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Tabcorp share price sinks lower on $1 billion impairment and FY 2020 profit guidance

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The Tabcorp Holdings Limited (ASX: TAH) share price has come under pressure following the release of its preliminary full year results and the announcement of a major impairment charge.

At the time of writing the gambling company’s shares are down 5.5% to $3.36.

What did Tabcorp announce?

This morning Tabcorp advised that it has been reviewing the carrying value of its assets and expects to incur non-cash goodwill impairment charges in the range of $1,000 million to $1,100 million in FY 2020.

According to the release, the non-cash goodwill impairment charges relate to its Wagering & Media and Gaming Services businesses.

Management advised that these reflect an assessment based on underlying assumptions which take into account the impact of the pandemic on these operations, the possible acceleration of retail contraction and long term uncertainty, and the level of competitive intensity and structural changes in the Wagering & Media business.

In addition to this, it believes a potential decline in consumer confidence and increased economic uncertainty could weigh on the businesses.

Though, it is worth noting that the goodwill impairment charges are non-cash in nature and will not impact the company’s financial covenants with its lenders.

As of the end of FY 2019, the book value of goodwill for these segments was $2,945 million. Which means they have lost over a third of their value now.

Tabcorp’s Managing Director and CEO, David Attenborough, said: “COVID-19 has materially impacted our Wagering & Media and Gaming Services businesses. We are facing into a challenging and uncertain environment, and the current operating conditions and those expected into the future are relevant factors in assessing the value of the goodwill in those businesses at this time.”

FY 2020 earnings update.

In addition to the above, the company provided the market with its expectations for FY 2020.

Management advised that earnings before interest, tax, depreciation, and amortisation (EBITDA) before significant items is expected to be in the range of $990 million to $1,000 million. This represents an 11% to 12% decline on FY 2019’s EBITDA of $1,124 million.

And on the bottom line, net profit before tax and significant items is expected to be in the range of $267 million to $273 million. This is a 31% to 32.5% decline year on year.

Mr Attenborough concluded: “We remain confident in the strength and resilience of Tabcorp’s diversified portfolio of assets and are pleased that integration is now substantially complete. We are focused on supporting our people and partners during these challenging times while ensuring that Tabcorp emerges strongly post COVID-19.”

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