PASSION. THRILLS. ENTERTAINMENT Concise Annual Report 2014 We create entertainment At the front With the financials 2 Financial performance 24 Corporate governance statement experiences where the passion, 3 Financial benefits to stakeholders 38 Directors’ report 4 Chairman’s message 50 Remuneration report thrills and enjoyment of the 6 Chief Executive Officer’s message 66 Income statement Australian way of life comes alive. 8 Wagering business 67 Balance sheet 10 Media and International business 68 Cash flow statement 12 Gaming Services business 69 Statement of changes in equity At the same time, we put back into 14 Keno business 70 Notes to the concise financial statements 16 Responsible gambling 71 Directors’ declaration our communities and take our 17 People 72 Independent auditor’s report social responsibilities seriously. 18 Environment 73 Five year review 19 Community 20 Board of Directors At the back We want you to love the game 22 Senior Executive Leadership Team 74 Shareholder information like we do. 76 Online shareholder services 77 Company directory 77 Key dates About the Annual Report Tabcorp’s Annual Report consists of two documents – the Concise Annual Report (which incorporates the concise financial statements) and the full financial report. The concise financial statements included Notice of meeting in the Concise Annual Report comprise extracts from the full financial The Annual General Meeting of Tabcorp report and are derived from the full financial report. The Concise Annual Report cannot be expected to provide as full an understanding Holdings Limited will be held at the of Tabcorp’s performance, financial position and investing activities as Grand Ballroom, Shangri-La Hotel, 176 provided by the full financial report. A copy of Tabcorp’s financial Cumberland Street, The Rocks, Sydney, report is available, free of charge, on request and can be accessed New South Wales on Tuesday 28 October via the Company’s website at www.tabcorp.com.au. 2014 at 10am (AEDT). Tabcorp Holdings Limited ABN 66 063 780 709 Tabcorp is a leading Tabcorp is well placed Australian gambling to drive profitable growth entertainment company Key achievements in the year with a focus on > Diversified across four businesses: > Strengthened our portfolio of long-dated > Integrating digital offering with Wagering, Media and International, licences by finalising the extension of the TAB retail network Gaming Services and Keno the Queensland Keno Licence to 2047 > Completing the acquisition of ACTTAB and the New South Wales retail wagering > Holding secure long-term licences exclusivity to 2033 > Expanding co-mingling and the in Australia’s most attractive markets export of Australasian racing Agreed to acquire ACTTAB, subject > Possessing a portfolio of iconic Australian > to regulatory approvals > Negotiating media rights brands with market-leading positions Refinanced bank facilities and repaid > Expanding TGS through New South Wales > Operating a unique multi-product, > debt maturities multi-channel model > Expanding Keno products and Established a new senior executive introducing pooling of jackpots > A top 100 public company listed on > leadership structure to support the the Australian Securities Exchange > Increasing target dividend payout focus on the Wagering business and ratio to 90% of FY15 NPAT > Recognised as a global industry the Gaming and Keno business leader in responsible gambling > Achieving our targeted Return on Invested Capital of 14% following the integration of ACTTAB Tabcorp Concise Annual Report 2014 1 Financial performance Net profit after tax Revenue2 > Statutory net profit after tax (NPAT) of $129.9 million, up 2.6% $ million $ million including: 129.9 126.6 – NPAT from continuing operations of $149.4 million, up 1.2% 2,039.8 2,003.2 – Loss after tax from discontinued operations of $19.5 million1 – NPAT from continuing operations before $8.5 million of FY13 significant items was up 7.4% > Revenues from continuing operations of $2,039.8 million, up 1.8% > Earnings before interest, tax, depreciation and amortisation FY13 FY14 FY13 FY14 (EBITDA) before significant items from continuing operations of $486.1, up 4.8% EBITDA before significant items2,3 Dividends per share > Dividends totalled 16 cents per share fully franked representing $ million Cents per share (fully franked) a payout ratio of 81% of NPAT 19 16 486.1 463.9 FY13 FY14 FY13 FY14 2 Tabcorp Concise Annual Report 2014 Financial benefits to stakeholders Revenue by business2,5 EBIT by business3,5 $ million $ million > Taxes on gambling paid $439.3 million > Returns to the racing industry of $735.0 million: 6 – Victorian racing industry received $342.0 million – New South Wales racing industry received $246.2 million – Race field fees of $73.3 million – Broadcast rights and international contributions of $73.5 million Wagering Gaming Services Wagering Gaming Services $1,574.7m $98.1m $175.4m $39.7m > Income taxes paid and payable of $66.7 million Media and International Keno Media and International Keno $220.4m $203.9m $58.7m $51.7m > Voluntary contributions of $1 million to support community not-for-profit organisations FY14 FY13 Change From continuing operations $million $million % Since formation 20 years ago, Tabcorp has Revenue 2,039.8 2,003.2 1.8 contributed $8 billion to support the Victorian Taxes, levies, commission and fees (1,120.3) (1,097.2) 2.1 and New South Wales racing industries Operating expenses (433.4) (414.2) 4.6 Depreciation and amortisation (164.4) (151.1) 8.8 Impairment4 - (18.6) (100) EBIT 321.7 322.1 (0.1) NPAT from continuing operations 149.4 147.6 1.2 NPAT (including discontinued operations) 129.9 126.6 2.6 Notes 1. Represents the Victorian Health Benefit Levy expense which relates to the former Tabaret Gaming business which is reported as a discontinued operation. 2. Refers to continuing operations. 3. EBITDA is non-IFRS financial information. 4. Victorian Keno Licence impairment in FY13. 5. Business results do not aggregate to Group total due to intercompany eliminations between Wagering and Media and International businesses, and unallocated items. 6. Excludes the impact of the Victorian racing industry’s share of the Health Benefit Levy of $8.9 million. Tabcorp Concise Annual Report 2014 3 Chairman’s message It gives me great pleasure to present significant items was $149.4 million, the 2014 Tabcorp Annual Report. up 7.4%. Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) In August 2014, we marked the 20th from continuing operations before anniversary of Tabcorp. Throughout our significant items was $486.1 million, 20 years of operation, Tabcorp has created up 4.8%. exciting entertainment experiences for millions of customers. Tabcorp has also The Group’s performance highlights the been a substantial contributor to the benefits of our diversification across four community and a reliable and trusted businesses, with market-leading brands operator of gambling licences. and a unique multi-product, multi-channel distribution model. The performance Today, Tabcorp operates four businesses, also demonstrates the resilience of Wagering, Media and International, Gaming our businesses, given the subdued Services and Keno, and is the leader in each trading environment over the period. of these markets. During the year under review our portfolio of long-dated licences The Company announced a fully franked was strengthened with the extension of our final dividend of 8 cents per share, taking Queensland Keno Licence to 2047 and NSW the full FY14 year dividend to 16 cents per retail wagering exclusivity to 2033. These share. This represented 81% of NPAT from extensions have removed some of the risk continuing operations before significant associated with our businesses and allow us items, and was consistent with previous to invest with confidence for the longer term. guidance to the market. We have also announced that our target dividend payout In July 2014, we entered into an agreement ratio will increase to 90% of NPAT for FY15. to acquire ACTTAB. This is a smaller acquisition which is a natural fit for our Wagering is the largest of Tabcorp’s business and is fully funded from existing businesses, accounting for 58% of Group The Group’s performance highlights resources. The ACTTAB acquisition provides EBITDA. It was pleasing that this business additional long-dated licences with low tax delivered a strong performance for FY14 the benefits of our diversification across and product fee regimes that complement and continues to grow in a competitive our existing Wagering, Keno and Trackside market. The strength of our brands and four businesses, with market-leading businesses. This acquisition, which remains the combination of the leading digital offer subject to regulatory approvals, will further and exclusive retail channels differentiate brands and a unique multi-product, strengthen Tabcorp’s position as the leader Tabcorp from online wagering operators. in Australian wagering. We have repositioned our Wagering multi-channel distribution model. business in recent years to capture Financial highlights opportunities in fixed odds and digital wagering. Both fixed odds and digital Tabcorp reported Net Profit After Tax (NPAT) delivered strong growth in the year of $129.9 million for FY14, which was up and we continue to lead the market 2.6% on the prior corresponding period1. in these segments. NPAT from continuing operations before 4 Tabcorp Concise Annual Report 2014 Our Media and International business Tabcorp and responsible gambling Legal proceedings Focus on investing for the future again delivered a positive earnings result, Tabcorp places the highest priority on Tabcorp has lodged an appeal with the Court Tabcorp stands today as a leading Australian despite incurring one-off charges for operating its gambling licences with of Appeal against a judgment of the Supreme gambling entertainment company, with restructuring of the business to better integrity and accountability. A measure Court of Victoria handed down on 26 June a deep customer base, a well-diversified position it for the future.