. Your next question comes from the line of Sacha Krien from Evans & Partners.

Just got a question on Gaming Services and then one on Wagering as well. In terms of the Gaming Services segment, can you provide a little bit more color on the decline in contracted EGMs for the TGS business and what that means in terms of an earnings impact in, say, EBITDA terms once things get back to normal and they're open?

Paul Carew, will you take that one?

Yes. Thanks, Sacha. I think in that business, it's an interesting position where it's at. So you know around the expiry of contracts into F '22, we've managed to extend sort of circa 50% of those in Victoria already. Where you see some of the decline is largely out of New South Wales where contracts were expiring at the end of the first 5 years of their term. The Panthers Group ended early. No impact on last year's revenue in relation to that with the way that contract was paid out. So that's where you're seeing that reflective reduction in the numbers there that you referred to specifically.

Yes. And Paul, maybe if you can provide an update on the big contract with EGMs. We still -- it sounds like we're still sitting at about 50% level, about 4,000...

Yes, it's been an interesting challenge there because with venues closed, their appetite to sit down and discuss what's going to happen in the future has been a challenge for them and for us. In the RSL space, in particular, at the last iteration of RSLs, it was a group-wide negotiation led by ANZAC House, the head office, for want of a better term. This time around, it's individual discussions with the 52 subbranches. They're making independent decisions around what their future looks like, and we have started those conversations with those guys now and working our way through that, offering them more flexibility than they've had in the previous model.