Tatts loses confidence in UK gaming

Maxgaming is an electronic gaming machine monitoring and jackpot services company. Tatts also said this week that the group would declare a fully franked dividend to be paid in 2010, and it was not expected to be less than the final dividend paid in October 2009. The reduction in the book value of the Talarius investment and the Maxgaming software would be reflected in Tatts' 2010 full year accounts and were not expected to materially affect future dividends.

Tatts said the long-term future for Talarius was promising following a restructure, and operating profits from the business were expected to double in fiscal 2011 and lift substantially again in fiscal 2012.

"However, an emergency budget in the UK has delivered an increase in the UK VAT (value-added tax) and the immediate outlook for consumption spending in the UK is a little less certain than previously thought,'' Tatts said in a statement to the Australian Securities Exchange.

"In these circumstances, the Tatts Group board considers that it is prudent to review the carrying value of the Talarius asset and the directors have decided to make a non-cash impairment charge of $ 140 million. "The revised carrying value of Talarius is $180 million.''
 
Tatts acquired a 10.5 % stake in Talarius in November  2005 and acquired the rest of the company subsequently after a period of joint ownership with Macquarie Bank dating from February  2007. Following Tatts' full acquisition of Talarius, the UK economy and consumer spending declined. Nonetheless, Tatts continued to invest in Talarius in anticipation of a lift in consumer spending.

Tatts said an improvement in spending at Talarius venues began to emerge in late 2009. Talarius had been generating like-for-like growth throughout most of 2010. Operating profits had been strengthening since the number of venues had been reduced to a more profitable core of 170.

Tatts said the $ 25 million amortization charge for the software used to monitor and provide wide area jackpots on gaming machines in NSW was the result of the early replacement of the IT applications developed when the systems were first deployed in the 1990s.

"The early replacement of the NSW monitoring software with Tatts new multi-protocol Maxsys gaming machine monitoring and venue support systems in NSW, Queensland and the Northern Territory will reduce system maintenance and replacement costs and accelerate the speed to market for the new value-adding services that Maxgaming sells to gaming venues,'' Tatts said. "It will also spread future development costs over a larger business.''