Tabcorp Holdings Limited (TAH) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Tabcorp Holdings Limited Half Year Results 2023 Conference Call. At this time, all participants on a listen-only mode. As this speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Adam Rytenskild, MD and CEO, you may begin.

Good morning all, and welcome to Tabcorp's FY '23 Half Year Results. I'm CEO, Adam Rytenskild, and I'm joined on the call by our CFO, Dan Renshaw. We'll take you through the presentation we lodged with the ASX this morning, outlining our results and our company targets for TAB25. We'll then take your questions. Before we get to results, I want to share with you the company's new values, which you can see on the slide: Spark Change, Play Fair and Raise the Roof. Now I've spoken a lot since the merger about creating a new culture and how it's absolutely critical for our success. These new values bring new energy, new attitude and a new purpose to win. Our results today show that our people are starting to live and breathe these values. There's a genuine excitement building inside Tabcorp. We're moving faster, creating new products and a customer obsessed in our thinking. We're attracting talented people from outside the wagering sector and with that comes a renewed energy and attitude. A great example is our new Chief Data and Analytics Officer, Amy Shi-Nash. Amy joined us from NAB and is one of Australia's best in the field. This new energy and confidence is infectious as it spreads throughout our business across Australia and our other sites around the world. Cultural change takes time, and we're at the start of our journey, but we're creating lasting change and are committed to continuing to invest in our people transformation. It will ultimately define our success. In just 6 months, I couldn't be more pleased with how our people are buying into a new way of thinking at Tabcorp and what we're creating. Personally, I'm energized by breaking new ground, and I'll keep you engaged on our journey. Today, I'll provide you with a high-level look at our key results and metrics for the half year before Dan talks you through the detailed financials. I'll also outline our company targets for FY '25. We're calling our TAB25, "A Journey of 6 Halves," of which H1 23 is the first. I'll then provide you with our outlook for the industry and for our business. Today's results highlight that our transformation strategy is working and it's on track. For the first time since 2019, we've held digital revenue market share. I'm particularly proud of this given a new disruptive competitor entered the market during the half. At the same time, TAB's cash customers have returned to venues after COVID closures with cash revenue up 58%. This highlights the unique value of our omnichannel business, including our vision and content, resulting in an increase in total revenue and market share for the first half and double-digit growth in revenue and EBITDA. Today, we upgrade our OpEx guidance. Growth guidance versus pro forma, PCP is now plus 2% to 3%, which is down from plus 3% to 4%. And I'm pleased to say our separation from the luxury corporation remains on schedule. There are other key achievements during the half. We launched our TAB App for new products. Our level playing field in Queensland was implemented on 1 December with legislation passed in the Queensland Parliament. This is a game changer for our business and for the industry more broadly. In Gaming Services, we're simplifying our business and focusing on opportunities in integrity services. We were awarded the exclusive 20-year license to monitor EGMs in pubs and clubs in Tasmania and entered an agreement with The Star. That will enhance our technology and enable central monitoring of their machines at the Sydney casino. In H1 '23, there were many positive steps on our journey to TAB25. And importantly, we completed all of the actions that we said we would. I want us to be trusted for doing what we say we will do without excuses, and today is an example of that. As you've seen, our results reflect a strong half. Group revenue is $1.275 billion, an increase of 11%. Group EBITDA grew faster than revenue to $197 million, an increase of 24%. Digital revenue market share is 25.1%, and total revenue share -- market share has increased to 34.8%, which is up from 31% in the prior period. Statutory NPAT is $52 million, and the Board has announced a dividend to shareholders of $0.013 per share, which is in the middle of our 50% to 70% dividend payout target. Dan will provide you with more detailed financials shortly. In the first half of FY '23, we executed to plan our roadmap toward TAB25, the first of 6 halves on our transformation journey. Execution was strong as we delivered many important initiatives. We successfully launched the new TAB App in time for the spring race in carnival and new products, including a social betting feature with Bets Friends along with a meaningful upgrade of our same-game multi- and NBA Stat Centre. The new product saw TAB retained market share despite Betr entering the market with aggressive loss-leading offers that took market share of competitors. Customers are loving our new TAB App. There has been an 8% increase in active customers post launch and a 14% increase in TAB as the first choice for digital betting for the Spring Carnival. In Queensland, we've seen a 4% uplift in our revenue growth since a level playing field was introduced on the 1st of December. To complement our new strategy, we also purchased a 20% share in social betting app Dabble. This is an avenue that seed innovation to learn, and it gives us greater exposure to a younger demographic. We're already seeing the benefit of this. We said we will be disciplined with shareholder capital, and we showed that with the WA TAB process, with today's upgrade to OpEx guidance and our strengthened funding position in securing $425 million of debt from the USPP market. Slide 7 and 8 show more detail about our new products. I said at our FY '22 results that we've drawn a line in the sand between new Tabcorp and old Tabcorp. This represents that. We're launching products faster and in a more innovative way. You can see in these slides that our social betting feature not only connects customers with each other, but also with our TAB-on-air talent. This is something that's unique to us at TAB. We acknowledge where we've had product cuts compared to our competitors, and we're very happy that the release of our same-race multi this week now closes that gap. The relaunch of same-game multi led to a 28% uplift in same-game multi-active users in the 25 days post the launch. I'd like to reiterate that TAB is the official wagering partner of the NBA in Australia, and we have the only app with NBA Vision. The upgrade of our NBA Stat Centre complements our exclusive vision and ensures TAB will continue to have more NBA markets than any of our competitors, enriching the experience for our customers and helping us attract new ones. Now I'm incredibly excited about TAB25. These are our company targets for FY '25. And as I said, it's a 6-half journey of which we've just had the first. We're very clear on what winning looks like. It's TAB25. We're targeting 30% digital revenue market share, and we think this is a very achievable goal. I'm personally driving the company to beat this target. We're also creating a simpler, leaner and more agile operating model that will reduce OpEx to a range of $600 million to $620 million. And we're doubling -- targeting a doubling of our ROIC to 10%. Now without action, inflation would have taken our OpEx to around $700 million in FY '25. So the action we're taking to lower that to $600 million to $620 million is a very real and substantial target. We're also targeting a level playing field in every state and territory. Already, we've secured level playing fields in Queensland, in the ACT and in Tasmania and we've also made good progress in New South Wales. And we'll continue to simplify Gaming Services with a focus on Integrity Services. We see opportunity as regulations for gaming continue to tighten in Australia. We're excited about TAB25, and I'll share more about it later. Dan will now provide you more details on our financials for the half.

Thanks, Adam, and good morning, everyone. I'll really talk to 3 main things: The group results, the balance sheet and CapEx, and then I'll talk to the divisional performance. Slide 11 shows you the group results for first half '23, compared to both the first half '22 pro forma, and the statutory result from continuing operations. We generated 10.6% revenue growth while keeping costs contained, and that delivered 24% EBITDA growth. I'll talk you through the operational performance in more detail shortly. One call out here is the low effective tax rate for the half of 20%, which largely relates to timing of R&D tax benefits as well as finalization of tax treatment relating to prior-year demerger costs. Neither of these are expected to reoccur in the second half. The waterfall chart on Slide 12 shows the components that drove that 24% growth in EBITDA that I referenced earlier. As you can see, the key driver was the increase in VC for both Wagering and Media and for Gaming Services as our revenue rebounded from the COVID-impacted prior period, and we grew our total revenue market share. This was partly offset in the Wagering and Media VC by higher investment in generosity during the half. We did make an overall uplift in customer investment during the half, and that included the reinvestment back into the business of insurance proceeds that we received in the period. Group OpEx was well contained given the inflation evident in the economy, and we're seeing good early progress from the Genesis program. OpEx for the half includes football World Cup spend. We spent around $10 million on this tournament on exclusive vision rights and sponsorship. Now in full transparency, we did learn during this time that having sports vision in our app when it is available on free-to-air doesn't deliver the necessary uplift in revenue, and we're unlikely to do this again. This is in addition to lower turnover across the market for this tournament compared to 2018. So overall, Football World Cup was below expectations. Turning now to net debt and CapEx. Slide 13. Our net debt increase driven by 2 things: Firstly, some lumpy payments, which we flagged at the August result, including the Queensland structural reforms and payment for the final FY '22 dividend that includes 5 months of TLC cash flow prior to the demerger. Secondly, there was a timing impact from 3 items that I'll call out, close to year-end, and they totaled $126 million, and you can see that to the right of the graph. Separation costs reimbursement was one, industry-related payments, second -- and a tax refund, which -- and all of these have been received since period end. If you were to adjust for these, our net debt would be $256 million. In addition, since period end, it's worth calling out that we have received the $62 million from the sale of EBIT, which completed on the 1st of February. Slide 14, and we're in a strong funding position to pursue the TAB25 transformation that Adam's called out. During the half, we increased and we diversified the sources of debt that Tabcorp has. We raised AUD 425 million from the USPP market. Post the settlement of the USPP deal in March, the average maturity for Tabcorp will extend from 3.7 years to 5 years, and we're really pleased about that. Our net debt remains within our target range of 1 to 1.5x that we called out at the start of demerger. But as I have consistently said, this range was set at the time of the demerger based on the quality and the quantity of earnings at that point with the company emerging from COVID lockdowns. As we deliver on the TAB25 transformation, we'll review those settings to ensure they are appropriate for the business that we transform into. CapEx for the half on Slide 15 were $70 million. That included the investment in the new TAB App, and we continue to expect FY '23 CapEx to be up to $150 million, as previously indicated. We've increased the proportion of CapEx that's invested into the growth and transformation bucket as well as into the sustainability and risk bucket to improve the competitiveness and the resilience of our business for the long term. I'll finish off now with some comments around the divisional performance, Slide 17. As Adam mentioned, this was a somewhat distorted half given we were not only cycling the COVID impacts in the PCP, but we also had a football World Cup, along with some unsustainable promotions from a new entrant into the market. We also invested behind the launch of our new TAB App. These items had impacts on revenue, on VC and OpEx during the half. We unpack this over the next 2 slides, which includes new disclosures that we believe will make it simpler to understand the key drivers of our business. So turning to Slide 18. You can see we've split out digital and cash revenue in our domestic wagering business. Cash revenue rebounded strongly, up 58% as our customers return to socializing and betting in venue. Digital revenue was down 15% as the digital revenue market declined in the half, cycling elevated comps in the prior period. VC margins declined 0.9%, and that reflects predominantly higher generosity spend versus the PCP. On Slide 19, with the wagering revenue KPIs, further detail on the revenue performance of the domestic wagering businesses provided through these new disclosures on this slide. It includes, in the other line, an adjustment for the VRI interest and non-betting revenue, and this will allow investors to reconcile from total business to our statutory revenue, which have not been able to do before. On Slide 21, for Gaming Services, EBITDA increased significantly, driven primarily by the rebound in revenue as we cycled COVID and the PCP along with good cost control. Both of these things have been mentioned before. When it comes to first half '23, and on Slide 22, again, we've improved our disclosures here. So we've split out the earnings of the Integrity Services business as we pursue a strategy of simplifying towards these high-quality contracted business to government revenue streams, and we thought that was important for investors to be able to see. As you can see, the quality of that Integrity Services earnings is reflected in the relative EBITDA margins versus the segment average. Integrity Services' CapEx of $8.7 million is below D&A of 14.9%, reflecting the lower ongoing capital requirement, following upfront investment that was particularly made in the New South Wales system at the start of that license period. I will now happily hand back to Adam.

Thank you, Daniel. I'd like to talk more about TAB25, our company targets for FY '25. I want you on our journey, and I want you to mark our progress. In particular, I'll talk about our Genesis program that will reduce our OpEx to between $600 million to $620 million by FY '25 as well as our 30% digital revenue market share target. To Genesis and our new operating model. We've made significant progress since demerger and are now in a position to fast track our Genesis program. We're creating a simpler and leaner organization that allows us to deliver faster outcomes for customers and be more effective in the way we work. This work's already started with a dedicated internal team in place and operating and the appointment of an external partner that it has already commenced. The cost reduction will allow us to create the financial headroom to invest more in our customers, including product, branding and potential future investment opportunities. This will, in turn, help us grow market share. The reduction in OpEx is business-wide and will include all aspects of our company. For us, there are 6 pillars of Genesis, the first being our new operating model. We need to be more efficient and more effective. Genesis will allow us to do this. This goes beyond the simple cost out. It's about having a culture and a way of working that's oriented around creating better customer experiences. We're working across the business. Our existing contracts are under review, including our property footprints across all states and our procurement strategies. I'm very committed to reducing OpEx to as close as possible to $600 million. We're also looking to be more efficient with our technology, including rationalizing our systems. Our tech teams can be more agile, and our CIO, Alan Sharvin, has spent his first year in the job, not only streamlining what we have, but identifying new opportunities for our systems to be faster, simpler and more efficient. To digital revenue and market share, Tabcorp is the only company in Australia with a complete wagering ecosystem. We are the only wagerer that can provide an integrated content, retail and digital experience. Holding digital revenue market share for the first time since 2019 and growing total market share despite a new entrant in the market highlights the strength of our new business. We're just getting started, and I'm very confident we'll see TAB market share grow into the future. We have a clear action plan for the next 6 to 12 months. In digital, we'll continue to launch new products, and the app will be regularly upgraded. There's no set-and-forget thinking in this new company, and that translates to our customer offering. As I've mentioned, we've appointed a new Chief Data Officer to better leverage customer insights and to create a more personalized customer experience and be more effective with our promotional spend. Amy is already making a difference. And more broadly, I'm thrilled with the talent and the energy we're attracting to the company. We're also rebranding Sky Racing, and you can see the start of that with new green graphics to better align Sky viewers with the TAB experience. We haven't used Sky Racing as well as we could have in the past to promote TAB, and that's changing. Sky and TAB will go hand-in-hand moving forward. Our retail experience is being redeveloped to better connect all of our touch points for a complete customer experience. You can see the way that TAB has stabilized revenue market share that we're now in a position to grow, and I believe a 30% target is well within our reach. Our growth strategy will not be at the expense of customer care. We remain a strong advocate for reducing gambling advertising on free-to-air television to protect young children, teenagers and vulnerable Australians from excessive gambling advertising. I plan to personally advocate for these changes in Canberra in April. We're enhancing our responsible gambling training for frontline retail staff to identify and help problem gamblers earlier. We're also continuing to evolve our monitoring and intervention tools so we can intercept and help problem gamblers earlier who are using our digital products. This mindset has made TAB Australia's most trusted wagering brand, and that's a role we take very seriously. The gambling sector rightly remains a focus for regulators, the government and the community. I want to give you an insight into the mindset we have on regulation in the new Tabcorp team. Effective regulation and vigilant monitoring are good things for the gambling industry. They build trust and underpin our social license to operate. We embrace this and we support the work regulators do. We're regulated in every state and territory that we operate in, and we will continue to make the investment and the capability to work with regulators proactively and to meet the obligations they set us. We expect there will be broader regulatory reforms in the coming years, and this is a positive for Tabcorp given our experience in working with regulators. Turning to market observations and the outlook. As we all know, the economy is heading towards an uncertain period and interest rate rises may have an impact on discretionary spend more broadly. We believe operators will increasingly require scale to remain competitive and sustainable. The focus now shifts to profitability, product and customer experience. There's also a change in the structure of the wagering market. Foreign-owned online bookmakers are likely to face higher season taxes as the playing field levels and there may be further restrictions on gambling advertising, as I said. We see these trends as positive for us. We have customer durability and a broader customer base than our competitors. This will be valuable regardless of what happens in the economy. And historically, TAB wagering has been resilient through these cycles. We believe our customer base, along with our scale, regulatory capability and the TAB25 transformation has us well-positioned to grow in the coming years. The market may slow, but TAB will grow its share and reduce its cost base during this time. We will then emerge as a stronger, transformed, more competitive business, better able to capitalize on the long-term growth in the market. An increasing focus on electronic gaming machines from government and regulators may also present new opportunities for our Integrity Services business, similar to the recent contract in Tasmania. To reiterate what I said at the start, today's results are strong and highlight that our transformation journey is on track and it's working. We're doing what we said we would do. We've unshackled ourselves post the demerger with a new energy, a new attitude, new capabilities and a revitalized offering for our customers. In the first of 6 halves towards TAB25, our results reflect that. Our business has rebounded strongly from COVID and we have increased total revenue market share. And we have a new foundation, having held digital market share for the first time since 2019, and I'm pleased to have posted double-digit growth in group revenue and EBITDA. We've put a light on the hill with TAB25, and I'm confident in leading us to it. Our substantial cost program and strong balance sheet will further provide the headroom to invest and grow. We want you on this journey, and we want you to mark our progress. Our business is on track to meet our FY '23 targets, and I look forward to meeting with you at our Investor Day in late May. Thank you.

[Operator Instructions] Our first question comes from the line of Matt Ryan with Barrenjoey.

I just had my first question on the Genesis cost-out program. Obviously, quite significant in dollar amounts. So just hoping if you could help us understand the time frame of when we'll start to see those cost savings. Just appreciate that $80 million to $100 million in a 2- to 3-year period is quite significant. So are we to sort of assuming you're going to start to see quite a material change in sort of cost growth from next year?

Matt, thanks for the question. It's Dan here. I'll take that one. I guess what I'd say is we've highlighted during the presentation that Genesis has started with good momentum already. So we're not planning on this all being delivered in the back end. So I think the way you should think about it, that it will start to materialize through the second half and into F '24, but probably, call it, flat-phasing for want of a better term.

Okay. And the ROIC to double over that period, I just had a question on the capital base. So obviously, that's coming down a bit because D&A is about $100 million higher than CapEx at the moment. But are there other changes or other major changes that you'd be expecting to that capital base? And are you taking an assumption on the capital base or the EBIT number for the Victorian license when you give that sort of ROIC guidance?

So Matt, I'll make the initial comment, and Adam might want to add to it. But when you put out a target like that, as you can imagine, we do a lot of scenario and sensitivity modeling, and we've been through that. We're comfortable putting out 10% for any scenario coming out of Victoria, and we don't need Victoria in order to deliver the 10%.

Yes. I'll just add, we've assumed no license in Victoria for our ROIC targets. So it is an outcome that's better than no license that will be in addition to that target.

Okay. That's really helpful.

Thank you. Please stand by for our next question. Our next question comes from the line of Justin Barratt with CLSA.

I might just follow up on the -- on Matt's question around the group OpEx guidance. I just want to try and understand what that assumes for the size of your retail footprint through to FY '25 ex Victoria.

It's Dan. Again, we called out in the presentation that we're targeting a lower cost growth through our retail business. So we'll continue to look at the footprint. We'll expand where it makes sense. We've gone with digital-only venues during the half and expanded that, so it's not a slash and burn type of approach to the retail network at all. It's about growth where it makes sense and reductions where it makes sense.

I might just add to that. Just for clarity, I think Dan's talking about our agency network. So that's -- we've got about 300 of those still around the country. That's not the main game for our retail network. The main game for our retail network is how we're -- it's a key part of our strategy to grow our market share, and we'll be reinventing that network with investment in the customer proposition and it's linked to digital, and we're going to unpack that for you more at our Investor Day. But the main game is that it's a great asset to grow our business, but will also make it cost efficient.

Okay. Great. And then clearly, quite a competitive first half of '23. And obviously, you released a new apps, so we saw quite a low net yield. But I just wanted to confirm, is it reasonable to we expect a pretty immediate step-up or improvement in net yields into the second half?

I might jump in and take that one again. So I think what -- Adam talked about, at the back end of the presentation, was that the economic settings are changing. So what you need to be thinking about is the cost of capital is going up for all operators. The cost to compete, as in product fees paid, is going up as well through the park. So we expect that there will be a greater focus on profitability along with product and customer experience. And it was an extremely competitive half because of the entrance of Betr.

Yes, I might just add, give a bit more color and agree with all of that. But it was -- I think what better showed and Matt knows, scale is important. As the market's changing, scale is important. And the lever they use to try and get scale quickly was to throw some pretty substantial offerings out there that were deliberately loss leading. It's then difficult to create stickiness on that. And if I interpret news as results correctly, they lost something like $100 million in the quarter as a total Betr business. So that's a substantial impost on the market. What we showed is we're competitive. We're going to be competitive. Our customer offering is delivering better results for us. We actually had the best performance in terms of market share we've had in a long time, and this is a good basis to grow, but it's just the start for us. It's not the end of the game. As I keep saying it's the first to 6 periods until we deliver what we said we're going to deliver in FY '25.

Our next question comes from the line of Ben Brownette with Jarden Group.

Dan, can I start with the numbers, the insurance recovery, is that -- that's in the wagering EBITDA number? And if you take that out, it's obviously not as great. So can you comment on that one?

Yes, I can make a comment on that. So it is in the wagering EBITDA number. But as I flagged, we made a deliberate, a material step up in investment during the half in both generosity and in the soccer World Cup or football World Cup. Unfortunately, the football World Cup wasn't what we had hoped and expected for that investment. So there were swings and roundabouts in it for us, Ben.

Got it. Okay. So when it comes to the cost growth guidance, therefore, for this year, how does that $11 million benefit work? Is that a cost offset in your numbers here? Or is that revenue?

Yes, it's a cost offset. But as I said, we increased more investment into customer, both at OpEx and in the VC line.

So next half or next year, you're assuming, obviously, you won't have the insurance benefit, but you're saying that whatever you would invest in the business, you would expect to get a better return because of spend like the football World Cup didn't generate profit or as much profit?

Yes. We're learning a lot about what spend works. And we've highlighted the improvement in customer stickiness and retention reactivation off the back of the new app. We've had same-race multi launching this week. We've had same-game at the back end of the half. So we're relying more on strong product than we have before. And so we expect that every dollar of investment we make will drive better returns.

I think in simple terms, for me, not being the finance guy is -- we had nonrecurring benefit in the insurance payment, and we had nonrecurring increase in our expenses and what we spent on overinvestment in the soccer World Cup and some other things, so both of those cancel themselves out for the half.

Yes. Okay. So just on cost inflation, though, you did say at the Strategy Day that you'd have the 3% to 4%, so presumably, that portion of it carries forward? Or not? Is that not the right way to think about it?

No, the 3% to 4% doesn't carry forward. We've gone to 2% to 3%. And then think of F '24 and F '25 as Genesis kicking in and getting us towards the $600 million to $620 million that we've targeted.

Okay. And just quickly on Dan, while you're there on those receivables. So all those receivables have been collected, that $126 million, so if you think about receivables going forward, that sort of is a more normalized level if you take out $126 million from the balance sheet number?

Yes, totally. I don't expect that sort of thing to reoccur.

Okay. And then the disclosure that -- an interesting disclosure, but can you give us a bit of flavor around totes and fixed odds in racing as well so we can get a bit of an idea of how that's going?

Yes, sure. So tote, we did switch at the time of the new app. Our Saturday offers over to fixed odds. We still promote tote through the exotics. So fixed odds versus a PCP had a rebound. Our tote for the period, I think, was flat and fixed odds was up.

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

I just want to follow up on Matt's question about ROIC. It wasn't clear to me, does the ROIC target remain even after you sort of possibly renew licenses and renegotiate terms with racing bodies. In other words, whatever outcome you get in those negotiations, you still need to deliver that 10% target.

Yes, correct, Larry.

Okay. Great. That I guess is clear. So Adam, the other question I had is, can you just give us a bit of update on New South Wales, whether discussions have started there with regards to that July 24 deadline?

There's not much I can talk about in terms of discussions in any state, but a level playing field in New South Wales is really important for the racing industry and for government and for us. So we're still comfortable with that deadline.

Okay. And the last question I've got is with regards to your OpEx target, to what extent are some of the actions there, I think, you've talked about involving Sky? And how is it related to how you're taking a different approach with regards to Sky and Venue and your fee structures there? Is there sort of a corresponding OpEx adjustment you're making that's included in the $600 million to $620 million target?

No, not really, anything specific there. We will look at Sky and are looking at Sky in terms of the -- what's the best way for us to operate that business and -- but it's more around we want to be innovative. Content's a really important part of our vision for the business, what we want to create for customers. And there are some more modern ways we can go about it, which will also have a cost benefit. But I see that as more an opportunity around growth. It already runs pretty efficiently. The great thing about the Genesis program, it's -- we're looking at everything right across the company from all of our costs, including the way we operate and our operating model, we talked about property, all of the contracts that we have with our suppliers, and we're confident of getting into that $600 million to $620 million range.

Our next question comes from the line of Rohan Sundram with MST Financial.

I might start with a question for Dan on the cash flow. Just trying to get an understanding of what a normalized operating cash flow looks like. I'm assuming the race in Queensland settlement was in there. But Dan, should we treat those $126 million in payments that you referred to, are they all operational in cash flow? And are there any other items worth calling out to try and build a -- get to a normalized cash flow number?

Rohan, look, obviously, separation cost reimbursement's not normal, but it's a net neutral. It cancels itself out. But we've typically talked about, and we mentioned this at the Investor Day, that we do have typically high cash conversion. So wherever you're landing at your assumptions for EBITDA is usually a really good starting point. And you can model plus or minus around that.

Okay. And a question for Adam, just a general one. You mentioned the Gaming Services business earlier. How do you see Tabcorp position for a cash flow gaining environment? Is it a net beneficiary? An enabler? Or how should we perceive it?

I think a couple of things on that business. One is we're simplifying it. I want to simplify the company and simplify that gaming services business as part of it. So we're sharing more with you about that business, so you can see that. It's -- the monitoring side of that, at the moment, is the richest part of that business and that directly isn't impacted by -- if there was to be a move to cashless gaming or anything else, those revenue streams and those contracts and agreements will remain in place and are valid. But it does present opportunities as -- whether it be cashless gaming or it be identification or other initiatives that are rolled out by the government, we're well placed as the monitor and with our technology to be able to develop products and roll those out to the market, so I see it as an opportunity.

Our next question comes from the line of Donald Carducci with JPMorgan.

A few questions around retail and the profile of Sky earnings. Maybe to start with the reduction of Sky fees in Queensland. What's the impact from this? And can you help us understand what this looks like if that extends elsewhere?

Sorry, Don, can you just slow down a bit. I didn't -- couldn't quite hear the question.

Sure. What's the earnings risk around the reduction of Sky fees in Queensland, if that extends to other states?

Dan was about to jump in. I'll jump in, so Dan might add in. I don't see it as an earning risk. We're freeing ourselves from legacy type revenue streams, and we're transforming the company to grow, have more customers. Digital market share is our happy meal that we put a light on the hill with 30%. And as we do that and as we level the playing field, I want to break through of these legacy revenue streams and have all of the venues really galvanized and enthusiastic about what we're creating together and help them grow as well. So as we get a bit more mature on our journey, I'm very happy to let those revenues go, and we will replace those with growing market share and higher margins because of a level playing field. So don't think of it as an earnings risk.

I don't really have that much to add to that, Don. If you work through the P&L, that translates to higher VC margins at your level, better EBITDA margins as your OpEx program comes through. And then you grow off the improved market share, so that's how we think about it.

Would that be the same case for the EBT, the Easy Bet terminals, the fee elimination in New South Wales? How should we think about maybe the earnings contribution that may otherwise come out from those?

Put it in the same bucket. We'll reduce those fees over time, because it makes sense and helps us grow our total business.

All right. Okay. Maybe just a last one for me on kind of the cash and cash less. Obviously, it's a hot topic around slot machine regulation, AML, CTF, KYC, et cetera. So given the large cash retail operations that you have, how are you planning and thinking about aligning the business to avoid call it, similar scrutiny regulation? Maybe if I phrase it another way, are you expecting the need to go cashless yourselves? Or is there a strategy there?

Well, definitely, eventually. I think if you look forward more than 5 years or so, there's not going to be a lot of cash in the economy. So there will be new payment methods in venues, and that'll evolve in time. But really, our opportunity is how we create a customer experience with those 4,000 venues that we're in around the country to amplify our customer experience, simplify our customer base and grow. That's how we think about it. We work -- as I said in the -- earlier, we work really closely with regulators, including AUSTRAC and very focused on the measures and mechanisms and technology we have in place to manage our cash business, very vigilant, but it's going to disappear at some point. We're conscious of that when we think about new licenses. But we also see an opportunity to really create that ecosystem across our venues, our content, our digital assets and being unique in the market. That's what we're focused on.

So I guess the final question I'd have would just be a follow-up on that one. If a venue trade down from having both cash and digital operations to just digital only, what's kind of that step down in percentage of turnover that you retain from that venue?

I think your digital-only venues, as we've started to roll some of those out, it's not a step down. It's a step-up. We're attracting new venues to our network who didn't want to have all of the cash operation and some venues had, like, a lighter, I guess, hardware in their venue, are choosing digital, and we're finding that a benefit, not a step down in an overall sense. And then people who want the full service go to a venue close by that's got the full service offering. So it's more how the network works as a whole and how we reinvent that over time for the future that we think about it, not 1 venue's experience.

Our next question comes from the line of Joseph Koh with Schroder.

Can I just ask about some of the one-offs during the half? You called out the $11 million of insurance benefit and you said there's about $10 million of cost for World Cup one-off, but you haven't given us, I guess, the World Cup revenue benefits. So trying to figure out how much revenue did you generate from that.

Yes, we generated about $18 million in total.

Right. So you made a net benefit from World Cup of about sort of $1 million, give or take, which is kind of one-off, but can you repeat? Is that right?

Yes. Yes.

Right. So net-net, it was benefit from World Cup, plus you had $11 million benefit from insurance. If you took out -- took off the insurance benefit, that's quite a similar proportion of the $73 million of EBIT that you reported for the first half, is that right? Because the World Cup was a net benefit, and you had an insurance benefit of $11 million, something in the order of $20-odd million in the half came from one-off type stuff.

No, I don't think you're doing that reconciliation, right. I'm happy to take that offline with you.

Okay. But I guess, World Cup was a net benefit to EBIT, and we had a little loss benefit from insurance. So something north of $11 million was a benefit during the half?

No. So what we've said is that we received $11 million. We kept $10 million into the football World Cup. So the $18 million of revenue I quoted was total business before the VC margin kicks in. So you've got a decline, the $18 million. But as I said, happy to take that with you offline. But no, I don't agree with your reconciliation.

Yes, that's fine. I'm just trying to get my hands -- even if you made a loss on World Cup, net-net of $4 million, you saw a net benefit $7 million, which is 10% of your EBIT in the first half. It seems like quite a large number. I'm trying to figure out -- as long as you made a profit in World Cup…

Yes, sorry to cut you..

Did you make a profit on World Cup, I guess? Or how much of a loss as did you make?

I think you're probably at risk of overthinking it. What we're clear on is the cost, and we're being pretty open in saying, actually, that was -- we actually made some of those decisions pre-demerger on the -- some of the investments we made in Soccer World Cup, and we don't -- we learned something from it. It didn't -- we think we would have actually delivered the same revenue without that investment, so we're being open. We're trying to be transparent and say that one we learned from. When you have a new tournament like that, it's not one for one. You've got discretionary spend that goes across the sector and there are trade-offs to customers in what they invest at, our customers, and what they invest that in. So what we are sure on is the cost that's nonrecurring and we wouldn't do that again in the same way. And insurance, we have been transparent about as well. But overall, what is very clear, we held market share for the first time. We grew total market share as a business for revenue. The other thing we did do, which we haven't got in the pack, we grew turnover market share. We grew our customer base. They're all positive indicators, and we're happy with the results.

Okay. I guess -- sorry, maybe my last attempt at this to help it to be a bit clearer. You said you wouldn't do it again for the World Cup, spending at $10 million. Presuming that is off the back of how much revenue you generated, whether there was a lot or little. So in your view, maybe it wasn't worth it, but it sounds as if you did make a large net loss and you might have made a net profit, I'm not sure. And you say it might be hard to exactly measure that. But if it's broadly in line or a bit of a loss, that sort of ballpark figure, presumably you're saying if you're not -- well, you don't want to do it again. So maybe you made a small loss, but if you made a phenomenal loss, actually, the one-off benefit from insurance is far outweighing that.

Don't know, starting to compute, so yes. I think -- I just think, look, overall, really, the vision, particularly in the app, all these are on free-to-air. The soccer World Cup was soft across the market. We actually performed well in soccer World Cup versus the market. We know some of the data metrics across the market. We performed pretty well versus the market, but it was down on the previous World Cup and that there was a bunch for everyone. So -- and then we think having the vision in the app, in particular, when it was available on free-to-air, that cost quite a lot. And we don't -- we think we would have achieved the same thing without it. So that's a learning for us as we go on this journey. We're just -- yes, and then I've mentioned all of the other stats and now we're just focused on continuing to grow.

Our next question comes from the line of Simon Thackray with Jefferies.

Just -- Adam, just want to go back to your comment, your cautionary comments, I guess, on the outlook with what may lay ahead for the economy and the consumer. Could you just give us, if you would mind, just a bit of an update on the current sense of the market and wagering and how turnover and the trend in turnover and the yields currently looking?

We're not giving an update on trading. But I think it's known that the market's been a bit softer, I think, post the COVID sugar hit, particularly in digital. And so our performance in that market is improving market share position, holding digital, improving overall, including our retail business, growing turnover market share. And the focus for my team -- my challenge is to keep this company very focused, not distracted, don't worry about what others are doing and keep our eye on the prize, which is that digital market share target for TAB25. So we're focused on growing share regardless of what the market does.

And with that market share target and you referenced the learnings from Dabble, your 20% investment in Dabble. It's just a bit of an admin piece, but there's nothing in Dabble that's reflected in your market share calculation as stated, I presume?

No, nothing at all. But what we -- it's starting to feed ideas. So we took some of, I'd say, some learnings that we put into our Bets Friends product, which is -- we've really launched that as an MVP. We'll keep building on that. I mean, a point of interest is the customers, all the new customers and reactivated customers that we had since the app was introduced, predominantly in the under-35 category. That's new for us, so we're happy about that, too.

Excellent. And then one for Dan. Just in terms of the cash flows and you called out at the full year, the sale of EGMs in Gaming Services, just the absolute progress on that and how much is in cash flows in first half '23, if any?

Yes. Thanks Simon. There's about $32 million from the sale of the EGMs that we called out at the August result.

Our next question comes from the line of Darshana Syama with Goldman Sachs.

First of all, I just want to understand regarding the Genesis program, it's pretty substantial $80 million to $100 million in cost savings by '25. I know you've discussed that this is broad-based and across your business, but can you give us a sense of what are the 1 or 2 most important regions, I mean, areas where you expect to make cost savings?

Yes. Darsh, it's Dan. I'll take that one. There's not 1 or 2, but we have called out across the 6 pillars. So you can see all the way across from our operating model, all the way to procurement and into our suppliers. And there's a call out in the middle of those 6 around technology and the way we serve cost-to-serve. So all of those things are important and also our cost-to-serve in retail. Our employment cost is around half of our total base. Technology is really material as are our suppliers. So I'm just trying to reiterate, it's right across the board.

I might add in, we've identified the pathway to be within that range. So it's not a -- cross our fingers, and we still got x to get. We've identified how we're going to get there. And we've got a team in place that's working through it.

Okay. And secondly, I guess, it was pretty well publicized in terms of the competitive environment in digital. Just keen to understand how this environment potentially impacted the retail business during the Spring Carnival, please?

Look, it's hard to say, because retail was rebounding. So versus the PCP, it was obviously up. We saw the news, I think a couple of things I'd say. So we saw foot traffic in venues actually quite positive through the period. People, during that point in time, were definitely coming back to pubs and clubs in the retail environment. We saw a strong growth in digital and venue as a metric as part of that. So we report retailers cash, which we said was up 58%. But then on top of that, we have digital in venue, also had strong growth for us. But we think, frankly, we're not doing well enough in terms of our share of digital in venue, and we're building our strategies and creating our plans to grow that pretty significantly over the coming period towards TAB25. We're having an Investor Day in May. We hope you're all there, and we're going to unpack that in a bit more detail.

[Operator Instructions] Our next question comes from the line of Andre Fromyhr with UBS.

Just I wanted to ask about the Queensland level playing field. In terms of what you've seen already in the first few months of that model, do you have enough information that you could share an estimate of the annualized EBITDA impact from the change? And furthermore, to what extent could we use that as a template for -- if we saw a level playing field in other major markets around Australia?

So I think the first I'd say, we said it was going to be positive and it has been. It's been terrific for the rating industry. You've seen price money increases in Queensland, very -- investments in infrastructure. It's a very vibrant Queensland racing industry, the most vibrant it has been in years, and that's because of a level playing field. It's also been good for us, and I called out the increase in trend in revenue growth already. So we're seeing good performance there in terms of growth since it's only been a couple of months since the 1st of December, and we're very focused on that. But in terms of the number, I think it's $30 million.

Yes, we guided to $30 million impact when we made the announcement earlier. I think it was around June with no reason to deviate from that.

Yes. And in terms of other states, absolutely. I think that's really the model -- potential model for other states to follow.

Great. And just moving to another question on Genesis. When you've -- you say you're moving to the more agile ways of working. As you've looked at sort of redesigning the shape of your organization, have you found that there are any specific capability areas where you're short? And therefore, as you're looking to take costs out, are you also having to put some costs back in certain places?

Yes, definitely. I think this is not a -- Genesis isn't primarily a cost-out program. That is one of the benefits. But it's actually about setting up our organization for our -- deliver on our strategy for growth. So I called out, for example, Amy, our Chief Data and Analytics Officer. She'll be embarrassed, I keep mentioning a name, but she's just an example. We've got a bunch of key roles and key people right across the company at every level, particularly in technology, in areas where we felt we had to invest in capability. and the $600 million to $620 million is net of all of that change.

Are you able to give a sense of sort of what the gross cost out is and how much you have to reinvest?

No, I don't think I can on the call. But maybe we can -- we'll think about if we can unpack that a bit more over time, but not at this stage.

We have a follow-up from the line of Simon Thackray with Jefferies.

Adam, just a follow-up question in terms of Gaming Services with your comment about the agreement with Star Sydney and the 1,500 machines there. I just want to understand if that's material to the opportunity for the Gaming Services division rather than at a group level and a little bit, if you can, about the scope. Is it a multiyear agreement? And does the scope of that agreement contemplates the move to cashless gaming? I'm just trying to sort of understand what it might mean for gaming services.

I'll let Dan talk about the specifics of Star. But the reason I like that deal is as part of it, we're in developing the technology we need to be able to monitor -- be the monitoring casinos anywhere and everywhere. And I think that's pretty essential for the casino sector in this country. They've traditionally monitored themselves. New South Wales regulator has determined that, that's -- with the Star actually, I think they've identified it themselves that, that's not the way they want to go going forward. So the great thing is about that we'll have the technology to do it in other casinos as well. Dan, do you want to talk to…

Yes. I'll just make an additional comment. It's not stand-alone by itself, material, Simon. It would be single-digit millions. But it's just a nice incremental add-on to both the Tasmanian one, and it just proves that our capability as other opportunities arise. I made the point on the call earlier about the margins and the lack of capital intensity in that business given the investments we've made. So we see it as nice and incremental. It doesn't take a lot of incremental OpEx and CapEx to take this to greater scale. But stand-alone, now by itself, it's not going to make a material difference to Gaming Services EBITDA.

I'm showing no further questions in the queue. I would now like to hand the call back to Adam for closing remarks.

Thank you all. That's lots of great questions. We really appreciate it. Thanks for your interest. We want to keep talking to obviously. I just want to reiterate, we're really committed to TAB25. We don't put those targets out there lightly. We put them out with the intention to hit them. And we absolutely want you to mark us on that journey. So we're being as transparent as we can be along that journey, and we're looking forward to achieving those results.

Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.