2010 Annual Report ASX 2 - Amazon S3 · cents per share. 3. Product and Program fees have been...

Tatts Group Limited ABN 19 108 686 040 615 St Kilda Road, Melbourne, Victoria, 3004, Australia

Locked Bag 888, St Kilda Road Central, Melbourne, Victoria, 8008, Australia Tel: 61 3 8517 7777 Fax: 61 3 8517 7752

www.tattsgroup.com

27 September 2010

ASX RELEASE

2010 Annual Report

Attached is a copy of the Company’s Annual Report for the year ended 30 June 2010, which will be dispatched to shareholders today. The Company’s Annual Report in both interactive and pdf form is available for download from the Company’s website at www.tattsgroup.com/investors/agm. Contact: Michael Mangos – General Manager, External Communications – 0419 551 980 Gary Woodford – General Manager, Investor Relations – (03) 8517 7530

For

per

sona

l use

onl

y

1 | Tatts Group Limited Annual Report 2010

For

per

sona

l use

onl

y

Tatts Group Limited ABN 19 108 686 040

Responsibly delivering our products and services

Contents

Chairman’s Report 2Tatts Lotteries 4UNiTAB Wagering 5Tatts Pokies 6Maxgaming 7Talarius 8Bytecraft 9 Community, Environment & Employees 10Corporate Governance Statement 12Directors’ Report (incl. Remuneration Report) 18Financial Statements 43Notes to the Financial Statements 48Directors’ Declaration 114Independent Auditors Report 115Shareholder Information 118Corporate Directory and Shareholder Calender 121

Long term licences

For

per

sona

l use

onl

y

1

Strong balance sheet and cash flow

Acquired NSW Lotteries and launched TattsBet

95% of underlying profit paid as a dividend

Portfolio of networked neighbourhood businesses

History of growth

Consistently delivering results

www.tattsgroup.com

Core in-house technology capability

For

per

sona

l use

onl

y


As foreshadowed in last year’s Annual Report, the 2010 year has not been an easy one with uncertain economic trading conditions, tough comparable numbers due to the positive effects of Federal Government stimulus last year, and pressure on household disposable income of our customers. Given these challenging factors, Tatts has nevertheless been able to deliver pleasing outcomes:

• Underlying Group revenue up 2.6%;

• Underlying Group NPAT up 0.8%

• Dividends maintained at 21 cents per share

Accordingly, the Tatts portfolio of businesses has again demonstrated an ability to seek out opportunities and forge a sustainable path to strong results and to reward our shareholders. This has been done through management in each business unit targeting specific business initiatives that have strengthened Tatts and enhanced our longer term prospects.

Tatts Lotteries provided the most significant development during the year with the successful acquisition of the NSW Lotteries business. The acquisition provides an outstanding opportunity for Tatts to leverage its existing lottery business to drive business improvement and profitability. The integration of NSW Lotteries with the existing Tatts Lotteries business has occurred very quickly and efficiently, and we remain very confident NSW Lotteries will contribute $120 million EBITDA to

Tatts by 2014 if not earlier, more than justifying the purchase price of $850 million for a 40 year licence.

UNiTAB Wagering continued its long history of consistent and solid results despite the ongoing reshaping of the wagering industry. UNiTAB Wagering launched its own fixed price betting (FPB) services in November 2009, both online and in retail outlets under the new brand TattsBet. TattsBet has proven extremely popular with punters, with FPB revenue up an impressive 85% for the year. Importantly, TattsBet provides our business with a complete suite of internally managed products and services that position UNiTAB Wagering to compete in any operating environment within or beyond our existing boundaries.

Tatts Pokies results have clearly been impacted as the electronic gaming machine (EGM) industry in Victoria continues to experience ongoing challenges. Having benefitted from increases in household disposable income last year as a result of Federal Government stimulus payments and favourable economic conditions for consumers, the opposite was true in the 2010 financial year. The combination of changes to maximum bet levels from 1 January 2010, the continued negative sentiment towards EGMs that has gained prominence during the Victoria Government gaming machine entitlement auction process, and less favourable economic

conditions for consumers, have suppressed this business’ performance in the last financial year. With our existing licence running until mid August 2012, the focus remains on effectively and efficiently managing costs and capital expenditure to deliver strong cash flows from this activity.

Maxgaming and Bytecraft will provide Tatts’ longer term interest in the Australian EGM industry beyond 2012. Through ongoing investment in flexible technology solutions, Maxgaming has established a strong position in providing EGM monitoring and value added services to the industry in Queensland, NSW and the Northern Territory, with potential opportunities further afield. Similarly, Bytecraft has been successful in growing its EGM and point of sale maintenance service and other business support services Australia wide, with more than half its revenue now sourced outside Tatts.

Meanwhile, Tatts’ International business model has been redefined. The successful sale of the South African gaming operations on 30 June 2010 for a profit of $12 million leaves the international focus squarely on the Talarius business in the United Kingdom.

Management has worked tirelessly to streamline the Talarius operations – underperforming venues have been closed, well positioned venues have been refurbished, and overhead costs reduced. Initially buffeted by the effects

The Tatts portfolio of businesses has again demonstrated an ability to seek out opportunities and forge a sustainable path to strong results and to reward our shareholders.

Tatts Pokies results have clearly been impacted as the electronic gaming machine (EGM) industry in Victoria continues to experience ongoing challenges.

Tatts Lotteries provided the most significant development during the year with the successful acquisition of the NSW Lotteries business.

UNiTAB Wagering launched its own fixed price betting (FPB) services in November 2009, both online and in retail outlets under the new brand TattsBet.

Chairman’s Report

For

per

sona

l use

onl

y

3

of smoking bans and adverse regulatory changes impacting player behaviour, the business has subsequently encountered a deep and protracted recession in the UK economy.

Whilst the first six months of the 2010 calendar year have shown some slight positive signs of growth for Talarius, the business must now overcome an increase in VAT applied in the UK to 20% from 1 January 2011. These factors have led your Board to take the difficult but necessary decision to write-down the carrying value of the investment by $140 million.

It is important to bear in mind through these difficult times that Talarius maintains a strong market position in the UK and we remain confident it will continue to show considerable improvement as that economy improves in the years ahead.

Tatts’ internal expertise in Technology Systems related to our businesses has driven regular improvements in our wagering platform, the development of a new lottery system, and the development and implementation of a new EGM monitoring solution. This in-house expertise gives Tatts the capability and flexibility to quickly adapt as requirements and market conditions shift.

Tatts has also continued to apply a rigorous Capital Management mindset to ensure a continued strong balance sheet. Despite debt funding the majority of the $850 million NSW Lotteries acquisition, Tatts retains strong financial metrics, with a net debt to EBITDA

ratio of around 2.3 times and EBITDA to net interest of 9.6 times. Importantly, Tatts has a staggered debt maturity profile, with maturities in 2011, 2013 and 2015. The 2011 refinancing strategy is already well advanced.

OutlookWith economic and financial conditions appearing to have stabilised somewhat in our key markets after the last couple of years, we begin the 2011 financial year with greater but cautious optimism than the previous year. Each business unit is poised to capitalise on the restructuring work and costs incurred in the 2010 financial year. Tatts Lotteries will benefit from a full 12-months of NSW Lotteries, UNiTAB Wagering will be unencumbered by duplicate costs incurred last year during the migration to TattsBet, and Talarius will offer its refined suite of venues. Tatts Pokies meanwhile will benefit from additional EGMs as new venues commence operations, while Maxgaming and Bytecraft will continue to leverage their core strengths to offer consistently improving performance.

Tatts Lotteries has been a significant growth story in the recent history of Tatts Group, and its future prospects continue to look bright. Having delivered $23.3 million EBITDA in the 2006 financial year, the expanded Tatts Lotteries business has the prospect of delivering $250 million EBITDA by the 2014 financial year, transforming Tatts Lotteries into the biggest contributor to Tatts Group’s

profitability. By gross sales, Tatts Lotteries is now ranked in the top 10% of worldwide lottery operators.

The overarching objective in the management of Tatts is the return provided to shareholders. The growth in Tatts Lotteries is a demonstration of our ability to seek out and execute value accretive acquisitions, an objective that will continue. Of course, your Board continues to support a high dividend payout ratio, as evidenced again with this year’s 95% payout ratio on underlying profit.

I take this opportunity to thank my fellow Directors and the management and employees of Tatts for their commitment through what was unquestionably a challenging year in many respects. Their dedication and commitment to enhancing the Tatts portfolio of businesses is intrinsically aligned with our strong desire to return to a period of sustainable growth in total shareholder returns.

Harry Boon

Chairman

Underlying Results 30 June 2010 (1) 30 June 2009 (6) 30 June 2008 (6) 30 June 2007 (2) (6) 30 June 2006 (6)

A$m A$m A$m A$m A$m

Revenue 3,298.0 3,252.5 3,094.2 2,412.6 1,855.2

Statutory Charges– Government– Other (3)

1,531.4804.8

1,479.7811.9

1,439.5774.2

1,119.7634.5

1,018.3442.2

Operating Costs (3) 398.7 401.5 364.7 266.1 172.8

EBITDA 563.1 559.4 515.8 392.3 221.9

NPBT 404.0 400.5 370.6 330.4 188.8

NPAT 282.4 277.4 257.6 231.2 128.5

Cents Cents Cents Cents Cents

Earnings per share (4) 22.1 21.9 20.4 20.9 18.3

Dividend per Share (5) 21.0 21.0 20.0 18.0 16.25

Dividend Payout Ratio 95.0% 96.0% 98.2% 98.5% 89.3%

www.tattsgroup.com

1. The 2010 underlying results in the table above differ from the Reported Results as a result of the following one-off and non-continuing adjustments at a NPAT level:

Reported NPAT 119.4

Talarius - impairment ($140m), hedging ($2.1m) and venue restructure costs ($15.1m) 157.2 Maxgaming - effective life adjustment to software 17.7 NSW Lotteries - restructure costs 2.1 Sth Africa - trading profit and profit on sale -14.0

Underlying NPAT 282.4

2. The 30 June 2007 reported result has been adjusted to exclude the impact of the settlement of the Trustee Commission Claim and the resulting special dividend of 4 cents per share.

3. Product and Program fees have been re-classified as “Statutory Charges - Other” in each year.

4. EPS is calculated using the weighted average number of shares on issue through the year.

5. 2010 includes Special Dividend payable on 1 October 2010, effectively substituting for the final dividend both in quantum and timing.

6. Includes results from the South African business.

For

per

sona

l use

onl

y


Tatts Lotteries delivered a strong performance for the year, with sales revenue up 14.3% on the previous year. Adjusting for the three month contribution from NSW Lotteries, revenue was almost in line with the prior year, an excellent result given the high jackpot activity in the 2009 financial year, culminating in the record-breaking $106 million Oz Lotto jackpot on 30 June 2009.

Underlying EBITDA for the year was up 21.9% to $144.8 million. After adjusting for the three month contribution from NSW Lotteries, comparable EBITDA was up 1.8% to $120.9 million. This result again demonstrates the strength and ability of the Tatts Lotteries business to optimise its operational leverage, with controllable costs contained to only 6.3% of revenue (down from 6.4% last year).

Underlying results

30 June 2010 (1)

30 June 2009

A$m A$m

Revenue 1,223.7 1,070.7

Total Expenses 1,078.9 951.9

EBITDA 144.8 118.8

Depreciation & Amortisation

13.1

10.3

EBIT 131.7 108.5

In the first three months of the new 40 year licence, NSW Lotteries exceeded the planned sales performance target by 2.5%. Further sales initiatives should serve to strengthen this performance through the 2011 financial year. Importantly, the process to efficiently integrate the NSW Lotteries business within Tatts Lotteries has moved ahead quickly with no surprises, progressing seamlessly ahead of expectations, and reinforcing our optimism for the future of the combined Tatts Lotteries business.

Total lottery sales for the year were $2.5 billion (including 3 months of NSW Lotteries) delivered from more than 250 million transactions. Whereas Oz Lotto was the stand out performer in the 2009 financial year, Powerball has shown the greatest growth this year. The year started strongly, with an $80 million Powerball jackpot in July. Powerball sales remained solid throughout the year, increasing 49.9% over the previous year (up 29.7% excluding NSW Lotteries).

Oz Lotto sales meanwhile were 17.6% below the record-breaking 2009 financial year (excluding NSW Lotteries), primarily reflecting strong sales from the record $106 million jackpot in June 2009. Including NSW Lotteries, Oz Lotto sales were up 1.6%.

Importantly, the momentum gained from the record jackpot carried over into 2010 with higher participation rates recorded.

The regular jackpot activity in Oz Lotto and Powerball has to some extent impacted the performance of Tatts Lotteries’ most popular game, Saturday Lotto. Marketed as Tattslotto in Victoria, Gold Lotto in Queensland, and Lotto in NSW, sales were up 2.5% overall, but were down 3.6% on the previous year when NSW Lotteries is excluded, a trend felt nationally as players responded to competing jackpot offers.

The Monday & Wednesday Lotto product continues to gain in popularity, achieving sales of $165.2 million, up 72.5% on the previous year (up 22.3% excluding NSW Lotteries). This product is an important contributor to NSW Lotteries, and has shown particularly strong take-up in Victoria, where it was launched in October 2008.

The Instant Scratch-Its segment of the lottery market has historically had the greatest exposure to broader economic conditions. Whilst overall Scratch-It sales were up 11.3% including NSW Lotteries, the generally weaker retail trading conditions and a decline in discretionary spend have negatively affected underlying sales which were 1.7% below last year when NSW Lotteries is excluded.

The distribution of lottery products in Australia remains predominantly retail based through a strong agency network. Supplementing this primary retail footprint, internet sales have continued to enjoy solid growth to now contribute more than 5% of total lottery sales. Advances in technology now also provide the convenience for players to access Tatts Lotteries web sites for purchasing via internet-enabled mobile phones and small-screen devices, in a secure manner for registered players.

Meanwhile, Tatts Lotteries is progressing with the rollout of the internally developed lottery system that will provide a common technology platform across all our operating jurisdictions. With the new system active for Victorian internet sales, a staged process of rolling out to retail outlets throughout Victoria, Tasmania, Northern Territory and ACT will commence in the 2011 financial year. Attention will then turn to the roll out in NSW and Queensland from the 2012 financial year.

The prospects for the 2011 financial year and beyond are bright for Tatts Lotteries. Golden Casket in Queensland and Tattersall’s in Victoria, Tasmania, NT and ACT are expected to continue to offer steady and consistent growth in what are relatively mature markets. Meanwhile, the acquisition of NSW Lotteries provides a significant opportunity to build revenue through new products and leveraging the broader strength of the Tatts Lotteries business whilst extracting significant operational efficiencies.

Tatts Lotteries

The 2010 financial year has been another exciting and fulfilling year for the Tatts Lotteries operations, highlighted by the acquisition of NSW Lotteries which commenced operations under a new licence on 1 April 2010.

Tatts Lotteries is progressing with the rollout of the internally developed lottery system that will provide a common technology platform across all our operating jurisdictions.

1. Excludes NSW Lotteries restructuring costs of $1.5m.

For

per

sona

l use

onl

y

5

While difficult to quantify, there can be no doubt that UNiTAB Wagering received some benefit from the Federal Government stimulus spending last year, making for a tougher comparative period this year.

Underlying results

30 June 2010

30 June 2009

A$m A$m

Revenue 594.5 592.5

Total Expenses 447.6 444.7

EBITDA 146.9 147.8


18.9

17.3

EBIT 128.0 130.5

The result was achieved after absorbing restructuring costs of $1.5 million to streamline the management structure and call centres, changes that are expected to deliver ongoing benefits of $1.6 million per year. In addition, overlapping costs were incurred in respect of the migration of FPB to TattsBet in November 2009, changes that will eliminate some $2.5 million in book-build fees and provide significant operating flexibility.

Commensurate with the generally subdued retail economy, Queensland (approximately 71% of UNiTAB Wagering’s revenue), was up only 0.1%, whilst revenue was up by 2.2% in South Australia and declined in the Northern Territory .

In November 2009 UNiTAB Wagering commenced its own FPB offering, known as TattsBet. This facilitated our withdrawal from the TAB Sportsbet book. TattsBet was introduced into all UNiTAB Wagering retail outlets offering a complete suite of FPB products on racing and sport to complement the existing information displays, complete with easily marked win and place tickets for fixed price race betting.

FPB revenue was up 85% for the year to 30 June, and up 278% on racing and 49% on sports betting since UNiTAB Wagering assumed total control of its FPB offering under the TattsBet banner. Some of this growth is clearly at the expense of win and place totalisator wagering, but nevertheless the total business continued to progress in an otherwise difficult year.

In a further improvement to our customer product offering, fractional betting was extended to all totalisator bet types other than win and place betting. Meanwhile, extended trading hours were introduced to accommodate overseas racing (until 2 a.m. daily, and longer on some occasions).

Thoroughbred racing in Australia fared slightly better from less disruptions this year than last year, with 828 races lost to inclement weather compared to 893 the previous year.

With approximately 75% of all off-course sales coming from the TAB retail network, UNiTAB Wagering continues to invest in upgrading our service to punters. Virtually all licensed venues are now provided with full electronic wagering displays to help meet the information needs of punters, with this program also progressing across the agency network. Sky2 has now also been installed in all agencies, providing punters access to vision of an additional 200 races per week.

In February 2010, UNiTAB Wagering re-launched its website – www.unitab.com – providing a new and exciting offering that replicates our retail offering, namely, a full suite of both totalisator and FPB services.

UNiTAB Wagering also upgraded the Telebet terminal system used by the retail network to add functionality and improve efficiency. This has proven to be a resounding success, with the wagering system achieving a new high watermark of 755 transactions per second during the 2009 Melbourne Cup, and maintaining a high minimum rate of 600 transactions per second over a sustained period, with ample spare capacity.

UNiTAB Wagering’s long history of growth is set to continue.

The Victoria Government announced in July 2010 that Tatts Group has been shortlisted and invited to apply for the 12 year Victorian wagering licence commencing in 2012.

Meanwhile, our exclusive and secure retail licences in Queensland, South Australia and the Northern Territory, which collectively represent approximately 24% of Australian totalisator revenue, give UNiTAB Wagering a strong business base. Strategically, the introduction of FPB on racing at a retail level strengthens the portfolio of products offered, further enhancing UNiTAB Wagering’s future prospects and ability to attract punters and to participate in any future regulatory or industry change within or beyond our current boundaries.

UNiTAB Wagering

UNiTAB Wagering has delivered a consistent year with revenue increasing by 0.3% to $594.5 million, and EBITDA marginally down 0.6% to $146.9 million against the prior year.

www.tattsgroup.com

In February 2010, UNiTAB Wagering re-launched its website – www.unitab.com – providing a new and exciting offering that replicates our retail offering, namely, a full suite of both totalisator and FPB services.

For

per

sona

l use

onl

y


Tatts Pokies

As a consequence, Tatts Pokies has endured its most difficult year with revenue down 5.3% to $1,223.4 million, and EBITDA down 6.9% to $222.3 million.

Underlying results

30 June 2010

30 June 2009

A$m A$m

Revenue 1,223.4 1,292.2

Total Expenses 1,001.1 1,053.4

EBITDA 222.3 238.8


30.4

23.2

EBIT 191.9 215.6

The regulatory change to reduce the maximum bet per spin from $10 to $5 has had a discernible impact, and is a major contributor to a 4.9% decline in average net machine revenue (NMR), from $265 per EGM per day last financial year to $252 per EGM per day this financial year. In addition, $5.2 million of costs were incurred in the first half of this financial year to modify equipment to comply with this regulatory change.

The 2010 financial year has also seen the Victorian Government auction gaming machine entitlements direct to venues in preparation for 2012. The uncertainty and negative public sentiment that surrounded the EGM industry leading up to this process suppressed the appetite of venue owners to invest in improvements to their venues and dampened player spend.

Notwithstanding the difficult operating environment, Tatts Pokies has made considerable inroads in positioning the business to optimise performance over the remainder of our licence which expires mid August 2012.

Tatts Pokies started the 2010 financial year with 13,326 EGMs operating in 252 venues. The focus on improving the quality of the network has seen some underperforming venues being closed and the number of EGMs in operation contract slightly to 13,271 in 249 venues at the end of the 2010 financial year.

March 2010 saw the Water Gardens Hotel in Taylors Lakes switch to Tatts Pokies. Water Gardens Hotel is a strong performing venue operating 70 EGMs that will have a positive impact on the 2011 financial year, whilst contributing just over 3 months to the 2010 results. Similarly, June 2010 saw the opening of the Bells Hotel in South Melbourne, operating 40 EGMs.

The Mail Exchange Hotel, planned to open in September 2010 in the Melbourne CBD, has approval to operate 80 EGMs and is a very exciting proposition that is expected to be one of the better performing venues in the Tatts Pokies network.

Meanwhile, Tatts Pokies has made considerable progress in increasing its presence in the population growth corridors of greater Melbourne, including:

• commencement of gaming at the Lynbrook Hotel in October 2009, with 32 EGMs now deployed in this new venue.

• construction of the West Waters Hotel in Caroline Springs, with opening expected towards the end of the 2010 calendar year with 80 EGMs in operation.

• approval of gaming at the Laurimar Hotel in Whittlesea for the operation of 40 EGMs (currently under appeal by the council).

While Tatts Pokies is likely to remain below its 13,750 EGM cap for the remainder of the licence period, significant progress continues to be made in advancing the quality of the network for the remaining years of the licence.

Tatts Pokies also continues to disseminate the QCOM protocol capable upgrades to EGMs in order to facilitate the transition to the new monitoring environment post mid August 2012.

The Tatts Pokies business operations will be restructured on an ongoing basis as we edge towards the expiry of our licence in mid August 2012. Operating and capital expenditure requirements continue to decline at a time when the depreciation of the assets within the business has been accelerated to licence end. This, combined with the roll out of additional EGMs in quality venues will underpin the projected operating performance and cash flows over the next two years.

The task of overcoming the strong results in the 2009 financial year, which benefitted from the Federal Government stimulus payments, was compounded by regulatory change and industry uncertainty during the current year.

Tatts Pokies has made considerable inroads in positioning the business to optimise performance over the remainder of our licence which expires mid August 2012.

For

per

sona

l use

onl

y

7

With difficult retail economic conditions dampening gaming venue activity, Maxgaming has performed well in delivering revenue of $121.9 million, up 3.4% on the previous year. Importantly, the ability to leverage our existing investment in infrastructure has seen EBITDA increase 3.9% to $67.9 million.

Underlying results

30 June 2010 (1)

30 June 2009

A$m A$m

Revenue 121.9 117.8


EBITDA 67.9 65.3


25.3

24.3

EBIT 42.6 41.0

In Queensland, our competitive strategy of delivering superior technology and product innovation, coupled with reliable, prompt service, continues to deliver strong marketplace success along with revenue and margin growth. Maxgaming now monitors 34,519 EGMs in Queensland, an increase of 405 on the previous year, translating to a stable market share of 82%.

The launch of our Simplay card based cashless gaming system in May 2009 has been extremely well received by the market. The system includes pre-commitment functionality empowering players to set pre-determined levels of spend and time to assist with managing their EGM expenditure. The system is now rolled out to 47 sites across 4,226 EGMs and is already making a material contribution to staff efficiency, player convenience and harm minimisation.

During the year additional components of our new generation EGM monitoring system, Maxsys, were released creating efficiencies in back of house billing and administration as well as new revenue generating opportunities. Our new web based EGM performance benchmarking report, Maxreports, now has over 140 venues subscribed representing 25% of all Queensland EGMs monitored by Maxgaming.

Maxgaming is also on track to become the first monitoring operator in Australia to support a downloadable gaming solution, Maxchange, a fee based internet scheduling tool that allows venue managers to forward programme game and denomination changes without the need for technician intervention. The initial trial in September 2010 was in association with Voyager Gaming Technology’s suite of server assisted games.

In NSW, Maxgaming holds the exclusive licence for EGM monitoring and statewide jackpots. Monitoring revenues are a function of the total EGMs monitored and the regulated monthly monitoring fee, which increased by 2.85% in July 2009. During the year, total EGMs in NSW reduced from 97,934 to 97,572. Statewide jackpot link EGM numbers were also down by 574 to 3,493, reflecting a decline in fraternal links operated by hotel groups.

The launch in October 2009 of the $125,000 “Happy Millionaire” link, the only club mystery link permitted to offer a prize above $100,000, proved to be highly successful and continues to grow. Strategies to enhance the full potential of the statewide link business through improved display technologies are being introduced in the coming financial year along with further development efforts in conjunction with EGM manufacturers.

Maxgaming has also played a pivotal role in the staged introduction of the Maxsys monitoring system across the Talarius venues in the United Kingdom. While Maxsys will provide significant improvements in information to Talarius management to enhance the Talarius business, it has also reinforced the strength and adaptability of Maxgaming’s technology solutions and their ability to extend beyond current markets.

Meanwhile, Maxgaming continues to observe developments in Victoria where the State Government has announced an exclusive licence will be awarded to monitor the 27,500 EGMs in Victoria from 2012.

The 2010 financial year has been a challenging year for the venues that Maxgaming supports. Through this however, Maxgaming has maintained its ongoing investment in infrastructure and service offered to our customers to continue to improve the quality and sustainability of the business model, and is well positioned for an improved 2011 financial year.

Maxgaming

Maxgaming has continued to demonstrate its agility in adapting to continually changing and demanding operating environments experienced by the venues we support.

www.tattsgroup.com

The launch of our Simplay card based cashless gaming system in May 2009 has been extremely well received by the market.

1. Excludes $25.4m from changes to useful life with the early replacement of NSW software.

For

per

sona

l use

onl

y


Talarius delivered revenue of A$89.3 million for the year, down 10.6% but up 8.3% excluding foreign exchange movements, with underlying EBITDA declining to A$6.7 milion. During the year Talarius has absorbed A$18 million in restructure costs incurred following a decision to close 48 underperforming venues. The closure of these sites is expected to deliver an ongoing annualised EBITDA benefit of around A$5 million.

Underlying results

30 June 2010 (1)

30 June 2009

A$m A$m

Revenue 89.3 99.8


EBITDA 6.7 11.2


10.7

14.6

EBIT (4.0) (3.3)

The UK economy has continued to be affected by a deep and protracted recession, which has had a significant dampening effect on consumer spending. Talarius has clearly been impacted by this recession, along with an increase in VAT from 15% to 17.5% effective from 1 January 2010.

The EGMs in the Talarius portfolio had average spend of £17.92 per EGM per day, significantly below the £24.34 average spend in the first half of the 2007 calendar year before regulatory changes and the recession took hold. In a return to a positive trend, average spend per EGM this calendar year is marginally up on last year.

Our focus on employee engagement at a venue level has reinvigorated operational performance, with venue employees driven to improve customer service and customer retention, and to attract a new customer base.

Talarius has continued installing the Maxgaming Maxsys EGM monitoring system across its network. The installation of the monitoring system is an exciting development that, when completed, will provide significantly improved information on the venues and games across most of the network, empowering management to identify trends and optimise performance.

In parallel, Talarius also operates the online gambling site www.quicksilvergames.co.uk, providing online services such as gaming, casino and bingo. This fully licensed and regulated platform has strong online verification to exclude underage gaming, with Talarius also maintaining a close affiliation with bodies that protect gamblers and offer gambling care and advice. Following the re-launch of the quicksilver web site last year, the number of active online players has increased by 37%. Quicksilver games now provide 5% of Talarius’ revenue, and are expected to grow.

While Talarius’ recent history has been challenging, we look ahead with cautious optimism. Revenue reports from the venues increasingly show signs of like for like growth as we progress through the financial year, consistent with the broader market view of a slow recovery emerging in the UK economy through 2011. Our optimism has been tempered in the short term however due to the UK Government proceeding with a further increase in VAT to 20% to apply from 1 January 2011, as part of an emergency budget.

The evolving market place in the UK is also likely to present opportunities to continue to improve the quality of the portfolio of venues we operate, without necessarily increasing the number of venues. The focus is now on optimising this portfolio of venues, including rolling out EGM monitoring capability, reviewing venue locations with regard to any demographic shifts, refurbishments of venues and keeping abreast of other market trends. We are confident the remaining venues in the underlying business operations will continue to build momentum into the 2012 year and beyond as the UK economy recovers.

Talarius

With 170 venues, Talarius is the largest provider of Adult Gaming Centres (AGC) across the UK.

Following the re-launch of the quicksilver web site last year, the number of active online players has increased by 37%.

1. Excludes $18m one-off venue restructure costs.

For

per

sona

l use

onl

y

9

The growth in revenue has also been reflected in EBITDA growth of 12.0% to $6.4 million. This is a strong performance considering approximately 45% of Bytecraft’s revenue is sourced from internal Tatts contracts which does not attract a profit margin. The result also overcame additional costs incurred in the first half of the financial year in preparation for the commencement of incremental new contract work in the second half.

Underlying results

30 June 2010

30 June 2009

A$m A$m

Revenue 78.8 70.0


EBITDA 6.4 5.7


1.6

1.7

EBIT 4.8 4.0

During the year, Bytecraft assumed the internal field services work for UNiTAB Wagering in Queensland, South Australia and the Northern Territory, servicing a network of more than 1,100 retail sites. With the exception of existing arrangements currently in place in the newly acquired NSW Lotteries, Bytecraft now supports the complete portfolio of Tatts’ businesses across each jurisdiction in which Tatts operates.

Bytecraft continues to provide installation and break fix technical service operations nationwide with 20 offices across every state, territory and key regional locations in Australia. It is the breadth and depth of this service offering that has seen Bytecraft be successful in continuing to grow its external revenue base during the year, including securing the back to base warranty repair business for a leading global supplier of client server IT equipment, the onsite point of sale and peripheral support business for both of Australia’s leading retailers, test and tag services for some of Australia’s major Bank branches nationwide and laptop equipment repair work for NSW and Victorian school education platforms.

The breadth of Bytecraft’s service offering sees revenue being derived from businesses in a number of industry sectors including:

• 68% Gaming, Wagering and Lotteries;

• 19% Retail and Fast Food;

• 13% IT and Telecommunications, Transport and Finance.

The incremental external contract work that commenced in the second half of the 2010 financial year will provide a full year benefit in the 2011 financial year. Bytecraft is also currently supporting the Tatts Lotteries re-branding implementation in Victoria, and continues to monitor potential longer term opportunities in the changing Victorian EGM market.

Meanwhile, Bytecraft has recently been successful in securing the contract to provide field support services for the hardware used in the Victorian transport ticketing system.

With a strong commitment to high levels of customer service supported by Bytecraft’s own internally developed BSuite™ Service Management System, Bytecraft is well positioned to service existing customers and continue to grow in the years ahead.

Bytecraft

The focus of Bytecraft on growth opportunities has seen revenue increase by 12.6% to $78.8 million, with momentum particularly evident in the second half of the 2010 financial year.

www.tattsgroup.com

With the exception of existing arrangements currently in place in the newly acquired NSW Lotteries, Bytecraft now supports the complete portfolio of Tatts’ businesses across each jurisdiction in which Tatts operates.

For

per

sona

l use

onl

y


Responsible Gambling

Tatts Group promotes the responsible use of its gaming, wagering and lottery services in all its trading jurisdictions. This is achieved through ongoing collaboration with relevant stakeholders, including representatives of the community, counselling and welfare agencies, gambling industry associations, local Government, State Government policy makers and regulators. Tatts’ representatives sit on their respective State Government’s responsible gambling advisory bodies.

While the vast majority of people enjoy gambling as a legitimate recreational activity, we recognise that a small percentage of people have difficulty controlling their gambling behaviour. Tatts is committed to providing its services in a responsible manner, and new player protection and harm minimisation measures continue to be implemented on a regular basis to help protect customers from the harmful consequences of problem gambling.

Responsible Gambling Codes of Conduct exist in each of Tatts Group’s trading jurisdictions. These codes contain a variety of measures that respond to community expectations in regard to player protection and harm minimisation. These measures include responsible gambling information, pre-commitment strategies, game rules, advertising restrictions, customer complaint mechanisms and self-exclusion programs.

A new Responsible Gambling Code of Conduct and Tatts Lotteries Responsible Play Program were introduced into Victoria and Tasmania in June 2009 which complied with new Victorian legislation. The 2010 financial year saw the consolidation of this program in Victoria and Tasmania. We also developed an integrated program to build upon the best aspects of the existing Tattersall’s and Golden Casket responsible play programs to accommodate the multi-jurisdictional responsible gambling requirements that apply to the lottery businesses. Following consultation with relevant State regulators, Tatts Lotteries plans to roll out this integrated program into Queensland, ACT, NT and NSW during the 2011 financial year.

Community Support

Tatts Group continues to make a significant contribution to the communities in which we operate.

During the year, the Tattersall’s George Adams Foundation provided donations of approximately $2 million to a range of community projects and programs. Beneficiaries of the Foundation’s philanthropic activities were many and various, including:

• the Clontarf Foundation which engage and support young indigenous men in mainstream education in Alice Springs;

• the National Jockey’s Trust which provide assistance to jockeys and their families where hardship has been caused by serious injury, illness or death; and

• SecondBite which distribute fresh food to the homeless and disadvantaged.

Golden Casket donated $3 million to be shared equally in Queensland by the Starlight Children’s Foundation, Royal Children’s Hospital Foundation and Mater Foundation.

Golden Casket also continued its annual allocation of $1.5 million to child health and wellbeing. The Royal Children’s Hospital Foundation and the Mater Children’s Hospital each received $500,000 with the remainder distributed by Queensland Health to children’s health projects across Queensland.

The Golden Casket Variety Special Children’s Christmas Parties continued during the year, with more than 5,000 seriously ill or special needs children and their families attending the six parties held throughout Queensland. Environment

Tatts is a portfolio of neighbourhood based businesses reaching our customers through advanced wide area technology. As such, Tatts has a relatively low CO2 emissions profile. Despite this, Tatts is cognisant of its environmental responsibilities and is committed to ongoing improvements in the way in which we operate to contribute to the sustainability of our products and services.

Tatts continues to develop and adapt its services in response to changes in customer demand, and to take advantage of new and more efficient electronic service delivery systems that also minimise paper wastage through the supply chain.

The UNiTAB Wagering business conversion program to a fully electronic network continues to be well received by UNiTAB Wagering customers and importantly is performing well. The introduction of a new wagering portal UNiTAB.com earlier this year now sees 25% of the wagering business delivered through the internet and telephone. Likewise, the Tatts Lotteries, Tatts Pokies, and Maxgaming businesses have an extensive reliance on electronic technology delivery.

As a result of Tatts’ reliance on electronic technology, considerable effort has been placed in adopting virtual server platforms to reduce the power usage of our database centres. Meanwhile, Bytecraft continues to review options to improve the efficiency and environmental impact from its fleet of around 300 trade vehicles used in providing field support services.

Environmental management reports are periodically provided to the Audit, Risk and Compliance Committee of the Board. Employees

Tatts regularly reviews, and has set, performance targets for Occupational Health and Safety (OH&S) based on comparisons with similar occupations and industries. The key measure is Lost Time Injury Frequency Rate and Tatts’ performance overall and for the business units where work involves the greatest health and safety risks is consistently below external industry benchmarks. The Board reviews reports of all injuries, near misses and workers compensation claims each month. Tatts’ approach to management of OH&S for employees includes active local OH&S committees, regular audits to eliminate hazards and education for all employees and managers on safe work practices.

Community, Environment & Employees

For

per

sona

l use

onl

y

www.tattsgroup.com

11

Corporate Governance Statement 12Directors’ Report, incorporating the Remuneration Report 18Auditor’s Independence Declaration 42Financial Report – 30 June 2010 Consolidated income statement 43 Consolidated statement of comprehensive income 44 Consolidated balance sheet 45 Consolidated statement of changes in equity 46 Consolidated cash flow statement 47 Notes to the financial statements 48 Directors’ Declaration 114Independent Auditors Report 115Shareholder Information 118Corporate Directory and Shareholder Calender 121

For

per

sona

l use

onl

y


The Board recognises the importance of good corporate governance and establishing accountability of the Board and management. The Board is reporting against the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations 2007 (ASX Recommendations). Tatts Group Limited (the Company or Tatts Group) and its subsidiaries’ (Group) corporate governance policies centre around the Board, the Board committees and the principles that govern their interaction with, and oversight of, management. The Board is satisfied with the Group’s application of the principles in the ASX Recommendations and that the Group’s corporate governance framework, policies and practices will ensure the continued effective management and operation of the Group.

Tatts Group’s corporate governance framework, policies and practices remain under regular review as expectations and requirements develop to ensure that Tatts Group continues to comply with industry practice.

The Role of the BoardThe Board is committed to act in the best interests of Tatts Group to ensure that the Group is properly managed and consistently improved.The principal role of the Board is to:• Protect and enhance the interests of shareholders;• Influence and monitor strategy;• Oversee the management of Tatts Group and evaluate the performance of the Managing Director/Chief Executive and other executives;• Provide guardianship of Tatts Group’s corporate values;• Monitor the integrity of financial reporting;• Oversee risk management and legal compliance; and• Oversee shareholder communications.

Board Composition

The minimum number of Tatts Group Directors is three and the maximum number is nine unless the shareholders resolve to vary that number. Tatts Group Directors are elected at Annual General Meetings of Tatts Group. The Board has resolved that it be comprised of seven members. The Board currently comprises six Non-executive Directors and the Managing Director/Chief Executive. All Directors have entered into appointment agreements and deeds of indemnity, insurance and access.

The Managing Director/Chief Executive will not retire by rotation. Provided that Tatts Group has three or more Directors, one third of the Directors (rounded down to the nearest whole number) will retire at each Annual General Meeting. In any case, no Director may retain office for more than three years or after the third Annual General Meeting following the Director’s appointment, whichever is the longer period. In each case, the retiring Director may then seek re-election.

Board Charter

The Board has developed a charter to provide a framework for the effective operation of the Board. The charter addresses the following matters:• Responsibilities of the Board;• Relationship between the Board and management;• Appointment and role of the Chairman;• Composition of the Board;• Performance of the Board;• Board committees;• Board meetings; and• Access by Directors to independent advice.

The Company has established the functions reserved to the Board and these are contained in its charter. The Chief Executive and senior executive group, who are accountable to the Board, are responsible for matters which are not specifically reserved to the Board, which can be summarised as the day-to-day operation and management of the Group.

The Board Charter can be found at www.tattsgroup.com/investors.

Corporate Governance Statement

For

per

sona

l use

onl

y

13

www.tattsgroup.com

Independence of Directors

Each member of the Board is required to apply independent judgement to decision making in their capacity as a Director. A Non-executive Director will be considered independent by the Board if no relationship exists between the Director and Tatts Group that may interfere with the exercise of their independent judgement. The Board considers the factors outlined below when assessing the independence of each Non-executive Director, being whether: • TheDirectorisorhasbeenasubstantialshareholderoftheCompanyoranofficerof,orotherwiseassociateddirectlywith,asubstantial

shareholder of the Company;• TheDirectorisorhasbeenemployedinanexecutivecapacitybytheGroupandtherehasnotbeenaperiodofatleastthreeyearsbetween

ceasing such employment and serving on the Board;• TheDirectorisorhasbeenamaterialprofessionaladviserorconsultanttotheGrouporanemployeemateriallyassociatedwiththeservice

provided in the previous three years;• TheDirectorisamaterialsupplierorcustomeroftheGrouporanofficerof,orotherwiseassociateddirectlyorindirectlywith,amaterial

supplier or customer; and• TheDirectorhasamaterialcontractual relationship with the Group other than as a Director.

Family ties and cross directorships may also be relevant in considering interests and relationships which may compromise a Non-executive Director’s independence. The test of whether a relationship is material is based on the nature of the relationship and the circumstances of the Director. Materiality is considered from the perspective of the Company, the Director and the person or entity with which the Director has a relationship.

The Board considers the factors relevant to assessing independence and determines the independence of its Non-executive Directors, and the Board as a whole, each year. This review has been carried out for the 2010 financial year in respect of members of the Board. All Non-executive Directors were considered to be independent with the exception of Mr Bob Bentley, who is Chairman of Racing Queensland Limited which controls a material supplier to UNiTAB Limited. The Board acknowledges that, in accordance with the ASX Recommendations, it has a majority of Directors (including the Chairman) who are considered to be independent.

Independent Professional Advice

External advice may be sought by a Director in accordance with the terms of the Director’s appointment agreement.Each Non-executive Director’s appointment agreement provides that:• ProfessionaladvicegenerallyinrelationtothedischargeoftheDirector’sresponsibilitiestotheCompanymaybesought;• TheChairmanmustbenotifiedbeforeadviceissought;• AnyadviceobtainedmaybegiventotheBoard,ifappropriateasdeterminedbytheChairman;and• TheCompany will reimburse reasonable expenses where the above procedures have been followed.

Senior Executive Performance Evaluation

The process for evaluating the performance of senior executives is detailed in the Remuneration Report. A performance evaluation for senior executives, which accords with the process described, has taken place in the 2010 financial year.

Director induction and professional development

Tatts Group has an induction program to facilitate immediate involvement in Board activities by any new Director.

Tatts Group also recognises that Board members must be provided with a range of opportunities for professional development. The Board encourages Directors to identify areas for professional development, and Tatts Group will provide the Directors with sufficient access to appropriate resources.

Board CommitteesThe Board has established appropriate committees to assist it in the discharge of its responsibilities. However, the Board has not delegated any of its decision making authority to those committees except as expressly specified in the Committee charters.

Composition of Board Committees

Director Audit, Risk and Compliance

Governance and Nomination

Remuneration

Chairman Brian Jamieson Harry Boon Julien Playoust

Members Lyndsey Cattermole Julien Playoust Kevin Seymour

Bob Bentley Julien Playoust Kevin Seymour

Bob Bentley Harry Boon Brian Jamieson

For

per

sona

l use

onl

y


Other committees may be established by the Board as and when required. Membership of Board committees will be based on the needs of Tatts Group, relevant legislative and other requirements and the skills and experience of individual Directors.

The performance of each Committee was reviewed by the Board during the 2009 financial year. The next review will occur during the 2011 financial year.

The charter of each Board committee is available on the Company’s website at www.tattsgroup.com/investors. Audit, Risk and Compliance Committee

i. CompositionThe Chairman and members of the Audit, Risk and Compliance Committee are shown in the previous table. The Board will ensure that an independent Director who is not Chairman of the Board, remains Chairman of the Committee and that the Committee will have between three and six members, the majority of whom are independent Directors.

ii. Responsibilities

The Audit, Risk and Compliance Committee will assist the Board in its oversight responsibilities by monitoring and advising on:• ThetruthandfairnessoftheviewgivenbythefinancialstatementsoftheGroup;• TheintegrityoftheGroup’saccountingandfinancialreporting;• TheGroup’saccountingpoliciesandpracticesandconsistencywithaccountingstandards;• Thescopeofwork,independenceandperformanceoftheinternalandexternalauditors;• Compliancewithlegalandregulatoryrequirements;• CompliancewiththeGroup’sriskpolicyframework;• TheGroup’scontrolenvironment;• Relatedpartytransactions;and• TheGroup’s overall risk management program.

iii. External auditorIt is the responsibility of the Audit, Risk and Compliance Committee to review and approve the external auditor’s arrangement for the rotation and succession of audit and review partners, including their approach to managing the transition. The procedure for the selection and appointment of the external auditor and the Committee’s policy for the rotation of external audit engagement partners are outlined in the Audit, Risk and Compliance Committee’s charter and described on the Company’s website at www.tattsgroup.com/investors.

The external auditor must attend the Company’s Annual General Meetings, and be available to answer shareholders’ questions regarding:• Theconductoftheaudit;• Thepreparationandthecontentoftheauditreport;• AccountingpoliciesadoptedbytheCompanyinrelationtothepreparationofthefinancialstatements;and• Theindependenceoftheauditorinrelationtotheconductoftheaudit.

Governance and Nomination Committee

i. CompositionThe Chairman and members of the Governance and Nomination Committee are shown in the previous table. The Board will ensure that the Chairman of the Committee is the Chairman of the Board or an independent Director and that the Committee will have between three and six members, the majority of whom are independent Directors.

ii. ResponsibilitiesThe Governance and Nomination Committee will assist the Board in its oversight responsibilities by monitoring and advising on:• Boardcompositionandsuccessionplanning;• TheidentificationofpersonsforappointmenttotheBoard;• TheappointmentoftheManagingDirector/ChiefExecutive;• TheprocessofreviewingtheindependenceofDirectors;• Boardperformanceevaluation;• AproceduretoaddresstheinductionandeducationneedsofDirectors;• Corporategovernancedevelopments;and• ThedevelopmentandimplementationoftheGroup’scodeofconduct.

iii. Board Performance EvaluationThe Committee has responsibility for organising Board performance evaluation. A Board evaluation process was undertaken during the 2010 financial year. An evaluation process was also undertaken of individual Non-executive Directors (Individual Evaluation) during the 2010 financial year.

The evaluation processes occurred by questionnaire to Directors. The results were compiled on a confidential basis. The results of the Board Performance Evaluation were discussed by the Governance and Nomination Committee and reported to the Board. The results of the Individual Evaluation were provided to the relevant Director and the Chairman (and for the Chairman to the Chairman of the Audit, Risk and Compliance Committee). The results of the Individual Evaluation for those Directors standing for re-election at the 2010 Annual General Meeting were considered by the Governance and Nomination Committee as were each Director’s external commitments.

Corporate Governance Statement (continued)

For

per

sona

l use

onl

y

15

www.tattsgroup.com

iv. Appointment of New Directors and Re-election of Incumbent DirectorsPotential Directors will be nominated for appointment to the Board on the basis of a number of criteria including their identified skills and experience. This information will be communicated to shareholders to assist them in their decision whether to elect the nominee at the relevant Annual General Meeting.

Any person invited to join the Board will enter into an appointment agreement setting out the Director’s duties, rights, responsibilities and the terms and conditions associated with that appointment. All new Directors appointed to the Board will undertake an induction program co-ordinated by the Company Secretary.

The process for re-election of incumbent Directors can be found on the Company’s website at www.tattsgroup.com/investors. Remuneration Committee

i. CompositionThe Chairman and members of the Remuneration Committee are shown in the previous table. The Board will ensure that an independent Director who is not the Chairman of the Board remains Chairman of the Committee. The Managing Director/Chief Executive is an ex-officio attendee of the Remuneration Committee and invited to attend meetings at the request of the Committee members. The Board will ensure that the Committee will have a minimum of three Non-executive Director members and have no more than six members, the majority of whom are independent directors.

ii. Responsibilities

The Remuneration Committee will assist the Board in its oversight responsibilities by monitoring and advising on:• Non-executiveDirectorremuneration;• ManagingDirector/ChiefExecutiveperformancereview,remuneration,shorttermandlongtermincentives;• Executiveremunerationandallocationsofshorttermandlongtermincentives;• Employeeequityplans;• Executiverecruitment,retention,terminationpoliciesandsuccessionplanning;• Remunerationdisclosure;and• Riskmanagementandcontrolsregardingremuneration.

Risk Management Tatts Group operates a risk management framework that provides the Board with a communication process to continually assure them that risks inherent in the operations and activities of the Group have been prudently managed.

The Board has delegated the review of risk management practices to the Audit, Risk and Compliance Committee. As part of this role, the Committee regularly reviews the effectiveness of the risk management system and reports to the Board on the risk management framework throughout the year. As part of this process, the Board adopted a formal policy to provide a system for managing risks and informing stakeholders.

Tatts Group’s management team is responsible for identifying risks to the business, developing and implementing risk mitigation strategies and reporting the effectiveness of managing these risks to the Board. Internal Audit provides assurance to management, the Committee and the Board on the adequacy of the risk management and internal control systems. Management reports to the Committee on the material business risks and the extent to which they believe these risks are being managed, at least annually.

Management have identified risks in four core areas: strategic risk, operational risk, financial risk and compliance risk. By way of illustration, management identified a series of operational risks which include:

• Narrowmarketsandrelianceonlicences;• Partnersandothers(e.g.racingindustry,AgentsandLotteryBloc);• Relianceontechnology;• Reputation/socialresponsibility.

Management have also identified particular internal controls to mitigate these risks which include:

• Corporateplanningandkeystrategicprojectimplementation;• Thefinancialpracticesundertakenpursuanttothepoliciesandproceduressuchasdelegationsofauthority,budgetmonitoringandproject

performance reports;• TheoperationandreportingstructuresofTattsGroupcomplianceprogramsinrelationtoregulatoryrequirementsofTattsGroup

businesses and industry practice which deal with specific areas of risk such as licensing requirements, contractual obligations, OH&S and Treasury risk (further information on Tatts Group’s approach regarding responsible gambling, the environment and OH&S is contained on page 10);

• Technologyfocusseddisasterrecoveryplansandsecuritypolicyprocessesandpracticesandothertechnologyrelatedmanagement structures; and

• Anannualreviewofthe insurance program to ensure adequate coverage of insurable risks.

Internal Audit develops an annual audit program in consultation with management and the Audit, Risk and Compliance Committee which focuses on testing the efficacy of operational, financial and compliance risks. Regular reports are provided to the Board.

For

per

sona

l use

onl

y


For the 2010 financial year, management have reported to the Board, in accordance with ASX Recommendation 7.2, as to the effectiveness of the Company’s management of the Group’s material business risks. The Managing Director/Chief Executive and the Chief Financial Officer have provided assurance to the Board, in accordance with ASX Recommendation 7.3, that the declaration provided in accordance with Section 295A of the Corporations Act 2001 is founded on a sound system of risk management and internal control and the system is operating effectively in all material respects in relation to financial reporting risks. The Board notes that assurance from the Managing Director/Chief Executive and Chief Financial Officer can only be reasonable assurance rather than absolute. This is because of such factors as the need for judgement and limitations on internal controls.

Tatts Group will provide updates to its risk management framework on the Company’s website at www.tattsgroup.com/investors.

Key Policies Continuous disclosure policy

Tatts Group is committed to complying with its continuous disclosure obligations under the Corporations Act 2001 and the ASX Listing Rules and releasing relevant information to the market and shareholders in a timely and direct manner.

The Board has adopted a policy which is designed to ensure that information which is not generally available and which may have a material effect on the price or value of the Company’s securities (price sensitive information) is identified and appropriately considered by the Board where relevant and senior executives for disclosure to the market. The policy is also designed to ensure accountability at a senior executive level for that compliance. The policy also sets out procedures which must be followed in relation to releasing announcements to the market and discussion with analysts, the media or shareholders.

A summary of the continuous disclosure policy is available on the Company’s website at www.tattsgroup.com/investors. Tatts Group market announcements are also available on the Company’s website after they are released to ASX. Whistleblower policy

The Board has adopted a policy which outlines the steps which Directors and employees should take if they have a genuine suspicion of improper conduct (as described in the policy) regarding Group activities.

A summary of the whistleblower policy is available on the Company’s website at www.tattsgroup.com/investors. Securities trading policy and Securities hedging policy

The Board has adopted a policy which sets out the circumstances in which Directors and employees of the Group may deal in Company securities and enter into transactions in products which operate to limit the economic risk of holding the Company’s securities.

An overriding principle of the policy is that Directors and employees who possess price sensitive information must not deal in Company securities or enter into any transactions in risk limiting products. The policy specifies ‘blackout periods’ during which Directors and employees must not deal in Company securities or enter into transactions in risk limiting products, regardless of whether or not they are in possession of price sensitive information. The policy has limited exceptions (e.g. acquisitions under employee equity plans).

The Company has adopted a policy prohibiting executives from entering transactions which limit that individual’s economic exposure to unvested entitlements under the Company’s long term incentive plan.

A summary of each of the securities trading policy and the securities hedging policy is available on the Company’s website at www.tattsgroup.com/investors. Shareholder Communication

The Board has adopted shareholder communication practices to promote effective communication, ready access to information and ease of participation in general meetings. The Company’s website (www.tattsgroup.com/investors) contains all relevant material (including its policy) and the Company will provide a simultaneous web cast of the Annual General Meeting.

Corporate Governance Statement (continued)

For

per

sona

l use

onl

y

17

www.tattsgroup.com

Code of Conduct

Tatts Group is committed to promoting ethical and compliant behaviour among Directors and employees. To this end the Board has adopted a Code of Conduct applying to all Directors and employees. The Code promotes:• Actingwithhonesty,integrityandfairness;• Actinginaccordancewiththelaw;and• UsingtheGroup’spropertyandresourcesappropriatelywhichincludes:

- promotion of confidentiality; - avoidance of conflict of interest; - seeking effective and efficient outcomes for the Group.

The code of conduct can be found on the Company’s website at www.tattsgroup.com/investors. Chairman and Managing Director/Chief Executive (CE)

The Chairman is responsible for leading the Board, ensuring Directors are properly briefed on all matters relevant to their role and responsibilities, facilitating Board discussions and managing the Board’s relationship with the Group’s senior executives.

The CE is responsible for implementing Group strategies and policies.

The Board charter specifies that there must be clear division of roles between the Chairman and CE.

Commitment

The Board held 11 Board meetings during the year. The number of Board and Committee meetings held during each Director’s period of appointment and attended by each Director is disclosed on page 23.

The commitments of Non-executive Directors are considered by the Governance and Nomination Committee prior to a Director’s re-appointment to the Board of the Company and reviewed as part of performance assessment.

This Corporate Governance Statement should be read in conjunction with the Director’s Report and the Remuneration Report (contained in the Director’s Report) as those Reports also contain information required to be included by the ASX Recommendations.

For

per

sona

l use

onl

y


Directors’ Report

Your Directors present their Report on the consolidated entity consisting of Tatts Group Limited (the Company or Tatts Group) and the entities it controls (the Group) at the end of, or during, the year ended 30 June 2010.

DirectorsThe following persons were Directors of the Company during the whole of the financial year and up to the date of this Directors’ Report:

Harry BoonDick McIlwainRobert BentleyLyndsey Cattermole AMBrian JamiesonJulien PlayoustKevin Seymour AM

Harry BoonChairmanNon-executive DirectorMember of the Board since 31 May 2005.

Harry retired in 2004 as Chief Executive Officer and Managing Director of ASX listed company Ansell Limited, a position which capped a career spanning some 28 years with the Ansell Group. Harry has lived, and worked in senior positions, in Australia, Europe, the US and Canada, and has broad based experience in global marketing and sales, manufacturing, and product development. He is multi lingual and has a strong track record in delivering business results through setting ambitious goals, building the appropriate organisation and relationships and relentlessly pursuing objectives.

Harry holds a Bachelor of Laws (Honours) and a Bachelor of Commerce from the University of Melbourne.

Other Current DirectorshipsHarry is a Non-executive Director of Toll Holdings Limited (Director since November 2006), PaperlinX Limited (Director since May 2008) and Hastie Group Limited (Director since February 2005), all ASX listed companies.

Special ResponsibilitiesChairman of the Governance and Nomination CommitteeMember of the Remuneration Committee

Former Listed Public Company Directorships in last 3 years:Gale Pacific Limited (August 2005 to November 2009)

Julien Playoust Harry Boon Lyndsey Cattermole Dick Mcllwain Brian Jamieson Kevin Seymour Robert Bentley

For

per

sona

l use

onl

y

19

www.tattsgroup.com

Dick McIlwainManaging Director and Chief ExecutiveMember of the Board since 12 October 2006.

Dick is the Managing Director and Chief Executive of Tatts Group, previously having joined UNiTAB as Chief Executive in 1989. He was appointed as a Director of UNiTAB in September 1999.

Dick is a fellow of the Australian Institute of Company Directors and holds a Bachelor of Arts from the University of Queensland.

Other Current DirectorshipsDick is the Non-executive Chairman of Wotif.com Holdings Limited (Director since April 2006), an ASX listed company.

Former Listed Public Company Directorships in last 3 years:Super Cheap Auto Group Limited (May 2004 to October 2009) Robert BentleyNon-executive DirectorMember of the Board since 12 October 2006 previously having been appointed to the UNiTAB Board in July 1999.

Bob has extensive business experience in the racing, pastoral and timber related industries and property development.

Bob was previously Chairman and Managing Director of Austral Plywoods Pty Ltd and Chairman of the Plywoods Manufacturers Association of Australia, Chairman of the Three Codes Racing Industry Coordinating Committee and Chairman of the Statutory Thoroughbred Control Board (from 1992 to 1996).

Other Current DirectorshipsBob is Chairman of Racing Queensland Limited, the Australian Racing Board, and Sunshine Coast Racing Pty Ltd. He is also Vice President of the Asian Racing Federation.

Special ResponsibilitiesMember of the Governance and Nomination CommitteeMember of the Remuneration Committee

Lyndsey Cattermole AMNon-executive DirectorMember of the Board since 31 May 2005.

Lyndsey was the founder and Managing Director of Aspect Computing Pty Limited from 1974 to 2003, and a Director of Kaz Group Limited from 2001 to 2004. Lyndsey has also held many board and other membership positions on a range of government, advisory, association and not for profit committees including the Committee for Melbourne, the Australian Information Industries Association, the Victorian Premier’s Round Table and as Chairman of the Woman’s and Children’s Health Care Network.

Lyndsey holds a Bachelor of Science from the University of Melbourne and is a Fellow of the Australian Computer Society.

Other Current DirectorshipsLyndsey is a Non-executive Director of Foster’s Group Limited (Director since October 1999), an ASX listed Company. She also holds directorships with the Melbourne Theatre Company, the Victorian Major Events Company, Tattersall’s George Adams Foundation, Lansa Holdings Inc, JadeLynx Pty Limited, Madowla Park Holdings Pty Ltd, Acumen People and Productivity Pty Ltd, Acumentum Pty Ltd, MPH Agriculture Pty Ltd, Catinvest Pty Ltd and Melbourne Rebels Rugby Union Ltd. Lyndsey is also on the advisory board of PACT Group Pty Ltd.

Special ResponsibilitiesMember of the Audit, Risk and Compliance Committee

Brian JamiesonNon-executive DirectorMember of the Board since 31 May 2005.

Brian Jamieson was Chief Executive of Minter Ellison Melbourne from 2002 – 2005. Brian retired as Chief Executive of Minter Ellison Melbourne on 31 December 2005. Prior to joining Minter Ellison, he was the Chief Executive Officer at KPMG Australia from 1998 to 2000; Managing Partner of KPMG Melbourne and Southern Regions from 1993 to 1998 and Chairman of KPMG Melbourne from 2001 to 2002. He was also a KPMG Board member in Australia, and a member of the USA Management Committee.

Brian has over 30 years of experience in providing advice and audit services to a diverse range of public and large private companies.

Brian is a Fellow of the Institute of Chartered Accountants in Australia.

For

per

sona

l use

onl

y


Other Current DirectorshipsBrian is Chairman of Mesoblast Limited (Director since November 2007) and Sigma Pharmaceuticals Limited (Director since December 2005), and a Non-executive Director of Oz Minerals Limited (Director since August 2004), all ASX listed companies. He is also a Non-executive Director of the Bank of Western Australia Ltd, a subsidiary of the Commonwealth Bank of Australia Ltd. Further he is a Director and Treasurer of the Bionic Ear Institute, a Director of The Sir Robert Menzies Foundation and Chairman of the Tattersall’s George Adams Foundation.

Special ResponsibilitiesChairman of the Audit, Risk and Compliance CommitteeMember of the Remuneration Committee

Julien PlayoustNon-executive DirectorMember of the Board since 21 November 2005.

Julien is Managing Director of AEH Group, a Sydney-based investment company. His professional career includes Andersen Consulting and Accenture and his experience includes capital structuring, mergers and acquisitions, strategy, change, technology and supply-chain programs within consumer discretionary, energy, resource, property and financial services sectors.

Julien is a Member of the Australian Institute of Company Directors, Australian Institute of Management, Royal Australian Institute of Architects and The Executive Connection.

Julien holds a Masters of Business Administration from AGSM, Bachelor of Architecture, First Class Honours, a Bachelor of Science from Sydney University and a Company Director Course Diploma from Australian Institute of Company Directors.

Other Current DirectorshipsJulien is Chairman of MCM Entertainment (Director since May 2010) and a Non-executive Director of Australian Renewable Fuels Limited (Director since April 2009), both ASX listed companies. He is a Director of private equity company MGB Equity Growth Pty Limited, Trustee of the Art Gallery NSW Foundation and on the Advisory Board of The Nature Conservancy.

Special responsibilitiesMember of the Audit, Risk and Compliance CommitteeMember of the Governance and Nomination CommitteeChairman of the Remuneration Committee

Kevin Seymour AMNon-executive DirectorMember of the Board since 12 October 2006, previously having been appointed to UNiTAB’s Board in September 2000.

Kevin is Executive Chairman of Seymour Group, which is one of the largest private property development and investment companies in Queensland. He has substantial experience in the equities market in Australia. Kevin also has extensive management and business experience including company restructuring. Kevin was previously the independent Chairman of the Queensland Government and Brisbane City Council’s Brisbane Housing Company Limited and Chairman of QCTV (formerly Briz31 Community TV) and has served on the Lord Mayor’s Drugs Taskforce and is an Honorary Ambassador for the City of Brisbane.

Other Current DirectorshipsKevin is Chairman of Watpac Limited (Director since May 1996) and Deputy Chairman of Ariadne Australia Limited (Director since December 1992), both ASX listed companies. He also holds board positions with several private companies in Australia.

Special ResponsibilitiesMember of the Audit, Risk and Compliance CommitteeMember of the Governance and Nomination Committee

DividendsThe Board continues its previously indicated commitment to maintaining a high dividend payout ratio. The total dividend paid or payable in respect of this year is 21.0 cents per share. The special dividend of 11.0 cents per ordinary share has been determined since the end of the financial year, and is payable on 1 October 2010. The special dividend will be paid in place of the 2010 final dividend, effectively substituting for the final dividend both in quantum and timing. The following dividends (including any special dividends) have been paid, determined, declared or recommended by the Company since the end of the preceding financial year:

Directors’ Report(continued)

For

per

sona

l use

onl

y

21

www.tattsgroup.com

Dividends $’000

Special Dividend 2010Fully franked special dividend for 2010 of 11.0 cents per ordinary share as determined by Directors on 26 August 2010 with a record date of 7 September 2010 and payable on 1 October 2010

141,013

Interim Dividend 2010Fully franked interim dividend for 2010 of 10.0 cents per ordinary share as determined by the Directors on 25 February 2010 with a record date of 9 March 2010 and paid on 6 April 2010

127,564

Final Dividend 2009Fully franked final dividend for 2009 of 11.0 cents per ordinary share as determined by Directors on 27 August 2009 with a record date of 8 September 2009 and paid on 2 October 2009

139,708

All dividends are fully franked.

Dividend Reinvestment Plan (DRP)The Company has a DRP in operation. The last date for receipt of a DRP Notice of Election to enable participation for the special dividend is 7 September 2010. A 1.5% discount is applicable to shares acquired under the DRP for this dividend. Shares acquired by a participant under the DRP will be provided via a share issue.

Further information in relation to dividends can be found in Note 27 to the financial statements.

Principal activitiesThe principal activities of the Group during the financial year consisted of:

The operation of licensed gaming machines in Victoria;• The operation of regulated lotteries in Victoria, Queensland, Tasmania, Australian Capital Territory, the Northern Territory, and from 1 April 2010 •in New South Wales;The conduct of wagering and sports betting in Queensland, South Australia and the Northern Territory;•The conduct of gaming machine monitoring and supply of jackpot and other value add services in Queensland, New South Wales and the •Northern Territory. In New South Wales this includes exclusive licences to operate inter-venue linked jackpots;The provision of third party installation, repair and maintenance services for gaming, wagering, lottery, banking, point of sale and other •transactional equipment and systems throughout Australia;The operation of licensed gaming venues throughout the United Kingdom; and •Interests in licensed gaming operations in South Africa, the sale of which was completed on 30 June 2010.•

Financial PositionReported Group Net Profit After Tax (NPAT) for the year ended 30 June 2010 of $119.4 million was impacted by the non-cash adjustment to the carrying value of the investment in Talarius and additional amortisation for Maxgaming software, along with other one-off business restructuring costs, which included the costs associated with New South Wales Lotteries acquisition, venue closure costs in Talarius, and the sale of the South African gaming business.

After adjusting for these one-off items, underlying NPAT of $282.4 million was up 0.8% on the previous year. This result was delivered from Group reported revenue and other income of $3,298.0 million for the year to 30 June 2010, up 2.7% on the previous year.

During the year, an additional $600 million was added to the existing syndicated multi-currency revolving facility for the funding of the acquisition of NSW Lotteries, taking total syndicated facilities for the Group to $1,700.0 million. The Group’s debt maturities occur in June 2011, March 2013, June 2013 and March 2015. At 30 June 2010, $1,592.1 million of the facility was drawn down. When netted against the Group’s cash holdings (excluding prize reserves), this represents a readily serviceable net debt burden for the Group relative to its annual business profitability and cash flows. These strong cash flows also underpin the Group’s significant levels of intangible assets that are a characteristic of the low tangible assets, high value networked gambling businesses comprising the Group.

Review of OperationsThe Group is a diversified portfolio of networked neighbourhood businesses that typically achieve consistent and reliable revenue through utilising technology solutions to deliver high volumes of transactions. The Group relies on wide area network technology to deliver services to our customers in gaming, wagering, lotteries, gaming services and technical maintenance and support services. The Group has operations across every State and Territory in Australia, and in the United Kingdom.

Tatts Pokies endured a difficult 12 month period, heavily impacted by the reduction to the maximum play per spin and a general softening in consumer discretionary spending. In addition, the Government stimulus the previous year provided strong prior period comparables that could not be overcome, despite some new venue gains. As a result, revenue was down 5.3% to $1,223.4 million for the year to 30 June 2010. Earnings before Interest and Tax (EBIT) of $191.9 million were down 11.0% on the previous year, reflecting increased depreciation and amortisation as the business approaches the end of its operating licence in August 2012.

For

per

sona

l use

onl

y


UNiTAB Wagering had a solid year that has seen 85% growth in fixed odds betting revenue largely driven through the introduction of TattsBet. As a result of some migration from the totalisator to TattsBet, totalisator revenue was down 5.2%, resulting in total revenue for UNiTAB Wagering of $594.5 million, up 0.3% for the year. EBIT for the year was down 1.9% to $128.0 million, impacted by one-off restructuring costs and costs incurred during the migration to TattsBet.

Tatts Lotteries was a stand out performer, delivering revenue growth for the year of 14.3% to $1,223.7 million, strengthened by the inclusion of three months revenue from NSW Lotteries, which was acquired on 1 April 2010. Adjusting for NSW Lotteries, Tatts Lotteries overcame strong comparable figures to essentially maintain revenue despite lower jackpot activity in the current year. EBIT for Tatts Lotteries was up 20.0% to $130.2 million for the year.

Maxgaming has again delivered consistent revenue growth while at the same time maintaining strong margins. With the New South Wales links business settling at sustainable levels and the Queensland operations expanding its market presence, revenue for the year was up 3.4% to $121.9 million. Underlying EBIT was $42.6 million, up 3.9% on the previous year. Reported EBIT was impacted by the additional non-cash amortisation charge of $25.4 million to software for the revision of the useful life resulting from the early replacement of legacy systems.

Bytecraft Systems has continued to expand its pipeline of externally generated revenue, which now represents the majority of Bytecraft’s total revenue, along with assuming the provision of support services for UNiTAB Wagering. Revenue of $78.8 million was up 12.6% on the previous year. EBIT of $4.8 million was up 19.9%, overcoming the absence of margins on internal Group services and initial costs incurred in preparation for the expanded externally generated income.

Tatts International this year only includes the Group’s United Kingdom (“UK”) operations conducted through Talarius, which now operates 170 venues with 7,285 gaming machines, in addition to the corporate component of this segment. The Talarius operations have been significantly im-pacted by regulatory changes to game play and a severe and protracted recession in the UK. Talarius has moved to upgrade its operations, closing underperforming venues and reducing ongoing costs. Talarius delivered revenue of A$89.3 million for the year, down 10.6% but up 8.3% excluding exchange movements, and a loss at EBIT of A$22.0 million including one-off restructuring costs of $18.0 million. Previously Tatts International also included the Group’s South African operations. The sale of the South African business was announced in November 2009 and completed on 30 June 2010. The trading result of $2.0 million after minorities and the gain on sale of $12.0 million appear as discontinued operations in the financial results.

Significant changes in the state of affairsThe Group announced during the year the acquisition of NSW Lotteries for consideration of $845.7 million. The acquisition was effective 1 April 2010. There were no other significant changes in the state of affairs of the Group during the year.

Matters subsequent to the end of the financial yearThe Victoria Government announced on 29 July 2010 that Tatts Group has been shortlisted and invited to apply for the 12 year Victorian wagering licence commencing in 2012.

Other than as stated elsewhere in this Directors’ Report, no other matters or circumstances have arisen since 30 June 2010 which 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 future financial years.

Likely developments and expected results of operationsThe Victoria Government is undergoing processes to facilitate future changes to the Gaming Machine Monitoring, Wagering and Keno licensing arrangements in Victoria post 2012. These processes were not finalised at the date of this Directors’ Report, and it is likely that further information will be made available during the 2011 financial year.

In the Directors’ opinion, any further disclosure of information would be likely to result in unreasonable prejudice to the Group.

Business Strategies and future developmentsBusiness strategies aimed at achieving the Group’s goals will include:

Optimising our existing licences and underlying businesses to achieve continued growth and operational efficiencies;•Considering our strategy and involvement in the current licensing processes regarding the gambling industry in Victoria as and when further •information is made available by the Government; Involvement to the extent appropriate in the sale processes of State Government owned gambling assets; and•Maintaining a flexible balance sheet to support business opportunities that fit with the Group’s core competencies.•

In the Directors’ opinion, any further disclosure of information would be likely to result in unreasonable prejudice to the Group.


For

per

sona

l use

onl

y

23

www.tattsgroup.com

Environmental regulationThe operations of the Group are not subject to any particular and significant environmental regulation under any law of the Commonwealth of Australia or any of its States or Territories.

Directors’ Interests in SharesThe relevant interest of each Director in the share capital of the Company at the date of this Directors’ Report is as follows:

DirectorRelevant Interest in

Ordinary Shares Options over Ordinary Shares Rights over Ordinary Shares

Harry Boon 150,000 Nil Nil

Dick McIlwain 1,947,500 2,000,000 250,000

Robert Bentley 160,000 Nil Nil

Lyndsey Cattermole 182,663 Nil Nil

Brian Jamieson 80,943 Nil Nil

Julien Playoust 100,000 Nil Nil

Kevin Seymour 24,000,000 Nil Nil

Executive Directors are the only Directors entitled to participate in the Long-Term Incentive Plan. Details of these interests are disclosed in the Remuneration Report which appears on pages 24 to 39 of this report.

Company SecretaryPenny Grau was appointed to the position of Company Secretary on 3 April 2007. Prior to this appointment, Penny practiced as a corporate lawyer for 18 years, the last 8 years as a partner with national law firm Clayton Utz. Penny holds Bachelors of Laws and Commerce, a Masters of Laws and a Graduate Diploma in Applied Finance and Investment.

Meetings of DirectorsThe number of scheduled Board meetings and meetings of Board Committees, and the number of meetings attended by each of the Directors of the Company during the year were:

Board of DirectorsAudit, Risk & Compliance

Governance & Nomination Remuneration

A B A B A B A B

Harry Boon 11 11 nm nm 2 2 5 3(c)

Dick McIlwain (a) 11 11 nm nm nm nm 5 4(b)

Robert Bentley 11 11 nm nm 2 2 5 5

Lyndsey Cattermole 11 10 4 4 nm nm nm nm

Brian Jamieson 11 11 4 4 nm nm 5 5

Julien Playoust 11 10 4 4 2 2 5 5

Kevin Seymour 11 11 4 4 2 2 nm nm

Column A – Number of meetings during the yearColumn B – Number of meetings attended by the Director during the yearnm – Not a member of the relevant Committee(a) Managing Director, not a Non-executive Director(b) Ex-officio attendee(c) Became a member of the Remuneration Committee on 30 October 2009 and has attended all meetings since his appointment

For

per

sona

l use

onl

y


Remuneration ReportThe remuneration report is set out under the following main headings:A Remuneration OverviewB Remuneration PolicyC Remuneration Committee D Non-executive DirectorsE Executive Remuneration Structure (for the 2010 Financial Year) (i) Fixed Annual Remuneration (ii) Short-Term Incentive Plan (iii) Long-Term Incentive PlanF Executive Remuneration Structure (for the 2011 Financial Year)G Employee Share PlanH Employment Contracts of Managing Director /Chief Executive and ExecutivesI Details of RemunerationJ Share Based Compensation Options and RightsK Additional Information (i) Performance of the Group (ii) Details of remuneration – performance options and rights (iii) Share based compensation: Options and Rights

The information provided in this Remuneration Report has been audited as required by section 308 (3C) of the Corporations Act 2001.

A Remuneration Overview

Employees are one of the critical assets of the Group’s business, and hence the approach to setting remuneration for this valuable resource attempts to recruit, retain and fairly reward high performers whilst ensuring an appropriate balance and alignment between employees’ and shareholders’ interests. Tatts has continued to refine its remuneration policy to seek the best balance for a company which operates within a well developed market place and retains its commitment to growth.

For the 2010 financial year, the arrangements as outlined in last year’s Remuneration Report have been applied. These arrangements essentially have three elements:

Fixed annual remuneration (FAR) or base salary (including superannuation) which is determined for each position at or above as appropriate •the mid-point of the market for similar positions around Australia.Short term incentives (STI) or annual bonuses which are primarily determined by achieving growth in company profits over the previous year, •but with some specific separate bonuses paid in addition to these for special outcomes.Long term incentives (LTI) or equity-based remuneration paid to certain executives that are only received in future years based upon •pre-determined performance criteria.

These arrangements apply to domestically based employees and Australian employees operating overseas. The Group’s UK employees operate under FAR and annual bonus structures that are similarly benchmarked to mid market levels. For the purposes of reporting these amounts paid to executives and staff through this report and in the financial statements generally, the amounts shown for each element are as follows:

For fixed annual remuneration, it is the amount actually paid in the financial year.•For short term incentives and other bonuses, it includes any bonuses actually paid in respect of the financial year and any such incentives •accrued in respect of the financial year awarded but not yet paid following the determination of the profit outcome for the year.For long term incentives, which are awarded in the form of options and/or rights to possibly receive shares in the future based on certain pre-•determined performance criteria, the accounting costs of these particular entitlements are amortised over 3 years with the amortised amounts for the financial year shown as the “LTI” amount of the employees’ remuneration.

The remuneration result flowing from this structure for the 2010 financial year has been:

Total remuneration for the Managing Director/Chief Executive of $2,954,609, including a Short Term Incentive Plan (STIP) bonus of $600,000 •relating to his presentations to the Board and achievement of individual value adding opportunities such as the NSW Lotteries acquisition, and leadership development and succession key performance indicators (KPIs), and an amortised cost for his unvested options and rights of $371,667.No general corporate STIP payments were made to Group employees or the Chief Executive relating to profit growth benchmarks, since these •were not achieved.Special bonus payments to certain individuals for specific value adding activities, particularly in relation to the NSW Lotteries acquisition and •outstanding balance sheet management.The provision of Long Term Incentive Plan (LTIP) entitlements in the form of rights based on Total Shareholder Return (TSR) and/or Earnings •Per Share (EPS) benchmarks, and a 51.2% vesting of the 2007 financial year tranche of options and rights, being 97,334 rights and 1,341,378 options.Market related increases of FAR in September 2009 of generally between 3 and 5 percent across the Group consistent with maintaining our •market benchmark position, and the implementation of the remuneration package for the Managing Director/Chief Executive.

The remainder of this Remuneration Report provides details of the existing remuneration structures of the Group, and discussion of changes to be instituted to the Group remuneration practices in financial year 2011.


For

per

sona

l use

onl

y

25

www.tattsgroup.com

B Remuneration Policy

The Board’s objective is to link remuneration to financial performance and shareholder value, and to offer competitive and appropriate remuneration for the results delivered. The remuneration strategy and structure in this Remuneration Report were in place throughout the financial year. Decisions have subsequently been made by the Board to further improve the structure for future years, to provide a more effective incentive for business growth for shareholder value creation.

The remuneration philosophy aims to deliver rewards consistent with the responsibilities and performance of executives, and be competitive enough to attract, retain and fairly reward high performers. The future framework comprises fixed annual remuneration, and a variable at-risk remuneration component which is provided as a combination of cash and restricted shares for achievement of financial and non-financial targets. Whilst maintaining the same principles as in the past it removes the less effective and less flexible STIP and LTIP structures used to date, instituting a system which better links business value drivers and their achievement to individual performance and remuneration across the Group.

The recalibration of the equity components in the remuneration policy going forward is designed to put shares into the hands of more employees to achieve a greater alignment of shareholders’ and employees’ interests through broader employee shareholdings. Thus, the remuneration strategy will better align executive reward with the achievement of corporate objectives such as profit growth, thereby enhancing shareholder value.

C Remuneration Committee

The Remuneration Committee aims to ensure the Group has appropriate remuneration policies and procedures that fairly and responsibly reward executives. The Committee operates under the delegated authority of the Board. The Committee comprises four Non-executive Directors (one of which is the Committee Chair). The Managing Director/Chief Executive attends on an ex officio basis, but does not take part in the Committee’s decisions.

The Board will ensure a Non-executive Director continues to chair this Committee. The areas of responsibility of the Remuneration Committee include advising on the following:

Non-executive Director remuneration;•Managing Director/Chief Executive performance review, remuneration, short term and long term incentives; •Executive remuneration and allocations of short term and long term incentives/variable at-risk remuneration;•Employee equity plans;•Remuneration disclosure;•Executive recruitment, termination policies, and arrangements for superannuation and succession; and•Risk management and controls regarding remuneration.•

D Non-executive Directors

Fees to Non-executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. Fees are reviewed annually by the Board to ensure they are appropriate and consistent with market practice. Non-executive Directors’ fees are determined within an aggregate fee pool limit, any increase to which requires shareholder approval. The current maximum total Non-executive Directors’ fee pool is $1.5 million per annum.

The annual fee amount is determined on a total cost basis representing cash and statutory superannuation. Fees are paid on the following basis: Chairman $319,560 per annum; Non-executive Director $144,000 per annum. The additional fee for the Chairman of the Audit, Risk and Compliance Committee is $20,900 per annum, and for the Chairman of the Remuneration Committee is $13,062 per annum, in recognition of the increased workload and responsibilities of these Committee Chair positions.

Non-executive Directors are expected to hold shares in the Company at a level determined by the Board from time to time. Any person invited to join the Board will enter into an Appointment Agreement setting out the director’s duties, rights, responsibilities and the terms and conditions associated with that appointment.

Retirement Benefits of Non-executive DirectorsThere are no retirement benefit schemes for Non-executive Directors, other than statutory superannuation contributions.The Group has a practice of not offering retirement benefits to Non-executive Directors.

Non-Monetary Benefits of Non-executive DirectorsThere are no non-monetary benefits offered to Non-executive Directors.

E Executive Remuneration Structure (for the 2010 Financial Year)

The aim of the Group’s executive remuneration structure is to ensure that the overall remuneration of executives reflects their duties and responsibilities, and importantly, to encourage and reward performance. The Group is committed to adhering to appropriate corporate governance standards for executive remuneration, having regard to the ASX Corporate Governance Council’s Recommendations and relevant stakeholder bodies.

Reward Structure and MixThe following components comprised the total annual reward (TAR) framework for executive and employee remuneration:

Fixed annual remuneration (FAR) comprising base pay and superannuation;•Short-term performance payments via the Short-Term Incentive Plan (STIP); and•Long-term incentive awards through participation in the Long-Term Incentive Plan (LTIP).•

For

per

sona

l use

onl

y


The Board has decided to change this structure from the 2011 financial year. The details are explained later in this report. The discussion below explains the operation of the structure in place for the 2010 financial year.

(i) Fixed Annual Remuneration (FAR)

FAR is determined by reference to the scope and size of the role and the level of skill and experience of the individual, in conjunction with a performance rating framework designed to assess an individual’s performance over the preceding 12 month period. The Group aligns executive remuneration to the market at or above the 50th percentile for FAR. FAR is reviewed annually and adjusted subject to market movements, Group profitability, individual performance, and movements in the Consumer Price Index (CPI).

The Group uses nationally recognised job evaluation systems to assess the scope and size of roles against which industry benchmarking is carried out and internal relativities maintained. Individual performance is assessed by reference to a set of key performance areas which include financial and non-financial measures. The weighting attributed to these performance areas will vary depending on the individual’s role.

For salaried employees, salary adjustments are made after assessment of (a) an employee’s positioning relative to the market range for the type of position held; and (b) an individual’s performance rating.

The performance rating for each executive is determined through an annual performance review conducted by the manager to whom the executive reports. In the case of the named executives in this report the review is conducted by the Managing Director/Chief Executive, and the Chairman reviews the Managing Director/Chief Executive’s performance. Such reviews are conducted against individual KPIs and accountabilities and goals specific to each executive’s responsibilities. Performance is then rated according to an achievement scale and weighted in line with the relative importance of the respective performance areas. Scores are aggregated to arrive at an overall individual performance rating.

There are no guaranteed base pay increases in any executive contracts of employment.

(ii) Short-Term Incentive Plan (STIP)

The Group’s short-term incentive framework is structured to reward performance based on the performance of the Group, of the Strategic Business Unit (SBU) or Division to which an individual belongs, and the individual’s personal performance. There is also a separate component from STIP for other bonuses available at the discretion of the Managing Director/Chief Executive and the Remuneration Committee to recognise special contributions. Employees must have a minimum of six months’ service to be eligible to participate in the STIP.

SBU/Divisional and individual performance outcomes align with the Group’s strategic objectives over a 12 month period. Any awards provided under the STIP can only be triggered after achievement of Group profitability targets, determined annually in line with the Group’s business planning process, and which are approved by the Board. The size of the total available Short-Term Incentive (STI) pool will vary depending on the level of profitability achieved. Performance above the business plan profit target is leveraged to ensure an acceptable return to both shareholders and executives. If either Group performance or individual performance is not achieved at the target level, no STI may be awarded. The Board reserves its right to adjust up or down total STI payments under the STIP in line with under or over-achievement against target performance levels.

The total STI bonus pool is divided into three sub-pools to enable payments to be allocated based on Group performance, SBU/Divisional performance and special individual contributions. The relative contribution by each SBU/Division to the targets used to determine the total STIP Pool will have a significant bearing on how much, if anything, is available for allocation in the SBU/Divisional pool. SBU/Divisional targets include profit, revenue growth, expense management, project delivery, product development, and margin improvement.

Pool ($) X ( Individual Bonus Entitlement (IBE) ÷ Total Individual Bonus Entitlements (TIBE) ) = Individual Bonus from Pool ($)

The quantum of STI paid to an executive is determined by the individual’s performance rating based on an annual assessment, the individual’s FAR and the STI percentage of FAR applicable to that executive. This is used to calculate what proportion of each of the Group and SBU/Divisional pools will be paid to the executive as a short term incentive. The Remuneration Committee, in consultation with the Managing Director/Chief Executive and SBU/Divisional Heads, will make allocations from the special contributions pool based upon the achievement of key strategic initiatives.

Band FAR($) X STI % of FAR X Individual Performance Rating (IPR) = Individual Bonus Entitlement (IBE)

Under the Managing Director/Chief Executive’s employment contract, one half of his STIP is subject to similar financial criteria as outlined above. The other half is determined by the Board based on the Managing Director/Chief Executive’s performance in meeting key performance indicators set by the Board and not dependent on the Group’s profitability. These key performance indicators include transacting value added strategic initiatives, leadership development and succession planning, and maintaining and facilitating improved external and internal communications and perceptions of the Group.


For

per

sona

l use

onl

y

27

www.tattsgroup.com

(iii) Long-Term Incentive Plan (LTIP)

The LTIP in the form of performance options and/or performance rights aims to focus appropriate management personnel on improving the Group’s performance over a three to five year horizon.

Vesting of performance options and/or performance rights granted under the LTIP prior to 1 July 2008 is based on performance against relative Total Shareholder Return (TSR) targets. Vesting of performance options and/or performance rights granted after 1 July 2008 is based on a combination of relative TSR and Earnings Per Share (EPS) targets, with up to half of the options and/or rights vesting for executives if TSR targets are achieved and up to half if EPS targets are achieved.

The relative TSR measure, combining dividend returns and share price movement, reflects a performance condition under which the Group’s growth in TSR since the determination date of the instrument is measured against a representative peer group of the top 100 ASX listed companies (by market capitalisation). The peer group is compiled from the Top 100 companies on the determination date of instruments provided under the plan. The peer group used for instruments granted before the 2009 financial year excluded oil and gas, real estate and metals and mining companies, with additional exclusions of financial services and building and construction industries for the 2009 financial year onwards to provide a more comparable peer group for Tatts Group.

Whilst annual allocations of instruments will be made, a three year vesting test period applies with a further one year period for retesting at six monthly intervals (a two year period applies for retesting for performance options and performance rights granted prior to 1 July 2008). The exercise period expires on the seventh anniversary of the determination date.

TSR, being an externally based market measure which is a relative performance measure against public company peers, provides a strong link between this remuneration component and shareholder value creation. It is Tatts Group’s view that shareholders’ interests are best met by combining the achievement of appropriate TSR growth with sustained growth in EPS. At the same time, EPS represents a more relevant and transparent measure for motivating employees.

The EPS performance condition will be measured on the basis of the actual EPS percentage increase achieved over a three year period from the 1st of July in the financial year in which the performance options and/or performance rights are granted. This will be assessed against pre-determined target levels for the Group. For LTIP instruments granted after 1 July 2009 the relevant EPS measure in this regard will exclude the Tatts Pokies segment net profit after tax, due to the run-off of this business by 2012. Given current competitive licence tendering processes and the confidentiality required around economic parameters for the business underlying such bids, EPS targets are not disclosed. EPS hurdles will be disclosed in the Remuneration Report at the year of testing.

Under the LTI component of the Managing Director/Chief Executive’s contract approved at last year’s Annual General Meeting, the Managing Direc-tor/Chief Executive is issued 250,000 performance rights in 2009, 2010 and 2011. Half of these performance rights are subject to a TSR perform-ance condition, and half to an EPS performance condition. These performance hurdles and time based vesting requirements in relation to these performance rights granted each year are subject to the operation of the LTIP as outlined in this Remuneration Report, except that performance rights that have been granted will continue to operate and not lapse should he no longer be employed in the Group.

Details of the remuneration of Directors, key management personnel and other executives are set out at pages 32 to 34.

Managing Director/Chief Executive’s Remuneration ContractThe structure of the Managing Director/Chief Executive’s remuneration contract to apply for three years from 12 October 2009 to 12 October 2012 is:

FAR of $2.0 million per annum to be reviewed annually by the Board in accordance with normal remuneration practices.•STI entitlement of up to a maximum of 70% of FAR, subject to achievement of key performance indicators as outlined above.•LTI of 250,000 performance rights issued each year of the three year contract and subject to vesting conditions outlined above.•

Allocation/Vesting/ExerciseExecutives and senior managers may be granted performance options and/or performance rights at the discretion of the Board. The potential grant is determined by the participant’s level within the Group structure. No amount is payable by the recipient upon grant of performance options or rights.

The potential number of performance options and/or performance rights to be granted to each participant will be determined by dividing the value of the options and/or rights to be granted as part of their long-term incentive award by the market value of the option and/or right at the determination date. The market value of the option and/or right will be determined by applying an accepted valuation methodology to the Company’s share price at the determination date.

Allocations of performance options and performance rights may be exercised upon vesting (following satisfaction of the performance and time based vesting conditions as set out below). Up to 100% of performance options and performance rights granted prior to 1 July 2008 may vest subject to achievement of a relative TSR hurdle in comparison to the peer group that applied at that time. For equity instruments granted after 1 July 2008 but prior to 1 July 2009, vesting for half the instruments granted to executives who lead SBUs or Divisions may vest subject to achievement of a relative TSR hurdle and half based on achievement of an EPS growth target. For LTIP participants who did not lead SBU’s or Divisions in the 2009 financial year, vesting for equity instruments granted after 1 July 2008 but prior to 1 July 2009 is based solely on achievement of an EPS growth target.

For

per

sona

l use

onl

y


TargetPercentage of Instruments that Vest

in Given Year

Group annual TSR does not meet performance of the median company in peer group 0%

Group annual TSR achieves or exceeds performance of the median company in peer group 50%

Group annual TSR ranked in third quartile of companies in peer group Pro rata between 50% and 100%

Group annual TSR ranked in fourth quartile of companies in peer group 100%

The percentage of performance options and/or performance rights which become exercisable under the TSR target increases from the 50th percentile up to the 75th percentile by 2% increases in the number of instruments vested for each 1% increase in the percentile of the TSR of the Company compared to the average TSR of the peer group.

From 1 July 2009, 50% of performance options and/or performance rights granted to all LTIP participants may vest based on relative TSR performance as measured against the more targeted peer group described above, and 50% may vest if EPS growth targets are achieved. In relation to both measures, the vesting of performance options and/or performance rights granted post 1 July 2008 will be tested over 3 years, with 2 subsequent retests at six monthly intervals thereafter for instruments that are subject to TSR hurdles. Instruments issued pre 1 July 2008 will be retested on 4 subsequent occasions at six monthly intervals.

On exercise of vested performance options and performance rights, which may occur up to 7 years from determination date, the Company may deliver shares by new issue or by purchasing shares on market for transfer to participants. The exercise price of the performance options is deter-mined by reference to the thirty day volume weighted average price of the shares as traded on the ASX in the thirty days up to and including the determination date.

Grants of shares under the LTIP will be subject to a 5% cap. This is inclusive of shares that may be issued in respect of each outstanding offer or grant of shares and options or rights to acquire unissued shares if accepted or exercised under other equity plans of the Company for employees and Non-executive Directors, but disregarding offers made outside of Australia, made under a disclosure document or which do not require a disclosure document.

Expiry of Unvested Performance Options and Performance RightsPerformance options and performance rights that have not vested before the end of the vesting period will lapse on the expiry date specified at grant or if the Board determines that they are to be forfeited. Where employment ceases, entitlement to any unvested performance options or performance rights will ordinarily lapse, subject to the Board having otherwise agreed at the date of grant or using its discretion to waive some or all of the vesting conditions if the reason for ceasing employment is death, total and permanent disability or redundancy.

HedgingParticipants in the LTIP may not enter into any contract, arrangement or transaction which is designed or intended to hedge or otherwise limit exposure to the Group’s shares which are subject to an unvested award under the plan. Any person who is proven to have contravened the hedging policy may face disciplinary action which, depending on the seriousness of the breach, could include termination of employment.

Restrictions on Shares and Forfeiture ConditionsPerformance options and performance rights, and shares delivered on exercise, may be subject to forfeiture (which may be subject to lifting at the discretion of the Board) if a participant commits any act of fraud, defalcation or gross misconduct in relation to the Group. Shares delivered on exercise may be subject to disposal restrictions (subject to removal at the discretion of the Board).

F Executive Remuneration Structure (for the 2011 Financial Year and onwards)

Tatts Group is moving to refocus employee remuneration to place an even greater emphasis on at risk variable remuneration aligned to specific performance measures that drive business growth. Focused benchmarking will be used to underpin an improved variable/at risk remuneration structure whereby employees will be more incentivised to outperform in a manner designed to drive business performance and align with shareholder value creation.

Tatts Group retains its commitment to growth within the context of a responsible gambling business in a highly regulated industry. This makes the existing remuneration system of market wide benchmarks largely irrelevant as a measure of Group performance. The existing remuneration system has not been effective in achieving its fundamental intent to motivate employees for higher performance to improve business outcomes and therefore shareholder value. Similarly, government decisions have adversely impacted shareholders and employees alike, and have shown the remuneration structure to lack appropriate flexibility to adapt for such events, thereby reducing its effectiveness in driving business and employee outcomes to shareholder value creation.

To ensure the remuneration structure is more effective, the Board is realigning the operation of the remuneration approach to better reflect the specific nature of Tatts Group and its industry. The changes are designed to simplify and make more transparent the remuneration process so that Group wide, SBU/Division and individual targets are defined, understood, achievable and delivered with more clarity to employees and are more understandable to shareholders.


For

per

sona

l use

onl

y

29

www.tattsgroup.com

FAR or base salary will continue to be paid at or above the 50th percentile of the market, and be reviewed annually based on input from independent Remuneration specialists. The market benchmark has been reviewed and improved to reflect a broader and more relevant comparator group for the Group with the assistance and advice of Hewitt Associates to the Remuneration Committee. Therefore the explanation of FAR as outlined above in section E(i) of this Report will continue to apply.

The variable/at risk incentive component of remuneration is being modified from the more generic existing STIP/LTIP structure to a more specifically focused bonus system that incorporates a combination of cash and restricted shares that will be delivered only in the event of achievement of pre-determined Key Performance Indicators (KPIs) approved by the Remuneration Committee annually. The proportion of variable/at risk remuneration that could potentially be earned by individuals as incentives will be benchmarked externally each year, again with the assistance of advisors such as Hewitt Associates. This variable/at risk remuneration will be subject to mainly financial KPIs and targets attuned to corporate, SBU/Division, individual and specific project outcomes, such as revenue and profit growth. In addition, and to a lesser extent, non-financial KPIs such as customer service and leadership development and succession will be applied. These KPIs are outlined later in this Report, and are designed to motivate all executives and employees to focus their actions to maximise benefits for improved business outcomes and shareholder value creation.

(i) Variable/At Risk Remuneration

The total amount of the variable/at risk remuneration available for each particular position in the Group will be determined through data arising from the annual remuneration market survey.

The basis upon which this variable/at risk remuneration may be awarded will be comprised of a number of market and performance related aspects of the overall Group effort. These are:(a) Company-wide Performance.(b) SBU/Divisional Performance.(c) Special Projects/Responsibilities.(d) Individual Performance.

As explained in section E(i) above in relation to FAR, annual performance reviews are conducted with every employee of the Group by their respective manager, and a performance rating is assigned for that individual’s performance against the employee’s specific KPIs and accountabilities.

Individual performance ratings will influence the total extent of participation of each employee in the entitlements that attach to their position flowing from the total combined amount of the components of variable/at-risk remuneration to be paid annually by the Group.

The allocation of incentive amounts to the different components and the amounts to be paid, if any, of variable/at risk remuneration in any year will be determined by the Remuneration Committee at year end based on achievement of the relevant performance criteria, or, in the case of a specific project (e.g. a major acquisition), at the completion of that project.

The variable/at-risk remuneration will be comprised of a market based element and a special circumstances component and the sections below explain how this approach will operate. The market based component will be made available to employees in line with externally provided market benchmarks for each position across the Group. The special circumstances component will be additional to the market based variable/at-risk remuneration.

(A) Market Based Variable/At-Risk RemunerationThe sub-components of the market based variable/at-risk remuneration include:

(a) Company-wide PerformanceThis first component of market based variable/at risk remuneration is available to all permanent staff but will only be paid if the Group as a whole, on its consolidated results, meets criteria associated with the annual financial performance against budget and previous year levels. These criteria will include consideration of:

revenue and earnings per share outcomes;•profit growth;•maintenance/growth of the Group’s EBIT/revenue margin; and•maintenance/improvement of key expense groupings to revenue ratios, especially employee costs and operating costs.•

The funds available to be paid for this component, if any, will be primarily determined by the growth in earnings per share achieved by the Group, together with the revenue growth. However, at least two of the four criteria described above must be met. The key driver of profit growth in a licensed wide area networked gambling business is the revenue growth achieved annually, given the highly regulated variable deductions to determine the operating margin, and the fixed cost nature of the network based operational costs. Hence revenue growth, calibrated by EBIT margins to reflect cost control and EPS growth to take account of the capital management of the business, provides the key value driving components of the Group.

All qualifying permanent staff would participate in any company-wide incentive paid with allocations amongst staff determined on a pro-rata basis according to FAR, adjusted as appropriate by the individual’s performance review. For employees with FAR above $30,000, the amount of cash payable to each individual may be reduced by the amount of restricted shares up to $1,000 per employee allocated to staff in accordance with a qualifying share plan arrangement to ensure these shares are tax free in the hands of most employees. Such company-wide performance incentive payments will also be offset against specific award or job-related bonuses otherwise received by certain employees.

Shares awarded to employees under this plan will not be subject to any further conditions, will have no risk of forfeiture, and are not able to be disposed of before the earlier of the end of the tax qualifying period or until the employee ceases to be employed. The shares will be priced on the basis of the Volume Weighted Average Price (VWAP) for the ten days prior to the date of the decision to allocate them. This approach puts employees into a shareholding position aligned with the exposure of all other shareholders to ongoing Group performance and is simple and transparent.

For

per

sona

l use

onl

y


(b) SBU/Divisional Performance AllocationAs with the previous STIP arrangements, a further component of market-based variable/at risk remuneration will be allocated pursuant to the achievement of SBUs/Divisions specific KPIs. Any such allocations will be in the form of cash and/or restricted shares as outlined in (a) above for company-wide performance incentives, and will be payable to all staff within the qualifying SBU/Division by achieving the relevant KPIs.

The KPIs will vary for each SBU/Division and will be approved by the Remuneration Committee. These will include both financial and non-financial matters, such as:

revenue growth against budget and previous year;•cost control and improvement, including cost performance against budget and previous year;•margin improvement (EBITDA margin to revenue) achieved by the SBU;•relative contribution to Group EBITDA;•development and introduction of successful new products;•structural change that has/will add to profitability;•efficient capital expenditure outcomes and asset sales activity;•service delivery assessment by internal customers of shared service activities;•delivery of significant SBU/Divisional projects within cost and time expectations; and•effectively dealing with unanticipated major events impacting the business.•

Whilst FAR and individual performance ratings will influence the allocations to individuals within the SBU/Division, management will have some discretion to adjust such allocations where considered necessary to better reflect relative contributions of individuals to the achieved SBU/Division outcomes generating the performance incentive amount available.

(c) Special Projects /ResponsibilitiesThe final component of the market-based variable/at risk remuneration relates to the level of performance by certain individuals in the achievement of special projects, and of individuals within the Group whose activities more directly influence the share price, investor perspectives, and longer term value of the Group.

Special projects would encompass major technology, business specific, or Group-wide projects designed to add value through substantial revenue enhancement, improved cost efficiency, or business sustainability/competitiveness. Such initiatives may relate to delivery of projects on time and in a cost effective manner, or to the successful implementation above originally expected outcomes. Incentives paid under this component would be in the form of cash payments, except to the extent they cross over with incentives outlined below.

Those executives of the Group that have greater potential impact on share price behaviour and long term value generation will, to the extent that such incentives are awarded, receive restricted shares which would be placed in escrow for three years or potentially received upon an earlier exit from the Group (at the Board’s discretion). The philosophy with employees having such restricted shares is that employee and shareholder inter-ests are totally aligned i.e. during the restricted period any movement of the Company’s share price or any change in dividends is equally felt by the employees and the shareholders. This reflects a very specific alignment of EPS/DPS/TSR type outcomes in respect of these restricted shares which is specifically related to Tatts Group performance.

The provision of restricted shares to this group of executives will be determined on an annual basis by the Remuneration Committee. The extent of any such shares awarded will be consistent with the externally established variable at-risk remuneration benchmark for each position. This provision will be based upon the individual’s performance assessment for the year and the Remuneration Committee’s performance requirements for the executive.

Shares issued under this program would be priced at the VWAP of the ten days prior to the day the Remuneration Committee decides to award them. This approach puts shares in the hands of executives at current values reflecting current performance, but the ultimate value of which will be dependent upon their performance in driving the business for capital and income growth for Tatts Group, entirely aligned to the interests of Tatts Group shareholders. These restricted shares may be subject to forfeiture if a participant leaves the employment of the Group before a pre-determined timeframe, or commits any act of fraud, defalcation or gross misconduct in relation to the Group.

This approach also provides a much more transparent disclosure regime of the Group’s remuneration to shareholders in that:it utilises a very clear and publicly verifiable pricing structure for equity-based remuneration of the 10-day VWAP, compared to the opaqueness •of option-based pricing models under the previous approach;flowing from this, the annual remuneration tables in this Report will reflect the amounts actually paid in respect of the financial year, not an •amortised cost amount for equity-based awards; andshareholders can more readily understand the levels of equity exposure of employees which is not readily the case with options and rights with •their differing vesting and exercising criteria and inherent leverage attaching thereto.

(B) Special Circumstances Variable RemunerationSpecial circumstances variable remuneration will only be paid, at the discretion of the Board, where very significant company changing and/or company defining events occur within a period. If no such qualifying events occur then there will be no such payments.

Special circumstances might relate to a major business acquisition, an accelerated integration of an acquisition, to a well structured and profitable/cost minimising asset/business disposal, or an extraordinary Group profit outcome.

Recent examples of such events have been the acquisition of New South Wales Lotteries and the funding and balance sheet management activities that allowed this acquisition.


For

per

sona

l use

onl

y

31

www.tattsgroup.com

(ii) Transition

The transition to this new remuneration structure, including both the newly benchmarked FAR and the new variable/at risk remuneration component based on benchmarked market data, may need to be managed over a number of years. This arises due to the need to ensure that existing employment contracts are transitioned to this new remuneration structure progressively and with no disadvantage to any employees.

In this context also, existing LTIP grants will continue to be monitored until each program expires. In addition, the Managing Director/Chief Executive’s contractual remuneration arrangements will not be affected by these new remuneration structures.

Particularly in transition, but also on an ongoing basis, the Board retains the discretion at the advice of the Remuneration Committee to pay incentives at levels and in compositions appropriate to outcomes, even where these are outside market related benchmarks.

G Employee Share Plan

The general share acquisition plan was an employee share plan by which offers were made to eligible employees to acquire restricted shares. The plan was discontinued as at 1 July 2007. A holding lock has been placed on shares by placing them in a restricted class, to ensure they cannot be disposed of whilst subject to a disposal restriction and/or forfeiture condition.

H Employment Contracts of the Managing Director/Chief Executive and Executives

The employment conditions of the Managing Director/Chief Executive, Dick McIlwain, and specified executives are formalised in contracts of employment. Other than the Managing Director/Chief Executive, all other executives are employed under contracts of no fixed duration.

Termination payment benefits (other than termination for gross misconduct or retrenchment)

Name Term of Contract Period of Notice Amount of Payment1

D McIlwain3 year term contract –

commenced on 12 October 2009

Written notice for the lesser of 12 months or the period remaining

until 12 October 2012

No notice or severance payment required upon expiry of contractual term. Where

terminated early entitled to no more than that allowed per Part 2 Division 2 of Chapter 2D

of the Corporations Act 2001.

M Carr No fixed duration 12 months written notice A combination of notice and payment in lieu

of notice totalling no less than 12 months.

B Fletton No fixed duration 12 months written notice A combination of notice and payment in lieu of

notice totalling no less than 12 months.

P Grau No fixed duration 12 months written noticeA combination of notice and payment in lieu of


R Gunston No fixed duration 12 months written noticeA combination of notice and payment in lieu of


B Houston No fixed duration 12 months written notice A combination of notice and payment in lieu

of notice totalling no less than 12 months.

S Lawrie No fixed duration 12 months written notice A combination of notice and payment in lieu of

notice totalling no less than12 months.

B Redmond No fixed duration 12 months written noticeA combination of notice and payment in lieu of

notice totalling no less than12 months.

1 These termination payment benefits are unchanged from last year, except for D McIlwain whose period of notice was 6 months’ written notice.

For

per

sona

l use

onl

y


The Group may terminate an employment contract without cause by providing written notice, in accordance with the specified period or making payment in lieu of notice, based on the individual’s fixed annual remuneration component.

Termination payments are not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct, the Company may terminate employment at any time. Any options or rights not exercised before or on the date of termination may lapse.

I Details of Remuneration

Amounts of remunerationDetails of the remuneration of the Directors of the Company, the key management personnel of the Group and specified executives who received the highest remuneration for the year ended 30 June 2010 are set out in the following tables.

The key management personnel of the Group include the Directors as per pages 18 to 20 and the following executive officers: Ray Gunston – Chief Financial Officer•Stephen Lawrie – Chief Information Officer•

The key management personnel of the Group are those executives with responsibility for the planning, controlling and directing of the Group and therefore excludes those executives who lead individual SBUs. The comparative figures in the following tables represent Directors’ fees and executive remuneration for the key management personnel of the reporting period 1 July 2008 to 30 June 2009.

In addition, the following persons must be disclosed under the Corporations Act 2001 as they are among the 5 highest remunerated Group and/or Company executives:

Michael Carr – Chief Executive, MaxGaming•Barrie Fletton – Chief Executive, UNiTAB Wagering•Penny Grau – General Counsel & Company Secretary•Bruce Houston – Executive General Manager, Media, Government & Community Relations•Brendan Redmond – Executive General Manager, Business Development & International Investments•


For

per

sona

l use

onl

y

33

www.tattsgroup.com

Key management personnel and other executives of the Group and other executives of the Company and Group

2010 Short -term benefits1

Post-employment

benefitsLong-term

benefits Share-based payment

Name

Cash Salary and Fees

$

Cash Bonus (STI) 2

$Other 3

$

Super- annuation

$

Long Service

Leave$

Performance Options (LTI)

$

Performance Rights (LTI)

$Total

$

Non-executive Directors

Harry Boon 317,540 N/A - - - N/A N/A 317,540

Robert Bentley 135,211 N/A - 6,769 - N/A N/A 141,980

Lyndsey Cattermole 141,980 N/A - - - N/A N/A 141,980

Brian Jamieson 149,431 N/A - 13,449 - N/A N/A 162,880

Julien Playoust 142,241 N/A - 12,801 - N/A N/A 155,042

Kevin Seymour 130,257 N/A - 11,723 - N/A N/A 141,980

Sub-total - Non-executive Directors 1,016,660 N/A - 44,742 - N/A N/A 1,061,402

Executive Director

Dick McIlwain 4 (Managing Director/Chief Executive) 1,935,173 600,000 - 14,461 33,308 277,778 93,889 2,954,609

Other Key Management Personnel 5

Ray Gunston 6, 7 743,872 - 150,000 14,461 12,499 147,082 57,967 1,125,881

Stephen Lawrie 6, 7 481,372 - - 14,461 8,086 94,904 37,565 636,388

Sub-total- Key Management Personnel 1,225,244 - 150,000 28,922 20,585 241,986 95,532 1,762,269

Other Executives

Michael Carr 7 461,755 - - 14,461 8,117 96,573 36,562 617,468

Barrie Fletton 7 453,961 - - 14,461 7,986 94,594 36,012 607,014

Penny Grau 6 438,038 - - 14,461 7,337 35,599 12,652 508,087

Bruce Houston 6 347,205 - - 14,461 5,838 30,407 12,740 410,651

Brendan Redmond 6, 7 478,183 - 557,208 14,461 7,503 91,376 5,346 1,154,077

Total Other Executives 2,179,142 - 557,208 72,305 36,781 348,549 103,312 3,297,297

Totals 6,356,219 600,000 707,208 160,430 90,674 868,313 292,733 9,075,577

1 Short term benefits may include amounts paid to superannuation at the discretion of the individual.2 These cash bonuses represent 100% of the cash bonus paid to each executive in respect of STIP for the financial year. Where the individuals’ STI target has been exceeded, the Board has

exercised its right to adjust upwards the total STI payments (cash bonuses) in line with over-achievement against target performance levels. The following executives have received the follow-ing percentage of their target STI cash bonus: Dick McIlwain (43%), Ray Gunston (0%), Stephen Lawrie (0%), Michael Carr (0%), Barrie Fletton (0%), Penny Grau (0%), Bruce Houston (0%) , Brendan Redmond (0%)

3 Other payments as follows – Brendan Redmond - Includes the value of expatriate and living away from home benefits in respect of his role as Executive General Manager, Business Development and International

Investments. Ray Gunston - Non-STI cash bonus for specific value-adding activities, including the acquisition and funding of NSW Lotteries, and the sale of the South African gaming business.4 The Managing Director/Chief Executive has 52% of his total remuneration related to the performance of the Group, and 48% which is not directly linked to the Group’s performance.5 As required to be disclosed under the Corporations Act 2001, except for Penny Grau and Bruce Houston, 60% of the total remuneration of key management personnel and other executives

is not related to the performance of the Group, and 40% is related to the Group’s performance (20% STI, 20% LTI). For Penny Grau and Bruce Houston, these percentages are 70% and 30% respectively (20% STI, 10% LTI).

6 Denotes one of the 5 highest paid executives of the Company, as required to be disclosed under the Corporations Act 2001.7 Denotes one of the 5 highest paid executives of the Group, as required to be disclosed under the Corporations Act 2001.

For

per

sona

l use

onl

y


2009 Short -term benefits1

Post-employment

benefitsLong-term

benefits Share-based payment

Name

Cash Salary and Fees

$

Cash Bonus (STI) 2

$Other 3

$

Super- annuation

$

Long Service

Leave$

Performance Options (LTI)

$

Performance Rights (LTI)

$Total

$

Non-executive Directors

Harry Boon 309,000 N/A - - - N/A N/A 309,000

Robert Bentley 124,734 N/A - 11,226 - N/A N/A 135,960

Lyndsey Cattermole 135,960 N/A - - - N/A N/A 135,960

George Chapman 4 22,094 N/A - 1,988 - N/A N/A 24,082

Brian Jamieson 143,633 N/A - 12,927 - N/A N/A 156,560

Julien Playoust 134,635 N/A - 12,117 - N/A N/A 146,752

Kevin Seymour 124,775 N/A - 11,185 - N/A N/A 135,960

Sub-total - Non-executive Directors 994,831 N/A - 49,443 - N/A N/A 1,004,274

Executive Director

Dick McIlwain 5 (Managing Director/Chief Executive) 1,737,567 935,550 - 13,745 29,329 666,667 - 3,382,858

Other Key Management Personnel 6

Ray Gunston 7, 8 702,922 247,000 - 13,745 11,796 132,704 21,511 1,129,678

Stephen Lawrie 7, 8 453,755 118,000 - 13,745 7,650 83,109 12,456 688,715

Sub-total- Key Management Personnel 1,156,677 365,000 - 27,490 19,446 215,813 33,967 1,818,393

Other Executives

Michael Carr 8 452,755 93,000 - 14,334 7,962 85,917 13,547 667,515

Barrie Fletton 8 443,178 86,000 - 13,745 7,791 84,260 13,391 648,365

Penny Grau 7 422,922 70,000 - 13,745 7,070 26,843 - 540,580

Bruce Houston 7 327,922 55,000 - 13,745 5,494 25,382 6,218 433,761

Brendan Redmond 7,8 427,921 87,000 684,914 13,745 7,152 81,281 12,830 1,314,843

Total Other Executives 2,074,698 391,000 684,914 69,314 35,469 303,683 45,986 3,605,064

Totals 5,963,773 1,691,550 684,914 159,992 84,244 1,186,163 79,953 9,850,589

1 Short term benefits may include amounts paid to superannuation at the discretion of the individual.2 These cash bonuses represent 100% of the cash bonus paid to each executive in respect of the financial year. Where the individuals’ STI target has been exceeded, the Board has exercised

its right to adjust upwards the total STI payments (cash bonuses) in line with over-achievement against target performance levels. The following executives have received the following percent-age of their target STI cash bonus: Dick McIlwain (75%), Ray Gunston (102%), Stephen Lawrie (75%), Michael Carr (59%), Barrie Fletton (56%), Penny Grau (56%), Bruce Houston (56%) , Brendan Redmond (59%).

3 Other payments as follows – Brendan Redmond - Includes the value of expatriate and living away from home benefits in respect of his role as Executive General Manager, Business Development and International Investments.

4 George Chapman retired from the Board on 31 August 2008.5 The Managing Director/Chief Executive has 51% of his total remuneration related to the performance of the Group, and 49% which is not directly linked to the Group’s performance.6 As required to be disclosed under the Corporations Act 2001, except for Penny Grau and Bruce Houston, 60% of the total remuneration of key management personnel and other executives

is not related to the performance of the Group, and 40% is related to the Group’s performance. For Penny Grau and Bruce Houston, these percentages are 70% and 30% respectively. 7 Denotes one of the 5 highest paid executives of the Company, as required to be disclosed under the Corporations Act 2001.8 Denotes one of the 5 highest paid executives of the Group, as required to be disclosed under the Corporations Act 2001.


For

per

sona

l use

onl

y

35

www.tattsgroup.com

J Share Based Compensation Options and Rights

Employees eligible to participate in the LTIP are those of senior management level and above, including the Managing Director/Chief Executive, whose performance is of strategic and operational importance to the Group.

Options and/or rights are granted annually to eligible participants but do not vest unless both performance and time-based hurdles are met. These conditions ensure that eligible employees are rewarded only when percentage EPS growth and/or TSR growth targets are met as set out in Section E (iii) of this Remuneration Report.

Options and rights granted in 2005 were retested on 7 January 2010, and such retesting did not result in any further vesting of the options and rights that remained unvested in this tranche of grants.

Options and rights granted in 2006 were tested for the first time on their third anniversary on 30 November 2009 and retested on 30 May 2010. No vesting occurred at November 2009. At 30 May 2010, 51.2% of these options and rights vested to participants, representing 1,341,378 options and 97,334 rights, given the Company’s TSR performance at the 50.59 percentile of the peer group. Testing of the remaining options and rights yet to vest will continue at six monthly intervals until 30 November 2011.

The terms and conditions of each grant of options and rights affecting remuneration in the previous and current reporting periods are as follows:

Award Type Grant Date Expiry Date Exercise PriceValue per option/

right at grant date Date Exercisable

Performance Option 16 December 2005 7 July 2012 $3.10 $0.67 7 July 2008

30 November 2006 30 November 2013 $3.65 $0.80 30 November 2009

30 November 2007 30 November 2014 $3.99 $1.02 30 November 2010

30 November 2008 1 30 November 2015 $2.56 $0.31 30 November 2011

30 November 2008 2 30 November 2015 $2.56 $0.33 30 November 2011

Performance Option (Chief Executive) 30 November 2006 30 November 2013 $3.13 $1.00 30 November 2009

Performance Right 16 December 2005 7 July 2012 N/A $1.80 7 July 2008

30 November 2006 30 November 2013 N/A $2.56 30 November 2009

30 November 2009 3 30 November 2016 N/A $1.36 30 November 2012

30 November 2009 4 30 November 2016 N/A $1.87 30 November 2012

Performance Right (Chief Executive)

30 October 2009 3 12 October 2013 N/A $1.45 12 October 2012

30 October 2009 4 12 October 2013 N/A $1.93 12 October 2012

1 Options granted with TSR market based vesting conditions2 Options granted with EPS non-market based vesting conditions3 Rights granted with TSR market based vesting conditions4 Rights granted with EPS non-market based vesting conditions

Options and rights granted under the LTIP carry no dividend or voting rights. Options and rights do not entitle option or right holders to participate in issues of shares except in respect of pro-rata bonus issues and rights issues in the manner specified by the ASX Listing Rules.

The exercise price of options awarded is based on the weighted average price at which the Company’s shares traded on the ASX in the thirty days up to and including the determination date.

Details of performance options and rights over ordinary shares in the Company granted during the reporting period as remuneration to the only executive director of the Company and each of the key management personnel and selected other executives of the Group who remained employed within the Group at the date of this Remuneration Report are set out below. Upon exercise of each option or exercise of each right, the holder receives one fully paid ordinary share of the Company. Further information on the options and rights is set out in Notes 28 and 40 of the audited Financial Report.F

or p

erso

nal u

se o

nly


Number of options granted during the year

Number of options vested during the year

Number of rights vested during the year

2010 2009 2010 2009 2010 2009

Executive Director of Tatts Group Limited

Dick McIlwain (Managing Director/Chief Executive) - - 1,024,000 - - -

Other key management personnel of Group

Ray Gunston - 755,200 54,652 105,794 12,145 19,111

Stephen Lawrie - 494,800 33,632 - 7,474 -

Key Executive options/rights - 1,250,000 88,284 105,794 19,619 19,111

Other executives

Michael Carr - 489,300 36,575 - 8,128 -

Barrie Fletton - 479,200 36,154 - 8,034 -

Penny Grau - 196,800 - - - -

Bruce Houston - 159,100 7,462 - 3,731 -

Brendan Redmond - 463,500 34,641 - 7,698 -

Total options/rights - 3,037,900 1,227,116 105,794 47,210 19,111

No performance options were exercised during the period covered by this Remuneration Report.

Details of the ordinary shares provided as a result of the exercise of vested rights are as follows:

Date of exercise of rights Number of ordinary shares issued on exercise of rights during the year

2010 2009

Other key management personnel of Group

Ray Gunston 2 March 2009 - 19,111

Total options/rights - 19,111

No performance rights were exercised during the period covered by this Remuneration Report.

No consideration is paid on the exercising of rights.

K Additional Information

(i) Performance of the Group

In considering the Group’s performance and its implications for shareholders’ wealth in the context of appropriate remuneration levels and structures, the Remuneration Committee has regard to measures such as net profit, dividends paid, earnings per share, and changes in the share price, in the current and previous financial years.


For

per

sona

l use

onl

y

37

www.tattsgroup.com

Over the last five years, there have been a number of events, including mergers, acquisitions, licence renewal outcomes, impairments, and the set-tlement of the Trustee Commission Claim which have created substantial volatility in the measures outlined above. This is reflected in the following table:

2010 2009 2008 2007* 2006

Net profit attributable to equity holders of the Company ($’000) 119,355 277,441 257,586 288,581 128,542

Dividends paid/payable ($’000) 268,577 266,250 253,071 278,377 114,850

Dividend payout ratio (%) **95.0 96.0 98.2 96.5 89.3

EPS (¢) 8.2 21.9 20.4 26.1 18.3

STIP as percentage of net profit (%) 0.5 1.78 1.71 1.90 1.17

* The net profit in 2007 includes the gain from the provision reversal on the Trustee Commission Claim settlement. As a result, a special dividend of 4 cents per share was paid.** The 2010 dividend payout ratio is calculated using the underlying NPAT of $282.4 million after adjusting reported NPAT for a number of one-off items, and the special dividend to be paid on 1

October 2010.

As outlined earlier, a net profit target is established by the Board and an STI is awarded if the net profit target is achieved or exceeded. The STI is determined as a declining proportion of above target performance. Assessment of performance against target involves making appropriate adjustments to actual profit to ensure that only the performance attributable to management activity is rewarded under this approach. The profit performance for the 2010 financial year, on both a reported basis and an adjusted or underlying basis, was not sufficient to achieve the targets set for the year, resulting in no profit-based STI payments for the year.

The LTIP options and rights granted in 2005 and 2006 are both in the two year vesting window for testing and retesting. The 2005 grant has not in the last year exceeded the 67th percentile level of the peer group achieved in the 2009 financial year, and hence no further vesting has occurred. The graph below reflects this result. TSR 50th Percentile Index – Tatts Group Limited vs ASX Peer Group (7 July 2005 Index = 100)

Index TSR 50th Percentile ASX Peer Group

Index Tatts Group TSR

The 2006 grant reached the three year vesting test timeline in November 2009 with a retest in May 2010. The initial November 2009 test led to no vesting of these grants. However, at May 2010 the Tatts Group TSR outcome reached the 50.59 percentile of the peer group, hence exceeding the 50th percentile level TSR ASX Peer Group, and resulted in 51.2% of the granted rights and option in this tranche vesting at that date.

(ii) Details of remuneration – performance options and rightsFor each grant of options and rights as set out below, the percentage of the maximum grant that was paid, or that vested, in the financial year is provided.

200

180

160

140

120

100

80

60

40

2005 2006 2007 2008 2009 2010

For

per

sona

l use

onl

y


Options/Rights

Name

Financialyear granted

Vested % Forfeited %

Financial years in which options/rights

may vest

Minimum total value of grant

yet to vest$

Maximum total value of grant

yet to vest$

Dick McIlwain 2010 - - 30/06/2013 nil 328,611

2007 51.2% - - - -

Michael Carr 2010 - - 30/06/2013 nil 128,088

2009 - - 30/06/2012 nil 74,011

2008 - - 30/06/2011 nil 15,163

2007 51.2% - - - -

Barrie Fletton 2010 - - 30/06/2013 nil 126,078

2009 - - 30/06/2012 nil 72,483

2008 - - 30/06/2011 nil 14,826

2007 51.2% - - - -

Penny Grau 2010 - - 30/06/2013 nil 52,413

2009 - - 30/06/2012 nil 29,768

2008 - - 30/06/2011 nil 6,078

Ray Gunston 2010 - - 30/06/2013 nil 205,210

2009 - - 30/06/2012 nil 114,231

2008 - - 30/06/2011 nil 22,745

2007 51.2% - - - -

2006 84.7% - - - -

Bruce Houston 2010 - - 30/06/2013 nil 42,044

2009 - - 30/06/2012 nil 24,793

2008 - - 30/06/2011 nil 4,703

2007 51.2% - - - -

Stephen Lawrie 2010 - - 30/06/2013 nil 134,125

2009 - - 30/06/2012 nil 74,843

2008 - - 30/06/2011 nil 14,490

2007 51.2% - - - -

Brendan Redmond 2010 - - 30/06/2013 nil -

2009 - - 30/06/2012 nil 70,108

2008 - - 30/06/2011 nil 14,321

2007 51.2% - - - -

No options were exercised during the year and therefore no shares were issued. Some rights vested but were not exercised during the year – refer to section J of the Remuneration Report for further details.


For

per

sona

l use

onl

y

39

www.tattsgroup.com

(iii) Share based compensation: Options and Rights

Name

ARemuneration

consisting of options and rights

%

B

Value at grant date$

C

Value at exercise date$

D

Value at lapse date$

Dick McIlwain 12.6 422,500 - -

Michael Carr 21.6 159,006 - -

Barrie Fletton 21.5 156,510 - -

Penny Grau 9.5 65,065 - -

Ray Gunston 18.2 254,743 - -

Bruce Houston 10.5 52,193 - -

Stephen Lawrie 20.8 166,500 - -

Brendan Redmond 8.4 - - -

A The percentage of the value of remuneration consisting of options and rights, based on the value of options and rights expensed during the current year.B The value at grant date calculated in accordance with AASB 2 Share-based Payment of options and rights granted during the year as part of remuneration.C The value at exercise date of options and rights that were granted as part of remuneration and were exercised during the year, being the intrinsic value of the options and rights at that date.D The value at lapse date of options and rights that were granted as part of remuneration and that lapsed during the year because a vesting condition was not satisfied. The value is determined

at the time of lapsing, but assuming the condition was satisfied.

Loans to Directors and ExecutivesThere were no loans to Directors and executives during the financial year.

Shares under options and rightsUnissued ordinary shares of the Company under options or rights at the date of this report are as follows:

Award type Grant date Expiry date Exercise priceNumber under options/rights

Performance option 16 December 2005 7 July 2012 $3.10 248,606

Performance right 16 December 2005 7 July 2012 N/A 11,132

Performance option 30 November 2006 30 November 2013 $3.13 2,000,000

Performance option 30 November 2006 30 November 2013 $3.65 619,879

Performance right 30 November 2006 30 November 2013 N/A 190,105



Performance right 30 October 2009 12 October 2013 N/A 250,000

Performance right 30 November 2009 30 November 2016 N/A 1,189,039

Total 12,675,044

Shares issued on the exercise of rightsDuring the year ended 30 June 2010, no employees or executives have exercised rights.

Indemnities and InsuranceArticle 7.3 of the Company’s Constitution provides that every person who is or has been a Director or Secretary of the Company or of a subsidiary of the Company may be indemnified by the Company, to the extent permitted by law, against liabilities:

incurred by the person as an officer (as defined in the • Corporations Act 2001) of the Company or a subsidiary of the Company; andfor legal costs incurred by the person in defending an action for a liability incurred by that person as an officer of the Company or a subsidiary •of the Company.

The Company has executed Deeds of Indemnity, Insurance and Access, consistent with this Article, in favour of all current and former Directors of the Company, certain current and former Directors of related bodies corporate of the Company, and the current and certain former Secretaries of the Company. Each Deed indemnifies those persons for the full amount of all such liabilities including costs and expenses.

For

per

sona

l use

onl

y


For the year ended 30 June 2010, no amounts have been paid pursuant to indemnities (2009: $nil).

The Company’s Constitution also allows the Company to pay insurance premiums for contracts insuring the officers of the Company in relation to any such liabilities and legal costs.

During or since the end of the financial year, consistent with the Company’s Constitution, the Company has paid the premium in respect of a contract insuring each of the Directors and the Secretary named in this Directors’ Report, the former Directors, and the officers of the Company and its subsidiaries as permitted by the Corporations Act 2001. The class of officers insured by the policy includes all officers involved in the management of the Group. The terms of the contract of insurance prohibit the disclosure of the nature of the liabilities insured against and the amount of the premium.

Pursuant to the terms of the Company’s standard engagement letter with PricewaterhouseCoopers (PwC), it indemnifies PwC against any liabilities, including legal costs, that PwC incurs, in connection with any claim by a third party arising out of or in relation to the provision of services or the use of any work performed under, or a breach of, the engagement letter. The indemnity is for the full amount of all such liabilities including costs and expenses. The indemnity does not apply if prohibited by the Corporations Act 2001.

Proceedings on behalf of the CompanyNo person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings.

No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001.

Non-Audit ServicesThe Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Group is important.

Details of the amounts paid or payable to the auditor (PwC) for non-audit services provided in respect of the Group during the year are set out below.

The Board of Directors has considered the position and, in accordance with the advice received from the Audit, Risk and Compliance Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, given the amounts paid and the type of work undertaken, did not compromise the auditor independence requirement of the Corporations Act 2001 for the following reasons:

all non-audit services have been reviewed by the Audit, Risk and Compliance Committee to ensure they do not impact the impartiality and •objectivity of the auditor; andnone of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional •Accountants, including reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as advocate for the Group or jointly sharing economic risk and rewards.


For

per

sona

l use

onl

y

41

www.tattsgroup.com

During the year the following fees were paid or payable to PricewaterhouseCoopers for the provision of non-audit services:

Consolidated

2010$

2009$

Non-audit services

(a) Other assurance services

Fees paid to PricewaterhouseCoopers Australian firm:

Audit of regulatory returns 57,470 51,335

Due diligence services - 30,000

Fees paid to related practices of PricewaterhouseCoopers Australian firm:

Due diligence services 20,938 -

Total remuneration for other assurance services 78,408 81,335

(b) Taxation services


Tax compliance services, including review of company tax returns 3,295 26,643

Total remuneration for taxation services 3,295 26,643

Total remuneration for non-audit services 81,703 107,978

Subject to maintaining their independence, it is the Group’s policy to employ the services of PwC on assignments additional to their statutory audit duties where PwC’s expertise and experience with the Group is important. These assignments are principally tax advice and due diligence reporting on acquisitions.

Auditor’s IndependenceA copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 42, and forms part of the Directors’ Report for the financial year ended 30 June 2010.

Rounding of amountsThe Company is of a kind referred to in Class Order 98/010, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report. Amounts in the Directors’ Report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar.

Directors’ ResolutionThis Directors’ Report is made in accordance with a resolution of the Directors.

Harry Boon Dick McIlwainChairman Managing Director/Chief Executive Melbourne26 August 2010.F

or p

erso

nal u

se o

nly


Auditor’s Independence Declaration

Liability limited by a scheme approved under Professional Standards Legislation

27

PricewaterhouseCoopersABN 52 780 433 757

Freshwater Place2 Southbank BoulevardSOUTHBANK VIC 3006GPO Box 1331MELBOURNE VIC 3001DX 77Telephone 61 3 8603 1000Facsimile 61 3 8603 1999

Auditor’s Independence Declaration

As lead auditor for the audit of Tatts Group Limited for the year ended 30 June 2010, I declare thatto the best of my knowledge and belief, there have been:

a) no contraventions of the auditor independence requirements of the Corporations Act 2001 inrelation 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 Tatts Group Limited and the entities it controlled during the period.

Con Grapsas MelbournePartner 26 August 2010PricewaterhouseCoopers

For

per

sona

l use

onl

y

43

www.tattsgroup.com

Income statementFor the year ended 30 June 2010

Consolidated

Notes2010 $’000

2009 $’000

Revenue from continuing operations 5 3,297,933 3,211,878

Statutory outgoings

Government share (1,531,394) (1,468,699)

Venue share/commission (617,716) (615,096)

Product/program fees (186,988) (186,215)

Other income 6 90 1,684

Other expenses from ordinary activities 7

Employee expenses (160,840) (157,609)

Operating fees and direct costs (70,772) (65,282)

Telecommunications and technology (33,044) (34,440)

Marketing and promotions (34,847) (33,450)

Information services (13,176) (12,069)

Property expenses (51,052) (52,109)

Restructuring costs 7 (25,039) (2,472)

Other expenses (31,007) (32,566)

Share of net loss of associates and joint ventures accounted for using the equity method 36(b) (44) (105)

Profit before interest, income tax, depreciation, amortisation and impairment 542,104 553,450

Impairment of assets 7 (140,000) (4,857)

Depreciation and amortisation 7 (136,283) (101,151)

Interest income 9,251 8,423

Finance costs 7 (60,434) (57,642)

Profit before income tax 214,638 398,223

Income tax expense 8 (109,248) (121,252)

Profit from continuing operations 105,390 276,971

Profit from discontinued operations 9 14,910 1,077

Profit for the year 120,300 278,048

Profit is attributable to:

Owners of Tatts Group Limited 26(b) 119,355 277,441

Non-controlling interests 945 607

120,300 278,048

Earnings per share for profit from continuing operations attributable to the ordinary equity owners of the Company:

Cents Cents

Basic earnings per share 39 8.2 21.9

Diluted earnings per share 39 8.2 21.9

Earnings per share for profit attributable to the ordinary equity owners of the Company: Cents Cents

Basic earnings per share 39 9.4 21.9

Diluted earnings per share 39 9.4 21.9

The above Income statement should be read in conjunction with the accompanying notes.

For

per

sona

l use

onl

y


Statement of comprehensive incomeFor the year ended 30 June 2010

Consolidated

Notes2010$’000

2009$’000


Other comprehensive income

Changes in the fair value of available-for-sale financial assets, net of tax 26(a) 908 2,526

Changes in the value of net investment hedges 26(a) 29,444 4,945

Changes in the value of interest rate swaps, net of tax 26(a) (12,498) (15,278)

Gain on realisation of interest rate swaps 26(a) - (2,366)

Changes in the fair value of forward foreign exchange contracts 26(a) (580) (594)

Exchange differences on translation of foreign operations 26(a) (29,079) (3,391)

Other comprehensive income for the year, net of tax (11,805) (14,158)

Total comprehensive income for the year 108,495 263,890

Total comprehensive income for the year is attributable to:

Owners of Tatts Group Limited 107,550 263,283

Non-controlling interests 945 607

108,495 263,890

The above Statement of comprehensive income should be read in conjunction with the accompanying notes.

For

per

sona

l use

onl

y

45

www.tattsgroup.com

Consolidated

Notes2010$’000

2009$’000

ASSETS

Current assets

Cash and cash equivalents 10 393,267 373,761

Trade and other receivables 11 130,885 158,138

Inventories 12 7,251 7,001

Total current assets 531,403 538,900

Non-current assets

Trade and other receivables 11 226 89

Investments accounted for using the equity method 36 2,185 8,605

Available-for-sale financial assets 13 31,085 29,241

Property, plant and equipment 15 257,903 302,328

Investment properties 16 31,007 14,939

Intangible assets 17 4,075,830 3,310,964

Deferred tax assets 18 28,752 40,405

Other non-current assets 19 2,165 1,707

Total non-current assets 4,429,153 3,708,278

Total assets 4,960,556 4,247,178

LIABILITIES

Current liabilities

Trade and other payables 20 517,346 462,987

Interest bearing liabilities 21 796,253 3,473

Derivative financial instruments 14 1,174 594

Tax liabilities 36,588 29,249

Provisions 22 22,104 18,205

Total current liabilities 1,373,465 514,508

Non-current liabilities

Trade and other payables 20 66,230 43,484

Interest bearing liabilities 21 785,171 904,255

Derivative financial instruments 14 25,353 8,733

Deferred tax liabilities 23 227,738 176,718

Provisions 22 6,458 4,054

Retirement benefit obligations 24 8,337 -

Total non-current liabilities 1,119,287 1,137,244

Total liabilities 2,492,752 1,651,752

Net assets 2,467,804 2,595,426

EQUITY

Contributed equity 25 2,362,593 2,333,193

Reserves 26(a) (12,616) (2,829)

Retained profits 26(b) 117,827 265,744

Parent entity interest 2,467,804 2,596,108

Non-controlling interests - (682)

Total equity 2,467,804 2,595,426

The above Balance sheet should be read in conjunction with the accompanying notes.

Balance sheetAs at 30 June 2010

For

per

sona

l use

onl

y


Attributable to ordinary equity owners of Tatts Group Limited

Contributed equity $’000

Reserves $’000

Retained earnings

$’000Total $’000

Non-controlling

interest $’000

Total equity $’000

Balance at 1 July 2008 2,321,082 2,745 254,553 2,578,380 (521) 2,577,859

Total comprehensive income for the full-year - (7,312) 270,595 263,283 607 263,890

Transactions with owners in their capacity as owners:

Dividend Reinvestment Plan issues 11,984 - - 11,984 - 11,984

Dividends provided or paid - - (259,404) (259,404) (722) (260,126)

Other - - - - (46) (46)

Share based payments 127 1,738 - 1,865 - 1,865

12,111 1,738 (259,404) (245,555) (768) (246,323)

Balance at 30 June 2009 2,333,193 (2,829) 265,744 2,596,108 (682) 2,595,426

Total comprehensive income for the full-year - (11,805) 119,355 107,550 945 108,495

Transactions with owners in their capacity as owners:

Dividend Reinvestment Plan issues 29,400 - - 29,400 - 29,400

Dividends provided or paid - - (267,272) (267,272) - (267,272)

Disposal of Non-controlling interest’s equity - - - - (263) (263)

Share based payments - 2,018 - 2,018 - 2,018

29,400 (9,787) (147,917) (128,304) 682 (127,622)

Balance at 30 June 2010 2,362,593 (12,616) 117,827 2,467,804 - 2,467,804

The above Statement of changes in equity should be read in conjunction with the accompanying notes.

Statement of changes in equityFor the year ended 30 June 2010

For

per

sona

l use

onl

y

47

www.tattsgroup.com

Consolidated

Notes2010$’000

2009$’000

Cash flows from operating activities

Receipts from customers (inclusive of GST) net of prizes paid 3,300,496 3,264,487

Payments to suppliers and employees (inclusive of GST) (402,818) (414,426)

Payments to Government (1,567,682) (1,423,507)

Payments to venues/commissions (629,206) (625,715)

Payment for product and program fees (186,718) (186,215)

514,072 614,624

Interest received 13,851 14,103

Interest paid (44,479) (59,376)

Income taxes paid (114,204) (116,092)

Net cash inflow from operating activities 37 369,240 453,259

Cash flows from investing activities

Payments for purchase of subsidiaries, net of cash acquired (761,986) (35,608)

Payments for investments in joint venture entities (11,113) (793)

Payments for property, plant and equipment (48,227) (68,005)

Payments for investment properties - (140)

Payments for intangibles (16,597) (8,778)

Payments for deferred expenditure (1,071) (158)

Loans to non-related parties - (714)

Loans to related parties - (4,498)

Proceeds from sale of other assets 346 884

Proceeds from sale of property, plant and equipment 1,049 1,287

Proceeds from sale of property, plant and equipment – discontinued operations 24 -

Proceeds from disposal of subsidiary, net of cash disposed 2,344 -

Net cash outflow from investing activities (835,231) (116,523)

Cash flows from financing activities

Dividends paid (237,867) (247,384)

Dividends paid to non-controlling interests - (682)

Proceeds from borrowings 766,063 47,057

Repayment of borrowings (44,814) (11,514)

Net cash inflow/(outflow) from financing activities 483,382 (212,523)

Net increase in cash and cash equivalents 17,391 124,213

Cash and cash equivalents at beginning of the financial year 373,010 250,770

Effect of exchange rate movements on cash and cash equivalents 2,263 (1,973)

Cash and cash equivalents at end of the financial year 10 392,664 373,010

The above Cash flow statement should be read in conjunction with the accompanying notes.

Cash flow statementFor the year ended 30 June 2010

For

per

sona

l use

onl

y


Note 1 Summary of significant accounting policiesThe principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Tatts Group Limited and its subsidiaries. Tatts Group Limited (the Company) and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity.

(a) New accounting policies and changes in presentation

The accounting policies adopted are consistent with those of the previous financial year, unless otherwise stated. Where appropriate, comparative amounts have been reclassified to ensure consistency with the current reporting year.

(b) Basis of preparation

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001.

Compliance with IFRSThe consolidated financial statements of the Group comply with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Historical cost conventionThese financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit and loss.

Critical accounting estimatesThe preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.

Financial statement presentationThe Group has applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January 2009. The revised standard requires the separate presentation of a Statement of comprehensive income and a Statement of changes in equity. All non-owner changes in equity must now be presented in the Statement of comprehensive income. As a consequence, the Group had to change the presentation of its financial statements. Comparative information has been re-presented so that it is also in conformity with the revised standard.

(c) Principles of consolidation

(i) Subsidiaries

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Tatts Group Limited as at 30 June 2010 and the results of all subsidiaries for the year then ended.

Subsidiaries are all those entities (including special purpose entities) over which the Group has power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The acquisition method of accounting is used to account for the business combinations by the Group (refer Note 1(i)).

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the Income statement, Statement of comprehensive income, Statement of changes in equity and Balance sheet respectively.

European Gaming Group

The investment in the European Gaming Group has been partially financed by a loan denominated in GBP that has been designated as a net investment hedge within the consolidated financial statements.

In the Company, the investment is designated as a fair value hedge of the foreign currency risk associated with the loan. The investment that is hedged has been revalued based on the closing GBP/AUD exchange rate with the gain/loss on revaluation being recognised in the Statement of comprehensive income in line with the corresponding gain/loss arising on the revaluation of the GBP loan.

Notes to the Financial StatementsFor the year ended 30 June 2010

For

per

sona

l use

onl

y

49

www.tattsgroup.com

Note 1 Summary of significant accounting policies (continued)

(ii) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the deemed parent entity using the cost method and in the consolidated financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investments in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the Income statement, and its share of post-acquisition movements in reserves is recognised in the Statement of comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s Income statement, while in the consolidated financial statements they reduce the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

(iii) Joint Ventures

Interests in joint venture entities and partnerships are accounted for in the consolidated financial statements using the equity method and are carried at cost by the parent entity. Under the equity method, the share of the profits or losses of the joint venture is recognised in the Income statement, and the share of movements in reserves is recognised in the Statement of comprehensive income (refer Note 36).

Profits or losses on transactions establishing joint venture entities and partnerships and transactions with the joint venture entities and partnerships are eliminated to the extent of the Group’s ownership interest until such time as they are realised by the joint venture entity/partnership on consumption or sale, unless they relate to an unrealised loss that provides evidence of the impairment of an asset transferred.

(iv) Changes in accounting policy

The Group has changed its accounting policy for transactions with non-controlling interests and the accounting for loss of control, joint control or significant influence from 1 July 2009 when a revised AASB 127 Consolidated and Separate Financial Statements became operative.

AASB 127 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. This is different to the Group’s previous accounting policy where transactions with non-controlling interests were treated as transactions with parties external to the Group.

The standard also specifies the accounting when control is lost. Any remaining interest in the entity must now be remeasured to fair value and a gain or loss is to be recognised in the Income statement.

The Group will in future allocate losses to the non-controlling interest in its subsidiaries even if the accumulated losses should exceed the non- controlling interest in the subsidiary’s equity. Under the previous policy, excess losses were allocated to the parent entity.

Dividends received from investments in subsidiaries, jointly controlled entities or associates after 1 July 2009 are recognised as revenue even if they are paid out of pre-acquisition profits. However, the investment may need to be tested for impairment as a result of the dividend payment. Under the entity’s previous policy, these dividends would have been deducted from the cost of the investment.

The changes have been implemented from 1 July 2009. There has been no impact on the current financial year.

There have also been no transactions whereby an interest in an entity is retained after the loss of control of that entity and no dividends paid out of pre-acquisition profits.

As a consequence, no adjustments were necessary to any of the amounts previously recognised in the financial statements.

(d) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive.

Change in accounting policy

The Group has adopted AASB 8 Operating Segments from 1 July 2009. AASB 8 replaces AASB 114 Segment Reporting. The new standard requires a ‘management approach’, under which segment information is presented on the same basis as that used for internal reporting purposes, and states that disclosure of total assets and liabilities for each reportable segment is only required if such an amount is regularly provided to the chief operating decision maker. The amended accounting standard applies on or after 1 January 2010, however may be early adopted in accordance with AASB 2009-5. The Group has elected to early adopt this standard.

For

per

sona

l use

onl

y



The changes have been implemented from 1 July 2009 and where necessary comparative information has been restated. There has been minimal impact as reportable segments disclosed were already consistent with the information provided internally to management. Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker.

(e) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is the Company’s functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

Translation differences on non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity.

(iii) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

assets and liabilities for each Balance sheet presented are translated at the closing rate at the date of that Balance sheet;•income and expenses for each Income statement and Statement of comprehensive income are translated at average exchange rates •(unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); andall resulting exchange differences are recognised as a separate component in the Statement of comprehensive income.•

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are recognised in the Statement of comprehensive income. When a foreign operation is sold or borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences is recognised in the Income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(f) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised for the major business activities as follows:

Gaming revenueGaming gross turnover less prizes returned to the player is recorded as revenue at the point when the game has been completed in relation to Victorian and International gaming operations.

Gaming monitoring revenueGaming revenue in relation to monitoring activities/services provided by Maxgaming in Queensland, New South Wales and Northern Territory is recognised when goods and/or services are provided.

Lotteries revenueGross subscriptions received for lotteries less prizes payable are recognised as revenue when the official draw for each game is completed. Subscriptions received during the year which will be drawn in the next financial period, are deferred and recognised as revenue in the next financial period.

Revenue from lottery card subscriptions is recognised over the life of the subscription.

Revenue for Club Keno is recognised when the official draw for each game is completed.

Notes to the Financial StatementsFor the year ended 30 June 2010(continued)

For

per

sona

l use

onl

y

51

www.tattsgroup.com


Wagering revenueWagering revenue is the residual value after deducting the statutory returns to customers from wagering turnover. Revenue is recognised at the point when the event on which the wagering investment is made is officially completed.

Rendering of servicesRevenue from the sale of goods or the rendering of a service is recognised upon the delivery of the goods or service to customers.

Interest revenueInterest revenue is recognised on a time proportion basis using the effective interest method.

Interest revenue earned on prize reserves and unpaid prizes are included in revenue from continuing operations with the exception of interest earned on prize reserves in New South Wales Lotteries Corporation Pty Limited. Interest revenue from all other interest generating balances is included in interest income.

Other revenueDividend revenue is recognised when the right to receive a dividend has been established.

(g) Income tax

The income tax expense or revenue for the year is the tax payable on the current year’s taxable income based on the income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects either accounting or taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities may be offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where an entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax is recognised in the Income statement, except to the extent that it relates to items recognised in the Statement of comprehensive income or directly in equity. In this case, the tax is also recognised in the Statement of comprehensive income or directly in equity, respectively.

Tax consolidation legislationTatts Group Limited and its wholly owned Australian subsidiaries have adopted the tax consolidation legislation. From 31 May 2005 Tatts Group Limited assumed the status of head entity under the tax consolidation legislation following a private binding ruling issued by the Australian Taxation Office.

The head entity, Tatts Group Limited, and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone tax payer in its own right.

In addition to its own current and deferred tax amounts, Tatts Group Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Details about the tax funding agreement are disclosed in Note 8.

For

per

sona

l use

onl

y



Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities.

(h) Leases

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased asset or, if lower, the present value of the minimum lease payments, including any guaranteed residual values. The corresponding obligation, net of finance charges, is included in interest bearing liabilities. Each lease payment is allocated between the liability and finance cost. The interest element of the finance cost is charged to the Income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Leased assets are depreciated on a straight-line basis over their estimated useful lives where it is likely that the Company will obtain ownership of the asset, and otherwise over the term of the lease.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases (refer Note 31). Payments made under operating leases (net of any incentives received from the lessor) are charged to the Income statement on a straight-line basis over the period of the lease.

Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line basis over the lease term (refer Note 16).

(i) Business combinations

The acquisition method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in the Income statement as a bargain purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in the Income statement.

Change in accounting policy

A revised AASB 3 Business Combinations became operative on 1 July 2009. While the revised standard continues to apply the acquisition method to business combinations, there have been some significant changes.

All purchase consideration is now recorded at fair value at the acquisition date. Contingent payments classified as debt are subsequently remeasured through the Income statement. Under the Group’s previous policy, contingent payments were only recognised when the payments were probable and could be measured reliably and were accounted for as an adjustment to the cost of acquisition.

Acquisition-related costs are expensed as incurred. Previously, they were recognised as part of the cost of acquisition and therefore included in goodwill.

If the Group recognises previously acquired deferred tax assets after the initial acquisition accounting is completed there will no longer be any adjustment to goodwill. As a consequence, the recognition of the deferred tax asset will increase the Group’s net profit after tax.

(j) Impairment of assets

Goodwill and Intangible assets that have an indefinite useful life are not subject to amortisation and are tested six monthly for impairment or more frequently if events or changes in circumstances indicate that they may be impaired. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.


For

per

sona

l use

onl

y

53

www.tattsgroup.com


(k) Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within interest bearing liabilities in current liabilities in the Balance sheet.

(l) Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for impairment. Trade receivables are due for settlement between no more than 2 to 30 days from the date of recognition.

Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. A provision for the impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the impairment provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate.

The amount of the impairment is recognised in the Income statement within other expenses. Subsequent recoveries of amounts previously written off are credited against other expenses in the Income statement.

(m) Inventories

Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Inventories of spare parts are measured at cost, less accumulated depreciation. Depreciation of spare parts is based upon their estimated useful life. Costs are assigned on a first in first out basis and comprise direct materials. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(n) Non-current assets held for sale and discontinued operations

Non-current assets are classified as held for sale and stated at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction rather than through continuing use.

An impairment loss is recognised for any initial or subsequent write down of the asset to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset is recognised at the date of derecognition.

Non-current assets are not depreciated or amortised while they are classified as held for sale. Non-current assets classified as held for sale are presented separately from the other assets in the Balance sheet.

A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the Income statement.

(o) Investments and other financial assets

ClassificationThe Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at the end of each reporting period.

(i) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also classified as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the Balance sheet.

For

per

sona

l use

onl

y



(iii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. Assets in this category are classified as non-current assets, except for those with maturities less than 12 months from the end of each reporting period, which are classified as current assets.

(iv) Available-for-sale financial assets

Available-for-sale financial assets, comprising principally marketable equity securities, are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Investments are designated as available-for-sale if they do not have fixed maturities and fixed or determinable payments and management intends to hold them for the medium to long term.

Recognition and derecognitionPurchases and sales of investments and other financial assets are recognised on trade date, being the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

When securities classified as available-for-sale are sold, the accumulated fair value adjustments recognised in the Statement of comprehensive income are reclassified to the Income statement as gains and losses from investment securities.

Subsequent measurementAvailable-for-sale financial assets and financial assets at fair value through profit and loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit and loss’ category are included in the Income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in the Statement of comprehensive income in the available-for-sale financial assets revaluation reserve. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in the Statement of comprehensive income are reclassified to the Income statement as gains and losses from investment securities.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, and for unlisted securities, the Group establishes fair value by using valuation techniques. These include reference to the fair values of recent arm’s length transactions, involving the same instruments or other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer’s specific circumstances.

ImpairmentThe Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit and loss – is removed from equity and recognised in the Income statement. Impairment losses recognised in the Income statement on equity instruments classified as available-for-sale are not reversed through the Income statement.

(p) Derivatives

Derivatives are initially recognised at fair value on the date the derivative contract is entered into and are subsequently remeasured to their fair value at each reporting period. The accounting for subsequent changes in the fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates derivatives as either:

hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges); •hedges of the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges); or •hedges of a net investment in a foreign operation (net investment hedges).•

The Group documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative financial instruments used for hedging purposes are disclosed in Note 14, while movements in the hedge reserve are shown in Note 26. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged items is more than 12 months. It is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.


For

per

sona

l use

onl

y

55

www.tattsgroup.com


(i) Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the Statement of comprehensive income, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to the Income statement over the period to maturity using a recalculated effective interest rate.

(ii) Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the Statement of comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in the Income statement.

Amounts accumulated in equity are reclassified to the Income statement in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the ineffective portion of the interest rate swaps hedging variable rate borrowings and forward contracts hedging foreign currency operating and interest payments is recognised in the Income statement within ‘Finance costs’. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or liability.

When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the Income statement.

(iii) Net investment hedge

Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a similar way to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised in the Statement of comprehensive income and accumulated reserves in equity while any gains or losses relating to the ineffective portion were recognised immediately in the Income statement within other income or finance expenses. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to the Income statement.

(iv) Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the Income statement and are included in other income or finance expenses.

(q) Property, plant and equipment

Property, plant and equipment (including investment properties, refer Note 1(r)) is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Income statement during the financial period in which they are incurred.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their useful lives, as follows:

Buildings 25-50 years Freehold improvements 25-40 years Plant and equipment 2-10 years Leasehold improvements 7 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 1(j)).

Plant and equipment under development is not depreciated. Depreciation will commence on completion of the development when the assets are available for use.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the Income statement.

For

per

sona

l use

onl

y



(r) Investment property

Investment property, principally comprising land and buildings of gaming venues and freehold commercial buildings, is held for long-term rental yields and is not occupied by the Group. Investment property is carried at cost less subsequent depreciation.

Depreciation is calculated using the straight-line method in accordance with the accounting policy for property, plant and equipment (Note 1(q)).

A property’s carrying amount is written down immediately to its recoverable amount if the property’s carrying amount is greater than its estimated recoverable amount (Note 1(j)).

(s) Intangible assets

(i) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is not amortised. Instead, goodwill is tested for impairment six monthly or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segments (Note 4).

(ii) Licences

Licences that have a finite useful life are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of licences over their estimated useful lives.

The expected useful lives used for licences are as follows:

Race wagering licence – Qld 92 years Expires 2098 Sports wagering licence - Qld 8 years Expires 2014 Totalisator licence – NT 9 years Expires 2015 Sports bookmaker licence - NT 9 years Expires 2015 Major betting operations licence - SA 94 years Expires 2100 Gaming machine monitoring operator’s licence – Qld 10 years Expires 2017 Monitoring provider’s licence – NT 5 years Expires 2011 Centralised monitoring system licence – NSW 10 years Expires 2016 Inter-club linked gaming system licence – NSW 11 years Expires 2017 Inter-hotel linked gaming system licence – NSW 13 years Expires 2019 Radio licences 11 years Expires 2014 Victorian lotteries licence 10 years Expires 2018 New South Wales lotteries licence 40 years Expires 2050

The Victorian gaming licence was not amortised as the licence expiry payment which may be paid to the Company at the end of the licence period was expected to be not less than the carrying value of the asset. The licence has now been fully impaired.

The carrying value of licences is reviewed annually and any balance representing future benefits for which realisation is considered to be no longer probable is written off.

(iii) Brand

The Tattersall’s brand was carried at cost by the Company. Due to AASB 3 Business Combinations requirements the balance was eliminated on consolidation. The Tattersall’s brand has now been fully impaired.

The UNiTAB brand is an indefinite life asset carried at cost being the fair value on acquisition of UNiTAB. It is reviewed annually by reference to future cash flows to ensure it is not carried in excess of recoverable amount.

Brands with a finite useful life are carried at cost less accumulated depreciation and impaired losses. Amortisation is calculated using the straight line method to allocate the cost of the brands over their estimated useful lives.

The expected useful lives used for brands are as follows:

Brand name – SA 16 years Golden Casket Brands – Qld 65 years


For

per

sona

l use

onl

y

57

www.tattsgroup.com


(iv) Research and development

Expenditure on research activities, undertaken with the prospect of obtaining new technical knowledge and understanding, is recognised in the Income statement as an expense when it is incurred.

(v) IT development and software

Costs incurred in developing products or systems that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software. Costs capitalised include external direct costs of materials and service, direct payroll and payroll related costs of employees’ time spent on the project.

Capitalised software is carried at cost less accumulated amortisation and impaired losses. Amortisation is calculated using the straight line method to allocate the cost of the software over its estimated useful life of 2 to 14 years.

(vi) Other

The cost associated with the Golden Casket Lottery Operator Agreement is carried at cost less accumulated depreciation and impaired losses. Amortisation is calculated using the straight line method to allocate the cost of the agreement over the term of 65 years, expiring in 2072.

(t) Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.

Prizes payable to ‘Set for Life’, ‘Made for Life’ and ‘Win for Life’ major prize winners are payable over periods exceeding 12 months and are valued at the net present value of the future expected cash flows. The portion of this liability which is payable more than 12 months post balance date is reported as a non-current liability.

(u) Interest bearing liabilities

Interest bearing liabilities, such as loans, are initially recognised at fair value, net of transaction costs incurred and subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Income statement over the period of the borrowings using the effective interest method.

Interest bearing liabilities are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

(v) Finance costs

Finance costs incurred for the acquisition, construction or production of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other finance costs are expensed.

(w) Provisions

Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; •it is probable that an outflow of resources will be required to settle the obligation; and•the amount has been reliably estimated.•

Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the best estimate of the expenditure required to settle the present obligation.

(x) Employee benefits

(i) Wages and salaries and annual leave

Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the end of each reporting period, are recognised in other payables in respect of employees’ services up to the end of each reporting period and are measured at the amounts expected to be paid when the liabilities are settled.

For

per

sona

l use

onl

y



(ii) Long service leave

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of each reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of each reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

(iii) Retirement benefit obligations

All Group employees are entitled to become members of the Group’s accumulation (defined contribution) plan, whilst some employees employed by Golden Casket Lottery Corporation Limited have previously elected into the plans as outlined below. The accumulation plan receives superannuation guarantee contributions from Group companies and the Group’s legal or constructive obligation is limited to these contributions.

Golden Casket Lottery Corporation Limited contribute to the Queensland State Public Sector Superannuation Scheme (Q-Super), with all contributions recognised as an expense when incurred. Benefits are provided to employees on either a defined benefit basis or through an accumulation fund. Both funds are administered by the Queensland Government Superannuation Office. No liability is recognised for superannuation benefits in respect of defined benefit and accumulation plans to which Golden Casket Lottery Corporation Limited contributes as this liability is held on a Whole of Government basis and reported in the Whole of Government financial statements.

New South Wales Lotteries Corporation Pty Limited (‘NSW Lotteries’) was acquired on 31 March 2010. Remaining employees were transferred in to Tatts Employment Co (NSW) Pty Limited, a subsidiary of Tatts Group Limited.

In respect of defined contributions superannuation funds, Tatts Employment Co (NSW) Pty Limited’s obligations are determined by the amounts to be contributed for that reporting period so no actuarial assumptions are required to measure the obligation or the expense and there is no possibility of any actuarial gain or loss.

Tatts Employment Co (NSW) Pty Limited also contributes to three defined benefit superannuation funds. Sub funds have been created in relation to the transferred employees who are members of the following New South Wales public sector superannuation schemes:

State Authorities Superannuation Scheme (SASS)•State Superannuation Scheme (SSS)•State Authorities Non-contributory Superannuation Scheme (SANCS).•

Its net obligations to these funds are calculated separately for each fund by estimating the amount of future benefit that employees have accrued in return for their services in the current and prior reporting periods, discounted to present value based on the long term Commonwealth Government bond rate less the fair value of any assets of the funds. All three funds are closed to new members. To the extent that a surplus or deficit is generated due to variations in actuarial valuations, these variances will be reflected in the Balance sheet as an asset or liability and recognised in the Statement of comprehensive income as income or expense and associated income tax effect. A surplus resulting in a superannuation asset may allow Tatts Employment Co (NSW) Pty Limited to have a reduction in its contributions. A deficit resulting in a superannuation liability may require Tatts Employment Co (NSW) Pty Limited to increase the level of its contributions.

A liability or asset in respect of defined benefit superannuation plans is recognised in the Balance sheet, and is measured as the present value of the defined benefit obligation at the end of each reporting period less the fair value of the superannuation fund’s assets at that date and any unrecognised past service cost. The present value of the defined benefit obligation is based on expected future payments which arise from membership of the fund to the end of each reporting period, calculated annually by independent actuaries using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service.

Expected future payments are discounted using market yields at the end of each reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in the Statement of changes in equity.

Past service costs are recognised immediately in the Income statement, unless the changes to the superannuation fund are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight-line basis over the vesting period.

Future taxes that are funded by the entity as part of the provision of the existing benefit obligation (e.g. taxes on investment income and employer contributions) are taken into account in measuring the net liability or asset.

Contributions to defined contribution funds are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.


For

per

sona

l use

onl

y

59

www.tattsgroup.com


(iv) Share-based payments (Long-Term Incentive Plan)

Share-based compensation benefits are provided to employees via the Long-Term Incentive Plan (LTIP), an equity settled plan.

The fair value of performance options and rights granted under the LTIP is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at determination date and recognised over the period during which the employees become unconditionally entitled to the options.

The assessed fair value at determination date of options and rights granted to the individuals is allocated equally over a three year period from determination date. Fair values at determination date were determined using a Monte-Carlo Simulation Valuation methodology that takes into account the exercise price, the term of the option, the impact of dilution, the share price at determination date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

The fair value of the options and rights granted excludes the impact of any non-market vesting conditions (for example, profitability and sales and growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of the number of options and rights that are expected to become exercisable.

Upon the exercise of options or rights, the balance of the share-based payments reserve relating to those options is transferred to share capital.

The market value of shares issued to employees for no cash consideration under the LTIP is recognised as an employee benefits expense with a corresponding increase amortised over the vesting period in equity when the employees become entitled to the shares.

(v) Short-Term Incentive Plan and Other Bonus Payments

The Group under its Short-Term Incentive Plan, recognises a liability and an expense for bonuses and profit-sharing based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. The same accounting is adopted for other bonus payments awarded to employees.

(vi) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy.

(y) Contributed equity

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, for the acquisition of a business, are not included in the cost of the acquisition as part of the purchase consideration.

(z) Dividends

Provision is made for the amount of any dividend declared, being appropriately authorised on or before the end of the financial year but not distributed at balance sheet date.

(aa) Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financial costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

For

per

sona

l use

onl

y



(ab) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of the associated GST unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the Balance sheet.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority, are presented as operating cash flows.

(ac) Rounding of amounts

The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar.

(ad) New accounting standards and AASB interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2010 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below.

AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-Settled Share-basedPayment Transactions [AASB 2] (effective from 1 January 2010)The amendments made by the AASB to AASB 2 confirm that an entity receiving goods or services in a Group share-based payment arrangement must recognise an expense for those goods or services regardless of which entity in the Group settles the transaction or whether the transaction is settled in shares or cash. They also clarify how the Group share-based payment arrangement should be measured, that is, whether it is measured as an equity - or a cash-settled transaction. The Group will apply these amendments for the financial reporting period commencing on 1 July 2010. There will be no impact on the Group’s financial statements.

AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues[AASB 132] (effective from 1 February 2010)In October 2009 the AASB issued an amendment to AASB 132 Financial Instruments: Presentation which addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment must be applied retrospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. The Group will apply the amended standard from 1 July 2010. As the Group has not made any such rights issues, the amendment will not have any effect on the Group’s financial statements.

AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian AccountingStandards arising from AASB 9 (effective from 1 January 2013)AASB 9 Financial Instruments addresses the classification and measurement of financial assets and is likely to affect the Group’s accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The Group is yet to assess its full impact. The Group has not yet decided when to adopt AASB 9.

Revised AASB 124 Related Party Disclosures and AASB 2009-12 Amendments to AustralianAccounting Standards (effective from 1 January 2011)In December 2009 the AASB issued a revised AASB 124 Related Party Disclosures. It is effective for accounting periods beginning on or after 1 January 2011 and must be applied retrospectively. The Group will apply the amended standard from 1 July 2011. When the amendments are applied, the Group will need to disclose any transactions between its subsidiaries and its associates. The Group is yet to assess the impact of the proposed change.

AASB Interpretation 19 Extinguishing financial liabilities with equity instruments andAASB 2009-13 Amendments to Australian Accounting Standards arising from Interpretation 19(effective from 1 July 2010)AASB Interpretation 19 clarifies the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished by the debtor issuing its own equity instruments to the creditor (debt for equity swap). It requires a gain or loss to be recognised in profit or loss which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued.

The Group will apply the interpretation from 1 July 2010. It is not expected to have any impact on the Group’s financial statements since it is only retrospectively applied from the beginning of the earliest period presented (1 July 2009) and the Group has not entered into any debt for equity swaps since that date.


For

per

sona

l use

onl

y

61

www.tattsgroup.com


AASB 2009-14 Amendments to Australian Interpretation – Prepayments of a Minimum FundingRequirement (effective from 1 January 2011)In December 2009, the AASB made an amendment to Interpretation 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The amendment removes an unintended consequence of the interpretation related to voluntary prepayments when there is a minimum funding requirement in regard to an entity’s defined benefit scheme. It permits entities to recognise an asset for a prepayment of contributions made to cover minimum funding requirements. The Group does not make any such prepayments. The amendment is therefore not expected to have any impact on the Group’s financial statements. The Group intends to apply the amendment from 1 July 2011.

AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project and AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project (effective from 1 July 2010/1 January 2011) In June 2010, the AASB made a number of amendments to Australian Accounting Standards as a result of the IASB’s annual improvements project. The Group will apply the amendments from 1 July 2010. It does not expect that any adjustments will be necessary as a result of applying the revised rules.

(ae) Parent entity financial information

The financial information for the parent entity, Tatts Group Limited, disclosed in Note 38 has been prepared on the same basis as the consolidated financial statements, except as set out below.

(i) Investments in subsidiaries, associates and joint venture entities

Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Tatts Group Limited. Dividends received from associates are recognised in the parent entity’s profit and loss, rather than being deducted from the carrying amount of these investments.

(ii) Tax consolidation legislation

Tatts Group Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation.

The head entity, Tatts Group Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right.

In addition to its own current and deferred tax amounts, Tatts Group Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from the unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate Tatts Group Limited for any current tax payable assumed and are compensated by Tatts Group Limited for any current tax receivable and deferred tax assets relating to the unused tax losses or unused tax credits that are transferred to Tatts Group Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements.

The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligation to pay tax instalments.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable as a contribution to (or distribution from) wholly-owned tax consolidated entities.

(iii) Financial guarantees Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment.

For

per

sona

l use

onl

y


Note 2 Financial risk management

Financial risk management is carried out by a central treasury function (Group Treasury) under policies approved by the Board of Directors. Group Treasury identifies, monitors and manages financial risks in co-operation with the Group’s operating units. The Treasury and Investment Committee internally co-ordinate this process, and the Audit, Risk and Compliance Committee oversees the management and implementation of the risk management framework and policies.

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk, liquidity risk and fair value interest rate risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses various risk management approaches, including where appropriate derivative financial instruments such as foreign exchange contracts and interest rate swaps, to hedge certain risk exposures. Derivatives, when utilised, are exclusively for hedging purposes, i.e. not for trading or other speculative purposes. The Group uses a variety of methods to measure the extent of different types of risk to which it is exposed, including market or fair value or face value as appropriate.

The operation of this treasury activity is managed through segregation of duties, reporting requirements and structured authority levels, and is subject to ongoing internal and external audit review.

(a) Market risk

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising predominately from currency exposures to the British Pound, South African Rand, Swedish Kroner, and various other currencies from time to time.

Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency, and from net investments in foreign operations. Management of foreign exchange risk is focused on minimising the volatility of Group financial results to adverse exchange rate movements by protecting the cash flows of the business and reducing large investment exposures to such exchange rate movements. This is achieved through a combination of risk management approaches including forward foreign exchange contracts, holding foreign currency cash balances against exposures, and minimising offshore net asset holdings through foreign currency denominated debt.

The Group’s material exposure to foreign currency risk at the end of each reporting periods was as follows:

30 June 2010GPB ’000

30 June 2009GPB ’000

Interest bearing liabilities 111,170 111,170

Derivative financial liability 6,548 3,746

Forward exchange contracts

- buy foreign currency (cash flow hedge) 6,400 4,850

124,118 119,766

The following relevant exchange rates applied during the year:

Currency

Average rate Spot rate – 30 June

2010 2009 2010 2009

British Pound (GBP) 0.56031 0.46259 0.56256 0.489609

South African Rand (ZAR) 6.68629 6.51005 6.44940 6.234707

Swedish Kroner (SEK) 6.39603 5.63730 6.55330 6.228967

Sensitivity analysisBased on the financial instruments held at 30 June 2010, had the Australian dollar weakened/strengthened by 10% (2009: 10%) against the British Pound with all other variables held constant, the Group’s post tax profit for the year would have been the same as that reported in the Income statement, while equity would have been $22,063,000 higher/ lower (2009: $24,462,000 higher/lower) than that reported in the Balance sheet.

The Group’s exposure to other foreign exchange movements is not material.


For

per

sona

l use

onl

y

63

www.tattsgroup.com

Note 2 Financial risk management (continued)

(ii) Price risk

The Group is exposed to equity securities price risk. This arises from investments held by the Group and classified on the Balance sheet as available-for-sale financial assets (refer Note 13 for further information). The Group is not directly exposed to commodity price risk.

Such equity investments are not part of the usual business operations or strategies of the Group and do not represent a material exposure to the Group. As at 30 June 2010, the amount held is $31,085,000 (2009: $29,241,000).

Based on the equity securities held at 30 June 2010, had the share price increased/decreased by 10% (2009: 10%) with all other variables held constant, the Group’s post tax profit for the year would have been unaffected while equity would have been $3,109,000 higher/lower (2009: $2,921,000 higher/lower).

(iii) Cash flow and fair value interest rate risk

Refer to (d) below.

(b) Credit risk

Credit risk is the risk that the Group will suffer a financial loss due to the inability of a counter party to meet its financial and/or contractual obligations. In relation to treasury activities, credit risk arises primarily from investments, and from the use of risk management derivative instruments. Business and trade related credit risk is managed through procurement policies in place for the Group. Treasury related credit risk is managed by ensuring all counterparties satisfy credit rating level requirements of a minimum investment grade of BBB+ or greater. As at 30 June 2010, all current counterparties have an investment grade that exceeds this requirement. Through spreading transactions across a range of such counterparties to limit the amount of credit exposure to any one financial institution, the Group thereby avoids any significant concentration of credit risk.

(c) Liquidity risk

Liquidity risk is the risk that monies needed to fund the Group may not be available in sufficient quantities at some future date. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities, and the ability to close-out market positions. Group Treasury manages liquidity risk by continuously monitoring forecast and actual cash flows, matching the maturity profiles of financial assets and liabilities, and maintaining appropriate committed funding lines in anticipation of future requirements. The Group has a policy that ensures any surplus cash is invested using approved investment instruments with approved financial institutions on maturities that ensure short term liquidity availability. Due to the dynamic nature of the underlying businesses, Group Treasury aims at maintaining flexibility in funding by keeping committed credit lines available and ensuring compliance with borrowing facility covenants and undertakings. This approach is supported through the maintenance of good banking relationships with the Group’s core banks.

Maturity of financial assetsThe financial assets of the Group, with the exception of available-for-sale financial assets disclosed in Note 13, have maturity periods ranging from 2 to 120 days. Weekly agents and venue sweeps receivables are generally on a 2 to 7 day cash cycle.

For

per

sona

l use

onl

y



Maturities of financial liabilitiesThe table below analyses the financial liabilities into relevant maturity groupings based on the remaining period at end of each reporting date to the contractual maturity date. The amounts disclosed are undiscounted cash flows.

Consolidated

Less than 6 months

$’000

6 to 12 months

$’000

1 to 2 years$’000

2 to 5 years$’000

More than 5 years

$’000

Total contractual cash flows

$’000

Carrying value$’000

2010

Trade and other payables

Non-interest bearing 379,458 146,225 17,796 20,944 22,204 586,627 583,576

Bank overdraft Floating 603 - - - - 603 603

Bank loans Floating 45,537 844,090 102,320 1,088,450 - 2,080,397 1,580,821

Financial liabilities 425,598 990,315 120,116 1,109,394 22,204 2,667,627 2,165,000

2009

Trade and other payables

Non-interest bearing 378,822 84,165 29,900 8,626 8,816 510,329 506,471

Bank overdraft Floating 751 - - - - 751 751

Bank loans Floating 14,497 16,594 772,501 204,228 - 1,007,820 906,529

Lease liabilities Fixed 448 - - - - 448 448

Financial liabilities 394,518 100,759 802,401 212,854 8,816 1,519,348 1,414,199

Financing arrangementsOn 5 June 2008, a syndicated multi-currency revolving facility of Tatts Group Limited together with Tattersall’s Holdings Pty Ltd, Tattersall’s Gaming Pty Ltd, Tattersall’s Sweeps Pty Ltd, UNiTAB Limited, Maxgaming NSW Pty Ltd, Maxgaming QLD Pty Ltd, Golden Casket Lottery Corporation Limited, European Gaming Ltd and Talarius Limited of $1,100,000,000 was established and had maturities of 1 to 3 years (2009: 2 to 4 years). In December 2008 the 1 year facility in existence at 30 June 2008 was extended by a further 2 years.

On 4 February 2010, an additional $600,000,000 was added to this syndicated multi-currency revolving facility to be utilised for the acquisition of New South Wales Lotteries. The maturities of the two new equal tranches were 3 and 5 years. The syndicated multi-currency revolving facility increased to $1,700,000,000 following the New South Wales Lotteries acquisition.

Refinancing of Tranches A and B of the syndicated multi-currency facility (with a facility limit of $911.0 million drawn down at 30 June 2010 to $798.9 million) is due in June 2011. Plans are currently in place to refinance these Tranches.

A Master Asset Purchase Agreement existed between Tattersall’s Gaming Pty Ltd and Westpac Banking Corporation. This facility expired in April 2010 and was previously incorporated in the multi-option facility agreement above. This facility had previously been used to finance the acquisition of gaming machines.


For

per

sona

l use

onl

y

65

www.tattsgroup.com


Unrestricted access was available at balance date to the following lines of credit:

30 June 2010 30 June 2009

Consolidated

Available facility

$’000

Balance drawn down

$’000

Weighted average interest

rate (1)

%

Available facility $’000

Balance drawn down

$’000

Weighted average interest

rate %

Syndicated multi- currency revolving facility 1,700,000 1,592,090 5.43 1,100,000 910,424 3.25

Commercial facility - - - 4,389 4,389 6.53

Total 1,700,000 1,592,090 1,104,389 914,813

Represented by

Bank loans 1,592,090 910,424

Commercial facility - 4,389

1,592,090 914,813

(1) The weighted average rate represents the variable rate at which the funds have been borrowed. This excludes the overlay of any interest rate derivates at the end of each reporting period.

The banks provided funds under the syndicated multi-currency facility agreements, covered by financial undertakings that impose certain covenants on the Group. The financial undertakings state that (subject to certain exceptions) the companies’ party to these facilities would not provide any other security over their assets, and will ensure that certain financial ratios are maintained. The financial ratios were maintained as at 30 June 2010 and 2009.

(d) Cash flow and fair value interest rate risk

Interest rate risk is the risk that the Group will suffer a financial or economic opportunity loss due to an unfavourable change in interest rates. The Group’s interest rate risk arises from the Group’s interest bearing assets and borrowings.

Borrowings issued at variable rates expose the Group to cash flow interest rate risk, while borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group’s borrowings at variable rates were denominated in Australian Dollars and British Pounds. When required, the Group may enter into interest rate hedge instruments, ranging from 10.0% to 100.0% of the interest rate exposure determined on the debt profile of the Group. Any decision to hedge interest rate risk will be assessed at the inception of each floating rate debt facility and/or at each rollover in light of the overall Group exposure, the prevailing interest rate market and any funding counterparty requirements.

The Group’s interest bearing assets are typically invested at fixed rates for terms ranging between 30 and 180 days due to potential liquidity requirements. As a result, the Group’s income and operating cash flows are not materially exposed to changes in market interest rates.

Group Treasury manage interest rate risk by establishing interest rate hedges in accordance with Board approved limits.

At balance date, material exposure to interest rate risk is limited to the bank loans available under the funding arrangements as disclosed in (c) above and cash and cash equivalents as disclosed in Note 10.

All other financial assets and liabilities are either non-interest bearing or not subject to interest rate risk or exposures to such risk are not material.

Sensitivity analysisAt 30 June 2010, if interest rates had increased/decreased by 100 basis points (2009: 100 basis points) from the year end rates with all other variables held constant, the post-tax profit for the year and equity for the Group would have been $8,266,000 lower / higher (2009: $3,575,000 lower/higher).

(e) Fair value of financial assets and liabilities

Other than those classes of financial assets and liabilities denoted as “listed” (refer Note 13), none of the classes of financial assets and liabilities are readily traded on organised markets in standardised form. The net fair value of financial assets and liabilities is exclusive of costs which would be incurred on realisation of an asset, and inclusive of costs which would be incurred on settlement of liability. The fair values of financial assets and liabilities of the Group are approximately the same as the carrying amount shown in the Balance sheet.

For

per

sona

l use

onl

y



(i) On-Balance sheet

The fair value of cash and cash equivalents, and non-interest bearing monetary financial assets and financial liabilities of the consolidated entity approximates their carrying amounts.

The fair value of other monetary financial assets and financial liabilities is based upon market prices where a market exists or by discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles.

Equity investments traded in active markets have been valued by reference to market prices prevailing at balance sheet date. For non-traded equity investments, the fair value is an assessment by management based on the underlying net assets, future maintainable earnings and any special circumstances pertaining to a particular investment.

(ii) Off-Balance sheet

The Company and certain controlled entities have potential financial liabilities which may arise from certain contingencies disclosed in Note 30. No material losses are anticipated in respect of any of those contingencies.

(iii) Derivative financial instruments

For forward foreign exchange contracts, the fair value is taken to be the unrealised gain or loss at balance sheet date calculated by reference to the current forward rates for contracts with similar remaining maturity profiles.

For interest rate swaps, the fair value is taken to be the unrealised gain or loss at balance sheet date calculated by reference to the current interest rate curve with similar remaining maturity profiles.

(iv) Fair value hierarchy

There are various methods available in estimating the fair value of a financial instrument. The methods comprise:

Level 1 - the fair value is calculated using quoted prices in active markets. Level 2 - the fair value is 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 - the fair value is estimated using inputs for the asset or liability that are not based on observable market data.

The Group’s assets and liabilities measured and recognised at fair value at 30 June 2010 (Note 13 and Note 14) are all measured under Level 2, with the exception of the listed securities ($5.8 million) which are measured under Level 1.

This is consistent with the prior year reporting period.

(f) Capital risk management

The Group’s policy is to maintain a capital structure for the business which ensures sufficient liquidity and support for business operations, maintains shareholder and market confidence, provides strong stakeholder returns, and positions the business for future growth.

The ongoing maintenance and pursuit of this policy is characterised by:Maintaining a gearing ratio that ensures the investment grade positioning of the Group.•A dividend policy aimed at dividend payout ratios of over 90% on a fully franked basis.• Investment criteria that consider earnings accretion and risk adjusted rate of return requirements based on the Group’s weighted average cost •of capital.Ongoing cash flow forecast analysis and detailed budgeting processes which, combined with continual development of banking relationships, •is directed at providing a sound financial positioning for the Group’s operations and financial management activities.

The gearing ratios that management monitor as key metrics for capital management are calculated as net debt divided by total capital (Balance sheet gearing ratio), and net debt divided by EBITDA (earnings gearing ratio). Net debt is calculated as total borrowings (interest bearing liabilities as shown in the Balance sheet, plus derivative financial liabilities and bank guarantees) less cash and cash equivalents (less prize reserves and other committed cash amounts). Total capital is calculated as ‘equity’ as shown in the Balance sheet (including non-controlling interests) plus net debt. EBITDA (adjusted) is the earnings before interest, tax, depreciation and amortisation as shown in the Income statement, adjusted to reflect full year outcomes of continuing operations, adjusted for non-recurring significant or extraordinary items which are non-cash in nature, adjusted for acquisitions/disposals during the past financial year on a pro forma 12 month basis and with the addition of interest income. Two measures are used for gearing to provide both a Balance sheet and earnings/cash flow perspective of the gearing of the business.


For

per

sona

l use

onl

y

67

www.tattsgroup.com


Consolidated

2010 $’000

2009 $’000

EBITDA (adjusted) 600,244 571,285

Interest bearing liabilities 1,621,430 927,202

Less: cash and cash equivalents (excluding prize reserves, etc) (256,585) (239,790)

Net debt 1,364,845 687,412

Equity 2,463,681 2,595,426

Total Capital 3,828,526 3,282,838

Balance sheet gearing ratio 35.61% 20.94%

Earnings gearing ratio 2.27:1 1.20:1

The Board and management continually assess the relative merits of the potential for higher returns from increased gearing and the advantages that flow to markets and operational stability and strategic flexibility from a strong capital base. There were no changes in the Group’s approach to capital management during the year.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements, other than normal banking requirements.

Note 3 Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

Critical accounting estimates and assumptionsThe Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Estimated impairment of goodwill, licences and brands

The Group tests six monthly whether goodwill, licences and brands have suffered any impairment, in accordance with the accounting policy stated in Note 1(s). The recoverable amounts of cash generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions. Refer to Note 17 for details of these assumptions.

(b) Income taxes

The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the current and deferred tax provision in the period in which such determination is made.

(c) Amortisation of Intangible software

During the year the estimated useful lives of certain items of Intangible software used by the Maxgaming segment were revised.

The software is used to monitor and provide wide area jackpots on gaming machines in New South Wales and the revision is a result of the early replacement of the IT applications developed when these systems were first deployed by NSWTAB in the late 1990’s.

The net effect of the changes in the current financial year was an increase in amortisation of $25.4 million.

For

per

sona

l use

onl

y


Note 3 Critical accounting estimates and judgements (continued)

Assuming the net assets were held until the end of their estimated useful lives, amortisation of the Group in future years in relation to these assets will be reduced by the following amounts:

Year ending June Amortisation ($’000)

2011 113

2012 759

2013 1,321

2014 3,988

2015 4,641

2016 6,943

2017 4,362

2018 1,682

2019 1,262

2020 313

Note 4 Segment information

The Group has adopted AASB 8 Operating Segments from 1 July 2009. AASB 8 requires a ‘management approach’ under which segment information is presented on the same basis as that used for internal reporting purposes.

The changes have been implemented from 1 July 2009 and where necessary comparative information has been restated. There has been minimal impact as reportable segments disclosed were already consistent with the information provided internally to management. Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Chief Executive.

Business segmentsThe Group is organised on a global basis into the following divisions by product and service type.

Tatts PokiesThe operation of gaming machines and Club Keno in Victoria.

LotteriesThe operation of lottery licences within Victoria, New South Wales, Tasmania, ACT, and the Northern Territory and the operation of a Lottery Operator Agreement in Queensland.

WageringTotalisator and fixed odds betting on thoroughbred, harness, greyhounds and other sporting events pursuant to licences in Queensland, South Australia and the Northern Territory.

MaxgamingGaming machine monitoring and value added services in Queensland, New South Wales and the Northern Territory.

Bytecraft SystemsWarehousing, installation, relocation, repair and maintenance of gaming machines, lottery and wagering terminals and other transaction devices in Australia.

International/Business DevelopmentGaming operations in South Africa and in the United Kingdom. During the current financial year the South African operation was sold (refer Note 9).

OtherThis segment includes Shared Services, investment property and donations made by Tattersall’s Foundation Limited. None of these activities constitutes a separately reportable business segment.

Geographical segmentsAlthough the consolidated entity’s divisions are managed on a global basis they have operated in three main geographical areas during the current financial year and comparative financial year: Australia, South Africa and the United Kingdom. During the current financial year the South African operation was sold (refer Note 9). The results of operations of those geographical areas as discussed above, are included within the International Business segment. Separate geographic segments are not disclosed as they represent less than 10% of revenue and profits.


For

per

sona

l use

onl

y

69

www.tattsgroup.com

Note 4 Segment information (continued)

The total of non-current assets other than financial instruments and deferred tax assets located in Australia is $4,177,783,603 (2009: $3,506, 216,251) and the total of these non-current assets located in other countries is $191,532,703 (2009: $285,980,694). Segment assets are allocated to countries based on where the assets are located.

(a) Accounting policies

Segment information is prepared in conformity with the accounting policies of the Group disclosed in Note 1(d) and accounting standard AASB 8 Operating Segments, which states that disclosure of total assets and liabilities for each reportable segment is only required if such an amount is regularly provided to the chief operating decision maker (Chief Executive). The amended accounting standard applies on or after 1 January 2010, however may be early adopted in accordance with AASB 2009-5. The Group has elected to early adopt this standard. Segment revenues and expenses are those that are directly attributable to a segment and the relevant portion of corporate expenses that can be allocated to a segment on a reasonable basis.

(b) Inter-segment transfers

Segment revenues, expenses and results include transfers between segments. Such transfers are priced on an “arm’s-length” basis and are eliminated on consolidation.

For

per

sona

l use

onl

y


2010

Tatt

s P

oki

es$’

000

Tatt

s Lo

tter

ies

$’00

0

UN

iTA

B

Wag

erin

g$’

000

Max

gam

ing

$’00

0

Byt

ecra

ftS

yste

ms

$’00

0

Inte

rn’l/

B

usin

ess

Dev

’t$’

000

Una

lloca

ted

$’00

0

Inte

r-se

gm

ent

elim

inat

ions

$’00

0

Tota

lC

ont

inui

ngO

per

atio

ns$’

000

Dis

cont

inue

dO

per

atio

ns$’

000

Co

nso

lidat

ed$’

000

Tota

l se

gm

ent

reve

nue

and

o

ther

inco

me

1,22

3,40

71,

223,

663

594,

474

121,

879

78,7

8389

,421

2,30

7(3

5,91

1)3,

298,

023

53,2

62 2

3,35

1,28

5

EB

ITD

A22

2,34

614

3,34

914

6,94

667

,866

6,41

0(1

2,87

6)(3

1,93

7)-

542,

104

19,6

4156

1,74

5

Dep

reci

atio

n &

A

mor

tisat

ion

(30,

411)

(13,

163)

(18,

932)

(50,

607)

1(1

,637

)(1

0,72

9)(1

0,74

0)(6

4)(1

36,2

83)

(3,7

98)

(140

,081

)

Impa

irmen

t-

--

--

-(1

40,0

00)

-(1

40,0

00)

-(1

40,0

00)

EB

IT19

1,93

513

0,18

612

8,01

417

,259

4,77

3(2

3,60

5)(1

82,6

77)

(64)

265,

821

15,8

4328

1,66

4

2009

Tota

l se

gm

ent

reve

nue

and

o

ther

inco

me

1,29

2,24

31,

070,

706

592,

502

117,

841

69,9

7210

0,35

33,

427

(33,

482)

3,21

3,56

238

,922

3,25

2,48

4

EB

ITD

A23

8,79

711

8,79

114

7,83

865

,316

5,73

49,

986

(33,

012)

-55

3,45

05,

905

559,

355

Dep

reci

atio

n &

A

mor

tisat

ion

(23,

239)

(10,

288)

(17,

385)

(24,

288)

(1,7

42)

(14,

588)

(9,2

43)

(378

)(1

01,1

51)

(3,5

94)

(

104,

745)

Impa

irmen

t-

--

--

-(4

,857

)-

(4,8

57)

-(4

,857

)

EB

IT21

5,55

810

8,50

313

0,45

341

,028

3,

992

(4,6

02)

(47,

112)

(378

)44

7,44

22,

311

449,

753

No

te 4

Seg

men

t in

form

atio

n (c

ont

inue

d)

Seg

men

t in

form

atio

n p

rovi

ded

to

the

Chi

ef E

xecu

tive

of

the

Gro

up

For

per

sona

l use

onl

y

71

www.tattsgroup.com

Note 4 Segment information (continued)

A reconciliation of EBIT from continuing operations to operating profit before tax is as follows:

Consolidated

2010 $’000

2009 $’000

EBIT from continuing operations 265,821 447,442


Finance costs (60,434) (57,642)

Profit before income tax from continuing operations 214,638 398,223

1 – The Maxgaming segment includes additional amortisation of $25.4 million in the current period following the revision of the useful life of certain software assets. 2 – Includes Gain on sale of discontinued operations (South African Gaming) - $12.006 million (refer Note 9).

Note 5 Revenue

Consolidated

2010 $’000

2009 $’000

(a) From continuing operations

Sales Revenue

Entertainment products and services 3,164,003 3,094,879

Rendering of services 123,958 105,501

3,287,961 3,200,380

Other Revenue

Rents and sub-lease rentals 2,695 2,964

Interest on unpaid prizes and prize reserves 4,598 4,901

Dividends and distributions 45 1,746

Other revenue 2,634 1,887

3,297,933 3,211,878

(b) From discontinued operations (Note 9)

Entertainment products and services 41,256 38,922

Note 6 Other income

Consolidated

2010 $’000

2009 $’000

Gain on disposal of shares in other related parties 90 436

Net foreign exchange gains - 1,248

90 1,684

For

per

sona

l use

onl

y


Note 7 Expenses

Consolidated

2010$’000

2009$’000

(a) Net gains and expenses

Profit before income tax includes the following specific net gains and expenses:

Expenses

Depreciation

Buildings 2,473 4,576

Plant and equipment 60,973 58,536

Leasehold improvements 5,337 3,511

Freehold improvements 368 1,816

Investment properties 280 277

Total depreciation 69,431 68,716

Amortisation

Deferred expenditure 344 164

Licences 9,405 7,911

Brand 2,433 225

Computer software 28,792 21,104

Computer software – effective life revision – Maxgaming (Note 3) 25,386 -

Other 492 3,031

Total amortisation 66,852 32,435

Finance costs

Interest and finance charges paid/payable 57,465 60,008

Loss on foreign currency hedge restructure 2,969 -

Gain on realisation of interest rate swap - (2,366)

Finance costs expensed 60,434 57,642

Other items:

Minimum lease payments expense relating to operating leases 22,802 22,078

Net foreign exchange losses 630 -

Net loss on disposal of property, plant and equipment 11 901

Defined contribution superannuation expense 9,731 8,880

(b) Significant revenue and expenses

The following material expense items are relevant in explaining the financial performance:

Restructuring costs:

Restructuring costs - Various 7,025 2,472

Venue closure costs – United Kingdom 18,014 -

25,039 2,472

Impairment losses on assets:

Available-for-sale financial assets - 4,857

Intangibles - Goodwill (Note 17) 140,000 -

140,000 4,857


For

per

sona

l use

onl

y

73

www.tattsgroup.com

Note 8 Income tax expense

Consolidated

2010$’000

2009$’000

(a) Income tax expense

Current tax 122,865 121,158

Deferred tax (10,217) 2,857

Over provision in prior years (2,211) (1,537)

110,437 122,478

Income tax expense is attributable to:


Profit from discontinued operations (Note 9) 1,189 1,226

Aggregate income tax expense 110,437 122,478

Deferred income tax expense included in income tax expense/(benefit) comprises:

Decrease/(Increase) in deferred tax assets (Note 18) 10,577 (2,785)

(Decrease)/Increase in deferred tax liabilities (Note 23) (20,794) 5,642

(10,217) 2,857

(b) Numerical reconciliation of income tax expense to prima facie tax payable

Profit from continuing operations before income tax expense 214,638 398,223

Profit from discontinuing operations before income tax expense 16,099 2,303

230,737 400,526

Tax at the Australian tax rate of 30% (2009 – 30%) 69,221 120,158

Tax effect of amounts which are not deductible (taxable) in calculating taxable income:

Depreciation and amortisation 733 953

Investment allowance (311) -

Non-assessable income (6,226) (166)

Non deductible items – impairment of intangible asset 42,484 -

Non deductible items 6,172 736

Net capital gains 9 -

Non taxable dividends - (50)

Unrecognised tax losses 100 1,910

Sundry items (21) 1

112,161 123,542

Difference in overseas tax rates 487 473

Over provision in prior years (2,211) (1,537)

Income tax expense 110,437 122,478

(c) Tax expense (income) relating to items of other comprehensive income

Available-for-sale financial assets (Note 18 and Note 23) (207) (1,264)

Cash flow hedges (Note 18) 4,123 -

3,916 (1,264)

(d) Tax losses

Unused tax losses for which no deferred tax asset has been recognised 36,368 40,318

Potential tax benefit @ 28% 10,183 11,289

All unused tax losses were incurred by overseas entities that are not part of the tax consolidated group.

For

per

sona

l use

onl

y


Note 8 Income tax expense (continued)

Tax consolidation legislation

Tatts Group Limited and its wholly owned Australian controlled subsidiaries have adopted the tax consolidation legislation. The accounting policy in relation to this legislation is set out in Note 1(g).

On adoption of the tax consolidation legislation, the entities in the tax consolidated group entered into a tax sharing agreement which, in the opinion of the Directors, limits the joint and several liability of the wholly owned subsidiaries in the case of a default by the head entity, Tatts Group Limited.

The entities have also entered into a tax funding agreement under which the wholly owned Australian subsidiaries fully compensate Tatts Group Limited for any current tax payable assumed and are compensated by Tatts Group Limited for any current tax receivable and deferred tax assets relating to unused losses or unused tax credits that are transferred to Tatts Group Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly owned Australian subsidiaries financial statements.

The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The funding amounts are recognised as current intercompany receivables or payables.

Note 9 Discontinued Operations

(a) Description

On 30 June 2010, Wintech Investments Pty Ltd, a wholly owned subsidiary of the Group, completed the sale of Carentan Investments (Pty) Ltd and its controlled entities to GPI Slots (Pty) Ltd for 179.3 million Rand. Carentan Investments (Pty) Ltd and its controlled entities provide gaming operations throughout South Africa.

(b) Financial performance and cash flow information

The financial performance and cash flow information presented are for the period from 1 July 2009 to 30 June 2010 (2010 column) and the year ended 30 June 2009 for Carentan Investments (Pty) Ltd and its controlled entities.

Consolidated

2010$’000

2009$’000

Revenue (Note 5) 41,256 38,922

Expenses (37,419) (36,611)

EBIT 3,837 2,311

Interest income 262 -

Finance costs (6) (8)


Income tax expense (Note 8(a)) (1,189) (1,226)

Profit after income tax of discontinued operations 2,904 1,077

Gain on sale of discontinued operations before income tax 12,006 -

Income tax expense on gain on sale of discontinued operations - -

Profit from discontinued operations 14,910 1,077

Non-controlling interests (945) (607)

Profit from discontinued operations, net of non-controlling interests 13,965 470

Profit attributable to owners of the parent entity relates to:


Profit from discontinued operations 13,965 470

119,355 277,441

Net cash inflow from operating activities 7,285 3,552

Net cash outflow from investing activities (4,137) (6,461)

Net cash outflow from financing activities - (682)

Effect of exchange rate changes on cash and cash equivalents 62 1,535

Net increase / (decrease) in cash generated by Carentan and its controlled entities 3,210 (2,056)


For

per

sona

l use

onl

y

75

www.tattsgroup.com

Note 9 Discontinued Operations (continued)

(c) Details of the sale of Carentan and its controlled entities

Consolidated

2010$’000

2009$’000

Consideration received or receivable:

Cash 8,998 -

Receivable due 1 July 2010 18,076 -

Total disposal consideration 27,074 -

Carrying amounts of net assets sold (14,068) -

Transaction costs (1,000) -

Gain on sale before income tax 12,006 -

Income tax expense - -

Gain on sale after income tax 12,006 -

Note 10 Cash and cash equivalents

Consolidated

2010$’000

2009$’000

Cash at bank and in hand 161,016 63,951

Deposits at call 9,617 88,898

Fixed interest securities 222,634 220,912

393,267 373,761

Reconciliation to cash at the end of the year

The above figures are reconciled to cash at the end of the financial year as shown in the Cash flow statement as follows:

Balances as above 393,267 373,761

Bank overdrafts (Note 21) (603) (751)

Balances per Cash flow statement 392,664 373,010

Interest rate risk exposure

(i) Cash at bank and in hand

Cash at bank is bearing floating interest rates between zero and 4.50% (2009: zero and 7.30%).

(ii) Deposits at call

The deposits are bearing floating interest rates between 2.95% and 4.50% (2009: 2.95% and 7.20%) and have a maturity of between one and fourteen days.

(iii) Fixed interest securities

Fixed interest securities are bearing fixed interest rates with a weighted average of 4.90% (2009: 4.17%) and have maturities between one and three months.

For

per

sona

l use

onl

y


Note 11 Trade and other receivables

Consolidated

2010$’000

2009$’000

Current

Trade receivables

Weekly sweeps (1) 57,062 109,725

Trade debtors 15,100 13,148

Less: Provision for impairment of receivables (359) (451)

71,803 122,422

Other receivables 45,789 22,393

Amounts receivable from:

Joint venture entities (Note 32(e)) 7,073 7,475

Prepayments 6,220 5,848

130,885 158,138

Non-current

Prepayments 226 89

(1) Balances with venues, agencies and outlets are swept on recurring cycles of between two and seven days.

Impaired trade and other receivablesThe Group has recognised losses of $244,000 in the Income statement (2009: loss of $440,000) in respect of bad and doubtful trade receivables during the year ended 30 June 2010.

At 30 June 2010, there were no material receivables either past due which have not been impaired or individual balances specifically impaired. Collateral is not normally obtained for balances owing.

Movement in provision for impairment of receivables

Consolidated

2010$’000

2009$’000

At 1 July (451) (366)

Additions through acquisition of entities (12) -

Provision for impairment recognised during the year (49) (316)

Receivables written off during the year as uncollectable 145 241

Effect of exchange rate changes on provision for impairment of receivables 8 (10)

At 30 June (359) (451)

Other receivablesThese amounts generally arise from transactions outside the usual operating activities of the Group. Where interest is charged, this is on commercial terms. Collateral is not normally obtained.

Foreign exchange and interest rate riskInformation concerning exposure to foreign currency and interest rate risk in relation to trade and other receivables is set out in Note 2.

Fair value and credit riskDue to the short term nature of trade and other receivables, their carrying amount is assumed to approximate their fair value. Information concerning the credit risk of receivables is set out in Note 2.


For

per

sona

l use

onl

y

77

www.tattsgroup.com

Note 12 Inventories

Consolidated

2010$’000

2009$’000

Spare parts – at cost 15,688 12,035

Less: Accumulated depreciation of spare parts inventory (9,530) (6,219)

6,158 5,816

Finished goods – at cost 1,093 1,185

Total inventory 7,251 7,001

Depreciation represents the write down of spare parts inventory. The write down for the year ended 30 June 2010 is $3,311,000 (2009: $2,632,000) and has been included in operating fees and direct costs in the Income statement.

Note 13 Available-for-sale financial assets

Consolidated

2010$’000

2009$’000

Available-for-sale financial assets comprise:

Listed securities

Equity securities – at fair value 5,803 5,355

Unlisted investments

Managed fund investment – at fair value 25,282 23,886

Total available-for-sale financial assets 31,085 29,241

Impairment and price risk exposureInformation concerning exposure to price and credit risk is set out in Note 2.

The Group has recognised an impairment loss of $Nil (2009: $4,857,000) on its available-for-sale financial assets during the year ended 30 June 2010.

Note 14 Derivative financial instruments

Consolidated

2010$’000

2009$’000

Current liabilities

Cash flow hedges - Forward foreign exchange contracts 1,174 594


Cash flow hedges - Interest rate swap contracts 25,353 8,733

The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest and foreign exchange rates in accordance with the Group’s financial risk management policies (refer Note 2). Information regarding exposure to the credit risk, foreign exchange risk and interest rate risk is provided in Note 2.

Interest rate swap contracts – cash flow hedgesThe Group has entered into interest rate swap contracts under which it is obliged to receive interest at variable rates and pay interest at fixed rates. Swaps currently in place cover approximately 31.7% of the loan principal outstanding (2009: 32.2%) and are timed to match each interest rate payment as it falls due. The contracts require settlement of net interest receivable or payable every three or six months, and are settled on a net basis. Variable interest rates range between 0.65% and 4.90% (2009:1.08% and 4.99%) while the fixed interest rate is at AUD 5.78% and GBP 4.82% (2009: AUD 5.67% and GBP 4.82%).

The gain or loss from remeasuring the hedging instruments at fair value is recognised in the Statement of comprehensive income and deferred in equity in the hedging reserve to the extent that the hedge is effective (refer Note 26). In 2009 $2,366,000 was recognised as a gain as a result of the close out of an interest rate swap contract. This is included within finance costs in the Income statement.

For

per

sona

l use

onl

y


Note 14 Derivative financial instruments (continued)

Forward foreign exchange contracts – cash flow hedgesThe Group has entered into forward foreign exchange contracts to purchase British Pounds. These contracts are hedging highly probable future interest payments for the next two financial years. The contracts are timed to mature when interest payments and contractual payments are due to occur.

The gain or loss from remeasuring the forward foreign exchange contracts at fair value is recognised in the Statement of comprehensive income and deferred in the hedging reserve to the extent that the hedge is effective (refer Note 26).

Note 15 Property, plant and equipment

Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current financial year are set out below:

Consolidated

Freehold land

$’000Buildings

$’000

Freehold improvements

$’000

Leasehold improvements

$’000

Plant and equipment

$’000

Plant and equipment

under development

$’000Total$’000

Cost 19,850 86,633 17,219 49,026 608,463 13,861 795,052

Accumulated depreciation - (30,190) (15,342) (31,290) (415,902) - (492,724)

Carrying amount at 30 June 2009 19,850 56,443 1,877 17,736 192,561 13,861 302,328

Fair value adjustments on acquisition of a subsidiary (Note 33) - - - - (82) - (82)

Additions through acquisition of entities (Note 33) - - - 13 8,253 237 8,503

Additions 1,839 - 649 165 20,864 27,115 50,632

Assets included in disposal of discontinued operations - - - (457) (10,056) (175) (10,688)

Assets included in disposal of closed venues - restructuring - (748) - (821) (1,962) - (3,531)

Disposals - - - - (1,060) - (1,060)

Depreciation (Note 7) - (2,473) (368) (5,337) (60,973) - (69,151)

Depreciation charge for assets used in year by discontinued operations - - - (125) (3,415) - (3,540)

Transfers in/(out) (1) - (6,484) 332 8,979 12,956 (24,572) (8,789)

Foreign exchange movements (272) (1,560) - (844) (3,708) (335) (6,719)


Cost 21,417 70,091 17,781 52,561 639,382 16,131 817,363



(1) Transfers include assets transferred to/(from) property, plant and equipment (from)/to intangible assets, inventory and investments.


For

per

sona

l use

onl

y

79

www.tattsgroup.com

Consolidated

Freehold land

$’000Buildings

$’000

Freehold improvements

$’000

Leasehold improvements

$’000

Plant and equipment

$’000

Plant and equipment

under development

$’000Total$’000

Cost 27,594 49,647 27,657 34,639 660,759 21,220 821,516


Carrying amount at 1 July 2008 27,594 43,957 7,551 12,926 231,554 21,220 344,802

Additions through acquisition of entities - 2,215 - 14 1,005 - 3,234

Additions - 3,243 - 3,073 30,654 23,703 60,673

Disposals - (360) (86) - (1,834) - (2,280)

Depreciation (Note 7) - (4,576) (1,816) (3,511) (58,536) - (68,439)

Depreciation charge for assets used in year by discontinued operations - - - (113) (2,932) - (3,045)

Transfers in/(out) (7,659) 11,176 (3,772) 5,347 (8,018) (30,779) (33,705)

Foreign exchange movements (85) 788 - - 668 (283) 1,088


Cost 19,850 86,633 17,219 49,026 608,463 13,861 795,052



Valuations of land and buildings

The basis of valuation of land and buildings is at cost less subsequent depreciation for buildings.

Note 15 Property, plant and equipment (continued)

For

per

sona

l use

onl

y


Note 16 Investment properties

2010 2009

Consolidated

Investment Properties

$’000

Investment Properties under

construction$’000

Total$’000

Investment Properties

$’000

Investment Properties under

construction$’000

Total$’000

Cost 15,631 - 15,631 9,160 - 9,160

Accumulated depreciation (692) - (692) (415) - (415)

Carrying amount at 1 July 14,939 - 14,939 8,745 - 8,745

Additions through acquisition from Joint Venture entities 1,800 14,548 16,348 - - -

Additions - - - 140 - 140

Transfers from property, plant and equipment - - - 6,331 - 6,331

Depreciation (Note 7) (280) - (280) (277) - (277)

Carrying amount at 30 June 16,459 14,548 31,007 14,939 - 14,939

Cost 17,431 14,548 31,979 15,631 - 15,631

Accumulated depreciation (972) - (972) (692) - (692)

Carrying amount at 30 June 16,459 14,548 31,007 14,939 - 14,939

Consolidated

2010$’000

2009$’000

Amounts recognised in profit and loss for investment property

Rental income 876 995

Cost recoveries 72 95

Direct operating expenses from property that generated rental income (283) (44)

665 1,046

Valuation basisThe basis of the valuation of investment properties is at cost less subsequent depreciation. The properties have been assessed by independent valuers, and these assessments were greater than the carrying value.

The Group has acquired through acquisition from Joint Venture entities during the current period investment properties under construction. This represents costs incurred developing a number of properties for future rental use and/or capital appreciation. The basis of the valuation of investment properties under construction is at cost. This represented a non-cash transaction.

Contractual obligationsRefer to Note 31 for disclosure of any contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements.


For

per

sona

l use

onl

y

81

www.tattsgroup.com

Note 16 Investment properties (continued)

Leasing arrangementsThe investment properties are leased to tenants under long-term operating leases with rentals payable monthly. Minimum lease payments receivable on leases of investment properties are as follows:

Consolidated

2010$’000

2009$’000

Minimum lease payments under non-cancellable operating leases of investment properties not recognised in the financial statements are receivable as follows:

Within one year 723 721

Later than one year but not later than 5 years 3,895 3,105

Later than 5 years 3,944 5,902

8,562 9,728

Note 17 Intangible assets

ConsolidatedGoodwill

$’000Licences

$’000Brands (1)

$’000Software (2)

$’000Other$’000

Total$’000

At 1 July 2008Cost 2,654,951 297,464 105,417 118,914 135,854 3,312,600

Accumulated amortisation - (12,814) (219) (22,345) (3,143) (38,521)

Net book amount 2,654,951 284,650 105,198 96,569 132,711 3,274,079

Additions through acquisitions of subsidiaries 41,258 - - 934 - 42,192

Additions - 1,661 - 4,953 - 6,614

Transfers in/(out) (3) - (827) - 27,915 - 27,088

Amortisation charge (Note 7) - (7,911) (225) (21,104) (3,031) (32,271)

Amortisation charge for intangibles used in year by discontinued operations - - - (47) - (47)

Foreign exchange movements (6,725) 44 - (10) - (6,691)

Closing net book amount 2,689,484 277,617 104,973 109,210 129,680 3,310,964

For

per

sona

l use

onl

y


Note 17 Intangible assets (continued)

ConsolidatedGoodwill

$’000Licences

$’000Brands (1)

$’000Software (2)

$’000Other$’000

Total$’000

At 30 June 2009

Cost 2,689,484 298,296 105,417 181,690 135,854 3,410,741

Accumulated amortisation - (20,679) (444) (72,480) (6,174) (99,777)

Net book amount 2,689,484 277,617 104,973 109,210 129,680 3,310,964

Additions through acquisitions of subsidiaries (Note 33) 735,951 250,000 - 7,115 - 993,066

Additions - - - 15,985 - 15,985

Impairment (Note 7) (140,000) - - - - (140,000)

Assets included in disposal of discontinued operations - (201) - (185) - (386)

Transfers in/(out)(3) - - - 8,381 - 8,381

Amortisation charge (Note 7) - (9,405) (2,433) (54,178) (492) (66,508)

Amortisation charge for intangibles used in year by discontinued operations - (29) - (80) - (109)

Foreign exchange movements (45,180) (286) - (97) - (45,563)

Closing net book amount 3,240,255 517,696 102,540 86,151 129,188 4,075,830

At 30 June 2010

Cost 3,380,255 547,568 105,417 227,044 135,854 4,396,138

Accumulated amortisation - (29,872) (2,877) (140,893) (6,666) (180,308)

Impairment (140,000) - - - - (140,000)

Net book amount 3,240,255 517,696 102,540 86,151 129,188 4,075,830

(1) Brands include $53,400,000 of assets with an indefinite life, which is included in the Wagering segment.(2) Software includes capitalised development costs being an internally generated intangible asset.(3) Transfers include assets transferred (to)/from property plant and equipment.

(a) Impairment tests for goodwill

The accounting policy for impairment of assets is set out in Note 1(j).

Goodwill is allocated to the Group’s cash-generating units (CGUs) expected to benefit from the synergies of those business combinations.

A segment-level summary of the goodwill allocation is presented below:

2010$’000

2009$’000

Tatts Pokies 15,552 15,552

Lotteries (1) 1,196,164 460,213

Wagering 1,368,091 1,368,091

Maxgaming 500,000 500,000

International/Business Development (2) 150,157 335,337

Bytecraft Systems 10,291 10,291

Total 3,240,255 2,689,484

(1) Refer to Note 33 for details of acquisitions during the financial year.(2) Refer to Note 17(c) for details relating to impairment charge.


For

per

sona

l use

onl

y

83

www.tattsgroup.com

Note 17 Intangible assets (continued)

The recoverable amount of a CGU is determined based on value-in-use calculation. These calculations use cash flow projections based on the budget approved by the Board for the next financial year and management’s forecasts covering a five year period. Cash flows beyond the five year period are extrapolated using a growth rate not exceeding the long-term average growth rate for the business in which the CGU operates.

(b) Key assumptions used for value-in-use calculations

The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill and other non-current assets:

(i) Cash flow forecastsCash flow forecasts are based on the 2011 financial year budget approved by the Board and management’s five year forecasts.

(ii) Terminal valueTerminal value is calculated using a perpetuity growth rate based on the cash flow forecast for year 5, pre-tax weighted average cost of capital and forecast growth rates.

(iii) Forecast growth ratesForecast growth rates are principally based on management’s expectations for future performance in each business segment. These growth rates take into account historical growth rates for each CGU. These rates are not disclosed as they are commercially sensitive.

(iv) Discount ratesDiscount rates used are based on the Group’s pre-tax weighted average cost of capital and reflect specific risks relating to the relevant segments and the countries in which they operate. The pre-tax discount rates used range from 10.8% to 15.3% (2009: 9.8% to 14.0%).

(c) Impairment charge

On 29 June 2010, the Directors advised the Australian Securities Exchange that the Group had booked an impairment charge of $140.0 million against the carrying value of goodwill relating to the European Gaming Group’s business following a review of its performance, and its expected future cash flows.

Note 18 Deferred tax assets

Consolidated

2010$’000

2009$’000

The balance comprises temporary differences attributable to:

Employee benefits 7,388 6,849

Depreciation 12,735 24,772

Provisions 404 1,646

Float costs - 574

Tax losses 1,130 2,238

Listed securities 1,715 1,565

Cash flow hedges 4,123 -

Other 1,257 2,761

Total deferred tax asset 28,752 40,405

Deferred tax assets to be settled within 12 months 3,282 10,200

Deferred tax assets to be settled after more than 12 months 25,470 30,205

28,752 40,405

For

per

sona

l use

onl

y


Note 18 Deferred tax assets (continued)

Movements - Consolidated

Employee Benefits

$’000Depreciation

$’000Provisions

$’000

Float Costs$’000

Tax Losses

$000

Listed Securities

$000

Cash Flow

Hedge$’000

Other$’000

Total$’000

Opening balance at 1 July 2008 6,337 22,251 1,448 1,650 1,311 1,143 - 4,195 38,335

Credited/(charged) to the Income statement (Note 8(a)) 512 2,521 198 (1,076) 927 1,380 - (1,677) 2,785

Charged to other comprehensive income (Note 8(c)) - - - - - (958) - - (958)

Acquisition of subsidiary (Note 33) - - - - - - - 206 206

Foreign exchange movements - - - - - - - 37 37

Closing balance at 30 June 2009 6,849 24,772 1,646 574 2,238 1,565 - 2,761 40,405

Credited/(charged) to the Income statement (Note 8(a)) 665 (9,735) (1,189) (574) 1,004 284 - (1,032) (10,577)

Charged to other comprehensive income (Note 8(c)) - - - - - (134) 4,123 (73) 3,916

Foreign exchange movement - - - - - - - (1,185) (1,185)

Credited/(charged) to the Balance sheet - (3,116) (26) - - - - 944 (2,198)

Acquisition of subsidiary (Note 33) - 814 - - - - - - 814

Disposal of subsidiary (126) - (27) - (2,112) - - (158) (2,423)

Closing balance at 30 June 2010 7,388 12,735 404 - 1,130 1,715 4,123 1,257 28,752

Note 19 Other non-current assets

Consolidated

2010$’000

2009$’000

Non-current

Unlisted investments:

Units in unit trusts 350 350

Shares in other related parties 233 561

Shares in other unlisted investments 403 10

Redeemable preference shares 150 200

Deferred expenditure 1,029 586

2,165 1,707

Unlisted investmentsUnlisted investments are not traded in active markets.

Redeemable preference sharesThe redeemable preference shares are unsecured and interest is payable monthly at the rate equivalent to the 11am market interest rate and an additional 1.25% (2009:1.25%) per annum.


For

per

sona

l use

onl

y

85

www.tattsgroup.com

Note 20 Trade and other payables

Consolidated

2010$’000

2009$’000

Current

Trade payables 441,313 391,686

Other payables and accruals 76,033 68,760

517,346 460,446

Amounts payable to related entities (Note 32(e)) - 2,541

517,346 462,987

Non-current

Trade payables 66,230 43,484

66,230 43,484

Foreign exchange and interest rate riskInformation concerning exposure to foreign currency and interest rate risk in relation to trade and other payables is set out in Note 2.

Fair value and maturity analysis disclosuresDetails of the fair value and the maturity analysis are set out in Note 2.

Note 21 Interest bearing liabilities

Consolidated

2010$’000

2009$’000

Current

Secured

Lease liabilities (Note 31(d)) - 448

Unsecured

Bank overdrafts (Note 10) 603 751

Bank loans 795,650 2,274

796,253 3,025

Total current interest bearing liabilities 796,253 3,473

Non-current

Unsecured

Bank loans 785,171 904,255

Total non-current interest bearing liabilities 785,171 904,255

All interest bearing liabilities are unsecured with the exception of the lease liabilities which were secured on the leased assets. The bank loans are disclosed net of capitalised borrowing costs of $11.3 million (2009: $8.3 million).

Foreign currency and interest rate risk exposuresInformation concerning exposure to foreign currency and interest rate risk in relation to interest bearing liabilities is set out in Note 2.

Fair value and maturity analysis disclosuresDetails of the fair value borrowings for the Group and the maturity analysis are set out in Note 2.

Refinancing detailsRefinancing of Tranches A and B of the syndicated multi-currency facility (with a facility limit of $911.0 million drawn down at 30 June 2010 to $798.9 million) is due in June 2011. Plans are currently in place to refinance these Tranches.

For

per

sona

l use

onl

y


Note 22 Provisions

Consolidated

2010$’000

2009$’000

Current


Onerous leases 924 1,062

Dilapidations 4,420 4,742

22,104 18,205

Non-current


Onerous leases 4,112 2,096

6,458 4,054

Reconciliation of provision movements

Onerous leases$’000

Dilapidations$’000

Total$’000

Opening balance at 1 July 2009 3,158 4,742 7,900

Additions through acquisitions of entities (Note 33) - 586 586

Additional provision recognised 4,662 1,042 5,704

Utilisation of the provision (1,594) (1,379) (2,973)

Credited to the Income statement (771) - (771)

Foreign exchange movements (419) (571) (990)

Closing balance at 30 June 2010 5,036 4,420 9,456

Onerous leasesA provision for onerous leases is recognised for venues in the United Kingdom which have closed but are contracted to future payments under an operating lease.

DilapidationsA provision for dilapidations is recognised for leasehold properties in the United Kingdom requiring remedial dilapidations work at the expiry of the lease arrangement.


For

per

sona

l use

onl

y

87

www.tattsgroup.com

Note 23 Deferred tax liabilities

Consolidated

2010$’000

2009$’000

The balance comprises temporary differences attributable to:

Depreciation 4,571 4,692

Intangibles 216,531 162,714

Unclaimed dividends 3,075 3,315

Interest receivable 74 69

Accrued revenue 2,156 1,163

Non-consolidated group members - 343

Other 1,331 4,422

Total deferred tax liabilities 227,738 176,718

Deferred tax liabilities to be settled within 12 months 3,077 5,175

Deferred tax liabilities to be settled after more than 12 months 224,661 171,543

227,738 176,718

Movements - ConsolidatedDepreciation

$’000Intangibles

$’000

Unclaimed dividends

$’000

Interest receivable

$’000

Accrued revenue

$’000

Non-consol group

member$’000

Other$’000

Total$’000

Closing balance at 1 July 2008 8,056 152,848 2,806 312 1,109 942 5,256 171,329

Charged/(credited) to the Income statement (Note 8(a)) (3,364) 9,866 509 (243) 54 (599) (581) 5,642

Credited to other comprehensive income (Note 8(c)) - - - - - - (306) (306)

Foreign exchange movement - - - - - - 53 53

Closing balance at 30 June 2009 4,692 162,714 3,315 69 1,163 343 4,422 176,718

Charged/(credited) to the Income statement (Note 8(a)) 2,996 (21,315) (240) 5 993 (343) (2,890) (20,794)

Charged/(credited) to the Balance sheet (3,116) 266 - - - - (26) (2,876)

Acquisition of subsidiary (Note 33) - 75,000 - - - - - 75,000

Disposal of subsidiary (1) (134) - - - - (175) (310)

Closing balance at 30 June 2010 4,571 216,531 3,075 74 2,156 - 1,331 227,738

For

per

sona

l use

onl

y


Note 24 Retirement benefit obligations

All employees of the Group are entitled to benefits from one of the Group’s superannuation plans on retirement, disability or death.

Defined benefit superannuation plan – New South Wales Lotteries Corporation Pty Limited

Following the Group’s acquisition of New South Wales Lotteries Corporation Pty Limited on 31 March 2010, the Group has consolidated the net liability relating to Tatts Employment Co (NSW) Pty Limited’s defined benefit plans for those employees who transferred employment to Tatts Employment Co (NSW) Pty Limited, a subsidiary of Tatts Group Limited.

Sub funds have been created in relation to the transferred employees who are members of the following New South Wales public sector superannuation schemes:

State Authorities Superannuation Scheme (SASS)•State Superannuation Scheme (SSS)•State Authorities Non-contributory Superannuation Scheme (SANCS).•

These schemes are all defined benefit schemes – at least a component of the final benefit is derived from a multiple of member salary and years of membership.

All these Schemes are closed to new members.

Employees contribute to the schemes at various percentages of their salaries. Tatts Employment Co (NSW) Pty Limited contribute to the investment of the plans based on actuarial advice, but generally at a multiple of the employees’ contributions, depending on the fund.

Actuarial based gains and losses are recognised in the Statement of comprehensive income in the year in which they occur.

The figures below relate only to those employees who transferred to Tatts Employment Co (NSW) Pty Limited on 31 March 2010. During the period from 1 April 2010 to 30 June 2010, State Super transferred the balances in to the new sub funds.

(i) Balance sheet amounts

Consolidated

2010$’000

2009$’000

Present value of the defined benefit obligation (27,007) -

Fair value of defined benefit plan assets 18,670 -

(8,337) -

Unrecognised past service costs - -

Net liability in the balance sheet (8,337) -

(ii) Categories of plan assets

Consolidated

2010$’000

2009$’000

Cash 1,792 -

Fixed interest securities 1,942 -

Equity instruments 10,791 -

Property 1,774 -

Other assets 2,371 -

18,670 -


For

per

sona

l use

onl

y

89

www.tattsgroup.com

Note 24 Retirement benefit obligations (continued)

(iii) Reconciliation of movements

Consolidated

2010$’000

2009$’000

Reconciliation of the present value of the defined benefit obligation:

Amounts transferred in following acquisition (27,007) -

Benefits paid - -

Balance at the end of the year (27,007) -

Reconciliation of the fair value of defined benefit assets:

Amounts transferred in following acquisition 18,670 -

Benefits paid - -

Balance at the end of the year 18,670 -

(iv) Amounts recognised in Income statement

The amounts recognised in the Income statement are as follows:

Consolidated

2010$’000

2009$’000

Current service cost - -

Interest cost - -

Expected return on plan assets - -

Past service costs - -

Net expense recognised in the Income statement - -

Actual return on plan assets 420 -

(v) Amounts recognised in Statement of comprehensive income

Consolidated

2010$’000

2009$’000

Actuarial (loss)/gain recognised in the year – gross of tax - -

Cumulative actuarial (losses)/gains recognised in Statement of comprehensive income - -

(vi) Valuation method and principal actuarial assumptions at 30 June 2010

The Projected Unit Credit (PUC) valuation method was used to determine the present value of the defined benefit obligations and the related current service costs. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.

Economic Assumptions:

Consolidated

2010 2009

Discount rate 5.2% -

Expected rate of return on assets 8.6% -

Salary inflation rate – long term 3.5% -

Rate of CPI increase 2.5% -

The demographic assumptions at 30 June 2010 are those that were used in the 2009 triennial actuarial valuation. The triennial review report is available from the New South Wales Treasury website.

For

per

sona

l use

onl

y


Note 24 Retirement benefit obligations (continued)

(vii) Employer contributions

Employer contributions to the defined benefit section of the plan were based on recommendations by the plan’s actuary. The method used to determine employer contributions at the last actuarial review was the Aggregate Funding method. The method adopted affects the timing of the cost to the Group. Under the Aggregate Funding method, the employer contribution rate is determined so that sufficient assets will be available to meet benefit payments to existing members, taking into account current values of assets and future contributions. Actuarial advice regarding total employer contributions expected to be paid by the Group from 1 April 2010, is yet to be finalised, following the previous contribution holiday on these funds. For the period from 1 April 2010 to 30 June 2010, Tatts Employment Co (NSW) Pty Limited accrued 14.8% of defined benefit members’ salaries.

Economic Assumptions:

The economic assumptions for the 2009 actuarial review of the fund were:

Consolidated

2010 2009

Weighted average assumptions:

Expected rate of return on fund assets backing current pension liabilities 8.3% -

Expected rate of return on fund assets backing other liabilities 7.3% -

Expected salary increase rate 4.0% -

Expected rate of CPI increase 2.5% -

(viii) Historic summary

Consolidated

2010$’000

2009$’000

Defined benefit plan obligation (27,007) -

Plan assets 18,670 -

Surplus/(deficit) (8,337) -

Experience adjustments arising on plan liabilities (7,917) -

Experience adjustments arising on plan assets (420) -

Nature of Asset / Liability

If a surplus exists in the employer’s interest in the fund, the employer may be able to take advantage of it in the form of a reduction in the required contribution rate, depending on the advice of the fund’s actuary.

Where a deficiency exists, the employer is responsible for any difference between the employer’s share of fund assets and the defined benefit obligation.


For

per

sona

l use

onl

y

91

www.tattsgroup.com

Note 25 Contributed equity

(a) Share capital

2010Shares

2009Shares

2010$’000

2009$’000

Ordinary Shares – fully paid 1,281,937,479 1,270,070,761 2,362,593 2,333,193

(b) Movements in ordinary share capital

Dates Details Number of shares Ascribed value$

Consolidated$’000

1 July 2008 Opening balance 1,265,355,056 2,321,082

2 March 2009 Performance rights issue 48,533 1.80 87



3 April 2009 Dividend Reinvestment Plan issues 4,644,921 2.58 11,984

6 April 2009 Performance rights issue 5,137 1.80 9

1 July 2009 Opening balance 1,270,070,761 2,333,193

2 October 2009 Dividend Reinvestment Plan issues 5,570,683 2.52 14,038

6 April 2010 Dividend Reinvestment Plan issues 6,296,035 2.44 15,362

30 June 2010 Closing balance 1,281,937,479 2,362,593

Ordinary SharesOrdinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held.

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Voting power may be subject to certain restrictions arising from a combination of the Company’s Constitution, statute, the ASX listing rules and other general law. Subject to certain exceptions, a person’s voting power in the Company must not exceed 10%.

There is no current on-market share buy-back.

Dividend Reinvestment Plan (DRP)The Company has a DRP in operation under which holders of ordinary shares may elect to have all or part of their dividend entitlements satisfied by the provision of ordinary shares rather than being paid in cash.

A 1.5% discount is applicable to shares acquired under the DRP for the special dividend. Shares acquired by a participant under the DRP will be provided via a share issue.

Options and right issuesRefer to Note 40 regarding options and rights issued as share based payments.

For

per

sona

l use

onl

y


Note 26 Reserves and retained profits

Consolidated

2010$’000

2009$’000

(a) ReservesAvailable-for-sale financial assets revaluation reserve (33) (941)

Foreign currency translation reserve (49,739) (20,660)

Hedge reserve 31,200 14,834

Share based payments reserve 5,956 3,938

(12,616) (2,829)

Movements

Available-for-sale financial assets revaluation reserve

Balance 1 July (941) (3,467)

Impairment - 3,400

Revaluation 908 (874)

Balance 30 June (33) (941)

Foreign currency translation reserve

Balance 1 July (20,660) (24,115)

Transferred to retained earnings - 6,846

Currency translation differences arising during the year (29,079) (3,391)

Balance 30 June (49,739) (20,660)

Hedge reserve – cash flow hedges

Balance 1 July 14,834 28,127

Interest rate swap movement (12,498) (15,278)


Forward foreign exchange contracts movements (580) (594)

Foreign currency net investment hedge movements 29,444 4,945

Balance 30 June 31,200 14,834

Share-based payments reserve

Balance 1 July 3,938 2,200

Performance options and rights expense 2,018 1,865

Rights exercised - (127)

Balance 30 June 5,956 3,938

(b) Retained profitsMovements in retained profits were as follows:

Balance 1 July 265,744 254,553

Net profit for the year 119,355 277,441

Dividends (Note 27) (267,272) (259,404)

Transfer from foreign currency translation reserve attributable to acquisition of the European Gaming Group - (6,846)

Balance 30 June 117,827 265,744


For

per

sona

l use

onl

y

93

www.tattsgroup.com

Note 26 Reserves and retained profits (continued)

(c) Nature and purpose of reserves

(i) Available-for-sale financial assets revaluation reserve

Changes in the fair value and exchange differences arising on translation of investments, such as equities, classified as available-for-sale financial assets, are recognised in the Statement of comprehensive income as described in Note 1(o) and accumulated in a separate reserve within equity. Amounts are reclassified to the Income statement when the associated assets are sold or impaired.

(ii) Foreign currency translation reserve

Exchange differences arising on translation of foreign controlled entities are recognised in the Statement of comprehensive income as described in Note 1(e) and accumulated in a separate reserve within equity. The reserve is reclassified to the Income statement upon disposal of the net investment.

(iii) Hedge reserve

The hedge reserve is used to recognise the portion of the gain or loss on a hedging instrument in a net investment or cash flow hedge that is determined to be an effective hedge.

(iv) Share-based payments reserve

The share-based payments reserve is used to recognise the fair value at grant date of performance options and performance rights issued but not exercised.

Note 27 Dividends

(a) Ordinary sharesConsolidated

2010$’000

2009$’000

Special dividend for year ended 30 June 2008 of 10.5 cents (2008 - 4.0 cents on 5 October 2007) per fully paid share paid on 3 October 2008 Fully franked based on tax paid @ 30% - 132,862

Final dividend for year ended 30 June 2009 of 11.0 cents per fully paid share paid on 2 October 2009 Fully franked based on tax paid @ 30% 139,708 -

Interim dividend for year ended 30 June 2010 of 10.0 cents (2009 – 10.0 cents on 3 April 2009) per fully paid share paid on 6 April 2010 Fully franked based on tax paid @ 30% 127,564 126,542

(b) Dividends not recognised at year end

In addition to the above dividends, since the balance sheet date the Directors have determined the payment of a special dividend of 11.0 cents (2009: Final - 11.0 cents) per fully paid ordinary share, fully franked based on tax paid at 30% effectively substituting for the final dividend in both quantum and timing. The aggregate amount of the proposed dividend to be paid on 1 October 2010 out of retained profits, but not recognised as a liability at year end, is $141,013,123 (2009: $139,707,784).

For

per

sona

l use

onl

y


Note 27 Dividends (continued)

(c) Franked dividends

The franked portions of the special dividend determined after 30 June 2010 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ended 30 June 2011.

Consolidated

2010 $’000

2009$’000

Franking credits available for subsequent financial years based on a tax rate of 30% (2009 – 30%) 154,310 147,501

The above amounts represent the balance of the franking account as at the end of the financial year, adjusted as necessary for:

(i) franking credits that will arise from the payment of the amount of the provision for income tax; (ii) franking debits that will arise from the payment of dividends recognised as a liability at the end of each reporting period; and (iii) franking credits that will arise from the receipt of dividends recognised as receivables at the end of each reporting period.

The consolidated amounts include franking credits that would be available to the Company if distributable profits of subsidiaries were paid as dividends.

The impact on the franking account of the special dividend determined by the Directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of $60,434,195 (2009: $59,874,764).

Note 28 Key management personnel disclosures

(a) Key management personnel compensationConsolidated

2010$

2009$

Short term employee benefits – cash salary, fees and cash bonus 4,927,077 5,189,625

Post-employment benefits 88,125 90,678

Long term benefits 53,893 48,775

Share-based payments 709,185 916,447

5,778,280 6,245,525

The key management personnel of the Group includes those executives with responsibility for the planning, controlling and directing of the Group and therefore excludes those executives who lead individual SBU’s.

(b) Equity instrument disclosures relating to key management personnel

(i) Performance options and rights provided as remuneration and shares issued on exercise of such options and rightsDetails of performance options and rights provided as remuneration and the shares issued on the exercise of such options and rights, together with terms and conditions of the equity instruments can be found in sections E, I, J, and K of the Remuneration Report.

Non-executive Directors are not entitled to receive performance options or performance rights.


For

per

sona

l use

onl

y

95

www.tattsgroup.com

Note 28 Key management personnel disclosures (continued)

(ii) Performance options holdingsThe number of performance options over ordinary shares in the Company held during the financial year by each Director of the Company and other key management personnel of the Group, including their personally related parties, are set out below.

2010Balance at the

start of the yearGranted during the year

as compensationForfeited during

the yearBalance at the end

of the year

Dick McIlwain 2,000,000 - - 2,000,000

Ray Gunston 1,147,370 - - 1,147,370

Stephen Lawrie 662,767 - - 662,767

2009Balance at the

start of the yearGranted during the year

as compensationForfeited during


of the year

Dick McIlwain 2,000,000 - - 2,000,000

Ray Gunston 392,170 755,200 - 1,147,370

Stephen Lawrie 167,967 494,800 - 662,767

84.7% of options granted on 16 December 2005 vested on 7 January 2009, however none have been exercised as at the end of the year, and 51.2% of options granted on 30 November 2006 vested on 30 May 2010, however none have been exercised as at the end of the year. No other options vested or were exercisable as at the end of the year.

(iii) Performance rights holdingsThe number of performance rights over ordinary shares in the Company held during the financial year by each Director of the Company and other key management personnel of the Group, including their personally related parties, are set out below.

2010Balance at the

start of the yearGranted during

the yearExcercised during

the yearForfeited during


of the year

Dick McIlwain - 250,000 - - 250,000

Ray Gunston 27,168 157,736 - - 184,904

Stephen Lawrie 14,597 103,096 - - 117,693

2009Balance at the start

of the yearGranted during

the yearExcercised during

the yearForfeited during


of the year

Ray Gunston 46,279 - (19,111) - 27,168

Stephen Lawrie 14,597 - - - 14,597

Rights were granted during the current or previous financial year as compensation. 51.2% of the rights granted in November 2006 vested to the participants in May 2010 and were exercisable as at the end of the year.

For

per

sona

l use

onl

y



(iv) Share holdingsThe number of shares in the Company held during the financial year by each Director of the Company and other key management personnel of the Group, including their personally related parties, are set out below. There were no shares granted during the year as compensation.

All shares in the Company are ordinary shares.


of the year

Received during the year on the exercise of

options/rightsOther changes during

the year Balance at the end

of the year

Directors of Tatts Group Limited

Harry Boon 150,000 - - 150,000

Dick McIlwain 1,947,500 - - 1,947,500

Robert Bentley 160,000 - - 160,000

Lyndsey Cattermole 172,663 - 10,000 182,663

Brian Jamieson 78,000 - 2,943 80,943

Julien Playoust 75,000 - 25,000 100,000

Kevin Seymour 24,000,000 - - 24,000,000


of the year




of the year

Directors of Tatts Group Limited

Harry Boon 150,000 - - 150,000

Dick McIlwain 3,247,500 - (1,300,000) 1,947,500

Robert Bentley 160,000 - - 160,000

Lyndsey Cattermole 172,663 - - 172,663

Brian Jamieson 78,000 - - 78,000

Julien Playoust 75,000 - - 75,000

Kevin Seymour 38,062,960 - (14,062,960) 24,000,000


of the year




of the year

Other key management personnel of the Group

Ray Gunston 1,131,905 - - 1,131,905

Stephen Lawrie 3,972 - - 3,972


of the year




of the year

Other key management personnel of the Group

Ray Gunston 1,112,794 19,111 - 1,131,905

Stephen Lawrie 11,972 - (8,000) 3,972


For

per

sona

l use

onl

y

97

www.tattsgroup.com


(c) Loans to Directors and key management personnel

No loans are made to Directors or key management personnel.

(d) Other transactions with Directors and key management personnel

A Non-executive Director, Mr Robert Bentley, is the Chairman of Racing Queensland Limited, which controls Queensland Race Product Co Ltd. Payments for the year to 30 June 2010 totalling $107,212,000 (2009: $123,771,000) were made to Queensland Race Product Co Ltd pursuant to the Product and Program Agreement dated 9 June 1999 for the provision of certain racing information. This contract is based on normal commercial terms and conditions.

Racing Queensland Limited has also issued approvals for UNiTAB Limited, SA TAB Pty Ltd and NT TAB Pty Ltd to make payments to Racing Queensland Limited to use Queensland race information. These approvals require the wagering operators to pay a fee for the use of this information. The fees paid on normal commercial terms and conditions were $1,553,000 (2009: $1,155,000).

Note 29 Remuneration of Auditors

During the year the following fees were paid or payable to PricewaterhouseCoopers for services provided by the auditor of the Company and its related practices and non-related audit firms:

Consolidated

2010$

2009$

Audit services


Audit and review of financial statements and other audit work under the Corporations Act 2001 1,092,000 929,425

Fees paid to related practices of PricewaterhouseCoopers Australian firm 225,005 318,711

Total remuneration for audit services 1,317,005 1,248,136

Non-audit services

(a) Assurance services


Audit of regulatory returns 57,470 51,335

Due diligence services - 30,000

Fees paid to related practices of PricewaterhouseCoopers Australian firm:

Due diligence services 20,938 -

Total remuneration for assurance services 78,408 81,335

(b) Taxation services


Tax compliance services, including review of company tax returns 3,295 26,643

Total remuneration for taxation services 3,295 26,643

Total remuneration for non-audit services 81,703 107,978

Subject to maintaining their independence it is the Group’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’ expertise and experience with the Group are important. These assignments are principally tax advice and due diligence reporting on acquisitions.

Note 30 Contingent liabilities

Contingent liabilitiesThe consolidated entity had contingent liabilities at 30 June 2010 in respect of:

Bank GuaranteesGuarantees in respect of bank facilities drawn down but not included in the Company accounts of the Group are $2,210,000 (2009: $1,864,000).

For

per

sona

l use

onl

y


Note 31 Commitments for expenditure

(a) Capital commitments

Capital expenditure contracted for at the end of each reporting period but not recognised as liabilities is as follows:

Consolidated

2010$’000

2009$’000

Property, plant and equipment – Payable:

Within one year 3,102 4,033

Later than one year but not later than five years - 100

3,102 4,133

Investment properties – Payable:

Within one year 13,660 -

13,660 -

(b) Operating lease commitments

The Group leases motor vehicles and various buildings under non-cancellable operating leases. The leases have varying terms and renewal rights. On renewal, the terms of the leases are to be negotiated.

Consolidated

2010$’000

2009$’000

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:


Later than one year but not later than five years 40,731 42,080

Later than five years 13,049 20,262

Commitments not recognised in the financial statements 72,435 80,843

(c) Operating commitments

Operating commitments, being supply, marketing and sponsorship contracted for at the end of each reporting period but not recognised as liabilities are as follows:

Consolidated

2010$’000

2009$’000

Commitments in relation to non-cancellable operating activities are payable as follows:


Later than one year but not later than five years 31,642 40,531

Later than five years 2,227 3,894

81,298 77,178


For

per

sona

l use

onl

y

99

www.tattsgroup.com

Note 31 Commitments for expenditure (continued)

(d) Finance leases

The Group previously leased various plant and equipment. These leases expired during the current period (2009 carrying amount: $863,000).

Consolidated

2010$’000

2009$’000

Commitments in relation to finance leases are payable as follows:

Within one year - 481

Minimum lease payments - 481

Future finance charges - (33)

Recognised as a liability - 448

Representing lease liabilities:

Current (Note 21) - 448

- 448

(e) Employee remuneration commitments

Consolidated

2010$’000

2009$’000

Commitments under non-cancellable employment contracts not provided for in the financial statements and payable:


6,845 6,404

Note 32 Related party transactions

(a) Parent entities

The ultimate parent entity within the Group is Tatts Group Limited.

(b) Controlled entities

Investments in controlled entities are set out in Note 34.

(c) Directors and key management personnel

Disclosures relating to Directors and specified executives are set out in Note 28.

(d) Transactions with related parties

Consolidated

2010$’000

2009$’000

Superannuation contributions:

Contributions to superannuation funds on behalf of employees 13,699 13,339

For

per

sona

l use

onl

y


Note 32 Related party transactions (continued)

(e) Outstanding balances

The following balances are outstanding at the end of each reporting period in relation to transactions with related parties:

Consolidated

2010$’000

2009$’000

Current receivables

Loans to Joint Venture entities 7,073 7,475

Current payables

Loans from related entities - 2,541

No provisions for impairment of receivables have been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts from related parties.

(f) Reconciliation of loans to/from related parties

Consolidated

2010$’000

2009$’000

Loans to joint venture entities:

Beginning of year 7,475 2,875

Loans advanced 250 4,600

Loan repayments received (652) -

End of year 7,073 7,475

Loans to related entities:

Beginning of year 2,541 2,032

Loans advanced - 102

Exchange movements (85) 407

Loan repayments received (2,456) -

End of year - 2,541

No provisions for impairment of receivables have been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts from related parties.

(g) Terms and conditions

Transactions relating to dividends were on the same terms and conditions that applied to other shareholders.

All other transactions were made on normal commercial terms and conditions and at market rates, except that there are no fixed terms for the repayment of principal on loans advanced by the Company. The average interest rate on loans during the year was 5.28% (2009: 5.23%).

Outstanding balances are unsecured and are repayable in cash.

Note 33 Business combinations

(a) Current year

New South Wales Lotteries Corporation Pty Limited

Summary of acquisition

On 31 March 2010, the Group acquired 100% of New South Wales Lotteries Corporation Pty Limited. At this date following the acquisition, New South Wales Lotteries Corporation Pty Limited was granted a 40 year lottery licence to operate lotteries in New South Wales.

At the date of acquisition, the acquired entity’s principal activities were the development, marketing and conduct of lottery games in New South Wales. Licences for these lottery games have been issued under the Public Lotteries Act 1996.


For

per

sona

l use

onl

y

101

www.tattsgroup.com

Note 33 Business combinations (continued)

Details of the preliminary fair value assessment of the assets and liabilities acquired and goodwill are as follows:

$’000

Purchase consideration

Cash – acquisition of shares 595,736

Cash – acquisition of lottery licence 250,000

Total purchase consideration 845,736

Less fair value of net identifiable assets acquired (109,785)

Goodwill 735,951

The goodwill is attributable to the expected future cash flows of the business as a result of the high profitability of the acquired business. This goodwill will not be deductible for tax purposes.

Assets and liabilities acquired at 31 March 2010

Acquiree’s carrying amount

$’000

Preliminaryfair value

$’000

Cash 83,750 83,750

Trade receivables 8,942 7,570

Property, plant and equipment 8,643 8,503

Intangible assets 7,511 257,115

Deferred tax assets 8,444 814

Trade and other payables (149,033) (160,647)

Deferred tax liabilities (66) (75,000)

Employee provisions (3,570) (3,817)

Provisions (586) (586)

Retirement benefit obligations (7,047) (7,917)

Net (liabilities)/assets (43,012) 109,785

The acquired business contributed revenues of $156,297,000 and a net profit of $3,599,000 to the Group for the period from 1 April 2010 to 30 June 2010. If the acquisition had occurred on 1 July 2009, consolidated revenue and consolidated profit for the year ended 30 June 2010 would have been $3,752,596,000 and $129,153,000 respectively.

(b) Previous corresponding year

Summary of acquisitions

(i) Winners Amusements Limited

On 2 October 2008, Talarius Limited, a wholly owned subsidiary of the Group, acquired 100% of Winners Amusements Limited and its controlled entity, Palma Leisure Limited, for total consideration of $9,938,000. Details of the fair values of the assets and liabilities acquired and the goodwill arising are disclosed in the 30 June 2009 Tatts Group Annual Report.

There have been adjustments to the fair values of fixed assets and trade creditors disclosed in the 30 June 2009 Tatts Group Annual Report. The fair value of these items has decreased by $82,000 and $110,000 respectively, resulting in a decrease in goodwill of $192,000. Final goodwill of $10,957,000 has been recognised on the acquisition.

(ii) CentreRacing

On 1 December 2008, NT TAB Pty Ltd, a wholly owned subsidiary of the Group, acquired the business of CentreRacing and the software of Wagering and Gaming Software Pty Ltd for total consideration of $3,121,000. Details of the fair values of the assets and liabilities acquired and the goodwill arising are disclosed in the 30 June 2009 Tatts Group Annual Report. There have been no further fair value adjustments to these amounts in the current period, and final goodwill of $3,221,000 has been recognised on acquisition.

For

per

sona

l use

onl

y


Note 33 Business combinations (continued)

(iii) National Leisure Limited

On 9 June 2009, Talarius Limited acquired 100% of National Leisure Limited together with the assets of two further gaming venues operated by that entity for total consideration of $27,166,000. Details of the preliminary fair values of the assets and liabilities acquired and the goodwill arising are disclosed in the 30 June 2009 Tatts Group Annual Report. There have been no changes to the preliminary fair values in the current period, and final goodwill of $26,888,000 has been recognised on acquisition.

Note 34 Investments in controlled entities

Name of entityCountry of

incorporation

Equity holding 2010

%

Equity holding 2009

%

Controlled entities of Tatts Group Limited (formerly Tattersall’s Limited):

UNiTAB Limited* Australia 100 100

NT TAB Pty Ltd* Australia 100 100

Broadcasting Station 4IP Pty Ltd Australia 100 100

SA TAB Pty Ltd* Australia 100 100

TAB Queensland Pty Ltd Australia 100 100

Maxgaming Holdings Pty Ltd* (1) Australia 100 100

Maxgaming NSW Pty Ltd* Australia 100 100

Maxgaming QLD Pty Ltd* Australia 100 100

Maxgaming Vic Pty Ltd Australia 100 100

Bytecraft Systems Pty Ltd* Australia (2) (2)

Bytecraft Systems (NSW) Pty Ltd Australia 100 100

Bytecraft Systems (NZ) Limited New Zealand 100 100

EGM Tech Pty Ltd Australia 100 100

Reaftin Pty Ltd* Australia 100 100

Bytecraft Systems Pty Ltd* Australia (2) (2)

Tattersall’s Holdings Pty Ltd* Australia 100 100

Tattersall’s Sweeps Pty Ltd* Australia 100 100

Tattersall’s Gaming Pty Ltd* Australia 100 100

Tattersall’s Club Keno Pty Ltd Australia 100 100

tatts.com Pty Ltd Australia 100 100

New South Wales Lotteries Corporation Pty Limited Australia 100 (3)

Tatts Employment Co (NSW) Pty Limited* Australia 100 (4)

George Adams Pty Ltd Australia 100 100

Tattersall’s Australia Pty Ltd Australia 100 100

TattsNet Limited+ United Kingdom 100 100

George Adams Holdings Limited United Kingdom 100 100

tatts.com UK Limited+ United Kingdom 100 100

Golden Casket Lottery Corporation Limited* Australia 100 100

Tattersall’s Investments (South Africa) (Pty) Limited South Africa 100 100

Wintech Investments Pty Ltd* Australia 100 100

Tattersall’s Gaming Systems (NSW) Pty Ltd Australia 100 100

Carentan Investments (Pty) Limited# South Africa - 100

Thuo Gaming South Africa (Pty) Limited# South Africa - 90

Thuo Gaming Western Cape (Pty) Limited# South Africa - 70

Thuo Gaming KwaZulu-Natal (Pty) Limited# South Africa - 70

Thuo Gaming North West (Pty) Limited# South Africa - 100


For

per

sona

l use

onl

y

103

www.tattsgroup.com

Name of entityCountry of

incorporation

Equity holding 2010

%

Equity holding 2009

%

Controlled entities of Tatts Group Limited (formerly Tattersall’s Limited):

Thuo Gaming Mpumalanga (Pty) Limited# South Africa - 100

Thuo Gaming Gauteng (Pty) Limited# South Africa - 100

Thuo Gaming Free State (Pty) Limited# South Africa - 100

Victorian Licence Bid Co Pty Ltd Australia 100 100

European Gaming (Finance) Limited United Kingdom 100 100

European Gaming Limited United Kingdom 100 100

Talarius Limited United Kingdom 100 100

Edinburgh Dungeon Limited+ United Kingdom 100 100

In-To-Save Limited United Kingdom 100 100

Blackheath Leisure (Carousel) Limited United Kingdom 100 100

RAL Services Limited+ United Kingdom 100 100

RAL Limited United Kingdom 100 100

RAL Machines Limited+ United Kingdom 100 100

RAL (S&G) Limited+ Alderney 100 100

RAL (Channel Islands) Limited+ United Kingdom 100 100

RAL Holdings Limited+ United Kingdom 100 100

RAL Employee Benefit Trustees Limited United Kingdom 100 100

RAL Investments Limited+ United Kingdom 100 100

RAL Interactive Limited United Kingdom 100 100

CZ Trading Limited United Kingdom 100 100

Cyberslotz Services SRL Romania 100 100

CZ Holdings Limited Malta 100 100

Cyberslotz Services Malta Limited Malta 100 100

CZ Back Office Limited Malta 100 100

CZ Trading Limited Malta 100 100

Leisure Promotions Limited United Kingdom 100 100

Leisurama Holdings Limited United Kingdom 100 100

Leisurama Entertainment Limited United Kingdom 100 100

Displaymatics Holdings Limited United Kingdom 100 100

Winners Amusements Limited United Kingdom 100 100

Palma Leisure Limited United Kingdom 100 100

National Leisure Limited United Kingdom 100 100

Tattersall’s Sweeps Consultation Long Service Leave fund Australia (5) (5)

Tattersall’s Foundation Limited Australia (6) (6)

On 30 November 2007 Tattersall’s Limited changed its registered company name to Tatts Group Limited.

Share holdings in all controlled entities are classed as ordinary.

(*) These subsidiaries have been granted relief from the necessity to prepare financial statements in accordance with Class Order 98/1418 issued by the Australian Securities and Investments Commission. Refer to Note 35 for further information.

(+) Dormant entity. On 21 April 2010, this entity was placed into Member’s Voluntary Liquidation. The liquidation process was not completed at year end and remained a registered entity of the Group at 30 June 2010.

(#) On 30 June 2010, Wintech Investments Pty Ltd, a wholly owned subsidiary of the Group, completed the sale of Carentan Investments (Pty) Ltd and its controlled entities. Refer Note 9.(1) On 1 May 2009 ownership of Maxgaming Holdings Pty Ltd was transferred from UNiTAB Limited to Tatts Group Limited. (2) Owned 50% by Tatts Group Limited and 50% by Reaftin Pty Ltd. 100% equity holding within the Group.(3) Entity was not part of the Group at 30 June 2009.(4) Entity’s name was changed during the 2010 financial year from Tattersall’s Gaming Systems Pty Ltd (TGS Pty Ltd) to Tatts Employment Co (NSW) Pty Limited. TGS Pty Ltd was 100% owned

during the 2009 financial year. (5) Not incorporated. The trustees of the entity are employees of Tatts Group Limited, therefore in accordance with AIFRS, the Group controls the Fund and the Fund is consolidated.(6) Not incorporated. The majority of the Directors of the trustee company Tattersall’s Foundation Limited are Directors of Tatts Group Limited, therefore in accordance with AIFRS the

Group controls the Foundation and the company is consolidated.

Note 34 Investments in controlled entities (continued)

For

per

sona

l use

onl

y


Note 35 Deed of Cross Guarantee

Tatts Group Limited, Tattersall’s Holdings Pty Ltd, Tattersall’s Gaming Pty Ltd, Tattersall’s Sweeps Pty Ltd, Reaftin Pty Ltd, Wintech Investments Pty Ltd, Bytecraft Systems Pty Ltd, UNiTAB Limited, SA TAB Pty Ltd, NT TAB Pty Ltd, Maxgaming Holdings Pty Ltd, Maxgaming NSW Pty Ltd, Maxgaming Qld Pty Ltd and Golden Casket Lottery Corporation Limited are parties to a Deed of Cross Guarantee (Deed) dated 1 May 2009 under which each company guarantees the debts of the others in the event of the winding up of any of those companies in the circumstances contained in the Deed. Tatts Employment Co (NSW) Pty Limited became a party to the Deed by way of a Deed of Assumption dated 29 June 2010.

By entering into the current Deed, the wholly owned entities have been relieved under ASIC Class Order 98/1418 from certain requirements including preparing and lodging a financial report and Directors’ report.

(a) Consolidated income statement, Statement of comprehensive income and a summary of movements in consolidated retained earnings

The above parties represent a ‘Closed Group’ for the purposes of the Class Order and they also represent the ‘Extended Closed Group’. Set out below is a condensed income statement and a summary of movements in consolidated retained profits of the Closed Group consisting of the companies listed above.

Income statement2010$’000

2009$’000

Revenue from continuing operations 3,026,346 3,101,828

Statutory outgoings

Government share (1,419,442) (1,454,829)

Venue share/commission (591,800) (613,170)

Product/program fees (186,988) (186,215)

Other income 11,750 -

Other expenses from ordinary activities

Employee expenses (119,853) (119,131)

Operating fees and direct costs (64,075) (61,489)

Telecommunications and technology (27,961) (29,988)

Marketing and promotions (26,326) (27,023)

Information services (17,063) (16,031)

Property expenses (22,886) (22,599)

Restructuring costs (3,502) (21,109)

Other expenses (22,167) (2,472)

Profit before interest, income tax, depreciation, amortisation and impairment 536,033 547,772

Impairment of assets (140,000) (4,857)

Depreciation and amortisation (121,631) (85,399)


Finance costs (58,347) (49,265)


Income tax expense (108,397) (121,898)



For

per

sona

l use

onl

y

105

www.tattsgroup.com

2010$’000

2009$’000

Statement of comprehensive income - -


Other comprehensive income

Changes in the fair value of available-for-sale financial assets, net of tax 908 2,526

Changes in the value of net investment hedges 29,444 4,945

Changes in the value of interest rate swaps, net of tax (4,981) (8,733)

Changes in the fair value of forward foreign exchange contracts (580) (594)

Exchange differences on translation of foreign operations (138) 25,494

Other comprehensive income for the year, net of tax 24,653 23,638

Total comprehensive income for the year 140,729 317,039

Summary of movements in consolidated retained earnings

Retained earnings at the beginning of the financial year 262,112 227,317

Net profit for the year 116,076 293,401

Dividends (Note 27) (267,272) (259,404)

Transfer of retained earnings from entities outside the closed group - 798

Retained earnings at the end of the financial year 110,916 262,112

(b) Balance sheet

Set out below is a consolidated Balance sheet of the Closed Group consisting of the companies listed above.

Balance sheet2010$’000

2009$’000

ASSETS

Current assets

Cash and cash equivalents 313,546 338,524

Trade and other receivables 153,175 200,323

Inventories 6,954 6,554

Total current assets 473,675 545,401

Non-current assets

Trade and other receivables 226 7,652

Financial assets 755,734 301,126

Property, plant and equipment 201,575 234,945

Intangible assets 2,931,212 2,970,835

Deferred tax assets 11,421 28,871

Other non-current assets 1,030 1,505

Total non-current assets 3,901,198 3,544,934

Total assets 4,374,873 4,090,335

LIABILITIES

Current liabilities

Trade and other payables 159,713 454,200


Derivative financial instruments 1,174 594

Current tax liabilities 37,630 26,532

Provisions 14,416 10,130

Total current liabilities 928,433 494,929

Note 35 Deed of Cross Guarantee (continued)

For

per

sona

l use

onl

y


Balance sheet (continued)2010$’000

2009$’000


Trade and other payables 43,578 43,484


Derivative financial instruments 13,713 8,733

Provisions 2,159 1,741

Deferred tax liabilities 152,817 177,106

Total non-current liabilities 928,112 981,954

Total liabilities 1,856,545 1,476,883

Net assets 2,518,328 2,613,452

EQUITY

Contributed equity 2,362,593 2,333,193

Reserves 44,819 18,147

Retained profits 110,916 262,112

Total equity 2,518,328 2,613,452

Note 36 Investments accounted for using the equity method

Consolidated

2010$’000

2009$’000

Joint venture entities 2,185 8,605

(a) Investments in joint venture entities

Interests are held in the following joint ventures:

UnlistedCountry of Residence

Principal Activities

End of each reporting period Ownership Interest

Carrying Amount of Investment

2010%

2009%

2010$’000

2009$’000

LH Developments Pty Ltd Australia

Property Development 30 June 50 50 2,185 2,337

George Adams Pty Ltd and Prizac Investments Pty Ltd (Splash) Australia

Property Development 30 June 50 (1) 50 - 6,268

2,185 8,605

(1) The joint venture is in the process of winding up at 30 June 2010. The remaining balances consist of cash and other receivables.


Note 35 Deed of Cross Guarantee (continued)

For

per

sona

l use

onl

y

107

www.tattsgroup.com

Note 36 Investments accounted for using the equity method (continued)

(b) Reconciliation of movements in joint ventures

Consolidated

2010$’000

2009$’000

Carrying amount of investment in joint ventures

Balance at the beginning of the financial year 8,605 7,917

Investments made during year - 793

Share of loss after income tax (44) (105)

Share of assets and liabilities settled and released from joint venture (6,376) -

Balance at the end of the financial year 2,185 8,605

Share of joint venture assets and liabilities

Current assets 542 378

Non-current assets 9,129 15,888

Total assets 9,671 16,266

Current liabilities 413 186

Non-current liabilities 7,073 7,475

Total liabilities 7,486 7,661

Share of net assets of joint ventures 2,185 8,605

Share of joint venture revenue, expenses and results

Revenue 104 142

Expenses (151) (244)

Loss before income tax (47) (102)

Income tax benefit/(expense) 3 (3)

Loss after income tax (44) (105)

(c) Contingent liabilities and commitments relating to joint ventures

Each party to the joint venture is jointly and severally liable for the debts of the entity. The assets of the entities exceed their debts. At 30 June 2010 contingent liabilities are $Nil (2009: $Nil). The share of capital commitments which have not been recognised as a liability at 30 June 2010 are $Nil (2009: $12,498,000).

For

per

sona

l use

onl

y


Note 37 Reconciliation of profit from ordinary activities after income tax to net cash inflow from operating activities

Consolidated

2010$’000

2009$’000


Non cash flows in operating profit

Depreciation and amortisation 136,283 104,745

Depreciation and amortisation – discontinued operations 3,649 -

Amortisation of borrowing costs 2,213 2,174

Loss on sale of fixed assets 11 993

Profit on sale of discontinued operations (12,006) -

Loss on sale of fixed assets – discontinued operations 40 -

Deferred expenditure charges – discontinued operations 116 -

Restructure charges – United Kingdom venue closure costs 5,596 -

Impairment of assets 140,000 4,857

Employee share options 2,018 1,865

Bad and doubtful debts 244 440

Bad and doubtful debts – discontinued operations 83 -

Dividends/distributions reinvested (882) (1,715)


Share of joint venture loss 44 105

Loss on foreign currency hedge restructure 2,969 -

Foreign exchange gain on liquidation of investment in related parties - (251)

Change in operating assets and liabilities, net of effects from purchase of controlled entities

Decrease/(increase) in trade and other receivables 56,639 (85,975)

(Increase)/decrease in inventories (465) 1,603

Decrease in deferred tax assets 14,140 5,500

(Increase)/decrease in other operating assets (7,905) 1,489

(Decrease)/increase in trade and other payables (77,514) 144,853

Increase in provision for current tax liabilities 5,902 3,478

Decrease in deferred tax liabilities (24,756) (5,293)

Increase/(decrease) in other provisions 2,521 (1,291)

Net cash inflow from operating activities 369,240 453,259

Non-cash financing activitiesDividends satisfied by the issue of shares under a dividend reinvestment plan are shown in Note 25 (b). Options and rights issued to employees under the Group’s long term incentive plan are shown in Note 40.


For

per

sona

l use

onl

y

109

www.tattsgroup.com

Note 38 Parent entity financial information

(a) Summary financial information

The individual financial statements of the parent entity show the following aggregate amounts:

2010$’000

2009$’000

Balance sheet

Current assets 675,862 817,018

Total assets 3,281,973 3,607,399

Current liabilities 649,670 41,419

Total liabilities 746,449 801,512

Shareholders’ equity

Issued Capital 3,462,061 3,432,660

Reserves

Hedge reserve (14,887) (9,326)

Share-based payments 5,956 3,938

Retained Earnings (917,606) (621,385)

Total Equity 2,535,524 2,805,887

(Loss)/Profit for the year (28,949) 401,241

Total comprehensive (loss)/income (34,511) 391,915

(b) Guarantees entered into by the parent entity

The parent entity has not provided any financial guarantees in respect of bank overdrafts or loans of subsidiaries as at 30 June 2010 or 30 June 2009.

There are cross guarantees given by the parent entity and its nominated subsidiaries as described in Note 35. No deficiencies of assets exist in any of these entities.

(c) Contingent liabilities of the parent entity

The parent entity did not have any contingent liabilities as at 30 June 2010 or 30 June 2009.

(d) Contractual commitments for the acquisition of property, plant and equipment

The parent entity did not have any contractual commitments for the acquisition of property, plant and equipment as at 30 June 2010 or 30 June 2009.

For

per

sona

l use

onl

y


Note 39 Earnings per share

Consolidated

2010Cents

2009Cents

(a) Basic earnings per share

From continuing operations attributable to the ordinary equity shareholders of the Company 8.2 21.9

From discontinued operations 1.2 -

Total basic earnings per share attributable to the ordinary equity shareholders of the Company 9.4 21.9

(b) Diluted earnings per share

From continuing operations attributable to the ordinary equity shareholders of the Company 8.2 21.9

From discontinued operations 1.2 -

Total diluted earnings per share attributable to the ordinary equity shareholders of the Company 9.4 21.9

$’000 $’000

(c) Reconciliation of earnings used in calculating earnings per share:

Basic and diluted earnings per share


Profit from continuing operations attributable to non-controlling interests (945) (607)

Profit from continuing operations attributable to the ordinary equity shareholders of the Company used in calculating basic and diluted earnings per share 104,445 276,364

Profit from discontinued operations 14,910 1,077

Profit attributable to the ordinary equity shareholders of the Company used in calculating basic and diluted earnings per share 119,355 277,441

2010 Number

2009 Number

(d) Weighted average number of shares used as the denominator

Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share 1,275,673,002 1,266,497,384

Adjustments for calculation of diluted earnings per share:

Performance options and performance rights 917,913 385,539

Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 1,276,590,915 1,266,882,923

Note 40 Share-based payments

(a) Long-Term Incentive Plan

Staff eligible to participate in the Long-Term Incentive Plan (LTIP) are those of Senior Manager level and above (including Executive Directors).

Performance options and performance rights are granted under the LTIP for no consideration. Options and rights granted to date are for a three year vesting period for the earnings per share performance level with a subsequent one or two year testing period to achieve the requisite total shareholder return. The exercise period for these instruments granted to date will expire on the seventh anniversary of their allocation date.

Performance options and performance rights granted under the LTIP carry no dividend or voting rights.

The exercise price of performance options is based on the weighted average price at which the Company’s shares are traded on the Australian Securities Exchange during the 30 days immediately before the determination date. No exercise price is payable upon the exercise of performance rights.


For

per

sona

l use

onl

y

111

www.tattsgroup.com

Note 40 Share-based payments (continued)

Set out below are summaries of the performance options and rights granted under the LTIP:

Consolidated – 2010

Grant Date Expiry dateExercise

price

Balance at start of the

yearNumber

Granted during the

yearNumber

Exercised during the

yearNumber

Forfeited during the

yearNumber

Balance at end of the

yearNumber

Exercisable at end of the yearNumber

Performance Options

16 December 2005 7 July 2012 $3.10 274,935 - - (26,329) 248,606 220,285

30 November 2006 – Chief Executive

30 November 2013 $3.13 2,000,000 - - - 2,000,000 1,024,000

30 November 2006

30 November 2013 $3.65 628,106 - - (8,227) 619,879 317,378

30 November 2007

30 November 2014 $3.99 1,322,369 - - (18,386) 1,303,983 -

30 November 2008

30 November 2015 $2.56 7,139,200 - - (276,900) 6,863,300 -

Weighted average exercise price $2.90 $2.71 $2.91 $3.10

Performance Rights

16 December 2005 7 July 2012 N/A 12,768 - - (1,636) 11,132 -

30 November 2006

30 November 2013 N/A 194,219 - - (4,114) 190,105 97,334

30 October 2009 – Chief Executive

12 October 2013 N/A - 250,000 - - 250,000 -

30 November 2009

30 November 2016 N/A - 1,189,039 - - 1,189,039 -

For

per

sona

l use

onl

y



Consolidated – 2009

Grant Date Expiry dateExercise

price

Balance at start of the

yearNumber

Granted during the

yearNumber

Exercised during the

yearNumber

Forfeited during the

yearNumber

Balance at end of the

yearNumber

Exercisable at end of the yearNumber

Performance Options

16 December 2005 7 July 2012 $3.10 274,935 - - - 274,935 232,925

30 November 2006 – Chief Executive

30 November 2013 $3.13 2,000,000 - - - 2,000,000 -

30 November 2006

30 November 2013 $3.65 648,790 - - (20,684) 628,106 -

30 November 2007

30 November 2014 $3.99 1,361,903 - - (39,534) 1,322,369 -

30 November 2008

30 November 2015 $2.56 - 7,218,500 - (79,300) 7,139,200 -

Weighted average exercise price $3.48 $2.56 $3.13 $2.90 $3.10

Performance Rights

16 December 2005 7 July 2012 N/A 83,552 - (70,784) - 12,768 -

30 November 2006

30 November 2013 N/A 204,561 - - (10,342) 194,219 -

No options or rights expired during the periods covered by the above tables.

There were no rights exercised during the year ended 30 June 2010, consequently, the weighted average share price at the date of the exercise of rights exercised during the year ended 30 June 2010 was $Nil (2009: $2.79).

The weighted average remaining contractual life of exercisable rights outstanding at the end of the period was 5.56 years (2009: 4.33 years).

The weighted average remaining contractual life of share options outstanding at the end of the period was 4.75 years (2009: 5.76 years).


For

per

sona

l use

onl

y

113

www.tattsgroup.com


Fair value of options and rights granted

The model inputs for rights granted during the year ended 30 June 2010 included:

Performance Rights Performance Rights Performance Rights Performance Rights

Performance conditions TSR – Market based

– Chief ExecutiveEPS – Non-market based

– Chief Executive TSR – Market based EPS – Non-market based

Grant date 30 October 2009 30 October 2009 30 November 2009 30 November 2009

Expiry date 12 October 2013 12 October 2013 30 November 2016 30 November 2016

Share price at grant date $2.48 $2.48 $2.41 $2.41

Expected life 3.0 years 3.1 years 3.1 years 3.0 years

Vesting period 2.95 years 2.95 years 3.0 years 3.0 years

Volatility 30.0% 30.0% 30.0% 30.0%

Risk free interest rate 5.08% 5.10% 4.76% 4.74%

Dividend yield 8.52% 8.52% 8.50% 8.50%

Fair value $1.45 $1.93 $1.36 $1.87

The model inputs for options granted during the year ended 30 June 2009 included:

Performance Options Performance Options

Performance conditions TSR – Market based EPS – Non-market based

Grant date 30 November 2008 30 November 2008

Exercise price $2.56 $2.56

Expiry date 30 November 2015 30 November 2015

Share price at grant date $2.52 $2.52

Expected life 5.1 years 5.0 years

Vesting period 3 year 3 year

Volatility 29% 29%

Risk free interest rate 4.01% 4.01%

Dividend yield 8.9% 8.9%

Fair value $0.31 $0.33

(b) Expenses arising from share-based payment transactions

Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows:

Consolidated

2010$’000

2009$’000

Performance rights issued under LTIP 535 170

Performance options issued under LTIP 1,483 1,695

2,018 1,865

Note 41 Events occurring after end of each reporting period

The Victoria Government announced on 29 July 2010 that the Group has been shortlisted and invited to apply for the 12 year Victorian wagering licence commencing in 2012.

Other than the matter mentioned above, in the opinion of the Directors, there have been no other material matters or circumstances which have arisen between 30 June 2010 and the date of this report that have significantly affected or may significantly affect the operations of the Group, the results of those operations and the state of affairs of the Group in subsequent financial periods.

For

per

sona

l use

onl

y


In the Directors’ opinion:

(a) the financial statements and notes set out on pages 43 to 113 are in accordance with the Corporations Act 2001, including:

(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and

(ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2010 and of its performance for the financial year ended on that date; and

(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and

(c) at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in Note 35 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 described in Note 35.

Note 1(b) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

The Directors have been given the declarations by the Chief Executive and Chief Financial Officer required by section 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the Directors.

Harry Boon Dick McIlwainChairman Managing Director/Chief Executive Melbourne26 August 2010

Directors’ Declaration

For

per

sona

l use

onl

y

115

www.tattsgroup.com

Independent Auditors Report

Liability limited by a scheme approved under Professional Standards Legislation

95

PricewaterhouseCoopersABN 52 780 433 757

Freshwater Place2 Southbank BoulevardSOUTHBANK VIC 3006GPO Box 1331MELBOURNE VIC 3001DX 77Telephone 61 3 8603 1000Facsimile 61 3 8603 1999www.pwc.com/au

Independent auditor’s report to the members ofTatts Group Limited

Report on the financial report

We have audited the accompanying financial report of Tatts Group Limited (the company), whichcomprises the balance sheet as at 30 June 2010, and the income statement, the statement ofcomprehensive income, statement of changes in equity and cash flow statement for the year endedon that date, a summary of significant accounting policies, other explanatory notes and thedirectors’ declaration for the Tatts Group Limited Group (the consolidated entity). The consolidatedentity comprises the company and the entities it controlled at the year's end or from time to timeduring the financial year.

Directors’ responsibility for the financial report

The directors of the company are responsible for the preparation and fair presentation of thefinancial report in accordance with Australian Accounting Standards (including the AustralianAccounting Interpretations) and the Corporations Act 2001. This responsibility includes establishingand maintaining internal controls relevant to the preparation and fair presentation of the financialreport that is free from material misstatement, whether due to fraud or error; selecting and applyingappropriate accounting policies; and making accounting estimates that are reasonable in thecircumstances. In Note 1, the directors also state, in accordance with Accounting StandardAASB 101 Presentation of Financial Statements, that the financial statements comply withInternational Financial Reporting Standards.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conductedour audit in accordance with Australian Auditing Standards. These Auditing Standards require thatwe comply with relevant ethical requirements relating to audit engagements and plan and performthe audit to obtain reasonable assurance whether the financial report is free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial report. The procedures selected depend on the auditor’s judgement,including the assessment of the risks of material misstatement of the financial report, whether dueto fraud or error. In making those risk assessments, the auditor considers internal control relevantto the entity’s preparation and fair presentation of the financial report in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the entity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimatesmade by the directors, as well as evaluating the overall presentation of the financial report.

Our procedures include reading the other information in the Annual Report to determine whether itcontains any material inconsistencies with the financial report.

For

per

sona

l use

onl

y


Independent Auditors Report (continued)

Independent auditor’s report to the members ofTatts Group Limited (continued)

96

Our audit did not involve an analysis of the prudence of business decisions made by directors ormanagement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinions.

Independence

In conducting our audit, we have complied with the independence requirements of the CorporationsAct 2001.

Auditor’s opinion

In our opinion:

(a) the financial report of Tatts Group 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 at30 June 2010 and of its performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards (including the AustralianAccounting Interpretations) and the Corporations Regulations 2001; and

(b) the financial report and notes also comply with International Financial Reporting Standardsas disclosed in Note 1.

Report on the Remuneration Report

We have audited the remuneration report included in pages 8 to 24 of the directors’ report for theyear ended 30 June 2010. The directors of the company are responsible for the preparation andpresentation of the remuneration report in accordance with section 300A of the Corporations Act2001. Our responsibility is to express an opinion on the remuneration report, based on our auditconducted in accordance with Australian Auditing Standards.

Auditor’s opinion

In our opinion, the remuneration report of Tatts Group Limited for the year ended 30 June 2010,complies with section 300A of the Corporations Act 2001.

PricewaterhouseCoopers

Con Grapsas MelbournePartner 26 August 2010

24 to 39

For

per

sona

l use

onl

y

117

www.tattsgroup.com

This page intentionally left blank.

For

per

sona

l use

onl

y


The shareholder information set out below was applicable as at 7 September 2010 based on the details recorded on the Tatts Group Limited share register.

A Distribution of shareholders

Analysis of number of ordinary shareholders by size of holding:

Ordinary Shares

Range Number of Holders Number of Shares Held

1 – 1,000 15,371 8,829,606

1,001 – 5,000 56,923 146,530,542

5,001 – 10,000 9,415 70,835,782

10,001 – 100,000 7,433 168,223,676

100,001 and over 442 887,612,679

Total 89,584 1,282,032,285

There were 1,474 holders of less than a marketable parcel of ordinary shares.

B Twenty largest shareholders

The names of the twenty largest quoted equity security holders as they appear on the Tatts Group Limited share register are listed below:

Ordinary Shares

Name Number of Shares Percentage of Issued Shares

JP Morgan Nominees Australia Limited 169,097,010 13.19%

HSBC Custody Nominees (Australia) Limited 145,931,548 11.38%

National Nominees Limited 85,908,858 6.70%

RBC Dexia Investor Services Australia Nominees Pty Limited <RBC DRP a/c>

60,834,326 4.74%

Citicorp Nominees Pty Limited <DRP account> 31,075,165 2.42%

UBS Wealth Management Australia Nominees Pty Ltd 28,362,279 2.21%

Tassyd Pty Ltd <Estate Thomas Lyons a/c> 18,334,719 1.43%

Cogent Nominees Pty Limited 17,536,351 1.37%

ANZ Nominees Limited <Income Reinvest Plan a/c> 12,151,540 0.95%

AMP Life Limited 10,856,376 0.85%

Robin Edward Davey <Estate Alexander Hubbard a/c> 9,568,668 0.75%

Vermont Park Holdings Pty Ltd 8,961,135 0.70%

ANZ Nominees Limited <Cash Income a/c> 8,642,236 0.67%

Woodross Nominees Pty Ltd 7,247,923 0.56%

Wentworth Investments Pty Ltd 7,176,501 0.56%

Sank Pty Ltd <SJF Discretionary a/c> 6,769,231 0.53%

Credit Suisse Securities (Europe) Ltd <Collateral a/c> 6,250,000 0.49%

Bainpro Nominees Pty Limited 5,502,120 0.43%

CS Fourth Nominees Pty Ltd <Accumulation Account> 5,471,696 0.43%

Next trading Pty Limited <Stephen Grant Family a/c> 4,842,245 0.38%

Total 650,519,927 50.74%

Shareholder Information

For

per

sona

l use

onl

y

119

www.tattsgroup.com

C Domicile of ordinary shareholders

Domicile Number of Holders Percentage of Holders Number of Shares Percentage of Shares

Australian Capital Territory 914 1.0% 3,986,003 0.3%

New South Wales 11,183 12.5% 596,715,346 46.5%

Northern Territory 275 0.3% 1,349,121 0.1%

Queensland 48,165 53.8% 225,124,144 17.6%

South Australia 2,377 2.6% 19,257,729 1.5%

Tasmania 1,323 1.5% 70,801,071 5.5%

Victoria 22,086 24.6% 330,322,193 25.8%

Western Australia 2,845 3.2% 25,573,945 2.0%

Overseas 416 0.5% 8,902,733 0.7%

Total 89,584 100.0% 1,282,032,285 100.0%

D Unquoted Equity Securities

Number on Issue Number of Holders

Performance options in respect of ordinary shares issued under the Tatts Group Long-Term Incentive Plan 11,034,768 40

Performance rights in respect of ordinary shares issued under the Tatts Group Long-Term Incentive Plan 1,545,470 40

E Substantial shareholders

The following is the only substantial holder of ordinary shares in the Company based on the last notice received:

Perpetual Limited 65,286,363 5.09%

F Voting rights

The voting rights attaching to each class of equity securities are set out below:

(a) Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

(b) Performance Options and Rights No voting rights.

G On Market Buy-back

There is no current on-market buy-back in respect of Tatts Group’s ordinary shares.For

per

sona

l use

onl

y


This page intentionally left blank.

For

per

sona

l use

onl

y

121

www.tattsgroup.com

Registered and principal administrative office in AustraliaTatts Group Limited 615 St Kilda Road Melbourne VIC 3004 Telephone: + 61 3 8517 7777 ABN: 19 108 686 040

Website address www.tattsgroup.com

Australian Securities Exchange (ASX) listingTatts Group Limited shares are listed on the ASX under the code tts.

DirectorsRefer to profiles on pages 18 to 20.

Senior ExecutivesMichael CarrChief Executive Maxgaming

Barrie FlettonChief Executive UNiTAB Wagering

Penny GrauGeneral Counsel & Company Secretary

Raymond GunstonChief Financial Officer

Peter HarveyExecutive General Manager Talarius

Bruce HoustonExecutive General Manager Media, Government and Community Relations

Stephen LawrieChief Information Officer

Frank MakryllosChief Executive Tatts Pokies

Maree PataneChief Auditor

Kevin SzekelyChief Executive Bytecraft

Bill ThorburnChief Executive Lotteries

Investor RelationsGary Woodforde-mail: [email protected]

MediaMichael Mangose-mail: [email protected]

AuditorPricewaterhouseCoopersFreshwater Place Level 19, 2 Southbank BoulevardSouthbank VIC 3006

Share Registry Computershare Investor Services Pty LimitedYarra Falls, 452 Johnston StreetAbbotsford VIC 3067Email: [email protected] within Australia 1300 367 346Telephone outside Australia +61 3 9415 4199Fax +61 3 9473 2500

To maintain or update your details online and enjoy full access to all your holdings and other valuable information, simply visit www.investorcentre.com.

Corporate Directory

For

per

sona

l use

onl

y


Corporate Directory (continued)

Dividend History

Date Paid Type Cents Per Share DRP Share Price

5 April 2006 2006 Interim 8.75 -

26 September 2006 2006 Final 7.50 -

30 March 2007 2007 Interim 8.0 -

5 October 2007 2007 Final 10.0 -

5 October 2007 2007 Special 4.0 -

4 April 2008 2008 Interim 9.5 -

3 October 2008 2008 Special (1) 10.5 -

3 April 2009 2009 Interim 10.0 2.58

2 October 2009 2009 Final 11.0 2.52

6 April 2010 2010 Interim 10.0 2.44

1 October 2010 2010 Special (2) 11.0 (3)

All dividend payments are fully franked unless otherwise stated.(1) Paid in place of a 2008 Final Dividend - refer to ASX Releases dated 23 June and 28 August 2008.(2) Paid in place of a 2010 Final Dividend - refer to ASX Release dated 26 August 2010. (3) Not available at date of printing. Refer to www.tattsgroup.com/investors

Shareholder Calendar

2011 Events Calendar Dates

Interim Results announcement 24 February 2011

Ex Dividend 2 March 2011

Record Date 8 March 2011

DRP Pricing period 10 to 24 March 2011

Dividend Payment 6 April 2011

Full year Results announcement 25 August 2011

Ex Dividend 1 September 2011

Record Date 7 September 2011

DRP Pricing period 9 to 22 September 2011

Dividend Payment 5 October 2011

Annual General Meeting 27 October 2011

All dates may be subject to change and will be updated under Investors at www.tattsgroup.com.

For

per

sona

l use

onl

y

123

www.tattsgroup.com

Major Announcements

18 August 2009 Announcement of withdrawal from the sale of Tote Tasmania.

27 August 2009 2009 full year results and dividend details released

19 October 2009 Extension of Victorian gaming licence by four months to 15 August 2012.

30 October 2009 2009 Annual General Meeting presentations.

2 November 2009 Announcement of the disposal of the South African gaming operations.

25 February 2010 2010 half year results and dividend details released.

2 March 2010 Announcement of the successful acquisition of NSW Lotteries.

1 April 2010 Completion of the NSW Lotteries acquisition.

29 June 2010 A$140 million write down of the carrying value of the Talarius investment.

30 June 2010 Completion of the sale of the South African gaming operations.

26 August 2010 2010 full year results and dividend details released.

All announcements available under Investors at www.tattsgroup.com

For

per

sona

l use

onl

y


Company Snapshot

• 0.1% of Group Revenue from WA• 29 employees

• 49 UNiTAB Wagering outlets• 25 Tatts Lotteries outlets• Maxgaming monitoring 1,176 EGMs• CentreRacing, bookmaker• 0.7% of Group Revenue from NT employees• 25 employees• $22.5M taxes paid

Note: Information reflects only 3 months contribution from NSW Lotteries which commenced operations under a new licence on 1 April 2010.

• 170 EGM venues• 2.7% of Group Revenue from UK• 916 employees• $12.2M taxes paid

• 339 UNiTAB Wagering outlets• 1.7% of a Group Revenue from SA• 306 employees• $20.7M taxes paid

For

per

sona

l use

onl

y

• 1,109 Tatts Lotteries outlets • Maxgaming monitoring 34,519 EGM’s • 716 UNiTAB Wagering outlets • 32.4% of Group Revenue from QLD• 1,155 employees • $338.1M taxes paid

• Maxgaming monitoring 97,572 EGMs• 1,683 Tatts Lotteries outlets (inc. ACT)• 7.5% of Group Revenue from NSW/ACT• 304 employees (inc. ACT)• $104.8M taxes paid in NSW/ACT

• 927 Tatts Lotteries Outlets• 249 EGM venues• 53.6% of Group Revenue from VIC• 411 employees• $998.5M taxes paid

• 87 Tatts Lotteries outlets• 1.3% of Group Revenue from TAS• 3 employees• $29.1M taxes paid

For

per

sona

l use

onl

y

www.tattsgroup.comF

or p

erso

nal u

se o

nly

2010 Annual Report ASX 2 - Amazon S3 · cents per share. 3. Product and Program fees have been...

Documents

Transcript of 2010 Annual Report ASX 2 - Amazon S3 · cents per share. 3. Product and Program fees have been...