Annual Report 2016 Contents
6 Operating and Financial Review
28 Governance
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7
8
FY16 strategic achievements
28 Board of Directors
FY17 priorities
30 Executives
Financial performance
32 Corporate governance
10 Financial benefits to stakeholders
12 Chairman’s and Managing
Director’s message
14 Wagering and Media business
18 Gaming Services business
20 Keno business
34 Directors’ Report
45 Remuneration Report
73 Financial Report
22 Sustainability
22 Responsible gambling
24 Community
26 People
114 Independent auditor’s report
At the back
116 Five year review
117 Major announcements
118 Shareholder information
120 Online shareholder services
121 Company directory
121 Key dates
Notice of meeting
The Annual General Meeting of Tabcorp Holdings Limited will be held at The Grand Ballroom,
The Westin Sydney, 1 Martin Place, Sydney, on Tuesday, 25 October 2016 at 10.00am (AEDT).
Elect not to receive a hard copy
Shareholders can elect not to receive a hard copy Annual Report by updating their
communications preferences with the share registry – go online at linkmarketservices.com.au
or call 1300 665 661.
About the Annual Report
Tabcorp has evolved its Annual Report into one document. Previously it consisted of two documents – the Concise Annual
Report and the Financial Report. The move to a single document enables Tabcorp to publish its Annual Report earlier, on
the day it releases its full year results, therefore providing information to stakeholders in a more timely and efficient manner.
Shareholders who previously elected to receive a Concise Annual Report or the Full Annual Report now receive the one Annual
Report document. A copy of the Annual Report is available, free of charge, on request. Current and past Annual Reports are
available from the Company’s website at www.tabcorp.com.au.
Sustainability Report
Tabcorp will release a separate Sustainability Report later this year. Therefore, detailed sustainability related disclosures have
been transferred from the Annual Report and will be published in the Sustainability Report.
Tabcorp Holdings Limited ABN 66 063 780 709
Tabcorp is a top 100 ASX listed company,
and one of the world’s largest publicly listed
gambling companies.
It is the biggest financial contributor to the
Australian racing industry.
Through our strong connections with our industry
partners, customers, community groups, and
employees, we create sustainable value and
benefits that are shared with our stakeholders.
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“No other organisation supports the industry
to the same extent Tabcorp does.”
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Tabcorp creates winning
partnerships with
the racing industry
In March 2016, Tabcorp and
the Victoria Racing Club (VRC)
announced an eight-year extension
of their long-standing relationship.
The partnership is important to the
long term growth of the VRC, the
biggest member-based race club
in the world.
VRC Chief Executive Officer, Simon
Love, understands the value of a
winning partnership.
“As an organisation, we are focused
solely on how we can create the best
experience and atmosphere for race-
goers. Our partnership with Tabcorp
helps support us as we evolve as a
premium entertainment experience
and venue,” Simon said.
Simon believes the partnership with
Tabcorp is of significance not only for
the organisation, but for the industry
at large.
“Tabcorp has been integral to the
development of racing in Victoria.
When you look at the highly
competitive wagering landscape we
operate within, no other organisation
supports the industry to the same
extent Tabcorp does,” Simon said.
“The digital age is driving our industry
to evolve very quickly. Our team
recognises the need to find new
ways to innovate and upgrade to
ensure key calendar events such as
the Melbourne Cup Carnival and our
other race days remain fresh and
vibrant. Our partnership with Tabcorp
is critical to our continued evolution.
“Iconic events such as the Emirates
Melbourne Cup are a part of the
fabric and culture of being Australian.
Whether people attend the races in
a corporate suite, or have general
admission to the lawn, our aim is to
deliver a memorable, premium quality
experience that knocks other leisure
pursuits out of the park. Tabcorp
not only helps us to create this
experience, but enables us
to build on it.”
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Racing at VRC’s Flemington Racecourse during the 2015 Melbourne Cup Carnival.
Tabcorp supports jockeys with
three-year partnership
As part of the agreement, Tabcorp
was an official partner for National
Jockeys Celebration Day in August
2015 and the National Jockeys Trust
T20 Cricket match in January 2016.
Ms Goring’s son joined the Jockey’s
Team at this year’s match in honor of
his father. “The opportunity for him
to participate in the match and play
against the All Stars Team means a
lot to our family in remembrance of
Mark and other jockeys whom we
have lost,” she said. “On behalf of
myself and my children, I want to
pass on a massive thanks to Tabcorp
for its support of the National
Jockey’s Trust.”
“There are times when badly injured
riders and families of riders we have
lost need financial support,” he said.
“Recently, we received a call from
a female jockey who was seriously
injured in a fall more than 20 years
ago, and was in need of financial
assistance. The Trust was able to
assist her and her family through a
difficult time. We would not be able
to provide the same level of support
without Tabcorp’s contribution.”
Emma Goring, whose husband,
Mark died after a race fall in 2003,
said the National Jockey’s Trust
continues to play an integral role in
her family’s life following the accident.
“The Trust was established a year
after Mark’s fall, and the assistance
we’ve received from them over the
past 12 years has helped our family
immensely,” she said.
In 2015, Tabcorp announced a three-
year partnership with the National
Jockeys Trust (NJT), which includes
a $120,000 donation.
Over the past 12 years, the NJT has
proudly supported those who show
immense bravery every time they
compete in a race. During this time,
the NJT has provided financial relief
to more than 260 jockeys, apprentice
jockeys and their families when
faced with serious injury, illness
and even death.
NJT Chairman, Paul Innes AO said
as Australia’s largest wagering
operator, Tabcorp is an important
contributor to the racing industry.
“We’re very grateful for Tabcorp’s
partnership with the National
Jockeys Trust as it helps us provide
meaningful support to jockeys and
their families,” he said.
Mr Innes said jockeys risk severe
injury or even death on a daily basis
doing the job they love.
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Tabcorp is the most substantial contributor
to the Australian racing industry, and returned
$786.9 million in the 2016 financial year.
FY16 strategic achievements
ACTTAB integration completed successfully
Secured five-year agreement for Victorian thoroughbred media rights
Sky Thoroughbred Central commenced high definition broadcasting
of Australian racing
Investment in technology platforms and digital development capabilities
Sun Bets, a new online wagering and gaming business, established
in the UK
NSW Keno licence extended to 2050
Significant investment in risk and compliance capability
Federal Government response to Illegal Offshore Wagering
Review welcomed
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FY17 priorities
Release new TAB app in 1Q17
Develop new wagering products and enhance existing offering
Increase digital integration in TAB retail
Launch Sun Bets in the UK
Drive TGS venue performance and continue expansion
Pool Keno jackpots with Queensland, subject to legislative approval
Launch Keno in-venue digital solution and new game format,
subject to regulatory approvals
Achieve our 14% target return on invested capital
Ensure the highest levels of regulatory compliance and work
to resolve the matters raised by AUSTRAC
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Financial performance
Final dividend of 12 cents per share, taking full year
ordinary dividends to 24 cents per share fully franked,
up 20.0% and in line with the dividend payout policy (i).
Statutory NPAT of $169.7 million, down 49.3%:
– NPAT before significant items (ii) of $185.9 million,
up 8.5%.
Earnings before interest, tax, depreciation and
amortisation (EBITDA) before significant items (ii)
of $515.8 million, up 1.5%.
Operating expenses of $468.7 million, up 2.2%
(excluding significant items(ii)).
Revenues of $2,188.7 million, up 1.5%.
Statutory EPS of 20.4 cents per share, down 51.9%:
– EPS before significant items (ii) of 22.4 cents per
share, up 3.1%.
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Review of results
The financial results of the Group
for the financial year ended 30
June 2016 relate to the Group’s
operations, which comprise its three
businesses of Wagering and Media,
Gaming Services, and Keno.
Reported net profit after income
tax (NPAT) of the Group for the
financial year was 49.3% below
the previous financial year. This
year’s result was adversely impacted
by significant items after tax of
$16.2 million(ii), compared to one-
off tax benefits of $163.2 million
in the prior year. Significant items
comprised costs relating to civil
proceedings commenced by
AUSTRAC and the establishment
of a new online wagering and
gaming business in the UK.
The Group’s basic earnings per
share (EPS) for the financial year
were 20.4 cents, down 51.9%
on the previous year.
Before significant items, NPAT was
8.5% above the previous year, and
EPS was 3.1% above the prior year.
Revenue was 1.5% above the
previous financial year. Shareholders’
funds as at the end of the financial
year totalled $1,688.1 million, which
was 0.1% below the previous
financial year.
The Group enhanced its strategic
position and delivered improved
financial performance in FY16,
resulting in a 20% lift in dividend per
share to shareholders. Investment
was focused on strengthening the
business and positioning for future
growth, while also delivering strong
growth in shareholder returns.
The Wagering and Media business
continued to grow in FY16, benefiting
from TAB’s multi-channel distribution
model and the integration with the
Sky media business. Momentum
improved across the year, with trends
in the second half stronger than the
first half.
The TGS business continued to
deliver improved performance for it’s
venues, expanded it’s NSW footprint,
and is well positioned to pursue
strategic initiatives such as the
proposed acquisition of INTECQ.
For the year ended 30 June
FY16
$m
FY15
$m
Change
%
Revenue
2,188.7
2,155.5
Taxes, levies, commissions and fees
(1,204.2)
(1,188.8)
Operating expenses
Depreciation and amortisation
EBIT
NPAT
(504.9)
(178.6)
301.0
169.7
(458.6)
(173.5)
334.6
334.5
1.5
1.3
10.1
3.0
(10.0)
(49.3)
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The Keno business returned
to growth, as customers
responded positively to the brand
transformation, and the pooling of
jackpots between NSW, Victoria and,
recently, the ACT. The Group also
secured the extension of the NSW
Keno licence to 2050.
An enhanced anti-money laundering/
counter-terrorism financing (AML/
CTF) program was adopted effective
from 31 December 2015, and the
Group has invested substantially in
its risk and compliance functions.
Recent initiatives such as the
proposed acquisition of INTECQ
Limited and the launch of Sun Bets
further strengthen and diversify the
Group’s operations.
Refer to pages 16 to 20 for
information about the financial
and operational performance
of each business unit within
the Group.
Dividends
A final dividend of 12 cents per
share has been announced. The
final dividend will be fully franked
and payable on 20 September
2016 to shareholders registered
at 11 August 2016. The ex-dividend
date is 10 August 2016.
The interim and final dividends
payable in respect of the full year
totalled 24 cents per share
fully franked.
The FY17 dividend target is the
greater of 90% of NPAT before
significant items and amortisation of
the Victorian Wagering and Betting
Licence or 24 cents per share.
Tabcorp’s Dividend Reinvestment
Plan (DRP) will operate in respect of
this final dividend, with no discount
or underwriting applicable. The same
DRP arrangements operated in
respect of the interim dividend
paid on 16 March 2016.
The table below shows the dividends
paid, declared or recommended by
the Company since the end of the
previous financial year.
Further information regarding
dividends may be found in note
A3 to the Financial Report.
Description
2016 final dividend
2016 interim dividend
2015 final dividend
Amount per share
fully franked
12 cents
12 cents
10 cents
Announcement
date
4 August 2016
4 February 2016
13 August 2015
Record
date
11 August 2016
11 February 2016
20 August 2015
Payment
date
20 September 2016
16 March 2016
24 September 2015
Total
$99.8m
$99.8m
$82.9m
Net profit after tax(ii)
$m
Revenue (iii)
$m
EBITDA before significant items(iii) (iv)
$m
Dividends per share (v)
Cents per share (fully franked)
FY16
169.7
FY16
2,188.7
FY16
515.8
FY16
24
FY15
334.5
FY15
2,155.5
FY15
508.1
FY15
20
30
FY14
129.9
FY14
2,039.8
FY14
486.1
FY14
16
(i) 90% of NPAT before significant items and amortisation of the Victorian Wagering and Betting Licence.
(ii) Significant items (after tax) in FY16 comprised costs relating to the establishment of a new online wagering and gaming business in the UK ($14.4m), AUSTRAC civil proceedings ($13.6m),
partially offset by income tax benefits ($11.8m) relating to the NSW retail exclusivity payment and prior year research and development claims. Significant items (after tax) in FY15
totalled $163.2 million relating to income tax benefits.
(iii) Refers to continuing operations.
(iv) EBITDA is non-IFRS financial information.
(v) FY15 dividends included a special dividend of 30 cents per share paid in March 2015.
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Financial benefits to stakeholders
Taxes on gambling paid $428.6 million.
Returns to the racing industry of $786.9 million, up 1.8%:
• Victorian racing industry received $331.2 million.
• NSW racing industry received $290.8 million.
• Race field fees of $94.8 million.
• Broadcast rights and international contributions
of $70.1 million.
Income taxes paid and payable of $61.4 million.
Tabcorp’s businesses generated more than $1.2 billion
in gambling taxes and racing industry funding in
FY16, highlighting the value that Tabcorp’s operations
provide to stakeholders.
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Supporting our
community and
industry with the
Teal Pants Initiative
An innovative fundraiser for ovarian
cancer research has expanded
rapidly with support from Tabcorp.
The Teal Pants Initiative, founded in
2014, sees female harness drivers
race in teal pants to raise funds for
the Women’s Cancer Foundation,
which funds ovarian cancer research.
Tabcorp and harness racing clubs
in Victoria, NSW and the ACT
supported the promotion by donating
a combined $400 for each female
winner throughout the race period
from 1 February to 12 March
this year.
With 184 female winners over the
campaign (multiple race winners
included), Tabcorp donated $36,800
of a combined $73,600 raised with
the harness racing bodies.
Tabcorp also helped raise
awareness of the promotion through
advertisements on Sky Racing.
Kerri Coghlan, Chair of the Women’s
Cancer Foundation, welcomed
Tabcorp’s participation. “It’s been
so good to have a corporate as
large as Tabcorp back the initiative,”
Ms Coghlan said. “This demonstrates
the business takes philanthropy and
community engagement seriously
and is willing to contribute to an
extremely worthy cause.”
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“It’s been so good to have a corporate as large
as Tabcorp back the initiative.”
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Chairman’s and Managing
Director’s message
Tabcorp is an Australian gambling
entertainment company. We are a
leader in the Australian market and
one of the world’s largest publicly
listed gambling companies. We are
one of the few integrated gambling
and entertainment companies in the
world through our retail, our digital
and our Sky media platforms. We
have a rich racing heritage built on
strong partnerships and integrity.
This has been an important year
for Tabcorp.
In a volatile environment Tabcorp
made significant progress, both in
terms of our commitment to operating
to the highest standards and in terms
of strategic achievements.
We hold an important role in a
large, heavily regulated industry
which is enjoyed by over 70% of the
adult population. We have millions
of customers and a presence in
4,000 venues from TAB agencies,
to clubs and hotels. And we are
a large employer. Your board and
management are conscious of
our responsibilities, not just to
our customers, colleagues and
shareholders, but to the broader
community.
Taxes are just one part of the
contribution we make to communities.
In FY16 we paid close to $500 million
in gambling taxes and income taxes.
This year we faced up to some
challenges to our values. We are
committed to achieving the highest
standards of regulatory compliance
and in December adopted a new
joint anti-money laundering/counter-
terrorism financing (AML/CTF) program.
Tabcorp has continued to take steps
to promote responsible gambling,
provide the highest levels of customer
care and ensure that value created
is shared with the community. These
measures are core to Tabcorp’s
future as a sustainable gambling-led
company as we work to be the most
respected and most trusted by our
customers, shareholders, regulatory
authorities, partners and governments.
Financial performance
and shareholder returns
Over the last year, we enhanced
the strategic position of our
businesses, delivered improved
financial performance and invested
in a number of attractive growth
opportunities.
Tabcorp reported Net Profit (After Tax)
of $169.7 million, down 49.3% on
the prior corresponding period (pcp).
However, the reported performance
was impacted by significant items after
tax of $16.2 million and one-off tax
benefits of $163.2 million in the pcp.
NPAT before significant items was
$185.9 million, up 8.5%.
Group revenues were
$2,188.7 million, up 1.5%.
We announced a fully-franked, full
year ordinary dividend of 24 cents
per share, up 20.0% on the pcp,
with a final dividend of 12 cents per
share. This reflects our commitment
to delivering strong, sustainable
shareholder returns.
Advancing our
strategic agenda
We are building a profitable and
resilient business for our shareholders,
our partners and our employees, with
a focus on developing our three core
businesses: Wagering and Media,
Keno and Gaming Services.
The Wagering and Media business
is the biggest contributor to the
group’s earnings. During the year, the
integration of the ACT TAB business
was successfully completed and is
now an important part of our portfolio
of long-dated and attractive licences.
Our racing broadcaster, Sky Racing
secured media rights for Victorian
thoroughbred racing. As a result, TAB
account holders have digital access
to all Australian racing vision, which
is unique to Tabcorp and differentiates
us from our competitors.
Keno returned to growth during the
year, benefiting from a number of
initiatives which have enhanced the
customer experience. These included
a relaunch of the brand and the
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Paula Dwyer
Chairman
David Attenborough
Managing Director and
Chief Executive Officer
commencement of jackpot pooling
between NSW and Victoria. The ACT’s
Keno pools also joined the jackpot
pools in July 2016.
The New South Wales Government
extended our exclusive NSW Keno
licence until 2050. The licence
enhancements include digital play
in-venue, subject to regulatory
approvals. The extension adds
longevity to Tabcorp’s portfolio of
Keno licences and approvals, with
the Victorian licence expiring in 2022,
Queensland in 2047 and ACT in 2064.
Our Gaming Services business, TGS,
has continued to grow following our
expansion into NSW. Six new venues
were signed this year and we now
have 800 electronic gaming machines
under contract in NSW, in addition
to more than 8,800 in Victoria.
Internationally, after gaining the
necessary licences and approvals,
we have launched Sun Bets. This is
a new online wagering and gaming
business in the United Kingdom and
Ireland, which has been established
in partnership with News UK.
A champion of racing
and community funding
Tabcorp has its origins in racing and
we are the largest supporter of the
Australian racing industry.
Almost 70% of the revenue
generated by Tabcorp’s businesses
is returned to the racing industry,
venue partners and the community.
This year, racing industry returns
from Tabcorp totalled $786.9 million.
This is the racing industry’s primary
source of income and ensures racing,
particularly in NSW and Victoria, is very
well-funded by global standards.
Additionally, we extended important
partnerships with industry bodies such
as the Australian Trainers’ Association
and the National Jockeys Trust.
Online wagering reform
This year has been characterised
by legitimate debate about the role
of gambling, particularly with the
continuing growth of online gambling.
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Revenue
$2,188.7m
up 1.5%
NPAT
$169.7m
down 49.3%
Ordinary
dividend
24cps
up 20.0%
“Your board and management are
conscious of our responsibilities,
not just to our customers, colleagues
and shareholders, but to the
broader community.”
We welcomed the Federal
Government’s response to the Illegal
Offshore Wagering Review. The
Government has stated it will remove
any doubt about the legality of online
betting on live sport, addressing the
activity of those wagering operators
who have been circumventing the law.
of a legal challenge by certain
members of the NSW greyhound
industry. The revelations of animal
cruelty that have been exposed in
NSW are abhorrent and we support
a well regulated greyhound racing
industry where animal welfare
comes first.
Tabcorp also supports the
Government’s proposal to address
unlicensed offshore operators whose
activities pose a threat to racing
and sports integrity, deprive our
governments and racing industries
of income and overlook consumer
protection.
It is the government’s role to ensure
a level playing field across Australian
business. In FY15, Northern Territory-
licensed corporate bookmakers paid
almost $5 million in wagering tax
on $9.6 billion in turnover. On the
same turnover, our TAB businesses
would have paid $190 million back
to governments.
NSW and ACT
greyhound racing
The NSW and ACT governments
have announced that the staging of
greyhound racing will end from next
year. This is currently the subject
NSW greyhound racing accounts
for approximately 5% of Tabcorp’s
total wagering turnover. However, we
expect a significant level of substitution
will occur to other wagering product,
such as interstate greyhound racing,
thoroughbred and harness racing,
sport and our animated racing
game, Trackside.
Legal proceedings
In March 2016, the High Court of
Australia dismissed Tabcorp’s appeal
against a judgment of the Court of
Appeal of the Supreme Court of
Victoria which had found in favour
of the State of Victoria. The initial
proceeding related to Tabcorp’s
claim for a payment of $686.8 million.
This amount has been dealt with in
previous financial accounts. It will not
have any impact on our accounts
going forward and the proceeding
has been concluded.
Separately, in June 2016, Tabcorp filed
a defence in relation to an amended
claim filed in the civil proceedings
brought by AUSTRAC against Tabcorp
and our NSW and Victorian wagering
businesses. The hearing is scheduled
to commence in June 2017.
On August 3 we announced the
appointment of Vickki McFadden
and Bruce Akhurst as Directors of
the Company, subject to the receipt
of the necessary regulatory and
ministerial approvals.
Tabcorp has already adopted a new
joint AML/CTF program in December
2015 and we are implementing
a range of further enhancements
designed to ensure ongoing
compliance with our AML/CTF
obligations.
Board update
Tabcorp is fully cooperating with an
Australian Federal Police investigation
into a 2009 business opportunity in
the Cambodian sports betting market.
This opportunity never became
operational.
As a result of the investigation,
Elmer Funke Kupper requested a
leave of absence from the Board
of Directors until the completion
of the investigation. We accepted
Mr Funke Kupper’s request, which
is in accordance with the highest
professional and governance
standards.
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Our people, stakeholders
and partners
Tabcorp employs more than 3,000
people in a diverse range of roles
across Australia, the UK and other
markets. The achievements you will
read about in this Annual Report are
the result of their hard work
and dedication.
In November 2015, Tabcorp was
the only company in the gambling
sector, and one of only 90 in Australia
to be recognised by the Federal
Government’s Workplace Gender
Equality Agency as an Employer
of Choice for Gender Equality.
The future
We remain focussed on future
performance and generating attractive
returns from the businesses we
operate. Our target is to achieve
14% Return on Invested Capital
in the 2017 financial year.
We will continue to invest in growth
initiatives that can differentiate our
businesses and create value for
shareholders. Our aim is to create
outstanding customer experiences
through best-in-class product and
technology and to earn the reputation
as the most respected gambling
company in the world.
In closing, we would like to thank you
for your continued support of Tabcorp.
We look forward to shareholders
joining us for our Annual General
Meeting on 25 October 2016, which
will be held at The Westin in Sydney.
For those who cannot attend in
person, but would like to follow
the proceedings, the meeting
will be webcast live through
www.tabcorp.com.au.
Paula J Dwyer
Chairman
David R H Attenborough
Managing Director and
Chief Executive Officer
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“There aren’t too many services around the world
that offer high definition coverage of racing to
the extent we do at Sky Thoroughbred Central.”
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Sky Racing first to
broadcast Australian
racing in high definition
From the tension and anticipation
of the mounting yard, to the power
and thrills of the races themselves,
high definition broadcast has
changed how Australians view
thoroughbred racing.
The transformation is a result of
Sky Thoroughbred Central’s high
definition upgrade of race broadcasts
from New South Wales, Queensland
and the Australian Capital Territory.
The high definition service debuted
on 1 April 2016, in time for The
Championships at Royal Randwick.
Sky Racing Presenter, Greg Radley,
said high definition broadcast helps
punters watching Sky Thoroughbred
Central’s coverage to better assess
horses in mounting yards ahead
of races.
“For people who can’t be at the
racetracks themselves, high definition
television provides a clearer view of
how horses look in the mounting
yard, and their fitness and coat
condition,” Mr Radley said. “And
when it comes to the race itself,
you can better see the horses
in full flight.”
The high definition capability uses a
purpose-built network that connects
137 racetracks around Australia
to Sky Racing’s headquarters at
Frenchs Forest in NSW. The new
connection uses Telstra’s Digital
Video Network and is the largest
installation of the telecommunications
carrier’s platform to date.
Mr Radley pointed out that high
definition coverage extends from
Group 1 and metropolitan race
meets to racetracks in rural and
regional Australia. “Who would have
thought we’d televise meets from
country racetracks like Gunnedah
in high definition?” he said. “There
aren’t too many services around
the world that offer high definition
coverage of racing to the extent we
do at Sky Thoroughbred Central.”
Tabcorp’s Chief Operating Officer,
Wagering and Media, Craig Nugent,
said Sky Racing and Tabcorp were
“committed to the best racing
broadcast capabilities available.”
Mr Nugent added the investment
with Telstra potentially opened
the door to future broadcast
enhancements.
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Tabcorp Annual Report 2016
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Greg Radley, Sky Racing Presenter, interviewing lucky customers Peter
and Jeanette Miller after winning $85,000 on the Doncaster Mile in a joint
promotion between TAB, The Daily Telegraph and the Australian Turf Club.
Wagering and Media business
Operations
• Network of TAB agencies,
hotels and clubs, and on-course
totalisators in Victoria, NSW and
the ACT.
• Wagering channels include retail,
internet, mobile devices, phone
and pay TV.
• Totalisator and fixed odds betting
offered on racing and sporting
events.
• Luxbet offers a racing, sport
and novelty product bookmaking
service by phone, internet and
mobile devices.
• New Sun Bets business will
provide online wagering and
gaming services to UK and
Ireland residents.
• Trackside, a computer simulated
racing product, operating in
Victoria, NSW and the ACT,
and licensed in other Australian
and overseas jurisdictions.
• International wagering and
pooling through Premier Gateway
International (PGI) joint venture in
the Isle of Man (50% interest).
• Three Sky Racing television
channels broadcasting
thoroughbred, harness and
greyhound racing and other sports
to audiences in TAB outlets,
hotels, clubs, other licensed
venues, and into homes to pay
TV subscribers.
• Sky Sports Radio network in NSW
and the ACT, and advertising and
sponsorship arrangements with
Radio Sport National.
• Broadcasting Australian racing
to 52 countries and importing
overseas racing to Australia.
Licences/approvals
• Victorian Wagering and Betting
Licence expires in August 2024,
and may be extended for a further
two year period.
• NSW Wagering Licence expires in
March 2097, with retail exclusivity
period expiring in June 2033.
• ACT Totalisator Licence expires
in October 2064.
• ACT Sports Bookmaking Licence
expires in October 2029, with
further rolling extensions to
October 2064.
• 2,900 TAB retail outlets (approx).
• ACT Approval to Conduct Trackside
• Mobile devices represent 63% of
digital wagering turnover (up 9%).
• Sky Racing available in 2.6 million
Australian homes (approx).
• Broadcasting to 5,400 Australian
outlets.
expires in October 2064.
• Luxbet’s Northern Territory licence
expires in June 2020.
• Sun Bets operates under a UK
Remote Operating licence with
no expiry, and an Irish Remote
Bookmaker’s Licence expiring
in June 2017.
• Luxbet Europe’s UK Combined
Remote Operating Licence has no
expiry, and its Isle of Man licence
expires in January 2019.
FY16 highlights
• Established new Sun Bets
business in the UK.
• 12.0% growth in turnover
from digital channels.
• 16.4% growth in fixed
odds revenue.
• TAB Sports turnover up 7.2%.
• ACTTAB integration successfully
completed.
• TAB launched its Fixed Odds
Partial Cash Out product in
January 2016, an example of
ongoing product innovation.
• Expanded distribution of
Australian and New Zealand
racing to foreign markets and
international co-mingling, with
the addition of the German Tote.
• Active TAB account customers
now exceed 430,000, up 6%.
• Agreements in place for Victorian
and NSW thoroughbred media
rights.
Future objectives
• Launch Sun Bets, the new online
wagering and gaming business
in the UK.
• Introduce new TAB app ahead
of the footy finals and the 2016
Spring Racing Carnival.
• Drive digital growth by utilising
exclusive media assets and
retail presence.
• Revitalise TAB customer experience
across retail channels.
• Further integrate TAB with Sky
media assets.
• Develop new products and
enhance existing offering.
• Implement Longitude software
to deliver enhanced pari-mutuel
betting options (subject to
regulatory approval).
• Maintain market leadership and
support industry transformation.
• Be the partner of choice for racing
and sporting bodies.
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Revenues
of $1,873.0m
up 0.9%
Review of results
Wagering and Media revenue was
0.9% above the previous financial
year, while EBITDA was up 1.7%.
Momentum improved across the
year, with TAB turnover growth of
3.8% in the second half compared
with 1.9% in the first half. Digital
turnover grew 15.0% in the second
half, with full year digital turnover
of $3,827.9 million, up 12.0%.
Digital capability continues to be
enhanced, with a new TAB app
scheduled to be launched ahead
of the AFL and NRL finals and the
2016 Spring Racing Carnival.
In respect of the exclusive retail
channel, total turnover was
down 1.1%. TAB continues to
increase digital integration in the
retail channel to improve the
customer experience.
TAB Racing revenues grew 1.0%,
underpinned by 16.4% growth in
Fixed Odds, which offset a decline
in Totalisator revenues.
TAB Sports turnover was up 7.2%,
however revenues were down 3.9%,
reflecting lower yields.
For the year ended 30 June
Revenue
Taxes, levies, commission and fees
Operating expenses
EBITDA
Depreciation and amortisation
EBIT
FY16
$m
1,873.0
(1,112.7)
(378.2)
382.1
(129.9)
252.2
FY15
$m
1,856.9
(1,099.4)
(381.7)
375.8
(128.6)
247.2
Change
%
0.9
1.2
(0.9)
1.7
1.0
2.0
Total
wagering
turnover
of $12.7b
up 2.7%
EBIT of
$252.2m
up 2.0%
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Gaming Services business
Operations
• Tabcorp Gaming Solutions (TGS)
operates across Victoria and NSW.
• TGS provides a mix of gaming
expertise, specialised services,
strategic advice and financing
to licensed gaming venues, with
the aim of optimising gaming and
total venue performance.
• TGS partners with hotels and
clubs in Victoria and NSW, and
has more than 9,600 EGMs
under contract.
• TGS operates a loyalty program,
Diamond Rewards, which covers
75% of contracted EGMs in
Victoria.
For the year ended 30 June
Revenue
Taxes, levies, commissions and fees
Operating expenses
EBITDA
Depreciation and amortisation
EBIT
Licences/approvals
• Victorian Listing on the Roll
of Manufacturers, Suppliers
and Testers.
Future objectives
• Complete the acquisition of
INTECQ Limited to broaden
service offering.
Review of results
TGS revenues were up 7.6%, while
EBITDA was up 3.7%.
Tabcorp has invested in TGS’
capability to help drive better
performance outcomes for
its network.
• Expand the TGS partner network
across Victoria and NSW, and
into other jurisdictions.
• Provide best in class gaming
product and service excellence
to venues.
• Increase customer visitation
by leveraging loyalty, customer
relationship management and
marketing programs.
• Continue to evolve the TGS value
proposition to deliver the best
outcomes for venue partners.
• NSW Gaming Machine
Dealer’s Licence.
• ACT Supplier Certificate.
• Tasmanian Listing on the Roll
of Recognised Manufacturers,
Suppliers and Testers of Gaming
Equipment.
FY16 highlights
• TGS grew its NSW operations
by adding six new NSW venues.
• A number of venue partner
contracts across the Victorian
network were extended, with 87%
now contracted through to 2022.
• Active members of the Diamond
Rewards loyalty program grew
17% to 398,000.
FY16
$m
107.2
(1.1)
(36.0)
70.1
(29.1)
41.0
FY15
$m
99.6
(0.8)
(31.2)
67.6
(26.0)
41.6
Change
%
7.6
37.5
15.4
3.7
11.9
(1.4)
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TGS now has a total of over 9,600
electronic gaming machines (EGMs)
under contract, up 9%, with the
majority of the growth driven by
expansion in NSW. In Victoria, of the
8,820 EGMs under contract, 87%
are contracted through to 2022.
In NSW, there are approximately
800 EGMs under contract, including
417 that commenced billing in the
second half of FY16.
TGS will continue to sign up
additional venues and expand the
number of EGMs under contract.
The acquisition of INTECQ Limited
will complement TGS, providing
increased scale and diversification
of earnings.
Revenues
of $107.2m
up 7.6%
EBIT of
$41.0m
down 1.4%
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Image is positional
“The support from
TGS enabled our
club to complete
a revamp that has
been very well
received by both
members and
visitors.”
Scott Miles, General Manager
Steelers Club, Wollongong
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Keno business
Operations
• Keno is a random number game
Licences/approvals
• Victorian Keno Licence expires
that is played every 3 minutes with
the chance for customers to win
instant prizes and life-changing
jackpots.
• Keno is distributed to 3,568
venues across clubs, hotels
and TABs in Victoria, Queensland
and ACT, and in clubs and
hotels in NSW.
• Keno is available online in the ACT.
• 100.0m tickets sold in FY16
up 1.4%
• Average ticket size in FY16 of
$11.2, up 1.8%
in April 2022.
• NSW Keno Licence expires
in April 2050.
• In NSW Tabcorp operates Keno
under a management agreement
with ClubKENO Holdings Pty Ltd.
• Queensland Keno Licence expires
in June 2047.
• ACT Approval to Conduct Keno
expires in October 2064.
FY16 highlights
• Total Keno network turnover
was up 4.1%.
• NSW Keno Licence extended
to 2050.
• Business performance improved
through brand transformation and
jackpot pooling which commenced
between NSW, Victoria and
the ACT.
Future objectives
• Roll out of a digital in-venue
offering in NSW to enhance
the Keno retail experience,
subject to regulatory approvals.
• Extend Keno’s product offer
and launch new products.
• Expand Keno jackpot pooling
to include Queensland, subject
to legislative approval.
Review of results
The return to growth reflects
the repositioning of the business
through an extensive Keno brand
transformation program. The pooling
of jackpots between NSW, ACT
and Victoria has also enhanced
the game’s appeal.
As a result of the positive customer
response to these initiatives, total
Keno network turnover was up 4.1%,
and the Keno business revenue was
up 4.8%. Revenue performance was
up 20.4% in Victoria, up 7.4% in
NSW, and up 0.8% in Queensland.
EBITDA was up 5.9%.
The progress of the initiatives
during FY16, as well as initiatives
planned for the coming year, provide
confidence that Keno will continue
to grow.
For the year ended 30 June
Revenue
Taxes, levies, commissions and fees
Operating expenses
EBITDA
Depreciation and amortisation
EBIT
FY16
$m
208.5
(90.4)
(47.8)
70.3
(19.6)
50.7
FY15
$m
199.0
(88.6)
(44.0)
66.4
(18.9)
47.5
Change
%
4.8
2.0
8.6
5.9
3.7
6.7
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Tabcorp Annual Report 2016
Total Keno
turnover
up 4.1%
Revenues
of $208.5m
up 4.8%
EBIT of
$50.7m
up 6.7%
Keno is a fun, social game that
provides customers with a chance
to win $1 million every 3 minutes.
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Promoting responsible gambling
to enable informed decisions
Ms Tervit-Veasey is proud of
Tabcorp’s relationships with bodies
such as the Victorian Responsible
Gambling Foundation (VRGF). “The
VRGF recently asked us to help
review an updated best practices
guide for its counsellors, which
shows how we can work together,”
she said. “We hope to continue to
deepen our relationships with the
VRGF and similar bodies in other
jurisdictions as part of our continued
commitment to responsible
gambling.”
One of Ms Tervit-Veasey’s tasks is to
participate on the steering committee
for Victoria’s Responsible Gambling
Awareness Week (RGAW). Held
in October 2015, RGAW featured
a range of events hosted by local
councils, sporting clubs, venues and
Gamblers’ Help agencies.
Ms Tervit-Veasey said there was
a particular 2015 RGAW event in
Victoria that was one of the best
initiatives she has attended since
she started her role seven years
ago. “The event provided a deep
insight into the impact of problem
gambling on a range of culturally
diverse groups,” she said. “It also
demonstrated that counsellors
needed to be sensitive to cultural
differences in order to develop
effective strategies to reduce
problem gambling across different
groups.”
“Doing the right thing” for Tabcorp,
customers and the community
is what motivates Mandy Tervit-
Veasey, Responsible Gambling
and Compliance Manager for the
business.
“Our aim at Tabcorp is to equip
people with the information and
resources to help them make
informed decisions about gambling,”
said Ms Tervit-Veasey, whose
role includes managing Tabcorp’s
responsible gambling program to
comply with various state, territory
and Commonwealth regulatory and
legislative regimes and codes of
conduct.
Tabcorp has been acknowledged in
the Dow Jones Sustainability Index
assessment as an industry leader in
responsible gambling. However, Ms
Tervit-Veasey said, “there are always
opportunities to do more”. Tabcorp
continues to work to improve its
systems and processes in this area.
Mandy also regularly attends
conferences to gain insights into
how other businesses and regulatory
bodies manage gambling issues.
Mandy Tervit-Veasey, Tabcorp Responsible Gambling & Compliance Manager
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“Our aim at Tabcorp is to equip people with the
information and resources to help them make
informed decisions about gambling.”
Tabcorp team members step
up for their communities
Community and employee
engagement is embedded in
Tabcorp’s culture. In July 2012,
the business unveiled its Tabcare
program to enable employees to
contribute to the community through
two initiatives: volunteering and
matched fundraising.
The volunteer program allows
eligible employees to take one day
of paid volunteer leave each year
to work with Tabcorp’s community
partners or a charity of their choice.
Under the matched fundraising
program, Tabcorp annually sets aside
$200,000 of donations to match
employees’ efforts to raise funds
for registered charities (to a limit of
$10,000 per charity, to share the
money around).
Four years on from the launch, the
Tabcare program has delivered
valuable dividends for communities
and charities, according to
Tabcorp’s Shareholder Relations
and Community Projects Officer,
Sean Gray. “When we first started
the program, we were advised that
a 7% volunteer participation rate
from employees would be excellent,”
Mr Gray said. “We have doubled
this, and now have over 16% of our
employees volunteering through
Tabcare.”
“The feedback we have had from
employees who have volunteered
at our partner organisations has
been very positive,” Mr Gray said.
“Many of them have participated
in OzHarvest’s Cooking for a
Cause program, which brings team
members together and teaches them
how to save food and create tasty
dishes.”
OzHarvest’s National Corporate
Engagement Manager, Megs
Hermann said the donation of time
and energy from Tabcorp employees
helps to prepare beautiful meals for
people in need. “Tabcorp’s active
involvement in the program provides
invaluable support for our mission
to rescue food and nourish our
community,” she said.
Over the past four years the Tabcare
program has grown, with community
partnerships now involving:
OzHarvest in the ACT, NSW and
Victoria; Fareshare in Victoria;
Conservation Volunteers in NSW and
Victoria; and The Pyjama Foundation
in Queensland.
In addition to supporting volunteering
and matched fundraising, Tabcorp
also backs its charitable programs
with annual donations. “I like to think
that the support of Tabcorp and our
employees makes a real difference
for these charities,” Mr Gray said.
Megs Hermann, OzHarvest National Corporate Engagement Manager, with
Sean Gray, Tabcorp Shareholder Relations and Community Projects Officer
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“Tabcorp’s active involvement in the program
provides invaluable support for our mission
to rescue food and nourish our community.”
“Tabcorp really supports diversity, and provided
me with mentoring, training, and opportunities
to advance my career.”
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Tabcorp Annual Report 2016
Supporting diversity in the
workplace and industry
Hayleigh Attard says hard work
and a supportive employer drove
her to become a senior member
of Australia’s premier racing
broadcaster, Sky Racing.
of all racing and live television at Sky
Racing. “Tabcorp really supports
diversity, and provided me with
mentoring, training, and opportunities
to advance my career,” she said.
Ms Attard, who started at Sky
Racing as an Associate Producer,
did not know a great deal about
what the role entailed when she sat
down for an interview six years ago.
“I was very honest and said I didn’t
know much about television,” she
said. “But thankfully, they saw in me,
someone who was willing to listen,
learn and work hard, so they decided
to put me on.”
The team mentored and trained Ms
Attard in the world of television, and
she responded with a diligent, go-
the-extra-mile approach, which now
sees her lead the production
The role is ideal for someone who
comes from a racing family with
the sport in their blood. “Former
Chairman of the New South Wales
Stewards Panel, Ray Murrihy, once
told me when I was younger that
if I worked in the racing industry, I
would never experience a dull day,”
she said. “He was right and that
comment has always stuck with me!”
While once considered a
predominantly male domain, women
continue to play significant roles in
all facets of racing. “Compared to
most industries, racing is extremely
supportive of women,” she said.
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“I think we’re the only sport in
the world where women and
men compete on a level field.”
She encourages younger women
to consider careers in the racing
industry. “I regularly go back to my
old school and deliver the message
that there are opportunities for
women – and men – who persevere
and work hard,” she said. “Young
women should aim to start as soon
as they can, and like most things in
life, if you are willing to work hard and
strive for your goals, then racing is
one of those industries where such
traits will be rewarded.”
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Hayleigh Attard, Sky Racing Senior Producer
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Tabcorp Annual Report 2016
Board of Directors
Paula Dwyer
Chairman and Non Executive Director
from June 2011.(i)(ii)
David Attenborough
Managing Director and Chief Executive
Officer from June 2011.
Elmer Funke Kupper
Non Executive Director from June 2012
(on leave of absence).
Steven Gregg
Non Executive Director from July 2012.
David Attenborough joined Tabcorp in April 2010
as Managing Director – Wagering. He became
Managing Director and Chief Executive Officer
when Tabcorp’s demerger of its former casinos
business was completed in June 2011.
He is also a Director of the Australasian
Gaming Council.
Mr Attenborough was previously the Chief
Executive Officer (South Africa) of Phumelela
Gaming and Leisure Limited, the leading wagering
operator in South Africa. His previous experience
also includes the development of casino,
bookmaking and gaming opportunities for British
bookmaking company Ladbrokes (formerly part
of the Hilton Group Plc).
Mr Attenborough holds a Bachelor of
Science (Honours) and a Master of Business
Administration, and is a Member of the AICD.
Prior to demerger, Elmer Funke Kupper was
Tabcorp’s Managing Director and Chief Executive
Officer from September 2007 to June 2011, and
previously he was Tabcorp’s Chief Executive
Australian Business from February 2006.
Mr Funke Kupper was Managing Director
and Chief Executive Officer of ASX Limited from
October 2011 to March 2016. His career includes
several senior executive positions with Australia
and New Zealand Banking Group Limited,
including Group Head of Risk Management,
Group Managing Director Asia Pacific and
Managing Director Personal Banking and
Wealth Management. Previously he was a
senior management consultant with McKinsey
& Company and AT Kearney.
Mr Funke Kupper is a member of the Tabcorp
Audit, Risk and Compliance Committee and
Tabcorp Nomination Committee.
Mr Funke Kupper holds a Bachelor of Business
Administration and a Master of Business
Administration, and is a Member of the AICD.
Steven Gregg is a Director of Caltex Australia
Limited, Challenger Limited and thoroughbred
bloodstock company William Inglis & Son Limited.
He is also a Member of the Grant Samuel
non-executive Advisory Board, Trustee of the
Australian Museum Trust and a Director of The
Lorna Hodgkinson Sunshine Home. He is the
former Chairman of Goodman Fielder Limited
and former Chairman of Austock Group Limited.
Mr Gregg had an executive career in investment
banking and management consulting, including as
Global Head of Investment Banking and CEO at
ABN Amro Bank, and Partner and Senior Adviser
to McKinsey & Company.
Mr Gregg is a member of the Tabcorp Audit, Risk
and Compliance Committee, Tabcorp Nomination
Committee and Tabcorp Remuneration Committee.
Mr Gregg holds a Bachelor of Commerce.
Paula Dwyer is Chairman of Healthscope Limited,
and a Director of Australia and New Zealand
Banking Group Limited and Lion Pty Ltd. She is
also a Member of the Kirin Holdings International
Advisory Board.
Ms Dwyer was formerly a Director of Leighton
Holdings Limited, Suncorp Group Limited, Foster’s
Group Limited, David Jones Limited, Astro Japan
Property Group Limited and is a former member
of the ASIC External Advisory Panel, the Victorian
Casino and Gaming Authority, and of the Victorian
Gaming Commission from 1993 to 1995.
Ms Dwyer had an executive career in
finance holding senior positions in investment
management, investment banking and chartered
accounting with Ord Minnett (now JP Morgan)
and PricewaterhouseCoopers.
Ms Dwyer is Chairman of the Victorian Joint
Venture Management Committee and Chairman
of the Tabcorp Nomination Committee. She
is a member of the Tabcorp Audit, Risk
and Compliance Committee and Tabcorp
Remuneration Committee.
Ms Dwyer holds a Bachelor of Commerce. She
is a Fellow of the Chartered Accountants Australia
and New Zealand, Fellow of the Australian Institute
of Company Directors (AICD), and is a Senior
Fellow of the Financial Services Institute
of Australasia.
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Tabcorp Annual Report 2016
Jane Hemstritch
Non Executive Director from June 2011.(i)(iii)
Justin Milne
Non Executive Director from August 2011.
Zygmunt Switkowski AO
Non Executive Director from June 2011.(i)(iv)
Jane Hemstritch is a Director of Lend Lease
Group. She is also a non-executive member
of the Herbert Smith Freehills Global Council,
Chairman of Victorian Opera Company Limited,
and a Member of the Council of the National
Library of Australia.
Mrs Hemstritch was formerly a Director of Santos
Limited and the Commonwealth Bank of Australia.
She was also Managing Director – Asia Pacific
for Accenture Limited where she was a member
of Accenture’s global executive leadership team
and managed its business portfolio in Asia Pacific
spanning twelve countries.
Mrs Hemstritch is Chairman of the Tabcorp Audit,
Risk and Compliance Committee and a member
of the Tabcorp Nomination Committee.
Mrs Hemstritch holds a Bachelor of Science (First
Class Honours). She is a Fellow of the Chartered
Accountants Australia and New Zealand, Fellow of
the Institute of Chartered Accountants in England
and Wales, Fellow of the AICD, and is a Member
of Chief Executive Women Inc.
Justin Milne is Chairman of MYOB Group Limited
and Chairman of NetComm Wireless Limited. He
is also a Director of NBN Co Limited, Members
Equity Bank Limited and SMS Management
and Technology Limited.
Mr Milne had an executive career in
telecommunications, marketing and media.
From 2002 to 2010 he was Group Managing
Director of Telstra’s broadband and media
businesses, and headed up Telstra’s BigPond
New Media businesses in China. He is also the
former Chairman of pieNETWORKS Limited,
former Director of Basketball Australia Limited
and former Chief Executive Officer of OzEmail
and the Microsoft Network.
Mr Milne is a member of the Tabcorp Audit,
Risk and Compliance Committee and Tabcorp
Nomination Committee.
Mr Milne holds a Bachelor of Arts, and is a
Member of the AICD.
Zygmunt Switkowski is the Chairman of Suncorp
Group Limited and Chairman of NBN Co Limited.
He is also a Director of Oil Search Limited and
Healthscope Limited, and Chancellor of the Royal
Melbourne Institute of Technology. He is a former
Director of Lynas Corporation Limited and he is
the former Chairman of the Australian Nuclear
Science and Technology Organisation, and
former Chairman of Opera Australia.
Dr Switkowski was the Chief Executive Officer
and Managing Director of Telstra Corporation
Limited from 1999 to 2005, and is a former Chief
Executive Officer of Optus Communications.
He worked for Kodak (Australasia) for 18 years,
serving as the Chairman and Managing Director
from 1992 to 1996.
Dr Switkowski is Chairman of the Tabcorp
Remuneration Committee. He is also a member
of the Tabcorp Audit, Risk and Compliance
Committee and Tabcorp Nomination Committee.
Dr Switkowski holds a Bachelor of Science
(Honours), and a PhD (Nuclear Physics).
He is a Fellow of the AICD.
(i) The demerger of the Group’s former casinos business, which occurred in June 2011, resulted in Tabcorp being a substantially different company.
Therefore the Company’s view is that Directors’ tenure was reset at that time.
(ii) Prior to demerger was a Non Executive Director from August 2005.
(iii) Prior to demerger was a Non Executive Director from November 2008.
(iv) Prior to demerger was a Non Executive Director from October 2006.
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Executives
Merryl Dooley
Executive General Manager
– People, Culture &
Communications
Doug Freeman
Executive General Manager
– Commercial Development
Merryl commenced with Tabcorp
in October 1990 and has held
numerous positions across a range
of discipline areas including human
resources, training and development,
communications and sales. She
became Executive General Manager
– Human Resources in June 2011
following the implementation of the
Tabcorp demerger, and Executive
General Manager – People, Culture
& Communications in March 2016.
Merryl holds a Master of Business
Administration (Executive) and a
Bachelor of Arts, and has attended
the Senior Executive Program at the
London Business School. She is a
Member of AICD.
Since joining Tabcorp in June 2005,
Doug has held several senior finance
and strategy roles within Tabcorp’s
wagering and media businesses. Most
recently, Doug was Executive General
Manager Strategy and Business
Development before commencing
his current role in July 2013.
He previously held senior finance and
general management roles in medium
to large multinational organisations
in the service and manufacturing
industries, including George Weston
Foods Limited, Optus Group, and
Alexander & Alexander Group.
Doug holds a Bachelor of Commerce
and is a Member of the Institute of
Chartered Accountants.
Julian Hoskins
Group General Counsel (Acting)
Damien Johnston
Chief Financial Officer
Clinton Lollback
Chief Risk Officer
Julian joined Tabcorp in September
2008 as General Counsel, Corporate,
and held several General Counsel roles
within Tabcorp until being appointed
as Acting Group General Counsel in
December 2015.
Prior to joining Tabcorp, he was in
the Mergers and Acquisitions Team at
Mallesons Stephens Jaques (now King
and Wood Mallesons), and held several
senior positions in other large law firms
in Australia and Europe.
Julian holds a Bachelor of Laws
(Honours) and a Master of Laws.
He is a Member of ACC Australia
(ACLA) GC100 and a Member of AICD.
Damien joined Tabcorp in September
2003. He was Tabcorp’s Deputy Chief
Financial Officer, being responsible
for Tabcorp’s Corporate Finance
function including Treasury and Investor
Relations, and became Chief Financial
Officer upon implementation of the
Tabcorp demerger in June 2011.
He previously had a 21 year career
with BHP Billiton with key finance
roles in both Australia and Asia. These
included both operational finance and
corporate roles.
Damien holds a Bachelor of Commerce
and is a Member of CPA Australia.
Clinton joined Tabcorp in January 2016.
Prior to joining Tabcorp, he was the
Head of Operational Risk at Macquarie
Group, a role he established and led for
10 years.
Clinton has extensive risk management
experience in the banking and finance
industry, including roles with Westpac,
JP Morgan, and Coopers & Lybrand.
Clinton holds a Bachelor of Business
and is a Member of the Institute of
Chartered Accountants.
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Fiona Mead
Company Secretary
(subject to regulatory approval)
Claire Murphy
Chief Marketing Officer
Craig Nugent
Chief Operating Officer
– Wagering and Media
Adam Rytenskild
Chief Operating Officer
– Keno and Gaming
Kim Wenn
Chief Information Officer
Fiona was appointed to the Tabcorp
Senior Executive Leadership Team in
July 2016, and will formally take up
the role of Company Secretary once
all regulatory and ministerial approvals
have been received.
Prior to joining Tabcorp, she was
Company Secretary of Asciano Limited
and previously Assistant Company
Secretary of Telstra Corporation.
Fiona holds a Bachelor of Laws
(Honours) and a Bachelor of
Commerce. She is a Fellow of the
Governance Institute of Australia and
a Graduate Member of the AICD.
Claire commenced with Tabcorp in
January 2015 in the role of General
Manager Marketing – Keno & Gaming,
and was appointed as Chief Marketing
Officer in March 2016.
Prior to joining Tabcorp, she held
senior marketing roles with William Hill
Australia, Crown Melbourne, Melbourne
Storm Rugby League Club, World
Wrestling Entertainment in the UK,
and Goodyear.
Claire holds a Bachelor of Arts and
is a Member of AICD.
Craig joined Tab Limited in 1999 as
Manager Oncourse Wagering and
International Sales. Throughout his time
with Tabcorp, and Tabcorp subsidiaries
Tab Limited and Luxbet Pty Ltd, he
has held senior executive roles in Fixed
Odds Racing and Wagering, Oncourse
Operations and International Sales.
He commenced his current role in
March 2014.
Prior to joining Tabcorp, he held
management roles in the New South
Wales racing industry bodies Australian
Jockey Club and Sydney Turf Club.
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Adam joined Tabcorp in 2000 as State
Manager – Retail Wagering and since
then he has held numerous senior
management roles. Following Tabcorp’s
demerger in June 2011, Adam was
appointed to the role of Executive
General Manager – Distribution,
responsible for leading Tabcorp’s
customer distribution channels
including the establishment of Digital
and growing the Retail business.
He has extensive experience leading
multi-channel businesses, including
a nine year career with Mobil Oil prior
to joining Tabcorp.
Adam holds a Master of Business
Administration and has attended
the Senior Executive Programme
at London Business School. He is
a Member of AICD.
Kim commenced at Tabcorp in April
2005 and has held several positions
in Tabcorp’s wagering technology field
before being appointed to her current
role in June 2011 following Tabcorp’s
demerger.
She has extensive experience
managing and leading technology
businesses, including a five year career
with Quest Software prior to joining
Tabcorp.
Kim holds a Master in Management
and Technology, a Bachelor of Science
(Computing), and has attended the
Advanced Management Programme
at Harvard Business School. She is
a Graduate Member of the AICD.
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Corporate governance
Introduction
Tabcorp is committed to operating with integrity and maintaining high standards of ethical behaviour. To support this commitment, Tabcorp has in place corporate governance practices and policies
which are reviewed regularly and enhanced where necessary to ensure they continue to meet the needs of the Company and represent best practice.
Throughout the 2016 financial year, and to the date of this report, the Group complied with the Corporate Governance Principles and Recommendations, 3rd Edition published by the ASX.
Tabcorp’s Corporate Governance Statement 2016, Appendix 4G, and other governance related information are available from the Corporate Governance section of Tabcorp’s website at
www.tabcorp.com.au.
The following is a summary of the key corporate governance developments which Tabcorp introduced since the start of the 2016 financial year.
Board skills matrix
The disclosure in the Corporate Governance Statement 2016 of the Board skills matrix was enhanced to show the Board’s assessment of its Directors’ relevant skills and experiences. Following
a self-evaluation against the matrix, the Board determined that all seven Directors exhibited the skills/experiences relevant to seven of the thirteen criteria, and there was generally a high prevalence
exhibited for all criteria.
Further details are set out in section 2.2 of the Corporate Governance Statement, and Directors’ biographical details can be found on pages 28 and 29 of the Annual Report.
Director tenure
The Company considers that Directors’ tenure was reset when the demerger of the Group’s former casinos business occurred in June 2011, which resulted in Tabcorp being a substantially
different company.
Tabcorp does not consider that the length of service on the Board should be considered as a factor affecting a Director’s independence and the ability to act in the best interests of the Group.
Tabcorp maintains a balanced Board with a good mix of longer serving Directors and more recent appointments.
Further details are set out in section 2.4 of the Corporate Governance Statement. Directors’ biographical details can be found on pages 28 and 29 of the Annual Report.
Directors’ Shareholdings Policy
The Board approved changes to the Directors’ Shareholding Policy to strengthen the alignment between the interests of Non Executive Directors and the interests of the Group and shareholders.
Under the policy, Non Executive Directors are encouraged to acquire and hold a minimum shareholding in Tabcorp. Non Executive Directors are encouraged to reach the applicable threshold within
three years from appointment, with current Non Executive Directors having three years from FY16 to acquire additional shares to meet the threshold.
Further details are set out in section 5.8 of the Corporate Governance Statement. Directors’ interests in Tabcorp securities can be found on page 41 of the Annual Report. The policy is available from
the Corporate Governance section of Tabcorp’s website at www.tabcorp.com.au.
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Executives’ Shareholdings Policy
Tabcorp introduced the Executives’ Shareholdings Policy which sets mandatory minimum shareholding requirements applicable to members of the Senior Executive Leadership Team.
The aim of the policy is to ensure that there is an adequate level of alignment between the interests of executives, the Group and shareholders, through equity ownership.
Under the policy, executives will be required to hold a minimum shareholding in Tabcorp. The minimum shareholding must be achieved within five years from 1 July 2016 or from the date
the executive is appointed into their role.
The policy is available from the Corporate Governance section of Tabcorp’s website at www.tabcorp.com.au.
Securities Trading Policy
The Board approved changes to the Tabcorp Securities Trading Policy. The key changes were the introduction of an additional Blackout Period prior to the Annual General Meeting, the additional
requirement for Senior Executive Leadership Team members to seek written approval from the Chairman prior to trading (following approval from the Managing Director and Chief Executive Officer,
or the Company Secretary), and the inclusion of prohibitions on short selling and engaging in speculative short term investing of Tabcorp securities.
Under the policy, the applicable Blackout Periods commence on:
• 1 January and end on the day Tabcorp announces its half year results inclusively;
• 1 July and end on the day Tabcorp announces its preliminary final year results inclusively; and
• 1 October and end on the day of Tabcorp’s Annual General Meeting inclusively.
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The Tabcorp Board, Chairman, Managing Director and Chief Executive Officer, or Company Secretary may also decide other Blackout Periods at any time.
Further details are set out in section 5.7 of the Corporate Governance Statement, and the policy is available from the Corporate Governance section of Tabcorp’s website at www.tabcorp.com.au.
Anti-Bribery and Corruption Policy
Tabcorp launched its new Anti-Bribery and Corruption Policy which was approved by the Board. The policy prohibits all forms of bribery, facilitation payments, paying or receiving secret commissions,
and fraud. It also sets the standards required of employees when dealing with third parties, and the offering and acceptance of gifts and hospitality.
Further details are set out in section 5.5 of the Corporate Governance Statement, and the policy is available from the Corporate Governance section of Tabcorp’s website at www.tabcorp.com.au.
New Chief Risk Officer function
Tabcorp created the new role of Chief Risk Officer to lead the Group’s overall risk, financial crime/AML and compliance activities, including responsible gambling. The Chief Risk Officer team
strengthens the Group’s focus on managing risk and regulatory compliance in an increasingly global context. The creation of the Chief Risk Officer function follows best practice in the financial
services sector and we understand is a first for a gambling company in Australia.
Refer to section 4 of the Corporate Governance Statement for further details about the risk management and controls applicable to the Group.
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Directors’ Report
Contents
1. Principal activities
2. Operating and financial review of the Group
3. Significant changes in the state of affairs
4. Significant events after the end of the financial year
5. Business strategies
6.
Likely developments and expected results
7. Key risks and uncertainties
8. Directors
9. Directorships of other listed companies
10. Directors’ interests in Tabcorp securities
11. Directors’ interests in contracts
12. Board and Committee meeting attendance
13.
Indemnification and insurance of Directors and Officers
14. Company Secretaries
15. Corporate governance
16. Environmental regulation and performance
17. Other matters
18. Auditors
19. Non-statutory audit and other services
20. Auditor’s independence declaration
21. Rounding of amounts
22. Remuneration Report
35
35
35
36
36
36
36
40
40
41
41
42
42
42
43
43
43
43
43
44
44
44
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Tabcorp Annual Report 2016
The Directors of Tabcorp Holdings Limited (the Company) submit their report for the consolidated entity comprising the Company and its subsidiaries (the Group) and the Group’s interests in joint
arrangements in respect of the financial year ended 30 June 2016.
1. Principal activities
The principal activities of the Group during the financial year comprised the provision of gambling and entertainment services. The Group’s principal activities remain unchanged from the previous
financial year, except as disclosed elsewhere in this report.
2. Operating and financial review of the Group
The financial results of the Group for the financial year ended 30 June 2016 comprise its three businesses of Wagering and Media, Gaming Services, and Keno. The activities and financial performance
of the Group and each of its operating businesses for the financial year are set out on pages 6 to 21.
3. Significant changes in the state of affairs
The following events, which may be considered to be significant changes in the state of affairs of the Group, have occurred since the commencement of the financial year on 1 July 2015.
3.1 Sun Bets business
During the year, Tabcorp has been establishing Sun Bets, a new online wagering and gaming business to compete in the UK and Irish online gambling markets. This business will operate in partnership
with News UK, where Tabcorp is the wagering operator and holder of the relevant gambling licences, and News UK provides marketing and promotional services to customers.
3.2 NSW Keno Licence
Tabcorp was issued a new NSW Keno Licence during the year, extending approval to operate the exclusive NSW Keno business until 2050. The new licence offers exciting enhancements to
the current game, including digital play in-venue, subject to regulatory approvals. Tabcorp paid $25.0 million to the NSW Government, and will pay an annual fee on the anniversary of licence
commencement of $3.0 million, indexed at 2.5% per annum, increasing to $4.5 million in 2022, thereafter indexed at 2.5% per annum for the remainder of the licence term.
3.3 Media rights
On 7 August 2015, Tabcorp announced that its Sky Racing business had reached agreement on a media rights deal for Victorian thoroughbred racing. The arrangements, which expire in 2020, include
domestic, digital and international rights for Victorian thoroughbred racing (except for MRC international rights which ceased in July 2016). This followed an earlier announcement that Tabcorp’s Sky
Racing business had secured the broadcasting rights for all New South Wales thoroughbred racing, and that Sky Racing’s thoroughbred showcase channel, Sky Thoroughbred Central, would be
included on FOXTEL’s base tier.
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These long term media rights arrangements deliver certainty for Tabcorp, the racing industry, retail venue partners and wagering customers.
All Australian racing vision is available on the Sky Racing broadcast and TAB digital platforms.
3.4 Other significant changes in the state of affairs
There were no significant changes in the state of affairs of the Group that occurred during the financial year other than as set out in this Directors’ report.
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Directors’ Report
4. Significant events after the end of the financial year
On 1 August 2016, Tabcorp announced that it will acquire INTECQ Limited (INTECQ) through a Scheme of Arrangement. The acquisition is subject to certain terms and conditions which are contained
in the Scheme Implementation Agreement, including approval from INTECQ’s shareholders, the Australian Securities and Investments Commission, the Court, gaming regulators and other regulatory
approvals including the Australian Competition and Consumer Commission approval. INTECQ is a leading Australian gaming systems company, providing integrated gaming technology solutions,
gaming management systems and Licensed Monitoring Operator services to gaming venues and other businesses. Tabcorp’s proposed acquisition of INTECQ will provide increased scale and
diversification to the Tabcorp Gaming Solutions business. Under the terms of the Scheme Implementation Agreement, INTECQ shareholders will receive $7.15 cash for each INTECQ share held,
which implies an expected enterprise value of $115 million. Tabcorp intends to fund the acquisition from existing cash and bank facilities.
No other matters or circumstances have arisen since the end of the financial year, which are not otherwise dealt with in this report or in the Financial Report, that have significantly affected or may
significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years. Refer also to note A6 to the Financial Report.
5. Business strategies
The Group is one of Australia’s leading gambling entertainment companies and seeks to deliver sustainable superior returns to its shareholders through the delivery of financial, operational and
leadership excellence. To achieve these outcomes, the Group continues to focus on a number of key priorities, which are set out on page 7. The priorities and strategies of the Group’s operating
businesses are set out on pages 16 to 20.
6. Likely developments and expected results
Each year the Board undertakes a formal strategic planning process to provide guidance to management about the Group’s strategic direction. The Group plans to continue with its business
strategies, as set out in this report. The execution of these strategies is expected to result in improved financial performance over the coming financial years.
The achievement of the expected results in future financial years is dependent on a range of factors, and may be adversely affected by any number of events, and are subject to, among other things,
the key risks and uncertainties described in section 7.
The Directors have excluded from this report any further information on the likely developments in the operations of the Group and the expected results of those operations in future financial years,
as the Directors have reasonable grounds to believe that to include such information will be likely to result in unreasonable prejudice to the Group.
7. Key risks and uncertainties
The Group has a structured and proactive approach to understanding and managing risk. The key focus of the risk management approach is to ensure alignment of strategy, processes, people,
technology and knowledge, and evaluate and manage the uncertainties and opportunities faced by the Group. Overviews of the Group’s risk management processes and internal control framework
are disclosed in the Company’s Corporate Governance Statement available on Tabcorp’s website.
Set out below are summaries of the key risks which may materially impact the execution and achievement of the business strategies and prospects for the Group in future financial years. These
key risks should not be taken to be a complete or exhaustive list of the risks and uncertainties associated with the Group. Many of the risks are outside the control of the Directors. There can be no
guarantee that Tabcorp will achieve its stated objectives, that it will meet trading performance or financial results guidance that it may provide to the market, or that any forward looking statements
contained in this report will be realised or otherwise eventuate.
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7.1 Regulation and changes to the regulatory environment
The activities of the Group are conducted in highly regulated industries. The gambling activities that members of the Group conduct, and will conduct, and the level of competition that they experience,
and will experience, depend to a significant extent on:
• the licences granted to the Group and to third parties; and
• government policy and the manner in which the relevant governments exercise their broad powers in relation to the manner in which the relevant businesses are conducted.
Changes in legislation, regulation or government policy may have an adverse impact on the Group’s operational and financial performance. Court decisions concerning the constitutionality or
interpretation of such legislation, regulations or government policy may have an adverse effect on the operational and financial performance of the Group. Potential changes, which would potentially
negatively affect the value of the licences granted to members of the Group, and potentially the Group’s financial performance, include:
• changes in state wagering, Keno or other gambling tax rates and levies;
• changes or decisions concerning race fields and sports product fees, advertising restrictions and the distribution of gambling products, including through particular channels;
• changes impacting on aspects of retail exclusivity;
• variations to permitted deduction rates and returns to players;
• variations to arrangements for racing industry funding in Victoria, NSW and the ACT;
• changes to the conditions in which venues offering products of members of the Group must operate;
• the introduction of additional legislation to guard against money laundering;
• the introduction of further legislation to implement further responsible gambling measures;
• changes or decisions by government or industry concerning wagering, Keno or other forms of gambling; and
• any other legislative change.
Any non-renewal of licences currently held by members of the Group, or the issue of additional wagering, Keno or other gambling licences to third parties, would potentially result in the Group not
generating the revenue it currently generates from its licences, which could adversely impact the Group’s financial performance and financial position.
Changes to the regulatory environment in some of the jurisdictions in which the Group operates which have been made or foreshadowed and which may have an adverse effect on the operational and
financial performance of the Group include the expansion throughout Australia of sports product fees or increases in those fees for sports betting operators. This risk, and the similar race fields fee risk,
are detailed below.
The rapid deregulation of the national wagering market has seen a dramatic growth in market share by the corporate bookmakers, mostly located in the Northern Territory, and the introduction of race
fields fees legislation across Australia (which allows racing codes in a state or territory to charge wagering operators for the use of race fields information, irrespective of the domicile of the operator).
This rapid deregulation has the potential to have an adverse impact on the Group’s earnings in the short term as market changes continue. Tabcorp continually adjusts its wagering business model
to take account of the changed market dynamics and to mitigate the adverse consequences of deregulation.
As a leader in the Australian gambling industry, the Group takes a proactive approach to engaging with relevant regulators and governments, and lodges submissions in respect of changes to the
industry which may impact the Group and its stakeholders.
The Group operates a diverse portfolio of businesses spread across a number of jurisdictions, business segments and customer categories which reduces the reliance on any one specific business
or jurisdiction. The Group maintains long term gambling licences, and seeks new licences and to extend existing licences where possible. During the financial year, the Group was successful in
extending its approval to operate Keno in NSW until 2050 through the grant of a new NSW Keno Licence.
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Directors’ Report
7.2 Disciplinary action and cancellation of licences
In certain situations (including if the Group fails to meet the terms and conditions of its licences or other compliance requirements), the authorities that regulate the licences and authorisations that have
been granted to members of the Group (including the Victorian Wagering and Betting Licence; the Victorian, NSW and Queensland Keno Licences; the ACT Keno authorisation, the NSW and ACT
totalisator and sports bookmaking licences; and the Northern Territory sports bookmaking licence) may take disciplinary action against relevant members of the Group.
The disciplinary action that may be taken includes the issue of a letter of censure, the imposition of fines, the variation of the terms of, or imposition of new terms on, a licence or authorisation and
the suspension, termination or cancellation of a licence or authorisation.
The suspension, cancellation or termination of any of the key licences or authorisations held by a member of the Group would potentially result in a loss of revenue and profit for the Group, which
would adversely affect the Group’s financial performance and financial position.
Certain licences held by members of the Group, including the Victorian Wagering and Betting Licence, impose conditions requiring the licensee to comply with applicable laws, a breach of which
is grounds for disciplinary action.
7.3 Competition
In a broad sense, gambling activities compete with other consumer products for consumers’ discretionary expenditure and, in particular, with other forms of leisure and entertainment including cinema,
restaurants, sporting events, the internet and pay television.
Further, the Group’s Wagering and Media business currently competes with bookmakers in Victoria and NSW, and other interstate and international wagering operators who accept bets over the
telephone or internet (such as corporate bookmakers based in the Northern Territory and betting exchanges). The internet and other new forms of distribution have allowed new competitors to enter
the Group’s traditional markets of Victoria and NSW without those competitors being licensed in those states. Furthermore, court decisions, the relaxation of advertising laws (or the way in which they
have been administered) and the increasing application of competition policy have allowed other wagering operators to gain greater freedom to compete nationally.
Competition from interstate and international operators may extend to the Group’s retail wagering network.
The Group’s Keno and Gaming Services businesses also face competition in their respective industries.
If the Group does not adequately respond to the competition which it faces, there may be a change in consumer spending patterns which may have an adverse effect on the operational and financial
performance of the Group.
The Group adopts a range of strategies, including leveraging its exclusive retail network, expanding its TAB customer loyalty program, enhancing its customer service and relationship management,
and driving digital excellence across its multi-channel network.
The Group also explores new business opportunities, and during the year established Sun Bets, a new online wagering and gaming business in the UK.
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7.4 Racing products
The Group’s Wagering and Media business is reliant on the Victorian, NSW and other racing industries in Australia and overseas providing a program of events for the purposes of wagering. A
significant decline in the quality or number of horses or greyhounds, or number of events, or the occurrence of an event which adversely impacts on the Australian racing industry or any State or
Territory racing industry, or which otherwise disrupts the scheduled racing program (such as an outbreak of equine influenza or other equine pandemic), would have a significant adverse effect on
wagering revenue and may have an adverse effect on the operational and financial performance of the Group. The Group engages and works closely with racing bodies and industry stakeholders to
optimise racing schedules and broadcasts to provide the best racing product available to customers and ameliorate the potential for adverse impacts which may result from a decline in racing product.
In addition, the Group has business continuity plans to help manage and respond to significant events which may impact upon the supply of racing product.
7.5 Race field and sports product fees
Each State and Territory of Australia has implemented race fields arrangements, under which each State or Territory or its racing industry charges wagering operators product fees for use of that
industry’s race fields information (or otherwise charges fees in respect of the operator’s race betting operations in that State or Territory). Consequently, the Group is required to pay product fees to
the relevant racing controlling body. Similarly, legislation has been introduced in various jurisdictions to support the imposition by sports controlling bodies of fees payable by wagering operators betting
on relevant sporting events. There is the potential that fees will increase, or new fees will be introduced, and such fees may have an adverse effect on the operational and financial performance of the
Group. However, the Group has mitigation strategies to partly ameliorate such impacts, including that members of the Group currently have contracts that the Group considers will allow them to offset
some of the fees or obtain damages under contract. Members of the Group may in the future disagree with various racing industry bodies regarding the application of certain aspects of the race fields
regimes or contracts that govern product fees. Such disagreements may lead to litigation or other dispute resolution processes, including negotiated settlement.
7.6 Sky Channel broadcast arrangements
Sky Channel requires and holds rights to broadcast various race meetings and other sporting events held throughout Australia and internationally. The Group has in place contracts in respect of
Victorian thoroughbred racing broadcast rights which expire in 2020, and NSW thoroughbred racing broadcast rights which expire in 2025. These long term media rights arrangements deliver certainty
for the Group, the racing industry, retail venue partners and wagering customers. If, for any reason, the Group is unable to renegotiate any of its key broadcast arrangements or to renegotiate them on
materially the same or similar terms, then this may adversely impact the operational and financial performance of the Group’s Wagering and Media business. The Group has alternative business plans
to mitigate potential adverse impacts should they arise. In addition, the Group continues to expand the export of Australian racing vision to more countries around the world and import racing content
to Australian customers.
7.7 Technology security risks
The Group’s businesses rely on the successful operation of technology infrastructure. A technology security failure, such as a cyber attack, could impact upon the Group’s technology systems and
equipment, or result in the loss or exposure of information assets, which may potentially adversely impact the reputation, operations or financial performance of the Group. Significant resources are
allocated to managing the Group’s information technology portfolio, including specialist resources dedicated to information security and responding to cyber risks. The Group’s information security
management system has been certified to ISO 27001 standard. The Group continues to evolve and strengthen its practices to effectively manage technology security risks.
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Directors’ Report
8. Directors
The names and details of the Company’s Directors in office during the financial year and until the date of this report (except as otherwise stated) are set out on pages 28 and 29.
9. Directorships of other listed companies
The following table shows, for each person who served as a Director during the financial year and up to the date of this report (unless otherwise stated), all directorships of companies that were listed
on the ASX or other financial markets operating in Australia, other than Tabcorp, since 1 July 2013, and the period for which each directorship has been held.
Name
Paula Dwyer
David Attenborough
Elmer Funke Kupper
Steven Gregg
Jane Hemstritch
Justin Milne
Zygmunt Switkowski
Listed entity
Australia and New Zealand Banking Group Limited
Healthscope Limited (i)
Leighton Holdings Limited
Nil
ASX Limited
Caltex Australia Limited
Challenger Limited
Goodman Fielder Limited
Commonwealth Bank of Australia
Lend Lease Group
Santos Limited
MYOB Group Limited
NetComm Wireless Limited
SMS Management and Technology Limited
Healthscope Limited(i)
Lynas Corporation Limited
Oil Search Limited
Suncorp Group Limited (ii)
(i) Relisted on ASX in July 2014.
(ii) Includes the period as a Director of Suncorp-Metway Limited prior to the corporate restructure of the Suncorp Group.
Period directorship held
April 2012 to present
June 2014 to present
January 2012 to May 2014
October 2011 to March 2016
October 2015 to present
October 2012 to present
February 2010 to March 2015
October 2006 to March 2016
September 2011 to present
February 2010 to May 2016
March 2015 to present
March 2012 to present
August 2014 to present
April 2016 to present
February 2011 to August 2013
November 2010 to present
September 2005 to present
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10. Directors’ interests in Tabcorp securities
At the date of this report, the Directors had the following relevant interests in the securities of the Company, as notified to the ASX in accordance with section 205G(1) of the Corporations Act 2001:
Name
Paula Dwyer
David Attenborough
Elmer Funke Kupper
Steven Gregg
Jane Hemstritch
Justin Milne
Zygmunt Switkowski
Number of securities
Ordinary shares
100,000
1,052,316
54,166
15,000
31,962
31,208
91,949
Performance Rights
-
1,593,768
-
-
-
-
-
11. Directors’ interests in contracts
Some Directors of the Company, or related entities of the Directors, conduct transactions with entities within the Group that occur within a normal employee, customer or supplier relationship on terms
and conditions no more favourable than those with which it is reasonable to expect the entity would have adopted if dealing with the Director or Director-related entity on normal commercial terms
and conditions.
The Board assesses the independence of Directors and, among other things, takes into account any related party dealings referable to a Director which are material and require disclosure under
accounting standards, and whether any Director is, or is associated with, a supplier, professional adviser, consultant to or customer of the Group which is material. No such circumstances arose
during the financial year. For more information refer to the Corporate Governance Statement available on Tabcorp’s website.
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12. Board and Committee meeting attendance
During the financial year ended 30 June 2016 the Company held 17 meetings of the Board of Directors, of which ten were standard scheduled Board meetings and seven Board meetings were held
to discuss special business.
The attendance of the Directors at meetings of the Board and standing Board Committees during the year in review were:
Name
Paula Dwyer (i)
David Attenborough(ii)
Elmer Funke Kupper (iii)
Steven Gregg
Jane Hemstritch
Justin Milne
Zygmunt Switkowski
Standard
Board Meetings
B
A
10
10
10
10
8
7
10
10
10
9
10
10
10
10
Special
Board Meetings
B
A
7
7
7
7
6
6
7
7
7
5
7
7
7
7
Audit, Risk and
Compliance Committee
Nomination
Committee
Remuneration
Committee
A
4
4
3
4
3
4
4
B
4
4
3
4
4
4
4
A
2
2
2
2
1
2
2
B
2
2
2
2
2
2
2
A
4
4
-
4
-
-
4
B
4
4
-
4
-
-
4
A – Number of meetings attended.
B – Maximum number of possible meetings available for attendance.
(i) Paula Dwyer also attended meetings of the Victorian Joint Venture Management Committee as Chairman of this Committee.
(ii) David Attenborough attends Board Committee meetings, but he is not a member of any Board Committee. Only Non-Executive Directors are members of Board Committees.
(iii) Elmer Funke Kupper commenced a leave of absence from the Board on 21 March 2016.
In addition to the meeting attendances above, a number of Directors participated in Board Committees established for special purposes.
The terms of reference and details of the functions and memberships of the Committees of the Board are set out in the Company’s Corporate Governance Statement available on Tabcorp’s website.
13. Indemnification and insurance of Directors and Officers
The Directors and Officers of the Group are indemnified against liabilities pursuant to agreements with the Group. Tabcorp has entered into insurance contracts with third party insurance providers,
and in accordance with normal commercial practices, under the terms of the insurance contracts, the nature of the liabilities insured against and the amount of premiums paid are confidential.
14. Company Secretaries
Fiona Mead was appointed to the Tabcorp Senior Executive Leadership Team and commenced on 18 July 2016. She will formally take up the role of Company Secretary once all regulatory and
ministerial approvals have been received. Prior to joining Tabcorp, she was Company Secretary of Asciano Limited and previously Assistant Company Secretary of Telstra Corporation. She holds a
Bachelor of Laws (Honours) and Bachelor of Commerce. Fiona is a Fellow of the Governance Institute of Australia (GIA) and a Graduate Member of the Australian Institute of Company Directors (AICD).
Michael Scott was appointed as an additional Company Secretary in August 2012. He has been assistant to the Company Secretary since joining the Group in September 2002. He holds a Graduate
Diploma of Applied Corporate Governance and a Bachelor of Land Information (Cartography). Michael is a Fellow of the GIA, Graduate Member of the AICD and Fellow of Leadership Victoria’s
Williamson Community Leadership Program.
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15. Corporate governance
The Directors of the Company support and adhere to the ASX Corporate Governance Principles and Recommendations, 3rd Edition, recognising the need for maintaining high standards of corporate
behaviour and accountability. Refer to pages 32 and 33 for further information. The Company’s Corporate Governance Statement is available under the corporate governance section of the Company’s
website at www.tabcorp.com.au/about_governance.aspx.
16. Environmental regulation and performance
The Group’s environmental obligations and waste discharge quotas are regulated under both state and federal laws. The Group has a record of complying with, and in most cases exceeding,
its environmental performance obligations. No environmental breaches have been notified to the Group by any government agency.
17. Other matters
In July 2015 the Australian Transaction Reports and Analysis Centre (AUSTRAC) commenced civil proceedings against Tabcorp Holdings Limited and the Group’s NSW and Victorian wagering
businesses alleging certain breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. The hearing is scheduled to commence in June 2017. The Company takes
its regulatory compliance obligations extremely seriously. The Company acknowledges the matters raised by AUSTRAC and is committed to ensuring they are resolved. At this stage it is not possible
to determine the extent of any potential financial impact to the Group.
In March 2016, Tabcorp was advised by the Australian Federal Police that an investigation had commenced into claims raised in media articles in relation to a payment concerning a Cambodian
business opportunity. The Company explored a business opportunity in relation to the Cambodian sports betting market in 2009/2010. At that time, some Asian countries were considering
deregulating sports betting. The Company chose not to pursue the opportunity. Mr Elmer Funke Kupper is on leave of absence from the Board of Directors until the completion of this investigation.
The Company is cooperating fully with the Australian Federal Police.
Also in March 2016, the High Court of Australia handed down its judgment which dismissed the Company’s appeal against the judgment of the Court of Appeal of the Supreme Court of Victoria
delivered in December 2014. The initial proceeding related to the Company’s claim for a payment from the State of Victoria of an estimated $686.8 million in relation to the State of Victoria’s obligation
to make the payment in August 2012, when the Company’s Gaming and Wagering Licences expired and new licences were granted. As a result of the Victorian Government’s decision in 2008 that
the Company was not entitled to the payment, the Company incurred charges against its earnings in previous financial years. The Company has therefore dealt with the original announcement in its
financial accounts in prior years.
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18. Auditors
The Group’s external auditor is Ernst & Young. The Group’s internal audit function is fully resourced by Tabcorp, with specialist independent external support where necessary. More information relating
to the audit functions can be found in the Company’s Corporate Governance Statement.
19. Non-statutory audit and other services
Ernst & Young, the external auditor to the Company and the Group, provided non-statutory audit services to the Company during the financial year ended 30 June 2016. The Directors are satisfied that
the provision of non-statutory audit services during this period was compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of
each type of non-statutory audit service provided means that auditor independence was not compromised.
The Company’s Board Audit, Risk and Compliance Committee reviews the activities of the independent external auditor and reviews the auditor’s performance on an annual basis. The Chairman of
the Board Audit, Risk and Compliance Committee must approve all non-statutory audit and other work to be undertaken by the auditor (if any). Further details relating to the Board Audit, Risk and
Compliance Committee and the engagement of auditors are available in the Company’s Corporate Governance Statement available on the Tabcorp website.
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Directors’ Report
19. Non-statutory audit and other services (continued)
Ernst & Young, acting as the Company’s external auditor, received or are due to receive $478,000
in relation to the provision of non-statutory audit services to the Company.
Amounts paid or payable by the Company for audit and non-statutory audit services are disclosed
in note E5 to the Financial Report.
20. Auditor’s independence declaration
Shown opposite is a copy of the auditor’s independence declaration provided under section 307C
of the Corporations Act 2001 in relation to the audit for the financial year ended 30 June 2016.
This auditor’s independence declaration forms part of this Directors’ Report.
21. Rounding of amounts
Dollar amounts in the Financial Report and the Directors’ Report have been rounded to the nearest
hundred thousand unless specifically stated to be otherwise, in accordance with the Australian
Securities and Investments Commission Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191.
22. Remuneration Report
The Remuneration Report for the financial year ended 30 June 2016 forms part of this Directors’
Report, and can be found on pages 45 to 72.
This Directors’ Report has been signed in accordance with a resolution of Directors.
Paula J Dwyer
Chairman
Melbourne
4 August 2016
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Auditor’s Independence Declaration to the Directors of Tabcorp
Holdings Limited
As lead auditor for the audit of Tabcorp Holdings Limited for the financial year ended 30 June 2016,
I declare to the best of my knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Tabcorp Holdings Limited and the entities it controlled during the
financial year.
Ernst & Young
Tony Johnson
Partner
4 August 2016
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
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Remuneration Report
Contents
1. Purpose
2. Remuneration philosophy
3. Governance
4. Remuneration summary of the year ended 30 June 2016
5. Proposed remuneration changes from 1 July 2016
6. Key management personnel (KMP)
7. Senior management remuneration (including the MD & CEO)
7.1 Remuneration framework
7.2 Target reward mix
7.3 Fixed remuneration
7.4 Variable (at risk) remuneration
(a) Short term incentive (STI)
(b) Long term incentive (LTI)
(c) Appointment/retention incentives
(d) Policy prohibiting hedging
7.5 MD & CEO current remuneration arrangements
(a) Current remuneration
(b) Changes for the 2017 financial year
7.6 Contracts – executive KMP (including the MD & CEO)
7.7 Remuneration – executive KMP (including the MD & CEO)
8. Non Executive Director remuneration
8.1 Remuneration framework
8.2 Structure
8.3 Current annual fees
9. KMP shareholdings
46
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49
50
50
51
51
52
52
56
64
64
64
64
66
66
67
69
69
69
70
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1. Purpose
This Remuneration report outlines the remuneration policy and arrangements for Tabcorp’s Directors, executives and senior management in accordance with the requirements of the Corporations Act
2001 and its Regulations. The information provided in this Remuneration report has been audited as required by section 308(3C) of the Corporations Act.
The Remuneration report relates to the key management personnel (‘KMP’) of the Group, comprising the Company and its subsidiaries for the financial year ended 30 June 2016. KMP are those
persons having authority and responsibility for planning, directing and controlling the activities of the Group, and comprises all the Directors of Tabcorp and certain members of the Senior Executive
Leadership Team. The same group of individuals is regarded as KMP for both the Company and the Group.
2. Remuneration philosophy
Tabcorp’s remuneration philosophy is to attract, motivate and retain high calibre individuals across the organisation through a market-competitive, performance-linked and shareholder-aligned
remuneration framework. The Remuneration Committee regularly reviews the remuneration philosophy and underlying principles to ensure they remain competitive and consistent with generally
accepted market practice and business objectives.
Tabcorp’s remuneration philosophy and framework is underpinned by the following key principles:
Creating long term shareholder value
Reward for the creation of long term
shareholder value.
Driving performance
Appropriately rewarding for superior Group,
business unit and individual performance.
Ensuring market competitiveness
Ensuring remuneration levels are
market competitive.
Driving the right behaviours
Operating a remuneration framework that
fosters Tabcorp’s Ways of Working.
The Tabcorp remuneration framework for executives and senior management is therefore heavily focused on variable performance-linked remuneration as illustrated in the following diagram:
Diagram 1: Proportion of remuneration at risk
67%
MD & CEO
33%
50%
Executive
KMP
50%
At risk remuneration
Dependent on the achievement of Group, business
unit and individual performance targets as well as the
creation of long term sustained shareholder value; and
Delivered in the form of Performance Right, restricted/
deferred Tabcorp Shares and cash.
Fixed remuneration
Set at a level that is market competitive and
commensurate with the incumbent’s skills
and experience and job responsilities.
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3. Governance
The Remuneration Committee assists the Board in the oversight of Tabcorp’s remuneration strategy and framework by:
• Establishing and maintaining competitive, reasonable and equitable remuneration policies and practices;
• Reviewing the Group’s remuneration framework (including incentive plans) and recommending to the Board the appropriate remuneration arrangements for KMP (including the MD & CEO); and
• Agreeing remuneration levels and incentive outcomes for executive KMP and the Group and making recommendations to the Board regarding the MD & CEO.
In exercising its responsibilities, the Remuneration Committee regularly assesses the appropriateness of the nature and amount of remuneration of Directors and executives by reference to relevant
employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality and high performing Board and executive team. To assist with
this, the Remuneration Committee may receive independent advice on matters such as remuneration strategies, mix and structure, as appropriate. During the year ended 30 June 2016 and to the
date of this report, no remuneration consultant provided a remuneration recommendation in respect of any KMP.
Tabcorp is committed to ensuring that all employees are remunerated fairly and equitably. As such, pay equity reviews are conducted annually and presented to the MD & CEO and the Remuneration
Committee. Although no significant gaps were identified during the year ended 30 June 2016, variances have been addressed (where appropriate).
The Board Remuneration Committee is governed by its Terms of Reference, which are available on Tabcorp’s website at www.tabcorp.com.au under the About Us – Corporate Governance section.
4. Remuneration summary of the year ended 30 June 2016
Table 1: Summary of the year ended 30 June 2016
Area
Reward mix
Summary
Following a comprehensive remuneration review, the Remuneration Committee elected to adjust the reward mix for the MD & CEO, the Chief
Operating Officer Wagering and Media, and the Chief Operating Officer Keno and Gaming, effective 1 July 2015. This results in better market
alignment and a greater proportion of the remuneration for these KMP being in the form of variable ‘at risk’ pay.
LTI grants
During the year, allocations of Performance Rights were made to eight members of the Senior Executive Leadership Team (including the MD
& CEO, following shareholder approval at the 2015 Tabcorp AGM).
Reference
Section 7.2
Diagram 3
Section 7.4(b)
Table 10
In addition, an allocation of Performance Rights was made to selected members of the senior management team to further drive shareholder
value creation, align the interests of these senior managers with the interests of shareholders (through the allocation of equity) and to retain key
senior talent.
LTI vesting
An LTI test date occurred on 20 September 2015 for the 2012 LTI grant. The relative TSR ranking at the test date for this grant placed
Tabcorp just over the 82nd percentile when compared to the peer group. As a result 100% of the Performance Rights for this grant vested.
Section 7.4(b)
Table 14
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4. Remuneration summary of the year ended 30 June 2016 (continued)
Table 1: Summary of the year ended 30 June 2016 (continued)
Area
Summary
MD & CEO
remuneration
For the year ended 30 June 2016, Mr Attenborough’s fixed remuneration remained unchanged.
As communicated in the 2015 Remuneration Report, to better align Mr Attenborough’s total remuneration package with comparable roles
in the market and to recognise his responsibility as MD & CEO of a globally expanding business, an increase to his target STI opportunity
(from $750,000 to $1,100,000) and his target LTI opportunity (from $950,000 to $1,100,000) was applied effective 1 July 2015. As a result,
two thirds of Mr Attenborough’s total remuneration package is now ‘at risk’ and subject to both short and long term performance conditions.
Chief Operating
Officer Keno and
Gaming
A comprehensive market benchmarking exercise was undertaken with respect to the remuneration package of the Chief Operating Officer
Keno and Gaming. To ensure that Mr Rytenskild continues to be competitively remunerated for the level of his responsibility in his role, the
Remuneration Committee approved an increase to his fixed remuneration (equating to 10.9%). This was in addition to his approved annual
remuneration increase of 3.0%.
Non Executive
Director fees
Following a review of the Non Executive Director fees during the year, the base Board fees were increased for both the Chairman
(from $410,000 to $425,000 per annum) and the Non Executive Directors (from $140,000 to $145,000 per annum). There were
no increases to Board Committee fees for the year.
Employee
Share grant
Grants of $1,000 worth of ‘free’ Tabcorp shares were made to eligible employees (excluding the Senior Executive Leadership Team) in
recognition of their contribution to strong Group performance in the preceding financial year. This grant helps align the interests of employees
(who are now shareholders) with external shareholders and reinforces Tabcorp’s philosophy of rewarding employees for the achievement of
strong Group performance results.
Directors’
Shareholding
Policy
The Board approved changes to the Directors’ Shareholding Policy. Under the Policy, Non Executive Directors are encouraged to acquire and
hold a minimum shareholding in Tabcorp approximately equivalent to the annual Non Executive Director base fee (for Non Executive Directors)
or two times the annual Non Executive Director base fee (for the Chairman of the Board).
Reference
Section 7.5
Table 17
Table 18
Section 8.3
5. Proposed remuneration changes from 1 July 2016
Table 2: Proposed changes from 1 July 2016
Area
Summary
Executive
Shareholding
Policy
LTI allocation
methodology
The Board has approved a Mandatory Shareholding Policy for Executives (effective 1 July 2016) which aims to ensure that there is an adequate level of alignment between
Executives, the Group and shareholders, through equity ownership. Under the Policy, the MD & CEO will be required to hold the equivalent of a minimum of two times his fixed
remuneration in Tabcorp shares (one times fixed remuneration for the remainder of the Senior Executive Leadership Team, including Executive KMP). The minimum shareholding
must be achieved within five years from 1 July 2016 or from the date the Executive is appointed into their role.
To further improve transparency and reduce volatility in the number of Performance Rights allocated each year under the LTI, a face value allocation methodology will be utilised for
future LTI allocations. This replaces the fair value allocation methodology and will be effective from the 2016 LTI Offers. The number of Performance Rights to be allocated in future,
will be based on a five-day trading Volume Weighted Average Price (VWAP) of the Group’s shares trading on the ASX up to but not including the grant date.
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6. Key management personnel (KMP)
Table 3: List of KMP for the year ended 30 June 2016
Name
Executive Director
David Attenborough
Current Executives
Damien Johnston
Craig Nugent
Adam Rytenskild
Former Executive
Kerry Willcock
Non Executive Directors
Paula Dwyer
Elmer Funke Kupper (i)
Steven Gregg
Jane Hemstritch
Justin Milne
Zygmunt Switkowski
Position held
Period in position if less than full year
Managing Director and Chief Executive Officer (MD & CEO)
Chief Financial Officer
Chief Operating Officer Wagering and Media
Chief Operating Officer Keno and Gaming
Executive General Manager, Corporate, Legal and Regulatory
Until 19 February 2016
Chairman and Director (Non Executive)
Director (Non Executive)
Director (Non Executive)
Director (Non Executive)
Director (Non Executive)
Director (Non Executive)
(i) Effective 21 March 2016, Mr Elmer Funke Kupper was granted a leave of absence from the Board of Directors until the completion of the investigation by the Australian Federal Police into Tabcorp’s
activities in relation to a business opportunity in Cambodia in 2010. Mr Funke Kupper does not receive any Tabcorp Board fees whilst on this leave of absence.
Details of Director qualifications, experience and other responsibilities are set out on pages 28 and 29.
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7. Senior management remuneration (including the MD & CEO)
7.1 Remuneration framework
The remuneration framework for senior management comprises a mix of both fixed and variable remuneration as depicted below:
Diagram 2: Senior management remuneration framework
Variable Remuneration
Fixed remuneration
The level of fixed remuneration an
individual receives reflects the scope
and responsibilities of their role, their
knowledge, skills and experience
and relativities to other similar roles
in the market.
+
Short Term Incentive (‘STI’)
The level of STI paid is dependent
upon the achievement of annual Group,
business unit and individual performance
targets and stretch goals.
+
Long Term Incentive (‘LTI’)
The value of the LTI that vests into
Tabcorp shares is dependent on the
achievement of relative total shareholder
return hurdles over a three year period.
=
Total Remuneration
Represents the total remuneration
package for an individual
encompassing both fixed
and variable pay.
Cash
Cash or a mix of cash and
Restricted Shares
Performance Rights
Reviewed annually
Annual targets
Long term shareholder value
creation (3 years)
Tabcorp’s remuneration framework has been deliberately structured to ensure a strong and direct link between performance and remuneration and to align senior management, the Group
and shareholders through:
• The use of financial measures such as net profit after tax before non-recurring items (NPAT) as the primary gateway for STI payments;
• The use of both financial and non-financial Group, business unit and individual performance measures that align to Tabcorp’s long term strategic plans, to determine STI payments;
• Rewarding for long term shareholder value creation through the use of a relative total shareholder return measure within the LTI; and
• Providing upside opportunity for superior performance and long term shareholder value creation.
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7.2 Target reward mix
To ensure that Tabcorp’s Total Remuneration (i.e. the sum of fixed and variable remuneration) is competitive, fair and reasonable, extensive market benchmarking is regularly undertaken against a
wide range of relevant organisations. The target reward mix (i.e. the split between fixed and on-target variable remuneration) aims to position Total Remuneration at the market median where target
performance has been achieved. The target reward mix for executive KMP (including the MD & CEO) is outlined in Diagram 3.
Diagram 3: Executive KMP target reward mix for the year ended 30 June 2016
16.7%
33.3%
18.8%
25%
6.2%
MD & CEO
16.7%
33.3%
All other
KMP
50%
Fixed remuneration
Short term incentive – cash
Short term incentive deferred (Restricted Shares)
Long term incentive
7.3 Fixed remuneration
Senior managers receive a fixed remuneration package comprising cash salary, statutory superannuation contributions and other benefits they may elect to receive on a salary sacrifice basis
(such as additional superannuation contributions and motor vehicle novated leases).
An individual’s fixed remuneration is set taking into consideration a range of factors. These factors are also considered annually as part of the annual remuneration review process. These include:
• the scope and responsibilities of their role;
• their knowledge, skills and experience;
• their performance (as assessed through the Group’s performance management process);
• market data for similar roles in comparable companies;
• rarity and market demand for their skill set; and
• relativity of remuneration to other similar roles internally.
The Remuneration Committee approves the fixed remuneration for the Senior Executive Leadership Team and makes recommendations to the Board in relation to the MD & CEO.
During the year ended 30 June 2016, the fixed remuneration packages of executive KMP, including the MD & CEO increased by 4.6% on average.
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7.4 Variable (at risk) remuneration
(a) Short term incentive (STI)
Overview
The STI is designed to reward employees for the achievement of Group, business unit and individual performance goals over the relevant 12 month period, which are aligned to the Group’s annual
objectives for each financial year.
Eligibility
The Senior Executive Leadership Team (including executive KMP), senior managers and mid-level managers are eligible to participate in the STI plan.
The STI pool (Group Funding Multiplier)
During each financial year, the Remuneration Committee reviews Tabcorp’s performance against net profit after tax (NPAT) before non-recurring items and other financial targets. At the end
of the financial year, the Board determines the Group Funding Multiplier (GFM) depending on NPAT performance (adjusted for non-recurring items), which sets the size of the STI pool:
• if the Group’s NPAT target is achieved for the year, 100% of the STI pool will generally be funded (i.e. a GFM of 1). To achieve the target, a level of stretch performance is required;
• if the Group’s NPAT performance for the year is below target, a smaller STI pool may be funded (at the Board’s discretion) or the Board may elect to have no STI pool (i.e. a GFM range of 0 to <1),
in which case no STI payments would be made; and
• if the Group’s NPAT performance for the year is above target, a larger STI pool may be funded, capped at a maximum of 125% of the target pool (i.e. a GFM of >1 but <=1.25).
The Board has discretion to adjust the GFM (and thus the STI pool) if it feels it is necessary, taking into consideration a range of financial and non-financial business factors. The GFM has
a range of 0 to 1.25 (maximum).
The Board considers NPAT to be an appropriate performance measure to determine the STI pool as it aligns to the Group’s remuneration philosophy of creating shareholder value, it is directly linked
to driving business results and it is within senior management’s scope of influence.
NPAT and EPS performance over the past five financial years
Diagram 4: NPAT performance
Net profit after tax ($m)
Diagram 5: EPS (basic) performance
Earnings per share (cents)
169.7
FY16
FY15
FY14
129.9
FY13
126.6
334.5(i)
20.4
FY16
FY15
FY14
17.2
FY13
17.2
42.4
FY12
340.0
FY12
47.6
(i) Includes $163.2 million as a result of receiving income tax benefits relating to the Victorian wagering and gaming licences payment and the NSW Trackside payment and associated interest income.
Taking the above performance and overall Group results into consideration, the Board determined that a maximum Group Funding Multiplier of 0.9 (i.e. 90%) should be applied for the year.
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The STI calculation
An individual’s short term incentive is calculated by taking three key factors into account:
Diagram 6: STI calculation
Target STI ($)
X
Divisional Multiplier
X
Individual Performance Multiplier
=
STI Awards (i),(ii)
(i) The STI Award is comprised of cash (50% for the MD & CEO and 75% for all other executive KMP) and Restricted Shares (50% for the MD & CEO and 25% for all other executive KMP) which are
restricted for a two year period.
(ii) The sum of the STI payments cannot exceed the STI pool which is capped at a maximum of 125% of the target pool.
Table 4: Components of the STI calculation
Component
Target STI ($)
Definition
Each participant in the STI plan is eligible to receive an on-target STI Award upon the
achievement of target Group, business unit and individual performance.
Divisional Multiplier The Divisional Multiplier aims to reward STI participants for delivering superior business unit
performance and to recognise each business unit’s contribution to the overall Group results.
There are three Divisional Multipliers – Wagering and Media, Keno and Gaming, and Corporate.
Individual performance is assessed using a balanced scorecard of financial and non-financial
measures that are reflective of the Group’s annual objectives and aligned to creating superior
shareholder returns (see Table 5). In addition to the balanced scorecard measures, key strategic
priorities are also set and assessed annually.
Individual
Performance
Multiplier
The Board sets the performance objectives for the MD & CEO at the start of each financial year.
The MD & CEO works with the Remuneration Committee and the Senior Executive Leadership
Team to set the executives’ objectives which are then cascaded down the organisation.
How is it calculated?
The Target STI ($) is calculated as a percentage of an individual’s Total
Remuneration (see Diagram 3) and is determined with reference to market
benchmarks and the nature of the role.
The Divisional Multiplier is based on the contribution to NPAT of each business
unit and applies to all participants who are employed within that business unit.
At the end of the financial year, each participant undergoes a performance
review in line with Tabcorp’s performance management process. Objectives
are assessed and an overall performance rating is assigned (taking into
consideration performance against objectives as well as behaviours
(Ways of Working)).
The performance rating translates into an Individual Performance Multiplier
which scales up or down and can range from 0 (for below expectation
performance) up to a maximum of 2 (for exceptional performance).
The Divisional Multipliers and Individual Multipliers are set with reference to the overall STI pool to ensure that the total STI payout does not exceed the defined pool.
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Delivery
The STI is delivered in cash, or a mix of cash and Restricted Shares (see Diagram 3). Restricted Shares are subject to a two year service condition during which time the Restricted Shares may not
be traded, however participants have full entitlement to dividends and voting rights. All Restricted Shares will be forfeited immediately upon cessation of employment during the restriction period.
However, the Remuneration Committee has discretion in special circumstances to determine that the Restricted Shares remain on foot (in full or on a pro rata basis) and the terms applicable. Special
circumstances include events such as retirement, redundancy, death and permanent disability.
The STI deferral element promotes the building of share ownership in Tabcorp (further aligning the interests of senior managers with shareholders), reduces long term risk and assists with the retention
of key senior managers (providing increased continuity for the business).
Claw back
Restricted Shares are subject to claw back if the Board considers this to be appropriate having regard to any information which has come to light after the delivery of the Restricted Shares
to participants, including but not limited to misconduct or any material misstatement or omission in Tabcorp’s prior financial statements.
The Board has the capacity to introduce further terms and conditions which may specify additional circumstances in which a participant’s Restricted Shares may be subject to claw back.
STI performance
For the year ended 30 June 2016, STI measures and targets were derived from the Board approved strategic corporate plan which comprised financial and non-financial objectives. These objectives
were subsequently included in the balanced scorecards for the Senior Executive Leadership Team. A list of these measures is included in Table 5 including a summary of key achievements during
the year.
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Table 5: STI measures and summary of achievements for the year ended 30 June 2016
Objective
Financial
Measures (i)
Revenue
Achievements for the year
• Group revenue of $2,188.7 million, up 1.5%.
Profit (e.g. EBIT, NPAT before
non-recurring items)
Dividends
Balance sheet
Operating costs
Customers and Growth
Customer acquisition and loyalty
Brand strategy
Delivery of new products
and digital initiatives
People and Leadership
Employee engagement
Organisation
Gender diversity
Health & Safety
Corporate reputation
Stakeholder engagement
Operational effectiveness
• Earnings before interest and tax (EBIT), before significant items, of $337.2 million, up 0.8%.
• Net profit after tax (NPAT), before significant items, of $185.9 million, up 8.5%.(ii)
• Full year ordinary dividends totalled 24 cents per share fully franked, up 20.0%.
• Group operating expenses of $468.7 million, up 2.2%.
• Expense (cost) to revenue ratio of 21.4%.
• More than 430,000 Active TAB account customers, up 6%.
• 398,000 members of the Diamond Rewards loyalty program, up 17%.
• Keno brand and customer experience transformation supporting 4.8% revenue growth.
• Wagering Partial Cash Out successfully launched.
• Overall employee engagement score of 3.94 out of 5, up 0.05 on the previous year.
• Employer of Choice for Gender Equality citation awarded by the Federal Workplace Gender Equality Agency.
• Industry leading lost time injury frequency rate of 0.9 per million hours worked.
• Dow Jones Sustainability Index leader in the global gambling category.
• Financial benefits to stakeholders: taxes on gambling $428.6 million, returns to the racing industry $786.9 million.
• New or extended partnerships with Victoria Racing Club, Australian Trainers Association, TasRacing, National Jockeys Trust.
• No major incidents throughout the Spring Racing Carnival. Host systems 100% available for all major Carnival race days.
• ACTTAB integration completed.
Strategic
Risk and compliance optimisation
• New AML/CTF program adopted in December 2015, and Chief Risk Officer (CRO) appointed to lead new Risk function.
Domestic and international business
expansion opportunities
Digital strategy
Product development
Licence extensions
• Licences granted for new online wagering and gaming business in the UK and Ireland, in partnership with News UK.
• Five-year agreement for Victorian thoroughbred media rights.
• Sky Thoroughbred Central commenced broadcast of Australian racing in high definition – an Australian first.
• First-to-market with leading gaming product for TGS venues.
• New NSW Keno licence issued, extending approval to operate until 2050.
(i) For 2017, the MD & CEO’s and his direct reports’ scorecards have been refined and simplified to focus on key business priorities (financial and non financial) in line with the Corporate Plan
and Tabcorp’s overarching goals. The refined scorecard will be presented in next year’s Remuneration Report (ending 30 June 2017).
(ii) Statutory net profit after tax (NPAT) of $169.7 million, which was down 49.3% on the prior corresponding period. The results were impacted by significant items after tax of $16.2 million,
compared to a one-off tax benefit of $163.2 million in the prior corresponding period.
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Table 6: STI Awards achieved
KMP
Current executives
David Attenborough
Damien Johnston
Craig Nugent
Adam Rytenskild
Former executive
Kerry Willcock
Year
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Actual STI Achieved
Cash portion
$(i)
Restricted portion
$(ii)
Total
$
Actual STI achieved
as a % of target STI
STI forfeited as a
% of target STI
Actual STI achieved as
a % of maximum STI
495,000
425,000
226,600
275,000
187,718
271,338
302,402
157,650
-
134,379
495,000
425,000
75,533
91,666
62,572
90,446
100,801
52,550
-
44,793
990,000
850,000
302,133
366,666
250,290
361,784
403,203
210,200
-
179,172
90%
113%
90%
113%
72%
107%
134%
80%
0%
63%
10%
0%
10%
0%
28%
0%
0%
20%
100%
37%
36%
45%
36%
45%
29%
43%
54%
32%
0%
25%
(i) 75% (50% for the MD & CEO) of the actual STI achieved is paid as cash, and is included in remuneration of the current financial year.
(ii) 25% (50% for the MD & CEO) of the actual STI achieved is deferred in the form of Restricted Shares which are subject to a two year service restriction from the grant date. The Restricted Shares
will be granted after the end of the financial year, and the value will be reflected in remuneration during the vesting period.
(b) Long term incentive (LTI)
Overview
The Tabcorp LTI is designed to reward senior management for contributing to the creation of long term shareholder value and to retain key critical talent within the organisation.
Table 7: Summary of the Tabcorp LTI plan for the year ended 30 June 2016
What is the purpose
of the LTI Plan?
To drive long term business performance and shareholder value creation, to align senior management and shareholder interests (through the use of equity) and to retain high
performing and skilled senior managers.
Who is eligible to
participate in the
LTI Plan?
The Senior Executive Leadership Team (including executive KMP) and certain key senior managers.
How is LTI delivered? Participants in the LTI plan are allocated a maximum number of Performance Rights at the beginning of the performance period. Performance Rights provide the right to
receive Tabcorp shares subject to meeting performance conditions, at no cost to the participant. They do not attract dividends nor provide voting rights.
How long is the
performance period?
Vesting is dependent on meeting the minimum performance hurdle at the third anniversary of the date of the allocation (i.e. a three year performance period).
During the year, the Remuneration Committee reviewed the length of the performance period. Following careful consideration, the Committee elected to retain the current
three year performance period, taking into consideration a number of factors, including Tabcorp’s rapidly changing industry, the nature of the Group’s business operations
and market benchmarks.
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Are Performance
Rights forfeitable?
All unvested Performance Rights will lapse immediately upon cessation of employment. However, the Remuneration Committee has discretion in special circumstances
to determine the number of Performance Rights retained and the terms applicable. Special circumstances include events such as retirement, redundancy, death and
permanent disability.
Can Performance
Rights be clawed
back?
Performance Rights are subject to claw back if the Board considers this to be appropriate having regard to any information which has come to light after the grant of the
Performance Rights to participants, including but not limited to misconduct or any material misstatement or omission in Tabcorp’s prior financial statements. The Board has
the capacity to introduce further terms and conditions which may specify additional circumstances in which a participant’s Performance Rights may be subject to claw back.
What is the
performance
measure?
The performance measure is relative total shareholder return (relative TSR). Relative TSR measures the return received by shareholders (capital returns, dividends and share
price movement) over a specific period relative to a peer group of companies. Tabcorp engages an external consultant to calculate relative TSR.
During the year ended 30 June 2016, the Remuneration Committee considered adopting a second performance measure within the LTI. Taking into consideration a number
of factors, the Committee elected not to introduce a second LTI measure. The Committee will review the LTI performance measures again in 2017.
The Board considers relative TSR to be an appropriate performance measure as it reflects the Group’s remuneration philosophy of creating shareholder value relative
to a peer group, over the long term.
Which companies
are included in the
peer group?
The peer group used for assessing Tabcorp’s relative TSR performance is the S&P/ASX 100 index excluding property trusts, infrastructure groups and mining companies
(represented by the S&P Global Industry Classification Standards (GICS) of Metals & Mining, Oil and Gas, Transportation, Infrastructure, Utilities and Real Estate Investment
Trusts).
The Remuneration Committee reviewed the peer group during the year. This peer group was deemed appropriate and retained, as it contains organisations of comparable
size to that of Tabcorp as well as organisations that exhibit similar operational structures in comparable industries. In addition, the constituent companies represent
competitors for similar executive talent.
What are the relative
TSR performance
hurdles?
The composition of the peer group may change as a result of specific external events, such as mergers and acquisitions, capital returns, delistings and capital
reconstruction. The Remuneration Committee has agreed guidelines for adjusting the peer group following such events, and has the discretion to determine
any adjustment to the peer group of companies.
Tabcorp’s relative TSR ranking
Percentage of Performance Rights that will vest
Value of LTI reward
Below 50th percentile
At 50th percentile
0%
50%
Zero
Target
Above 50th percentile and below 75th percentile
Pro-rata between 50% (at 50th percentile) and
100% (at 75th percentile)
Between Target and Outperformance
At or above the 75th percentile
100%
Outperformance (two times Target)
This testing schedule and vesting criteria are common practice adopted by companies in the S&P/ASX100 index, which is consistent with Tabcorp’s remuneration
philosophy (refer to Section 2) and senior management remuneration framework (refer to Section 7.1).
If Performance Rights vest, the Company will issue or transfer ordinary shares to the participant, with full voting and dividend rights corresponding to the rights
of all other holders of ordinary shares.
Performance Rights that have not vested after testing will lapse (there is no retesting).
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Allocations
The Performance Rights granted under the LTI are generally allocated annually, subject to Board and shareholder (for the MD & CEO only) approval. Historically, for each LTI offer, Tabcorp allocated
a number of Performance Rights to LTI participants on the basis of a fair market value allocation methodology (aligned to AASB 2 Share-based Payment rules). Under this methodology, the target
LTI value (see Diagram 3) was divided by a discounted Tabcorp share price (discounted for a number of factors including share price volatility and the probability of vesting) to determine the number
of Performance Rights to allocate. In future, all LTI allocations will be made using a face value methodology. This will improve LTI transparency and reduce the volatility in the number of Performance
Rights allocated annually.
Historically, the fair market value of each Performance Right under the LTI Plan, was calculated to be approximately 50% of the prevailing share price at the date of allocation (independently calculated
by PriceWaterhouseCoopers). This meant that the effective maximum value (face value) of the LTI allocated, which would be realised for outperformance, equated to approximately twice the fair market
value. As such, this ‘outperformance’ value will be utilised in future to ensure that LTI participants are not disadvantaged/advantaged by the transition to the new allocation methodology (i.e. they are
receiving no more or less value than they would have under the previous methodology). Diagram 7 below summarises both the historical methodology and the future methodology.
Diagram 7: Summary of the operation of fair and face value allocation methodologies within Tabcorp
LTI Opportunity(i)
Value Per
Performance Right(ii)
Number of Performance
Rights allocated(iii)
Relative TSR
ranking
Fair value
allocation
methodology
(historical)
Face value
allocation
methodology
(future)
Target
÷
Fair value – Approximately
50% of Tabcorp’s share
price at the date of
allocation
=
X
Outperformance
(Two times Target)
÷
Five-day Tabcorp VWAP
(approximately
twice the fair value)
>=75th
Percentile
50th
Percentile
<50th
Percentile
Number of
Performance
Rights vesting
100% of the
Performance
Rights
50% of the
Performance
Rights
Nil
Performance
Rights
Approximate
value(iv)
Twice the
Target value
Target
Nil
(i) Under the fair value allocation methodology, the ‘Target’ LTI value (see Diagram 3) was used as the basis for making allocations. Under the face value allocation methodology, the Outperformance
value will be utilised going forward as the basis for making allocations.
(ii) Historically, the fair value (which equated to approximately 50% of the face value) was used to calculate the number of Performance Rights granted. Under the face value methodology, Tabcorp’s
share price will be used to calculate the number of Performance Rights allocated.
(iii) The number of Performance Rights allocated should be approximately the same under both methodologies.
(iv) The value realised by the participant should be approximately equivalent under both methodologies for the same level of performance outcome.
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Future allocations
Diagram 8: LTI Allocation calculation
Outperformance ($)
÷
Volume Weighted Average
Tabcorp Share Price
=
Number of Performance
Rights allocated
Table 8: Components of the LTI calculation
Component
Definition
Outperformance ($)
The Outperformance ($) value is based on a percentage of the individual’s Total
Remuneration and is benchmarked to ensure that it is competitive and appropriate
within the market. The Outperformance ($) is equal to two times the target value
as disclosed in Diagram 3.
How is it calculated?
The Outperformance ($) represents the intended LTI value that a participant will
realise if Tabcorp’s relative TSR is ranked at or above the 75th percentile against
the peer group (i.e. one hundred per cent vesting).
Volume Weighted Average
Tabcorp Share Price
(‘VWAP’)
Number of Performance
Rights allocated
The VWAP is utilised to determine the number of Performance Rights to allocate
to participants.
The Outperformance ($) value is divided by the five-day VWAP of Tabcorp shares
traded on the ASX up to but not including the grant date.
The number of Performance Rights allocated to participants reflects the maximum
number that could vest at the end of the performance period for the achievement
of the highest relative TSR performance hurdle.
The number of Performance Rights allocated is calculated by taking the
Outperformance ($) value and dividing it by the five-day VWAP of Tabcorp shares
traded on the ASX up to but not including the grant date.
Table 9: Current LTI allocations on foot
Grant year
2013
2014
2015
Grant date
2 October 2013
31 October 2013
28 October 2014
29 October 2015
Allocation to
Senior management
MD & CEO
MD & CEO,
senior management
MD & CEO,
senior management
Test and expiry date
18 September 2016
16 September 2017
22 September 2018
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Table 10: Performance Rights granted during the year ended 30 June 2016
KMP
Executive Director
David Attenborough
Current Executives
Damien Johnston
Craig Nugent
Adam Rytenskild
Former Executive
Kerry Willcock(i)
Total
Grant date
$
29 October 2015
29 October 2015
29 October 2015
29 October 2015
29 October 2015
Number
$
484,581
147,886
153,138
119,221
130,077
1,034,903
Fair value at
grant date
$
Exercise
price
$
Expiry
date
2.47
2.47
2.47
2.47
2.47
Nil
Nil
Nil
Nil
Nil
22 September 2018
22 September 2018
22 September 2018
22 September 2018
22 September 2018
(i) For the Performance Rights granted during the year, on cessation of employment 17,904 were retained, and 112,173 lapsed.
Table 11: Performance Rights vested and shares issued during the year ended 30 June 2016
KMP
Executive Director
David Attenborough
Current Executives
Damien Johnston
Craig Nugent
Adam Rytenskild
Former Executives
Kerry Willcock
Total
Number
of Performance
Rights vested
427,586
230,937
126,750
106,493
201,094
1,092,860
Number
of shares
issued
427,586
230,937
126,750
106,493
201,094
1,092,860
Amount paid
per share
$
Nil
Nil
Nil
Nil
Nil
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Table 12: Value of Performance Rights granted as part of remuneration – granted and exercised during the year ended 30 June 2016
KMP
Executive Director
David Attenborough
Current Executives
Damien Johnston
Craig Nugent
Adam Rytenskild
Former Executives
Kerry Willcock
Total
Granted(i)
$
Exercised(ii)
$
As a % of
remuneration(iii)
1,196,915
1,954,068
365,278
378,251
294,476
321,290
2,556,210
1,055,382
579,248
486,673
919,000
4,994,371
37%
28%
21%
18%
32%
(i) Represents the value of Performance Rights granted during the year. For details on the valuation of the Performance Rights, including models and assumptions used, refer to Note E1 of the
Tabcorp Financial Report.
(ii) Represents the value of Performance Rights exercised during the year. The value is calculated based on the market value of Tabcorp shares at the date of exercise.
(iii) Represents the fair value of Performance Rights expensed during the year as a percentage of total remuneration, excluding termination payments. Total remuneration includes share based
payments.
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Table 13: KMP interests in Performance Rights of Tabcorp for the year ended 30 June 2016 (number)
KMP
Executive Director
David Attenborough
Current Executives
Damien Johnston
Craig Nugent
Adam Rytenskild
Former Executives
Kerry Willcock
Total
Balance at
start of year
Granted as
remuneration
Vested
Lapsed (i)
Net change
other (ii)
Balance at KMP
cessation date
Balance at end
of year (ii)
1,536,773
484,581
(427,586)
589,101
336,116
288,928
147,886
153,138
119,221
(230,937)
(126,750)
(106,493)
-
-
-
-
516,254
3,267,172
130,077
1,034,903
(201,094)
(1,092,860)
(236,811)
(236,811)
-
46,218
26,370
22,667
40,502
135,757
n/a
n/a
n/a
n/a
1,593,768
552,268
388,874
324,323
248,928
248,928
n/a
2,859,233
(i) Performance Rights that lapsed on cessation of employment; being 36,085 granted in FY14, 88,553 granted in FY15 and 112,173 granted in FY16.
(ii) Additional Performance Rights were allocated during the year to restore value to previous equity grants that were impacted by the 1 for 12 pro rata accelerated renounceable entitlement offer and
the payment of a special dividend, which occurred in March 2015. The additional Performance Rights are subject to the same terms and conditions as the corresponding tranche of Performance
Rights to which the additional grants relate under the LTI. No additional Performance Rights were allocated to the MD & CEO.
(iii) The number of Performance Rights vested and exercisable at year end was nil.
LTI performance
Diagram 9: Full year dividend in respect of each financial
year (includes interim, final and special dividends)
Diagram 10: Company share price
at the end of each financial year
Cents per share fully franked
Share price ($)
50.0(i)
FY16
FY15
FY14
FY13
FY12
24.0
16.0
19.0
24.0
FY16
FY15
FY14
FY13
FY12
4.57
4.55
3.36
3.05
2.93
(i) Dividends include a special dividend of 30 cents per share declared in February 2015.
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Diagram 11: Tabcorp Total Shareholder Return (i)
Indexed to 100 at 1 July 2011
250
225
200
175
150
125
100
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S&P/ASX 100 Accumulation Index
July 2011
July 2012
July 2013
July 2014
July 2015
July 2016
(i) Excludes the value of franking credits.
Source: Bloomberg.
In the year ended 30 June 2016, there was one test date on 20 September 2015 for the 2012 allocation under the LTI. The relative TSR percentile ranking of this allocation at the test date was
a little over the 82nd percentile, and accordingly 100% of the Performance Rights vested.
Table 14: LTI testing results
Grant year
2011
2012
Grant date
23 September 2011
26 October 2011
4 October 2012
31 October 2012
Allocation to
Test date
Senior management 23 September 2014
MD & CEO
% of Performance Rights
TSR result
at test date
69.2 percentile
Vested
88%
Lapsed
12%
Senior management 20 September 2015
82.4 percentile
100%
-
MD & CEO
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(c) Appointment/retention incentives
Restricted Shares may be issued to senior managers as an incentive upon appointment (either on joining Tabcorp or transfer to a new position internally) or for retention. These are ordinary shares
in the Company, and in order to act as a retention mechanism are subject to time based restrictions of up to three years.
Additionally, senior managers may also be issued Performance Rights upon appointment. These instruments are issued under the LTI and are subject to the same performance hurdles and vesting
conditions (refer Section 7.4(b)).
No appointment or retention incentives were provided to executive KMP during the year ended 30 June 2016.
(d) Policy prohibiting hedging
Participants in the incentive plans (STI and LTI) are restricted from hedging the value of Restricted Shares and unvested Performance Rights, and must not enter into a derivative arrangement
in respect of the equity instruments granted under these plans. Breaches of the restriction will result in equity instruments being forfeited.
These prohibitions are included in Tabcorp’s Securities Trading Policy, available from the Corporate Governance section of Tabcorp’s website at www.tabcorp.com.au, and in the terms and
conditions of the incentive plans.
Equity instruments granted under the incentive plans can only be registered in the name of the participant, are identified as non tradable on the share register, and cannot be traded or transferred
to another party until vested or until any trading restriction period has expired (where applicable).
The Board at its discretion can request a senior manager to provide a statutory declaration that the senior manager has complied with this policy. During the year, the Board did not require
any such declarations.
7.5 MD & CEO current remuneration arrangements
(a) Current remuneration
Mr Attenborough receives fixed remuneration and the opportunity to receive variable remuneration through STI and LTI arrangements. As communicated in the 2015 Remuneration report, changes
implemented in the current financial year in relation to Mr Attenborough’s remuneration have resulted in an increase in both the target short term incentive opportunity and the target long term incentive
opportunity, with his fixed remuneration remaining unchanged. This overall increase in remuneration recognises Mr Attenborough’s success in leading the transformation of Tabcorp to drive sustained
performance, improves alignment with comparable roles in the market, and provides greater alignment with shareholder interests. 67% of Mr Attenborough’s remuneration is now `at risk’ and subject
to the achievement of both Group and individual performance outcomes.
Fixed remuneration
There was no change to Mr Attenborough’s fixed remuneration which has remained at $1,100,000.
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STI
For the year ended 30 June 2016, Mr Attenborough was eligible to receive an STI Award based on his individual performance and the Group’s performance over the annual performance review
period. Mr Attenborough’s annual STI Award was equivalent to $1,100,000 at target and is delivered in cash (50%) and Restricted Shares (50%), with the opportunity for Mr Attenborough to voluntarily
sacrifice part of the cash component into additional superannuation contributions.
For the year ended 30 June 2016, Mr Attenborough was provided with an STI Award of $990,000 which equated to 90% of his target incentive (36% of his maximum incentive). The Board deemed
this to be appropriate given Tabcorp’s performance levels over the year (see Table 5). 50% ($495,000) of this Award will be in the form of Tabcorp Shares which are restricted for two years and subject
to forfeiture conditions.
LTI
The Company intends that the LTI component of Mr Attenborough’s remuneration package will involve annual grants of Performance Rights, which would be subject to a performance hurdle,
with the grant of such Performance Rights being subject to obtaining any necessary shareholder approvals at the relevant time. For the year ended 30 June 2016, Mr Attenborough’s LTI Award was
equivalent to $1,100,000 at target. The structure and operation of this LTI Award is the same as that which applies to the LTI offers to other senior managers in Section 7.4(b), other than as set out
in this section. Since being appointed as MD & CEO, Mr Attenborough has received five grants of Performance Rights under the Tabcorp Long Term Performance Plan, which were approved by
shareholders at the Company’s previous Annual General Meetings. The details of the current allocations still on foot are as follows:
Table 15: MD & CEO – current LTI allocations on foot
Grant date
31 October 2013
28 October 2014
29 October 2015
Number
590,062
519,125
484,581
Test and expiry date
18 September 2016
16 September 2017
22 September 2018
Upon termination of employment, all unvested Performance Rights will lapse immediately. However, in situations where termination is as a result of an event beyond the control of the incumbent
(e.g. death, permanent disablement or other Board determined appropriate reason) a pro rata number of Performance Rights may vest into shares. The exact number of Performance Rights
that will vest will be determined by the duration of the performance period that has already elapsed and relative TSR performance outcomes as at the appropriate test date.
Partial lapse of unvested Performance Rights may occur in circumstances where Mr Attenborough takes parental leave or extended unpaid leave. In the event of a takeover offer for the
Company or any other transaction resulting in a change of control of the Company, the Board is required to determine, in its absolute discretion, the appropriate treatment regarding any
unvested Performance Rights.
Further information relating to these Performance Rights is available in the notice of meeting for the Company’s 2013, 2014 and 2015 Annual General Meetings.
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(b) Changes for the 2017 financial year
Following the year ended 30 June 2016, a comprehensive remuneration benchmarking exercise was undertaken, comparing Mr Attenborough’s remuneration levels with the remuneration levels
of Managing Directors and Chief Executive Officers in other similar organisations (including companies within the “Gaming” sector). Following the results of this benchmarking exercise, the Board
approved an increase to Mr Attenborough’s fixed remuneration level to $1,250,000 (effective 1 September 2016), inclusive of statutory superannuation contributions (from $1,100,000). This decision
was made to better align Mr Attenborough’s fixed remuneration with the other comparable roles in the market and to recognise his responsibilities in a complex and global business.
Mr Attenborough’s reward mix will remain unchanged (see Diagram 3) for the 2017 financial year.
As a result of the increase to his fixed remuneration and the reward mix remaining unchanged, Mr Attenborough’s target Short Term Incentive opportunity will increase to $1,250,000 (from $1,100,000)
for the 2017 financial year. Fifty per cent of any applicable Short Term Incentive payments made to Mr Attenborough will be subject to deferral in Restricted Shares for a two year period.
Mr Attenborough’s Long Term Incentive target opportunity will also increase to $1,250,000 (from $1,100,000), and will be subject to the same terms and conditions as the Long Term Incentive detailed
in Section 7.4(b).
7.6 Contracts – executive KMP (including the MD & CEO)
The table below contains details of the contracts of the executive KMP. The contracts do not provide for any termination payments, other than payment in lieu of notice.
Table 16: Executive KMP contracts
Name
Current Executives
David Attenborough
Damien Johnston
Craig Nugent
Adam Rytenskild
Former Executive
Kerry Willcock
Position
Contract duration
Executive
Tabcorp
Minimum notice period (months)
Managing Director and Chief Executive Officer
Chief Financial Officer
Chief Operating Officer Wagering and Media
Chief Operating Officer Keno and Gaming
Open ended
Open ended
Open ended
Open ended
Executive General Manager, Corporate, Legal & Regulatory
Open ended
6
6
6
6
6
12
9
9
9
12
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7.7 Remuneration – executive KMP (including the MD & CEO)
Table 17: Executive KMP remuneration
Short term
Long
term
Post
employment
Charge for share based
allocations(iv)
Salary
& fees (i)
$
Cash
bonus(ii)
$
Year
Non-
monetary
benefits(iii)
$
Accrued
leave
benefits
$
Super-
annuation
$
Total
excluding
charge for
share based
allocations
Restricted
Shares
$
Performance
Rights
$
Performance
related(v)
%
Termination
benefits
$
Total
$
2016 1,080,692
2015 1,056,300
495,000
425,000
2016
2015
2016
2015
2016
2015
648,839
630,158
672,567
637,488
226,600
275,000
187,718
271,338
543,803
506,717
302,402
157,650
2016
2015
363,901
552,008
-
134,379
-
1,145
-
-
-
1,380
-
-
-
-
2016 3,309,802 1,211,720
2015 3,382,671 1,263,367
-
2,525
36,320
44,337
19,308
18,783
1,631,320
1,545,565
382,377
214,837
1,173,742
968,936
3,187,439
2,729,338
(13,801)
13,554
24,234
16,984
43,521
(16,602)
23,723
34,562
113,997
92,835
19,308
18,783
19,308
18,783
19,308
18,783
12,872
18,783
90,104
93,915
880,946
937,495
903,827
945,973
909,034
666,548
95,832
67,869
86,508
63,141
83,070
47,601
372,960
335,281
259,940
191,514
1,349,738
1,340,645
1,250,275
1,200,628
215,579
163,374
1,207,683
877,523
400,496
739,732
69,931
48,093
218,044
293,958
688,471
1,081,783
4,725,623
4,835,313
717,718
441,541
2,240,265
1,953,063
7,683,606
7,229,917
64%
59%
52%
51%
43%
44%
50%
42%
42%
44%
-
-
-
-
-
-
-
-
594,003
-
594,003
-
KMP
Executive Director
David Attenborough
Managing Director and
Chief Executive Officer
Current Executives
Damien Johnston
Chief Financial Officer
Craig Nugent
Chief Operating Officer
Wagering and Media
Adam Rytenskild
Chief Operating Officer
Keno and Gaming
Former Executives
Kerry Willcock (vi)
EGM Corporate,
Legal and Regulatory
Total
(i) Comprises salary and salary sacrificed benefits (including superannuation and motor vehicle novated leases where applicable).
(ii) Cash bonus reflects 75% (50% for the MD & CEO) of the STI achieved in the year. The remaining 25% (50% for the MD & CEO) of the STI is deferred into Restricted Shares, and is reflected
in remuneration during the vesting period.
(iii) Comprises the cost to the Company for providing car parking, where applicable.
(iv) Represents the fair value of share based payments expensed by the Company. Value only accrues to the KMP when conditions have been met.
(v) Represents the sum of cash bonus, Restricted Shares and Performance Rights as a percentage of total remuneration, excluding termination payments.
(vi) Ceased employment and as a KMP on 19 February 2016. Termination payment includes $594,003 payment in lieu of notice. In addition to the amounts disclosed above, payment on cessation
of annual leave amounted to $52,280 and long service leave amounted to $161,149.
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7.7 Remuneration – executive KMP (including the MD & CEO) (continued)
Table 17 is prepared in accordance with the Corporations Act requirements. The amounts that appear under the heading ‘charge for share based allocations’ are the amounts expensed by the
Company in accordance with the required Accounting Standards in respect of current and past incentive allocations of Restricted Shares and Performance Rights. These amounts are therefore
not amounts actually received by Executives during the year. Whether Executives receive any value from the allocation of long term incentives in the future will depend on the performance of
the Company relative to a peer group of listed companies. The mechanism which determines whether or not long term incentives vest in the future is described in Section 7.4(b).
An overview of the actual value of remuneration received by KMP during the year is outlined in Table 18. This information is provided as it is considered to be of interest to users of the
Remuneration Report.
Table 18: Actual value of remuneration received by current Executive KMP
KMP
Executive Director
David Attenborough
Current Executives
Damien Johnston
Craig Nugent
Adam Rytenskild
Total
Salary and
fees (i)
$
1,080,692
1,056,300
648,839
630,158
672,567
637,488
543,803
506,717
2,945,901
2,830,663
Year
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Cash
bonus (ii)
$
425,000
506,250
275,000
249,638
271,338
221,288
157,650
200,025
1,128,988
1,177,201
Superannuation
$
Value of STI
vested (iii)
$
Value of LTI
vested (iv)
$
19,308
18,783
19,308
18,783
19,308
18,783
19,308
18,783
77,232
75,132
-
-
-
-
-
-
-
-
-
-
1,954,068
1,446,086
1,055,382
723,041
579,248
383,427
486,673
268,398
4,075,371
2,820,952
(i) Comprises salary and salary sacrificed benefits as calculated in Table 17.
(ii) Cash bonus reflects the 75% (50% for the MD & CEO) of the previous year’s STI, which was paid during the year.
(iii) Value of Restricted Shares vesting during the year as part of the STI, calculated based on the market value of Tabcorp shares at the date of vesting.
(iv) Value of shares issued during the year on the vesting of Performance Rights as part of the LTI, calculated based on the market value of Tabcorp shares at the date of vesting.
Total
$
3,479,068
3,027,419
1,998,529
1,621,620
1,542,461
1,260,986
1,207,434
993,923
8,227,492
6,903,948
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8. Non Executive Director remuneration
8.1 Remuneration framework
The Remuneration Committee has responsibility for annually reviewing and recommending to the Board appropriate remuneration arrangements for Non Executive Directors, taking into consideration
factors including, the Group’s remuneration philosophy (see Section 2), the level of fees paid to Board members of other publicly listed Australian companies, operational and regulatory complexity,
the responsibilities and workload requirements of each Board member and advice from independent remuneration consultants, where appropriate.
The current aggregate annual limit (including superannuation contributions) is set at $2 million, as approved by shareholders at the Annual General Meeting on 28 November 2005.
Non Executive Directors do not receive any performance or incentive payments and are not eligible to participate in any of Tabcorp’s incentive plans. This aligns with the principle that Non Executive
Directors act independently and impartially.
8.2 Structure
Non Executive Directors receive a base Board fee and a fee for each Board Committee that they are members of. The Board Chairman receives a fixed single fee which is inclusive of services on all
Board Committees. In addition, Superannuation Guarantee Contributions are payable on all fees.
Some Directors may receive additional remuneration and associated superannuation (where applicable) for:
• Chairmanship of the Victorian Joint Venture Management Committee, receiving a fee equivalent to Chairman of the Board Remuneration Committee – Paula Dwyer was Chairman of this Committee
throughout the year;
• Observer fees, equivalent to the applicable Board and Committee fees (for attending Board and Committee meetings and induction whilst awaiting regulatory approval) – no Observer fees were paid
during the year; or
• Membership of other Committees, which may be required from time to time – no additional Committee fees were paid during the year.
Board fees are structured by having regard to the responsibilities of each position within the Board. Board Committee fees are structured to recognise the differing responsibilities and workload
associated with each Committee, and the additional responsibilities of each Committee Chairman. Board fees are not paid to the MD & CEO, or to executives for directorships of any subsidiaries.
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8.3 Current annual fees
A review of Non Executive Director remuneration levels was conducted during the year ended 30 June 2016. To ensure continued competitiveness of Non Executive Director remuneration levels,
adjustments were made (effective 1 September 2015) as detailed in the table below:
Table 19: Non Executive Director and Board Committee fixed annual fees
Position
Chairman
Non Executive Director
Committee Chairman
Committee Member
Effective date
September 2015
September 2014
September 2015
September 2014
September 2015
September 2014
September 2015
September 2014
Board fees(i)
$
425,000
410,000
145,000
140,000
Audit, Risk & Compliance
$
Remuneration
$
Nomination
$
Board Committee fees(i)
40,000
40,000
20,000
20,000
30,000
30,000
15,000
15,000
7,500
7,500
7,500
7,500
(i) Fees exclude superannuation contributions.
The actual remuneration earned by Non Executive Directors for the year ended 30 June 2016, is detailed in Table 20.
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Table 20: Non Executive Director remuneration
KMP
Paula Dwyer (i)
Elmer Funke Kupper (ii)
Steven Gregg
Jane Hemstritch
Justin Milne
Zygmunt Switkowski
Total
Year
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Short term
Salary and fees
$
422,500
408,333
128,542
166,667
186,667
181,667
191,667
186,667
171,667
166,667
201,667
196,667
1,302,710
1,306,668
Post employment
Superannuation
$
40,137
38,792
12,211
15,833
17,733
17,258
18,208
17,733
16,308
15,833
19,158
18,683
123,755
124,132
Total
$
462,637
447,125
140,753
182,500
204,400
198,925
209,875
204,400
187,975
182,500
220,825
215,350
1,426,465
1,430,800
(i) In addition Ms Dwyer received a fee of $30,000 (excluding superannuation at 9.5%) for undertaking the role of Chairman of the Victorian Joint Venture Management Committee throughout
the year.
(ii) Mr Funke Kupper does not receive Tabcorp Board fees whilst on leave of absence.
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9. KMP shareholdings
Table 21: KMP interests in shares of Tabcorp (number)
For the year ended 30 June 2016
KMP
Executive Director
David Attenborough
Current Executives
Damien Johnston
Craig Nugent
Adam Rytenskild
Former Executives
Kerry Willcock
Non Executive Directors
Paula Dwyer
Elmer Funke Kupper
Steven Gregg
Jane Hemstritch
Justin Milne
Zygmunt Switkowski
Total
Balance at
start of year
Granted as
remuneration(i)
On vesting of
Performance Rights
Net change
other(ii)
Balance at KMP
cessation date
541,084
244,089
125,035
20,366
349,122
54,166
54,166
15,000
25,112
9,208
91,949
1,529,297
83,646
18,041
17,801
10,342
8,815
-
-
-
-
-
-
138,645
427,586
230,937
126,750
106,493
201,094
-
-
-
-
-
-
1,092,860
-
-
(231,226)
-
(430,355)
45,834
-
-
6,850
22,000
-
(586,897)
n/a
n/a
n/a
n/a
128,676
n/a
n/a
n/a
n/a
n/a
n/a
128,676
(i) Includes Restricted shares issued during the year as part of the STI.
(ii) Includes participation in capital raisings, the Tabcorp Dividend Reinvestment Plan and other voluntary on-market transactions.
Balance at
end of year
1,052,316
493,067
38,360
137,201
n/a
100,000
54,166
15,000
31,962
31,208
91,949
2,045,229
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Financial Report
Contents
Income statement
Balance sheet
Cash flow statement
Statement of changes in equity
Notes to the financial statements
About this report
Section A – Group performance
Section B – Capital and risk management
Section C – Operating assets and liabilities
Section D – Group structure
Section E – Other disclosures
Directors’ declaration
Independent auditor’s report
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101
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Income statement
For the year ended 30 June 2016
Revenue
Other income
Commissions and fees
Government taxes and levies
Employment costs
Depreciation and amortisation
Communications and technology costs
Advertising and promotions
Property costs
Other expenses
Profit before income tax expense and net finance costs
Finance income
Finance costs
Profit before income tax expense
Income tax (expense)/benefit
Net profit after tax
Other comprehensive income
Change in fair value of cash flow hedges taken to equity that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Income tax on items that may be reclassified to profit or loss
Items that will not be reclassified to profit or loss
Income tax on items that will not be reclassified to profit or loss
Other comprehensive income for the year, net of income tax
Total comprehensive income for the year
Earnings per share:
Basic earnings per share
Diluted earnings per share
Dividends per share:
Declared and paid during the year
Determined in respect of the year
The accompanying notes form an integral part of this income statement.
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Note
A4
A4
A5
A2
A2
A3
A3
2016
$m
2,188.7
4.4
(869.2)
(335.0)
(187.6)
(178.6)
(77.9)
(64.0)
(43.1)
(136.7)
301.0
2.9
(72.8)
231.1
(61.4)
169.7
11.1
(0.8)
(3.3)
(1.8)
0.5
5.7
175.4
2016
cents
20.4
20.3
22.0
24.0
2015
$m
2,155.5
(3.7)
(823.6)
(365.2)
(176.0)
(173.5)
(78.5)
(41.9)
(41.7)
(116.8)
334.6
5.3
(81.1)
258.8
75.7
334.5
1.9
0.7
(0.6)
2.1
(0.6)
3.5
338.0
2015
cents
42.4
42.2
48.0
50.0
Balance sheet
As at 30 June 2016
Current assets
Cash and cash equivalents
Receivables
Prepayments
Current tax assets
Derivative financial instruments
Other
Total current assets
Non current assets
Receivables
Licences
Other intangible assets
Property, plant and equipment
Prepayments
Derivative financial instruments
Other
Total non current assets
TOTAL ASSETS
Current liabilities
Payables
Interest bearing liabilities
Current tax liabilities
Provisions
Derivative financial instruments
Other
Total current liabilities
Non current liabilities
Interest bearing liabilities
Deferred tax liabilities
Provisions
Derivative financial instruments
Other
Total non current liabilities
TOTAL LIABILITIES
NET ASSETS
Equity
Issued capital
Accumulated losses
Reserves
TOTAL EQUITY
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The accompanying notes form an integral part of this balance sheet.
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Note
C5
C6
B3
C6
C1
C2
C4
B3
B2
C7
B3
B2
A5
C7
B3
2016
$m
126.0
41.5
17.1
-
2.8
9.7
197.1
10.7
682.4
1,945.3
311.7
33.0
100.0
22.6
3,105.7
3,302.8
317.0
248.9
7.4
28.6
34.0
6.7
642.6
831.5
60.8
24.6
52.3
2.9
972.1
1,614.7
1,688.1
2,430.6
(46.3)
(696.2)
1,688.1
2015
$m
160.0
35.1
16.8
76.2
1.9
6.2
296.2
14.2
700.9
1,924.7
325.1
33.6
79.2
10.1
3,087.8
3,384.0
327.2
-
14.2
27.3
30.9
6.7
406.3
1,147.7
58.1
25.1
53.0
3.7
1,287.6
1,693.9
1,690.1
2,426.2
(32.0)
(704.1)
1,690.1
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Cash flow statement
For the year ended 30 June 2016
Cash flows from operating activities
Net cash receipts in the course of operations
Payments to suppliers, service providers and employees
Payment of government levies, betting taxes and GST
Finance income received
Finance costs paid
Income tax refund
Net cash flows from operating activities
Cash flows from investing activities
Payment for business acquisition, net of cash acquired
Payment for property, plant and equipment and intangibles
Proceeds from sale of property, plant and equipment and intangibles
Loan repayments received from customers
Net cash flows used in investing activities
Cash flows from financing activities
Net cash flows from revolving bank facilities
Dividends paid
Proceeds from issue of shares
Payment of transaction costs for share issue
Payments for on-market share purchase
Net cash flows used in financing activities
Net (decrease)/increase in cash held
Cash at beginning of year
Cash at end of year
The accompanying notes form an integral part of this cash flow statement.
Note
C5
D4
C5
2016
$m
2,218.8
(1,510.0)
(250.7)
2.9
(71.3)
11.4
401.1
-
(183.1)
6.5
3.6
(173.0)
(80.0)
(173.3)
-
-
(8.8)
(262.1)
(34.0)
160.0
126.0
2015
$m
2,193.3
(1,407.3)
(311.3)
5.3
(83.1)
2.8
399.7
(103.3)
(131.6)
-
3.2
(231.7)
-
(357.6)
235.8
(7.1)
(5.9)
(134.8)
33.2
126.8
160.0
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Statement of changes in equity
For the year ended 30 June 2016
2016
Balance at beginning of year
Profit for the year
Other comprehensive income
Total comprehensive income
Dividends paid
Dividend reinvestment plan
Transfers
Restricted shares issued
Share based payments expense
Net outlay to purchase shares
Balance at end of year
2015
Balance at beginning of year
Profit for the year
Other comprehensive income
Total comprehensive income
Dividends paid
Dividend reinvestment plan
Accelerated renounceable entitlement offer
Transaction costs for share issue
Transfers
Restricted shares issued
Share based payments expense
Net outlay to purchase shares
Balance at end of year
Issued capital
Reserves
Number of
ordinary shares
m
Ordinary
shares
$m
Treasury
shares
$m
Accumulated
losses
$m
Hedging
$m
Demerger
$m
Other
$m
829.4
-
-
-
-
2.1
-
-
-
-
831.5
763.0
-
-
-
-
2.7
63.7
-
-
-
-
-
829.4
2,427.0
-
-
-
-
9.4
2.0
-
-
(7.2)
2,431.2
(0.8)
-
-
-
-
-
-
(1.6)
1.8
-
(0.6)
Total issued capital 2,430.6
2,189.2
-
-
-
-
9.7
235.8
(5.0)
2.1
-
-
(4.8)
2,427.0
(0.5)
-
-
-
-
-
-
-
-
(1.1)
0.8
-
(0.8)
Total issued capital 2,426.2
(32.0)
169.7
(1.3)
168.4
(182.7)
-
-
-
-
-
(46.3)
(0.7)
334.5
1.5
336.0
(367.3)
-
-
-
-
-
-
-
(32.0)
(39.2)
-
7.8
7.8
-
-
-
-
-
-
(31.4)
(669.9)
-
-
-
-
-
-
-
-
-
(669.9)
Total reserves (696.2)
(40.5)
-
1.3
1.3
-
-
-
-
-
-
-
-
(39.2)
(669.9)
-
-
-
-
-
-
-
-
-
-
-
(669.9)
Total reserves (704.1)
5.0
-
(0.8)
(0.8)
-
-
(2.0)
-
2.9
-
5.1
3.8
-
0.7
0.7
-
-
-
-
(2.1)
-
2.6
-
5.0
Total
equity
$m
1,690.1
169.7
5.7
175.4
(182.7)
9.4
-
(1.6)
4.7
(7.2)
1,688.1
1,481.4
334.5
3.5
338.0
(367.3)
9.7
235.8
(5.0)
-
(1.1)
3.4
(4.8)
1,690.1
Issued capital – Ordinary shares are issued and fully paid. They carry one vote per share and hold the rights to dividends. Issued capital is recognised at the fair value of the consideration received. When issued capital
is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from total issued capital. Any transaction costs directly attributable to the issue of ordinary shares are
recognised directly in equity, net of tax, as a reduction of the share proceeds received.
Treasury shares represent the unvested portion of Restricted Shares issued to executives as an incentive, on appointment or for retention, which is recognised as a reduction in issued capital. The amount which has been
credited to the employee equity benefit reserve is transferred to issued capital to the extent the relevant Performance Rights vest or have been treated as vested.
Nature of reserves
Hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges.
Demerger reserve arose on the demerger of The Star Entertainment Group (previously the Echo Entertainment Group) in 2011. It represents the difference between the fair value of The Star Entertainment Group shares (being
the distribution liability arising on demerger), the amount allocated as a capital reduction and any transfers to retained earnings.
Other reserves contain the employee equity benefit reserve and the foreign currency translation reserve.
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The accompanying notes form an integral part of this statement of changes in equity.
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Notes to the financial statements
For the year ended 30 June 2016
About this report
Tabcorp Holdings Limited (the Company) is a company limited by shares which are traded on the Australian Securities Exchange. The Company is incorporated and domiciled in Australia, and
is a for-profit entity. The financial report of the Company for the year ended 30 June 2016 comprises the Company and its subsidiaries (the Group) and the Group’s interest in joint arrangements.
The financial report was authorised for issue by the Directors on 4 August 2016.
The financial report is a general purpose financial report which:
• has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards as issued by the Australian Accounting Standards Board and other mandatory financial
reporting requirements in Australia;
• complies with International Financial Reporting Standards as issued by the International Accounting Standards Board;
• is presented in Australian dollars with dollar amounts rounded to the nearest hundred thousand unless specifically stated to be otherwise, in accordance with ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191; and
• is prepared on the historical cost basis, except for derivative financial instruments that have been measured at fair value.
The accounting policies have been applied consistently throughout the Group for the purposes of this financial report.
The content and format of the financial report has been enhanced to present the financial information in a more meaningful manner to users. Note disclosures have been grouped into five sections.
The notes within each section detail the accounting policies applied, together with any key judgements and estimates used. The purpose of the revised format is to provide users with a clearer
understanding of the key drivers of the Group’s financial performance and financial position.
A Group performance
B Capital and risk management
C Operating assets
and liabilities
D Group structure
E Other disclosures
A1 Segment information
A2 Earnings per share
A3 Dividends
A4 Revenue and expenses
A5 Income tax
A6 Subsequent events
79
81
81
82
83
84
B1 Capital management
B2 Interest bearing liabilities
85
85
C1 Licences
C2 Other intangible assets
B3 Derivative financial
86
C3 Impairment testing
93
94
95
D1 Subsidiaries
101
E1 Employee share plans
D2 Deed of cross guarantee 103
E2 Commitments
D3 Parent entity disclosures
E3 Contingencies
107
109
110
instruments
B4 Fair value measurement
B5 Financial instruments
– risk management
88
88
C4 Property, plant and
97
D4 Business combinations
equipment
C5 Notes to the cash flow
98
statement
C6 Receivables
C7 Provisions
99
100
105
106
E4 Related party disclosures 110
E5 Auditor’s remuneration
111
E6 Other accounting policies 111
Significant accounting estimates and assumptions
The carrying amount of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of these assets and liabilities recognised in the financial statements are described in the following notes:
A5 – Income tax
B3 – Derivative financial instruments
C1 – Licences
C2 – Other intangible assets
C3 – Impairment testing
C6 – Receivables
E3 – Contingencies
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Section A – Group performance
A1 Segment information
Operating segments reflect the business level at which financial information is provided to the Managing Director and Chief Executive Officer (chief operating decision maker), for decision making
regarding resource allocation and performance assessment. The measure of segment profit used excludes significant items not considered integral to the ongoing performance of the segment.
Intersegment pricing is determined on commercial terms and conditions.
The Group has three operating segments:
Tabcorp Group
Wagering
and Media
Totalisator and fixed
odds betting activities and
national and international
broadcasting of racing
and sporting
events
Keno
Keno operations in
licensed venues and TABs
in Victoria, Queensland
and the Australian Capital
Territory, and in licensed
venues in
New South Wales
Gaming
Services
Supply of electronic
gaming machines and
specialised services
to licensed gaming
venues
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107.2
208.5
Segment revenue
$m
99.6
199.0
2016
2015
1,873.0
1,856.9
Wagering and Media
Keno
Gaming Services
Wagering and Media
Keno
Gaming Services
Segment profit before interest and tax
$m
41.6
41.0
50.7
47.5
2016
2015
252.2
247.2
Wagering and Media
Keno
Gaming Services
Wagering and Media
Keno
Gaming Services
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For the year ended 30 June 2016
A1 Segment information (continued)
2016
Revenue
Segment profit before interest and tax
Depreciation and amortisation
Capital expenditure (i)
2015
Revenue
Segment profit before interest and tax
Depreciation and amortisation
Capital expenditure (i)
(i) Capital expenditure excludes the acquisition of licences and assets acquired via business combinations (refer note D4).
Reconciliation of segment profit
Segment profit before interest and tax
Unallocated items:
– finance income
– finance costs
– significant items(i)
– other
Profit before income tax expense
Wagering
and Media
$m
1,873.0
252.2
129.9
82.4
1,856.9
247.2
128.6
79.2
Keno
$m
208.5
50.7
19.6
19.1
199.0
47.5
18.9
16.6
Gaming
Services
$m
107.2
41.0
29.1
50.2
99.6
41.6
26.0
46.9
2016
$m
343.9
2.9
(72.8)
(36.2)
(6.7)
231.1
Total
$m
2,188.7
343.9
178.6
151.7
2,155.5
336.3
173.5
142.7
2015
$m
336.3
5.3
(81.1)
-
(1.7)
258.8
(i) Significant items comprise costs relating to the AUSTRAC civil proceedings ($19.4m) and the establishment of a new online wagering and gaming business in the UK ($16.8m).
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific criteria must also be met before revenue
is recognised:
Wagering revenue is recognised as the residual value after deducting the return to customers from wagering turnover. Fixed odds betting revenue is recognised as the net win or loss on an event. The amounts
bet on an event are recognised as a liability until the outcome of the event is determined, at which time the revenue is brought to account. Open betting positions are carried at fair value and gains and losses
arising on these positions are recognised in revenue.
The Group operates loyalty programmes enabling customers to accumulate award credits for wagering spend. A portion of the spend, equal to the fair value of the award credits earned, is treated as deferred
revenue. Revenue from the award credits is recognised when the award is redeemed or expires.
Media revenue includes subscription income and advertising revenue, and is recognised once the service has been rendered. Subscriptions received relating to future periods are treated as deferred revenue.
Keno revenue is recognised as the residual value after deducting the return to customers from Keno turnover.
Gaming services revenue is recognised once the service has been rendered.
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A2 Earnings per share
Earnings used in calculation of earnings per share (EPS)
Weighted average number of ordinary shares used in calculating basic EPS
Effect of dilution from Performance Rights
Weighted average number of ordinary shares used in calculating diluted EPS
2016
$m
169.7
2015
$m
334.5
2016
Number (m)
831.1
3.6
834.7
2015
Number (m)
789.7
3.8
793.5
Basic EPS is calculated as net profit after tax divided by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS is calculated on the same basis as basic EPS except that it reflects the impact of any potential commitments the Group has to issue shares in the future, for example shares
to be issued upon vesting of Performance Rights.
A3 Dividends
Fully franked dividends declared and paid during the year:
Prior year final dividend
Interim dividend
Special dividend
Fully franked dividends determined in respect of the year:
Interim dividend
Final dividend
Special dividend
2016
Cents
per share
2015
Cents
per share
10.0
12.0
-
22.0
12.0
12.0
-
24.0
8.0
10.0
30.0
48.0
10.0
10.0
30.0
50.0
2016
$m
82.9
99.8
-
182.7
99.8
99.8
-
199.6
2015
$m
61.0
76.6
229.7
367.3
76.6
82.9
229.7
389.2
Dividends declared after balance date to be recognised in subsequent year:
Final dividend
12.0
10.0
99.8
82.9
Franking credits available at the 30% company tax rate after allowing for tax payable or receivable
140.4
162.7
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Notes to the financial statements: Group performance
For the year ended 30 June 2016
A4 Revenue and expenses
(a) Other income
Net gain/(loss) on disposal of non current assets
Other
(b) Employment costs include:
Defined contribution plan expense
(c) Operating lease rentals
Minimum lease payments
(d) Finance costs
Interest costs
Other
2016
$m
2.0
2.4
4.4
2015
$m
(6.0)
2.3
(3.7)
14.3
12.6
41.9
39.9
66.5
6.3
72.8
76.1
5.0
81.1
Contributions to defined contribution plans are recognised in the income statement as they become payable.
Operating lease rentals are recognised in the income statement on a straight line basis over the lease term. Lease incentives received are recognised as a liability and are released to the income
statement on a straight line basis over the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases.
Finance income is recognised using the effective interest rate method.
Finance costs are recognised as an expense when incurred.
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A5 Income tax
(a) The major components of income tax (expense)/benefit are:
Current tax
Adjustments in respect of current income tax of previous years
Deferred tax
Income tax reconciliation:
Profit before income tax expense
Income tax payable at the 30% company tax rate
Tax effect of adjustments in calculating taxable income:
– NSW Trackside concessions tax benefit (i)
– Victorian licences tax benefit(ii)
– amortisation of Victorian licences
– research and development claims
– NSW retail exclusivity payment
– other
Income tax (expense)/benefit
2016
$m
(74.1)
12.6
0.1
(61.4)
2015
$m
(85.0)
146.6
14.1
75.7
231.1
258.8
(69.3)
-
-
(11.7)
7.6
7.5
4.5
(61.4)
(77.6)
31.5
128.9
(11.7)
2.0
-
2.6
75.7
(i) In November 2014, the Group resolved with the Australian Taxation Office the tax treatment of the NSW Trackside concessions payment of $150 million, which was recognised as an asset in
2010. Under the settlement, the Group is entitled to a tax deduction of $105 million over a 10 year period. The Group considers the settlement changes the tax base of the asset, resulting in a new
temporary difference arising. An income tax benefit of $31.5 million representing the entire deduction was recognised in the prior year, together with a deferred tax asset which will unwind as the
tax deductions are claimed or prior assessments are amended.
(ii) In May 2015, the Group resolved with the Australian Taxation Office the income tax treatment of the $597.2 million it paid to the State of Victoria in 1994 in relation to the Victorian licences granted
at that time. The agreed tax treatment provides the Group with an allowable deduction of $429.6 million, with the balance generating a capital loss of $167.6 million. As a result an income tax
benefit of $128.9 million was recognised in the prior year.
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Notes to the financial statements: Group performance
For the year ended 30 June 2016
A5 Income tax (continued)
(b) Deferred tax assets/(liabilities)
NSW Trackside concessions
Fair value of cash flow hedges
Property, plant and equipment
Provisions
Accrued expenses
NSW retail exclusivity
Derivatives
Share issue transaction costs
Other
Licences
Other intangible assets
Unclaimed dividends
Research and development
Net deferred tax assets/(liabilities)
Balance at
1 July 2014
$m
-
17.4
13.7
11.1
6.8
-
3.5
1.7
6.1
(96.8)
(7.9)
(5.8)
(16.7)
(66.9)
Recognised
in income
statement
$m
17.3
-
1.0
0.3
3.3
-
(0.6)
(2.1)
(2.9)
(4.2)
5.6
0.3
(3.9)
14.1
Acquisitions
via business
combinations
$m
-
-
-
0.3
-
-
-
-
-
-
(6.6)
-
-
(6.3)
Recognised
directly
in equity
$m
-
(0.6)
-
-
-
-
-
2.2
(0.6)
-
-
-
-
1.0
Balance at
30 June 2015
$m
17.3
16.8
14.7
11.7
10.1
-
2.9
1.8
2.6
(101.0)
(8.9)
(5.5)
(20.6)
(58.1)
Recognised
in income
statement
$m
(3.1)
-
1.8
0.6
(1.5)
3.0
(0.6)
(0.5)
(2.5)
1.5
0.4
0.7
0.3
0.1
Recognised
directly in
equity
$m
-
(3.3)
-
-
-
-
-
-
0.5
-
-
-
-
(2.8)
Balance at
30 June 2016
$m
14.2
13.5
16.5
12.3
8.6
3.0
2.3
1.3
0.6
(99.5)
(8.5)
(4.8)
(20.3)
(60.8)
Income tax comprises current and deferred income tax. Income tax is recognised in the income statement except when it relates to items recognised directly in equity, in which case it is recognised
in equity.
Current tax is the expected tax payable on the taxable income for the period and any adjustment to tax payable in respect of previous years.
Deferred tax is calculated using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts
used for tax purposes. The temporary differences for goodwill and the initial recognition of an asset or liability in a transaction which is not a business combination and that affect neither accounting
nor taxable profit at the time of the transaction are not provided for. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of
assets and liabilities.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets and deferred tax
liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the
same taxation authority.
Claims for refunds from taxation authorities are recognised when formal confirmation of the claim is received from the relevant authority.
A6 Subsequent events
Subsequent events other than those disclosed elsewhere in this report are:
Proposed acquisition of INTECQ Limited
On 1 August 2016 the Group announced it had entered into a binding Scheme Implementation Agreement to acquire INTECQ Limited (‘INTECQ’), subject to the approval by INTECQ’s shareholders
and obtaining all necessary regulatory approvals. Under the terms of the agreement, INTECQ shareholders will receive $7.15 cash for each INTECQ share held. This implies an expected enterprise
value of $115 million. The financial effects of the above transaction have not been brought to account in the financial statements for the year ended 30 June 2016.
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Section B – Capital and risk management
B1 Capital management
The Group’s objectives when managing capital are to ensure the Group continues as a going concern while providing optimal returns to shareholders and benefits for other stakeholders, and to
maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital
to shareholders or issue new shares.
The Group has a target of an investment grade credit rating. Gearing is managed primarily through the ratio of gross debt to earnings before interest, tax, depreciation, amortisation and impairment (EBITDA).
At 30 June the Group’s gearing ratio was:
Gross debt (US private placement debt at the Australian dollar principal repayable under cross currency swaps)
EBITDA (before significant items)
Gearing ratio
2016
$m
1,000.5
515.8
1.9
2015
$m
1,080.5
508.1
2.1
B2 Interest bearing liabilities
The Group borrows money from financial institutions and debt investors in the form of bank loans, subordinated notes and foreign currency denominated notes. The Group has a mixture of fixed and
floating interest rates and uses interest rate swaps to manage exposure to interest rate risks.
The following table details the debt position of the Group at 30 June:
Facility
Bank loans – unsecured
Details
Floating interest rate revolving facility. Subject to financial undertakings as to gearing
and interest cover.
Facility limit
400.0
150.0
400.0
950.0
Maturity
Jun-18
Dec-18
Jun-20
Subordinated notes
Floating interest rate. Expected to be redeemed in Mar-17.
250.0
Mar-37
US private placement
Fixed interest rate US dollar debt. Aggregate US dollar principal of $220.0m.
Cross currency swaps in place for all US dollar debt. Under these swaps the
aggregate Australian dollar amount payable at maturity is $210.5m.
USD 87.0
USD 133.0
Apr-19
Apr-22
Current
Non-current
2016
$m
398.9
-
138.0
536.9
248.9
116.6
178.0
294.6
2015
$m
398.4
99.5
117.9
615.8
247.5
112.5
171.9
284.4
1,080.4
1,147.7
248.9
831.5
1,080.4
-
1,147.7
1,147.7
Interest bearing liabilities are recognised initially at fair value net of transaction costs, and subsequent to initial recognition are recognised at amortised cost which is calculated using the effective
interest rate method. Foreign currency liabilities are carried at amortised cost and are translated at the exchange rates ruling at reporting date. Gains and losses are recognised in the income
statement when the liabilities are derecognised in addition to the amortisation process.
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Notes to the financial statements: Capital and risk management
For the year ended 30 June 2016
B3 Derivative financial instruments
The Group holds the following derivative financial instruments as part of its risk management strategy (hedging instruments – cross currency swaps and interest rate swaps) and as a result of its
operations (open betting positions), all at fair value based on level 2 observable inputs (refer to note B4):
Current assets
Cross currency swaps
Non current assets
Cross currency swaps
Current liabilities
Interest rate swaps
Cross currency swaps
Open betting positions
Non current liabilities
Interest rate swaps
2016
$m
2.8
100.0
102.8
21.0
2.3
10.7
34.0
52.3
86.3
2015
$m
1.9
79.2
81.1
21.8
2.2
6.9
30.9
53.0
83.9
Derivative financial instruments are recognised initially at cost, and subsequently are stated at fair value (refer to note B4). The method of recognising any remeasurement gain or loss depends
on the nature of the item being hedged. For the purposes of hedge accounting, hedges are classified as either cash flow or fair value hedges.
Cash flow hedges are used to hedge the exposure to variability in cash flows attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecast transaction.
Hedge effectiveness is measured by comparing the change in the fair value of the hedged item and the hedging instrument respectively each quarter. Any difference represents ineffectiveness. The
effective portion of any gain or loss on the hedging instrument is recognised directly in equity, with any ineffective portion recognised in the income statement. For hedged items relating to financial
assets or liabilities, amounts recognised in equity are reclassified into the income statement when the hedged transaction affects the income statement (i.e. when interest income or expense is
recognised). When the hedged item is the cost of a non-financial asset or liability, the amounts recognised in equity are transferred into the initial cost or other carrying amount of the non-financial
asset or liability.
When a hedging instrument expires or is sold, terminated or exercised, or the designation of the hedge relationship is revoked but the hedged forecast transaction is still expected to occur, the
cumulative gain or loss at that point remains in equity and is recognised in accordance with the above when the transaction occurs. If the hedged transaction is no longer expected to take place,
then the cumulative unrealised gain or loss recognised in equity is recognised immediately in the income statement.
Fair value hedges are used to hedge the variability of changes in the fair value of a recognised asset or liability or an unrecognised firm commitment. Any gain or loss on the derivative is recognised
directly in the income statement.
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B3.1 Interest rate swaps
These swaps are used to mitigate the risk of variability in cash flows due to movements in the reference interest rate of the designated debt.
The notional principal amounts and periods of expiry of these interest rate swap contracts are:
Less than one year
One to five years
More than five years
Notional principal
Fixed interest rate range p.a.
Variable interest rate range p.a.
Notional principal
2016
$m
200.0
348.5
227.0
775.5
2015
$m
-
548.5
127.0
675.5
1.9% – 7.3%
2.0% – 2.3%
4.2% – 7.3%
2.1% – 2.3%
Net settlement receipts and payments are recognised as an adjustment to interest expense on an accruals basis over the term of the swaps, such that the overall interest expense on borrowings
reflects the average cost of funds achieved by entering into the swap agreements.
B3.2 Cross currency swaps
These swaps are used to reduce the exposure to the variability of movements in the forward USD exchange rate in relation to the USD private placement debt.
The principal amounts and periods of expiry of the cross currency swap contracts are:
One to five years
More than five years
Notional principal
Fixed interest rate range p.a.
Variable interest rate range p.a.
2016
2015
Pay
principal
AUD $m
83.5
127.0
210.5
Receive
principal
USD $m
87.0
133.0
220.0
Pay
principal
AUD $m
83.5
127.0
210.5
Receive
principal
USD $m
87.0
133.0
220.0
4.6% – 5.2%
4.6% – 5.2%
5.8% – 6.1%
5.8% – 6.1%
The terms and conditions in relation to the interest rate and maturity of the cross currency swaps are similar to the terms and conditions of the underlying hedged US private placement debt.
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Notes to the financial statements: Capital and risk management
For the year ended 30 June 2016
B4 Fair value measurement
The fair value of financial assets and financial liabilities are estimated for recognition, measurement and disclosure purposes at each balance date.
Various methods are available to estimate the fair value of a financial instrument, and comprise:
Level 1 – calculated using quoted prices in active markets.
Level 2 – estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).
Level 3 – estimated using inputs for the asset or liability that are not based on observable market data.
The carrying amount of financial assets or liabilities recognised in the financial statements are deemed to be the fair value unless stated below:
Financial liabilities
US private placement
Subordinated notes
Carrying amount
Fair value
2016
$m
295.3
250.0
545.3
2015
$m
285.4
250.0
535.4
2016
$m
329.8
252.4
582.2
2015
$m
312.1
253.3
565.4
The fair value of the Group’s financial instruments are estimated as follows:
US private placement
Fair value is calculated using discounted future cash flow techniques, where estimated cash flows and estimated discount rates are based on market data at balance date, in combination
with restatement to foreign exchange rates at balance date (level 2 in fair value hierarchy).
Subordinated notes
Fair value is determined using independent market quotations (level 1 in fair value hierarchy).
Swaps
Fair value is calculated using discounted future cash flow techniques, where estimated cash flows and estimated discount rates are based on market data at balance date (level 2 in fair value hierarchy).
There have been no significant transfers between level 1 and level 2 during the financial year ended 30 June 2016.
B5 Financial instruments – risk management
The Group’s principal financial instruments, other than derivatives, comprise cash, short term deposits, and interest bearing liabilities. The main purpose of these financial instruments is to raise finance
for the Group’s operations. The Group also has various other financial assets and liabilities which arise directly from its operations.
The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities, principally interest rate
swaps and cross currency swaps. The Group does not hold or issue derivative financial instruments for trading purposes.
The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk, these are discussed below.
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B5.1 Interest rate risk
The Group has a policy of controlling exposure to interest rate fluctuations by the use of fixed and variable rate debt and interest rate swaps or caps. It has entered into interest rate swap arrangements
to hedge underlying debt obligations and allow floating rate borrowings to be swapped to fixed rate borrowings. Under these arrangements, the Group pays fixed interest rates and receives the bank
bill swap rate (BBSW) calculated on the notional principal amount of the contracts.
At 30 June after taking into account the effect of interest rate swaps, approximately 67.5% (2015: 62.5%) of the Group’s borrowings are at a fixed rate of interest.
The following classes of financial assets and financial liabilities are exposed to floating interest rate risk:
Financial assets
Cash assets
Short term deposits
Financial liabilities
Bank loans – unsecured
Subordinated notes
Interest rate swaps – notional principal amounts
Cross currency swaps – notional principal amounts
Sensitivity analysis – interest rates – AUD and USD
2016
$m
16.5
92.1
108.6
536.9
248.9
775.5
210.5
1,771.8
2015
$m
16.5
126.6
143.1
615.8
247.5
675.5
210.5
1,749.3
The Group’s sensitivity to reasonably possible changes in interest rates on the affected financial assets and financial liabilities in existence at year end is shown below. With all other variables held
constant, post tax profit and other comprehensive income would have been affected as follows:
AUD
+ 1.00% (100 basis points) (2015: + 1.00%)
- 1.00% (100 basis points) (2015: - 1.00%)
USD
+ 0.20% (20 basis points) (2015: + 0.20%)
- 0.20% (20 basis points) (2015: - 0.20%)
Post tax profit
higher/(lower)
2016
$m
(1.1)
1.1
-
-
2015
$m
(1.7)
1.7
-
-
Other comprehensive
income higher/(lower)
2015
2016
$m
$m
13.4
(14.0)
(2.0)
2.1
17.7
(18.6)
(2.3)
2.3
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The movements in profit are due to higher/lower interest costs from variable rate debt and investments. The movement in other comprehensive income is due to an increase/decrease in the fair value
of financial instruments designated as cash flow hedges.
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For the year ended 30 June 2016
B5 Financial instruments – risk management (continued)
B5.1 Interest rate risk (continued)
Sensitivity analysis – interest rates – AUD and USD (continued)
Significant assumptions used in the analysis include:
• reasonably possible movements were determined based on the Group’s current credit rating and mix of debt, relationships with financial institutions and the level of debt that is expected to be
renewed, as well as a review of the last two years’ historical movements and economic forecasters’ expectations;
• price sensitivity of derivatives is based on a reasonably possible movement of spot rates at balance date; and
• net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next twelve months.
B5.2 Foreign currency risk
The Group’s primary currency exposure is to US dollars as a result of issuing US private placement debt. In order to hedge this exposure, the Group has entered into cross currency swaps to fix
the exchange rate on the USD debt until maturity. The Group agrees to pay a fixed USD amount in exchange for an agreed AUD amount with swap counterparties, and to re-exchange this again at
maturity. These swaps are designated to hedge the principal and interest obligations of the US private placement debt.
Sensitivity analysis foreign exchange
The following analysis is based on the Group’s foreign currency risk exposures in existence at balance date and demonstrates the Group’s sensitivity to reasonably possible changes in the AUD/USD
exchange rate. With all other variables held constant, post tax profit and other comprehensive income would have been affected as follows:
AUD/USD + 10 cents (2015: + 10 cents)
AUD/USD – 10 cents (2015: – 10 cents)
Post tax profit
higher/(lower)
2016
$m
-
-
2015
$m
-
-
Other comprehensive
income higher/(lower)
2015
2016
$m
$m
(3.2)
(3.8)
4.1
5.0
The movement in other comprehensive income is due to an increase/decrease in the fair value of financial instruments designated as cash flow hedges. Management believe the balance date risk
exposures are representative of the risk exposure inherent in the financial instruments.
Significant assumptions used in the foreign currency exposure sensitivity analysis include:
• reasonably possible movements were determined based on a review of the last two years’ historical movements and economic forecasters’ expectations;
• movement of 10 cents was calculated by taking the USD spot rate as at balance date, moving this spot rate by 10 cents and then re-converting the USD into AUD with the ‘new spot-rate’.
This methodology reflects the translation methodology undertaken by the Group;
• price sensitivity of derivatives is based on a reasonably possible movement of spot rates at balance dates; and
• net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next twelve months.
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B5.3 Credit risk
The Group’s credit risk arises in relation to cash and cash equivalents, receivables, financial liabilities and liabilities under financial guarantees. Credit risk on financial assets which have been recognised
on the balance sheet, is the carrying amount less any allowance for non recovery.
Credit risk is managed by:
• adherence to a strict cash management policy;
• use of a risk assessment process for customers requesting credit using credit checks, bank opinions and trade references;
• conducting all investment and financial instrument activity with approved counterparties with investment grade credit ratings; and
• reviewing compliance with counterparty exposure limits on a continuous basis, and spreading the aggregate value of transactions amongst the approved counterparties.
Credit risk associated with financial liabilities arises from the potential failure of counterparties to meet their obligations under the contract or arrangement. The Group’s maximum credit risk exposure
in respect of derivative contracts is detailed in the liquidity risk table in note B5.4.
Credit risk includes liabilities under financial guarantees. For financial guarantee contract liabilities the fair value at initial recognition is determined using a probability weighted discounted cash flow
approach. The fair value of financial guarantee contract liabilities has been assessed as nil (2015: nil), as the possibility of an outflow occurring is considered remote. Details of the financial guarantee
contracts at balance date are outlined below:
Deed of cross guarantee
The Company has entered into a deed of cross guarantee as outlined in note D2.
Guarantees and indemnities
Entities in the Group are called upon to give in the ordinary course of business, guarantees and indemnities in respect of the performance of their contractual and financial obligations. The maximum
amount of these guarantees and indemnities is $19.2 million (2015: $18.3 million).
B5.4 Liquidity risk
Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet its obligations to repay its financial liabilities as and when they fall due.
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and notes. To help reduce liquidity risk, the Group targets a minimum level
of cash and cash equivalents to be maintained, and has sufficient undrawn funds available.
The Group’s policy is that not more than 33% of debt facilities should mature in any financial year within the next four years. At 30 June 2016, no debt facilities mature in less than one year (2015: nil).
Due to the measures in place for managing liquidity and access to capital markets, this risk is not considered significant.
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Notes to the financial statements: Capital and risk management
For the year ended 30 June 2016
B5 Financial instruments – risk management (continued)
B5.4 Liquidity risk (continued)
The contractual cash flows including principal and estimated interest payments of financial liabilities in existence at year end are as follows:
Non-derivative financial instruments
Financial liabilities
Trade creditors and accrued expenses
Bank loans – unsecured
Subordinated notes (i)
US private placement
Net outflow
Derivative financial instruments
Financial assets
Interest rate swaps – receive AUD floating
Cross currency swaps – receive USD fixed
Financial liabilities
Interest rate swaps – pay AUD fixed
Cross currency swaps – pay AUD floating
Open betting positions
Net outflow
< 1 year
$m
2016
1 – 5 years
$m
> 5 years
$m
< 1 year
$m
2015
1 – 5 years
$m
> 5 years
$m
317.0
18.0
261.8
14.6
611.4
14.3
14.6
28.9
33.9
12.6
10.7
57.2
(28.3)
-
566.0
-
130.4
696.4
34.7
130.4
165.1
81.4
123.5
-
204.9
(39.8)
-
-
-
134.7
134.7
2.5
134.7
137.2
5.2
133.5
-
138.7
(1.5)
327.2
21.7
15.4
14.1
378.4
14.8
14.1
28.9
36.3
12.6
6.9
55.8
(26.9)
-
672.9
61.5
134.0
868.4
37.8
134.0
171.8
99.7
128.2
-
227.9
(56.1)
-
-
507.7
143.4
651.1
5.2
143.4
148.6
11.3
141.2
-
152.5
(3.9)
(i) The above analysis for the current year is based on the Company redeeming the subordinated notes in full on the first call date, being 22 March 2017 (“First Call Date”). Subject to any redemption
on the First Call Date, or on any subsequent interest payment date thereafter, the contractual payments in relation to the subordinated notes will be $15.8 million within one year, $63.1 million within
one to five years and $498.5 million greater than five years from balance date.
For floating rate instruments, the amount disclosed is determined by reference to the interest rate at the last repricing date. For foreign currency receipts and payments, the amount disclosed
is determined by reference to the USD/AUD rate at balance date.
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Section C – Operating assets and liabilities
C1 Licences
2016
Carrying amount at beginning of year
Additions
Amortisation
Carrying amount at end of year
Cost
Accumulated amortisation and impairment
2015
Carrying amount at beginning of year
Acquisitions via business combinations
Amortisation
Carrying amount at end of year
Cost
Accumulated amortisation and impairment
Amortisation policy – straight line basis over useful life (years):
Licence expiration date:
– Victorian Keno
– Queensland Keno
– NSW Keno
Victorian
Wagering and
Betting Licence
$m
NSW
wagering
licence
$m
Keno
licences
$m
ACT
totalisator
and sports
bookmaking
licence
$m
318.4
-
(34.9)
283.5
418.7
(135.2)
283.5
353.3
-
(34.9)
318.4
418.7
(100.3)
318.4
12
2024
298.5
-
(3.7)
294.8
339.1
(44.3)
294.8
302.2
-
(3.7)
298.5
339.1
(40.6)
298.5
65.9
25.7
(5.3)
86.3
128.0
(41.7)
86.3
71.1
-
(5.2)
65.9
102.3
(36.4)
65.9
93
10 – 34
18.1
-
(0.3)
17.8
18.4
(0.6)
17.8
-
18.4
(0.3)
18.1
18.4
(0.3)
18.1
50
2097
2064(i)
2022
2047
2050
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(i) ACT sports bookmaking licence was granted for an initial term of 15 years with further rolling extensions to a total term of 50 years.
Licences that are acquired by the Group are stated at cost less accumulated amortisation.
Total
$m
700.9
25.7
(44.2)
682.4
904.2
(221.8)
682.4
726.6
18.4
(44.1)
700.9
878.5
(177.6)
700.9
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For the year ended 30 June 2016
C2 Other intangible assets
2016
Carrying amount at beginning of year
Additions:
– acquired
– internally developed
Amortisation
Disposals
Other
Carrying amount at end of year
Cost
Accumulated amortisation and impairment
Includes capital works in progress of:
2015
Carrying amount at beginning of year
Additions:
– acquired
– internally developed
Acquisitions via business combinations
Amortisation
Disposals
Other
Carrying amount at end of year
Cost
Accumulated amortisation and impairment
Includes capital works in progress of:
Amortisation policy – straight line basis over useful life (years):
Expiration date
Goodwill
$m
NSW Trackside
concessions
$m
NSW retail
exclusivity
$m
Brand
names
$m
Media content
and broadcast
rights
$m
Other
$m
Software
$m
Total
$m
1,431.7
142.2
46.2
110.0
30.6
4.9
159.1
1,924.7
-
-
-
-
0.1
1,431.8
2,136.7
(704.9)
1,431.8
-
-
(1.7)
-
-
140.5
150.0
(9.5)
140.5
-
-
(2.6)
-
-
43.6
51.3
(7.7)
43.6
-
-
-
-
-
110.0
110.0
-
110.0
-
-
-
-
-
30.6
30.6
-
30.6
-
-
(0.8)
-
-
4.1
11.5
(7.4)
4.1
18.9
56.4
(48.4)
(1.3)
-
184.7
493.9
(309.2)
184.7
45.7
18.9
56.4
(53.5)
(1.3)
0.1
1,945.3
2,984.0
(1,038.7)
1,945.3
45.7
1,348.4
143.9
48.8
105.5
30.6
5.8
150.9
1,833.9
-
-
82.0
-
-
1.3
1,431.7
2,136.6
(704.9)
1,431.7
-
-
-
(1.7)
-
-
142.2
150.0
(7.8)
142.2
87
2097
-
-
-
(2.6)
-
-
46.2
51.3
(5.1)
46.2
-
-
4.5
-
-
-
110.0
110.0
-
110.0
-
-
-
-
-
-
30.6
30.6
-
30.6
-
-
-
(0.9)
-
-
4.9
11.5
(6.6)
4.9
31.6
21.1
0.3
(41.9)
(2.9)
-
159.1
426.8
(267.7)
159.1
36.0
31.6
21.1
86.8
(47.1)
(2.9)
1.3
1,924.7
2,916.8
(992.1)
1,924.7
36.0
20
Indefinite
Indefinite
12 –15
3 –10
2033
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Goodwill arising in a business combination represents the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed. All business
combinations are accounted for by applying the acquisition method. Any contingent consideration is recognised at fair value at the acquisition date. Negative goodwill arising on an acquisition
is recognised directly in the income statement. Goodwill is not amortised, and is stated at cost less any accumulated impairment losses. Any impairment losses recognised against goodwill
cannot be reversed.
Brand names, media content and broadcast rights are not amortised as the Directors believe that the life of these intangibles to the Group will not materially diminish over time, and the
residual value at the end of that life would be such that the amortisation charge, if any, would not be material.
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. The cost of internally developed software includes the cost
of materials, direct labour and an appropriate proportion of overheads.
Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.
C3 Impairment testing
Goodwill and indefinite life intangible assets are tested for impairment annually, or whenever there is an indicator of impairment.
Carrying amount of goodwill and other intangible assets with indefinite useful lives allocated to each cash generating unit (CGU) or segment:
Goodwill
Wagering and Media
Keno
Other intangible assets with indefinite useful lives
NSW Wagering
ACTTAB
Sky Racing
Sky Sports Radio
2016
$m
1,277.8
154.0
1,431.8
98.8
4.5
30.8
6.5
140.6
2015
$m
1,277.7
154.0
1,431.7
98.8
4.5
30.8
6.5
140.6
The recoverable amount of each CGU is determined based on fair value less costs of disposal, calculated using discounted cash flows. The cash flow forecasts are principally based upon
management approved business plans for a four year period and extrapolated using growth rates ranging from 2.0% to 2.5%. These cash flows are then discounted using a relevant long term
post tax discount rate, ranging between 9.2% and 9.7%. This is considered to be level 3 in the fair value hierarchy, based on non market observable inputs (refer to note B4 for explanation
of the valuation hierarchy).
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Notes to the financial statements: Operating assets and liabilities
For the year ended 30 June 2016
C3 Impairment testing (continued)
Key assumptions on which management has based its cash flow projections:
• State tax regimes and the regulatory environment in which the Group currently operates remain largely unchanged.
• Exclusive retail wagering licences in Victoria, NSW and the ACT are assumed to be retained. The wagering business competes with bookmakers in Victoria, NSW and the ACT, and other interstate
and international wagering operators who accept bets over the phone and the internet. There is a possibility that competition from the interstate and international operators may extend further
to the Group’s retail wagering network in the future.
• Race fields arrangements implemented in each State and Territory of Australia remain largely unchanged.
• Growth rates used to extrapolate cash flows are either in line with or do not exceed the long term average growth rate for the industry in which the CGU operates.
• Discount rates applied are based on the post tax weighted average cost of capital applicable to the relevant CGU.
• Terminal growth rate used is in line with the forecast long term underlying growth rate in Consumer Price Index.
The key estimates and assumptions used to determine the fair value less costs of disposal of a CGU are based on management’s current expectations after considering past experience and
external information, and are considered to be reasonably achievable. However, significant changes in any of these key estimates and assumptions may result in a CGU’s carrying value exceeding its
recoverable value requiring an impairment charge to be recognised at a future date.
At each balance date, in addition to goodwill and intangible assets with indefinite useful lives, all non-current assets are reviewed for impairment if events or changes in circumstances indicate they
may be impaired. When an indicator of impairment exists, the Group makes a formal assessment of recoverable amount. An impairment loss is recognised in the income statement for the amount
by which the asset’s carrying amount exceeds its recoverable amount.
Recoverable amount is the greater of fair value less costs of disposal and value in use. It is determined for an individual asset, unless the asset’s recoverable value cannot be estimated as it does
not generate cash inflows that are largely independent of those from other assets or groups of assets. In this case, the recoverable amount is determined for the CGU, being assets grouped at
the lowest levels for which there are separately identifiable cash flows.
Goodwill and intangible assets with indefinite useful lives (brand names, broadcast rights and media content) acquired through business combinations have been allocated to each CGU or group
of CGUs expected to benefit from the business combination’s synergies for impairment testing.
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C4 Property, plant and equipment
2016
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Carrying amount at end of year
Cost
Accumulated depreciation
Includes capital works in progress of:
2015
Carrying amount at beginning of year
Additions
Acquisitions via business combinations
Disposals
Depreciation
Carrying amount at end of year
Cost
Accumulated depreciation
Includes capital works in progress of:
Land
Freehold
$m
Leasehold(i)
$m
Buildings
$m
Leasehold
improvements
$m
Plant and
equipment
$m
5.3
-
-
-
5.3
5.3
-
5.3
5.3
-
-
-
-
5.3
5.3
-
5.3
2.4
-
(2.4)
-
-
-
-
-
-
-
2.4
-
-
2.4
2.4
-
2.4
15.9
0.7
(1.3)
(1.9)
13.4
26.5
(13.1)
13.4
0.5
10.0
6.4
1.2
(0.2)
(1.5)
15.9
27.3
(11.4)
15.9
1.1
47.5
2.1
(0.4)
(12.0)
37.2
105.6
(68.4)
37.2
4.8
46.8
11.5
2.4
(1.8)
(11.4)
47.5
107.4
(59.9)
47.5
6.5
254.0
73.6
(4.8)
(67.0)
255.8
713.2
(457.4)
255.8
13.6
250.5
72.4
2.3
(1.8)
(69.4)
254.0
720.5
(466.5)
254.0
19.9
Total
$m
325.1
76.4
(8.9)
(80.9)
311.7
850.6
(538.9)
311.7
18.9
312.6
90.3
8.3
(3.8)
(82.3)
325.1
862.9
(537.8)
325.1
27.5
(i) Leasehold land is held under crown leases granted under the Land Titles Act 1925.
Depreciation policy – straight line basis over useful life (years):
7– 40
3 –13
3 –10
Property, plant and equipment are stated at cost less accumulated depreciation. Where parts of an item of property, plant and equipment have different useful lives, they are accounted
for as separate items of property, plant and equipment.
For operating leases where the lease incentive is in the form of a fitout contribution by the landlord, an asset is recognised and amortised on a straight line basis over the lease term.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed annually and adjusted prospectively, if appropriate.
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Notes to the financial statements: Operating assets and liabilities
For the year ended 30 June 2016
C5 Notes to the cash flow statement
(a) Cash and cash equivalents comprise:
Cash on hand and in banks
Short term deposits
2016
$m
33.9
92.1
126.0
2015
$m
33.4
126.6
160.0
For the purpose of the cash flow statement, cash comprises cash balances and short term deposits with an original maturity of three months or less.
Significant restrictions
The Group operates under various state based licences which have regulatory requirements in place that restrict the Group’s use of certain cash balances. The carrying amount of these cash balances
included within the consolidated financial statements is $27.2 million (2015: $24.7 million).
(b) Reconciliation of net profit after tax to net cash flows from operating activities
Net profit after tax
Add/(less) items classified as investing/financing activities:
– net (gain)/loss on disposal of non current assets
Add non cash income and expense items:
– depreciation and amortisation
– share based payments expense
– other
Net cash provided by operating activities before changes in assets and liabilities
Changes in assets and liabilities:
(Increase)/decrease in:
– debtors
– current tax assets
– other assets
(Decrease)/increase in:
– payables
– provisions
– deferred tax liabilities
– current tax liabilities
– other liabilities
Net cash flows from operating activities
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2016
$m
169.7
(2.0)
178.6
4.7
3.4
354.4
(4.1)
76.2
(18.1)
(1.9)
0.6
(0.1)
(6.8)
0.9
401.1
2015
$m
334.5
6.0
173.5
3.7
2.7
520.4
5.5
(75.5)
(36.9)
(10.2)
(0.1)
(14.1)
14.2
(3.6)
399.7
C6 Receivables
Current
Trade debtors
Allowance for doubtful debts
Receivable in respect of Victorian licences
Allowance for impairment
Sundry debtors
Other
Non current
Other
2016
$m
25.9
(1.1)
24.8
-
-
-
15.1
1.6
41.5
2015
$m
21.4
(2.5)
18.9
474.6
(474.6)
-
14.5
1.7
35.1
10.7
14.2
Receivable in respect of Victorian licences
The receivable in the prior year related to an amount the Company was seeking from the State of Victoria on the grant of new licences pursuant to section 4.1.12 of the Gambling Regulation Act 2003
(Vic). The Victorian Government had formed the view that the Company was not entitled to compensation and the receivable was considered impaired and the full value was provided for at 30 June 2008.
The Company undertook legal action seeking a payment from the State of Victoria. The legal action concluded during the year, with the High Court of Australia dismissing an appeal by Tabcorp.
Ageing analysis of trade debtors
Not past due, 0 – 30 days
Past due, not impaired, > 30 days
Past due, impaired, > 30 days
2016
$m
20.9
3.9
1.1
25.9
2015
$m
15.9
3.0
2.5
21.4
Other balances within receivables are not past due and are expected to be received when due.
Trade debtors are recognised and carried at original invoice amount less an allowance for any uncollectible amount.
Other receivables reflect fixed term loans and generate fixed or variable interest for the Group, and are initially recognised at amortised cost. The carrying amount may be affected by changes in
the credit risk of counterparties. Subsequent increases in receivables due to the passage of time or resulting from a revision of the estimate of cash inflows are recognised in the income statement,
however are not recognised where a receivable is fully impaired.
An allowance for doubtful debts or impairment is made when there is objective evidence that collection of the full amount is no longer probable. Factors considered when determining if an
impairment exists include ageing and timing of expected receipts, management’s experienced judgement and facts in the individual situation. Bad debts are written off when identified.
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For the year ended 30 June 2016
C7 Provisions
Current
Employee benefits
Premises
Other
Non current
Employee benefits
Premises
Movement in premises and other provisions during the year are set out below:
Carrying amount at beginning of year
Provisions made during year
Provisions used during year
Provisions reversed during year
Carrying amount at end of year
Premises provisions comprise:
• lease rental and lease incentives amortised on a straight-line basis over the term of the lease;
• make good provisions for leasehold properties requiring remedial work at the end of the lease arrangement; and
• surplus lease space provisions.
2016
$m
23.7
4.4
0.5
28.6
3.8
20.8
24.6
Premises
$m
23.1
3.1
(1.0)
-
25.2
2015
$m
23.2
1.6
2.5
27.3
3.6
21.5
25.1
Other
$m
2.5
0.5
(1.6)
(0.9)
0.5
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will
be required to settle the obligation and the amount can be reliably estimated. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre tax rate that
reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of
time is recorded as a finance cost.
Employee benefits (short term) are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive
obligation to pay this amount as a result of past service provided and the obligation can be estimated reliably.
Employee benefits (long term) – the Group’s net obligation is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation
is discounted to determine its present value. Remeasurements are recognised in the income statement in the period in which they arise. This excludes pension plans.
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Section D – Group structure
D1 Subsidiaries
The ultimate parent entity within the Group is Tabcorp Holdings Limited.
The consolidated financial statements incorporate the assets, liabilities and results of Tabcorp Holdings Limited and the following controlled entities:
100% owned Australian subsidiaries in a deed of cross guarantee with Tabcorp Holdings Limited (refer to note D2)
Tabcorp Assets Pty Ltd
Luxbet Pty Ltd
Tabcorp Participant Pty Ltd
Tabcorp ACT Pty Ltd
Tabcorp Wagering (Vic) Pty Ltd
Tabcorp Wagering Participant (Vic) Pty Ltd
Tabcorp Wagering Assets (Vic) Pty Ltd
Tabcorp Investments No.4 Pty Ltd
Tab Limited
Sky Channel Pty Ltd
2KY Broadcasters Pty Ltd
Tabcorp Services Pty Ltd
Tabcorp Training Pty Ltd
Tabcorp International Pty Ltd
Tabcorp International No.4 Pty Ltd
Tabcorp Investments No.10 Pty Ltd (i)
Tabcorp Employee Share Administration Pty Ltd (ii)
Showboat Australia Pty Ltd
Tabcorp Wagering Holdings Pty Ltd
OneTab Holdings Pty Ltd
OneTab Australia Pty Ltd
COPL Pty Ltd
Tabcorp International No.5 Pty Ltd
Tabcorp International No.6 Pty Ltd
Sky Channel Marketing Pty Ltd
Sky Australia International Racing Pty Ltd
Tabcorp Gaming Holdings Pty Ltd
Keno (Qld) Pty Ltd
Tabcorp Gaming Solutions Pty Ltd
Tabcorp Gaming Solutions (NSW) Pty Ltd
Tabcorp Gaming Solutions (Qld) Pty Ltd
Tabcorp Gaming Solutions (ACT) Pty Ltd
TAHAL Pty Ltd
Keno (NSW) Pty Ltd
Club Gaming Systems (Holdings) Pty Ltd
100% owned Australian subsidiaries
Tabcorp Manager Pty Ltd
Tabcorp Wagering Manager (Vic) Pty Ltd
Tabcorp Investments Pty Ltd
Tabcorp Investments No.2 Pty Ltd
Tabcorp Investments No.5 Pty Ltd
Tabcorp Investments No.6 Pty Ltd
Tabcorp Investments No.9 Pty Ltd
International subsidiaries
Name
Tabcorp Europe Holdings Limited
Premier Gateway International Limited
Premier Gateway Services Limited
Tabcorp Europe Limited
Luxbet Europe Limited
Luxbet Europe Services Limited
Tukcorp Limited (iii)
Tabcorp Canada Limited
Sky Racing World Holdco, LLC
Sky Racing World, LLC
Tabusa, LLC (iv)
Country of incorporation
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Isle of Man
United Kingdom
Canada
United States of America
United States of America
United States of America
% equity interest
100
50
50
100
100
100
100
100
100
100
100
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Equity interest in all controlled entities at 30 June 2015 was consistent with 30 June 2016 other than:
(i) Company joined the Group on 20 November 2015.
(ii) Equity interest at 30 June 2015 was 33.3%, with remaining equity acquired on 24 July 2015.
(iii) Company joined the Group on 16 November 2015.
(iv) Company joined the Group on 23 February 2016.
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Notes to the financial statements: Group structure
For the year ended 30 June 2016
D1 Subsidiaries (continued)
Subsidiaries are entities controlled by the Company. The Group controls an entity if and only if the Group has:
D1 Subsidiaries (continued)
• power over the entity;
• exposure, or rights, to variable returns from its involvement with the entity; and
• the ability to use its power over the entity to affect its returns.
The financial statements of subsidiaries are included in the consolidated financial report from the date control commences until the date control ceases.
On consolidation, the assets and liabilities of foreign operations are translated into Australian Dollars at the rate of the exchange prevailing at balance date, and their income statements are
translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognised in other comprehensive income.
Elimination of intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are undertaken in preparing the consolidated financial
statements.
All investments are initially recognised at cost, being the fair value of the consideration given, and if acquired prior to 1 July 2009 included acquisition charges associated with the investment.
Subsequently investments are carried at cost less any impairment losses.
A joint arrangement is an arrangement over which the Group has joint control with other parties and is bound by a contractual arrangement. A joint arrangement is classified as either a joint
operation or a joint venture depending upon the rights and obligations of the parties to the arrangement.
• A joint operation is where the parties have rights to the assets and obligations for the liabilities, relating to the arrangement. The Group recognises in relation to its interest in a joint operation
its assets, including its share of assets held jointly; its liabilities, including its share of any liabilities incurred jointly; its revenue including its share of revenue from the sale of the output by the joint
operation; and its expenses, including its share of any expenses incurred jointly.
• A joint venture is where the parties have rights to the net assets of the arrangement. Investments in joint ventures are accounted for using the equity method. Under the equity method, the
investment in a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the joint venture since
acquisition date.
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D2 Deed of cross guarantee
The parties to the deed of cross guarantee as identified in note D1 each guarantee the debts of the others. By entering into the deed, the subsidiaries are relieved from the requirements of preparation,
audit and lodgement of a financial report and a Directors’ report under ASIC Class Order 98/1418. Together with Tabcorp Holdings Limited, the entities represent a ‘Closed Group’ for the purposes of
the Class Order.
The consolidated income statement and balance sheet of all entities included in the Closed Group are set out below.
Income statement
Revenue
Expenses
Profit before income tax expense and net finance costs
Finance income
Finance costs
Profit before income tax expense
Income tax (expense)/benefit
Net profit after tax
Other comprehensive income
Change in fair value of cash flow hedges taken to equity that may be reclassified to profit or loss
Income tax on items that may be reclassified to profit or loss
Items that will not be reclassified to profit or loss
Income tax on items that will not be reclassified to profit or loss
Other comprehensive income for the year, net of income tax
Total comprehensive income for the year
Net profit after tax
Accumulated losses at beginning of year
Other comprehensive (loss)/income
Dividends paid
Accumulated losses at end of year
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2016
$m
1,901.1
(1,614.9)
286.2
2.9
(72.8)
216.3
(35.0)
181.3
11.1
(3.3)
(1.8)
0.5
6.5
2015
$m
1,906.2
(1,595.2)
311.0
5.3
(81.1)
235.2
102.8
338.0
1.9
(0.6)
2.1
(0.6)
2.8
187.8
340.8
181.3
(168.0)
(1.3)
(182.7)
(170.7)
338.0
(140.2)
1.5
(367.3)
(168.0)
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For the year ended 30 June 2016
D2 Deed of cross guarantee (continued)
Balance sheet
Cash and cash equivalents
Receivables
Prepayments
Current tax assets
Derivative financial instruments
Other
Total current assets
Receivables
Investment in controlled entities
Licences
Other intangible assets
Property, plant and equipment
Prepayments
Derivative financial instruments
Other
Total non current assets
TOTAL ASSETS
Payables
Interest bearing liabilities
Current tax liabilities
Provisions
Derivative financial instruments
Other
Total current liabilities
Interest bearing liabilities
Deferred tax liabilities
Provisions
Derivative financial instruments
Total non current liabilities
TOTAL LIABILITIES
NET ASSETS
Issued capital
Accumulated losses
Reserves
TOTAL EQUITY
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2016
$m
113.5
19.3
15.2
-
2.8
4.5
155.3
251.6
94.2
596.1
1,726.0
165.9
32.0
100.0
2.8
2,968.6
3,123.9
287.6
248.9
7.1
27.4
34.0
5.9
610.9
831.5
40.9
24.1
52.3
948.8
1,559.7
1,564.2
2,430.6
(170.7)
(695.7)
1,564.2
2015
$m
148.0
19.0
15.4
76.2
1.9
3.2
263.7
184.1
86.8
635.0
1,714.7
194.9
32.4
79.2
2.8
2,929.9
3,193.6
303.2
-
13.9
26.2
24.0
5.7
373.0
1,147.7
41.6
24.5
53.0
1,266.8
1,639.8
1,553.8
2,426.2
(168.0)
(704.4)
1,553.8
D3 Parent entity disclosures
Result of the parent entity
Profit for the year
Other comprehensive (loss)/income
Total comprehensive income for the year
Financial position of the parent entity
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising of:
Issued capital
Demerger reserve
Other reserves
Retained earnings
Total equity
Contingent liabilities
Refer to note E3.
Tabcorp Holdings
2016
$m
164.5
(1.3)
163.2
55.5
2,540.3
275.6
282.3
2,430.6
(669.9)
5.4
491.9
2,258.0
2015
$m
266.0
1.5
267.5
160.7
2,555.3
29.6
283.1
2,426.2
(669.9)
4.5
511.4
2,272.2
Capital expenditure
The parent entity does not have any capital expenditure commitments for the acquisition of property, plant and equipment contracted but not provided for at 30 June 2016 or 30 June 2015.
Parent entity guarantees in respect of debts of its subsidiaries
The parent entity has entered into a deed of cross guarantee with the effect that the Company guarantees debts in respect of its subsidiaries. Further details of the deed of cross guarantee and the
subsidiaries subject to the deed, are set out in note D2.
Tax consolidation
Tabcorp Holdings Limited (the Head Company) and its 100% owned Australian tax resident subsidiaries have formed an income tax consolidation group, and are therefore taxed as a single entity.
Members of the tax consolidation group entered into a tax sharing arrangement that provides for the allocation of income tax liabilities between the entities should the Head Company default on
its tax payment obligations. At balance date, the possibility of default is remote.
Members of the tax consolidation group have entered into a tax funding agreement which requires each member of the tax consolidation group to make a tax equivalent payment to or from the Head
Company, based on the current tax liability or current tax asset of the member. These amounts are recognised as either an increase or decrease in the subsidiaries’ intercompany accounts with the
Head Company. Deferred taxes are recognised separately by each member of the tax consolidation group.
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Notes to the financial statements: Group structure
For the year ended 30 June 2016
D4 Business combinations
Acquisition of ACTTAB in the prior year
On 14 October 2014, the Group acquired the ACTTAB business. The acquisition provided the Group with long life licences that complemented the existing Wagering and Keno businesses. ACTTAB
provides totalisator and fixed odds wagering, Keno and Trackside products within the ACT through a network of retail outlets, in addition to telephone and online platforms.
(a) Identifiable assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of ACTTAB at the date of acquisition were:
Cash and cash equivalents
Other assets
Licences
Other intangible assets
Property, plant and equipment
Deferred tax liabilities
Payables
Provisions
Net identifiable assets acquired
Goodwill arising on acquisition (i)
Purchase consideration transferred (cash)
(i) Goodwill recognised is primarily attributable to the expected synergies and other benefits from combining the assets and activities of ACTTAB with those of the Group.
The goodwill is not deductible for tax purposes.
The cash outflow on acquisition was:
– Net cash acquired
– Cash paid
Net cash outflow
(b) Acquisition costs
$m
0.3
0.9
18.4
4.8
8.3
(6.3)
(2.4)
(2.4)
21.6
82.0
103.6
0.3
(103.6)
(103.3)
Transaction costs of $2.8 million were expensed and included in other expenses in the income statement in the prior year.
(c) Revenue and profit contribution
In the prior year, the Group’s profit before income tax expense includes revenue of $20.9 million and a loss of $3.0 million, including $5.8 million of one-off acquisition and integration costs relating
to the ACTTAB business since the date of acquisition (a period of 8.5 months). If the acquisition had taken place at the beginning of the prior year, the Group’s revenue and profit before income tax
expense in the prior year would have been $2,163.3 million and $259.5 million respectively.
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Section E – Other disclosures
E1 Employee share plans
The Company operates share plans which provide equity instruments to senior executives and management as a component of their remuneration.
Long Term Performance Plan (LTPP)
The LTPP is available at the most senior executive levels. Under the LTPP employees may become entitled to Performance Rights in the Company. The fair value of Performance Rights is measured
at grant date and is recognised as an employee expense (with a corresponding increase in equity) over three years irrespective of whether the Performance Rights vest to the holder. A reversal of the
expense is only recognised in the event the instruments lapse due to cessation of employment within the three year period. The fair value of the Performance Rights is determined by an external valuer
and takes into account the terms and conditions upon which they were granted. The dilutive effect, if any, of outstanding Performance Rights is reflected in the computation of diluted earnings per
share.
Short Term Performance Plan (STPP)
For senior management it is mandatory to defer 25% (50% for the Managing Director and Chief Executive Officer) of their STPP into Restricted Shares, which are subject to a two year service
condition.
The cost of the Restricted Shares is based on the market price at grant date and is recognised over the vesting period.
The maximum number of shares that can be outstanding at any time under these plans is limited to 5% of the Company’s issued capital.
The share based payments expense in respect of the equity instruments granted is recognised in the income statement for the period.
Further explanation of the share plans is disclosed in the Remuneration report.
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Notes to the financial statements: Other disclosures
For the year ended 30 June 2016
E1 Employee share plans (continued)
Performance Rights (number)
Details of and movements in Performance Rights granted under the LTPP that existed during the current or previous year are:
Grant date
2016
4 October 2012
31 October 2012
2 October 2013
31 October 2013
28 October 2014
29 October 2015
2015
23 September 2011
26 October 2011
4 October 2012
31 October 2012
2 October 2013
31 October 2013
28 October 2014
Expiry date
20 September 2015
20 September 2015
18 September 2016
18 September 2016
16 September 2017
22 September 2018
23 September 2014
23 September 2014
20 September 2015
20 September 2015
18 September 2016
18 September 2016
16 September 2017
Balance at
start of year
Movement during the year
Granted
Forfeited
Vested
Other(i)
1,060,269
427,586
978,872
590,062
1,384,728
-
4,441,517
1,058,998
447,761
1,060,269
427,586
978,872
590,062
-
4,563,548
-
-
-
-
-
1,351,955
1,351,955
-
-
-
-
-
-
1,384,728
1,384,728
-
-
(60,273)
-
(137,565)
(112,173)
(310,011)
(127,084)
(53,732)
-
-
-
-
-
(180,816)
(1,140,803)
(427,586)
-
-
-
-
(1,568,389)
(931,914)
(394,029)
-
-
-
-
-
(1,325,943)
80,534
-
75,900
-
67,909
-
224,343
-
-
-
-
-
-
-
-
Balance at
end of year
-
-
994,499
590,062
1,315,072
1,239,782
4,139,415
-
-
1,060,269
427,586
978,872
590,062
1,384,728
4,441,517
(i) Additional Performance Rights allocated during the year to restore value to previous equity grants that were impacted by the 1 for 12 pro rata accelerated renounceable entitlement offer and the
payment of a special dividend, which occurred in March 2015. The additional Performance Rights are subject to the same terms and conditions as the corresponding tranche of Performance
Rights to which the additional grants relate.
No Performance Rights were exercisable at the end of the current or previous year.
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Fair value of equity instruments
Performance Rights have been independently valued at the date of grant using a modified form of Monte-Carlo simulation-based model.
The weighted average fair value of Performance Rights granted during the year was $2.47 (2015: $2.42).
The assumptions underlying the Performance Rights valuations are:
Grant date
23 September 2011
26 October 2011
4 October 2012
31 October 2012
2 October 2013
31 October 2013
28 October 2014
29 October 2015
Expiry date
23 September 2014
23 September 2014
20 September 2015
20 September 2015
18 September 2016
18 September 2016
16 September 2017
22 September 2018
Share price at
date of grant
$
2.61
2.87
2.86
2.84
3.27
3.60
4.03
4.73
Expected
volatility in
share price(i)
%
24.00
24.00
22.00
22.00
22.00
22.00
22.00
25.00
Expected
dividend yield(ii)
%
7.00
7.00
6.00
6.00
5.50
5.50
5.00
5.00
Risk free
interest rate(iii)
%
3.46
3.73
2.40
2.57
2.92
3.00
2.52
1.80
Value per
performance
right
$
1.34
1.49
1.37
1.31
1.73
2.07
2.42
2.47
(i) Reflects the assumption that the historical volatility is indicative of future trends.
(ii) Reflects the assumption that the current payout ratio will continue with no anticipated increases.
(iii) Represents the zero coupon interest rate derived from government bond market interest rates on the valuation date and vary according to each maturity date.
E2 Commitments
(a) Capital expenditure commitments
Property, plant and equipment
Software
(b) Operating lease commitments
Contracted but not provided for and payable:
Not later than one year
Later than one year but not later than five years
Later than five years
2016
$m
11.7
3.6
15.3
38.6
81.0
57.4
177.0
2015
$m
10.3
1.4
11.7
39.0
85.9
67.0
191.9
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The Group leases property under operating leases expiring from 1 to 12 years. Leases generally provide the Group with a right of renewal at which time all terms are renegotiated. Lease payments
comprise a base amount plus an incremental contingent rental. Contingent rentals are based on either movements in the Consumer Price Index or are subject to market rate review. For leases relating
to the Victorian wagering operations, 50% of the cost is recoverable from VicRacing Pty Ltd.
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Notes to the financial statements: Other disclosures
For the year ended 30 June 2016
E3 Contingencies
Details of contingencies where the probability of future payments is not considered remote are set out below as well as details of contingencies, which although considered remote, the Directors
consider should be disclosed as they are not disclosed elsewhere in the notes to the financial statements.
Contingent liabilities
(a) Charge
A controlled entity, Tabcorp Wagering Participant (Vic) Pty Ltd, which is a participant in the joint venture outlined in note E4(a), has entered into a deed of cross charge with its joint venture partner
to cover the non payment of a called sum in the event of the joint venture incurring a loss. The charge is over undistributed and future earnings of the joint venture to the level of the unpaid call.
(b) Legal challenges
There are outstanding legal actions between controlled entities and third parties at 30 June 2016. It is expected that any liabilities arising from such legal action would not have a material adverse
effect on the Group’s financial position, other than as outlined below.
(c) Civil proceedings
In July 2015 the Australian Transaction Reports and Analysis Centre commenced civil proceedings against Tabcorp Holdings Limited, Tab Limited and Tabcorp Wagering (Vic) Pty Ltd alleging certain
breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. The hearing is scheduled to commence in June 2017. As previously announced, the Company is contesting many
of the allegations made against it. However, in some instances the Company will not contest allegations. At this stage it is not possible to determine the extent of any potential financial impact to the
Group.
E4 Related party disclosures
(a) Transactions with joint arrangements
The Group conducts an unincorporated joint venture with VicRacing Pty Ltd in Victoria (‘the joint venture’). The principal activity of the joint venture is the organisation, conduct, promotion and
development of wagering and betting in Victoria. The Group receives 50% of the revenue and expenses of the joint venture, which is accounted for as a joint operation.
The Group charges the joint venture for the provision of employee, management and asset services. On consolidation, 50% of the charges eliminate (being the Group’s interest in the joint venture).
Charges for the remaining 50% of $76.3 million were received by the Group in 2016 (2015: $72.5 million).
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(b) Director and executive disclosures
(i) Compensation of Key Management Personnel (KMP)
Short term
Other long term
Post employment
Share based payments
Termination benefits
E5 Auditor’s remuneration
Amounts received or due and receivable by Ernst and Young for:
– audit and review of the financial report of the Group
– other assurance services in relation to the Group (i)
2016
$
5,824,232
113,997
213,859
2,957,983
594,003
9,704,074
2016
$000
948
478
1,426
2015
$
5,955,231
92,835
218,047
2,394,604
-
8,660,717
2015
$000
961
375
1,336
(i) Other services comprise other audit services for Group subsidiaries, regulatory audit services and other assurance work.
E6 Other accounting policies
(a) Statement of compliance
(i) Changes in accounting policy and disclosures
A number of new and amended accounting standards became mandatorily applicable for the Group for the first time in the current financial year. The adoption of these new and amended standards
had no impact on the financial position or performance of the Group, or the disclosures included in this financial report.
(ii) New Australian Accounting Standards or International Financial Reporting Standards issued but not yet effective
The following new and amended accounting standards and interpretations have been recently issued by the Australian Accounting Standards Board but not yet effective, are considered relevant
to the Group. They are available for early adoption but have not been applied by the Group in this financial report:
AASB 9 Financial Instruments is applicable to the Group from 1 July 2018. It includes revised guidance on classification and measurement of financial instruments and new hedge accounting
requirements including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures.
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Notes to the financial statements: Other disclosures
For the year ended 30 June 2016
E6 Other accounting policies (continued)
(a) Statement of compliance (continued)
(ii) New Australian Accounting Standards or International Financial Reporting Standards issued but not yet effective (continued)
AASB 15 Revenue from Contracts with Customers is applicable to the Group from 1 July 2018. It establishes a framework for determining whether, how much and when the revenue is recognised.
The core principle is that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price.
AASB 16 Leases is applicable to the Group from 1 July 2019. It introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more
than 12 months, unless the underlying asset is of low value. A lessee will recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its
obligation to make lease payments. Depreciation of the asset and interest on the liability will be recognised.
The Group has not yet completed its assessment of the impact of these new standards on the financial report.
(b) Goods and services tax
Revenues, expenses, assets and liabilities are recognised net of the amount of GST except:
• when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset
or as part of the expense item as applicable;
• wagering and certain Keno revenues, due to the GST being offset against government taxes; and
• receivables and payables, which are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
Cash flows are included in the cash flow statement on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to,
the taxation authority are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.
(c) Foreign currency translation and balances
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at balance date are translated to Australian Dollars at the foreign exchange rate ruling at that date. Foreign exchange differences
arising on translation are recognised in the income statement with the exception of differences on foreign currency borrowings that are in an effective hedge relationship. These are taken directly
to equity until the liability is extinguished at which time they are recognised in the income statement. Refer to note B3 for further detail.
Non monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Non monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian Dollars at foreign exchange rates ruling at the dates the fair
value was determined.
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Directors’ declaration
In the opinion of the Directors of Tabcorp Holdings Limited (the Company):
(a) the financial statements and notes of the Group are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2016 and of its performance for the year
ended on that date; and
(ii) complying with Accounting Standards and Corporations Regulations 2001;
(b) the financial statements and notes also comply with International Financial Reporting Standards; and
(c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
This declaration has been made after receiving the declarations required to be made to the Directors by the Chief Executive
Officer and Chief Financial Officer in accordance with section 295A of the Corporations Act 2001 for the financial year
ended 30 June 2016.
In the opinion of the Directors, as at the date of this declaration, there are reasonable grounds to believe that the members
of the Closed Group identified in note D2 will be able to meet any obligations or liabilities to which they are or may become
subject, by virtue of the Deed of Cross Guarantee.
Signed in accordance with a resolution of Directors.
Paula J Dwyer
Chairman
David R H Attenborough
Managing Director and Chief Executive Officer
Melbourne
4 August 2016
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Independent auditor’s report
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent auditor's report to the members of Tabcorp Holdings Limited
Report on the financial report
We have audited the accompanying financial report of Tabcorp Holdings Limited, which comprises the consolidated statement of financial position as at 30 June
2016, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for
the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors' declaration of the
consolidated entity comprising the company and the entities it controlled at the year's end or from time to time during the financial year.
Directors' responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the financial
report that is free from material misstatement, whether due to fraud or error. In the notes to the financial statements, the directors also state, in accordance
with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting
Standards.
Auditor's responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards.
Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable
assurance about whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on
the auditor's judgment, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk
assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial report in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as
evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Independence
In conducting our audit we have complied with the independence requirements of the Corporations Act 2001. We have given to the directors of the company a
written Auditor’s Independence Declaration, a copy of which is included in the directors’ report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
114
Tabcorp Annual Report 2016
Opinion
In our opinion:
a.
the financial report of Tabcorp Holdings Limited is in accordance with the Corporations Act 2001, including:
i.
giving a true and fair view of the consolidated entity's financial position as at 30 June 2016 and of its performance for the year ended on that date;
and
ii.
complying with Australian Accounting Standards and the Corporations Regulations 2001; and
b.
the financial report also complies with International Financial Reporting Standards as disclosed in the notes to the financial statements.
Report on the remuneration report
We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2016. The directors of the company are responsible for
the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.
Opinion
In our opinion, the Remuneration Report of Tabcorp Holdings Limited for the year ended 30 June 2016, complies with section 300A of the Corporations
Act 2001.
Ernst & Young
Tony Johnson
Partner
4 August 2016
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
114
Tabcorp Annual Report 2016
115
Tabcorp Annual Report 2016
F
i
n
a
n
c
i
a
l
R
e
p
o
r
t
Five year review
Financial performance
Total revenue
EBITDA(i)
Profit before interest and tax
Profit after income tax attributable
to members of parent entity (ii)
Dividend (iii)
Financial position and cash flow
Total assets
Total liabilities
Shareholders’ funds/total equity
Net cash flows from operating activities
Capital expenditure – payments
Cash at end of year
Shareholder value
Earnings per share
Dividends per share (iii)
Operating cash flow per share (iv)
Net assets per share
Return on shareholders’ funds
Total shareholder return (v)
Share price close
Market capitalisation
Segment revenue(vi)
Wagering and Media
Keno
Gaming Services
Gaming (vii)
Employee
Safety (viii)
Engagement (ix)
Females in senior management roles
Stakeholder benefits
Returns to racing industry
Taxes on gambling paid
Income tax expense/(benefit)(ii)
Unit
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
cents
cents
cents
$
%
%
$
$m
$m
$m
$m
$m
LTIFR
number
%
$m
$m
$m
FY16
2,188.7
479.6
301.0
169.7
199.6
3,302.8
1,614.7
1,688.1
401.1
183.1
126.0
20.4
24.0
26.2
2.03
10.0
5.5
4.57
3,799.8
1,873.0
208.5
107.2
-
0.9
3.94
37
786.9
428.6
61.4
FY15
2,155.5
508.1
334.6
334.5
389.2
3,384.0
1,693.9
1,690.1
399.7
131.6
160.0
42.4
50.0
34.0
2.14
21.3
50.3
4.55
3,773.8
1,856.9
199.0
99.6
-
1.0
3.89
33
773.2
459.6
(75.7)
FY14
2,039.8
459.4
295.0
129.9
121.3
3,105.1
1,623.7
1,481.4
387.4
198.4
126.8
17.2
16.0
25.0
1.96
8.9
15.6
3.36
2,563.5
1,737.8
203.9
98.1
-
1.5
3.81
35
735.0
439.3
66.7
FY13
2,133.4
472.3
313.1
126.6
140.3
3,144.6
1,731.4
1,413.2
264.9
204.2
109.7
17.2
19.0
8.2
1.92
9.0
11.9
3.05
2,271.9
1,711.5
205.4
86.3
130.2
2.7
3.65
29
728.2
521.7
83.0
FY12
3,038.5
725.2
591.7
340.0
173.0
3,249.0
1,843.2
1,405.8
525.5
631.0
151.4
47.6
24.0
(14.8)
1.97
25.9
0.1
2.93
2,139.2
1,776.5
183.1
4.7
1,074.2
1.4
3.47
31
652.7
1,121.9
157.0
116
Tabcorp Annual Report 2016
(i) FY13 includes impairment of $65.8 million.
(ii) FY15 includes $163.2 million as a result
of receiving income tax benefits relating
to the Victorian wagering and gaming
licence payment and the NSW Trackside
payment ($160.4 million) and associated
interest income.
(iii) Dividends attributable to the year, but
which may be payable after the end of
the period. FY15 includes a special
dividend of 30.0 cents per share.
(iv) Net operating cash flow per the cash
flow statement does not include payments
for property plant and equipment and
intangibles, whereas these items are
included in the calculation for the operating
cash flow per share ratio. FY12 includes
payment for the Victorian Wagering and
Betting Licence of $418.7 million.
(v) Total shareholder return (TSR) is calculated
from 1 July to 30 June. The share price
used for calculating TSR is the volume
weighted average share price used in the
Tabcorp Dividend Reinvestment Plan (DRP).
Where no DRP was in operation, the closing
share price on the dividend payment date
is used.
(vi) Revenue includes both external and internal
revenue.
(vii) Gaming includes the Victorian Tabaret
business which ceased operations on
15 August 2012.
(viii) The lost time injury frequency rate (LTIFR)
is the number of lost time injuries per million
hours worked.
(ix) Employee engagement is measured by
Gallup on a 1 to 5 scale.
Major announcements
Tabcorp’s major announcements since the previous annual report are listed below. These announcements are available on the Company’s website at www.tabcorp.com.au following their release
to the Australian Securities Exchange.
2016
Tabcorp appoints Bruce Akhurst and Vickki McFadden to its Board of Directors
Tabcorp to expand its Gaming Services business through the acquisition of INTECQ
NSW Government announced the cessation of greyhound racing as of 1 July 2017
Tabcorp filed its defence to AUSTRAC amended statement of claim
Tabcorp and the Australian Trainers Association extended and upgraded their sponsorship agreement
Trading update for the third quarter of the 2016 financial year
Tabcorp welcomed the Federal Government’s response to the Illegal Offshore Wagering Review
AUSTRAC granted leave to file an amended statement of claim
Tabcorp and Tasracing announced new three-year sponsorship agreement
Sky Racing to broadcast Australian racing in high definition for the first time
Mr Elmer Funke Kupper granted a leave of absence from the Board of Directors
Australian Federal Police investigation in relation to a payment concerning a Cambodian business opportunity in 2009
Tabcorp and the Victoria Racing Club announced a new eight-year sponsorship agreement
High Court of Australia dismissed Tabcorp’s appeal in relation to Tabcorp’s claim for approximately $686 million from the State of Victoria
3 August
1 August
7 July
23 June
4 May
2 May
28 April
20 April
13 April
1 April
21 March
15 March
11 March
2 March
12 February New NSW Keno Licence to be issued, extending Tabcorp’s approval to operate NSW Keno until 2050
4 February
21 January
Half year results – statutory net profit after tax of $81.9 million, down 33.1%
German Tote joined Tabcorp’s wagering pools
Tabcorp and Thoroughbred Breeders Victoria announced a new partnership
2015
10 December Tabcorp and News UK partner to launch new online wagering and gaming business in the UK
8 December
19 November Tabcorp made a submission to the Federal Government’s Review into the Impact of Illegal Offshore Wagering
16 November Tabcorp confirmed merger discussions with Tatts Group, but companies were unable to agree mutually acceptable terms and discussions ended
Tabcorp recognised as one of Australia’s leading promoters of workplace diversity after being named an Employer of Choice for Gender Equality
5 November
Annual General Meeting addresses and presentations by the Chairman and Managing Director
29 October
Trading update for the first quarter of the 2016 financial year
29 October
13 October
Tabcorp filed defence to AUSTRAC statement of claim
10 September Tabcorp once again topped global sustainability ranking in the Dow Jones Sustainability Index
116
Tabcorp Annual Report 2016
117
Tabcorp Annual Report 2016
Shareholder information
As at 30 June 2016
Ordinary shares
Tabcorp has on issue 831,461,276 fully paid ordinary shares which are listed on the Australian Securities Exchange (ASX) under the code TAH. The issued capital has increased from last year due
to ordinary shares issued pursuant to Tabcorp’s Dividend Reinvestment Plan. There currently isn’t a share buy-back in operation in respect of the Company’s ordinary shares.
Tabcorp Subordinated Notes
Tabcorp has on issue 2,500,000 Tabcorp Subordinated Notes which are unsecured, subordinated, cumulative debt securities listed on the ASX under the code TAHHB. They were initially issued
on 22 March 2012 to successful applicants pursuant to the Tabcorp Subordinated Notes Prospectus dated 22 February 2012. Holders of Tabcorp Subordinated Notes are entitled to receive
quarterly interest payments (subject to deferral) and $100 cash per Tabcorp Subordinated Note upon redemption. The interest rate is equal to the three month bank bill rate plus a fixed margin
of 4.00% per annum. If Tabcorp does not elect to redeem the Tabcorp Subordinated Notes on 22 March 2017 (the First Call Date), then the fixed margin increases by 0.25% per annum.
Shareholding restrictions
The Company’s Constitution, together with an agreement entered into with the State of Queensland, contain restrictions prohibiting an individual from having a voting power of more than 10% in the
Company. The Company may refuse to register any transfer of shares which would contravene these shareholding restrictions or require divestiture of the shares that cause an individual to exceed the
shareholding restrictions.
Voting rights
Ordinary shares issued by Tabcorp Holdings Limited carry one vote per ordinary share. Tabcorp Subordinated Notes and Performance Rights do not carry any rights to vote at general meetings of the
Company’s shareholders. Failure to comply with certain provisions of the Victorian Gambling Regulation Act 2003 or Tabcorp’s Constitution, including the shareholder restrictions discussed above, may
result in suspension of voting rights.
Shareholder benefits scheme
Tabcorp operates a benefits scheme for shareholders. The scheme is aligned with Tabcorp’s key wagering business and associated racing industries, and provides free entry into nominated
thoroughbred, harness and greyhound racing events. Shareholders only have to register once, and in July each year they will receive a new benefits card. Details of the scheme and its terms and
conditions are available on Tabcorp’s website www.tabcorp.com.au.
Substantial shareholders
The following is a summary of the current substantial shareholder(s) pursuant to notices lodged with the ASX in accordance with section 671B of the Corporations Act 2001:
Name
Northcape Capital Pty Ltd
National Australia Bank Limited and its associated entities
The Vanguard Group, Inc
Date of interest
2 March 2016
18 May 2016
28 June 2016
Number of ordinary shares(i)
68,086,949
48,907,291
42,218,117
% of issued capital (ii)
8.19%
5.882%
5.078%
(i) As disclosed in the last notice lodged with the ASX by the substantial shareholder.
(ii) The percentage set out in the notice lodged with the ASX is based on the total issued share capital of Tabcorp at the date of interest.
Marketable parcel
There were 14,674 shareholders holding less than a marketable parcel of ordinary shares ($500 or more, equivalent to 110 ordinary shares) based on a market price of $4.57 at the close of trading
on 30 June 2016.
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Tabcorp Annual Report 2016
Twenty largest registered holders of ordinary shares
Twenty largest registered holders of Tabcorp Subordinated Notes
Investor name
J P Morgan Nominees Australia Limited
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
Citicorp Nominees Pty Limited
BNP Paribas Noms Pty Ltd
RBC Investor Services Australia Nominees Pty Limited
AMP Life Limited
BNP Paribas Nominees Pty Ltd
RBC Investor Services Australia Nominees Pty Limited
IOOF Investment Management Limited
UBS Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
Argo Investments Limited
Navigator Australia Ltd
HSBC Custody Nominees (Australia) Limited
RBC Investor Services Australia Nominees Pty Limited
3A Investments Pty Ltd
RBC Investor Services Australia Nominees Pty Limited
RBC Investor Services Australia Nominees Pty Limited
Total of top 20 registered holders
Distribution of securities held
Number of
ordinary
shares
180,780,576
168,232,972
120,910,793
51,488,286
23,143,643
8,059,757
7,577,869
6,678,299
5,557,857
5,162,338
4,837,168
3,715,128
3,628,090
2,850,670
2,753,529
1,625,397
1,389,777
1,231,345
1,151,713
1,137,931
601,913,138
% of
issued
capital
21.74
20.23
14.54
6.19
2.78
0.97
0.91
0.80
0.67
0.62
0.58
0.45
0.44
0.34
0.33
0.20
0.17
0.15
0.14
0.14
72.39
Investor group name
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
UBS Nominees Pty Ltd
National Nominees Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd
Arrowcrest Group Pty Ltd
HSBC Custody Nominees (Australia) Limited
First Option Credit Union Ltd
Mr Masaji Kitagawa
Navigator Australia Ltd
Eastham Holdings Pty Ltd
Delmos Pty Ltd
BT Portfolio Services Limited
J P Morgan Nominees Australia Limited
Trijon Nominees Pty Ltd
Bullando Pty Ltd
St Hedwig Village
Nulis Nominees (Australia) Limited
Ramm Investments Pty Ltd
Total of top 20 registered holders
Number of
Subordinated
Notes
177,983
166,842
162,595
150,774
100,000
66,538
22,500
21,849
20,000
20,000
13,872
13,212
13,000
12,250
12,205
12,125
12,000
12,000
11,567
10,500
1,031,812
% of
total
Notes
7.12
6.67
6.50
6.03
4.00
2.66
0.90
0.87
0.80
0.80
0.55
0.53
0.52
0.49
0.49
0.49
0.48
0.48
0.46
0.42
41.26
Number of securities held
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Ordinary Shares (i)
Tabcorp Subordinated Notes
Performance Rights(ii)
Number of holders
74,648
33,296
5,646
3,479
106
117,175
Number of securities
22,607,379
73,297,572
39,413,933
69,229,139
626,913,253
831,461,276
Number of holders
3,279
215
12
18
4
3,528
Number of securities
903,991
451,090
92,629
394,096
658,194
2,500,000
Number of holders
-
-
-
5
8
13
Number of securities
-
-
-
245,097
3,894,318
4,139,415
(i) Ordinary Shares includes Restricted Shares and Deferred Shares offered to employees under the Company’s incentive arrangements.
(ii) Performance Rights were issued pursuant to the Company’s long term incentive arrangements.
Refer to the Remuneration Report on pages 45 to 72 for more information about the Company’s incentive arrangements.
118
Tabcorp Annual Report 2016
119
Tabcorp Annual Report 2016
Online shareholder services
Use the internet to easily manage your shareholding
Shareholders can use the online share registry facility available on the Company’s website www.tabcorp.com.au, or on the share registry’s website www.linkmarketservices.com.au to conduct
standard shareholding enquiries and transactions, including:
• Download dividend statements
• Update registered address
• Check current and previous shareholding balances
• Appoint a proxy to vote at the Annual General Meeting
• Lodge or update banking details
• Participate in the Dividend Reinvestment Plan
• Notify Tax File Number/Australian Business Number
Go to the online
share registry facility
Dividend payments
All dividends paid by Tabcorp to shareholders with a registered address in Australia are paid by direct credit into a nominated bank account with an Australian financial institution. Payments are
electronically credited on payment date, allowing shareholders to utilise their funds immediately without any mailing or handling delays. There are also no misplaced or un-deposited cheques,
and reduces the likelihood of mail fraud. Shareholders can provide and update their bank account details by using the online share registry facility or by contacting the share registry.
Dividend Reinvestment Plan (DRP)
Tabcorp operates a DRP which enables participants to reinvest their dividends into acquiring additional Tabcorp ordinary shares without incurring any brokerage or handling costs. To elect to
participate in the Company’s DRP, use the online share registry facility or contact the share registry.
Annual Report
Tabcorp’s interactive Annual Reports are available online from the Company’s website, www.tabcorp.com.au. Annual Reports are sent to those shareholders who have requested to receive a copy.
Shareholders who no longer wish to receive a hard copy of the Annual Report or wish to receive the Annual Report electronically should make their election by using the online share registry facility
or contacting the share registry.
Electronic Communications
Shareholders can elect to receive all their communications electronically, including dividend statements, Annual Report, Notice of Meeting and proxy form. This enables shareholders to receive their
communications promptly and securely, and helps minimise the costs of printing and mailing. Shareholders can update their communication preferences by using the online share registry facility
or by contacting the share registry.
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Tabcorp Annual Report 2016
Company directory
Key dates
Registered office
Tabcorp Holdings Limited
5 Bowen Crescent
Melbourne VIC 3004
Australia
Telephone 03 9868 2100
Facsimile 03 9868 2300
Email
investor@tabcorp.com.au
Website
www.tabcorp.com.au
New South Wales office
Level 31
680 George Street
Sydney NSW 2000
Telephone 02 9218 1000
Sky Racing/Sky Sports Radio
79 Frenchs Forest Road
Frenchs Forest NSW 2086
Telephone 02 9451 0888
Queensland office
Level 16
15 Adelaide Street
Brisbane QLD 4000
Telephone 07 3243 4100
London office
3 London Bridge Street
London SE1 9SG
ENGLAND
Share Registry
Link Market Services Limited
Locked Bag A14
Sydney South NSW 1235
Australia
Telephone 1300 665 661
Telephone 02 8280 7418
Facsimile 02 9287 0303
Facsimile 02 9287 0309 (proxy forms only)
Email
Website www.linkmarketservices.com.au
tabcorp@linkmarketservices.com.au
2016
Annual General Meeting (The Westin Sydney)
2017*
Half year results announcement
Ex-dividend for interim dividend
Record date for interim dividend
Interim dividend payment
End of financial year
Full year results announcement
Ex-dividend for final dividend
Record date for final dividend
Final dividend payment
Annual General Meeting (Melbourne)
* These are proposed dates.
See the Company’s website for updates (if any).
25 October
2 February
7 February
8 February
15 March
30 June
4 August
11 August
14 August
18 September
23 October
Corporate information
Stock exchange listings
Copyright
Investment warning
Privacy
Currency
The Company is a company
limited by shares that is
incorporated and domiciled
in Australia.
The Company’s securities are
quoted on the Australian
Securities Exchange (ASX)
under the codes TAH for
ordinary shares and TAHHB
for Tabcorp Subordinated
Notes.
Information in this report has
been prepared by Tabcorp,
unless otherwise indicated.
Information may be
reproduced provided it is
reproduced accurately and
not in a misleading context.
Where the material is being
published or issued to others,
the sources and copyright
status should be
acknowledged.
Past performance of shares
is not necessarily a guide
to future performance. The
value of investments and any
income from them is not
guaranteed and can fall
as well as rise. Tabcorp
recommends investors seek
independent professional
advice before making
investment decisions.
121
Tabcorp Annual Report 2016
Tabcorp respects the privacy
of its stakeholders. Tabcorp’s
Privacy Policy is available on
the Company’s website
at www.tabcorp.com.au.
References to currency are
in Australian dollars unless
otherwise stated.
www.tabcorp.com.au