The latest interim results confirm PBL is now a gaming company with a
couple of highly profitable and dominant media businesses attached.

The Packer company’s interim result
for the December half showed that gaming had cemented itself as the dominant
source of revenue and earnings, and of confusion about the actual results.

While gaming was the biggest source of earnings and revenue
for PBL in the first half of 2004, its dominance had not been clearly
established.

That is now quite clear, thanks in part to the Burswood Casino takeover.

But gaming remains the biggest source of confusion for PBL
because of the ‘normalised’ revenue and profits
concept versus the ‘actual’.

PBL uses the ‘normalised’ win rate
of 1.35% for both casinos VIP rooms. But in the latest half, the VIPs got the
better of the house and the win rate fell to 0.86%.

>That ‘below theoretical win rate’ knocked $43.7 million on
the reported earnings before interest, tax and depreciation and
amortisation for the half. The house still won, but not as much as
before!

>The first six months of the 2004 financial year saw an
“above theoretical win rate” of 1.74%, or an extra $30.9 million. So strictly speaking comparing the two differing win
rates produced a net negative figure of $12.9 million.

VIP gaming turnover reached a massive $10.2 billion in the
six months at both casinos!

Using the normalised figure to try
and iron out these swings in the win rate produced a higher ebitda figure in the latest period and in the same period
of 2004 by around $5 million ineach cases.

But the dramatic impact is shown between normalised gaming
revenue of $751 million, up 32.4% versus ‘reported’ revenue up 16.1% to $702
million: a difference of $49 million!.

Earnings from gaming in the first half of 2004 just edged
out TV, $163.7 million to $157.1 million (on an earnings
before interest, tax and depreciation and amortisation
level).

The impact on earnings of the actual win rate
versus the ‘normalised’ is quite dramatic in the latest half. Actual
ebitda from gaming amounted to $184.8 million, down
5.1% on the previous period.

On a ‘normalised basis earnings
were up 39.6% to $228.5 million, quite a difference.

It’s no wonder PBL executives, led by CEO John Alexander
were using the ‘normalised’ figures to sell result to
analysts at briefings on Thursday. After the initial investor reaction, when
the shares had plunged to a low of $14.87, a loss of 68c, PBL had recovered at
lunchtime to be around 36c lower at $15.19.

The PBL team would have been tap dancing hard to explain the
‘normalising effects of the gaming win rates. On an
actual basis, with the lower earnings from casinos, PBL’s
profit only rose 5.6%, compared to a ‘normalised gain
of 23.8%, again an enormous difference.

But even at the actual rate, the gaming business was still
the major profit and revenue group for PBL.

TV earnings edged up 9% to $171.3 million and PBL’s ACP Magazines business turned in another solid result
with earnings rising 18.8% to $125.8 million.

The rising dominance of the gaming side of PBL was
underlined by this announcement today
confirming that the joint venture with the Melco
company of Macau (owned by the Ho family interests) will go ahead shortly and
require $US163 million from PBL as a starting contribution.

That is going to scout for gaming investments in Asia, with Singapore
a possible earl target (where Tabcorp
might also be rival).

After trying to expand into Asia through magazines (small
interests in Singapore and Malaysia) and TV in India (losses of $400 million
from that and other involvements in that market) the Packers are now trying to
use its gaming expertise to expand, which it has a lot of at Crown in
Melbourne, and now Burswood.

Both casinos have extensive dealings for Asian gamblers.

Overall though, a solid interim result from PBL, the
country’s largest gambling and media company, with earnings rising more than
20%, faster than the 12.3% rise in revenue in the half.

Here’s an early AAP report on the result – PBL profit up on strong economy. And the compnay announcement here.

PBL’s profit
margin rose slightly to 30.5% from 29.2%, with the TV business showing a very
solid gain, from around 32% to more than 35%, despite the weaker than expected
growth in advertising revenues.(these margins are on an ebitda
basis and do not reflect higher depreciation costs for example).

But helping PBL was a much lower than normal tax bill of
$59.6 million (on an actual basis) or $72.7 million
on a normalised basis (to take account of differences
in the win rates in the Crown and Burswood casinos).

PBL said the ‘prima facie tax expense at 30%’ based in a
pre-tax profit of $405.626 million was $121.688 million, which if paid in
full would have sliced $61 million of profit.

The differences was made up of $37 million of over
provisions for tax in previous years, $19.2 million in capital losses, $3.6
million in revenue losses and ‘other items’ of $4.4 million.

TV revenues rose only 8.0% to $488.2 million and magazine
revenues rose slightly faster, 9.9% to $413.5 million and underperformed the
12% growth for the group as a whole (actual) or 18.6% (‘normalised’). An
interesting cost during the half year was the $2.5 million expensive in PBL’s “head office”

This no doubt has reflected the staff changes that followed
John Alexander’s move to the top of the company as CEO in June of last year.

The interim dividend has been lifted sharply to 27c a share
from 15c a year ago, meaning a substantial rise income for shareholders, led by
the Packer family who stand to gain around $66 million of the payout.

With earnings per share of around 51c for the
half, there’s plenty of leeway for the final dividend to be increased
and total payout to reach 50c a share.

Costs in the TV business rose 7.4% and the company said this
was due to higher TV programming, blockbuster programs (CSI New York, no doubt) and ‘news and current affairs’.

Costs overall rose 12% for the group, which has worried
investors, especially with the advertising boom expected to slow for TV and
magazines this year.

The accounts reveal that even after buying Burswood and lifting debt to $1.6 billion, the company
still has a billion dollars in cash on hand to spend. That will be reduced by
around $206 million for the Asian joint venture, but with cash flow running at
an annual rate of $600 million or so, that will be quite easily paid for and

quickly.

So if and when the media laws change PBL has a nice nest egg
to start bidding for anything it wants!