Tabcorp Holdings Limited (TAH) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Tabcorp Holdings Limited Half Year Results 2022 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your first speaker today, Mr. David Attenborough, Managing Director and Chief Executive Officer. Thank you. Please go ahead.

Thank you. Good morning, and welcome to our call for Tabcorp's financial results for the 6 months to 31 December 2021. So I'm David Attenborough, Managing Director and CEO, and I'll be joined on this call by 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. And we'll be taking you through the presentation we lodged with the ASX this morning for the next 20 minutes or so, and then we'll open the line for questions. And we appreciate your time today, given it's a busy reporting day in the leisure and gaming sector. So starting on Slide 3, we see the first half as a period that delivered a record result in lotteries but in which COVID-19 significantly disrupted our other businesses. The biggest impact was from the shutdown of our venues in Wagering & Media, Gaming Services and Keno, in our largest markets of New South Wales and Victoria. By contrast, lotteries retail distribution partners were deemed essential and largely continued to trade. So Lotteries achieved its record profit result with very strong digital growth. Digital continues to provide this business good revenue and margin growth opportunities. Wagering & Media's financial performance improved once we returned to more normal trading settings late in the half. And after many months of providing fee relief to its venue customers, Gaming Services finally resumed its full fee model in December 2021. We are also pleased to announce a $0.065 per share interim dividend. Slide 4 shows you the P&L for the 6 months, with NPAT pre significant items of $187 million. The $12 million in significant items relates to costs associated with the proposed demerger. The waterfall chart on Slide 5 shows the components that drove the change in EBITDA on the prior period. As you can see, the business delivered good VC growth in Lotteries & Keno and meaningful savings from our optimization program. However, this wasn't enough to offset the decline in Wagering & Media VC, the reasons for which are clear on the next slide. Slide 6 provides some deeper insights into how the COVID lockdowns affected our trading. The substantial number of lost days in New South Wales most heavily impacted Wagering & Media, both through lost TAB and media subscription revenues. These were material impacts. Our venue partners lost more than half of the period due to lockdowns in Victoria. The impact of these lockdowns on business operations is masked in the period-on-period comparison due to the substantial number of lost days in the pcp. Keno's retail venues were impacted by the same closures. For Gaming Services, its Venue Services revenue grew due to its relatively small exposure to New South Wales and the fewer lost days in Victoria vs the pcp. Regulatory services, which typically delivers recurring revenues, was particularly impacted in New South Wales, its largest market. Obviously, we aren't expecting that lockdowns will be a regular part of life going forward and we look forward to our businesses consistently trading in more normal operating conditions. I'll now hand you to our CFO, Adam Newman.

Thanks, David. Good morning, everyone. Thanks for taking the time to join us today. On Slide 7 and our capital metrics. I'm pleased to say that our balance sheet remains in good shape, and this is despite the uncertainties and the impact from COVID-19. This provides us with a strong platform as we now move into the demerger. And you can see this where our gross debt to EBITDA is at the lower end of our target range at 2.5x as at December. Our CapEx spend for the half was $75 million. You will see there that we have lowered our full year BAU CapEx estimate to below $180 million, given latest expectations and the impending demerger, noting that FY '21 spend was $161 million. I'll talk a little bit more about CapEx later. As David has mentioned, our dividend for the half will be $0.065 per share, and this will be fully franked and represents a payout ratio of 77% of net profit before -- net profit after tax but before significant items, which is at the top end of our range. On Slide 8, we are pleased to have delivered a further $16 million in savings in the first half from our 3S optimization program. And this brings program-to-date savings to approximately $46 million. Consistent with the prior period, the majority of these savings were in OpEx. However, there was -- the remainder was also spread between VC and D&A. Over half the savings generated during the period were within Wagering & Media, and this included ongoing savings from agency rationalizations with our agency network expected to be reduced by 1/3 when compared to FY '20. In addition, there was further restructuring of our workforce as part of operating model changes and efficiency improvements in our contact centers. We also benefited within Gaming Services from both operational design changes and the field services transformation they've been undertaking, where they've consolidated property and systems as well as reduced their fleet by up to 30% from the peak. In L&K, we saw run rate benefits from the reseller and payment initiatives that were implemented in FY '21. We're well on track to meet or exceed our full year forecast of $20 million to $25 million. And with that, we'll now move to our business unit updates and I'm going to hand over to our Lotteries & Keno MD, Sue van der Merwe.

Thank you, Adam, and good morning, everyone. As a team, we're pleased to again be reporting a record result. The benefits of our customer-led approach on product innovation, player experience and channel are evident in the results. And the business has performed strongly throughout the pandemic, proving once again just how resilient lotteries are through economic cycles. Accelerated sequences saw good frequency of mid- to high-level jackpots, and we had some additional promotional draws, and we moved the Megadraw to New Year's Eve, all of which contributed to the 11% increase in revenue. Fixed cost leverage and margin improvement from further digital growth and 3S initiatives translated to higher EBITDA growth. And while most distributors of lottery products, including news agents and fuel stations, remained open during the lockdowns, our Keno offering in licensed venues was impacted, especially in Greater Sydney, where venues closed for all of quarter 1 and not reopening until late October. There were also rolling closures in regional New South Wales across the half, and that was a drag on earnings. OpEx was well controlled with increases in marketing costs to support the additional product activity, which was essentially offset by favorable movement in technology and corporate expenses. On to Slide 12, the number of major jackpots increased on the pcp to a level more in line with expected outcomes. The addition of $50 million-plus offers in Powerball contributed to a significant uplift in offers and associated revenue. And of course, we're thrilled to have another $80 million Powerball jackpot on tonight. We remain focused on having both our retail and digital channels performing well, and it was pleasing to see growth across both channels in the half. Digital share reached 36.7% as we continue to see benefits from the investments we've made in our digital platform and our digital marketing capability. The heightened jackpot activity also contributed to this result. While digital continues to grow and provide margin benefit, retail is an important and valued part of our omnichannel offer. During the half, we implemented the omnichannel model into South Australia, meaning we now have a consistent approach and customer experience across all our markets. A concerted effort to retain a strong retail channel and evolve the channel mix saw retailer numbers and retail revenue increase. And in Keno, digital share also grew strongly, albeit against a strong pcp, which hurt some of the early months of the pandemic. Targeted CRM and reward games activity in Keno helped to attract and retain digital customers throughout the half, and we also introduced PayPal for Keno's digital customers. Finally, on to the game portfolio. COVID heavily impacted growth rates in the pcp. So it's far more meaningful to look at the 2-year compound annual growth rate. You can see in the chart that most games are up between 5% and 15% per annum over that period, highlighting the strong underlying momentum in the business. And I particularly want to call out the ongoing positive results from the recent game changes on Saturday and Set for Life, which continue to be well accepted by our players. We've also driven uplift through strategic use of additional events such as the $10 million Saturday Lotto draws. On to Slide 13, which highlights the game change to Oz Lotto, which we plan to bring to market in May, subject to regulatory approvals. Oz Lotto is 1 of the 2 major jackpot games in our portfolio. And as the first game played by around 1 in 5 new customers, it is an important acquisition vehicle. Changes we plan to introduce follow an extensive research and development process and build upon our proven expertise in strategic management of our game portfolio. And we've invested in building a strong position for the Oz Lotto brand, ensuring the game is well set up for a successful result from this game innovation. As well as a price increase and new matrix, the change will include a new innovation in the form of a price boost feature. The final slide of Lotteries & Keno on Slide 14 outlines our strategy to continue to strengthen our games and brands and maximize our significant retail distribution and growing online platforms. The Oz Lotto change in FY '22 headlines our priority is to enhance our game portfolio and the customer experience. In channels, our strategy is to have a high-performing optimized channel mix that supports portfolio growth. We'll do that by increasing digital penetration and continuing to evolve our retail footprint. We always remain alive to opportunities to enhance licenses or explore new license opportunities that make commercial sense, and we'll continue to have meaningful engagement with our industry partners, regulators and the community. To that end, we've recently launched a digital and TV campaign with a theme, a lott more to play for, and it showcases the amazing work our charity partners do with our backing. We are excited about the proposed demerger. We have a clear strategy, high team engagement and a united focus on driving earnings growth and shareholder returns. And the extent to which our lotteries captivate the public's attention will be on show tonight, when up to 1 in 4 Australian adults by an entry into our $80 million draw. And should the jackpot roll, next week we will make history with a Powerball offer of $120 million. Thank you, and I'll hand to Adam Rytenskild.

Thanks, Sue, and good morning, all. As flagged, COVID had a substantial impact on our business during the half. The impact was the most significant yet, given the lockdowns and restrictions in New South Wales versus the pcp. For the half, there were 45% fewer venue trading days within regions that typically contribute 70% of national retail earnings. For comparison, the lockdowns in the pcp-impacted regions would typically contribute 20% of national retail earnings. Competitive strength of our business is our omnichannel customer experience. So the closures adversely impacted our integrated retail and digital offer. For example, customers couldn't make account deposits in venues or use our increasingly popular Venue Mode product. That said, the business phased into it. And pleasingly, we saw improvement across all channels once venues could trade again. It was good to see 29% growth in Venue Mode turnover in Q2, which reiterates the potential for this product. A range of initiatives also proved beneficial for tote betting: Better use of data and personalization as well as The Lock product helped deliver digital tote growth of 20%. Higher generosities and marketing spend were used to respond to an aggressive digital market with corporate bookmakers leveraging their structural margin advantage. While this impacted VC margin and OpEx, it was necessary to ensure digital customer retention. Higher OpEx also included increased technology investment. On to Slide 16. Q2 digital market share improved versus Q1 when hard lockdowns ended and we could again offer our full omnichannel experience. Our omnichannel customers are more engaged and stickier than single-channel customers. They're typically 2 to 3x more valuable than digital-only customers. Venue did continue to have some challenges as they reopened, which continued into calendar 2022. Omicron created a soft lockdown effect in the community and labor shortages also impacted the ability for some venues to trade. However, this is gradually improving as the community gains confidence to socialize again and were materially better off post lockdowns. As you would expect, contribution from our venues to VC declined relative to last year. However, the value of having a diverse source of earnings again came through. Media & International, which comprises our domestic media operations, Sky Racing World and PGI contributed 1/3 of VCs. Slide 17. Over the past 4 years, we've laid down solid foundations from which to really transform the business post demerger. We now have a unique national TAB brand position. We've combined the TAB venue and digital experience through Venue Mode. Our new data and personalization capability is creating more effective engagement with customers. We've created a thriving digital Sky media offering with deeper integration in the TAB app and expanded content distribution, both in Australia and in international markets. Now with the full support and engagement of the new Tabcorp board, we're focused on setting the new strategy for the business. This will focus on customer experience, in particular, being more agile and leveraging our unique omnichannel offering; investing in technology, including the launch of a new TAB app; innovation and growth, both organic and inorganic; and proactively addressing structural market trends within the changing competitive landscape; and importantly, efficiencies that strengthen the operational spine of the business. We look forward to unveiling a refreshed strategy to the market post the demerger and are invigorated by the opportunity to transform the new Tabcorp Wagering & Gaming business. Thanks, and I'll now hand you over to Paul Carew, our COO of Gaming Services. Thanks, Paul.

Thanks, Adam. We're on to Slide 18 for Gaming Services and pleased to present those results again this year. Gaming Services, too, continues to be hit hard by the mandated licensed venue lockdowns and closures that we've experienced. We continue to suspend all material fees for venues during the period in which the gaming floors weren't operational. This amounted to some $42 million in fee relief in the past 6 months and brings us up to more than $180 million since the pandemic started. This approach has received widespread support from industry and has ensured that venues have been able to come out of the lockdown period and recommence trade. It's worth noting that we provide services to venues that operate 84% of all gaming machines in Australia. These long-standing licensed venue relationships -- and we want to make sure that our partners in the industry more broadly will be sustainable going forward. Looking at our 2 main sources of revenue, Venue Services grew, given there were fewer lost days of trading in Victoria, which is our largest market versus the prior calendar period. Regulatory Services revenues, in contrast, declined given its exposure to New South Wales, where 3/4 of this business is located. Growth in OpEx was largely due to cycling significant cash preservation and cost reduction opportunities in the pcp. However, it's worth noting that the business delivered around $4 million in savings under our 3S program in the half or around 1/4 of total group savings. This brings the aggregate savings Gaming Services has delivered under 3S to circa $13 million. Pleasingly, we recommenced full billing in December with the business returning to profitability in that month. On to Slide 19. The mandated lockdowns have seen venues look hard at their operating models and cost base as we have with the introduction of our capital-light model that focuses more on the advisory elements of the venue services stream. Under this approach, we'll receive cash back via the sale of machines to venues that don't extend their contracts, and will also reduce our capital exposure. The status of our venue services contracts post August 2020 is as follows: 50% of our venues are signed beyond August 2022 and that's generally to the period 2027 and beyond to 2030, and they're under our historical full venue services model. Around 1/3 of venues have indicated they won't continue under either the full or capital-light model, and we're in negotiations with the balance of venues around a capital-light model, with a number of them already committed to going forward. We're continuing to simplify and streamline MAX, and we made very good progress in the half on initiatives such as moving from a state based to a single national field service management system, which improves efficiency and helps us reduce cost. In terms of growth initiatives, we're prioritizing additional monitoring licenses and integrity services and products. We've seen that the gaming market is buoyant when venues are back trading and the work done on business transformation as part of our operational review will position the business well into the future as government-mandated venue closures are expected to become a thing of the past. We look forward to trading conditions becoming increasingly stable given the live with COVID approach the governments are adopting. Thank you, and I'll now hand back to our CFO, Adam Newman.

Thanks, Paul. Now go to Slide #21. And I spoke earlier about our strong balance sheet position and if I could just provide a bit more further detail. You can see on the slide that the strong operating cash flows for the period resulted in the ability to be able to reduce our net debt despite the difficult retail trading conditions that have been spoken about. Our cash conversion exceeded 100% for the half, and this was due to increased payables with the lottery sales in the run up to the end of the calendar year. And as we look forward, we expect for the full year, our EBITDA conversion to be around 100%. We remain fully hedged on our U.S. dollar-denominated debt. So the impact of exchange rates, movements that you'll see on the slide, is offset by derivatives in the balance sheet. Slide 22 provides some detail around our debt maturity profile and our capital expenditure. As you can see, we have a U.S. dollar private placement note that's due for repayment in April. This is the highest cost debt instruments we have in our portfolio as it was taken out in 2012 and will be repaid out of undrawn facilities, which exceeded $900 million at the half. The balance of the remaining notes are long dated with expiries between 4 and 14 years. As we've disclosed previously, under the proposed demerger, the U.S. private placement notes will be fully allocated to Lotteries & Keno, and this is underpinned by the long-dated licenses and infrastructure-like characteristics of that business. Our bank debt, however, will be allocated between the 2 entities, with Lotteries & Keno targeting gearing of around 3.5 to 4x and Wagering and Gaming targeting gearing around 1 to 1.5x [ EBITDA ]. Our existing bank debt will be repaid, and we are in the process of establishing appropriate bank debt facilities for both entities. As mentioned earlier, CapEx spend for the year -- for the half was $75 million with the step-up versus the pcp, excluding integration, primarily due to the TAB app and further technology spend. We do expect full year spend to be below the $180 million level. Thanks, and I'll now hand back to David Attenborough.

Thank you, Adam. And we're now on Slide 24. We continue to execute against the plan to separate the Lotteries & Keno business. which will be known as the Lottery Corporation by no later than June this year. Technology and operational separation design is well advanced. The various stakeholder and regulatory engagements are continuing ahead of securing the necessary approvals and transitional and commercial arrangements are being put in place. Shareholders can expect to receive the scheme booklet in coming months ahead of a scheme meeting planned for May. In terms of costs associated with the demerger, one-off costs are expected to be up to $275 million with ongoing incremental costs of circa $40 million to $45 million. So as we conclude on Slide 25, the Lotteries business continued its strong run since the Tabcorp and Tatts merger in 2017. Our other businesses had significant COVID-19 disruption, but we have seen improved performance since more normal trading conditions resumed. When we report at the full year, we hope to do so having successfully completed the demerger and having created 2 significant ASX businesses. And these businesses will have different characteristics and financial profiles, which may appeal to different types of investors with different preferences. Our lotteries business is one of the highest performing globally. It offers infrastructure-like qualities with low capital intensity and upside from continuing digital growth, with significant retail distribution and a growing online presence. We anticipate the Lottery Corporation will be well positioned to continue to generate attractive returns for shareholders driven by strong cash flow generation, demonstrated ability to drive growth through product innovation and active game portfolio management. There is also future potential upside from further enhancing the customer experience and increasing digital penetration. The new Tabcorp business will have national scale and reach, a unique omnichannel offering and organic growth options. Having weathered the challenges of COVID-19, we anticipate the new Tabcorp will also be well positioned to deliver a compelling customer experience via its omnichannel model. The business is also set up to simplify and streamline MAX, consider innovative opportunities and to benefit from any upside in relation to harmonization in the Wagering industry. Thank you, and I'll now open the lines for questions.

[Operator Instructions] First question comes from the line of Desmond Tsao from Goldman Sachs.

Just 1 question from me just on Slide 13. I guess my question is just around what we could expect from this Oz Lotto game change in terms of driving growth in FY '23. If you could perhaps compare and contrast this to what happened with Powerball just to help us frame how we should think about the upside potential here into '23?

Sure. It's Sue. Desmond, thanks for the question. So look, the Oz game change, as I've said previously, is about reinforcing the jackpot positioning of the game. I think if you want to compare it to Powerball, it's not quite the same in terms of the quantum of matrix change or price change. It really is about us improving the opportunity to get to those higher levels, which isn't happening at the moment. The matrix that we've designed with the extra supp is a bit of a new innovation as well, and it's about delivering a good winning experience at that lower level, which we know is important in the success of a game change because that generates reinvestment. And the new feature, the Prize Boost feature, we think, is going to be very attractive to customers as well. So not as significant a change as Powerball but still a positive change for the game and really about driving to those high levels in the jackpot sequence.

[indiscernible]

And I shouldn't forget the price increase $1.20 to $1.30, so 8% price increase. And as you know, we normally aim for about 50% retention.

Next question comes from the line of Justin Barratt from CLSA.

I just had another follow-up for Sue. I just wanted to talk, obviously, a really strong digital share for lotteries in the first half, and margins were obviously very good as well on the back of that. How do we -- or how should we think about lotteries margins moving forward? Obviously, in that context of digital growth or considerable digital growth? And then the Oz Lotto game changes as well, if you can provide any information there, that would be great.

Sure. I think -- I mean, the digital growth is very pleasing. We are very much focused on omnichannel. And as you know, we implemented an omnichannel new model where our retailers share in some of the omnichannel commission, and that's working really well. Our omni customers are up, digital-only customers are also up, and retail customers were slightly down. But our retail customers' value has actually grown over the period as well. So I think as we always say, we don't set a target for digital. Clearly, we have our own internal targets, but we're very much focused on that omni model. Having said that, I guess what you can see appearing is digital growth being very strong over a number of periods, and we expect that to continue.

Justin, I was just about to add, it's Adam here. In addition to the digital impact on margins, it's also the 3S initiatives in and around retailer arrangements and payment gateway fees as well that are contributing to an increase in VC margin.

Great. And then maybe another one for Sue. Just my understanding is the Victorian Keno license is up for renewal this year. Is there any update on that process at the moment?

We're not able to discuss that. So unfortunately, I'm not able to provide you an update. We're under probity requirements.

Next question comes from the line of Matt Ryan from Barrenjoey.

Staying with the popular topic of lottery. So I just noticed that operating costs were quite low, grew by like less than 1% from what I can see. Just hoping if you could dig into that number a bit?

Matt, thanks for that. Look, OpEx is mostly fixed. The variability really occurs around AMP and the AMP fluctuates in accordance with the brand activity. And obviously, with the bigger events, we get a greater return on that AMP spend. So that's really where it's at in terms of OpEx. I think if you look back historically, over the last number of halves. We average around those -- close to around 7%, OpEx to revenue ratio. And that's where I expect we will continue.

And I'm just confirming that there's no reallocation costs between the divisions in the period?

Matt, it's Adam here. Nothing in terms of any changes to the methodologies [ in the past. ]

Okay. And then just looking at Slide 12, I'm just interested in the slide sort of talking about jackpots being in line with your expectations. And then going to the chart in the far right bottom corner and seeing the 2-year CAGRs appearing to be somewhere between 5% to 15% growth. Just thinking about moving forward, are we to believe that, I guess, the growth rate that you guys are expecting on the back of those 2 comments to be a lot higher than what it's been historically?

Matt, it's Adam here. I'm not sure that we're into predicting what our future growth rates are. I think, as you know, there's a combination of jackpot sequences and what happens there in some of the game management. And there has been some benefit in the period as a result of some of the lockdowns that we've experienced that has benefited from the Lotteries business as a consequence. But I don't know that we'll go any further than that in terms of forward-looking.

Okay. And then just the last question. I was just going to ask on the reduction of the agencies that you mentioned a little bit earlier. Are you expecting to see any revenue impact from that?

So I think you're referring to the 3S initiatives in terms of an agency perspective.

Yes.

And I think the general answer is no. The way the program has been managed, we've tried to be quite targeted with regards to ensuring that we get as little leakage and much crossover for changes, and we're kind of making changes in areas whereby there's other agencies close by to the ones that have been exited at the end of the day as well.

Okay. And I'll just confirm that those agency reductions, they're mainly TAB agencies rather than pub TAB or club TAB offerings?

That's correct. Yes. Good day, Matt. It's Adam. Yes, just to confirm that those are stand-alone agency closes, not licensed venues. And to Adam's point, they're supported by other venues around them, including licensed venues. So you don't need to factor in revenue reduction as a result.

Next question comes from the line of Sacha Krien from Evans & Partners.

I just got a couple of questions on Wagering, one on Gaming Services and then one on the cost base of the segments post demerger. So first of all, on Wagering. And I'm just wondering if you can give us a bit of an indication of how retail is performing now that it's open again. I noticed one of the U.K. operators said that they're back within 10% of perCOVID levels. Can you give us sort of any indication of how you're traveling in the various jurisdictions?

That's actually a very good guide. We're back to -- as retail reopens, we're back to about 90% for the cash business. And then as I mentioned, digital and venue or the Venue Mode product is up around 30%. So we've bounced back well, but it's early days. And actually, some of these venues are still impacted, as I mentioned, with just restrictions or changes in people's lifestyles and patterns as we emerge through the different stages of COVID, but back to around 90% of prior year cash turnovers.

So is that prior year or pre-COVID?

Prior year.

Prior year. Okay. And second question, in terms of your fixed odds margins, I mean, obviously, a very competitive period. I think you came in at 12.9%. I think you've previously talked about targeting 13.5% to 14%. I mean do you think that target range has changed given the way the market's developed?

It was a particularly competitive period. I think for the full year, and I think I've targeted in terms of net yields around 13% to 13.5% previously. And I think that I'm still comfortable with that guidance for the full year.

Okay. A question on Gaming services. Just wondering if you can provide some color on what you think the earnings impact is going to be from the 1/3 of machines that won't be continuing beyond August 2022?

Yes. Sacha, Paul. So I guess those non-extended machines, we currently build them at a rate of around $10,000 per annum per machine to give you some color there. Worth remembering, so that there's ongoing CapEx savings from there as well at around $5,000 per machine that negates some of that and ultimately, D&A savings as that pushes forward. The other thing to note, there will be one-off proceeds from the sale of those machines back to venues that are choosing to go it alone. And as I said earlier, around the cost mitigations that we're working through, principally through 3S in the first instance, but then ongoing cost mitigations and reshaping that we're putting in place as well.

Got it. And how viable is that business if you lose sort of the remaining -- what is it, 20% of machine still haven't decided?

Well, I guess the thing is the reshaping of that business. So the reduction in capital, the change in the cost base, it's not the same shaped business into the future as what it has been in the past. It's something that we've had to adjust to as we've got that notification from those venues.

Got it. Okay. And then final question for Adam Newman. Just wondering, in terms of the cost basis, the different segments post demerger, is there going to be any sort of reallocation of costs that are currently shared between the different divisions that are sort of shared service type costs?

So Sacha, when the scheme booklet comes out, there will be a bit more granularity and detail contained in there about how the costs that we call out on the slide that David talked to, I think it was Slide 24, about the ongoing incremental costs associated with the demerger. And I think they split roughly speaking, about 1/3 to Lotteries and 2/3 to the Wagering business. And you'll get a bit more granularity in that regard when the scheme booklet comes out.

Next question comes from the line of Larry Gandler from Credit Suisse.

Adam, I guess, a question for you. David mentioned in his last comments about industry harmonization. Just wondering if you can, at this juncture, describe some of your vision for that? And is the challenge going to be more taxes, fees or maybe the regulatory harmonization? So if you can tell us whatever you possibly can on your vision for industry harmonization and where you're at with that?

Larry. I think I can just say at a high level -- and we have talked about structural reform before. The market has definitely changed. COVID has exacerbated some of those trends. We talked about the digital competition and some of the shift in digital market share. And from a structural perspective, the racing industry, government and, frankly, the licensed operator, our competitors need to pay more to that ecosystem. And currently, they've been making some pretty super profits. They're largely going overseas, and that doesn't help anybody. So from a margin perspective, that needs to be more level, and that's important for the industry. And my vision for that is ultimately a level playing field. In terms of the regulatory environment, that is also an issue. We're licensed across 7 jurisdictions. That creates challenges for us when it comes to being able to deploy product quickly and getting support from regulators in a timely manner to be able to get product to market quickly. So we'd like to see harmonization in those regulations across the different states where it makes sense. And as we build, there's things we can do about that as well. So as we're building the new app, we're working with regulators to as much as possible lift the regulation out of that technology so that we can be quicker to market and more efficient when we do go to market with the innovation in the future. So my vision is a level playing field, simpler regulation that is pertinent to the market and us being more innovative to customers as a result.

And is there a pathway to that vision, particularly on the regulatory side? Or well, really, is there a pathway to that vision? How would you get there?

I think they're 2 different -- the regulatory, structural change, if you like, or the level playing field. There's definitely a pathway and approach for that and not one that I can really talk about on the call, but there's definitely a plan for that. And regulatory harmonization is a separate pathway with some overlap. For example, when this license is issued and those types of processes in place. But very much -- there's a level of focus on it now, and it will be very much a key part of the strategy going forward once we get to the new organization.

Okay. Maybe 1 question on Gaming, if I can get 1 in here. There's some news today about precommitment possibly being advanced by the Victorian government. How would that impact the gaming business? Would you be able to participate in additional services, service revenue if precommitment comes in?

Well, I think we mentioned in the speech earlier about integrity services and products and licenses, et cetera, in that part of our business. So I think it's a changing landscape that we're pretty well positioned for given we're the largest monitor in the country.

Through the monitoring business, okay.

Or Regulatory Services as we define, yes.

[Operator Instructions] Next question comes from the line of Rohan Sundram from MST Financial.

Can I just -- one question for Adam on Wagering. Adam, anything you're comfortable to say around a status update on the WA TAB or the big license process? Mindful there's been a bit of press about WA TAB [ views ] there. Maybe just some ETAs or just timing expectations would be helpful.

Unfortunately, there's not a lot I can say because we're right in the middle of probity. We're right in the middle of the process for both jurisdictions and there's probity obligations on us as part of that. So what I can say is we're in the process -- and it's a focus for both states to get through their time frame and their time line. And that's really all I can say.

Okay. No problem. Maybe I'll sneak in another one. Anything that surprised you this half on the Wagering landscape -- abnormal half and maybe a more normal half ahead, but anything that really stood out for you?

Sorry, I missed that last...

The question was anything that stood out.

All right. Thank you. Look, it was such a significantly disrupted half. It's difficult to really unpick and read too much into it. What I can say is that COVID really explains the result. If you look at the EBITDA difference and the difference in retail impacts, the closures account for 80% of it and the rest of it is really due to the increase in generosities and AMP spend during the half. But what it really reiterated to me, I guess, I'm not sure it was surprising, but as those venues reopened, the investments we have made really have proved the resilience of that business -- held us in good stead. We improved digital market share as the venues reopened, so it reiterates the importance of that omnichannel offering. But it also reiterated the need for change that I talked about with Larry, and it has exacerbated the changes that would potentially come in a few years' time. They need -- we need to be better from a customer experience point of view, keep investing, but there needs to be change across the market in terms of leveling the playing field. So to me, it just reiterated those things. And that's a key focus for us going forward.

You have a new question from the line of Matt Ryan from Barrenjoey.

I just had a follow-up question for Adam on Wagering. I can see that the tote business had an unusual sort of outperformance versus the fixed odds business. And the question I've got is what you put that down to? And I know that this is probably a period that's a little bit different than last year in regards to how you're promoting generosities and any idea that those generosities are now placed on tote win bets rather than fixed odd win bets. And I appreciate that it's more about where the bet is placed or bonus bet is placed rather than where the original bet's placed. So that might not be the entire driver of what we're talking about. But can you just talk through why we're seeing that sort of different dynamic and whether it has anything to do with the switch of generosity?

Thanks, Matt. That was definitely a factor, but it was really a combination of things. And we've had a deliberate strategy to focus on tote for racing with fixed odds. Because it's a differentiator for our customers. It's a combination of personalization and data that we use to drive those offers and the change in marketing approach and also new products like The Lock have really helped the Tote. So to be flat overall, given the restrictions that were in place for Tote turnover was a pretty pleasing result and 20% growth in digital for Tote was positive, but a combination of those things drove that outcome.

There are no more questions at this time. I would like to hand the call back to David for closing.

Yes. Thank you very much. We appreciate your time and look forward to meeting many of you in the one-on-ones that we'll be doing over the coming days. Thank you very much.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.