2013 Annual Report
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27 September, 2013 2013 ANNUAL REPORT Attached is a copy of the Company’s Annual report for the year ended 30 June, 2013, which will be dispatched to shareholders today. The Company’s Annual Report is available for download from the Company’s website at www.tattsgroup.com/investors/agm. Contact: Giovanni Rizzo – General Manager, Investor Relations (07) 3877 1002 Tatts Group Limited ABN 19 108 686 040 Be part of it Annual Report 2013 The Group employs more than 3,000 people across all states and territories of Australia, and in the United Kingdom. Annual Report 2013 1 Tatts Group – Be part of it • Global leader in lotteries and lottery systems • Major wagering and sports betting operator • Expert gaming and technical solutions provider Contents Key Highlights 2 Chairman’s Report 4 Managing Director’s Report 6 Our Track Record 16 Our Community and Our Environment 18 Our Board of Directors 20 Our People 22 Corporate Governance Statement 25 Directors’ Report (incorporating the Remuneration Report) 32 Auditor’s independence declaration 56 Financial statements 57 Notes to the consolidated financial statements 62 Directors’ declaration 136 Independent auditor’s report 137 Shareholder information 139 Corporate directory 143 Glossary of terms IBC Tatts Group Limited ABN 19 108 686 040 2 Tatts Group Limited Key Highlights Online 8.2% $2.01b of total lottery record sales now from lotteries online channels revenue $294.6m 20.2% record of wagering lotteries sales from EBITDA online channels 39 Over 900,000 record customers lotteries jackpot signed-up to sequence at Tatts.com or above $427m $15 million acquisition of SA Lotteries management 214 rights new lottery millionaires $1.25b for the year paid in lottery taxes Wagering revenue up Improved win rate on tote and fixed price betting Tatts Group Limited –5.2 Annual Report %2013 // 3 Annual Report 2013 3 FY13 FY12 Change GROUP $million $million on pcp Revenue 2,948.8 2,656.9 11.0% +11.0% EBITDA 490.2 415.6 17.9% REVENUE Depreciation & Amortisation (84.1) (91.0) (7.6%) Revenue from Net Interest (103.0) (99.3) 3.8% continuing Taxation (75.7) (63.8) 18.5% operations excludes Profit from Continuing 227.4 161.5 40.8% Operations Pokies revenue of Profit from Discontinuing 19.9 157.6 (87.4%) $167.1 million Operations Net Profit after Tax 247.3 319.1 (22.5%) FY13 FY12 Change LOTTERIES $million $million on pcp +17.9% Revenue 2,008.6 1,767.5 13.6% EBITDA EBITDA 294.6 223.8 31.6% Improved EBITDA EBIT 269.5 202.6 33.0% margins for both lotteries and wagering from FY13 FY12 Change benefits of scale WAGERING $million $million on pcp Revenue 655.7 623.3 5.2% EBITDA 173.9 144.1 20.7% EBIT 155.6 124.1 25.4% +40.8% PROFIT FROM CONTINUING OPERATIONS Wagering growth in online EBIT up 21.5% wagering sales 25.4% 4 Tatts Group Limited Chairman’s Report In a snapshot – a year of change We are undertaking this repositioning in a way that remains true to our corporate DNA with a single minded focus on driving long term The 2013 financial year was one of transition at Tatts – with many sustainable value for our shareholders. changes being made to better position the Group for future growth. The year saw us recruit and install a new CEO who not only brings Significant organisational change has occurred in parallel with these new experience from the online industry, but who also represents initiatives. In addition to recruiting a new CEO, we welcomed the generational change to better address the tech-savvy customers appointment of a new CFO from our internal team, relocated our head of the future. office to Queensland, and refined our organisational structure to better support the scaling up of our online and marketing capabilities. We set in motion actions designed to: Operationally the highlight in the year was winning the management • lift our product innovation; rights for the SA Lotteries, which pleasingly has delivered to our • expand our customer base through more effective online marketing expectations. This success was tempered by the well-flagged and activities; smoothly executed exit from our Victorian pokies business, following • build closer partnerships with our key business partners and the expiry of our licence after 20 successful years of operation. stakeholders; • accelerate the development of a best of breed online offering; and Outstanding results delivered again • develop a new retail image and brand proposition. It is a privilege to again be able to report that the Group’s financial results for 2013 have been outstanding. The team has lifted after tax profits from continuing operations1 by an impressive 40.8% to $227.42 million from revenues of $2.95 billion (up 11.0%). This after tax result increases to $247.3 million if profits from our discontinued pokies operations are included. Of course, net profit after tax compared to last year declined by 22.5% due to these discontinued pokies operations only contributing for 46 days in FY13 compared to FY12’s full-year of contribution. Our lotteries operation has been the standout division with revenue growth of 13.6% and EBIT growth of 33.0%. Excluding the results from SA Lotteries, integrated partway through the year, our lotteries EBIT grew by 21.8%. The main drivers of this out-performance were: • the strong run of jackpots which continued into the second-half of the year; • our continued investment in our retail franchise which remains the cornerstone of our distribution network; • game changes to Powerball which were well received by our customers; and • the continued growth of our business through online sales. Our wagering operations also had a great year with revenues up 5.2%. This performance flowed through to very strong EBITDA and EBIT growth of 20.7% and 25.4% respectively. For the first time, we saw sales from fixed price betting exceed the $1 billion mark. The contribution from TOTE Tasmania (which was acquired in March 2012) pleasingly met our acquisition targets and now achieves improved win rates consistent with those accomplished elsewhere in our operation. 1. Excluding the Tatts Pokies operation which ceased operating at midnight on 15 August 2012. 2. This result includes a one-off tax benefit of $16.2 million in relation to the Golden Casket tax claim following a settlement reached with the ATO over the deductibility of a payment made by Tatts relating to the acquisition of Golden Casket. Annual Report 2013 5 Strong returns for shareholders “…positioning the Group As has been the case in prior years we continue to maintain a high dividend payout ratio for the 2013 financial year through the payment of for future growth” a dividend of 15.5 cents per share, representing 95.1% of our profits from continuing operations. We have retained the Dividend Reinvestment Plan this year offering our shareholders a 1.5% discount. SA Lotteries a success Total shareholder return for FY13 from a combination of dividends and Importantly for our shareholders, the $427 million paid for the exclusive share price growth has been 27.8%, outperforming the ASX200 by 4.9% management rights for the SA Lotteries has already proven a successful over the period. investment. With that operation now fully integrated with our other lotteries businesses, an additional $24.8 million in EBITDA was Exceptional team contributed to the Group result for the financial year from just over six months of operation. Great results such as those delivered in the year can only be produced from the dedicated efforts of engaged, enthusiastic and energised As has been the case with our previous acquisition activities, the SA teams. We are indeed fortunate that Tatts’ talent pool ticks all these Lotteries integration was executed on time and within budget by a Tatts boxes and I take this opportunity to thank the entire Tatts team for their team that has a demonstrated and exceptional integration track record. excellent efforts in driving the year’s result. Government, industry and community the winners Diversity in our business remains a significant area of focus and we have in place active programs aimed at improving diversity balance As a long established Australian business with a proud history of at all levels within our organisation. Whilst this is a continuing journey, supporting the communities in which we operate, Tatts continues to we are making good progress with women comprising over 40% of the make significant community contributions from wagering and lotteries total Tatts team and 22% of our executive management team. taxes. In the 2013 financial year, we contributed a total of $1.2 billion to state governments (excluding corporate taxes). The most significant Legal actions in progress contributions being: We are currently engaged in two separate legal actions against the • Queensland - $299.2 million State of Victoria. The first is for compensation on expiry of our Gaming • New South Wales - $368.0 million Operator Licence and is expected to be heard in the Supreme Court • Victoria - $501.6 million of Victoria in February 2014. The other action relates to the amount of a Health Benefit Levy imposed Additionally, and as mentioned above, $427 million was paid to the State on our pokies operations for the 46 days of operations in FY13. We were of South Australia for the SA Lotteries exclusive management rights. successful in this action in a decision of the Supreme Court of Victoria We are also a major contributor to the racing industry in Australia in June; however the State has appealed the decision. with payments of $183.5 million (excluding GST) in the form of product It is uncertain when these matters will come to a final conclusion.