For personal use only use personal For
TATTS GROUP LIMITED ANNUAL REPORT 2016 ABN 19 108 686 040 2 MANAGING DIRECTOR’S REPORT CHAIRMAN’S LETTER For personal use only 12 8 BOARD OFDIRECTORS SUSTAINABILITY REPORT 44 32 Tatts Group Annual Report 2016 TRACK RECORD EXECUTIVE TEAM goal to betheworld’s best gamblinggroup. growth for thecompany aswe chaseour are creating new opportunitiesto deliver Not content withbusiness asusual,we practices, skill-setsandsaleschannels. adapting ourproducts, brands, business In FY16,we againachieved results by CONTINUES TO DELIVER TO INNOVATION OUR COMMITMENT 50 48 ANNUAL FINANCIAL REPORT DIRECTORS’ REPORT 79 51 3 MANAGING DIRECTOR’S REPORT 4 For personal use only Tatts Group Annual Report 2016 up4.4%onFY15 $2.93 $2.93 BILLION GROUP REVENUE
EBIT up1.3%on FY15 NPAT NPAT MILLION $419.6 MILLION $263.4 $263.4 CONTINUING OPERATIONS up 3.8%
5 MANAGING DIRECTOR’S REPORT 6 For personal use only Tatts Group Annual Report 2016 LOTTERIES ANDWAGERING WEBSITES Digital Sales 13.5% ofFY16sales UP LOTTERIES AVERAGE MONTHLY VISITORS TO 32.2% 3.6 1.5 TOTAL APPDOWNLOADS 30.2% ofFY16sales UP WAGERING
MILLION MILLION 22.5%
7 MANAGING DIRECTOR’S REPORT CHAIRMAN’S LETTER
DEAR SHAREHOLDERS,
On behalf of the Tatts Board, I look forward to OPERATIONAL PERFORMANCE – welcoming you to our Annual General Meeting POWERED BY LOTTERIES AND on Thursday, 27 October 2016, at the Brisbane DIGITAL EXCELLENCE City Hall, and, as always, if you are unable to join us on the day, you can listen to the The excellent result delivered by our Lotteries proceedings online at www.tattsgroup.com. operation, coupled with our strongest ever digital sales in both Lotteries and Wagering, Looking back on financial year 2016, it is clear underwrote a 4.4% increase in Group revenues that the success of our digital initiatives and reaching $2.93 billion. At NPAT level we Lotteries’ superb performance drove our strong produced a continuing operations result of results. Growth in digital sales was nothing $263.4 million up 3.8% on the prior year. short of outstanding, with Lotteries lifting At a statutory level, after tax profit was 32.2% and Wagering digital sales up 22.5%. down 7.2% impacted by both the State of These outcomes are category leading. Victoria winning its appeal in our long running Our Lotteries team is widely recognised as and now concluded pokies compensation a global industry leader and innovator, and litigation, and the loss arising on the sale of continues to go from strength-to-strength. The Talarius. team delivered record-breaking performance The Managing Director’s Report on page 12, on the back of an excellent jackpot run, with discusses our operational performance in revenue, EBITDA and EBIT at new all-time highs. more detail. UBET, which has been in the market a little CHAIRMAN’S over 12 months, achieved 4.1% turnover growth INCREASED DIVIDENDS + compared to a turnover decline of 0.9% in FY15, TSR OUTPERFORMANCE giving confidence that the new brand, digital Our strong continuing operations NPAT result, LETTER platforms, and retailing initiatives are starting to coupled with a long-standing commitment to capture market share in the highly competitive maintain a high dividend payout ratio, has seen wagering space. your Board determine a final dividend of 8.0 Our Gaming unit recently rebranded as MAX, cents per share (FY15: 7.5 cents). successfully divested Talarius, our UK slots This takes the total dividend paid for the 2016 operation. This action allows the repositioning financial year to 17.5 cents per share, an increase of this business unit as a purely B2B operation of 6.1% over FY15. This represents a 97.3% predominantly focused on providing monitoring payout of our continuing operations profits, and and other services to gaming operators. maintains our long-standing policy of dividend payout ratios exceeding 90% of NPAT. In fact, this is the tenth year since listing on the ASX that our dividend payout has exceeded 90% on
a continuing operations basis. For personal use only use personal For It is also of note that we again outperformed the ASX200 index and our immediate peers on the important investor metric of total shareholder THE SUCCESS OF OUR DIGITAL return (TSR). TSR for FY16 from a combination of dividends and share price growth was 8.0%, INITIATIVES AND LOTTERIES’ compared to the ASX200 TSR of 1.1%. SUPERB PERFORMANCE DROVE OUR STRONG RESULTS
8 Tatts Group Annual Report 2016 9 POKIES COMPENSATION Our commitment however goes significantly CLAIM CONCLUDED beyond our tax contribution. We are a very active supporter of a range of charitable After years of legal action to enforce our causes and programs which are discussed rights following the expiry of the Group’s further in our Sustainability Report. We remain TOTAL SHAREHOLDER RETURN FOR FY16 Victorian gaming operator’s licence, the High focused on ways we can do more, and this Court upheld the State of Victoria’s appeal in year we established a new division within Tatts FROM A COMBINATION OF DIVIDENDS March 2016, with the result that Tatts repaid specifically focused on fund raising activities the state $540.5 million, plus interest of AND SHARE PRICE GROWTH WAS 8.0% for the charitable and not-for-profit sector. $26.6 million (pre-tax).
Our aim is to supply innovative products COMPARED TO THE ASX200 TSR OF 1.1% CHAIRMAN’S LETTER Given that the case was on two occasions and technology solutions that are capable decided in our favour by the Victorian of making a real difference to charitable Supreme Court and the Victorian Court of organisations in their fund raising endeavours. Appeals, the result in the High Court was Over the last few years we have been working disheartening. However, it has not impacted to improve our sustainability reporting to you, international lottery opportunities as they The second positive movement in the regulatory our ability to maintain a high dividend payout and are pleased that the Australian Council of present themselves. In these processes our environment is the gradual awakening of state ratio or our ability to grow the business. Superannuation Investors has recognised our bidding position is enhanced by holding and territory governments to the taxation efforts by raising its rating of our reporting to proprietary and proven technology solutions, leakage occurring with certain wagering SUSTAINABILITY – the second highest category. both in retail and digital environments, and companies operating out of virtually tax free ON THE RIGHT PATH having highly experienced management and jurisdictions. When considering the $1.41 billion an operational and regulatory compliance track in lotteries and wagering tax and duty Tatts As Australia’s largest non-casino gambling THE FUTURE – record of excellence. pays to state and territory governments and group, Tatts takes its responsibilities as a WELL PLACED FOR GROWTH industry partners, it is an issue of significance to corporate citizen very seriously. We respect Beyond transformational and acquisition We remain determined in our resolve to the fiscal position of these jurisdictions if other and understand that our licences and actions, we also have a strong opportunity to seek ways to maximise the value of our operators are circumventing the tax and duty authorities to operate are privileges granted continue organically growing our businesses. unique portfolio of gambling assets and system for their own financial benefit, and/or by government, and come with significant With the established and ongoing success the proprietary technology platforms that deceiving customers as to the nature of their responsibility and obligation. of our digital initiatives, the introduction of support these businesses. product offering. new products, the enhancement of our retail We have made considerable progress in the To this end, we are not fixated on one position, and leveraging the benefits flowing areas of diversity, development of our people, particular path or approach, but are acutely from an omni-channel presence, we have a OUR WINNING TEAM safety and environmentally sustainable aware of the need to ensure each of our powerful engine for growth. business practices. Detailed reporting on our Achieving our vision of becoming the world’s businesses is performing optimally, that actions and achievements in this regard can be best gambling company requires truly the licences supporting each business are found in our Sustainability Report on page 32. REGULATORY ENVIRONMENT – amazing people. We are fortunate to have a secure, and, in some cases, to reposition POSITIVE OUTLOOK highly engaged, driven and passionate team. As an organisation we have a long and proud certain of our operations to maximise value We actively encourage our team members The regulatory outlook for our businesses has history of contributing in a very meaningful way for our shareholders. to ‘challenge, re-think and refresh’ the way to both the communities in which we operate improved in a number of important respects. We have demonstrated what can be we conduct our business, thereby creating a and to the industry partners upon whom we accomplished by implementing this strategy Firstly, we commend the Federal Government culture of innovation and reinvigoration. On depend. Our support to our communities is in the turn around and subsequent divestment for its leadership in determining to retain and behalf of the Board and all shareholders, I multi-faceted. Most significant is our financial of Talarius, our UK slots operation. A further enhance the provisions of the Interactive would like to acknowledge the commitment contribution to the broader community via our example of this approach and our desire to Gambling Act 2001 to stamp out ‘click-to- of the entire Tatts team towards delivering our tax contribution in all the states and territories release value for our shareholders was our call’ in-play betting products and other illegal vision and thank them for all their efforts over in which we operate, together with the funds initiation of discussions with Tabcorp in 2015 betting activities. Tatts has, for some time, the last year. provided directly to the racing industry. In about a merger of equals, even though this did held serious concerns about the behaviour addition to our corporate taxes, in FY16 we Sincerely, not ultimately proceed. Other transformational of a number of foreign and domestic betting paid a total of $1.41 billion to state and territory opportunities have been and will be considered operators who use tricky and deceitful means governments and industry partners in the form by your Board whenever they arise. to circumvent, at the least, the spirit of of lottery taxes, wagering tax, racing industry Australian laws and community expectations. product fees and race information fees. The Our businesses also have the potential to In taking this stance, the government has most significant of these contributions in the grow from ‘bolt-on’ acquisitions. The planned drawn a line in the sand and demonstrated year were: acquisition of Victorian and New Zealand its commitment to Australian jobs, Australian monitoring operations currently underway, • Queensland $381.3 million businesses, and Australian values over HARRY BOON
For personal use only use personal For which (if completed), will seamlessly integrate • New South Wales $357.1 million companies based in offshore tax havens, such Chairman with our other monitoring operations, is a as Gibraltar, that engage in predatory and • Victoria $422.1 million fine example, as was our previous mid-stream exploitative behaviour, while returning virtually assumption of the Victorian Instant Scratch- nothing to the broader Australian economy. Its lottery licence. We are also one of a limited group that has the capability to compete for
10 Tatts Group Annual Report 2016 11 12 For personalREPORT DIRECTOR’S MANAGING use only THREE YEARSAGO AT THE BUSINESSES AS WEWERE COMMENCEMENT OFOUR THE TEAMREMAINSJUST POTENTIAL OFALLOUR AS EXCITED ABOUT THE RENEWAL JOURNEY Tatts Group Annual Report 2016 Financial Review Operating & our UKslotsoperation, Talarius. litigation, andtheloss arisingon thesaleof and now concluded pokiescompensation winning itsappealinourlongrunning 7.2% impacted by boththe State ofVictoria a statutory level, after taxprofit was down profits onacontinuing operations basis.At We achieved ahealthy 3.8%liftinafter tax portfolio ofgamblingassets. maximising thevalue from ourunique growth, and hasat itscore afocus on is delivering, itpositionsuswell for future All-in-all, ourbusiness renewal program launched several new brands andproducts. to turnover growth; andwe successfully customers inacrowded market returning secured; UBETproved itsabilityto attract licences andauthoritiesto operate were re- strong salesgrowth; anumberofourkey few years are now drivingexceptionally results; ourdigitalinitiatives over thelast Our lotteries operation delivered record YEAR AT TATTS. ANOTHER SUCCESSFUL FY16 PROVED TO BE event inpersonoronline. hope that you canjoinusinOctober for this initiatives andinnovations inthepipeline. I insights, andto outlinea numberofthenew be anotheropportunityto provide further Our AnnualGeneral MeetinginOctober will planned for theyear ahead. then wrap upwithsomeofthe key actions at the key achievements intheyear, and will (Lotteries, Wagering looking andGaming) the performance ofourthree operating units team. Iwillthenmove to dive deeperinto initiatives andinnovations undertaken by the looking at thegame-changingactions, a ‘year view inasnapshot’ ofFY16,including performance andposition,Iwillfirst provide Before reviewing ourGroup financial future successes. mindset isanessential elementfor our to innovate andre-invigorate. This cultural businesses, as we continue onourquest re-think andrefresh’ how we conduct our for theentire team at Tatts isto ‘challenge, journey somethree years ago. The mantra were at thecommencement ofourrenewal the potential ofallourbusinesses aswe As ateam, we remain just asexcited about
13 MANAGING DIRECTOR’S REPORT 14 FIGURE 1 For personalNPAT GROWTH use only 0 0 Statutory NPAT Loss from discontinued operations NPAT from continuing operations Statutory NPAT Loss from discontinued operations NPAT from continuing operations Snapshot FY16 • • • • • years, including: innovations putinplace over thepast three performance was theresult ofthemany jackpots, allat all-timehighs.This exceptional EBIT, operating margins, digitalsales,and performances withrevenue, EBITDA, this business achieved record-breaking performer inFY16.Across theboard, Our Lotteries operation was thestandout BUSINESS SUCCESS 50 50 positioning ofallourlottery products. excellent brand, promotional andretail management actions;and improved customer relationship focus onourdigitalchannel; game re-configuration andpositioning; new products; 100 100 150 150 233.8 200 200 252.0 253.9 (1.9) (29.6) 263.4 250 250 300 300 1. down 7.2% to $233.8million. by our Lotteries team. Statutory NPAT was million driven by theexcellent results delivered continuing operations was up3.8%to $263.4 included indiscontinued operations. NPAT from our UK-based slotsbusiness, Talarius, whichare pokies compensation litigation, and thesaleof the impactofbothnow concluded Victorian representation ofourperformance—removing operations result provides thebest On anoverall Group level ourcontinuing RESULTS in FY16represented 13.5% with a32.2%liftindigitalsales,andthischannel strongest ever digitalperformance inlotteries value oftheinvestment. We have delivered our year exercise that isnow demonstrating the technology solutions.This hasbeenamulti- and empowered themwithmarket-leading together anexpert team ofdigitalmarketers of theGroup’s digitalinitiatives. We have put Worthy ofaseparate mentionisthepower DIGITAL INITIATIVES our wagering salesfor FY16. sales generated arecord 30.2% (FY15:25.7%) of In wagering, anoutstanding 22.5%liftindigital improving profitability inFY16. demonstrated thebenefitofthat strategy by a business restructure over prioryears, and fix’service operation), having undergone lift inEBITFY16.Bytecraft (theunit’s ‘break year increased revenue andachieved asolid services division)for thethird consecutive Maxgaming (our monitoring andvalue-add unit—nowIn ourGaming renamed ‘MAX’— brand awareness andcustomer loyalty. achieved cut-through intheimportantareas of was driven by ourdigitalinitiatives. UBETalso offering. Innosmallway thisperformance customers to theUBETbrand andproduct growth, demonstrating ourabilityto attract of Tote Tasmania) we achieved turnover FY13 (ayear that benefited from theacquisition return to thebusiness. For thefirst timesince UBET banner, andpleasinglysaw momentum full reporting year operating underthenew Our Wagering operation ‘clocked up’itsfirst and represented 12.7% vs 10.4% inFY15. – ifSouthAustralia isincluded,digitalsales grew 33.0% Consistent withprioryears thisexcludes SouthAustralia 1 oftotal lottery sales. Tatts Group Annual Report 2016 FIGURE 2 LOTTERIES & WAGERING SALES CHANNELS • • • • • • • business outcomes intheyear, including: achieved anumberofothersignificant Beyond thestrong financialoutcomes, we SIGNIFICANT BUSINESS OUTCOMES than 1.6millioncustomers; campaign, went live inFY16reaching more successful #winningfeeling socialmedia ideas. The first concept, thehighly budgets to develop theirnovel marketing saw two teams win$250,000 marketing competition (‘Pitched Perfect’) which conducting anew marketing innovation events, day; suchasMother’s based onjackpotorothersignificant opportunity to tailoroffers to customers stores upandrunningproviding the systems inourlottery outlets–with153 rolling outdigitalpoint-of-saleadvertising keyword searches; Google 95% ofthetimefor lottery related retaining thetop search positionin brand, Lott’; ‘the launching ournational umbrella lottery to-date; with animpressive 1.3million downloads releasing ourfirst lotteries dedicated app in Australia in20years, Setfor Life; launching thefirst new draw lottery game South Wales for afurther16years; to circa 97,000 gamingmachinesinNew winning theexclusive monitoring rights FY16 Lotteries sales Retail Digital 13.5% 86.5% FY16 Wagering sales Retail phone on-course Digital 30.2% 69.8% interest of$26.6million(pre-tax). repaid theState ofVictoria $540.5 millionplus discontinued Victorian pokiesbusiness. We have in ourcompensation actionrelating to ournow decision to upholdtheState ofVictoria’s appeal in theyear was theHighCourt ofAustralia’s As touched uponearlier, thedisappointment • • • retail stores inthesamegeographic areas. growth compared to existing wagering UBET experience, delivering 8.4%turnover upgrading 162wagering outletsto thenew first pageof Google search results; UBET now appearingconsistently onthe further 20years; licence intheNorthernTerritory for a winning theexclusive wagering retail
15 MANAGING DIRECTOR’S REPORT 16 For personal use only Australian marketplace. business expansion activitiesoutsidethe enlarged entityto embarkonmeaningful from themerger was thepotential for the capable ofreleasing. The additionalattraction significant efficienciesthecombination was quest for shareholder value creation, given the Tabcorp inmid-2015, was theproduct ofour premium merger ofequalsdiscussions with Transactionally, ourlogicininitiating thenil- businesses. to Victorian andNew Zealand monitoring diligence process beingundertaken inrelation which explains theexclusive confirmatory due extend ourgamingoperation’s B2Bfootprint, have beencarefully assessing opportunitiesto brand, MAX,inAugust 2016. Inparallel, we culminated inthelaunchofournew gaming other services to gamingoperators. This has focused onproviding gamingmonitoring and into apure B2Bbusiness, predominantly strategy to transform ourgamingdivision The saleofTalarius alsodelivered onour million beingreleased ondivestment. shareholder value, withnetproceeds of£111 This ultimately provided apath to maximising extremely competitive UKgamblingmarket. business created ahighlyattractive asset inthe Our strategy andpatience inrepositioning this this performance over thefollowing two years. positive contribution inFY14,andbuildingon making operation around, achieving afirst-time minded focus, we turnedthislong-term loss our UKslotsoperation, Talarius. With asingle- by thestrategy we implemented inrelation to gambling assets, perhapsbest demonstrated approach inmanagingourportfolio of We maintainedarational anddisciplined TRANSACTIONAL ACTIVITIES damage racing’s long-term sustainability. initiatives that ensure rogue elementsdonot and for allindustry participantsto embrace for allcodes ofracing to operate withintegrity impact onourearnings,ithighlightstheneed 2017. Whilethisdecisionwill have aminimal decided to bangreyhound racing from 1July in July2016 whentheNSW Government A furtherregulatory development cameabout allowing UBETto fairly compete. activity’ willlevel theplaying fieldsomewhat, measures to curbillegaloffshore gambling Government’s goalto ‘introduce disruption compete against them.We hopetheFederal on legitimate localoperators, such as UBET, to taxation, puttingsignificantfinancialpressure Australia have enjoyed many years ofminimal The foreign-owned wagering operators in Federal andSouthAustralian governments. We fullysupportthesedecisions by the are encouraged by thisdecision. the legislation willbeenacted orenforced, we Although limited detailsexist to-date onhow regardless ofwhere that service isbased. wagering activityby SouthAustralian residents, point ofconsumption taxfrom 1July2017 onall Australia announced that itwould introduce a In June2016, theGovernment ofSouth future to give effect to theserecommendations. and isexpected to enactlegislation inthe near of therecommendations oftheO’Farrell review, Federal Government agreed inprincipleto all Interactive Gambling Act 2001 Act Gambling Interactive in Australia asbreaching thespiritof products offered by somewagering operators viewed the‘click-to-call’ in-play betting the Federal Government indicated that it recommendations oftheO’Farrell review, In April2016, responding to the in Australia. federal andstate levels relating to wagering business) legislative decisionsat both FY16 saw significantandpositive (for our ENVIRONMENT LEGISLATIVE ANDREGULATORY (IGA).The Tatts Group Annual Report 2016 THREE YEARS IN PLACE OVER THEPAST MANY INNOVATIONS PUT WAS THERESULT OFTHE DIGITAL PERFORMANCE THIS EXCEPTIONAL Performance Group Financial validated by improved profitability. unprofitable service contracts, amove in revenue cameasitexited most ofits of 1.3%,whileBytecraft’s 11.3%decline Maxgaming delivered increased revenue customer rewards andbonusprograms. fixed-price products, andtheusageof customers from tote to thelower yielding coupled withthecontinuing migration of competitive pricinginitsfixed-price book, down 3.6%withthebusiness offering more Although turnover was up, revenue was what continues to beacrowded segment. brand awareness isgaining traction in and theimportantmeasure ofcustomer up 4.1% compared to a0.9% declineinFY15, performance inthisoperation. Turnover was UBET brand, we have seen encouraging Fourteen monthspost thelaunchofour Instant Scratch-Its portfolio. games; andasolidperformance by our for Life andtheexpanded Lucky Lotteries at $15millionormore; theadditionofSet and Powerball reaching arecord 45jackpots benefited from ourjackpotgamesOzLotto growth of8.2%initsown right.The result contributor to theresult, achieving revenue Our Lotteries operation was thestandout impressive 4.4%onFY15at $2.93 billion. At aGroup level, revenue was upan GROUP REVENUE up 23.0%. Maxgaming was up0.1%, whileBytecraft was on theirFY15EBITDA performances. businessesBoth ourGaming improved the foreseeable future. actuality ofouroperating environment for but expect EBITDA margins to reflect the event-based marketing campaignsinFY17, bonusing. We willcontinue to fine-tuneour from ourusageofcustomer rewards and market inpricingourfixed-price book,and price betting,beingmore responsive to the a migration from tote to lower yieldfixed- result was impacted by acombination of saw EBITDA fall 13.2%.Asmentioned,this fell shortofourtarget of23.5%,which Wagering’s margin performance at 21.9% from 15.9%to 16.2%. increasing 10.2% andthemargin increasing contributor to thisresult, withEBITDA Again, Lotteries was thebiggest up onFY15’s result. Group EBITDA of$494.8 millionwas 0.8% GROUP EBITDA
17 MANAGING DIRECTOR’S REPORT 18 GROUP For personalFINANCIAL use only PERFORMANCE Other expenses Income tax Profit before tax EBIT Total expenses Product andprogram fees Venue share/ commission Loss from discontinued operations Net interest expense Net profit after tax(statutory) State government share Total revenue andotherincome Net profit after tax(continuing operations) Depreciation andamortisation EBITDA coupled withtheinterest rate environment. refinancing inSeptember onimproved terms, down 20.5% to $46.4milliondueto the Maxgaming operations. Finance costs were to lower depreciation inourLotteries and to $75.2 million,down 2.2%onFY15due depreciation andamortisation amounted 1.3% inFY16to $419.6 million.Total Group EBIT from continuing operations was up GROUP EBIT (2,433.3) (1,370.9) included indiscontinued operations. our UK-based slotsbusiness, Talarius, whichare pokies compensation litigation, andthesaleof impact ofboththenow concluded Victorian million), notingthat theFY16result includesthe declined 7.2% to $233.8million(FY15:$252.0 Group after taxprofits onastatutory basis $253.9 million). operations lifted 3.8%to $263.4 million(FY15: Group profit after taxfrom continuing GROUP NETPROFIT (423.0) (436.7) (202.7) 2,928.1 (29.6) (75.2) (115.1) 494.8 263.4 233.8 378.5 419.6 (41.1) FY16 $M
(2,312.9) (1,271.5) 2,803.9 (109.4) (421.3) (203.1) (417.0) (50.9) (76.9) 252.0 363.3 253.9 491.0 414.1 (1.9) FY15 $M
1,480.6% CHANGE 19.2% 0.4% 4.4% 0.8% 0.2% 4.2% 3.8% 4.7% 5.2% 5.2% 2.2% 7.8% 7.2% 1.3% %
Tatts Group Annual Report 2016 Position Group Financial an investment grade rating. target isabalance sheetconsistent with maintaining apubliccredit rating, our rewarding shareholders. Despite not business strategies, whileappropriately ongoing access to fundsto supportour management planningseeksto ensure sheet position.The Group’s capital continuing improvement inourbalance of ourbusiness underpinsthe The strong cashgenerative nature debt amounted to $1.04 billion. (excluding prize reserves), Group net netted against theGroup’s cashholdings which $1.11 billionhasbeenutilised.When 30 June2016) totalling $1.80billion, of with ourcommitted debtfacilities (asat FY16 financialperformance, coupled financial strength, reinforced by the The Group remains inapositionof monitoring rights. second instalment for theMaxgaming NSW to RacingQueensland inJuly2016, andthe million). This excludes thelicence payment the vicinityof$90.0 million(FY16:$71.3 indicate alikely full-year capex spendin Forecast capex requirements for FY17 State ofVictoria). receipt that hasnow beenrepaid to the 2015 (excluding thepokies compensation times, whichwas also2.3timesat 30June net debtto EBITDA ratio now sitsat 2.3 profitability andfuture opportunities.Our considering theGroup’s cashflow, Net debtiscomfortably serviceable debt asitmatured. the proceeds progressively appliedto repay the Group’s debtpositioninprioryears, with compensation moniessignificantlyenhanced As previously reported, theVictorian pokies from thefunds,was repaid inMarch 2016. million interest benefit(pre-tax) derived compensation litigation plusthe$26.6 of Victoria inFY14relating to thepokies The $540.5 millionreceived from theState • • • particular note: savings. Inthisregard thefollowing are of financing costs andotheroperational to shareholders principallythrough lower positioned theGroup well, delivering value capital managementactivitiesthat have Throughout FY16,we have undertaken segment note) by $3.1 million. reduced unallocated revenue (perour properties inVictoria was exited. This the last ofourrevenue generating pokies repaid onthesaleofTalarius; all ourGBPdenominated debtwas improved terms; to aSeptember 2020 maturity date on debt tranche maturing inMarch 2016 profile, we renegotiated the$350 million in terms oftheGroup’s debtmaturity
19 MANAGING DIRECTOR’S REPORT 20 For personal use only EBITDA ANDEBITINFY16 AVERAGE JACKPOT POOL OF (FY15: 34JACKPOTS) AT $15MILLIONORMORE JACKPOTS 45 $28.8 MILLION (FY15: $25.3MILLION) Tatts Group Annual Report 2016 DIGITAL SALES SALES GREW 32.2% OF LOTTERIES TOTAL SALES DIGITAL SALES NOW 236 MILLIONAIRES NEW 13.5%
21 MANAGING DIRECTOR’S REPORT LAUNCHES SUCCESSFUL BRAND BRAND UMBRELLA LOTTERY OFFICIAL AUSTRALIA’S 1. 22 Consistent withprioryears thisexcludes SouthAustralia – ifSouthAustralia is included, digitalsalesgrew 33.0% andrepresented 12.7% vs 10.4% in FY15. For personal use only Review Lotteries • • • • • • • • • • FY16 LOTTERIES HIGHLIGHTS (FY15 $1.10 billion) governments inlotteries taxes $1.19 billionpaidto state andterritory point-of-sale system Launch ofnew retail digital 1.3 milliondevices New Lott’ app downloaded ‘the on lotteries sales(FY15:11.1%) with thischannelrepresenting 13.5%of Exceptional 32.2%growth in digitalsales, umbrella brand Lott’ –‘the Launch ofAustralia’s officiallottery draw lottery gamein20years –Setfor Life Successful launchofAustralia’s first new 236 customers mademillionaires $28.8 million(FY15:$25.3million) Achieved average jackpotpoolsof $15 millionormore (FY15:34) An all-timehighof45jackpotsat – Record EBITof$320.0 millionup11.3% – EBITDA up10.2% to $345.5million – Revenue up8.2%to $2.14 billion outcomes produced: Record revenue, EBITDA andEBIT IN 20YEARS LOTTERY GAME FIRST NEW AUSTRALIA’S 1
FIGURE 3 EBIT/EBITDA MARGIN arise from jackpotgames. suite ofgamescounters thevolatility that can Saturday gameoutperformed—the balanced delivered softer jackpotoutcomes andour in FY15,aperiodwhenOzLotto andPowerball of lottery games.We saw the reverse outcome importance ofourcarefully balanced portfolio This dynamicdemonstrates thevalue and had asofter salesoutcome—down 6.1%. our largest gameby sales,Saturday Lotto, Unsurprisingly, andasadirect consequence, the backofexceptional jackpotrun. Powerball andOzLotto was up13.0% off In combination, thesalesperformance of Figure 3. margin (upfrom 14.5%inFY15)asshown in which lifted 11.3%to $320.0 millionwitha15.0% operating leverage flowing through to EBIT a 16.2%margin (upfrom 15.9%inFY15).This achieved, reaching arecord $345.5millionwith million). Animpressive 10.2% liftinEBITDA was the jackpotpoolto $28.8million(FY15:$25.3 with asignificantliftintheaverage value of achieved compared to the34inprioryear, jackpots at orabove the$15millionmarkwere and Powerball games.Allup, atotal of45 very strong jackpotruninbothourOzLotto but notablygettingamajorboost from the $2.14 billionacross ourportfolio ofgames, year. Revenue was upanimpressive 8.2%to given we were cycling over astrong prior excellent setofresults, allthemore impressive Our lotteries operation delivered another LOTTERIES PERFORMANCE 0% 4% 8% 12% 16% 12.7% 11.5% FY12 EBIT 13.4% 14.7% FY13 EBITDA 15.4% 14.1% FY14 14.5% 15.9% FY15 15.0% 16.2% FY16 Tatts Group Annual Report 2016 FIGURE 4 JACKPOT RUN • • • • • • that included: outstanding result was driven from initiatives represents 13.5% strong 32.2%liftindigitalsales,whichnow saw usdeliver ourbest ever result, withavery Our continued focus onourdigitalsaleschannel Its games,theirsalesbeingup6.3%onFY15. performance from ourportfolio ofInstant Scratch- Sales growth was furtherbolstered by thesolid digital channel. of New SouthWales, and17.5% ofitssalesviaour coming from outsideitsoriginalhomejurisdiction to perform well inFY16,with13.9%ofitssalesnow jurisdictional gameinMarch 2015—has continued Lotteries—which was repositioned asamulti- our otherlotteries gamesinthisrespect. Lucky through ourdigitalchannel—outperforming allof impressively isaccomplishing 22.9%ofitssales fifth largest gameby sales,andperhapsmost to-date across thecountry. This gameisnow our the 18-45year-olds, paying outfor ninewinners attention ofayounger demographic, especially operation. Ashoped,thegamehascaptured the exceeded ourinternal targets initsfirst year of Set for Life, launchedon3August 2015, has 0 5 10 15 20 25 30 35 40 45 leading CRMsystem. leveraging thecapabilitiesofourmarket- and improvements to ourdigital purchase funnel; our Facebook campaigns; integration withFacebook andastep-up in dynamic deep-linkingto ourapp; trigger basedin-appmessaging campaigns; database; behavioural segmentation ofourextensive $23.0M FY12 22 $15M ormore Number ofjackpotsat $29.0M FY13 39 1 oftotal lottery sales.This $25.7M 11.5% FY14 36 $15M ormore Average value ofjackpotpoolat $25.3M FY15 34 LOTTERIES FINANCIAL PERFORMANCE $28.8M FY16 EBIT EBITDA Revenue 45 • • • costs including: suppressed intheyear by anumberofone-off Our margin growth althoughimpressive, was FY15) respectively (asshown inFigure 3). 15.9% inFY15)and15.0% (upfrom 14.5%in EBITDA andEBITmargins at 16.2%(upfrom As mentionedabove, we achieved aliftin our our retail network. is anotherinnovation designed to liftsalesfor point-of-sale system (DigiPOS) into 153 venues The launchandinstallation ofournew digital see usinitiate furtherpromotions ofthisnature. lottery agent.The success ofthiscampaignwill designed to drive customers to theirnearest with News Corp for ourSetfor Life game very successful retail only, combined promotion retail specificinitiatives intheyear includinga growth intheyear. We launchedanumberof our largest source ofsales—achieved 5.4%sales Our retail network—which is,andwillremain, • • • • • • • • online were: the traction ourlottery operation isachieving The key metricsinFY16whichdemonstrate ‘the Lott’ launch costs.‘the Victoria; and re-introduction ofInstant Scratch-Its to Lotteries; launch costs for Setfor Life andLucky throughout FY16. lottery keyword searches—95% ofthetime maintained thetop Googleranking for results; basis to checkwinningnumbersanddraw accessing theLott website onamonthly an average of3.0 millioncustomers new #winningfeeling campaign; 1.6 millioncustomers reached through the customers generating $15.0 million in sales; 1.6 millionmobilemessages sentto campaigns; generated from Facebook mobile Australians, and10%ofappdownloads reached anaudience of7.6 million Facebook marketing campaignsthat 18.4 millionemailssentoutto customers; (FY15: 1.7 million); 2.2 millionregistered onlinecustomers (FY15: 0.7 million); Lott’ appdownloads1.3 million‘the 2,139.5 320.0 345.5 FY16 $M
1,976.7 287.5 313.6 FY15 $M
CHANGE 10.2% 11.3% 8.2% %
23 MANAGING DIRECTOR’S REPORT 24 For personal use only 8.4% turnover growth stores rolled out,generating 162 new UBETbranded retail TURNOVER TOTAL TOTAL GREW 24.1% racing andsportsgrew by Fixed-price saleson 4.1% IN FY16
Tatts Group Annual Report 2016 DIGITAL SALES SALES GREW 20 IN THENORTHERN TERRITORY EXCLUSIVE RETAIL LICENCES AWARDED 22.5% OF WAGERING TOTAL SALES DIGITAL SALES NOW year 30.2%
25 MANAGING DIRECTOR’S REPORT 26
FIGURE 5 EBITDA/EBITFor personal use only MARGIN 4% 8% 12% 16% 20% 24% 28% 0% Review Wagering • • • • positioned intheAustralian market: actions well intrain, we remain strongly competitive market. With ourrenewal encouraging signsinacrowded and UBET, ourwagering operation isshowing Fourteen monthsinto thelaunchof WAGERING PERFORMANCE • • • • • • • • FY16 WAGERING HIGHLIGHTS EBITDA 21.9% EBIT 25.1% margins inthesegment maintaining oneofthehighest EBITDA operation inAustralia the third most profitable wagering segment the leadingblendedwin-rate inthe operation by revenue the second largest Australian wagering $224.3 million) governments andracing industry (FY15: $222.9 millionpaidto state andterritory $1.97 billion 24.1% increase infixed-price salesto retail operations intheNorthernTerritory licence andfixed-price bettinglicence for Awarded anew exclusive 20-year tote 25,000 new digitalcustomers acquired 9% spontaneousbrand recognition which generated 8.4%turnover growth 162 new UBETbranded retail stores, (FY15: 25.7%) representing 30.2% ofwagering sales lifting 22.5%,withthischannelnow Exceptional growth indigitalsales decline of0.9% inFY15 Turnover growth of4.1% compared to a FY12 EBITDA 23.7% 26.5% EBIT FY13 EBITDA 22.4% 25.0% EBIT FY14 EBITDA 21.5% 24.3% EBIT FY15 EBITDA 19.0% EBIT 21.9% FY16 • • • • • achieve onlineare: traction ourwagering operation isstarting to The key metricsinFY16whichdemonstrate the • • • • • • • 1 • driven from initiatives that included: digital platform. This outstanding result was and supportsthefocus placed ontheUBET is aheadofourimmediate peersetin Australia from ourdigitalchannelsinFY16.This growth wagering turnover (FY15:25.7%) generated our digitalsales,saw arecord 30.2% ofour the year. The outstanding 22.5%increase in the very strong digitaloutcomes achieved in Our turnover positionwas greatly assisted by (see Figure 7). decline inFY15anda0.3% declinein FY14 three years, witha4.1% liftcompared to a0.9% reporting turnover growth for thefirst timein turnover positionwithourwagering operation Pleasingly we were ableto improve our performs better. two versions ofaweb page orappto seewhich one Sometimes calledsplittesting, thisinvolves comparing customers (FY15:200,000). Circa 700,000 mobilemessages sentto (FY15: nil); event driven dynamicbetoffers $3.6 millionoffered to customers through (FY15: 1.9million); 2.4 millionemailssentoutto customers loyalty rewards (FY15:$0.2 million); $2.6 milliongiven backto customers in (FY15: 41,000); 163,000 UBETappdownloads leading CRMsystem. leveraging thecapabilitiesofourmarket- and mobilechannels; content andoffers to customers viaemail and racing enablingdelivery ofpersonalised developing modelacross a‘best offer’ sport mobile pushandSMScampaigns; introducing event-based automation for marketing platform; launching anew affiliates leveraging real timeinappmessaging; eligible jurisdictions; promoting a‘sign up’bonusin commencing ourfirst affiliate partnership; the introduction ofA/Btesting 1 ;
Tatts Group Annual Report 2016 FIGURE 6 UBET BRAND AWARENESS UBET Brand Awareness from 19.3% inFY15. represent 24.4% ofour total sportsbook,up football andbaseball.These growth sportsnow American-based sportsof basketball, American under UBET, we have hadstrong growth inthe compelling andexpansive sportsoffering Following theintroduction ofourmore making uptheremainder at 16.4%(FY15:17.4%). 83.6% ofthebook(FY15:82.6%),withsports to dominate thefixed-price book,comprising traditional tote products. Racingcontinues exceed total sales generated from the profile, lifting24.1% inaggregate, andnow continued to display animpressive growth Fixed-price sales onracing andsports can bringourretail network into growth. betting modules,make usconfident that we expansion ofour‘UBETLive’ in-venue in-play self-service terminals, andtheassociated installation ofnew generation cash-handling stores into FY17(atarget of270 intheyear), The continued rollout ofrebranded UBETretail by afactor often. decline, outpacing thedeclineinphonesales increase indigitalsalesmore thanoffsetthis continued to decline(down 7.7%), however the vicinity. Phone-basedsales,asexpected, older branding intheirimmediate geographical turnover growth compared to outletswith revitalised UBETretail outletsproduced 8.4% in FY15).Runningagainst thistrend, the162 decline insales(compared to adeclineof2.4% Overall, ourretail network showed a1.5% lifted retail sales1.7% onthepriorperiod. down 5.8%onlast year. SouthEast Queensland continued to ‘bite’ withturnover inthisregion and drought. Incombination, thesefactors be challengedby thecommodities downturn significantly, regional Queenslandcontinued to impacted by regionally specificissues. Most of ourgeographies that continued to be despite continuing retail softness insome Our turnover performance was achieved 27% inFY16. awareness liftingfrom 22%inFY15to reach terms ofourprompted brand awareness with 6% inFY15.Asimilarprofile was achieved in brand awareness increasing to 9%upfrom the Australian market withourspontaneous Our UBETbrand positioncontinues to buildin FY16 FY15 Spontaneous 0 Prompted 5 10 15
20-year exclusive retail licences. concluded duringFY16withTatts awarded the extension ofthefixed-price licence was Territory for thenew Totalisator Licence and Finally, thecompetitive process intheNorthern environment for theforeseeable future. reflective oftheactualityouroperating As aresult, we expect EBITDA margins to be its loyalty schemeanddynamicbetoffers. market, andto buildcustomer loyalty through of itsfixed-book prices onoffer relative to the UBET needsto remain competitive interms blended win-rate outcome. The reality isthat customers inthesecond halfofFY16;andthe marketing spend;thedynamicbetoffers to the year. This reflected thesignificantliftin of ourtargeted EBITDA margin of23.5%for Our FY16EBITDA margin of21.9%fell short $609.9 million (FY15:$632.9 million). was a3.6%reduction inrevenue to The resultant impactofthewin-rate position competitor cohort, whichranged from 3-15%. of therange compared to ourAustralian noting that UBETcontinues to sitat thetop expect thedeclineinwin-rate to stabilise, while parimutuelbettingdeclined11.7%. We sales onracing andsportsincreased 24.1% parimutuel offers to fixed-price—fixed-price reflects themigration from highermargin provided to customers. The win-rate also including thecost ofrewards andbonuses competitive market andthisblendedrate being thereality ofoperating inavery lower blendedwin-rate of14.8%(FY15:16.0%) The year saw thebusiness achieve anoverall FIGURE 7 WAGERING
WAGERING FINANCIAL 20 TURNOVER GROWTH PERFORMANCE Turnover Revenue EBITDA Net win-rate EBIT 3,600.0 3,700.0 3,800.0 3,900.0 4,000.0 4,100.0 4,200.0 25 $3,793.2 FY12 $4,009.2 4,125.1 609.9 14.8% FY13 133.3 115.7 FY16 30 $M
$3,998.4 3,963.7 FY14 16.0% 632.9 135.9 153.5 FY15 11.5% $M
$3,963.7 FY15 $4,125.1 CHANGE FY16 14.8% 13.2% 3.6% 4.1% 1.2% %
27 MANAGING DIRECTOR’S REPORT 28 For personal use only Review Gaming • • • BYTECRAFT HIGHLIGHTS • • • • • • MAXGAMING HIGHLIGHTS FY16 GAMINGHIGHLIGHTS EBIT growth of77.1% EBITDA growth of23.0% FY15 hastransformed performance Business restructure undertaken in driving strong revenue outcomes on 6,590 machinesinQueensland Ticket-in-ticket-out solutioninstalled revenue growth game, Megabucks,showing strong New SouthWales state-wide links machine monitoring inQueensland Retention of+80%share ofgaming New SouthWales monitor 97,000+ gamingmachinesin Entry into a15-year contract to EBIT growth of2.1% Revenue growth of1.3%
GAMING FINANCIAL PERFORMANCE - Bytecraft - Bytecraft - Maxgaming EBIT - Maxgaming EBITDA - Bytecraft - Maxgaming Revenue workflow managementproducts. membership, venue reporting, and other machine movements, testing, loyalty and services suchasonlineauthorisations for South Wales, Maxgaming is ableto provide generated from exclusive monitoring inNew November 2017. Inadditionto therevenue current monitoring arrangements until 30 together withaone-year extension to our machines inNew SouthWales until2032, to monitor allhotel- andclub-basedgaming Maxgaming was awarded theexclusive right services to itscontracted venues. infrastructure, to provide additionalvalue-add markets to leverage thisnetwork, andcertain Maxgaming hasauniquepositioninits Wales, QueenslandandtheNorthernTerritory, systems to gamingvenues inNew South of government-mandated electronic monitoring venue services unit.Founded ontheprovision Maxgaming istheGroup’s Australian gaming MAXGAMING PERFORMANCE but related businesses discussed below. operators. The business now hastwo separate monitoring andotherservices to gaming predominantly focused onproviding our gamingdivisionto apure B2Bbusiness, (Talarius) completes thetransformation of The saleofourUK-based slotsoperation 118.4 64.7 52.4 92.3 FY16 3.4 1.0 $M
104.0 116.8 64.6 FY15 51.3 0.6 2.8 $M
CHANGE 23.0% 77.1% 11.3% 0.1% 1.3% 2.1% %
Tatts Group Annual Report 2016 1. system inNew SouthWales. increase inFY17aswe rollout anew monitoring Depreciation andamortisation isexpected to South Wales whichare now fullydepreciated. down ofexisting monitoring systems inNew our business. EBITlifted 2.1% withtherun- we canmaintaintheseexcellent margins in monitoring arrangements, we are confident retained underthenew New SouthWales With thecurrent monitoring fee structure being remains at avery healthy 54.7% (FY15:55.3%). slightly lowered ourEBITDA margin however it Increased technology costs inthebusiness this product grew 55.9%inFY16. than 330gamingmachineslinked. Revenue on and runninginmore than120clubswithmore $658,304. The Megabucksjackpotisnow up linked jackpotwas triggered inApril2016 at product. AnAustralian record for astate-wide and customers alike inthislong-established has generated renewed interest from venues performed well. The higherjackpotoffering wide linked jackpotinNew SouthWales has In addition,ournew $250,000 base-level state- 60.1% over theprioryear. and revenue from thisproduct haslifted by on 6,590 (FY15:5,365)machinesinQueensland particularly well-received. TITO isnow installed (TITO) the year includingourTicket-in-Ticket-out fees alongwithvalue-add product salesin from anannualincrease inourmonitoring $118.4 million.This performance benefited decline) growing revenue inFY16by 1.3%to has lifted revenue (following three years of For thethird consecutive year, Maxgaming TITO isasolutionfor inserting, printingandredeeming tickets from gamingmachineto gamingmachine. 1 solutioninQueensland,whichhasbeen $0.6 million). EBIT improved 77.1% to a$1.0 million(FY15: in thisliftEBITDA offalower revenue base. team andcost-base insomeareas, resulted contracts, andtheresultant downsizing ofour million). The strategy ofexiting unprofitable EBITDA lifted 23.0% to $3.4million(FY15:$2.8 division’s stand-alone profitability. which ultimately hadanegative impactonthe internally sourced work onano-margin basis, in FY15).Bytecraft continued to undertake 64.6% oftotal revenue compared to 69.8% sourced revenue (whichinFY16represented strategy, asdoesthereduction inexternally The 11.3%declineinrevenue reflects this network infrastructure. contracts inourcore areas ofgamingand contracts, andaclearfocus onwinningnew a numberofunprofitable and/or non-core has seenthebusiness exit (or notrenew) over prioryears to return to profitability. This Bytecraft hasundergone abusiness restructure 50 companies, andothereveryday brands. support service to aportfolio ofASX top- managed time-critical,end-to-end technical Bytecraft istheprovider ofanationwide fully BYTECRAFT PERFORMANCE CONSECUTIVE YEAR, MAXGAMING HAS LIFTED REVENUE FOR THETHIRD
29 MANAGING DIRECTOR’S REPORT 30 GROW OURBUSINESSES AND CREATIVE WAYS TO ORGANICALLY IN FY17AS OURTEAMSLOOK FOR NEW INNOVATION REMAINSAT THEFOREFRONT For personal• use• • • only• operations intheyear comprises: The $29.6 millionloss from discontinued DISCONTINUED OPERATIONS Report Managing Director’s discontinued operations. a taxbenefitof$10.4 millionfrom amount of$12.8million;and a loss arising onthesaleofTalarius inthe operation; being now reported asadiscontinued the trading result for Talarius ($3.5million) in theamountof$4.1 million; legal fees relating to theabove proceedings business inVictoria; arising from ournow discontinued pokies of Australia inTatts’ compensation action by theState ofVictoria to theHighCourt million arisingfrom thesuccessful appeal an interest charge intheamountof$26.6 (CONTINUED) is just asampleofwhat isinstore for theyear: value for thebenefitofourshareholders. The following business portfolio andprofits, orwhichwillunlock of transaction opportunitiesthat sensiblyaddto our channels. We alsoremain committed inourpursuit grow ourbusinesses across allourdistribution teams lookfor new andcreative ways to organically Innovation remains at theforefront inFY17asour KEY FY17ACTIONS
UBET UPDATES OMNI-CHANNEL LOTTERIES DIGITAL PLATFORMS 12 months. results additionaloutletswillgenerate inthenext of thesestores in FY16,we lookforward to the the year. Having seenthe impressive salesgrowth 270 UBETnext generation retail spaces inplace in We have setourselves atarget to have atotal of winning feeling strikes. easy, convenient andtrusted way, whenever the our products to ourcustomers ina unified, device orinaretail outlet.Ourfocus isproviding shopping online, from adesktop, onamobile seamless experience, whetheracustomer is we willbeworking to provide aworld-class progressively rolled outinto more retail outlets, With thelaunchofLott brand, andasitis added onarolling basis. category leadinguserexperience initiatives being Lott’ apps,withnew features, functionality and of continuous enhancement to ourUBETand‘the Lotteries’. This willbeaccompanied by aprogram and emphasiseourplace as‘Australia’s Official to ourextensive family oflotteries products, leading onlineexperience withconvenient access Lott’ branding.‘the This new site willprovide a website to belaunchedinFY17underournew proprietary digitalplatforms, withanew lotteries We willcontinue to invest inourstate-of-the-art Tatts Group Annual Report 2016
AFFILIATE MARKETING UBET LIVE INSTANT SCRATCH-ITS MERCHANDISING NEW DIGITAL POINTOFSALE SYSTEM NEW GENERATION UBETTERMINALS MAX -OURNEWGAMINGBRAND FY17 to furtherdrive digitaldemand. We willtrialaffiliate marketing programs in a fullretail launch. in-play bettingmoduleswithaneye to our prototype oftheuniquein-venue We continue to develop andimprove what are busy retail environments. to enhance Instant Scratch-Its impactin will install thesenew displays inretail outlets Its products have beenpositive. InFY17we to highlightanddisplay ourInstant Scratch- Initial trialsofnew merchandising methods strategy. an elementofourlotteries omni-channel throughout ourjurisdictions.This forms expand thenumberoftheseinretail outlets products andpromotions, andwe will already allowed usto successfully feature Our new lotteries DigiPOS system has Ticket-in-Ticket-out technology. UBET retail outlets,featuring cashin,and generation self-service terminals inthe Customers willstart to seeournew progressively roll itoutover FY17. operators. Look outfor thisbrand aswe a complete end-to-end solutionfor gaming together underonestrong brand to deliver MAX. This bringsourgaming businesses launch ofournew unifiedgamingbrand, we completed thistransition withthe for gamingoperators. InAugust 2016, operations asatrueB2Bservice provider slots businesses haspositionedourgaming As mentioned,thesaleofourUK-based Managing Director andChiefExecutive Officer ROBBIE COOKE Meeting inOctober. initiatives inprogress at ourAnnual General on ourprogress withtheseandotherexciting I lookforward to providing you withmore detail
BIG DATA VIRTUAL SPORT ANDRACING engagement activities. generation teams withtheircustomer predictive analysis to assist demand usage across theGroup, anddevelop team that willwork onstreamlining data We have putinplace anenterprise insights Territory inFY17. sports andracing products intheNorthern We are looking to launchourfirst virtual
31 MANAGING DIRECTOR’S REPORT 32 For personalREPORT SUSTAINABILITY use only ‘Industry leading’rating. We willcontinue to work towards achieving the highest category for itssustainability reporting. Superannuation Investors rated Tatts inthesecond opportunities. In2016, theAustralian Council of and respond to key sustainability risksand Through oursustainability reporting we identify • • • pillars ofoursustainability include: sustainability isat the core ofwhat we do. The and asaresponsible corporate citizen, extremely seriously. Aspartoftheseendeavours Tatts takes itscorporate socialresponsibilities As Australia’s largest non-casino gambling group maintaining aneffective governance structure. being environmentally responsible; and putting stakeholders first; Tatts Group Annual Report 2016 Group team members diversity training for all Conduct mandatory Diversity training: Water consumption Scope 3emissions Scope 2emissions Sponsorships KEY PERFORMANCEINDICATOR FY16 SUSTAINABILITY SCORECARD Lost timeinjuryfrequency rate Total recordable injuryfrequency rate Number oflost timeincidents Number oftotal incidents Recordable incidents: EMPLOYEE HEALTH ANDSAFETY across theGroup Conduct apay equityaudit Equal pay: Other managers Senior managers Other executives/general managers Key managementpersonnel Women inkey management: GENDER EQUALITY Charitable giving governments andindustry partners Contributions to state andterritory Contributions COMMUNITY ANDSOCIALINVESTMENT Scope 1emissions Carbon emissions: ENVIRONMENT
to becompleted inFY17 Training initiated inFY16 the endofDecember 2016 The next auditisdueat 16,837 metrictonnes CO 22 of94employees (23%) 3,960 metrictonnes CO 2,856 metrictonnes CO 12 of32employees (38%) 2 of5employees (40%) 4 of6employees (67%) FY16 PERFORMANCE FY16 PERFORMANCE FY16 PERFORMANCE FY16 PERFORMANCE 14,674 kilolitres $1.8 $1.41 billion $2.1 million
million 6.59 1.72 24 57 2 2 2
e e e completion duringFY15. biennially, was notduefor Training, whichisconducted men intheGroup. in pay between women and there was nodiscrepancy Audit results indicated that 15,848 metrictonnes CO 2,660 metrictonnes CO 10 of26employees (38%) 2,384 metrictonnes CO 17 of87 employees (20%) 2 of5employees (40%) 3 of5employees (60%) FY15 PERFORMANCE FY15 PERFORMANCE FY15 PERFORMANCE FY15 PERFORMANCE 16,947 kilolitres $1.32 billion $1.8 $1.7 million
million 5.12 1.72 67 27 2 2 2 e e e
33 SUSTAINABILITY REPORT 34 For personal use only Pillars Sustainability informed market. to sufficientinformation, andmaintainsan ensure that allshareholders have access participation at general meetingshelps with shareholders, andencouraging their Promoting effective communication • • • • Sustainability • • Dividends • Key matters: conferences where appropriate. face-to-face meetingsandparticipate in annual general meeting—we alsoconduct presentations, mediareleases andour ASX releases, publishedresults, investor Besides formal communication channels— COMMUNICATION INVESTORS ANDSHAREHOLDERS our internal stakeholder group). relations withthesegroups (see page40for different risksrelated to sustaining good have specificinterests, andthere are The following external stakeholder groups transparent approach to ourinteractions. relationships, andensure aconsistent and of theGroup. Ourvalues direct these contribute to thepositive performance relationships withourstakeholders is very large. We believe that positive state andterritory, ourstakeholder cohort With operations spanningevery Australian PUTTING STAKEHOLDERS FIRST Strategy and innovation Liquidity andgearing Corporate governance remuneration Key managementpersonnel on investment Sustainable growth andreturns other backup measures inplace. implementing systems redundancy andputting We managetheserisks,where possible, by telecommunications andracing products). third partyproducts andservices (e.g. include systems failures, andreliance on Risks to ourrelationships withthisgroup • • • Key matters: 25,000 peopleacross Australia. and wagering products andemploy some to 5,000 smallbusinesses that sellourlotteries and conferences. We indirectly supportclose partners through meetings,tender processes, We interact withsuppliersandbusiness COMMUNICATION SUPPLIERS ANDBUSINESS PARTNERS product platforms. talents ofourteam, andinourdigitalretail To address thiswe invest inthekey skillsand competitive environment inwhichwe operate. Material risksprincipallyrelate to the • • • • • Key matters: targeted customer surveys. net experience score polling,together with feedback through ournetpromoter score and media engagementprogram, andsource sales channels.We alsohave anactive social relationship managementprogram, anddigital contact centres, retail outlets,ourcustomer We interact withourcustomers through our COMMUNICATION CUSTOMERS
Environmental efficiency Fair treatment Timely payment and education Enhancing responsible gamblingawareness of use Information aboutterms andconditions Offers andfeatures ofrelevance services Information aboutnew products and New ways to interact withus Tatts Group Annual Report 2016 Be amazing • • • • • Key matters: government andindustry forums. constructive relationships, andparticipate in and regulatory agencies,whichhelpsusfoster regular updates andmeetingswithgovernment government relations teams participate in Our internal legalandcompliance, and government policy. social andcommunity issues impacting being responsive to, thebroader economic, business sustainability, asisunderstanding, and underlying thoselicences—is criticalto our legislation, regulations, rulesandagreements Compliance withourlicences—and the COMMUNICATION AGENCIES GOVERNMENT ANDREGULATORY Responsible gambling actionsandinitiatives legislation andregulations Compliance reporting for licences, Remittance oftaxation andduty Negotiation oflicence renewals Constructive relationships Create positive change
Do itwithheart other approvals they provide us. and regulatory agencies,andthelicences and risks around ourrelationship withgovernment The Directors’ Report onpage51detailsthe everyday Australians. important contribution to thelives of We are pleasedto bepartofmakingthis Maxgaming’s monitoring systems. machine taxes from hotels andclubsthrough Territory to collect over $2.13 billioningaming South Wales, QueenslandandtheNorthern We alsoassist thegovernments inNew community infrastructure. social services, juniorsportandvital pays are usedto fundhealth,education, the wagering andlottery taxes that Tatts shown inFigure 8.Inthemajorityofcases, tax contributions by state andterritory are tax onourentire profits inAustralia. The proud to beanAustralian company that pays Government incorporate taxes. We are also and afurther$115.1 millionto theFederal taxes to state andterritory governments, to thecommunity viawagering andlotteries In FY16,we contributed atotal of$1.21billion Own it
FIGURE 8 TAX CONTRIBUTIONS BY STATE AND TERRITORY $422.1 VIC $76.0 TAS, NT, ACT Play as ateam SA $82.9 (millions) FY16 $357.1 $272.4 NSW QLD Have fun
OUR
35 VALUES SUSTAINABILITY REPORT 36 GST) DURINGFY16 MILLION (EXCLUDING PAYMENTS OF$200.6 RACING INDUSTRY WITH ForTO THE AUSTRALIAN A MAJORCONTRIBUTOR WE AREPROUDTO BE personal use only our largest market. the majorityofwhichrelated to Queensland, and program fees, andrace information fees, These payments were intheform ofproduct helping to supportmore than7,000 jobs. $200.6 million(excluding GST) duringFY16, Australian racing industry withpayments of We are proud to beamajorcontributor to the wagering customers. these channelsrelevant for lotteries and and refreshed retail offerings, helpsto keep Our investment innew product innovations away from traditional retail saleschannels. increasingly transitioning to digitalchannels face thechallengeofcustomers whoare This group, andtheirstakeholders, currently • • • • Key matters: core lottery andwagering products. associations that represent retailers whosellour media to monitor andconnect withtheindustry We useindustry briefings,forums andsocial COMMUNICATION ASSOCIATIONS INDUSTRY PARTNERS AND our retail image Communicating anddiscussing changesto Insight into ourinnovation pipeline Product updates andeducation Partnering to drive salesgrowth and challenge-basedfundraising. giving, volunteering, dollarmatching programs Among otherthings,theseincludeworkplace activities withourmajorcharitypartners. involved inawiderange ofinitiatives and FY15, offers ourteam opportunitiesto get responsibility (CSR) framework launchedin ‘Tatts Giving’,ourcorporate social powered by Tatts. for charitablefundraising activities,that are develop ‘white label’solutions,purpose-built outside ofAustralia induecourse, andto space. We hopeto expand theprogram is ableto helpmake areal difference inthis and marketing resources, meaningthat Tatts The team hasaccess to internal technology 50-50 Foundation inAustralia, headsthe unit. advocate inthissector whoco-founded the technology solutions.JohnCorry, apassionate funds from itsactivities,aswell aslong-term not-for-profit sector, providing immediate gaming platforms for thecharitableand gaming unit.This team develops innovative company inAustralia to create acharitable activities for FY16, we are thefirst gaming Expanding onourcommunity engagement • • • target community support: We have anumberofinitiatives that directly communities inwhichwe operate since 1881. We have beenproudly supportingthe • • • Key matters: long-term sustainability ofourbusiness. which we operate allow usto buildtrust and Positive relationships withthecommunities in COMMUNICATION COMMUNITY ENGAGEMENT nominated charity. share oftakingsto asinglewinnerand The 50-50raffle, whichgives anequal Our new charitablegamingunit Tatts Giving community Support for projects that benefitthe Problem gambling Responsible advertising andsponsorships Tatts Group Annual Report 2016 Queensland mothersandbabies. to fundprojects that enhance the lives of and more recently provided annualdonations has supported Mater for more than90years, activities at Mater Hospitals.GoldenCasket clinical programs, education andresearch of generations ofQueenslandersby supporting Foundation fundraising hastouched thelives and Mater Research inQueensland.Mater philanthropic supportto Mater HealthServices The Mater Foundation linkscommunity and MATER FOUNDATION care programs for sickkids. equipment andproviding family supportand medical research, investing invitalnew wonders for sickkidsby fundinglife-saving The Children’s HospitalFoundation works CHILDREN’S HOSPITAL FOUNDATION March 2015. the LadyCilento Children’s Hospital,openedin of thebrand new Starlight Express Room in Queensland, andisalsoaFoundation Partner of theStarlight Children’s Foundation in Golden Casket isalong-standing supporter to embrace theiruniqueness andcreativity. Through Starlight, sickkidsare encouraged factor contributing to overall well-being. positive psychology, where funisanimportant Starlight’s programs embrace theprinciplesof STARLIGHT CHILDREN’SFOUNDATION racing industry. NJT ispartofUBET’s industry supportfor the illness andeven death. The relationship with their families, whenfaced withseriousinjury, difficulties for jockeys, apprentice jockeys and and otherbenefitsfor therelief offinancial charitable trust dedicated to providing funds National Jockey’s Trust (NJT)isapublic NATIONAL JOCKEY’STRUST PARTNERS FOR FY16WERE: OUR KEYCOMMUNITY ENGAGEMENT COMPANY INAUSTRALIA TO CREATE A CHARITABLE GAMINGUNIT WE ARETHEFIRST GAMING Club, RacingQueensland,andTasRacing. Supercar Championship, Port Adelaide Football around Australia duringFY16.Notably, theV8 more than$1.7 millioninsponsorshipto events UBET andourwagering brands provided Sydney Harbour2016 Australia Day celebrations. Lotto BrisbaneCityHallLightSpectacular and Northern Territory, andalsotoward theGold million to supporta numberofevents inthe During FY16,lotteries provided more than$0.4 SPONSORSHIPS tattsgroup.com/community). support ontheGroup website (www. program andthehistory ofourcommunity There ismore information onourCSR partners, includingTatts. The SmithFamily’s corporate andcommunity opportunities. These mentors are drawn from and guidance aboutwork, study andcareer mentor, whoserole isto provide advice a supportive adult,intheform ofavolunteer education orwork. Students are matched with as they transition from schoolinto further from years 9to 11withguidance andsupport mentoring program that provides students Tatts isaproud supporter ofiTrack, a THE SMITHFAMILY Australia oroverseas. illnesses asa result oftheirservice, eitherin physical orpsychological wounds, injuriesor Defence Force memberswhohave suffered supporting current andex-serving Australian Mates4Mates isanindependentcharity MATES4MATES Cancer Network Australia. Cross, World Wide Fundfor Nature andBreast Mates4Mates, theSmithFamily, Australian Red beneficiaries are Starlight Children’s Foundation, payroll deductionscheme. The charitiesthat are regularly donate to oneofsixcharitiesthrough a our 2,300 team members with an opportunity to The Tatts Workplace Givingprogram provides TATTS WORKPLACE GIVINGPROGRAM
37 SUSTAINABILITY REPORT 38 For personal use only Responsible Gambling Responsible Gambling Our Commitment to industry expectations. responsible gamblingprogram meets and external stakeholders to ensure our are committed to engagingwithinternal and wagering customers well informed. We behaviour, aswell asto keep allourlotteries experience difficultieswiththeirgambling initiatives to assist thosepeoplewhomay responsible gamblingprograms and We understand theimportance ofproviding causing thempersonalandfinancialdistress. entertainment hasbecome aproblem, are somepeoplefor whomthisform of entertainment, we recognise that there who gambledosofor enjoyment and While thevast majorityofpeople and friendlyenvironment. and to providing products inasafe, secure We are committed to responsible gambling retail venues inSouthAustralia. to allofourretail venues, andfor lotteries, to For wagering theself-exclusion facility extends or to enableawagering pre-commitment limit. voluntarily setamaximumspendfor lotteries, jurisdiction. Inaddition,they canchooseto to self-exclude for theprescribed timeintheir control oftheirgambling.Customers are able online account that allows themto stay in voluntary self-exclusion feature through their Our digitalcustomers have access to a CUSTOMER MEASURES programs andstate-based legislation. requirements ofourresponsible gambling outlets to ensure we comply withthe annually for lotteries andwagering inretail We conduct aseriesofsurveys andaudits brochures inalljurisdictions. in ourresponsible gamblingsignageand and to create consistent UBET branding various state-based codes ofconduct, updated to coincide withchangesto In 2016, ourwagering programs were • • • • • • are reviewed regularly andinclude: local legislative requirements. These measures protection andharmminimisation according to expectations andneedsinregard to player variety ofmeasures that respond to community codes ofconduct. These programs contain a have alsodeveloped responsible gambling gambling programs and,incertain states, we We have developed individualresponsible GAMBLING PROGRAMS CODES OFCONDUCT ANDRESPONSIBLE self-exclusion programs customer complaint mechanisms advertising restrictions game andproduct information pre-commitment strategies responsible gamblinginformation Tatts Group Annual Report 2016 policy-makers andregulators. government, state andterritory government agencies, gamblingindustry associations, local of thecommunity, counselling andwelfare relevant stakeholders, includingrepresentatives territory governments, andcollaborate with gambling advisorybodiesfor various state and We are represented ontheresponsible we operate. gambling awareness inthejurisdictionswhich take aleadingrole ingenerating responsible governments andcommunity organisations to We engageandpartnerwith a numberof INDUSTRY ENGAGEMENT responsible gamblingcodes andregulations. and to therelevant Australian state andterritory to ourresponsible gamblingcodes ofconduct, staff comply withalloftherequirements related updates. This ensures that ourretailers andtheir through regular newsletters, bulletinsandonline conveyed through training programs, aswell as and compliance obligations. This isprimarily to-date withourresponsible gamblingprogram information andnotices to ensure they are up- Our retail network alsoreceives regular training, training for thoseincustomer-facing roles. new employees andthrough annualrefresher Information aboutourprogram isdelivered to program andtheircompliance requirements. and understand ourresponsible gambling informed andequippedwiththetools to deliver We ensure that ourteam membersare TEAM EDUCATION WE ARECOMMITTED TO RESPONSIBLE PRODUCTS INASAFE, SECUREAND GAMBLING AND TO PROVIDING FRIENDLY ENVIRONMENT
39 SUSTAINABILITY REPORT 40 FIGURE 9 ForGENDER MIX IN KEYpersonal MANAGEMENT use only PERSONNEL AND OTHER EXECUTIVES/ GENERAL MANAGERS FY15 FY16 People Our service units. and deliverables for ouroperating andshared an annual‘Play Book’that setsoutthetargets the coming year. We provide allemployees with performance andthebusiness strategies for industry specialists onourprevious year’s Director andCEO, seniorexecutives and the opportunityto hearfrom ourManaging live to alloffices, allowing team members Our annualtown hallpresentation isstreamed change inareas ofconcern for ouremployees. wide interventions that willcreate positive to drive bothteam initiatives andcompany- the Group andourgoals.We usethissurvey measures team andindividualcommitment to Our annual‘State oftheNation’ survey ENGAGEMENT allows Tatts to achieve itsgoals. help ourteam achieve theirbest, whichinturn striving to become anemployer ofchoice, we functions that supportallteam members. By best talentby focusing onarange ofpeople We aimto attract, engageandretain thevery
occupational categories. workplace profile that usesstandardised available onourwebsite andincludesa gender equalityindicators. This report is annual reporting against thestandardised As arelevant employer underthe • • • key objectives: In FY16,we remain focused onthese investors/corporate-profile/key-policies). our objectives: (www.tattsgroup.com/ team members.Ourdiversity policy outlines unconscious biastraining for allpermanent initiated programs across theGroup, suchas team membersto perform at theirbest, we create aninclusive environment that allows there ismore to diversity thangender. To gender balance, however we recognise that stronger together. Ourcurrent focus ison and celebrate thedifferences that make us of allourteam members,andwe respect At Tatts, we value theuniquecontributions DIVERSITY Gender Equality Act 2012 Act Equality Gender female team members. difference in theremuneration of maleand team. Pleasingly, ourlast report found no differences intheremuneration of our This isusedto highlightany gender-based gender pay equityauditevery two years. significant trends orbiases.We conduct a ensure compliance andto identifyany Review ourprocesses andsystems to outcomes inourworkplaces. potential impactitcanhave ondiversity and positive stereotypes) and the avoiding unconscious bias(or negative the workplace, focused onidentifyingand training for ourentire team ondiversity in differences—during FY16we conducted respect andacceptance ofindividual Foster aculture that encourages on page41 for ourprogress inFY16. our managerialroles by 5%—refer to table to increase therepresentation offemales in levels oftheorganisation—we are aiming Achieve genderbalance at themanagerial , we participate in Workplace Workplace
Tatts Group Annual Report 2016 WOMEN IN MANAGEMENT POSITIONS Other managers* Senior managers* Other executives /general managers* * Key Management Personnel* Chief Executive Officer Board • • • • employee safety program: During FY16,we madeseveral improvements to our two reporting periods. incidents andinjuryfrequency rates for thepast occur inourworkplaces. Figures 10and11show our opportunities to reduce thenumberofinjuriesthat focus for theGroup, andwe continue to lookfor The healthandsafety ofourpeopleisakey EMPLOYEE SAFETY important partofoursuccession planning. leadership positionsasthey arise. This forms an Education, designedto prepare employees for program inpartnershipwithMountElizaExecutive commenced inFY15.We conducted thisbespoke program istheTatts’ Future Leaders program, which One elementofourtraining anddevelopment $1.2 millioninFY15. development ofourteam inFY16,compared with We invested $1.6millioninthetraining and EMPLOYEE TRAININGANDDEVELOPMENT Equality Act 2012 Act Equality CEO, asitdoeselsewhere in thisreport. These management positionsare defined intheWorkplace GenderEquality Agency’s ‘Guideto reporting underthe we implemented anew Group-level safety policy and legalcompliance subscription service to assist withduediligence hazard managementwithinhighriskwork groups increased attention to, andtraining around, with OHSAS 18001 Certification a new HealthandSafety ManagementSystem ’ . Note that ‘Key ManagementPersonnel’ underthesereporting guidelinesdoesnot includetheManagingDirector and 22 of94employees (23%) 12 of32employees (38%) 2 of5employees (40%) 4 of6employees (67%) 0 of1employee (0%) 1 of6Directors (17%) AT 30JUNE2016
FIGURE 10 FIGURE 11 NUMBER OF INCIDENTS INJURY FREQUENCY RATES 5,000 5,000 10,000 15,000 20,000 25,000 0 1 2 3 4 5 6 7 TRIFR =total recordable injuryfrequency rate FY16 6.59 57 Total incidents FY16 LTIFR =lost timeinjuryfrequency rate TRIFR 5.12 10 of26employees (38%) 17 of87 employees (20%) FY15 67 2 of5employees (40%) 3 of5employees (60%) FY15 0 of1employee (0%) 1 of6Directors (17%) Workplace 1.72 Lost timeincidents AT 30JUNE2015 11.5% 57 LTIFR Gender 1.72 67 41 SUSTAINABILITY REPORT 42 FIGURE 12 SCOPE 1, 2 AND 3 CO E EMISSIONS For personal2 use only 5,000 5,000 10,000 15,000 20,000 25,000 Environment Our environmental managementpractices. run worldwide onbehalfofinvestors and impacts to theCarbonDisclosure Project, we continue to report ourenvironmental and Energy Reporting Act 2007. Despite this, levels identifiedintheNational Greenhouse emissions profile iswell below thereporting and ourcarbondioxide equivalent (CO environmental footprint isrelatively low area network technology. Assuch,our our customers through advanced wide- neighbourhood-based businesses, reaching The Group comprises aportfolio of any ofitsstates orterritories. any law oftheCommonwealth ofAustralia or any significantenvironmental regulation under The operations oftheGroup are notsubjectto Scope 1 16,837 2,856 3,960 2016 2016 71.2% Scope 2 12.1%
15,848 2,660 2,384 2015 16.7% Scope 3 2 e) e) • the priorcomparative reporting period(pcp): 12-month periodto 30April2016, compared to following environmental outcomes for the review ofourmajoroperations indicated the environmental managementreport. Aninternal Committee periodicallyreceives an The Board’s Audit, RiskandCompliance • • Scope 1CO Scope 3CO are now reported underScope 3emissions. travel were restated duringtheyear, and emissions. Emissions from business air Scope 2CO decreased by 17%. while theactualnumberofmotor vehicles increase inreported emissions for FY16, Scope 1emissions andhasledto the Group amore reliable basisto calculate basis usedinpriorperiods.This gives the rather thantheextrapolated calculation to adirect measurement basisper vehicle, vehicles was amendedinthefinancialyear determining Scope 1emissions from motor comparative period.The calculation for a reduction of89 vehicles over theprior a fleetof438vehicles across Australia, tonnes (pcp:2,384metrictonnes), from (pcp: 7.8 millionkilometres). 8.4 millionkilometres ofbusiness airtravel tonnes (pcp:2,660metrictonnes) from translating to 13,700 metrictonnes ofCO 12.63 million) kilowatts ofelectricity, properties that used12.57 million(pcp: mostly from Group office andwarehouse tonnes (pcp:15,848metrictonnes), 2 2 2 e emissions –3,960metric e emissions – 16,837 metric e emissions – 2,856metric 2 e Tatts Group Annual Report 2016 more detailintheDirectors’ Report onpages51to 77. website andeconomic sustainability iscovered in covered indetailtheInvestors sectionofour Information relating to corporate governance is GOVERNANCE CORPORATE an environmentally safe way. computers, printers, etc.) isrecycled ordisposedofin also ensure that any obsolete e-waste (electronics, locations, includingpaperandmixed recycling. We Recycling initiatives are inplace at allouroffice WASTE MANAGEMENT (pcp: 117.8 kilolitres). decreased by 10.0% intheyear to 106.0 kilolitres emergency electricitybackup. Consumption ofdiesel The Group usesdiesel-powered generators to provide DIESEL 13.4% to 14,674 kilolitres (pcp:16,947 kilolitres). warehouse properties decreased duringtheyear by consumption at theGroup’s principaloffice and use potablewater provided by localcouncils. Water The majorityofourproperties are inurbanareas and WATER take advantage ofnew andmore efficientsystems. in response to changesincustomer demand,andto kWh). We continue to develop andadaptourservices properties to 4.99millionkWh(pcp:5.27 million kWh) anddecreased at oursmallerregional properties at 12.57 millionkWh(pcp:12.63 million at theGroup’s principaloffice andwarehouse of electricityconsumption, whichremained constant Energy usageat ourproperties isprimarilycomprised ENERGY
AIR BUILDING VEHICLE TRAVEL ELECTRICITY FLEET from 7.8 million km) from 527 vehicles) from 12.63 millionkwh) metric tonnes CO 2,856 (pcp: 2,384tCO from 438vehicles (pcp: 13,515tCO from 12.57 million kilowatt/hrs metric tonnes CO 13,700 3,960 metric tonnes CO (pcp: 2,660t CO from 8.4millionkmairtravel
2 2 2 e e 2 e e
2 2
e e
43 SUSTAINABILITY REPORT BOARD OF DIRECTORS
D I BOA R D OF LYNDSEY CATTERMOLE AM ROBBIE COOKE Non-executive Director Managing Director and Chief Executive Officer Member of the Board since 31 May 2005 E Member of the Board since 14 January 2013 Lyndsey was the founder and Managing Director of HARRY BOON Robbie Cooke commenced as Managing Director and Aspect Computing Pty Limited 1974-2003, and a Chairman Chief Executive Officer of Tatts on 14 January 2013. Director of Kaz Group Limited 2001-2004. Lyndsey has Non-executive Director C also held many board and other membership positions Robbie’s management career has traversed the Member of the Board since 31 May 2005 on a range of government, advisory, association and wagering and gaming industries, oil and gas, and not-for-profit committees, including the Committee Harry was Chief Executive Officer and Managing Director of ASX listed online travel retailing sectors. for Melbourne, the Australian Information Industries company, Ansell Limited, until he retired in 2004, a position which T Robbie joined the Wotif Group as Chief Operating Association and the Victorian Premier’s Round Table, capped a career spanning some 28 years with the Ansell Group. Harry Officer in 2006 and was promoted to Group CEO and as Chairman of the Women’s and Children’s Health has lived and worked in senior positions in Australia, Europe, the US and Managing Director in 2007. Prior to that, Robbie Care Network. and Canada, and has broad-based experience in global marketing and was Head of Strategy and General Counsel at UNiTAB O sales, manufacturing, and product development. He is multi-lingual and Lyndsey holds a Bachelor of Science from the (now part of Tatts) from 1999 to 2005. He has also has a strong track record in delivering business results through setting University of Melbourne and is a Fellow of the held commercial, corporate finance and legal roles at ambitious goals, building the appropriate organisation and relationships, Australian Computer Society. Santos, HSBC James Capel and MIM Holdings Limited. and relentlessly pursuing objectives. Other current directorships: Non-executive Director R Robbie holds a Bachelor of Laws (Honours) and Harry holds a Bachelor of Laws (Honours) and a Bachelor of Commerce of ASX-listed Treasury Wine Estates Limited (Director Bachelor of Commerce from the University of from the University of Melbourne. since May 2011); and ASX-listed PACT Group Holdings Queensland together with a Diploma in Company Limited (Director since November 2013); Directorships Other current directorships: Harry is Chairman of Asaleo Care Limited Secretarial Practice. with JadeLynx Pty Limited, Madowla Park Holdings Pty S (Director since May 2014) an ASX listed company. Robbie is a member of the Australian Institute Ltd, MPH Agriculture Pty Ltd, Catinvest Pty Ltd and Special responsibilities: Member Remuneration and Human Resources of Company Directors and Governance Institute Florey Neurosciences Board. Committee; Chairman Governance and Nomination Committee of Australia. Special responsibilities: Member Governance and Former listed public company directorships in the last 3 years: Other current directorships: Pro-Active Games Nomination Committee; Member Remuneration and Toll Holdings Limited (November 2006 to May 2015) Pty Ltd; 50-50 Foundation Limited. Human Resources Committee harry robbie
lyndsey For personal use only use personal For
44 Tatts Group Annual Report 2016 45 46 brian For personal(February 2011 –May 2014) 2004 –May 2015); Tigers Realm Coal Limited the last 3years: OZ Minerals Limited (August Former listed publiccompany directorships in and HumanResources Committee Compliance Committee; MemberRemuneration Special responsibilities: ChairmanAudit, Risk and Institute. usecompanies. Director andTreasurer oftheBionics (Director since December 2005),bothASX listed 2007) andSigmaPharmaceuticals Limited Mesoblast Limited (Director since November Other current directorships : Chairmanof Institute ofCompany Directors inAustralia. Accountants inAustralia andaFellow ofthe Brian isaFellow oftheInstitute ofChartered onlyrange ofpublicandlarge private companies. providing advice andauditservices to adiverse Brian hasmore than30years’ experience a memberoftheUSA ManagementCommittee. was alsoaKPMGBoard memberinAustralia, and and ChairmanofKPMGMelbourne2001-2002. He Executive Officer at KPMGAustralia 1998-2000, Melbourne andSouthernRegions 1993-1998, Chief Minter Ellison,hewas ManagingPartner ofKPMG Ellison, Melbourne2002-2005. Priorto joining Brian Jamiesonwas ChiefExecutive ofMinter Member oftheBoard since 31May 2005 Non-executive Director BRIAN JAMIESON (April 2009–October 2014) the last 3years: Australian Renewable Fuels Limited Former listed publiccompany directorships in and Compliance Committee Human Resources Committee; MemberAudit, Risk Special responsibilities: ChairmanRemuneration and Nature Conservancy. the Advisory Boards ofUNSW Arts&Design,andThe Foundation; ChairmanofFinance Committee, andon Limited; Trustee andVice NSW ChairmanArtGallery of private equitycompany MGBEquityGrowth Pty Other current directorships: Non-executive Director School AlumniLeaders Group. In 2015, hewas invited to jointheUNSW Business from Australian Institute ofCompany Directors. of Sydney, andaCompany Director Course Diploma Honours andBachelorofScience from The University from AGSM, BachelorofArchitecture, First Class Julien holdsaMasters ofBusiness Administration management consulting at AMP, NABandAccenture. investments andhisprofessional career includes which includes40+SPVs indiversified property and He isManagingDirector andCEOofAEHGroup, energy, innovation, technology andthearts. healthcare, agriculture, retail, consumer discretionary, property, professional andfinancialservices, media, He hasworked across arange ofindustries including not-for-profit organisations. and private companies, includingASX-100, SMEs,and senior executive andnon-executive director inpublic Julien hasmore than25years’ experience asCEO, Member oftheBoard since 21November 2005 Non-executive Director JULIEN PLAYOUST julien
kevin Tatts Group Annual Report 2016 September 2013) the last 3years: Watpac Limited (May 1996– Former listed publiccompany directorships in Nomination Committee Compliance Committee; MemberGovernance and Special responsibilities: MemberAudit, Risk and companies inAustralia. April 2015); Board positionswithseveral private Director Secure Parking Limited (appointed 1 ASX listed AriadneAustralia Limited (since 1992); Other current directorships : DeputyChairmanof Honorary Ambassador for theCityofBrisbane. on theLord Mayor’s DrugsTaskforce andisan Benefactor ofCommunity TV’s Channel31,served Brisbane HousingCompany Limited, Chairand Queensland Government/Brisbane CityCouncil’s Redevelopment Taskforce, independentChairof Chair ofRoyal BrisbaneHospitalHerston equities markets inAustralia. Hewas previously experience includescompany restructuring and Kevin’s extensive managementandbusiness company withinterests intheenergy sector. a private property development andinvestment Kevin isExecutive ChairmanofSeymour Group, Board inSeptember 2000 previously having beenappointed to UNiTAB’s Member oftheBoard since 12October 2006, Non-executive Director KEVIN SEYMOURAM Governance andNomination Committee Risk andCompliance Committee; Member Special responsibilities: MemberAudit, boards. and serves onsomerelated medicalresearch biopharmaceutical facility basedinBrisbane, a leadingAustralian medicalresearch and Chair oftheTranslational Research Institute, Other current directorships: Independent Queensland. Associate inAccounting oftheUniversity of Zealand, aFellow ofCPA Australia, andan Chartered Accountants ofAustralia andNew Dr Watson isaFellow oftheInstitute of a MAandPhDfrom OhioState University. (Hons) from theUniversity ofQueensland,and Dr Watson holdsaBachelorofCommerce University ofQueensland. of Accounting andBusiness Finance at the entering parliament,DrWatson was Professor and Housing(April1997-July 1998).Priorto time hewas theMinister for Works Public for Moggillfrom 1990-2004,duringwhich the QueenslandParliament asthemember member for Forde from 1984-1987, andin in theHouseofRepresentatives asthe Dr Watson served intheFederal Parliament Member oftheBoard since 27 March 2014 Non-executive Director DR DAVID WATSON david
47 BOARD OF DIRECTORS EXECUTIVE TEAM
E X JOHN CORRY MEGAN MAGILL FRANCIS CATTERALL Chief Operating Officer – Chief Marketing Officer Executive General Manager – Charitable Gaming ASHLEIGH LOUGHNAN Megan was appointed to this Corporate Development BARRIE FLETTON Executive General Manager – TE AM John leads the Group’s newest exciting new role in June 2015, after Chief Operating Officer – Wagering People, Property & Procurement Francis leads the Group’s unit, finding innovative fund raising starting with Tatts in 2013. She is domestic and international solutions for the not-for-profit Barrie has been a part of the Group Ashleigh heads up the responsible for bringing a cohesive C corporate development activities. sector. John’s extensive experience for more than 20 years in various Group’s People, Property and vision across the broad spectrum Francis and his team have spans several start-ups and digital executive roles. Barrie’s Wagering Procurement team. These teams of Tatts’ brands, and for exploring led all of the Group’s mergers innovation companies, banking, unit is one of the largest within the are made up of a large number innovative marketing opportunities and acquisitions, along with hospitality, sport and social Group with more than 125 full-time of employees with extensive for the Group. Megan has more than U involvement in subsequent enterprise. He is co-founder of the employees operating across four experience and knowledge of the 20 years’ experience across agencies, T integration actions. award-winning 50-50 Foundation. states and territories. Group’s businesses. media and in-house marketing. john barrie francis I megan V ashleigh E
ANNE TUCKER FRANK MAKRYLLOS General Counsel and Company Chief Operating Officer – Gaming MANDY ROSS Secretary SUE VAN DER MERWE NEALE O’CONNELL MAREE PATANE Chief Information Officer Chief Operating Officer – Lotteries Frank re-joined Tatts in early 2013 as Anne joined the UNiTAB team Chief Financial Officer Chief Auditor COO of Gaming, rebranded in August Mandy leads the team of more than in June 2005 prior to the As the leading lottery operator in 2016 as MAX, comprising Maxgaming Neale, who joined Tatts in Maree and her team provide 400 technology and operations Tatts merger in 2006, and Australia, Sue heads the unit that and Bytecraft. Maxgaming provides 2004, was appointed as CFO consultative, compliance and staff and develops the long-term was appointed as Company contributes the largest amount to electronic monitoring and value-add in December 2012, and has continuous audit monitoring services, strategic and digital roadmaps for Secretary and General Counsel Group earnings. With a mix of long- services to gaming machine venues in managed the finance team both nationally and internationally. the company. Mandy stepped into in July 2013. Anne and her team standing lottery games and new NSW, Qld and NT. Bytecraft (our largest through a period of substantial The audit team has been built up this role on 1 January 2015, after have a wealth of experience and brands, the lotteries team markets its Australian business by headcount) expansion via the float, a merger, through integration and has an joining Tatts Group in 2014. Mandy knowledge within the gaming products through some of Australia’s monitors and manages a 24/7 technical and several acquisitions. Neale unrivalled knowledge of the wagering has 15 years’ industry experience, and industry, and play an integral leading consumer brands, in every services business with more than one has more than 30 years’ auditing industry, gaming business systems was named ‘CIO of the Year’ at the role in all merger, acquisition and Australian state and territory, with the million support calls per annum. and commercial experience. and lottery processes. national iAwards in 2012. integration activities. exception of Western Australia. sue anne frank
neale For personal use only use personal For maree mandy
48 Tatts Group Annual Report 2016 49 TRACK DIRECTORS’ RECORD REPORT
30 JUNE 2016 30 JUNE 20151 30 JUNE 2014 30 JUNE 20132 30 JUNE 20123 CORPORATE GOVERNANCE $ M $ M $ M $ M $ M The Board recognises the importance of good corporate governance and its role in ensuring accountability REVENUE FROM CONTINUING OPERATIONS 2,928.1 2,803.9 2,868.3 2,948.8 2,656.9 of the Board and management. The full details of the Group’s policies and its Corporate Governance STATUTORY CHARGES Statement are available on the Group’s website at http://www.tattsgroup.com/investors/corporate- – GOVERNMENT (1,370.9) (1,271.5) (1,289.9) (1,376.4) (1,265.6) governance. – OTHER4 (639.4) (620.1) (600.3) (605.7) (552.3) OPERATING COSTS4 (423.0) (421.3) (479.7) (476.5) (423.4) DIRECTORS’ REPORT Your Directors present their report on the consolidated entity consisting of Tatts Group Limited (the EBITDA 494.8 491.0 498.4 490.2 415.6 Company, or Tatts) and the entities it controls (the Group) at the end of, or during, the year ended PROFIT BEFORE INCOME TAX ON CONTINUING 378.5 363.3 326.6 303.1 225.4 OPERATIONS 30 June 2016. PROFIT AFTER INCOME TAX ON CONTINUING 263.4 253.9 226.6 227.4 161.5 OPERATIONS DIRECTORS (LOSS)/PROFIT FROM DISCONTINUED OPERATIONS (29.6) (1.9) (26.2) 19.9 157.6 The following persons held office as Directors of the Company during the financial year: NET PROFIT AFTER INCOME TAX 233.8 252.0 200.4 247.3 319.1 • Harry Boon • Robbie Cooke • Lyndsey Cattermole CENTS CENTS CENTS CENTS CENTS • Brian Jamieson EARNINGS PER SHARE5 18.0 17.5 14.1 17.9 23.8 • Julien Playoust DIVIDENDS PER SHARE 17.5 16.5 13.5 15.5 23.0 • Kevin Seymour • Dr David Watson
% % % % % Details, including term of office, qualifications, experience and information on other directorships held by Directors, can be found on pages 44 to 47 of the Annual Report. DIVIDEND PAY-OUT RATIO 109.6 95.1 95.9 87.4 97.4 DIVIDENDS $ M $ M $ M $ M $ M The Board continues its previously indicated commitment to maintaining a high dividend payout ratio. The total dividend paid or payable in respect of this year is 17.5 cents per share, reflecting 109.6% of Net Profit CASH FLOWS FROM OPERATING ACTIVITIES 262.7 439.8 278.4 346.9 390.3 After Tax (NPAT) being paid as dividends to shareholders and 97.3% of profit from continuing operations. The final dividend of 8.0 cents per ordinary share has been determined since the end of the financial 1. Only FY15 comparatives have been restated to reflect Talarius as a discontinued operation. year, and is payable on 4 October 2016. The following dividends have been paid, determined, declared or 2. The FY13 net profit after income tax on continuing operations includes a one-off tax benefit of $16.2 million. Before one-offs the adjusted NPAT recommended by the Company since the end of the preceding financial year: for FY13 would be $211.2 million. 3. Only FY12 comparatives have been restated to reflect Tatts Pokies as a discontinued operation. DIVIDENDS ($’000) 4. Product and program fees have been reclassified as ‘Statutory charges – Other’ in each year. Final Dividend 2016 5. EPS is calculated using the weighted average number of shares on issue throughout the year. Fully franked dividend for 2016 of 8.0 cents per ordinary share as determined by the Directors on 18 August 2016 with a record date of 1 September 2016 and payable on 4 October 2016 117,162 Interim Dividend 2016 Fully franked interim dividend for 2016 of 9.5 cents per ordinary share as determined by the Directors on 18 February 2016 with a record date of 1 March 2016 and paid on 31 March 2016 139,130 Final Dividend 2015 Fully franked dividend for 2015 of 7.5 cents per ordinary share as determined by the Directors on 20 August 2015 with a record date of 3 September 2015 and paid on 5 October 2015 109,561
All dividends are fully franked. For personal use only use personal For DIVIDEND REINVESTMENT PLAN (DRP) The Company has a DRP in operation. The last date for receipt of a DRP Notice of Election to enable participation for the final dividend is 2 September 2016. Further information in relation to dividends can be found in Note 15.
50 Tatts Group Annual Report 2016 51 Directors’ Report (CONTINUED)
PRINCIPAL ACTIVITIES MATERIAL RISKS TO BUSINESS STRATEGIES AND PROSPECTS FOR FUTURE FINANCIAL YEARS The principal activities of the Group during the financial year consisted of: The potential material business risks that could adversely affect the Group’s achievement of its business • the operation of regulated lotteries in Victoria, Queensland, New South Wales, Tasmania, Australian Capital strategies and financial prospects in future years are described below. This section does not purport to list DIRECTORS’ REPORT REPORT DIRECTORS’ Territory, the Northern Territory and South Australia; every risk that may be associated with the Group’s business now or in the future. There is no guarantee or assurance that the importance of these risks will not change or other risks emerge. While the Group aims • the conduct of wagering and sports betting through operations based in Queensland, South Australia, the to manage risks in order to avoid adverse impacts on its financial and reputational standing, some risks are Northern Territory and Tasmania; outside the control of the Group. • the conduct of gaming machine monitoring and supply of jackpot and other value add services in Queensland, New South Wales and the Northern Territory. In New South Wales this includes exclusive 1 REGULATION, LICENCES AND OTHER APPROVALS licences to operate inter-venue linked jackpots; (A) REGULATION • the provision of third party installation, repair and maintenance services for gaming, wagering, lottery, point- The conduct of wagering, lotteries, and the monitoring of gaming machines is regulated by laws, licences, of-sale and other transactional equipment and systems throughout Australia; and permits and other approvals from the relevant state and territory governments. Any material non-compliance • the operation of licensed gaming venues throughout the United Kingdom. These operations were sold on by the Group with the relevant regulations or terms of its licences, permits or approvals may result in financial 24 June 2016. penalties, or the suspension or loss of certain licences, permits or approvals which may have a material adverse impact on the financial performance of the Group or result in the loss of an operating unit and OPERATING AND FINANCIAL REVIEW corresponding revenues from that operating unit. Regulation at state, territory and federal government levels is subject to change and the Group has no control REVIEW OF OPERATIONS AND FINANCIAL POSITION over the regulations that apply to its current or proposed activities. Pending and future changes in legislation, Refer to the Managing Director’s Report on pages 12 to 31. regulation or government policy and decisions by courts and/or governments may result in the prohibition of certain types of gambling, and the imposition of additional taxes or other financial or operational imposts on BUSINESS STRATEGIES AND FUTURE PROSPECTS FOR FUTURE FINANCIAL YEARS the Group’s businesses. By way of example, on 7 July 2016 the New South Wales Government announced that Tatts is the largest non-casino gambling group in Australia. it had decided to close down the greyhound racing industry in New South Wales. Such changes may reduce the Group’s revenues, profitability or both. The Group’s business strategies aim to achieve the Group’s goals by: • optimising the management, operation and term of existing licences (including extending/improving licence The Group has an established regulatory compliance function and governance framework. The Group’s terms) and businesses to achieve continued growth and operational efficiencies; regulatory compliance function monitors compliance with existing regulations, the political and regulatory • participating in government processes associated with development and licensing of the gambling industry environment in the jurisdictions in which the Group operates, and the Group’s adherence to internal processes. (in Australia and Internationally); (B) LICENCES AND OTHER APPROVALS • pursuing strategic acquisitions of government and privately owned gambling assets as and when they Since listing on the ASX in 2005, Tatts has successfully developed a portfolio of diversified and long-term become available; income streams across multiple jurisdictions. A significant proportion of the Group’s continuing EBITDA • investing in people and new technologies; and is generated from licences that run for at least 35 years. Refer to Note 11 of the financial statements which • maintaining a flexible balance sheet to support the existing businesses and fund other growth opportunities outlines relevant details regarding the Group’s licences and other authorisations. that fit with the Group’s core competencies. The exclusivity period for the South Australian Authorised Betting Operations Licence expires in December The Group will continue to develop and implement improvements to its websites, and other distribution 2016. The New South Wales Licences to operate inter-club and inter-hotel linked gaming systems expire in channels, including smart phone and tablet apps and self-service terminals. Online is a key distribution channel October 2017 and October 2019 respectively. The Victorian Lotteries Licence expires in June 2018. for the Group’s wagering and lotteries operations and the Group’s focus will be on continuing to expand our If these licences are not renewed, or licences granted on terms not acceptable to or less favourable to Tatts digital and product offerings. than the current licence terms: This will be accomplished by ongoing product development across the Group’s broad suite of distribution (i) there is a possibility the Group will not be able to conduct these licence-specific businesses or guarantee channels within its operating units, particularly wagering and lotteries. revenues equal to those currently being generated by them; and In the Directors’ opinion, any further disclosure of information would be likely to result in unreasonable prejudice (ii) Tatts would be required to review the carrying values of goodwill associated with the cash generating to the Group. units under which these licences operate. The Group continues to focus on optimising the management, operation and terms of existing licences (including extending/improving licence terms) and businesses to achieve continued growth and
operational efficiencies. For personal use only use personal For
52 Tatts Group Annual Report 2016 53 Directors’ Report (CONTINUED)
MATERIAL RISKS TO BUSINESS STRATEGIES AND PROSPECTS FOR FUTURE FINANCIAL YEARS ENVIRONMENTAL REGULATION (CONTINUED) The operations of the Group are not subject to any particular and significant environmental regulation under 2 COMPETITION any law of the Commonwealth of Australia or any of its states or territories. DIRECTORS’ REPORT REPORT DIRECTORS’ Even if the Group’s lotteries, wagering and gaming licences, permits and approvals are maintained and renewed, DIRECTORS INTEREST IN SECURITIES its businesses may also be subject to competition from existing and new entrants at any time. More than just The relevant interest of each Director in securities of the Company at the date of this Directors’ Report is as driving efficiencies, technological innovation is now challenging entire business models and disrupting industry follows: structures. Technological developments have therefore increased, and will continue to increase competition to the Group’s businesses, regardless of its licences, permits and approvals. RELEVANT INTEREST RELEVANT INTEREST OPTIONS OVER RIGHTS OVER DIRECTOR IN TATTS BONDS IN ORDINARY SHARES ORDINARY SHARES ORDINARY SHARES The Group’s wagering businesses currently compete (and have for some time) with bookmakers in Queensland, Harry Boon Nil 150,000 Nil Nil South Australia, Tasmania and the Northern Territory and other interstate and international wagering operators Robbie Cooke1 Nil 491,163 Nil 253,383 who accept bets over the telephone or online, predominantly in respect of fixed-price products. Lyndsey Cattermole Nil 182,663 Nil Nil The internet and other new forms of distribution have allowed new competitors to enter the Group’s traditional markets without those competitors being licensed in those states and territories. Brian Jamieson Nil 114,734 Nil Nil Julien Playoust Nil 25,000 Nil Nil There is also a possibility that competition from interstate and international operators may extend to the Group’s wagering and lotteries retail networks in the future. Kevin Seymour Nil 14,108,306 Nil Nil Dr David Watson Nil 25,000 Nil Nil A sustained increase in competition from new entrants may result in a material failure to grow market share and
associated revenues and impact on carrying values of our assets, particularly in wagering. 1 Executive Directors are the only Directors entitled to participate in the Group’s incentive plans. Details of these interests are disclosed in the Remuneration Report. Please refer to Note 11 of the Financial Statements where management have assessed what reasonable change in key assumptions could impact the carrying value of the wagering cash generating unit. COMPANY SECRETARY To address competition risks, the Group is focused on developing and selling new products that are attractive Anne Tucker has been employed by the Group since 2005 and was appointed Company Secretary on 2 to its customers in relation to land-based, online and digital operations. The Group therefore continues to July 2013. Anne holds Bachelors of Law and Commerce, Graduate Diplomas in Legal Practice and Applied invest in key skills and talents and has also strengthened its digital platforms through the development and Corporate Governance, and is an Associate of the Governance Institute of Australia. implementation of improvements to websites and other forms of distribution, including smart phone and tablet apps and self-service terminals. Through continued investment in this area the Group will enhance its ability to MEETINGS OF DIRECTORS produce new technologies and products to meet customer demand in both existing and new markets. The number of scheduled Board meetings and meetings of Board Committees, and the number of meetings attended by each of the Directors of the Company during the year were: 3 RELIANCE ON SYSTEMS AND THIRD PARTIES Other risks inherent within the Group’s businesses which could materially impact the financial performance of the BOARD OF AUDIT, RISK & GOVERNANCE & REMUNERATION & DIRECTORS MEETINGS COMPLIANCE NOMINATION HUMAN RESOURCES Group include systems failure, including a systems security failure, and reliance on third parties who are unable to provide products and services (e.g. telecommunication services and racing product). A B A B A B A B Harry Boon 13 12 nm nm 2 2 2 2 A technology security failure, such as a cyber-attack for example, could impact upon the Group’s technology 1 systems and equipment and, ultimately, Group revenue and profit. Robbie Cooke 13 13 nm nm nm nm nm nm Lyndsey Cattermole 13 13 nm nm 2 2 2 2 While the Group manages these risks by having system redundancy and other backup measures in place, and by having a framework of adequate safeguards and controls for monitoring and managing these risks, failure of, or Brian Jamieson 13 12 4 4 nm nm 2 2 significant interruption to, products and services (either third party or proprietary) for a sustained period of time Julien Playoust 13 13 4 4 nm nm 2 2 may result in the Group being unable to provide certain services during that period, which may have a material Kevin Seymour 13 13 4 4 2 2 nm nm adverse impact on the financial performance of the Group. Dr David Watson 13 13 4 4 2 2 nm nm
A - Number of meetings during the year while the Director was a member of the Board or Committee B - Number of meetings attended by the Director as a member during the year
nm - Not a member of the relevant Committee For personal use only use personal For 1 Managing Director and Chief Executive Officer, not a Non-executive Director
54 Tatts Group Annual Report 2016 55 Directors’ Report (CONTINUED) DIRECTORS’ REPORT REPORT DIRECTORS’ Remuneration Introduction Report HIGHLIGHTS Group targets determined by the Board In FY16 Tatts continued to focus on and Managing Director and CEO—passed innovating the way we do business to on to all employees in our 2016 Play benefit our customers, shareholders Book—set out metrics and deliverables and team. for each operating and service unit. Key Performance Indicators (KPIs) are set for This saw a continued step-up in our every individual. These define what success business renewal program to deliver our looks like, and we rigorously monitor and company-wide transformative digital measure performance at the end of the year CONTENTS DESCRIPTION PAGE initiatives, innovative new brands and to ensure business targets are achieved, and products, and game-changing technology. that remuneration is fair, not excessive, and Introduction Letter from the Chairman of the Remuneration and Human Resources 57 Committee The year’s highlights include the launch aligned with business performance. Remuneration Highlights of the new lotteries umbrella brand, the While it is not commercially realistic to Lott, (together with new omni-channel disclose all goals and performance metrics, 60 Performance and remuneration Summary of the Group’s performance and remuneration outcomes for FY16. experience, new digital assets and new outcomes an extract of FY16 KPIs for the Managing generation retail) and further build-out of Director and CEO is provided on page 64. Key Management Personnel Names and roles of the KMP whose remuneration details are disclosed in this 61 the UBET brand, retail, and digital assets report. and products. In FY16, Tatts continued to benchmark Remuneration Governance our overall remuneration at or above the median, according to externally sourced 61 Remuneration and Human Composition and role of the Remuneration and Human Resources Committee. ALIGNMENT OF REMUNERATION remuneration data, and to provide for Resources Committee AND HUMAN RESOURCES WITH annual increases in base packages in line Executive Remuneration BUSINESS OUTCOMES AND with market expectations. Remuneration framework Details of how the remuneration framework is aligned and structured to 62 SHAREHOLDER VALUE support our objectives and performance. It is a prime objective of our reward PERFORMANCE INCENTIVES Managing Director and CEO Explains the Managing Director and CEO’s remuneration arrangements. 64 structures (including any annual incentive) remuneration structure We paid $9.7 million in incentives across the to support delivery of business outcomes Group (excluding the Managing Director Former incentive plans Explanation of former incentive plans that were active during FY16 and the 66 that grow shareholder value. This is both and CEO) in FY16—which comprised testing applied to them. protecting ‘core business’ and innovating $2.1 million (or 21%) to our 11 most senior Clawback Clawback mechanism that applies to our incentive plan. 67 new rigorous processes. Throughout the executives and $7.6 million (or 79%) to more year, remuneration and human resources Contracts of employment Key contract terms governing the employment of KMP (excluding Non- 67 than 1,370 of our employees who qualify executive Directors). policies were aligned with our business for the performance incentive—as a result practices to best support the Tatts team in 67 of achieving the Group targets outlined in Additional information Details of our hedging policy, previous employee share plans, and disclosures delivering the FY16 results. in relation to Director and executive loans. the 2016 Play Book and according to the metrics outlined below. The incentive is Non-Executive Director Remuneration The core business of attracting, employing, retaining and fairly rewarding our paid in cash, or via a combination of cash 68
Remuneration framework Summary of our remuneration framework for Non-executive Directors. employees remained at the heart of our and rights to restricted shares, depending For personal use only use personal For Fee structure Details of the fee structure for Board and Committee roles, including 68 remuneration and human resources policies upon the incentive quantum. It is consistent shareholder approved maximum aggregate fees. and practices. with prior years, and is considered fair, reasonable and not excessive. Group Performance And Remuneration Outcomes Financial performance Provides a breakdown of our performance, share price, and dividends over the 69 past five years. Remuneration tables Provides the remuneration disclosures required by the Corporations Act and 70 the relevant Australian Accounting Standards.
56 Tatts Group Annual Report 2016 57 Remuneration Report (CONTINUED)
A CULTURE OF CHANGE: SAFETY, REFINING REMUNERATION IN FY17 We made a conscious decision to step away from the Retaining the best of the old scheme for the AGILITY, DIVERSITY AND INNOVATION In FY17 we are taking a different approach to the more traditional remuneration approach (i.e. fixed non-executive team means that more than 1,000 salary coupled with both a short-term and long-term employees will continue to participate in a cash and Our incentive scheme is an important part of our remuneration of our senior executive team (being all incentive), as we concluded that a more innovative equity (rights to restricted shares) incentive. This REPORT DIRECTORS’ remuneration structure, however Tatts does not the direct reports to our Managing Director and CEO). approach was more likely to motivate our team to type of short-term incentive (STI)—cash and short- singularly rely on its remuneration structures to drive We want to restructure our remuneration framework in drive our Group success. This led us to remove short- dated rights—aligns with annual business plans and performance. We want to be a #1 workplace that is fun, a way that: term incentives, to restructure fixed remuneration to gives immediacy to the reward when plan objectives fair, diverse, safe and many other exciting things, all of • continues to set our team’s fixed annual give our executives more ‘skin in the game’ through are achieved, while building commitment to equity in which lead to greater innovation, agility and profitable remuneration at levels that attract, retain and deferred rights, and to establish a long-term incentive the Company. productivity. We want the Tatts team to be amazing, motivate the ‘best and brightest’; that is meaningful and easy to understand. to be innovative and create positive change in order • removes the traditional short-term incentive The rights instrument itself will be used across the to deliver the best customer service and products, and derived from short-term performance; We are not alone in implementing a non-traditional, executive (in the FAR) and non-executive (in the STI) we want them to be safe. That is why our executive innovative approach. A very similar scheme was cohort, thereby providing economies, continuity and • introduces an easily comprehensible and team fosters teamwork, collaboration, diversity implemented several years ago by a peer ASX100 familiarity within Tatts overall remuneration structure. transparent long-term incentive aligned with of thought, and safe workplace health and safety company seeking to drive long-term executive shareholder value creation over a multi-year practices at all times. behaviour and to minimise ‘short-termism’. horizon, benchmarked to outperform either the ASX or an absolute TSR outcome; and Removing the short-term incentive is perhaps the MANAGING DIRECTOR AND CEO • continues to build real ‘skin in the game’ for the biggest change for us. Our results each year are We renewed our Managing Director and CEO’s senior executive team. the product of a multitude of influences including (Robbie Cooke) contract for a further three years macro-economic conditions, management actions This is a significant departure from the Group’s and decisions (both in current and prior periods), on 1 September 2015. Godfrey Remuneration Group current scheme, which some consider lacking a benchmarked his remuneration against 20 ASX peer right down to the random jackpot sequences in our long-term incentive component outside deferred lotteries draws, and variable win-rates from wagering companies. Consistent with Tatts’ policy and his prior performance rights awarded on the basis of a short- 1 activity. This means that the outcome of a short-term JULIEN PLAYOUST contract , Mr Cooke’s total employment cost was set at term incentive pool crystallising in a particular year, scheme can, in some periods, be less meaningful Chair, the median (50th percentile or P50) benchmark and his and time-based vesting. fixed annual remuneration (FAR) was set at P75, as we than others. In reflecting on this, we have decided to Remuneration and Human Resources Committee expect our senior executives to be above the median Our intention is to appropriately reward senior step away from making annual performance the key and that our base pay is competitive in the global executives with fixed remuneration in both cash and element of our senior team’s incentive plan. marketplace for top talent. equity, and a variable performance-based equity We are aiming to implement the new scheme at a incentive aligned to long-term shareholder value low-to-neutral net additional cost. We awarded Mr Cooke a performance incentive of creation. When reviewing the structure, we examined $1.485 million in FY16, paid 35:65 cash and rights to the remuneration frameworks in place in a multitude of The new scheme will require above-average restricted shares (subject to shareholder approval). organisations, took advice from Godfrey Remuneration performance from our senior executive team, and The award was made for successfully delivering on Group and modelled several alternatives. fixed-pay benchmarks may need to be customised his KPIs, which is discussed in more detail below. beyond our traditional median P50 and P75 peer This performance incentive was 74% of his maximum benchmarks. Ensuring we remain globally competitive, potential award. and locally a #1 workplace for similar-sized ASX companies, will drive our remuneration decisions.
1 The net value of Mr Cooke’s fixed entitlements commencing We intend to continue the existing incentive 1 September 2015 was approximately the same as his prior year’s framework for Tatts team members other than the fixed entitlements when the annual grant of 150,000 rights is taken into account. senior executive team.
For personal use only use personal For OUR REWARD STRUCTURES SUPPORT DELIVERY OF BUSINESS OUTCOMES THAT GROW SHAREHOLDER VALUE
58 Tatts Group Annual Report 2016 59 Remuneration Report (CONTINUED)
This report sets out the remuneration arrangements of the Company for the year ended 30 June 2016, and is in KEY MANAGEMENT PERSONNEL accordance with Section 300A of the Corporations Act. The information has been audited as required by Section Key Management Personnel (KMP) are Non-executive Directors and those executives with responsibility for 308(3C) of the Corporations Act. the planning, controlling and directing of the Group, which includes those executives who lead operating units that contribute more than 25% to continuing consolidated EBITDA. DIRECTORS’ REPORT REPORT DIRECTORS’ REMUNERATION HIGHLIGHTS Details of KMP, including changes made during the prior reporting period, are provided in the table below. PERFORMANCE AND REMUNERATION OUTCOMES NAME POSITION During the period the Group sold its interest in Talarius and this has been shown as part of discontinued operations. Non-executive Harry Boon Chairman, Non-executive Director The figures and commentary below refer to our continuing operations. Directors Lyndsey Cattermole Non-executive Director Brian Jamieson Non-executive Director PERFORMANCE HIGHLIGHTS Julien Playoust Non-executive Director Group revenue up 4.4% to Group revenue was up 4.4% in FY16. This growth was driven off a record Kevin Seymour Non-executive Director $2.93 billion number of lottery jackpots in the period, and increasing digital growth in Dr David Watson Non-executive Director lotteries and wagering. Executive Robbie Cooke Managing Director and CEO NPAT up by 3.8% NPAT grew by 3.8%, and EBITDA grew by 0.8%. Margin expansion Director continued in lotteries, and reducing finance costs also helped our NPAT Other Key Barrie Fletton Chief Operating Officer, Wagering result. Management Neale O’Connell Chief Financial Officer REMUNERATION HIGHLIGHTS Personnel Mandy Ross Chief Information Officer (appointed 1 January 2015) Group remuneration Fixed annual remuneration (FAR) will increase in September 2016 by Sue van der Merwe Chief Operating Officer, Lotteries (appointed 21 July 2014) an average of 2% across the Group (FY15: 2.5%). This is consistent with Stephen Lawrie Chief Information Officer (ceased employment 10 February 2015) maintaining a position at our above the 50th percentile of the market. Bill Thorburn Chief Operating Officer, Lotteries (ceased to be a KMP 18 July Managing Director and CEO Total remuneration for the Managing Director and CEO was $3,620,901 2014, however remains employed by the Group) remuneration (FY15: $2,841,516), which included: • a cash incentive payment of $519,750 (FY15: $412,500); REMUNERATION GOVERNANCE • $965,250 in rights to restricted shares (FY15: $412,500); • the amortised cost for his unvested rights of $170,625 (FY15: REMUNERATION AND HUMAN RESOURCES COMMITTEE $438,750). The Remuneration and Human Resources Committee (Committee) consists of four Non-executive Directors, Incentive plan More than 1,370 team members participated in the Company’s incentive with one performing the role of Chair. The Managing Director and CEO is invited to attend, but does not take plan in FY16, with more than 75% of the pool allocated to those outside part in the Committee’s decisions, nor is he present when his remuneration is discussed. the executive group. Excluding the Managing Director and CEO, the Remuneration set by the Committee is reviewed on an annual basis. During this process, consideration is given Board allocated $535,000 in cash payments and $430,000 in rights to to individual and overall performance of the Group, as well as market conditions. The Committee is responsible restricted shares to the KMPs. The total incentive paid across the Group for advising on: (excluding the Managing Director and CEO) was $9,727,500 (FY15: $9,950,000). • remuneration of Non-executive Directors, the Managing Director and CEO, and Group executives Non-executive Director fees Non-executive Director base fees of $185,000 increased by 1.7% and the • performance review for the Managing Director and CEO Chair’s fee of $472,000 increased by 2.2%. Fees for Committee chairs • employee equity plans of $35,000 and Committee members of $11,000 increased by 9.4% and • remuneration disclosures 10% respectively, which is consistent with maintaining a competitive and market relevant position and not excessive. • executive recruitment, termination policies and succession planning • remuneration risk management and controls • strategic human resources initiatives, including diversity and related disclosures, including environmental,
social and governance (ESG) For personal use only use personal For
60 Tatts Group Annual Report 2016 61 Remuneration Report (CONTINUED) o t ontro an apita FIGURE 14 mana ement
CREATION OF OF CREATION o a u te PERFORMANCE PERFORMANCE THE FINANCIAL THE FINANCIAL ontri ute to t e onu INCENTIVE POOL poo or e er o EXECUTIVE REMUNERATION Participation: As mentioned above, participation in ro t rom mar in our incentive scheme is broad, with more than 1,370 a tor REMUNERATION FRAMEWORK employees participating in FY16 (FY15: 1,400), and 79%
Our remuneration framework, summarised below, is of the paid incentive distributed to employees who are o a u te REPORT DIRECTORS’ ontri ute to t e onu mar in a tor designed to: not KMP. poo or e er o ro t rom • attract, motivate and retain highly skilled team Program overview: Each participant in our program is members assigned a target incentive, based on their remuneration • incentivise and reward high performance level and position within the Group. The targets range • align with shareholder interests from 7.5% to 30% of FAR for most participants (with some members of the senior executive team having FIXED ANNUAL REMUNERATION the potential to earn up to 70% of FAR). The target non ta We attract, motivate and retain a highly skilled team incentive cannot be exceeded. Incentive pool: The incentive pool is comprised of two FIGURE 15 by providing a fixed annual remuneration (FAR) that elements—one based on the financial performance of PAYMENTS targets the desired skills and experience for our roles, the Group in the year, and the other based on each and is benchmarked at or above the 50th percentile. individual’s performance.
Our FAR structure comprises base pay, superannuation INCENTIVE SCHEME Financial performance incentive pool: 70% of and salary-sacrificed items. We do not provide each individual’s target incentive is linked to the guaranteed pay increases in any executive contracts of Group’s financial performance. This ‘financial employment. performance incentive pool’ only forms if the Group VARIABLE REMUNERATION outperforms criteria that the Remuneration and Human Resources Committee establishes at the We seek to encourage high performance through our ta commencement of each financial year. incentive scheme, which is outlined below, noting that the operation of the scheme and the amount of any The criteria for FY16 required continuing operations NPAT (as adjusted for one off items see below) to incentive pool remains, at all times, at the discretion exceed the same metric for FY15. of the Board. This scheme is aligned with shareholder • For every 1% of NPAT growth up to 5%, 0.5% of NPAT was contributed to the bonus pool. interests through the calculation mechanisms, and also • Thereafter, for every 1% of NPAT growth, 0.2% of NPAT was contributed to the bonus pool, capped at through the payment of some incentives as deferred 18% NPAT growth. equity. The Board may also determine a discretionary incentive where performance against KPIs was strong. In undertaking this calculation, we consider one-off items that can impact it. The adjustments made to Exceptional outcomes that may be considered on this FY16 continuing operations NPAT were to exclude the interest benefit in relation to the funds received in basis are those that have a direct influence on share the Victorian Pokies Compensation case and to include the trading result of Talarius (which was reported price, investor perspectives, and long-term value of the in discontinued operations). The resulting adjusted year-on-year performance in FY16 was 6%. Group. In FY16, we paid $227,500 in incentives relating This base amount is then adjusted (up or down) by an EBITDA margin factor (being the actual EBITDA to such exceptional outcomes (FY15: Nil). margin in FY16 / EBITDA margin in FY15), and is further adjusted (up or down) by an earnings per share (EPS) margin factor (being actual EPS in FY16/ EPS in FY15). The application of this methodology established the amount of the financial performance incentive pool for distribution. Individual performance incentive pool: The remaining 30% of each individual’s target incentive is determined by reference to his or her own KPIs. These KPI targets traversed critical business measures, including operational excellence, strategy, people and leadership, financial discipline, customer satisfaction and project outcomes as agreed with each employee’s manager. These measures were rated on a scale that was weighted to their relative importance. Scores were then aggregated into an overall performance rating, which determined the portion of the performance incentive to be paid to each individual. Details of i e annua remuneration aria e remuneration the specific measures are not provided, as they are commercially sensitive. Executive performance reviews FIGURE 13 are conducted by the Managing Director and CEO and are provided to the Committee annually. COMPONENTS For personal use only use personal For Incentive payment: Incentives are paid in cash, or cash and deferred equity, depending upon the relevant REMUNERATION REMUNERATION employee’s incentive level. KMP (excluding the Managing Director and CEO) received between 35% and 67% t otentia or enior of their incentive payment in cash, with the balance provided in deferred equity (rights). Deferred equity per enti e a e pa e e uti e provided under the program is subject to a one-year vesting period, followed by a two-year trading restriction. uperannuation The table on page 70 has more detail on the breakdown of cash and equity incentive payments. a ar a ri i e item Other than the time-based hurdle, there are no other conditions attached to the exercise of rights. Where a o t parti ipant participant ceases employment, the Board may, in its absolute discretion, waive any disposal restrictions.
62 Tatts Group Annual Report 2016 63 Remuneration Report (CONTINUED)
MANAGING DIRECTOR AND CEO REMUNERATION STRUCTURE FY16 KEY PERFORMANCE INDICATORS
Under the terms of the Managing Director and CEO’s contract, the following remuneration structure applies for KPI INCENTIVES (30% OF MAXIMUM) WEIGHTING MEASURES three years from 1 September 2015.
Protecting the business 50% • Securing operating licenses – NT TAB and NSW CMS REPORT DIRECTORS’ COMPONENT DETAIL • Launch new lotteries umbrella brand – the Lott Fixed annual remuneration $2.0 million per annum, reviewed by the Board in accordance with normal • Increase wagering turnover above target remuneration practices. • Customer focus, including enhancing online and retail Variable remuneration • Performance-based entitlement of up to 100% of FAR, subject to the experience achievement of KPIs set annually, and as approved by the Board. Paid as 35% • Cyber security cash and 65% rights to restricted shares. Digitally driven retailer 20% • Increasing lotteries and wagering online penetration • Rights are subject to shareholder approval. In the event that this is not granted, Innovation and product • Deliver new lotteries and wagering digital assets 100% of the incentive will be paid in cash. development • Based on KPIs of financial performance and other specific performance • Rollout new wagering retail format and products requirements for the position. • Embed new digital and retail best practice throughout • The Managing Director and CEO has one month after the last date for vesting to the organisation exercise vested performance rights. Strategic development 20% • Transformational activation and strategy • Many things we can’t talk about KEY PERFORMANCE INDICATORS • One we can – Talarius sale. The Board set the Key Performance Indicators (KPIs) for the Managing Director and CEO’s FY16 incentive in 2015 in Organisational improvements 10% • Executive team development line with the Tatts Group plan and roadmap. They comprise the financial incentive and KPI incentive, as outlined in • Future leaders program the Performance Review below. • Marketing and innovation program PERFORMANCE REVIEW • Culture – agile, nimble, creative and diverse The Managing Director and CEO’s performance was assessed according to KPIs within the context of the overall • Head office / property asset rationalisation performance of the Group and the executive team in FY16, and also taking into account any particular events that • Environmental, social and governance (ESG) warranted a special incentive. The first and largest consideration was the financial performance of the Group, which leads to the financial incentive outcome. This carried a 70% weighting and was determined from year-on-year NPAT growth according to The third consideration is for strategic, company-making events above and beyond the normal pre-determined Group targets as per the methodology set out above with respect to the Group-wide incentive (see the ‘Financial KPIs, thereby forming a special incentive. In the case of the Managing Director and CEO in FY16, his leadership performance incentive pool’ section). and direct action in numerous strategic opportunities and negotiations conducted during the year was noted, and in particular the successful sale of Talarius. The second consideration is the incentive based upon achievement of specified individual KPIs (KPI Incentive). This amounts to 30% of the maximum. Assessment of the KPI Incentive was discussed and determined according to the following table: SPECIAL INCENTIVES MEASURES Company-making events • Strategic initiatives like negotiating a merger of equals with Tabcorp Holdings • Mergers and acquisitions • Divestment • New business
• Category-killer products and services For personal use only use personal For
64 Tatts Group Annual Report 2016 65 Remuneration Report (CONTINUED)
MANAGING DIRECTOR AND CEO REMUNERATION STRUCTURE (CONTINUED)
PERFORMANCE INCENTIVE GRANT YEAR % VESTED RETESTING STATUS EXERCISE PRICE
In accordance with the annual KPIs, set at the start of FY16, and following assessment of these during his FY06 84.72% No further retesting $3.10 REPORT DIRECTORS’ performance review, the Board determined the Managing Director and CEO’s performance incentive for FY16 to be FY07 73.58% No further retesting $3.65 as follows FY08 100% No further retesting $3.99 MANAGING DIRECTOR AND CEO PERFORMANCE INCENTIVE FY09 100% No further retesting $2.56 WEIGHTING MAXIMUM RESULT RESULT ITEM % $ $ % Shares issued after options and rights vest and are exercised are placed into a restricted class under the LTIP 1 Financial Performance Incentive 70% 1,400,000 697,200 49.8% until the employee requests to sell them. 2 Individual KPI Incentive 30% 600,000 558,000 93.0% During FY16, no options were exercised, while 23,022 rights were exercised. 4,950 rights were forfeited. 3 Special Incentive - - 229,800 - TOTAL 100% 2,000,000 1,485,000 74.3% CLAWBACK Under the current incentive plan, shares issued following the exercise of rights are subject to Board discretion, The Incentive is paid to the Managing Director and CEO as 35% cash and 65% rights to restricted shares as follows: and are liable to forfeiture during the disposal restriction period. This may occur in circumstances including • a cash incentive payment of $519,750 (FY15: $412,500); where a participant commits an act of fraud or serious misconduct in relation to the affairs of the Group, or if • $965,250 in rights to restricted shares (FY15: $412,500) there is a material misstatement in the Group’s financial statements. The cash component is paid in September. Rights are granted under the Tatts plan, and priced at 10 day VWAP ($4.01) prior to the date of recommendation to the Board that the rights be granted. The rights component is CONTRACTS OF EMPLOYMENT subject to shareholder approval, to be sought at the 2016 AGM. The employment conditions of the KMP (excluding Non-executive Directors) are provided in the table below. Other than the Managing Director and CEO, all KMP are employed under contracts of no fixed duration. FIXED ANNUAL REMUNERATION INCREASE FOR FY17 NAME CONTRACT TERM NOTICE PERIOD TERMINATION PAYMENT In 2015, a new contract was executed for the Managing Director and CEO, which provided for a revised FAR at market benchmarks. Consistent with minimum annual increases made for the Tatts executive team, an annual Robbie Cooke 3 year contract The lesser of 12 months No payment required on expiry of commencing or the period remaining term. Early termination will attract increase in FAR for the Managing Director and CEO for the current financial year of 2.5% has been made. 1 September 2015 until 1 September 2018 no more than the amount allowed under the Corporations Act. FORMER INCENTIVE PLANS Barrie Fletton No fixed duration 12 months Combination of notice and payment Annual grants under the Group’s currently inactive Long-Term Incentive Plan (LTIP) were made from 2005 to 2009. in lieu, totalling no less than 12 With the exception of contractual remuneration arrangements in relation to the former Managing Director/Chief months. Executive, no grants have been made to executives since 2009. Neale O’Connell No fixed duration 12 months Combination of notice and payment All existing grants have been exercised or forfeited in 2016. No changes were made to the exercise or vesting in lieu, totalling no less than 12 conditions of such grants. months. Vesting conditions for performance options and/or performance rights granted in 2005, 2006 and 2007 were Mandy Ross No fixed duration 6 months Combination of notice and payment based on performance against relative total shareholder return (TSR) targets. For the 2008 and 2009 grants, in lieu, totalling no less than 6 vesting was based on relative TSR performance and on achievement of EPS improvement targets over a three-year months. period: Sue van der Merwe No fixed duration 6 months Combination of notice and payment in lieu, totalling no less than 6 TSR PERFORMANCE months. The Group’s performance must exceed the performance of the median company in its peer group for any vesting to occur. If this is achieved, 50% of instruments vest. If the Group’s performance reaches the fourth In the event of serious misconduct, the Group may terminate employment at any time without a termination quartile of its peer group, 100% of instruments vest (with pro rata vesting for performance between these payment being made. Any options or rights not exercised before or on the date of termination will lapse. points). ADDITIONAL INFORMATION EPS IMPROVEMENT HEDGING Vesting targets for EPS improvement, which were set at the time of grant, were 25% for the three years from For personal use only use personal For Employees (and closely related parties of KMP) who receive incentives in the form of equity may not enter 2008 and 16% for the three years from 2009. The EPS measure for the 2009 grant excludes the Tatts Pokies into any contract, arrangement or transaction that is designed or intended to hedge or otherwise limit NPAT segment, due to the run-off of this business. If the EPS target for a grant is met, all rights and/or options economic exposure to the risk relating to the Company’s shares, which are subject to an unvested award or tied to the EPS condition vest. No vesting occurs if the target is not met. a vested award subject to a holding lock or other disposal restriction under any employee incentive plan. Any employee who is proven to have contravened the hedging policy may face disciplinary action, which, depending on the seriousness of the breach, could include termination of employment.
66 Tatts Group Annual Report 2016 67 Remuneration Report (CONTINUED)
REMUNERATION CONSULTANTS GROUP PERFORMANCE AND REMUNERATION OUTCOMES To ensure the Committee is fully informed when making remuneration decisions, it may seek external remuneration advice. FINANCIAL PERFORMANCE In considering the Group’s performance in the context of appropriate remuneration levels and structures, the REPORT DIRECTORS’ During the reporting period, the Committee engaged Godfrey Remuneration Group (GRG) to provide specific Committee considers a variety of measures, such as EBIT and EBITDA growth, NPAT, EPS and TSR. recommendations on the benchmarking and market competitiveness of remuneration practices for the KMP and other direct reports of the Managing Director and CEO. The total fee for this work was $41,000 (excluding GST). Over the past five years, there have been a number of events, including acquisitions, licence renewal, new licence outcomes, and litigation that have created substantial volatility in the accounting measures outlined above. This is GRG also provided remuneration benchmarking data, but no specific recommendations were made in relation to highlighted in the summary below. this data. The total fee for this work was $15,000 (excluding GST). FY161 FY152 FY143 FY134 FY12 As previously advised, Tatts has adopted a process that complies with the Corporations Act requirement to ensure that any remuneration recommendation is free from undue influence by the KMP to whom the recommendation Revenue from continuing operations ($ ‘000) 2,928,100 2,803,940 2,868,334 2,948,803 2,656,859 relates. This process requires the Committee or the Board to make any decision on engagement of a remuneration EBIT margin (%) 14.3 14.4 14.4 13.7 12.2 consultant. Communication, contractual engagement, and briefing of the consultant are carried out by the Committee Chair, and the consultant provides the remuneration recommendation directly to the Committee Chair. NPAT from continuing operations ($‘000) 263,382 253,836 226,622 211,202 161,529 If the Committee decides that the remuneration recommendation should be shared with management, it can then NPAT statutory ($ ‘000) 233,794 251,964 200,421 247,336 319,139 be provided through the Committee Chair. Dividends paid/payable ($’000) 256,292 239,720 192,265 216,269 311,063 The Board is satisfied that the recommendations made by GRG were free from any undue influence by those to whom the recommendation related, for the following reasons: Dividend payout ratio on NPAT from continuing operations (%) 97.3 95.1 95.9 87.4 97.4 • the engagement was structured in accordance with the process outlined above; • at all times throughout the engagement, communication between GRG and Tatts was conducted by the EPS (basic) (¢) 18.0 17.5 16.0 17.9 23.8 Chair of the Remuneration and Human Resources Committee, and the KMP to whom the remuneration Total incentives as percentage of net profit (%) 4.2 4.3 4.1 4.1 3.3 recommendations related had no involvement in the engagement or instruction of GRG; and • GRG—as the remuneration consultant—provided a declaration of no undue influence, and the Committee and Share price at start of year ($) 3.72 3.27 3.17 2.62 2.40 Board have no reason to believe that this is not accurate. Share price at end of year ($) 3.82 3.72 3.27 3.17 2.62 DIRECTOR AND EXECUTIVE LOANS There were no loans made by the Group to Directors or executives during FY16. 1. Total incentives for FY16 were based on the underlying NPAT of $263.4 million, after adjusting for one-off items. 2. Total incentives calculated for FY15 were based on the statutory NPAT of $252.0 million, which included the loss on discontinued operations of $1.9 million. Revenue for FY15 was for continuing operations. NON-EXECUTIVE DIRECTOR REMUNERATION 3. Total incentives calculated for FY14 were based on the underlying NPAT of $226.6 million after adjusting for the loss on discontinued operation of $26.2 million. Revenue for FY14 was for continuing operations. REMUNERATION FRAMEWORK 4. Total incentives calculated for FY13 were based on the underlying NPAT of $211.2 million after adjusting for the discontinued operation of $19.9 million and the Golden Casket tax claim of $16.2 million. Revenue for FY13 was for continuing operations. Non-executive Directors receive a base fee and, COMMITTEE where applicable, an additional fee in recognition FEE BOARD (PER MEMBERSHIP) of the higher workload and extra responsibilities Chair $472,000 $35,000 The Company’s share price increased by 2.7% in FY16, and the Company continues to provide a high dividend (FY15: $462,000) (FY15: $32,000) resulting from Board Committee participation. STRUCTURE payout ratio and strong total returns to shareholders. Fees are based on peer market benchmarks and Member $185,000 $11,000 As a result of the FY16 achievement, the Company has created an incentive pool. Whenever the Company reviewed annually. (FY15: $182,000) (FY15: $10,000) achieves the performance levels outlined in the incentive system, it creates an incentive pool. The section titled The Chair of any Board Committee receives a Remuneration framework on page 62 details how the incentive system aligns shareholder and employee interests. higher fee than a member to reflect the relative role, responsibilities and time commitment. The Board Chair does not receive additional fees for participation in, or chairing of, Board Committees. Non-executive Directors do not receive incentive payments, nor are they entitled to participate in any Group • Revenue on continuing operations grew by 4.4% employee or executive equity plans. They receive no non-monetary benefits and do not participate in any in FY16 (FY15: 1.8% increase). retirement benefit scheme, other than statutory superannuation contributions. SNAPSHOT FINANCIAL FINANCIAL • EBIT from continuing operations increased by
Toonly use personal For align the Non-executive Directors’ interests with the interests of Tatts’ shareholders, the Board has established 1.3%, and EPS increased by 2.9%. guidelines to encourage Non-executive Directors to hold a minimum of 25,000 Tatts shares. Such shares are to PERFORMANCE • This delivered a 3.8% increase in NPAT (FY15: be acquired over a three-year period from the date of their appointment. All Non-executive Directors meet these 12.9%) on a continuing operations basis. NPAT on guidelines and further details about Non-executive Directors’ interests in Tatts’ shares as at 30 June 2016 are set a statutory basis fell by 7.2% following the sale out on page 76 of this report. of Talarius and the settlement of the Victorian As approved by the shareholders at the 2011 Annual General Meeting, the maximum aggregate Non-executive compensation case. Directors’ fee pool is $2 million per annum, of which the Group utilised $1.516 million in FY16. Fees paid to Non-executive Directors are set out in the Fee Structure table above, and are comprised of cash and statutory superannuation.
68 Tatts Group Annual Report 2016 69 Remuneration Tables (CONTINUED)
REMUNERATION EXPENSES SHORT-TERM POST- LONG- SHARE-BASED TOTAL In the preceding table, cash incentives represent 100% of the cash component of the annual incentive paid EMPLOYEE BENEFITS 1 EMPLOY- TERM PAYMENTS to each executive for the financial year. The remaining proportion of their total incentive paid for the year is MENT BENEFITS BENEFITS included in the performance rights column. Year Cash salary Cash Total cash Other 2 Super- Long service Performance rights Total KMP have received the following percentages of their total target incentive for the year, with the respective & fees incentive annuation leave (current (previous remuneration yr) yr) splits between cash and performance rights outlined. REPORT DIRECTORS’ $ $ $ $ $ $ $ $ $ INCENTIVE PLAN PORTION OF REMUNERATION NON-EXECUTIVE DIRECTORS TOTAL Harry Boon FY16 451,025 - 451,025 - 19,308 - - - 470,333 TARGET RELATED TO NOT RELATED TO INCENTIVE PERFORMANCE TOTAL GROUP GROUP FY15 440,384 - 440,384 - 18,783 - - - 459,167 YEAR ACHIEVED CASH RIGHTS REMUNERATION PERFORMANCE PERFORMANCE Lyndsey Cattermole FY16 195,333 - 195,333 - - - - - 195,333 Robbie Cooke FY16 74% 35% 65% 3,620,901 41% 59% FY15 190,904 - 190,904 - - - - - 190,904 FY15 75% 50% 50% 2,841,516 29% 71% Brian Jamieson FY16 210,525 - 210,525 - 19,308 - - - 229,833 Barrie Fletton FY16 - 67% 33% 585,736 0% 100% FY15 204,050 - 204,050 - 18,783 - - - 222,833 Julien Playoust FY16 210,525 - 210,525 - 19,308 - - - 229,833 FY15 41% 67% 33% 744,213 19% 81% FY15 204,050 - 204,050 - 18,783 - - - 222,833 Neale O'Connell FY16 86% 53% 47% 1,441,455 34% 66% Kevin Seymour FY16 178,386 - 178,386 - 16,947 - - - 195,333 FY15 88% 50% 50% 1,210,084 38% 62% FY15 174,410 - 174,410 - 16,494 - - - 190,904 Mandy Ross FY16 72% 50% 50% 719,580 33% 67% Dr David Watson FY16 178,386 - 178,386 - 16,947 - - - 195,333 FY15 76% 50% 50% 471,965 51% 49% FY15 174,342 - 174,342 - 16,562 - - - 190,904 Sue van der Merwe FY16 88% 67% 33% 699,750 34% 66% SUB-TOTAL FY16 1,424,180 - 1,424,180 - 91,818 - - - 1,515,998 Non-executive Directors FY15 1,388,140 - 1,388,140 - 89,405 - - - 1,477,545 FY15 88% 67% 33% 604,949 36% 64% Stephen Lawrie1 FY16 N/A N/A N/A - N/A N/A EXECUTIVE DIRECTORS FY15 N/A N/A N/A 518,572 N/A N/A Robbie Cooke FY16 1,908,192 519,750 2,427,942 - 19,381 37,703 965,250 170,625 3,620,901 2 (Managing Director FY15 1,529,550 412,500 1,942,050 - 18,783 29,433 412,500 438,750 2,841,516 Bill Thorburn FY16 N/A N/A N/A - N/A N/A and CEO) FY15 N/A N/A N/A 33,868 N/A N/A SUB-TOTAL FY16 1,908,192 519,750 2,427,942 - 19,381 37,703 965,250 170,625 3,620,901 Executive Directors FY15 1,529,550 412,500 1,942,050 - 18,783 29,433 412,500 438,750 2,841,516 1 Ceased employment 10 February 2015. 2 Ceased to be in a KMP role 18 July 2014. OTHER KEY MANAGEMENT PERSONNEL (GROUP) Barrie Fletton FY16 550,692 - 550,692 - 19,308 15,736 - - 585,736 TERMS AND CONDITIONS OF EQUITY INSTRUMENTS 3 (COO Wagering) FY15 568,956 93,333 662,289 - 19,506 15,751 46,667 - 744,213 Shares issued under the Group’s incentive plan are subject to a cap of 5% of equity. This is inclusive of shares that Neale O'Connell FY16 771,526 255,000 1,026,526 150,687 19,381 14,861 230,000 - 1,441,455 may be issued in respect of each outstanding offer or grant of shares, options or rights if accepted or exercised 4 under other equity plans. This amount excludes offers made outside of Australia, made under a disclosure (CFO) FY15 717,477 230,000 947,477 - 18,783 13,824 230,000 - 1,210,084 document, or which do not require a disclosure document. Mandy Ross FY16 451,525 120,000 571,525 - 19,381 8,674 120,000 - 719,580 5 (a) Terms and conditions of options and rights (CIO) FY15 218,469 120,000 338,469 - 9,392 4,104 120,000 - 471,965 Sue van der Merwe FY16 401,058 160,000 561,058 - 47,035 11,657 80,000 - 699,750 Terms, conditions and total unissued shares for each grant of options and rights for the previous and current 6 (COO Lotteries) FY15 339,607 146,667 486,274 - 34,547 10,795 73,333 - 604,949 reporting periods are as follows. Stephen Lawrie FY16 ------7 (CIO) FY15 498,828 - 498,828 - 12,522 7,222 - - 518,572 Bill Thorburn FY16 ------8 (COO Lotteries) FY15 29,422 - 29,422 - 3,751 695 - - 33,868 SUB-TOTAL Other Key FY16 2,174,801 535,000 2,709,801 150,687 105,105 50,928 430,000 - 3,446,521 Management Personnel FY15 2,372,759 590,000 2,962,759 - 98,501 52,391 470,000 - 3,583,651
TOTAL FY16 5,507,173 1,054,750 6,561,923 150,687 216,304 88,631 1,395,250 170,625 8,583,420 For personal use only use personal For FY15 5,290,449 1,002,500 6,292,949 - 206,689 81,824 882,500 438,750 7,902,712 Notes
1 Short-term benefits may include amounts paid to superannuation at 5 Executive of a service unit with responsibility for planning, the discretion of the individual. controlling and directing of the Group. Appointed 1 January 2015. 2 Comprises the cost to the Company for relocation expenses. 6 Executive of an operating unit that contributes greater than 25% to 3 Executive of an operating unit that contributes greater than 25% to continuing EBITDA. Appointed 21 July 2014. continuing EBITDA. 7 Ceased employment 10 February 2015. 4 Executive of a service unit with responsibility for planning, 8 Ceased to be in a KMP role 18 July 2014. controlling and directing of the Group.
70 Tatts Group Annual Report 2016 71 Remuneration Tables (CONTINUED)
VALUE PER BALANCE AT OPTION/ START OF GRANTED AS BALANCE AT VESTED AND EXERCISE RIGHT AT NAME YEAR YEAR COMPENSATION EXERCISED1 LAPSED END OF YEAR EXERCISABLE UNVESTED AWARD TYPE GRANT DATE EXPIRY DATE PRICE GRANT DATE DATE EXERCISABLE Robbie Cooke FY16 384,472 390,711 281,089 - 494,094 - 494,094 Performance options 30 November 2007 30 November 2014 $3.99 $1.02 30 November 2010
FY15 341,163 253,383 210,074 - 384,472 - 384,472 REPORT DIRECTORS’ 30 November 20081 30 November 2015 $2.56 $0.33 30 November 2011 Barrie Fletton FY16 36,768 - 25,072 - 11,696 - 11,696 2 Performance rights 30 November 2009 30 November 2016 N/A $1.36 30 November 2012 FY15 61,995 11,696 36,923 - 36,768 - 36,768 30 November 20093 30 November 2016 N/A $1.87 30 November 2012 Neale O'Connell FY16 122,114 57,357 64,470 - 115,001 - 115,001 Performance right 27 October 20112 10 January 2016 N/A $1.26 12 October 2014 FY15 114,470 57,644 50,000 - 122,114 - 122,114 (former Managing 27 October 20112 10 January 2015 N/A $1.81 12 October 2014 Mandy Ross FY16 30,075 29,925 - - 60,000 - 60,000 Director/CE) FY15 - 30,075 - - 30,075 - 30,075 Performance rights 31 October 20144 1 November 2015 N/A $3.49 1 November 2015 Sue van der Merwe FY16 22,963 19,950 4,584 - 38,329 - 38,329 3 November 20154 1 November 2016 N/A $3.99 1 November 2016 FY15 15,938 18,379 11,354 - 22,963 - 22,963 October 20165 November 2016 N/A $4.01 November 2017 Stephen Lawrie2 FY16 ------FY15 70,509 - 46,154 24,355 - - - 1 Options granted with TSR market based vesting conditions. 4 Rights granted under current incentive plan at fair value. Bill Thorburn3 FY16 ------2 Rights granted with TSR market based vesting conditions. 5 Rights granted under current incentive plan at share price value. 3 Rights granted with EPS non-market based vesting conditions. FY15 70,510 - - - 70,510 - 70,510
1 For FY16, upon vesting on 28 October 2015, one ordinary share per right was allocated. Upon exercise of performance options or rights, the holder receives one fully paid ordinary share in the Company. 2 Ceased employment 10 February 2015. Options and rights issued under the current plan, and the currently inactive LTIP, carry no dividend or voting rights. 3 Ceased to be in a KMP role 18 July 2014. They do not entitle holders to participate in issues of shares, except in respect of pro-rata incentive and rights Details of rights vested, exercised and forfeited are in the table below.
issues in the manner specified by the ASX Listing Rules. VESTED BALANCE AT GRANT DATE VESTING DATE PERCENTAGE EXERCISED LAPSED 30 JUNE 2016 The exercise price of options awarded is based on the 30-day weighted average share price up to and including the determination date. 27 October 2011 10 January 2015 96% - 4,950 - (former Managing Director/CE) A B C D REMUNERATION VALUE AT GRANT DATE VALUE AT VALUE AT 3 November 2014 1 November 2015 100% 150,000 - - CONSISTING OF RIGHTS ISSUE INCENTIVE EXERCISE DATE LAPSE DATE FY16 % $ $ $ 3 November 2014 1 November 2015 100% 360,314 - - Robbie Cooke 27% 965,250 1,087,814 - OPTIONS Barrie Fletton 0% - 97,029 - In FY16, no performance options were exercised and shares issued (FY15: 947,800). No performance options were Neale O'Connell 16% 230,000 249,499 - granted. Non-executive Directors are not entitled to receive performance options. Mandy Ross 17% 120,000 - - BALANCE AT Sue van der Merwe 11% 80,000 17,740 - START OF GRANTED AS BALANCE AT VESTED AND NAME YEAR YEAR COMPENSATION EXERCISED1 LAPSED END OF YEAR EXERCISABLE UNVESTED A The percentage of the value of remuneration consisting of rights, based on the value of rights expensed during the current year. Robbie Cooke FY16 ------B The accounting and/or cash value at grant date of rights granted during or in respect of the year as part of remuneration. FY15 ------C The value at exercise date of options and rights that were granted as part of remuneration and were exercised during the year, being the intrinsic value of the rights at that date. Barrie Fletton FY16 ------D The value—determined at lapse date—of rights that were granted as part of remuneration and that lapsed during the year because a vesting FY15 344,257 - 239,600 104,657 - - - condition was not satisfied. The value is determined as though all conditions were satisfied. Neale O'Connell FY16 ------RIGHTS FY15 25,927 - - 25,927 - - - Of the 510,314 rights that vested during FY16 (FY15: 757,252), all were exercised. No consideration is payable on the Mandy Ross FY16 ------exercise of rights. During the same period, 4,950 rights were forfeited (FY15: 25,071). FY15 ------
Non-executive Directors are not entitled to receive performance rights. Sue van der Merwe FY16 ------For personal use only use personal For Unissued ordinary shares in the Company under performance rights at the date of this report are shown in the FY15 20,219 - - 20,219 - - - table below. Stephen Lawrie1 FY16 ------FY15 349,679 - - 102,279 247,400 247,400 - AWARD TYPE GRANT DATE EXPIRY DATE EXERCISE PRICE NUMBER UNDER RIGHTS Bill Thorburn2 FY16 ------Performance right 3 November 2015 1 November 2016 N/A 150,000 FY15 316,150 - - 100,000 216,150 216,150 - Performance right 3 November 2015 1 November 2016 N/A 350,971 1 Ceased employment 10 February 2015. Total 500,971 2 Ceased to be in a KMP role 18 July 2014.
72 Tatts Group Annual Report 2016 73 Remuneration Tables (CONTINUED)
Details of options vested, exercised and forfeited are in the table below. RECONCILIATION OF OPTIONS AND RIGHTS
VESTED BALANCE AT MAXIMUM TOTAL GRANT DATE VESTING DATE PERCENTAGE EXERCISED LAPSED 30 JUNE 2016 MINIMUM TOTAL VALUE OF FINANCIAL YEAR FINANCIAL VALUE OF OPTIONS/
30 November 2007 30 May 2012 100% - 861,371 - GRANTED OR YEARS IN WHICH OPTIONS/ RIGHTS GRANT REPORT DIRECTORS’ IN RESPECT OF OPTIONS/ RIGHTS RIGHTS GRANT YET TO VEST 30 November 2008 30 May 2012 100% 947,800 - - NAME FINANCIAL YEAR VESTED % FORFEITED % MAY VEST YET TO VEST $ Robbie Cooke 2016 - - 2017 Nil 965,250 TESTING OF TOTAL SHAREHOLDER RETURN 2015 - - 2016 Nil 900,000 TSR 50TH PERCENTILE INDEX 2014 100% - 2015 Nil - TATTS GROUP LIMITED VERSUS ASX PEER GROUP 2013 100% - 2014 Nil - (30 NOVEMBER 2006 INDEX = 100) Barrie Fletton 2016 - - 2017 Nil -