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1 8 September 2017 TATTS SHAREHOLDERS TO VOTE ON SCHEME OF ARRANGEMENT FOR PROPOSED MERGER WITH TABCORP Scheme Meeting Update Tatts Group Limited (Tatts) advises that the Supreme Court of Victoria has today ordered that a meeting of Tatts shareholders (Scheme Meeting) be convened to consider and vote on the proposed Scheme of Arrangement (Scheme) in relation to the previously announced merger to combine Tatts and Tabcorp Holdings Limited (Proposed Merger). The Scheme Meeting will be held at 10.00am (Brisbane time) on Wednesday, 18 October 2017 at the Brisbane Convention & Exhibition Centre, corner Merivale and Glenelg Streets, South Bank, Brisbane, Queensland. All Tatts shareholders are encouraged to vote either by attending the Scheme Meeting in person, or by lodging a proxy form with the Tatts share registry by 10.00am (Brisbane time) on Monday, 16 October Details of how to lodge a proxy form are included in the scheme booklet in relation to the Scheme for the Proposed Merger (Scheme Booklet). Scheme Booklet Registration The Scheme Booklet has today been registered by the Australian Securities and Investments Commission. A copy of the Scheme Booklet, including the Independent Expert s Report, a notice of Scheme Meeting and a copy of the proxy form for the Scheme Meeting, is attached to this announcement and will be sent to Tatts shareholders on or about Monday, 18 September The Independent Expert, Grant Samuel & Associates Pty Limited, has concluded that the Scheme is in the best interests of Tatts shareholders, in the absence of a superior proposal. The Independent Expert s conclusions should be read in the context of the full Independent Expert s Report and the Scheme Booklet attached to this announcement. The Tatts Board unanimously recommends that shareholders vote in favour of the Scheme, in the absence of a superior proposal and subject to the Independent Expert continuing to conclude that the Scheme is in the best interests of Tatts shareholders. Subject to those same qualifications, each Tatts Director intends to vote in favour of the Scheme in relation to Tatts shares held or controlled by them. Status of Regulatory Approvals The Proposed Merger was granted authorisation by the Australian Competition Tribunal on 22 June The Australian Competition and Consumer Commission (ACCC) and CrownBet Pty Ltd (CrownBet) subsequently applied to the Federal Court of Australia for judicial review of the Tribunal's authorisation. The Full Court of the Federal Court heard both the ACCC s and CrownBet s applications on 28 and 29 August 2017 and the parties are currently awaiting Page 1 of 2

2 the Court's decision. The parties remain confident that the Tribunal s authorisation will be upheld. Tatts has been informed by Tabcorp that there is one remaining regulatory approval which is required from South Australia. Tabcorp is also engaging with the NT Director General of Licensing in relation to clarifying the scope of the approval it issued. Tabcorp expects to receive these final approvals before the scheduled date of the Scheme Meeting. Indicative Timetable for the Scheme The indicative timetable for the Scheme is set out below. Event Expected date 1 Scheme Booklet dispatched to Tatts shareholders 18 September 2017 Latest date for proxy forms to be received by Tatts share registry Scheme Meeting to vote on the Scheme 10.00am (Brisbane time) on 16 October am (Brisbane time) on 18 October 2017 Second Court Date for approval of the Scheme 24 October 2017 Effective Date of the Scheme 24 October 2017 Special Dividend Record Date 25 October 2017 Special Dividend Payment Date 27 October 2017 Scheme Record Date (for determining entitlement to Scheme Consideration) 27 October 2017 Scheme Implementation Date 1 November 2017 Further Information Tatts shareholders can obtain further information in relation to the Scheme Booklet or the Proposed Merger by calling the Tatts shareholder information line on (callers within Australia) or (callers outside Australia) on business days between 8.30am and 5.30pm (Brisbane time). ---ooo--- 1 All dates are indicative only and subject to change. Page 2 of 2

3 SCHEME BOOKLET For a scheme of arrangement in relation to the proposed combination of Tatts Group Limited (ABN ) and Tabcorp Holdings Limited (ABN ) Time and date of Scheme Meeting Time: 10:00 am (Brisbane time) Date: 18 October 2017 Venue: Brisbane Convention & Exhibition Centre, cnr Merivale & Glenelg St, South Bank, QLD 4101 VOTE IN FAVOUR THE TATTS DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOUR OF THE RESOLUTION TO APPROVE THE SCHEME, IN THE ABSENCE OF A SUPERIOR PROPOSAL. THE INDEPENDENT EXPERT HAS CONCLUDED THAT THE SCHEME IS IN THE BEST INTERESTS OF TATTS SHAREHOLDERS, IN THE ABSENCE OF A SUPERIOR PROPOSAL. This is an important document and requires your immediate attention. You should read this document in its entirety before deciding how to vote on the Scheme. If you are in any doubt as to how to deal with this document, please consult your legal, investment, tax or other professional adviser immediately. If you have recently sold all of your Tatts Shares, please ignore this document. Tatts Shareholders who have any questions or require further information about the Scheme should contact the Tatts Shareholder Information Line on (within Australia) or (outside Australia), Monday to Friday, between 8.30am and 5.30pm. Financial Adviser Legal Adviser

4 Tatts Group Limited Scheme Booklet For a scheme of arrangement between Tatts Group Limited (ABN ) and its shareholders in relation to the proposed combination of Tatts and Tabcorp Holdings Limited (ABN ). The Tatts Directors unanimously recommend that you vote in favour of the resolution to approve the Scheme, in the absence of a Superior Proposal. The Independent Expert has concluded that the Scheme is in the best interests of Tatts Shareholders, in the absence of a superior proposal. This is an important document and requires your immediate attention. You should read this document in its entirety before deciding how to vote on the Scheme. If you are in any doubt as to how to deal with this document, please consult your legal, investment, tax or other professional adviser immediately. If you have recently sold all of your Tatts Shares, please ignore this document. A Notice of Scheme Meeting is included as Annexure E, and a Proxy Form for the Scheme Meeting accompanies this Scheme Booklet. The Scheme Meeting will be held at 10.00am on 18 October 2017 at the Brisbane Convention & Exhibition Centre, corner Merivale and Glenelg Streets, South Bank, Brisbane, Queensland. 2 Tatts Group Limited Scheme Booklet

5 Contents 1. Letter from the Chairman of Tatts 7 2. Letter from the Chairman of Tabcorp 9 3. Key dates Overview of the Transaction Why you should vote in favour of the Scheme Why you may consider voting against the Scheme Other relevant considerations in relation to voting on the Scheme Frequently asked questions Meeting details and how to vote Profile of Tatts Group Profile of Tabcorp Profile of the Combined Group Risk factors Implementation of the Scheme Tax implications Additional information Definitions and interpretation 112 Annexure A - Independent Expert s Report 119 Annexure B - Investigating Accountant s Report 341 Annexure C - Scheme of Arrangement 349 Annexure D - Deed Poll 369 Annexure E - Notice of Scheme Meeting 377 3

6 Important Notices Date of Scheme Booklet This Scheme Booklet is dated 8 September This Scheme Booklet contains important information This is an important document and requires your immediate attention. This Scheme Booklet is the explanatory statement for the Scheme required by section 412(1) of the Corporations Act. The purpose of this Scheme Booklet is to explain the terms and effects of the Scheme, the manner in which the Scheme will be considered and Implemented (if approved by the Requisite Majorities of Tatts Shareholders and by the Court), and to provide information as is prescribed or otherwise material to the decision of Tatts Shareholders regarding how to vote on the Scheme. You should read this Scheme Booklet in its entirety before making a decision as to whether or not to vote in favour of the Scheme. If you have sold all of your Tatts Shares as at the date of this Scheme Booklet, please ignore this Scheme Booklet. Status of the Scheme Booklet This Scheme Booklet is not a disclosure document required by Chapter 6D of the Corporations Act. Section 708(17) of the Corporations Act provides that Chapter 6D of the Corporations Act does not apply in relation to arrangements under Part 5.1 of the Corporations Act approved at a meeting held as a result of an order under section 411(1) of the Corporations Act. Instead, Tatts Shareholders asked to vote on an arrangement at such a meeting must be provided with an explanatory statement as referred to above. Responsibility for information The Tatts Information has been prepared by Tatts and is the sole responsibility of Tatts. Neither Tabcorp nor any of the Tabcorp Directors, Tabcorp s Subsidiaries, officers, employees or advisers assume any responsibility for the accuracy or completeness of the Tatts Information. The Tabcorp Information has been provided by Tabcorp and is the sole responsibility of Tabcorp. Neither Tatts nor any of the Tatts Directors, Tatts Subsidiaries, officers, employees or advisers assume any responsibility for the accuracy or completeness of the Tabcorp Information. Grant Samuel has prepared the Independent Expert s Report in relation to the Scheme contained in Annexure A and takes sole responsibility for that report. None of Tatts, Tabcorp, the Tatts Directors, the Tabcorp Directors, or any of their respective Subsidiaries, officers, employees or advisers assume any responsibility for the accuracy or completeness of the information contained in the Independent Expert s Report, except, in the case of Tatts and Tabcorp respectively, in relation to the information which it has provided to the Independent Expert. PwC Securities Ltd has prepared the Investigating Accountant s Report in relation to the Scheme contained in Annexure B and takes sole responsibility for that report. None of Tatts, Tabcorp, the Tatts Directors, the Tabcorp Directors, or any of their respective Subsidiaries, officers, employees or advisers assume any responsibility for the accuracy or completeness of the information contained in the Investigating Accountant s Report. No consenting party, as listed in Section 16.9, has withdrawn their consent to be named before the date of this Scheme Booklet. ASIC, ASX and the Court A copy of this Scheme Booklet has been provided to ASIC for examination for the purpose of section 411(2)(b) of the Corporations Act and has been registered by ASIC for the purpose of section 412(6) of the Corporations Act. ASIC has reviewed a copy of this Scheme Booklet. Tatts has asked ASIC to provide a statement, in accordance with section 411(17)(b) of the Corporations Act, that ASIC has no objection to the Scheme. ASIC s policy in relation to statements under section 411(17)(b) of the Corporations Act is that it will not provide such a statement until the Second Court Date. This is because ASIC will not be in a position to advise the Court until it has had an opportunity to observe the entire Scheme process. If ASIC provides that statement, it will be produced to the Court at the time of the hearing on the Second Court Date. A copy of this Scheme Booklet has been lodged with the ASX. Neither ASIC nor the ASX nor any of their respective officers take any responsibility for the contents of this Scheme Booklet. Important notice associated with the Court order under section 411(1) of the Corporations Act The fact that the Court has ordered under section 411(1) of the Corporations Act that the Scheme Meeting be convened and has directed that the Scheme Booklet accompany the Notice of Scheme Meeting does not mean that the Court: (a) has formed any view as to the merits of the proposed Scheme nor as to how Tatts Shareholders should vote (on this matter Tatts Shareholders must reach their own decision); (b) has prepared, or is responsible for, the content of the Scheme Booklet; or (c) has approved or will approve the terms of the Scheme. No investment advice The information and recommendations contained in this Scheme Booklet do not constitute financial product advice and have been prepared without reference to the investment objectives, financial situation, tax position and particular needs of individual Tatts Shareholders or any other person. The information in this Scheme Booklet should not be relied upon as the sole basis for any investment decision in relation to the Scheme or the Tatts Shares. It is important that you consider the information in this Scheme Booklet in light of your particular circumstances. In particular, it is important that you consider the potential risks if the Scheme does not proceed, as set out in Section 7.2 of this Scheme Booklet, and the views of the Independent Expert set out in the Independent Expert s Report contained in Annexure A. You should seek advice from your own independent and appropriately licensed financial, tax or other professional adviser before making any decision regarding the Scheme or how to vote in relation to the Scheme. 4 Tatts Group Limited Scheme Booklet

7 Not an offer This Scheme Booklet does not in any way constitute an offer to sell, or a solicitation of an offer to buy, any securities in Tabcorp or Tatts in any place or jurisdiction where an offer or solicitation would be illegal. Foreign shareholders Ineligible Foreign Shareholders may not be entitled to receive New Tabcorp Shares pursuant to the Scheme and should refer to Section 4.5 in respect of the consideration that they will receive if the Scheme is Implemented. The release, publication or distribution of this Scheme Booklet (electronically or otherwise) in jurisdictions other than Australia may be restricted by law or regulation in such other jurisdictions and persons outside of Australia who come into possession of this Scheme Booklet should seek advice on and observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable laws or regulations. This Scheme Booklet has been prepared in accordance with Australian law and the information contained in this Scheme Booklet may not be the same as that which would have been disclosed if this Scheme Booklet had been prepared in accordance with the laws and regulations of any other country. See Section 16.8 for specific restrictions on the distribution and use of this document in Canada, Finland, France, Germany, Hong Kong, Japan, Malaysia, The Netherlands, New Zealand, Singapore, Sweden, Taiwan, Thailand, United Arab Emirates, the United Kingdom and the United States of America. Forward looking statements Certain statements in this Scheme Booklet (including in the Independent Expert s Report) relate to the future, and all statements other than statements of historical fact are (or may be interpreted to be) forward looking statements. These forward looking statements generally may be identified by the use of forward looking words such as believe, expect, anticipate, may, aim, intending, foreseeing, should, planned, estimate, likely, potential, or other similar words. Statements describing the objectives, expectations, goals or plans of Tatts or Tabcorp are or may be forward looking statements. These forward looking statements are opinions only and involve known and unknown risks, uncertainties, assumptions and other important factors that may be beyond the control of Tatts or Tabcorp (or the Combined Group), and that could cause the actual results, performance or achievements of Tatts or Tabcorp (or the Combined Group) to be materially different from future results, performance or achievements expressed or implied by such statements, or that could cause future conduct to be materially different from historical conduct. Such risks, uncertainties, assumptions and other important factors include, among other things, factors and risks specific to Tatts and Tabcorp and the industries in which they operate, as well as general economic conditions, exchange rates, interest rates, the regulatory environment, competitive pressures, conditions in financial markets, selling prices and market demand. As a result, actual events and results of operations and earnings of Tatts or Tabcorp (or the Combined Group) following Implementation of the Scheme, as well as the advantages of the Scheme, may differ substantially in timing, amount or nature, or may not ever be achieved, from those which are anticipated or forecast in any forward looking statement. Such deviations are both normal and to be expected. Further detail on the risks associated with the Scheme are set out in Section 13. None of Tatts, the Tatts Directors, Tatts officers, employees or advisers, Tabcorp, the Tabcorp Directors, Tabcorp s officers, employees or advisers, or any of their respective Subsidiaries, or other person named in this Scheme Booklet or involved in the preparation of this Scheme Booklet gives any representation, assurance, guarantee or warranty (express or implied) that the events expressed or implied in any forward looking statement in this Scheme Booklet will actually occur. You should not place any undue reliance on any such forward looking statements. Although the forward looking statements included in the Tatts Information have been made on reasonable grounds and Tatts believes there is a reasonable basis for those statements, no assurance is made that such views will prove to have been correct. Although the forward looking statements included in the Tabcorp Information have been made on reasonable grounds and Tabcorp believes there is a reasonable basis for those statements, no assurance is made that such views will prove to have been correct. The forward looking statements in this Scheme Booklet reflect views held only at the date of this Scheme Booklet and these views may change. Additionally, statements of the intentions of Tatts and Tabcorp reflect the respective party s present intentions as at the date of this Scheme Booklet and may also be subject to change. The historical financial performance of Tatts or Tabcorp is no assurance or indicator of future financial performance of the Combined Group (or Tatts or Tabcorp in the scenario where the Scheme does not proceed). Neither Tatts nor Tabcorp guarantees any particular rate of return or the performance of the Combined Group, nor do they guarantee the repayment of capital or any particular tax treatment in respect of any investment in the Combined Group. Subject to any continuing obligations under law or the ASX Listing Rules, Tatts, Tabcorp, their respective Subsidiaries, the Tatts Directors, the Tabcorp Directors and their respective officers, employees and advisers, disclaim any obligation or undertaking to disseminate after the date of this Scheme Booklet any updates or revisions to any forward looking statement to reflect any change in views or expectations in relation to any statement or change in events, conditions or circumstances on which any statement is based. Any subsequent forward looking statements (whether written or oral) which can be attributed to Tatts or Tabcorp or the Tatts Directors or the Tabcorp Directors, or their respective officers or advisers is taken to be qualified by this disclaimer. Implied value You will receive some of your Scheme Consideration as New Tabcorp Shares. The value of your Scheme Consideration will therefore vary based on changes in the price of Tabcorp Shares. Any reference to the implied value of the Scheme Consideration should not be taken as an indication that the implied value is fixed. If you are an Ineligible Foreign Shareholder, this also applies to the New Tabcorp Shares which will be remitted to a Nominee to sell on your behalf. The amount of any proportion of the net proceeds of sale remitted to you will depend on the market price of New Tabcorp Shares at the time of sale by the Nominee. Tax implications of the Scheme Section 15 provides a general outline of the Australian tax consequences for Tatts Shareholders who participate in the Scheme. It does not purport to be a complete analysis or to identify all potential tax consequences of the Scheme, nor is it intended to replace the need for specialist tax advice in respect of the particular circumstances of individual Tatts Shareholders. Section 15 also contains general information in relation to tax consequences of the Scheme for Tatts Shareholders who are not Australian residents. All Tatts Shareholders should consult their tax adviser as to the applicable tax consequences of the Scheme in relation to their particular circumstances in the relevant jurisdiction. IMPORTANT NOTICES 5

8 Privacy and personal information Tatts and its agents and representatives may collect personal information in the process of Implementing the Scheme. The personal information may include the names, addresses, other contact details, bank account details and details of the shareholdings of Tatts Shareholders, and the names of individuals appointed by Tatts Shareholders as proxies, corporate representatives or attorneys at the Scheme Meeting. The collection of some of this information is required or authorised by the Corporations Act. The primary purpose of the collection of personal information is to assist Tatts to conduct the Scheme Meeting and Implement the Scheme. Without this information, Tatts may be hindered in its ability to issue this Scheme Booklet, conduct the Scheme Meeting or Implement the Scheme. Personal information of the type described above may be disclosed to the Tatts Share Registry, print and mail service providers (and third parties otherwise involved in the conduct of the Scheme Meeting), authorised securities brokers, professional advisers, Tabcorp and its Related Bodies Corporate, Tatts and its Related Bodies Corporate and Government Agencies to the extent necessary to Implement the Scheme, and also where disclosure is otherwise required or allowed by law. Tatts Shareholders who are individuals and the other individuals in respect of whom personal information is collected as outlined above have certain rights to access the personal information collected in relation to them. Such individuals who wish to exercise these rights should contact the Tatts Share Registry by to or in writing by fax to (within Australia) or to (outside Australia) or by mail to Computershare Investor Services Pty Limited of GPO Box 242, Melbourne, Victoria, Australia Tatts Shareholders who appoint an individual as their proxy, corporate representative or attorney to vote at the Scheme Meeting should inform such individual of the matters outlined above. Notice of Scheme Meeting The Notice of Scheme Meeting is set out in Annexure E. Notice of Second Court Date On the Second Court Date, the Supreme Court of Victoria will consider whether to approve the Scheme following the vote at the Scheme Meeting. Any Tatts Shareholder may appear at the hearing on the Second Court Date, expected to be held at 10.00am on Tuesday, 24 October 2017 at the Supreme Court of Victoria in Melbourne. Any Tatts Shareholder who wishes to oppose approval of the Scheme on the Second Court Date may do so by filing with the Court and serving on Tatts a notice of appearance in the prescribed form together with any affidavit that the Tatts Shareholder proposes to rely on. No internet site is part of this Scheme Booklet The contents of the Tatts Group s and the Tabcorp Group s websites do not form part of this Scheme Booklet and Tatts Shareholders should not rely on information of a general nature contained on those websites (i.e. information which is not specifically related to the Scheme) in relation to making any decision in respect of the Scheme. Defined Terms Capitalised terms used in this Scheme Booklet are defined in Section 17.1 of this Scheme Booklet, or defined within the Section they appear. Section 17.2 also sets out some rules of interpretation which apply to this Scheme Booklet. Some of the documents reproduced in the annexures to this Scheme Booklet have their own defined terms, which are sometimes different to those set out in Section Financial amounts All financial amounts in this Scheme Booklet are expressed in Australian currency unless otherwise stated. Any discrepancies between totals in tables or financial statements, or in calculations, graphs or charts are due to rounding. Accordingly, actual calculations may differ from amounts set out in this Scheme Booklet. All financial and operational information set out in this Scheme Booklet is current as at the date of this Scheme Booklet, unless otherwise stated. Charts and diagrams Any diagrams, charts, graphs or tables appearing in this Scheme Booklet are illustrative only and may not be drawn to scale. Unless stated otherwise, all data contained in diagrams, charts, graphs and tables is based on information available as at the date of this Scheme Booklet. Timetable and dates All times and dates referred to in this Scheme Booklet are times and dates in Brisbane, Queensland, Australia, unless otherwise indicated. All times and dates relating to the Implementation of the Scheme referred to in this Scheme Booklet may change and, among other things, are subject to all necessary approvals from Government Agencies. Additional information about the Scheme Tatts Shareholders who have any questions or require further information about the Scheme should contact the Tatts Shareholder Information Line on (within Australia) or (outside Australia), Monday to Friday, between 8.30am and 5.30pm. Tatts Shareholders should seek independent legal, investment, tax or other professional advice before making any decision regarding the Scheme or how to vote. In accordance with Section 16.14, in certain circumstances, Tatts may provide supplementary information to Tatts Shareholders in relation to the Scheme after the date of this Scheme Booklet. To the extent applicable, Tatts Shareholders should have regard to any such additional information in determining how to vote in relation to the Scheme. 6 Tatts Group Limited Scheme Booklet

9 1. Letter from the Chairman of Tatts Dear Tatts Shareholder, 8 September 2017 On behalf of the Tatts Board, I am pleased to provide you with this Scheme Booklet, which sets out the details of the proposed combination of Tatts and Tabcorp and matters relevant to your vote on the Scheme which will implement the proposed combination. On 19 October 2016, Tatts and Tabcorp announced they had reached an agreement to combine the two companies via a Tatts scheme of arrangement, in which Tatts Shareholders will receive 0.80 Tabcorp Shares plus 42.5 cents cash for each Tatts Share held (Transaction). The Transaction brings together two highly complementary businesses and creates a leading, diversified portfolio of gambling entertainment businesses well placed to compete in a rapidly evolving marketplace and pursue growth opportunities globally. The Combined Group is expected to have pro-forma annual revenue of approximately $5 billion and EBITDA (before significant items and synergies) over $915 million 1 and upon Implementation of the Scheme, existing Tatts Shareholders will own approximately 58% of the Combined Group. Based on the closing price of Tabcorp Shares on the last Trading Day prior to the announcement of the Transaction (being $4.89 per Tabcorp Share as at 17 October 2016) the Transaction implies a value of $4.34 per Tatts Share (before the value of synergies and business improvements). 2 This represents: a premium of approximately 20.8% to the closing price of Tatts Shares as at 17 October 2016 ($3.59 per Tatts Share); and a premium of approximately 17.1% to the 30 day VWAP of Tatts Shares prior to announcement of the Scheme. 3 Based on the closing price of Tabcorp Shares on 7 September 2017, being the last Trading Day prior to the date of this Scheme Booklet, the implied value of the Scheme Consideration is $3.66 per Tatts Share. Tabcorp s trading price may reflect a range of factors including but not limited to (i) uncertainty in relation to obtaining approvals to authorise the combination of Tatts and Tabcorp and (ii) realisation of synergy benefits and business improvements from the merger not currently reflected in Tabcorp s share price which may be recognised by the market over time. Tatts intends to pay Tatts Shareholders a fully franked Tatts Special Dividend of $0.12 per Tatts Share (subject to the availability of franking credits) immediately prior to Implementation of the Scheme. If the Tatts Special Dividend is paid, the Cash Consideration will be reduced by the amount of the Tatts Special Dividend. A fully franked dividend of $0.12 per Tatts Share would have approximately $0.05 per Tatts Share of franking credits attached. The Transaction is also expected to deliver at least $130 million per annum of EBITDA from synergies and business improvements. These increased earnings are expected to be realised in the first full year following integration of the businesses which is expected to take approximately two years, subject to the receipt of all necessary regulatory approvals. There will be net one-off integration costs and capital expenditure to achieve these synergies and improvements and these are expected to be approximately $141 million (pre-tax). 4 The Tatts Board believes the consideration received under the Transaction and the share of synergies to be realised by Tatts shareholders fairly reflects the strategic value of Tatts businesses. Further, the scrip consideration allows Tatts Shareholders the opportunity to participate as shareholders in the Combined Group, with ongoing exposure to a larger wagering business which is well placed to compete in the rapidly evolving wagering market, while also retaining exposure to Tatts unique lotteries business. The Transaction follows a review undertaken by the Tatts Board, Tatts management team and its advisers, of opportunities available to Tatts to deliver more value to Tatts Shareholders, including demerging one or more of Tatts business units, selling certain assets and maintaining the status quo. The Tatts Board also assessed the attractiveness of the Pacific Consortium proposals in December 2016 and April 2017 and on each of these occasions determined that they were not Superior Proposals. Subsequently on 28 April 2017 the Pacific Consortium announced that it did not intend to undertake further work on its proposal. Having considered these alternative opportunities, the Tatts Board has determined that the Transaction is in the best interests of Tatts Shareholders in the absence of a Superior Proposal. A recognised Independent Expert, Grant Samuel, was appointed by the Tatts Board to prepare an Independent Expert s Report in relation to the Scheme. The Independent Expert has concluded that the Scheme is in the best interests of Tatts Shareholders, in the absence of a superior proposal. 1 Please refer to Section 12.1 for further information. The Proforma EBITDA (excluding significant items) of the Combined Group for FY17 of $915 million (refer Section 12.5), does not include the expected potential synergies and business improvements arising following Implementation of at least $130 million per annum of EBITDA (refer Section 12.2) nor any associated one-off implementation costs (refer Section 12.5). 2 Based on the closing price of Tabcorp Shares on the last Trading Day prior to the announcement of the Transaction (being $4.89 per Tabcorp Share as at 17 October 2016). 3 Please refer to Section 5.3 for other VWAP calculations. 4 Excludes transaction costs associated with the Scheme (which are estimated to be $200 million (pre-tax) of which $67 million had been incurred prior to 30 June 2017). Please refer to Section 12.5 for further details in relation to the impact of these net one-off costs and capital expenditures on Tabcorp s ongoing interest expense. LETTER FROM THE CHAIRMAN OF TATTS 7

10 The Tatts Board has considered the advantages and disadvantages of the Scheme and unanimously recommends that you vote in favour of the Scheme, in the absence of a Superior Proposal. Each Tatts Director intends to vote in favour of the Scheme in relation to the Tatts Shares held or controlled by them, in the absence of a Superior Proposal. You should take into consideration all of the information set out in this Scheme Booklet when deciding whether or not to vote in favour of the Scheme and Section 6 of this Scheme Booklet summarises the reasons identified by the Tatts Board as to why you may not want to vote in favour of the Scheme. The Scheme can only be Implemented if approved by Tatts Shareholders at the Scheme Meeting to be held at 10.00am (Brisbane time) on Wednesday, 18 October 2017 at the Brisbane Convention & Exhibition Centre, corner Merivale and Glenelg Streets, South Bank, Brisbane, Queensland and the Conditions Precedent are satisfied. The Transaction was granted authorisation by the Australian Competition Tribunal on 22 June The ACCC and CrownBet subsequently applied to the Federal Court of Australia for judicial review of the Tribunal s authorisation and the parties are currently awaiting the Full Court s decision. The parties remain confident that the Tribunal s authorisation will be upheld. 5 It is expected that the remaining regulatory approvals will be obtained before the scheduled date of the Scheme Meeting. Your vote is important and I strongly encourage you to read this Scheme Booklet carefully and cast an informed vote on the Scheme. If you do not wish to, or are unable to attend the Scheme Meeting in person, I encourage you to vote by completing the accompanying personalised Proxy Form and returning it to the Tatts Share Registry so that it is received no later than 48 hours prior to the commencement of the Scheme Meeting (Brisbane time). If you have any questions or require further information in relation to this Scheme Booklet or the Scheme, you should call the Tatts Shareholder Information Line on (callers within Australia) or (callers outside Australia) on Business Days between 8.30am and 5.30pm (Brisbane time). If you are in any doubt as to what you should do, you should consult an independent, appropriately licensed and authorised financial, legal and / or tax adviser without delay. On behalf of the Tatts Board I would like to take this opportunity to thank you for your ongoing support and I look forward to your participation at the Scheme Meeting. Yours sincerely Harry Boon, Chairman Tatts Group Limited 5 Please refer to Section 14.2(a)(i) for further information. 8 Tatts Group Limited Scheme Booklet

11 2. Letter from the Chairman of Tabcorp Dear Tatts Shareholder, 8 September 2017 On behalf of Tabcorp, it is our pleasure to provide you with the opportunity to become a shareholder in the Combined Group, and to benefit from the combination of two highly complementary businesses to create a world-class, diversified gambling entertainment group. Tabcorp is a major Australian gambling entertainment company and one of the largest publicly listed gambling businesses in the world. The company is the leader in the Australian wagering, racing media, gaming services and Keno industries, with operations across Australia and internationally. Tabcorp employs more than 3,000 people and is one of the ASX 100 listed companies (based on market capitalisation), with a market capitalisation of more than $3 billion as at the date of this Scheme Booklet. We are excited by the improved shareholder value and other benefits that will arise from the Transaction, if the Scheme is approved. As a Tatts Shareholder you have the opportunity to vote on the Scheme. A vote in favour of the Scheme will secure the combination of the two businesses. The Transaction is expected to unlock substantial value for both Tatts and Tabcorp shareholders, with at least $130 million per annum of EBITDA from synergies and business improvements expected to be delivered. These earnings are expected to be realised in the first full year after integration of the businesses. Integration is expected to take approximately two years, subject to the receipt of all necessary regulatory approvals. The net one-off integration costs and capital expenditure are expected to be approximately $141 million (pre-tax). 6 In addition to the shareholder value created by the Combined Group, the combination will deliver increased benefits to the racing industry. Upon completion of the Scheme, existing Tatts Shareholders will own approximately 58% of the Combined Group. The Combined Group will bring together the best talent from both Tatts and Tabcorp, ensuring that it is well positioned to invest, innovate and compete in a rapidly evolving operating environment. The Combined Group will have a well-diversified portfolio of licences that will provide a stable platform for investment and innovation in years to come. The Transaction is expected to further contribute to the sustainability of the Australian racing industry, support Australian business partners and enhance the product offering for our customers. The Transaction was granted authorisation by the Australian Competition Tribunal on 22 June The ACCC and CrownBet Pty Ltd subsequently applied for judicial review of the decision and this process is currently on foot. The parties remain confident that the Tribunal s authorisation will be upheld. Further information is contained in Section It is expected the remaining regulatory approvals will be obtained before the scheduled date for the Scheme Meeting. This Scheme Booklet provides important information in relation to the Scheme. Further details of the benefits of the Scheme to Tatts Shareholders and reasons why you may consider voting for or against the Scheme are set out in Section 5 and Section 6 respectively. On behalf of Tabcorp I encourage you to read this Scheme Booklet carefully and vote in favour of the Scheme at the Scheme Meeting to be held on Wednesday, 18 October 2017 at 10.00am. We look forward to welcoming you as a Tabcorp Shareholder following successful Implementation. Yours sincerely Paula J. Dwyer, Chairman Tabcorp Holdings Limited 6 Excludes transaction costs associated with the Scheme. The impact of net one-off integration costs and capital expenditure on the Combined Group s ongoing interest expense (reflected in the Combined Group Pro-Forma Financial Information in Section 12.5) is expected to be approximately $6 million per annum (before taking into account the benefit to the Combined Group's interest expense as a result of debt paydown as synergies are realised). LETTER FROM THE CHAIRMAN OF TABCORP 9

12 3. Key dates Event Time and Date Date of this Scheme Booklet Friday, 8 September 2017 First Court Date Friday, 8 September 2017 Scheme Booklet and Notice of Scheme Meeting to be despatched to Tatts Shareholders Latest date for Proxy Forms or powers of attorney to be received by the Tatts Share Registry for the Scheme Meeting Time and date for determining eligibility to vote at the Scheme Meeting Monday, 18 September am on Monday, 16 October pm on Monday, 16 October 2017 Scheme Meeting 10.00am on Wednesday, 18 October 2017 IF THE SCHEME IS APPROVED BY TATTS SHAREHOLDERS Event Time and Date Second Court Date Tuesday, 24 October 2017 Effective Date Court order to be lodged with ASIC and announcement to the ASX Trading in Tatts Shares on the ASX to be suspended from close of trading New Tabcorp Shares to commence trading on the ASX on a deferred settlement basis Tatts Special Dividend Record Date Tatts Special Dividend Record Date to determine entitlements to the Tatts Special Dividend Tatts Special Dividend Payment Date Payment date for the Tatts Special Dividend Scheme Record Date Scheme Record Date to determine entitlements to Scheme Consideration Implementation Date Scheme Consideration to be paid and issued (as applicable) to Scheme Shareholders on the Implementation Date Tuesday, 24 October 2017 Wednesday, 25 October 2017 Wednesday, 25 October 2017 Friday, 27 October 2017 Friday, 27 October 2017 Wednesday, 1 November 2017 Except where otherwise specified, all times and dates in the above timetable are references to the time and date in Brisbane (Queensland), Australia and all such times and dates are subject to change. Tatts may vary any or all of these dates and times and will provide reasonable notice of any such variation. In particular, the date of the Scheme Meeting may be postponed or adjourned if the Conditions Precedent relating to competition and other regulatory approvals (refer to Sections 14.2(a)(i) and 14.2(a)(ii) for further information) have not been satisfied or waived. Certain times and dates are conditional on the approval of the Scheme by Tatts Shareholders and by the Court. Any changes will be announced by Tatts to the ASX. 10 Tatts Group Limited Scheme Booklet

13 4. Overview of the Transaction 4.1 BACKGROUND TO THE TRANSACTION In September 2016, Tatts received an unsolicited proposal from Tabcorp to combine the two companies. The Tatts Board assessed the merits of Tabcorp s proposal to determine whether this was a compelling transaction for Tatts Shareholders. This followed a review undertaken by the Tatts Board, Tatts management team, and its advisers, of opportunities available to Tatts to deliver more value to Tatts Shareholders. These included considering demerging one or more of Tatts business units, selling certain assets and maintaining the status quo. In light of these alternative opportunities, the Tatts Board determined that Tabcorp s proposal was in the best interests of Tatts Shareholders in the absence of a Superior Proposal. Changes in competitive landscape The review was carried out in the context of the significant changes to the markets in which Tatts and Tabcorp operate. There have been substantial changes in the Australian wagering industry over the last decade, which have affected the competitive positions of both Tatts and Tabcorp. The market is continuing to experience significant structural changes in both product and channels. These include: the removal of historical advertising restrictions which had prevented wagering operators from advertising in jurisdictions in which they were not licensed and a favourable fiscal and regulatory environment in the Northern Territory which has contributed to the significant growth of corporate bookmakers. Corporate bookmakers are not subject to the same regulatory requirements and racing industry funding requirements as totalizator operators such as Tatts or Tabcorp. Corporate bookmakers have significantly increased their turnover in recent times; the growth and widespread use of online wagering (primarily via mobile betting apps) which, when combined with the favourable fiscal and regulatory environment in the Northern Territory, has increased the number of online wagering services and digital offerings in Australia. This has led to a decline in the proportion of total wagering turnover transacted in retail outlets. Recently, online wagering has increased and now comprises around half of industry turnover; a decline in totalizator wagering as a proportion of total Australian wagering and a rise in the proportion of wagering accounted for by fixed odds products. Over the past 5 years, fixed odds racing and sports wagering has grown materially, with this trend expected to continue; the growing popularity of sports betting; and a number of independent Australian corporate bookmakers have been acquired by large well-capitalised and well-established international wagering companies as part of an aggressive targeting of the Australian market by global wagering companies. One consequence of the growth of online wagering is that Tatts and Tabcorp increasingly face competition for customers within their retail venues. Although Tatts and Tabcorp have the sole right to offer over-the-counter betting and self-service betting terminals in retail venues in the Australian states and territories where they hold retail licences, customers in those venues are able to wager through their digital accounts with other wagering operators. In lotteries, while Tatts is the largest lotteries operator in Australia, the lotteries business faces opportunities and competitive challenges due to the growth of digital channels and the possibility of new entrants. While still a relatively small proportion of total lotteries turnover (representing approximately 14.5% of Tatts sales in FY17), Tatts digital distribution channel has experienced positive, steady growth in recent years. The potential for further growth in the digital distribution channel presents an opportunity and Tatts remains focussed on continuing to innovate its digital assets. An example of the challenges facing lotteries is Lottoland s entry to the market in 2016 with a product that allows customers to bet on the outcome of Australian and overseas lotteries (please refer to Section 13.2(c)(2) for further information). In monitoring of electronic gaming machines, there have been new entrants to the market over the past 5-6 years. The market for monitoring and gaming systems is largely driven by technology and regulatory requirements. New entrants are able to compete by developing and offering more advanced and innovative products and services and better user experiences. As new technologies are deployed, they are normally cheaper in cost to develop and manufacture and therefore are able to be marketed and sold at a competitive price. Position of the Combined Group The Transaction will combine the complementary strengths of Tabcorp and Tatts and create a Combined Group positioned to compete in the rapidly changing and increasingly global wagering, racing media, lotteries, Keno and gaming services markets. The Combined Group is expected to have pro-forma annual revenue and EBITDA of approximately $5 billion and $915 million respectively (before significant items and synergies). 7 The Transaction will enhance the ability of the Combined Group to innovate, invest and compete in an evolving marketplace. It will have greater capacity to invest in all of its distribution channels and will have a strong incentive to do so given the highly competitive environment in which Tatts and Tabcorp are currently operating. Where allowed, the predominant business model is multi-product as this provides growth, leverages fixed costs and provides attractive cross-sell opportunities. 7 Please refer to Section 12.5 for further information. OVERVIEW OF THE TRANSACTION 11

14 The Combined Group will hold a portfolio of long-term wagering, lotteries, Keno and gaming monitoring licences. With its diversified portfolio, greater financial scale and strong balance sheet, the Combined Group will be well placed to compete and grow in the rapidly changing and increasingly global market. The Transaction is also expected to assist in maintaining the viability of the Australian racing industry. A healthy racing industry supporting a large number of race meetings with good prize money and strong and deep field sizes is essential to the Combined Group s ability to offer attractive Australian wagering products. For these reasons, the combination of Tatts and Tabcorp is considered by the Tatts Directors to be in the interests of all Tatts Shareholders. 4.2 WHAT YOU WILL RECEIVE The combination of Tabcorp and Tatts will be effected pursuant to the Merger Implementation Deed. In accordance with this deed, if the Scheme is Implemented, Tabcorp will acquire all of the Tatts Shares under the Scheme and Tatts Shareholders (other than Ineligible Foreign Shareholders, as noted below in Section 4.5) will receive: 0.80 New Tabcorp Shares; 8 and $0.425 cash, less the amount of any Tatts Special Dividend, for each Tatts Share that they hold. The Scheme will only proceed if it is approved by the Requisite Majorities of Tatts Shareholders at the Scheme Meeting and all other Conditions Precedent are satisfied or waived (where applicable). 4.3 TATTS SPECIAL DIVIDEND In accordance with the Merger Implementation Deed, Tatts is permitted to declare and pay the Tatts Special Dividend to all Tatts Shareholders on the Tatts Share Register on the Tatts Special Dividend Record Date. Payment of the Tatts Special Dividend is subject to the Scheme becoming Effective and Tatts complying with the requirements of section 254T of the Corporations Act. As at the date of this Scheme Booklet Tatts franking account balance is expected to allow Tatts to pay a fully franked Tatts Special Dividend of $0.12 per Tatts Share. A fully franked dividend of $0.12 per Tatts Share would have approximately $0.05 per Tatts Share of franking credits attached. The precise amount of the Tatts Special Dividend will be determined by the Tatts Directors prior to the Tatts Special Dividend Record Date. The Tatts Special Dividend may be fully franked, provided that Tatts franking account does not fall into deficit upon payment of the Tatts Special Dividend (or would fall into deficit if any claimed tax refund was received by Tatts). 9 If the Tatts Special Dividend is declared and becomes payable, Tatts will: if a Tatts Shareholder has, prior to the Tatts Special Dividend Record Date, made a valid election in accordance with the requirements of the Tatts Share Registry to receive dividend payments from Tatts by electronic funds transfer to a nominated bank account, pay, or procure the payment of, the amount of the Tatts Special Dividend in Australian currency by electronic means in accordance with that election; or alternatively (whether or not a Tatts Shareholders has made an election of the type referred to above), dispatch, or procure the dispatch of, a cheque for the amount of the Tatts Special Dividend in Australian currency to the registered address of and drawn in the name of the Tatts Shareholder. If the Tatts Special Dividend is paid, the Cash Consideration will be reduced by the cash amount of the Tatts Special Dividend. 4.4 TATTS PERMITTED ORDINARY COURSE DIVIDENDS The Merger Implementation Deed permits Tatts to declare and pay fully franked cash dividends of amounts not exceeding: $0.095 per Tatts Share after 31 December 2016 and before 1 July 2017 (which was paid to eligible Tatts Shareholders on 3 April 2017); and $0.08 per Tatts Share after 1 July 2017 and before 31 December Tatts is only permitted to pay dividends of the type described above if the relevant dividend is declared and paid prior to the Implementation Date. On 16 February 2017, Tatts determined to pay a fully franked interim dividend of $0.095 per Tatts Share which was paid to Tatts Shareholders on 3 April On 17 August 2017, Tatts determined to pay a fully franked final dividend of $0.08 per Tatts Share, with a record date of 4 September 2017 and payable on 3 October Subject to Tatts obligations under the Merger Implementation Deed, the Tatts Board retains discretion to declare and pay any dividends, including those described above, but there is no guarantee that Tatts Shareholders will receive any dividends. 8 Please refer to Section 4.5 for information regarding the treatment of Tatts Shares held by Ineligible Foreign Shareholders. 9 The balance of Tatts franking account is subject to a number of variables, including tax refunds and the timing of Implementation of the Scheme. Please refer to Section 15.2 for further information. 12 Tatts Group Limited Scheme Booklet

15 In the event the Scheme has not become Effective by the End Date, Tatts will resume paying dividends in the ordinary course, subject to the discretion of the Tatts Board and Tatts complying with the requirements of section 254T of the Corporations Act. 4.5 INELIGIBLE FOREIGN SHAREHOLDERS If the Scheme is Implemented, the New Tabcorp Shares to which an Ineligible Foreign Shareholder would otherwise have been entitled will be issued to a Nominee. The Nominee will sell these New Tabcorp Shares on the ASX as soon as reasonably practicable after the Implementation Date (but no later than 15 Business Days after the Implementation Date) at such price and on such other terms as the Nominee reasonably determines in good faith. The Nominee will remit to Tabcorp the proceeds received (after deducting any applicable fees, brokerage, taxes and charges) from the sale of the New Tabcorp Shares by the Nominee. After receiving the sale proceeds from the Nominee, Tabcorp will promptly pay to each Ineligible Foreign Shareholder the net proceeds of the sale to which that Ineligible Foreign Shareholder is entitled. Each Ineligible Foreign Shareholder will also receive the Tatts Special Dividend if the Scheme becomes Effective. Please refer to Section 4.3 for further information regarding the Tatts Special Dividend. Neither Tabcorp nor Tatts gives any assurance as to the price that will be achieved for the sale of the New Tabcorp Shares described above. The sale of the New Tabcorp Shares will be a risk borne by the Ineligible Foreign Shareholder. OVERVIEW OF THE TRANSACTION 13

16 Section 5 provides a summary of some of the reasons why the Tatts Directors unanimously recommend that Tatts Shareholders vote in favour of the Scheme (in the absence of a Superior Proposal). This Section should be read in conjunction with Section 6, which describes reasons why Tatts Shareholders may consider voting against the Scheme, and Section 7, which sets out other relevant considerations in relation to voting on the Scheme. You should read this Scheme Booklet in full, including the Independent Expert s Report, before deciding how to vote at the Scheme Meeting. While the Tatts Directors acknowledge the reasons to vote against the Scheme as set out in Section 6, they believe the advantages of the Scheme outweigh the disadvantages. 5.1 THE TATTS DIRECTORS UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOUR OF THE SCHEME, IN THE ABSENCE OF A SUPERIOR PROPOSAL In making their unanimous recommendation, the Tatts Directors have considered the advantages and disadvantages of the Scheme, including the information contained in: Section 5 of this Scheme Booklet (Why you should vote in favour of the Scheme); Section 6 of this Scheme Booklet (Why you may consider voting against the Scheme); Section 13 of this Scheme Booklet (Risk factors); and Annexure A of this Scheme Booklet (Independent Expert s Report). 5.2 CREATION OF A LEADING, DIVERSIFIED PORTFOLIO OF GAMBLING ENTERTAINMENT BUSINESSES The Scheme combines two largely complementary businesses to create a leading, diversified portfolio of gambling entertainment businesses. Through its diversified portfolio, greater financial scale and strong balance sheet, the Combined Group will be well placed to compete in a rapidly evolving marketplace and to pursue growth opportunities globally. The Share Consideration allows Tatts Shareholders the opportunity to participate as shareholders in the Combined Group, with an ongoing exposure to a larger wagering business which is well placed to compete in the rapidly evolving wagering market, while also retaining exposure to Tatts unique lotteries business. Upon Implementation of the Scheme, existing Tatts Shareholders will own approximately 58% of the Combined Group. As set out in Figure 1 below, the Combined Group is expected to have an attractive national portfolio of predominantly long-dated gambling licences, with a diverse earnings base. Figure 1: Combined Group s licence portfolio 2100 SA 2098 QLD 2097 NSW 2064 ACT 2062 TAS 2035 NT 2024 VIC 2072 QLD 2052 SA 2050 NSW 2032 NT 2028 VIC 2020 TAS 2064 ACT 2050 NSW 2047 For personal use only 5. Why you should vote in favour of the Scheme QLD 2022 VIC 2021 INDEFINITE 2 NT 2027 INDEFINITE 2 QLD 2032 NSW Licences expiry 1 Tabcorp licences Tatts licences Source: Company filings 1 Tatts NT Wagering licence expires in 2035, Tabcorp s NT Wagering licence in 2020; some licences (e.g. Tabcorp s VIC Wagering, Tatts TAS Wagering) have renewal options post expiry; Tatts SA Lotteries licence includes SA Keno 2 Indefinite rolling renewal capability WAGERING LOTTERIES KENO GAMING SERVICES 14 Tatts Group Limited Scheme Booklet

17 The profile of the Combined Group spans national wagering, racing media, lotteries, Keno and gaming operations including: Wagering & Racing Media Lotteries Keno Gaming Services Totalizator and fixed odds licences and retail wagering networks in New South Wales, Victoria, Queensland, South Australia, Tasmania, Australian Capital Territory and Northern Territory, offering wagering products in approximately 4,300 retail outlets, on-course at race tracks, online and through call centres and a national Sky Racing media business. An Australian lotteries business with licences and authorisations to offer lottery products in approximately 3,800 retail outlets across New South Wales, Victoria, Queensland, South Australia, Tasmania, Australian Capital Territory, Northern Territory and online. Keno distribution network of over 4,000 venues in New South Wales, Victoria, Queensland, South Australia and the Australian Capital Territory. Gaming machine monitoring operations, wide area jackpots and other ancillary services in New South Wales, Queensland and Northern Territory under the MAX brand, and venue services nationwide under the TGS, Intecq and MAXtech brands. Figure 2 below sets out the key businesses, brands and jurisdictions of the Combined Group. 10 The Combined Group's businesses, brands and jurisdictions Geographic Reach Business Key Brands VIC NSW ACT QLD SA TAS NT WA Intl. Wagering Lotteries Keno Gaming Services Racing Media Tatts Shareholders will benefit from a more balanced earnings diversification of the Combined Group. below illustrates the earnings diversification of the Combined Group. Figure 3: Earnings diversification of the Combined Group TABCORP FY17 EBITDA 1,2 TATTS FY17 EBITDA 1,2,3 COMBINED GROUP FY17 EBITDA 1,2,3 1 Figures expressed before any pro forma adjustments and before unallocated corporate expenses, including discontinued operations. This excludes Sun Bets. 2 Percentages may not sum to 100% because of rounding. 3 Contribution of Lotteries earnings includes Tatts SA Keno business. WAGERING & MEDIA 69% GAMING SERVICES 16% KENO 14% LOTTERIES 63% WAGERING 22% GAMING SERVICES 15% WAGERING & MEDIA 46% LOTTERIES 31% GAMING SERVICES 15% KENO 7% 10 In Figure 2, geographic reach excludes online operations in wagering and lotteries. WHY YOU SHOULD VOTE IN FAVOUR OF THE SCHEME 15

18 5.3 THE IMPLIED VALUE OF THE SCHEME CONSIDERATION REPRESENTS A PREMIUM OVER TRADING PRICES OF TATTS SHARES ON THE ASX PRIOR TO THE ANNOUNCEMENT OF THE SCHEME Based on the closing price of Tabcorp Shares on the last Trading Day prior to the announcement of the Scheme (being $4.89 per Tabcorp Share as at 17 October 2016), the implied value of the Scheme Consideration of $4.34 per Tatts Share represents approximately a: 20.8% premium to the closing price of Tatts Shares on 17 October 2016 ($3.59 per Tatts Share), being the last Trading Day prior to the announcement of the Scheme; 19.7% premium to the 5 day VWAP of Tatts Shares prior to the announcement of the Scheme; 19.6% premium to the 10 day VWAP of Tatts Shares prior to the announcement of the Scheme; 17.1% premium to the 30 day VWAP of Tatts Shares prior to the announcement of the Scheme; 13.2% premium to the 3-month VWAP of Tatts Shares prior to the announcement of the Scheme; 12.7% premium to the 6-month VWAP of Tatts Shares prior to the announcement of the Scheme; and 11.1% premium to the 12-month VWAP of Tatts Shares prior to the announcement of the Scheme. Figure 4 below illustrates the implied value of the Scheme Consideration to Tatts Shareholders based on the closing price of Tabcorp Shares on the last Trading Day prior to the announcement of the Scheme, relative to Tatts trading prices on the ASX prior to the announcement of the Scheme. This implied value excludes the value of potential synergies available from the Transaction. Figure 4: Implied value of the Scheme Consideration to Tatts Shareholders relative to Tatts share trading prices 20.8% Premium 19.7% Premium 19.6% Premium 17.1% Premium 13.2% Premium 12.7% Premium 11.1% Premium Implied value of Scheme (17 October 2016) Closing price (17 October 2016) 5-Day VWAP 10-Day VWAP 30-Day VWAP 3-month VWAP 6-month VWAP 12-month VWAP Based on the closing price of Tabcorp Shares on 7 September 2017, being the last Trading Day prior to the date of this Scheme Booklet, the implied value of the Scheme Consideration is $3.66 per Tatts Share. Tabcorp s trading price may reflect a range of factors including but not limited to (i) uncertainty in relation to obtaining approvals to authorise the combination of Tatts and Tabcorp and (ii) realisation of synergy benefits and business improvements from the merger not currently reflected in Tabcorp s share price which may be recognised by the market over time. 5.4 TRANSACTION EXPECTED TO DELIVER AT LEAST $130 MILLION PER ANNUM OF EBITDA FROM SYNERGIES AND BUSINESS IMPROVEMENTS AFTER FULL INTEGRATION The combination of Tatts and Tabcorp is expected to deliver at least $130 million per annum of EBITDA from synergies and business improvements. These earnings are expected to be realised in the first full year following completion of the integration of the businesses. As Tatts Shareholders will own approximately 58% of the Combined Group, 58% of the benefit of the synergies realised will flow to Tatts Shareholders. Integration of the businesses is expected to take approximately two years, subject to the receipt of all necessary regulatory approvals. The net one-off integration costs and capital expenditure are expected to be approximately $141 million (pre-tax) Excludes transaction costs associated with the Scheme. The impact of net one-off integration costs and capital expenditure on the Combined Group s ongoing interest expense (reflected in the Combined Group Pro-Forma Financial Information in Section 12.5) is expected to be approximately $6 million per annum (before taking into account the benefit to the Combined Group s interest expense as a result of debt paydown as synergies are realised). 16 Tatts Group Limited Scheme Booklet

19 The estimated synergies and business improvements are expected to be comprised of: Operating Cost Synergies Wagering Performance Optimisation under the TAB Brand Keno Performance Optimisation Capital Expenditure Synergies Technology integration and systems optimisation. Consolidation of wagering functions. Corporate cost rationalisations. Procurement benefits from increased scale. Fixed odds yield improvement to Tatts business: Tabcorp intends to roll-out its risk management systems and processes into the UBET business; and the combined Tabcorp and Tatts fixed odds book improves the risk management capability of the Combined Group. Figure 5 below illustrates the potential improvement in combining the fixed odds book management. Wagering turnover growth in Tatts business: re-branding of Tatts retail wagering venues and digital offering under the TAB brand; alignment of product offering between Tatts and Tabcorp s wagering operations, including TAB products such as Quaddie Cash Out (subject to regulatory approval); targeted investment in the UBET retail network; the Combined Group is expected to benefit from operating under the TAB brand and also the consistency of TAB s product offering; combined digital expertise to deliver leading digital products and customer experiences; and potential further benefits from increased attractiveness of merged pools, subject to regulatory and racing industry approvals. Extend the key drivers of the Keno transformation of brand, pooling and digital to South Australia (subject to regulatory approval). Following the introduction of similar measures in Victoria during FY16, Tabcorp achieved turnover growth of 18% against FY15 turnover. It is expected that approximately $10 million per annum of capital expenditure synergies will be available to the Combined Group through the rationalisation of wagering systems development functions. These are in addition to the estimated per annum EBITDA from synergies and business improvements of at least $130 million. These are expected to be delivered in the first full year following completion of the integration of the businesses. Figure 5: Historical fixed odds yield of Tatts and Tabcorp Fixed Odds turnover growth 21% 18% 19% 21% 17% 24% 15% -1% % p.c.p. 14.5% 14.1% 15.6% 14.7% 14.9% 14.0% 13.1% 12.1% FY14 FY15 FY16 FY17 Tabcorp fixed odds yield Tatts fixed odds yield WHY YOU SHOULD VOTE IN FAVOUR OF THE SCHEME 17

20 5.5 GREATER FINANCIAL SCALE AND STRONG BALANCE SHEET POSITION The Combined Group is expected to: be of greater relevance to equity and debt investors through its increased scale relative to both Tatts and Tabcorp operating on a standalone basis; have pro-forma annual revenues and EBITDA of approximately $5 billion and $915 million respectively (before significant items and synergies); and be one of the largest ASX-listed gambling companies, sitting within the ASX50 on a free float market capitalisation basis. This increased financial scale and associated balance sheet strength provides an enhanced platform for the Combined Group to pursue growth opportunities. 5.6 THE INDEPENDENT EXPERT HAS CONCLUDED THAT THE SCHEME IS IN THE BEST INTERESTS OF TATTS SHAREHOLDERS, IN THE ABSENCE OF A SUPERIOR PROPOSAL The Tatts Board appointed Grant Samuel to prepare an Independent Expert s Report, including an opinion as to whether the Scheme is in the best interests of Tatts Shareholders. The Independent Expert has concluded that the Scheme is in the best interests of Tatts Shareholders, in the absence of a superior proposal. The reasons why the Independent Expert reached this conclusion are set out in the Independent Expert s Report, a copy of which is included in Annexure A. Tatts Shareholders should carefully review the Independent Expert s Report in its entirety. 5.7 EXPECTED TO PROVIDE A WIDE RANGE OF BENEFITS FOR STAKEHOLDERS AND TO ASSIST IN ENHANCING THE SUSTAINABILITY OF THE AUSTRALIAN RACING INDUSTRY If the Scheme is approved and Implemented, the combination of Tatts and Tabcorp is expected to provide a wide range of benefits for stakeholders including their respective shareholders, the Australian racing industry, Australian business partners and customers. A strong Australian racing industry is likely to deliver a broader and more engaged customer base for wagering products, which will increase support for the activities of the Combined Group and may create additional value for Combined Group shareholders. 18 Tatts Group Limited Scheme Booklet

21 The key benefits for each key group of stakeholders includes those summarised in the table below: Tatts Shareholders The Australian Racing Industry Australian Business Partners Customers Exposure to earnings and diversification of the Combined Group which is unlikely to be otherwise available to Tatts as a standalone company. EPS accretion 12 and value accretion expected, benefiting from at least $130 million of per annum EBITDA from synergies and business improvements (expected to be delivered in the first full year following completion of the integration of the businesses). Improved financial scale and associated balance sheet strength which provides an enhanced platform to pursue global investment opportunities. Tabcorp and Tatts are together the largest source of funding for the Australian racing industry, and the Transaction is intended to create: a strong wagering operator, committed to enhancing the sustainability of Australia s racing industry; a pathway to national pari-mutuel pooling, subject to racing industry and regulatory approvals; and an enhanced ability to adopt strategies to address the national decline in pari-mutuel betting. The Transaction is expected to deliver financial benefits to assist the sustainability of the Australian racing industry and is expected to result in approximately $50 million per annum of additional funding to the racing industry (see explanation below this table) in the first full year following completion of the integration of the businesses, which will flow to participants and related industries across Australia. The Transaction is expected to deliver benefits to Tatts and Tabcorp s business partners including lottery retail agents, licensed venues and TAB agencies. The Combined Group will deliver an enhanced customer experience, including an increased range of products (subject to regulatory approval) across each of its business offerings. The expected increase in funding to the racing industry (mentioned in the table above) effectively arises as a result of the expected operating cost synergies and business improvements from the Scheme (please refer to Sections 5.4 and 12.2) being passed-through to the various State-based racing industries under the terms of contractual arrangements those industries have with Tabcorp and Tatts. Further detail in relation to Tatts' retail licences is set out in Section 10.2(b) while further detail on Tabcorp s retail licences is contained in Section 11.2(b). 12 Before significant items and any incremental amortisation arising under purchase price allocation relating to the Transaction. WHY YOU SHOULD VOTE IN FAVOUR OF THE SCHEME 19

22 6. Why you may consider voting against the Scheme Although the Tatts Board unanimously recommends that Tatts Shareholders vote in favour of the Scheme in the absence of a Superior Proposal, and although the Independent Expert has concluded that the Scheme is in the best interests of Tatts Shareholders, in the absence of a superior proposal, Tatts Shareholders should take into consideration the following potential disadvantages and reasons to vote against the Scheme. 6.1 YOU MAY HOLD A DIFFERENT VIEW TO THE TATTS DIRECTORS AND THE INDEPENDENT EXPERT IN RELATION TO THE SCHEME Notwithstanding the unanimous recommendation of the Tatts Board and the conclusion of the Independent Expert, you may believe that the Scheme is not in your best interests. You are not obliged to follow the recommendation of the Tatts Board nor to agree with the Independent Expert s conclusion. 6.2 YOU MAY WISH TO MAINTAIN AN INTEREST IN A PUBLICLY LISTED INVESTMENT WITH TATTS SPECIFIC CHARACTERISTICS You may wish to keep your Tatts Shares as you may want to preserve your investment in a publicly listed company with the specific characteristics of Tatts including its current earnings diversification and risk profile. While the businesses of Tabcorp and Tatts are largely complementary, the earnings mix and risk profiles of the two companies on a standalone basis are different. In FY17, approximately 63% of Tatts EBITDA was derived from its lotteries business while its wagering business, which operates in a highly competitive market, accounted for approximately 22% of its EBITDA over the same period. In FY17, Tabcorp derived approximately 69% of its EBITDA from its wagering and media business, with contributions of approximately 16% from its gaming services businesses and the remainder from its Keno business.13. It is estimated (based on FY17 Combined Group EBITDA 14 ) that the wagering and media business will contribute approximately 46% of the Combined Group s EBITDA, while the Combined Group s lotteries business will contribute approximately 31% of the Combined Group s EBITDA 15. Implementation of the Scheme may represent a disadvantage if you do not want to change your investment profile. You should seek investment, legal or other professional advice in relation to your own circumstances. 6.3 THERE ARE RISKS ASSOCIATED WITH THE INTEGRATION OF TABCORP AND TATTS WHICH YOU MAY CONSIDER EXCEED THE BENEFITS OF THE SCHEME One of the benefits of the Scheme is the potential for the Combined Group to realise synergies and business improvements, as detailed in Section 12.2 of this Scheme Booklet. However, you may consider that the integration of Tatts and Tabcorp may be more difficult, may take more time, or may cost more than currently anticipated. There is a risk that the estimated synergies and business improvements may not be realised or that they may be realised over a longer period of time than anticipated. Further detail regarding these risks is described in Section 13.4(h) of this Scheme Booklet. Failure to achieve the targeted synergies and business improvements within the anticipated timeframe may have an adverse effect on the operations, financial performance and financial position of the Combined Group. Further information regarding risks related to the integration of Tabcorp and Tatts can be found in Sections 13.3 and 13.4 of this Scheme Booklet. 6.4 YOU MAY CONSIDER THAT THERE IS A POSSIBILITY THAT A SUPERIOR PROPOSAL COULD EMERGE You may consider that a Superior Proposal, which is more attractive to Tatts Shareholders than the Scheme, could emerge in the foreseeable future. Implementation of the Scheme will mean that existing Tatts Shareholders will not receive the benefit of any such proposal. On 14 December 2016, Tatts announced to ASX it had received an unsolicited, confidential, non-binding, indicative and conditional proposal from a consortium of four financial investors to acquire 100% of Tatts for a combination of cash and scrip consideration (Indicative Proposal). Tatts subsequently announced to ASX on 23 December 2016 that the Tatts Board had assessed the Indicative Proposal and concluded that it was not a Superior Proposal. On 19 April 2017, Tatts announced to the ASX it had received a revised, unsolicited, confidential, non-binding, indicative and conditional proposal from the same consortium of four financial investors to acquire 100% of Tatts for cash consideration only, with a further revision to that proposal announced by Tatts to the ASX on 24 April 2017 (Revised Indicative Proposal). On 28 April 2017 Tatts announced to the ASX that the Tatts Board had assessed the Revised Indicative Proposal and concluded that it also was not a Superior Proposal. Subsequently on 28 April 2017, the consortium announced that it did not intend to undertake further work on its Revised Indicative Proposal. 13 % represented on a pre-corporate cost basis. 14 Before any pro-forma adjustments and before unallocated corporate expenses, including discontinued operations. 15 % represented on a pre-corporate cost basis. 20 Tatts Group Limited Scheme Booklet

23 In determining that the Indicative Proposal and the Revised Indicative Proposal were not a Superior Proposal, the Tatts Directors announced that they continue to believe the Scheme is in the best interests of Tatts Shareholders and unanimously recommend the Scheme in the absence of a Superior Proposal. Since the announcement of the Scheme on 19 October 2016 and up to the date of this Scheme Booklet, other than the Indicative Proposal and the Revised Indicative Proposal, the Tatts Board has not received or become aware of any actual, proposed or potential Competing Proposal or negotiations or discussions in respect of such a proposal (or an attempt to initiate such negotiations or discussions). The Merger Implementation Deed prohibits Tatts from soliciting a Competing Proposal; however, the Tatts Board is permitted to respond to any actual, proposed or potential Competing Proposal, which the Tatts Board acting in good faith determines, having regard to written advice from external legal and financial advisers, is a Superior Proposal (or which may reasonably be expected to result in the Competing Proposal becoming a Superior Proposal). Further details of the Merger Implementation Deed are provided in Section 14 of this Scheme Booklet. 6.5 THE VALUE OF THE NEW TABCORP SHARES IS NOT CERTAIN If the Scheme is Implemented, Tatts Shareholders (other than the Ineligible Foreign Shareholders) will receive New Tabcorp Shares. The value of these New Tabcorp Shares will depend on the price at which Tabcorp Shares trade on the ASX on or after the Effective Date. Following Implementation, the price of Tabcorp Shares may rise or fall based on market conditions and the Combined Group s financial and operational performance. If the price of Tabcorp Shares falls, the value of New Tabcorp Shares received as Scheme Consideration will decline. If the price of Tabcorp Shares increases, the value of the New Tabcorp Shares received as Scheme Consideration will increase. Accordingly, there is no guarantee as to the future value of the Scheme Consideration to be received by Tatts Shareholders if the Scheme is Implemented. 6.6 YOU MAY BE CONCERNED ABOUT SPECIFIC RISKS ASSOCIATED WITH TABCORP S BUSINESS There are a number of risks specific to holding New Tabcorp Shares, which are described in more detail in Section 13.3 of this Scheme Booklet. Tatts Shareholders should take these risks into account before deciding whether or not to vote in favour of the Scheme. WHY YOU MAY CONSIDER VOTING AGAINST THE SCHEME 21

24 7. Other relevant considerations in relation to voting on the Scheme You should also take into account the following additional considerations in deciding how to vote on the Scheme. 7.1 THE SCHEME MAY BE IMPLEMENTED EVEN IF YOU VOTE AGAINST THE SCHEME OR DO NOT VOTE AT ALL You should be aware that even if you do not vote, or vote against the Scheme, the Scheme may still be Implemented if it is approved by the Requisite Majorities of Tatts Shareholders and the Court and if the Conditions Precedent are satisfied or waived (as applicable). If this occurs, your Tatts Shares will be transferred to Tabcorp and you will receive the Scheme Consideration even though you did not vote on, or voted against, the Scheme. 7.2 IMPLICATIONS FOR TATTS IF THE SCHEME IS NOT IMPLEMENTED If any Conditions Precedent, including Tatts Shareholder approval and Court approval, are not satisfied or waived prior to the End Date, the Scheme will not proceed. If the Scheme does not proceed: Tatts Shareholders will not receive the Scheme Consideration and will retain their Tatts Shares; and the advantages of the Scheme described in Section 5 will not be realised and the potential disadvantages and risks of the Scheme described in Section 6 and Section 13 will not arise. If the Scheme is not Implemented, Tatts will continue to operate in the ordinary course of business and will continue as a standalone entity listed on the ASX. If the Scheme is not Implemented, Tatts Shareholders will be subject to the risks and uncertainties associated with an investment in Tatts Shares, as described in Section 13.2 of this Scheme Booklet. Also, although they are expressed to apply to Tabcorp Shares and / or the Combined Group, some or all of the other risk factors described in Section 13.5 may also be relevant to an investment in Tatts Shares. Tatts has incurred significant costs in respect of the Scheme prior to the date of this Scheme Booklet, including in relation to the conduct of negotiations with Tabcorp, retention of advisers, provision of information to Tabcorp, facilitation of due diligence conducted by Tabcorp, obtaining regulatory approvals (and in particular competition approval), engagement of the Independent Expert, and preparation of this Scheme Booklet. If the Scheme is not Implemented, Tatts expects such transaction costs to be approximately $55 million (excluding GST). If the Scheme is Implemented, these costs are expected to be approximately $70 million (excluding GST). 7.3 CONDITIONALITY OF THE SCHEME Implementation of the Scheme is subject to the satisfaction (or waiver) of a number of Conditions Precedent, which are summarised in Section 14.2(a) of this Scheme Booklet and set out in clause 3.1 of the Merger Implementation Deed and clause 2.1 of the Scheme (a copy of which is set out in Annexure C). If the Conditions Precedent are not satisfied or waived (as applicable) by the End Date, the Scheme will not proceed and Tatts Shareholders will not receive the Scheme Consideration. As at the date of this Scheme Booklet, the outstanding Conditions Precedent which must be satisfied or waived (as applicable) before the Scheme can become Effective are: the competition approval condition (please refer to Section 14.2(a)(i) for further detail); approval of certain regulatory authorities (please refer to Section 14.2(a)(ii) for further detail); approval of the Scheme by the Requisite Majorities of Tatts Shareholders; approval of the Scheme by the Court; and New Tabcorp Shares issued pursuant to the Scheme being approved for official quotation by ASX. 7.4 WARRANTY BY SCHEME SHAREHOLDERS ABOUT THEIR TATTS SHARES If the Scheme is Implemented, each Scheme Shareholder is deemed to have warranted to Tabcorp that their Scheme Shares (including any rights and entitlements attaching to those shares) will, at the date of their transfer to Tabcorp, be transferred fully paid and free from all mortgages, charges, liens, encumbrances, security interests and other interests of third parties of any kind, whether legal or otherwise, including any restrictions on transfer of any kind, and that it has full capacity and power to sell and to transfer those Scheme Shares together with any rights and entitlements attaching to those shares. Each Scheme Shareholder is also deemed to have warranted to Tabcorp that they have no existing right to be issued any other Tatts Shares or any other form of Tatts securities. 7.5 EXCLUSIVITY The Merger Implementation Deed includes certain exclusivity arrangements that Tatts has made in favour of Tabcorp. These include customary no-shop, no-talk and no-due diligence obligations, as well as obligations of notification of Competing Proposals and providing a matching right to Tabcorp in the event that a Superior Proposal is received by Tatts. Please refer to Section 14.2(c) for further information. 22 Tatts Group Limited Scheme Booklet

25 7.6 REIMBURSEMENT FEE AND COMPETITION APPROVAL REIMBURSEMENT FEE If the Scheme does not become Effective, a Reimbursement Fee of $55 million may be payable by either Tabcorp or Tatts in the circumstances set out in Sections 14.2(h) and 14.2(i). However, no Reimbursement Fee is payable simply because Tatts Shareholders do not approve the Scheme by the Requisite Majorities. A Competition Approval Reimbursement Fee of $35 million may be payable to Tatts in the circumstances set out in Section 14.2(j). If for any reason Tatts is entitled to payment of the Reimbursement Fee from Tabcorp as well as the Competition Approval Reimbursement Fee, then Tatts will only be entitled to receive the higher of the two fees. OTHER RELEVANT CONSIDERATIONS IN RELATION TO VOTING ON THE SCHEME 23

26 8. Frequently asked questions This Section answers some questions you may have about the Scheme. It is not intended to address all relevant issues for Tatts Shareholders. This Section should be read together with the other parts of this Scheme Booklet. OVERVIEW OF THE SCHEME Question Answer More information Why have I received this Scheme Booklet? What is the Scheme I am being asked to consider? What should I do? Who is Tabcorp? Who is entitled to participate in the Scheme? Do I need to make any payments to participate in the Scheme? Do I have to pay stamp duty or brokerage fees under the Scheme? You have been sent this Scheme Booklet because you are a Tatts Shareholder and you are being asked to vote on the Scheme. This Scheme Booklet is intended to help you consider and decide on how to vote on the Scheme at the Scheme Meeting. A scheme of arrangement is a statutory procedure that is commonly used to enable one company to merge with or acquire another company. The proposed Scheme is a scheme of arrangement between Tatts and its shareholders at the Scheme Record Date, and requires Court approval and a vote in favour of the Scheme by the Requisite Majorities of Tatts Shareholders at the Scheme Meeting in order to become Effective. If the Scheme is Implemented, Tabcorp will acquire all of the Tatts Shares and provided you are not an Ineligible Foreign Shareholder, 16 you will receive the Scheme Consideration of 0.80 New Tabcorp Shares (Share Consideration) and $0.425 in cash (less any Tatts Special Dividend that becomes payable) (Cash Consideration) per Tatts Share held. Tatts intends that part of the Cash Consideration will consist of a fully franked Tatts Special Dividend of $0.12 per share 17 (subject to the availability of franking credits) to be paid immediately prior to Implementation of the Scheme. A fully franked dividend of $0.12 per Tatts Share would have approximately $0.05 per Tatts Share of franking credits attached. You should read this Scheme Booklet carefully and in its entirety. Based on this information and any advice you may receive, you should determine how you wish to vote on the Scheme and vote by attending the Scheme Meeting, or by appointing a proxy to vote on your behalf. Further information on how to vote on the Scheme is set out in the Notice of Scheme Meeting attached as Annexure E. If you are unsure about what to do, you should consult your legal, investment, tax or other professional adviser. Tabcorp is the company that is offering the Scheme Consideration for your Tatts Shares. Tabcorp is a leading Australian gambling entertainment company and one of the largest publicly listed gambling businesses in the world. Tabcorp s businesses comprise wagering and media, gaming services and Keno. Persons who hold Tatts Shares on the Scheme Record Date can participate in the Scheme. No. No, you will not be required to pay any stamp duty or brokerage fees in relation to your participation in the Scheme, unless you are an Ineligible Foreign Shareholder. If you are an Ineligible Foreign Shareholder, applicable brokerage and other selling costs, taxes and charges will be deducted from the proceeds of sale by the Nominee of the New Tabcorp Shares that would otherwise have been issued to you. Section 14 Annexure C Section 14 Section 9 Section 11 Section 14.3(g) N/A Section Refer to Section 14.3(o) for further information regarding the treatment of Tatts Shares held by Ineligible Foreign Shareholders. 17 While Tatts estimates the Tatts Special Dividend will be $0.12 per Tatts share, under the Merger Implementation Deed, Tatts is able to pay a Tatts Special Dividend of up to $0.25 per share (subject to the availability of franking credits). 24 Tatts Group Limited Scheme Booklet

27 Do I need to do or sign anything to transfer my Scheme Shares? No. If the Scheme becomes Effective, Tatts will automatically have authority to sign a transfer on your behalf, allowing for your Tatts Shares to be transferred to Tabcorp and for the Scheme Consideration to be issued or paid (as applicable) to you on the Implementation Date. However, you should be aware that under the Scheme, you are deemed to have warranted to Tatts that (except as otherwise set out in the Scheme): all of your Tatts Shares are fully paid and free from any mortgage, charge, lien, encumbrance, pledge, security interest or other interest of a third party of any kind; you have no existing right to be issued any other Tatts Shares or any other form of Tatts securities; and you have full power and capacity to sell and transfer your Tatts Shares. You should ensure that these warranties can be given by you prior to, and remain correct as at the Implementation Date. Annexure D SCHEME CONSIDERATION What will I receive if the Scheme is Implemented? When will I receive the Scheme Consideration? How will I receive the New Tabcorp Shares component of the Scheme Consideration? Will I be able to trade the New Tabcorp Shares on the ASX? If the Scheme is Implemented (and provided that you are not an Ineligible Foreign Shareholder), you will receive 0.80 New Tabcorp Shares and $0.425 cash (less any Tatts Special Dividend that becomes payable) per Tatts Share that you hold as at the Scheme Record Date. If the Scheme becomes Effective, on the Implementation Date you will (provided that you are not an Ineligible Foreign Shareholder): be paid the $0.425 cash (less any Tatts Special Dividend that becomes payable) for each Tatts Share that you held on the Scheme Record Date; and have your name entered into the Tabcorp Share Register. If the Scheme Meeting is adjourned or the Effective Date is otherwise delayed, the issuing and payment (as applicable) of the Scheme Consideration will also be delayed. If you are an Ineligible Foreign Shareholder, the net cash proceeds of the sale of the New Tabcorp Shares to which you would otherwise have been entitled will be paid to you in accordance with the process explained in Section 14.3(o). Tabcorp will issue the New Tabcorp Shares, and on the Implementation Date Tabcorp will enter your name on the Tabcorp Share Register as the holder of 0.80 New Tabcorp Shares for each Tatts Share held by you on the Scheme Record Date (unless you are an Ineligible Foreign Shareholder). Holding statements in relation to the New Tabcorp Shares will be dispatched to you as soon as practicable after the Implementation Date (unless you are an Ineligible Foreign Shareholder). If you are an Ineligible Foreign Shareholder, you will receive the net proceeds of the sale of the New Tabcorp Shares to which you would have otherwise been entitled. Yes. Tabcorp Shares currently trade on the ASX and, if the Scheme is Implemented, the New Tabcorp Shares will trade on the ASX. It is expected that you will be able to trade the New Tabcorp Shares on a deferred settlement basis from Wednesday, 25 October Section 4 Section 14.3(i) Section 14.3(i) N/A FREQUENTLY ASKED QUESTIONS 25

28 How and when will I receive the cash component of the Scheme Consideration? How do I find out whether I am an Ineligible Foreign Shareholder? What if I am an Ineligible Foreign Shareholder? Can I choose to receive cash instead of New Tabcorp Shares? Can I receive or subscribe for additional New Tabcorp Shares under the Scheme? Is Tabcorp bound to provide the Scheme Consideration? On the Implementation Date, Tabcorp will pay Scheme Shareholders the Cash Consideration (less the amount of any Tatts Special Dividend) by direct deposit into your nominated bank account, as advised to the Tatts Share Register as at the Scheme Record Date. If you have not nominated a bank account, payment will be made by cheque sent to you by post to your registered address as it appears in the Tatts Share Register. An Ineligible Foreign Shareholder is a Scheme Shareholder whose address as shown in the Tatts Share Register on the Scheme Record Date is a place outside Australia (and its external territories) other than Canada, Finland, France, Germany, Hong Kong, Japan, Malaysia, The Netherlands, New Zealand, Singapore, Sweden, Taiwan, Thailand, United Arab Emirates, United Kingdom, or the United States of America, unless Tabcorp (acting reasonably and after consultation with Tatts) determines that it is lawful and not unduly onerous or impracticable to issue that Scheme Shareholder with New Tabcorp Shares when the Scheme becomes Effective. Please contact the Tatts Shareholder Information Line on (within Australia) or (outside Australia) between 8.30am and 5.30pm on Business Days if you have any questions regarding the treatment of Ineligible Foreign Shareholders. Although all Tatts Shareholders are able to participate in the Scheme, Ineligible Foreign Shareholders will not be issued New Tabcorp Shares under the Scheme. Instead, the New Tabcorp Shares that would otherwise have been issued to you will be issued to a Nominee appointed by Tabcorp. The Nominee will sell those New Tabcorp Shares as soon as practicable (and in any case not later than 15 Business Days after the Implementation Date) and will remit to Tabcorp the proceeds of that sale (after deducting any applicable brokerage and other selling costs, taxes and charges). If you are an Ineligible Foreign Shareholder, promptly after the last sale of New Tabcorp Shares by the Nominee, Tabcorp will pay to you the portion of proceeds it receives from the Nominee in accordance with your entitlement. Ineligible Foreign Shareholders who hold Tatts Shares as at the Tatts Special Dividend Record Date will receive the Tatts Special Dividend. No. There is no option for Tatts Shareholders to elect to receive cash instead of New Tabcorp Shares. However, once you have received New Tabcorp Shares, you may sell some or all of these on the ASX. Alternatively, you may elect to sell your Tatts Shares on the ASX at any time before the close of trading on the Effective Date No. The Scheme Consideration includes a fixed amount of 0.80 New Tabcorp Shares per Tatts Share. However, you are able to buy additional Tabcorp Shares at any time through normal trading on the ASX. In accordance with the Deed PolI, if the Scheme is Implemented Tabcorp is bound to ensure that Scheme Shareholders receive the Scheme Consideration. Under the Scheme, Scheme Shareholders appoint Tatts as their agent and attorney to enforce the Deed Poll on their behalf. A copy of the Deed Poll is attached as Annexure D. Section 14.3(i) N/A Section 14.3(o) N/A N/A Annexure D 26 Tatts Group Limited Scheme Booklet

29 What is the premium offered under the Scheme, compared to the market price of Tatts Shares? Based on the closing price of Tabcorp Shares on the last Trading Day prior to the announcement of the Scheme (being $4.89 per Tabcorp Share as at 17 October 2016), the implied value of the Scheme Consideration of $4.34 per Tatts Share represents a: 20.8% premium to Tatts closing share price on 17 October 2016, being the last Trading Day prior to the announcement of the Scheme; Section % premium to the 5 day VWAP of Tatts Shares prior to the announcement of the Scheme; 19.6% premium to the 10 day VWAP of Tatts Shares prior to the announcement of the Scheme; 17.1% premium to the 30 day VWAP of Tatts Shares prior to the announcement of the Scheme; 13.2% premium to the 3-month VWAP of Tatts Shares prior to the announcement of the Scheme; 12.7% premium to the 6-month VWAP of Tatts Shares prior to the announcement of the Scheme; and 11.1% premium to the 12-month VWAP of Tatts Shares prior to the announcement of the Scheme. Based on the closing price of Tabcorp Shares on 7 September 2017, being the last Trading Day prior to the date of this Scheme Booklet, the implied value of the Scheme Consideration is $3.66 per Tatts Share. Tabcorp s trading price may reflect a range of factors including but not limited to (i) uncertainty in relation to obtaining approvals to authorise the combination of Tatts and Tabcorp and (ii) realisation of synergy benefits and business improvements from the merger not currently reflected in Tabcorp s share price which may be recognised by the market over time. How will fractional Scheme Consideration be treated? If, pursuant to the calculation of your Scheme Consideration you would be entitled to a fraction of a New Tabcorp Share or a fraction of the Cash Consideration, those fractional entitlements (as applicable) will be rounded up or down (with any fractional entitlement of less than 0.5 being rounded down and any such fractional entitlement of 0.5 or more being rounded up) to the nearest whole number of New Tabcorp Shares or cents (as applicable). Section 14.3(h) Can I keep my Tatts Shares? No. If the Scheme is Implemented, your Tatts Shares will be transferred to Tabcorp and you will receive the Scheme Consideration. This will be the case even if you did not vote or you voted against the Scheme provided that the Scheme is approved by the Requisite Majorities of Tatts Shareholders and the Court. Annexure D Can I sell my Tatts Shares? Yes, you can sell your Tatts Shares on the ASX at any time before the close of trading up to and on the Effective Date. Trading in Tatts Shares will be suspended from official quotation on the ASX from the close of trading on the Effective Date. You will not be able to sell your Tatts Shares on the ASX after this time. If you sell your Tatts Shares on the ASX prior to the Effective Date: you will not receive the Scheme Consideration; you may be required to pay brokerage on the sale; and there may be different tax consequences for you compared with those that would apply if the Scheme was Implemented. N/A What are the tax implications of the Scheme? A general outline of the main Australian tax implications of the Scheme for certain Tatts Shareholders is set out in Section 15. As the outline is general in nature, you should consult with your own tax advisers for detailed tax advice regarding the Australian and, if applicable, foreign tax implications of participating in the Scheme in light of the particular circumstances which apply to you before making a decision as to how to vote on the Scheme. Section 15 FREQUENTLY ASKED QUESTIONS 27

30 Will I be entitled to scrip-for-scrip CGT rollover relief? If the Scheme is Implemented, Tatts Shareholders may be entitled to CGT scrip-for-scrip rollover relief on the disposal of Tatts Shares in exchange for New Tabcorp Shares. The benefit of applying for CGT scrip-for-scrip rollover relief upon receiving the New Tabcorp Shares will depend primarily on the individual circumstances of each Tatts Shareholder. Further details regarding the general Australian tax consequences of the Scheme are contained in Section 15. Tax laws in Australia are complex and you are encouraged to read Section 15 carefully and seek independent professional advice about your individual circumstances. Section 15 TATTS SPECIAL DIVIDEND What is the Tatts Special Dividend and has it been declared? When will the Tatts Special Dividend be paid? Tatts intends the Tatts Special Dividend to be $0.12 per Tatts Share 18 (subject to the availability of franking credits). A fully franked dividend of $0.12 per Tatts Share would have approximately $0.05 per Tatts Share of franking credits attached. The Tatts Special Dividend will only be declared if the Scheme becomes Effective. The payment date for the Tatts Special Dividend is the Tatts Special Dividend Payment Date. The Tatts Special Dividend will only be paid if the Scheme becomes Effective. If the Tatts Special Dividend is paid, the Cash Consideration will be reduced by the amount of the Tatts Special Dividend. Section 4.3 Section 4.3 SCHEME MEETING, VOTING AND APPROVALS When and where will the Scheme Meeting be held? What am I being asked to vote on? What is the Tatts Shareholder approval threshold for the Scheme (being the Requisite Majorities)? Who is entitled to vote? Why should I vote at the Scheme Meeting? The Scheme Meeting will be held at the Brisbane Convention & Exhibition Centre, corner Merivale and Glenelg Streets, South Bank, Brisbane, Queensland on Wednesday, 18 October 2017 at 10.00am. You are being asked to vote on whether to approve the Scheme Resolution. The text of the Scheme Resolution is set out in the Notice of Scheme Meeting in Annexure E. For the Scheme to be approved, the Scheme Resolution must be approved by the Requisite Majorities, being: (unless the Court orders otherwise) a majority in number (i.e. more than 50%) of Tatts Shareholders present and voting at the Scheme Meeting (either in person or by proxy or representative); and at least 75% of the total number of votes cast on the Scheme Resolution at the Scheme Meeting by Tatts Shareholders present and voting at the Scheme Meeting (either in person or by proxy or representative). If approved by the Requisite Majorities, the Scheme will only become Effective if it is approved by the Court on the Second Court Date and subject to the other outstanding Conditions Precedent having been satisfied or waived (as applicable). Tatts Shareholders who are registered on the Tatts Share Register at 7.00pm (Brisbane time) on the date which is 2 calendar days prior to the date of the Scheme Meeting are entitled to vote on the Scheme Resolution at the Scheme Meeting. Your vote is important in determining whether the Scheme is Implemented. Section 9 Annexure E Section 9.4 Section 9.3 Sections 5 and 6 18 While Tatts estimates that the Tatts Special Dividend will be $0.12 per Tatts Share, under the Merger Implementation Deed Tatts is able to pay a Tatts Special Dividend of up to $0.25 per Tatts Share (subject to the availability of franking credits). 28 Tatts Group Limited Scheme Booklet

31 How do I vote? What happens if I do not vote, or vote against the Scheme? When will the result of the Scheme Meeting be available? Can I oppose the Scheme? What happens if the Court does not approve the Scheme or the Scheme does not otherwise proceed? What happens to my Tatts Shares if I do not vote, or if I vote against the Scheme, and the Scheme becomes Effective and is Implemented? You may vote: in person or by attorney, by attending the Scheme Meeting; by proxy, by completing and lodging the Proxy Form accompanying this Scheme Booklet so that it is received no later than 48 hours prior to the commencement of the Scheme Meeting; or by a corporate representative (in the case of a corporate Tatts Shareholder). Voting on the Scheme is not compulsory. However, your vote is important and if the Scheme Resolution is approved by the Requisite Majorities of Tatts Shareholders, the Scheme may be Implemented even if you do not vote or vote against the Scheme. Further information regarding voting on the Scheme is set out in the Notice of Scheme Meeting in Annexure E. Even if you do not vote or vote against the Scheme, the Scheme will still be Implemented if the Scheme Resolution is approved by the Requisite Majorities, the Court approves the Scheme and any other outstanding Conditions Precedent have been satisfied or waived (as applicable). The result of the Scheme Meeting will be announced to ASX shortly after its conclusion. Yes, any Tatts Shareholder may oppose the Scheme by: attending the Scheme Meeting in person or by proxy or corporate representative and voting against the Scheme Resolution; attending the Court to oppose the Court exercising its discretion to grant orders approving the Scheme; or making a complaint to ASIC about the Scheme. You should be aware that even if you vote against the Scheme, the Scheme may still be Implemented if it is approved by the Requisite Majorities of Tatts Shareholders and the Court. If this occurs, your Tatts Shares will be transferred to Tabcorp and you will receive the Scheme Consideration even though you voted against the Scheme. If you intend to oppose the scheme at the Second Court Date, you should seek independent legal advice in relation to your position. If the Scheme is not approved at the Scheme Meeting, or if it is approved at the Scheme Meeting but is not approved by the Court or a Condition Precedent is not satisfied or otherwise waived (as applicable), then the Scheme will not become Effective and will not be Implemented. If this occurs, Tatts will continue to operate as a standalone entity listed on the ASX. In that situation, Tatts Shareholders will not receive the Scheme Consideration and will instead retain their Tatts Shares. The Reimbursement Fee is not payable by Tabcorp to Tatts or by Tatts to Tabcorp if the Scheme does not proceed for the sole reason that Tatts Shareholders do not pass the Scheme Resolution at the Scheme Meeting. Even if you did not vote, or voted against the Scheme, at the Scheme Meeting, if the Scheme is approved by the Requisite Majority of Tatts Shareholders and by the Court, all Tatts Shares that you hold on the Scheme Record Date will be transferred to Tabcorp and you will receive the Scheme Consideration. Section 9.3 Annexure E Section 7 Section 9.3 Sections 9.2 and 9.6 Sections 7.2, 7.6 and 14.2 Section 7.1 FREQUENTLY ASKED QUESTIONS 29

32 VOTING CONSIDERATIONS FOR THE SCHEME RESOLUTION What do the Tatts Directors recommend? What is the opinion of the Independent Expert? Why should I vote in favour of the Scheme? Why might I consider not voting in favour of the Scheme? The Tatts Directors unanimously recommend that you vote in favour of the Scheme, in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude that the Scheme is in the best interests of Tatts Shareholders. Each Tatts Director intends to vote in favour of the Scheme in respect of the Tatts Shares over which they have control in the absence of a Superior Proposal and subject to the Independent Expert concluding and continuing to conclude that the Scheme is in the best interests of Tatts Shareholders. Grant Samuel was appointed by Tatts as the Independent Expert to assess the merits of the Scheme. The Independent Expert has concluded that the Scheme is in the best interests of Tatts Shareholders, in the absence of a superior proposal. Tatts Shareholders should carefully review the Independent Expert s Report in its entirety. Reasons why you should consider voting in favour of the Scheme are set out in further detail in Section 5. These include: the Tatts Directors unanimously recommend that you vote in favour of the Scheme, in the absence of a Superior Proposal; the Combined Group will create a leading, diversified portfolio of gambling entertainment businesses; the implied value of the Scheme Consideration of $4.34 per Tatts Share represents a premium of 20.8% over the closing price of Tatts Shares on 17 October 2016, being the last trading day prior to the announcement of the Scheme; the Transaction is expected to deliver, in the first full year following completion of integration of the businesses, at least $130 million per annum of EBITDA from synergies and business improvements; the Combined Group is expected to have greater financial scale and a strong balance sheet position; and the Independent Expert has concluded the Scheme is in the best interests of Tatts Shareholders, in the absence of a superior proposal. Reasons why you might choose to vote against the Scheme are set out in further detail in Section 6. These include: you may disagree with the Tatts Directors unanimous recommendation or the Independent Expert s conclusion and believe that the Scheme is not in your best interests; you may wish to maintain an interest in a publicly listed investment with Tatts specific characteristics; there are risks associated with the integration of Tatts and Tabcorp which you may consider exceed the benefits of the Scheme; you may be concerned about the costs and risks associated with the realisation of synergies by the Combined Group; you may consider that there is a possibility that a Superior Proposal could emerge; you may be concerned about specific risks associated with holding New Tabcorp Shares; and the value of the Scheme Consideration (some of which will be received as New Tabcorp Shares) is not certain as it may vary based on changes in the price of Tabcorp s Shares. Section 5 Annexure A Section 5 Section 6 30 Tatts Group Limited Scheme Booklet

33 What are the potential risks associated with the Scheme and the creation of the Combined Group? What happens if a Competing Proposal emerges? If the Scheme is Implemented (and you are not an Ineligible Foreign Shareholder) you will hold New Tabcorp Shares. Implementation of the Scheme and investment in New Tabcorp Shares are subject to a range of potential risks. These risks may have a negative impact on the future operating or financial performance, prospects, investment returns or value of New Tabcorp Shares. There are also a range of risks associated with the creation of the Combined Group which may affect the Combined Group and its operations or performance If a Competing Proposal is received prior to the Second Court Date, the Tatts Board will carefully consider the proposal and determine whether it is a Superior Proposal. The Tatts Board will keep you informed of any material developments. Tatts must also notify Tabcorp of that Competing Proposal and its terms in accordance with the Merger Implementation Deed, and Tabcorp has a matching right in relation to any Competing Proposal. Sections 13.3, 13.4 and 13.5 Sections 14.2(d), 14.2(e) CONDITIONS AND IMPLEMENTATION OF THE SCHEME What are the conditions to the Scheme? In what circumstances can Tatts or Tabcorp terminate the Scheme? There are a number of Conditions Precedent that will need to be satisfied or waived (as applicable) before the Scheme can be Implemented. As at the date of this Scheme Booklet, the outstanding Conditions Precedent (which must be satisfied or waived (as applicable)) include: the competition approval condition; the approval of certain gambling regulatory authorities; approval of the Scheme by the Requisite Majorities of Tatts Shareholders at the Scheme Meeting; approval of the Scheme by the Court; and the New Tabcorp Shares to be issued pursuant to the Scheme being approved for official quotation by ASX. The Scheme may be terminated by Tatts or Tabcorp (as applicable) in the circumstances set out in the Merger Implementation Deed, including if: a Material Adverse Change or Prescribed Occurrence occurs in respect of the other party (as set out in Section 14.2(l) of this Scheme Booklet); a majority of the members of the Tatts Board fail to recommend or withdraw, adversely revise, or adversely qualify their recommendation that Tatts Shareholders vote in favour of the Scheme; there is a breach of a Tatts Representation and Warranty or a Tabcorp Representation and Warranty, and the other party has given notice of that breach to the breaching party, and the breach continues to exist for 5 Business Days after the date of the notice; there is an event or occurrence that would, or does, prevent any of the Conditions Precedent of the Scheme being satisfied by the End Date (provided that the parties have first consulted each other in good faith); a Government Agency in Australia (other than the Australian Competition Tribunal) has taken any action permanently restraining or otherwise prohibiting or preventing the Scheme; the Scheme is not Implemented by the End Date; or the Court refuses to make an order approving the Scheme. Section 14.2(a) Section 14.2(l) FREQUENTLY ASKED QUESTIONS 31

34 When is reimbursement payable by Tatts? When is reimbursement payable by Tabcorp? When will the Scheme become Effective? What happens on the Implementation Date? What happens if the Scheme is not Implemented or otherwise does not proceed? Under the Merger Implementation Deed, Tatts must pay the Reimbursement Fee of $55 million to Tabcorp in certain circumstances, including if: particular circumstances arise giving Tabcorp the right to terminate the Merger Implementation Deed; a Superior Proposal is recommended by a majority of the Tatts Directors or the Tatts Directors change their recommendation in respect of the Scheme; or Tatts materially breaches the Merger Implementation Deed and the breach is not remedied. However, no Reimbursement Fee is payable by Tatts to Tabcorp simply because Tatts Shareholders do not approve the Scheme by the Requisite Majorities, or because the Court does not approve the Scheme, provided that this is not a result of those factors listed above. Under the Merger Implementation Deed, Tabcorp must pay the Reimbursement Fee of $55 million to Tatts in certain circumstances, including if: particular circumstances arise giving Tatts the right to terminate the Merger Implementation Deed; Tabcorp materially breaches the Merger Implementation Deed and the breach is not remedied; or Tabcorp repudiates, terminates or purports to terminate the Merger Implementation Deed (except in circumstances that it is permitted to do so). Tabcorp must also pay the Competition Approval Reimbursement Fee of $35 million to Tatts if: the Merger Implementation Deed is terminated by either party after an application has been made to the Australian Competition Tribunal for authorisation of the Scheme, that application has been rejected, and there is no reasonable prospect of the application succeeding; or the competition approval condition in the Merger Implementation Deed is not satisfied (or waived) by the End Date. If for any reason Tatts is entitled to payment of the Reimbursement Fee from Tabcorp as well as the Competition Approval Reimbursement Fee, then Tatts will only be entitled to receive the higher of the two fees. If the Conditions Precedent are satisfied or waived (as applicable) and the Scheme is approved by the Requisite Majorities of Tatts Shareholders at the Scheme Meeting, Tatts will apply to the Court to approve the Scheme at the Second Court Date. The Scheme will become Effective on the date on which the Court order approving the Scheme is lodged with ASIC. The Scheme is expected to become Effective on the Second Court Date or the Business Day following the Second Court Date. On the Implementation Date (which is expected to be 5 Business Days after the Scheme Record Date or such other date as Tatts and Tabcorp agree): Tabcorp will become the holder of all the Tatts Shares; the New Tabcorp Shares will be issued to Scheme Shareholders; and Scheme Shareholders will be paid the Cash Consideration (less any Tatts Special Dividend that becomes payable). If the Scheme is not Implemented: you will not receive the Scheme Consideration; you will retain your Tatts Shares and continue to receive the benefits of and continue to be exposed to the risks associated with holding an investment in Tatts; and Tatts will continue to operate in the ordinary course of business and will continue as a standalone entity listed on the ASX. 32 Tatts Group Limited Scheme Booklet Sections 14.2(g) and 14.2(h) Sections 14.2(g) 14.2(i), and 14.2(j) Section 9.7 Section 9.9 Section 7.2

35 THE COMBINED GROUP What will the Combined Group look like if the Scheme is Implemented? What will the Combined Group s strategy be? Who will be on the board of the Combined Group? Who will be the CEO and CFO of the Combined Group? What are the benefits and risks of combining Tatts and Tabcorp to form the Combined Group? What will the Combined Group be called? What will the dividend policy of the Combined Group be? The Combined Group will have a leading, diversified portfolio of gambling entertainment businesses with wagering, racing media, lotteries, gaming services and Keno operations across Australia. The Combined Group is expected to be an ASX50 company by free float market capitalisation. Tabcorp intends that the Combined Group will focus on: continuing to develop its presence as a leading Australian gambling company; and building on its scale and national footprint to support growth and innovation in a highly competitive market. To properly achieve its objectives, Tabcorp intends that the Combined Group will dedicate significant resources to integrating the businesses of Tabcorp and Tatts. If the Scheme is Implemented, Tabcorp will be the ultimate parent company of the Combined Group. Tabcorp does not anticipate any changes to the composition of the Tabcorp Board following Implementation except for the addition of Harry Boon, the current Chairman of the Tatts Board, who has been invited to join the board of the Combined Group as a Non-Executive Director. The current Tabcorp CEO, David Attenborough, and the current Tabcorp CFO, Damien Johnston, will be retained as CEO and CFO of the Combined Group, respectively. The combination of Tatts and Tabcorp by way of the Scheme is expected to deliver at least $130 million per annum of EBITDA from synergies and business improvements. These earnings are expected to be realised in the first full year following completion of integration of the businesses. Integration of the businesses is expected to take approximately two years, subject to receipt of all necessary regulatory approvals. The Combined Group will have a more diversified portfolio of longdated licences and an enhanced ability to compete in a rapidly evolving market. The Combined Group is expected to have greater scale and a strong balance sheet position. There are also a range of risks associated with the creation of the Combined Group which may affect the Combined Group and its operations or performance. It is intended that the Combined Group will be called Tabcorp Holdings Limited. Tabcorp expects that the Combined Group will target a dividend payout ratio of 90% of NPAT before significant items, amortisation of the Victorian Wagering Licence and Sun Bets. This policy is consistent with Tabcorp s commitment to delivering strong, sustainable shareholder returns. Section 12 Section 12 Section 12.3(b) Section 12.3(c) Sections 12.2, 13.3, 13.4 and 13.5 Section 12.3(e) Section 12.3(g) OTHER QUESTIONS Where can I get further information? If you have any further questions about the Scheme, please contact the Tatts Shareholder information line on (within Australia) or (outside Australia). If you are in any doubt as to what you should do, you should consult an independent, appropriately licensed and authorised financial, legal and / or tax adviser without delay. N/A FREQUENTLY ASKED QUESTIONS 33

36 9. Meeting Details and How to Vote 9.1 NOTICE OF SCHEME MEETING AND SCHEME RESOLUTION The Court has ordered Tatts to convene the Scheme Meeting to be held on Wednesday, 18 October 2017 at 10.00am at the Brisbane Convention & Exhibition Centre, corner Merivale and Glenelg Streets, South Bank, Brisbane, Queensland at which Tatts Shareholders will be asked to approve the Scheme. The Notice of Scheme Meeting is contained in Annexure E and sets out the Scheme Resolution to be considered by Tatts Shareholders at the Scheme Meeting. Although the Court has ordered that the Scheme Meeting be convened, and has approved the dispatch of this Scheme Booklet to accompany the Notice of Scheme Meeting, the Court has not prepared, and is not responsible for the content of, this Scheme Booklet. The Court has not expressed any view as to the merits of the Scheme or how Tatts Shareholders should vote. Tatts Shareholders must reach their own decision on these matters. 9.2 YOUR CHOICES AS A TATTS SHAREHOLDER In considering how to vote on the Scheme, the Tatts Directors encourage you to: read this Scheme Booklet carefully and in its entirety; have regard to your individual risk profile, portfolio strategy, tax position and financial circumstances; and obtain advice from your legal, financial, tax or other professional adviser on the Scheme and obtain tax advice on the consequences of the Scheme becoming Effective. As a Tatts Shareholder you have the following choices: you can vote at the Scheme Meeting and information on how to vote is contained in the Notice of Scheme Meeting in Annexure E; or you can elect not to vote at the Scheme Meeting. 9.3 VOTING ENTITLEMENT Tatts Shareholders are entitled to attend and vote at the Scheme Meeting on the terms set out in the Notice of Scheme Meeting in Annexure E. Voting is not compulsory. Your eligibility to vote at the Scheme Meeting is determined at 7.00pm (Brisbane time) on the date which is 2 days prior to the date of the Scheme Meeting. Only those Tatts Shareholders whose names are entered on the Tatts Share Register at that time will be entitled to attend and vote at the Scheme Meeting. You may vote in person, by attorney, by proxy or, in the case of corporate shareholders, by a duly appointed corporate representative. If you vote by proxy, the Proxy Form must be received by the Tatts Share Registry at least 48 hours prior to the commencement of the Scheme Meeting to be valid. The results of the Scheme Meeting will be available as soon as possible after the conclusion of the Scheme Meeting and will be announced to the ASX ( once available. 9.4 SCHEME APPROVAL REQUIREMENTS The Scheme will only become Effective and will only be Implemented if: it is approved by the Requisite Majorities of Tatts Shareholders at the Scheme Meeting; it is approved by the Court at the Second Court Date; and the Conditions Precedent in relation to the Scheme outlined in this Scheme Booklet are satisfied or waived (as appropriate). The Requisite Majorities of Tatts Shareholders required to approve the Scheme are: a majority in number (i.e. more than 50%) of Tatts Shareholders present and voting at the Scheme Meeting (either in person, or by proxy or representative); 19 and at least 75% of the total number of votes cast on the Scheme Resolution by Tatts Shareholders present and voting at the Scheme Meeting (either in person or by proxy), and for this purpose any Excluded Shareholders are not permitted to vote on the Scheme Resolution. 9.5 DEED POLL Prior to the date of this Scheme Booklet, Tabcorp entered into a Deed Poll in favour of the Scheme Shareholders under which Tabcorp agrees to: provide, or to procure the provision of, the aggregate amount of the Scheme Consideration payable to all Scheme Shareholders under the Scheme, subject to the Scheme becoming Effective; and undertake all other actions attributed to it under the Scheme. A copy of the Deed Poll is contained in Annexure D. 19 The Court has discretion to waive this requirement under section 411(4)(a)(ii)(A) of the Corporations Act. 34 Tatts Group Limited Scheme Booklet

37 9.6 COURT APPROVAL OF THE SCHEME In the event that: the Scheme is approved by the Requisite Majorities of Tatts Shareholders at the Scheme Meeting; and all Conditions Precedent (except Court approval of the Scheme) have been satisfied or waived (as applicable), then Tatts will apply to the Court for orders approving the Scheme on the Second Court Date. Each Tatts Shareholder has the right to appear at the Second Court Date. 9.7 EFFECTIVE DATE If the Court approves the Scheme at the Second Court Date, the Scheme will become Effective on the Effective Date, being the date on which an office copy of the Court order obtained at the Second Court Date is lodged with ASIC. Tatts will notify ASX upon the Scheme becoming Effective. Tatts intends to apply to ASX for Tatts Shares to be suspended from trading on the ASX from close of trading on the Effective Date. 9.8 SCHEME RECORD DATE AND ENTITLEMENT TO SCHEME CONSIDERATION All Tatts Shareholders appearing on the Tatts Share Register on the Scheme Record Date (currently proposed to be 3 Business Days after the Second Court Date) will be entitled to receive the Scheme Consideration in respect of the Tatts Shares which they hold at that time. 9.9 IMPLEMENTATION DATE Scheme Shareholders will be paid or issued (as applicable) the Scheme Consideration on the Implementation Date. Please refer to Section 4 for more information regarding the payment of Scheme Consideration. The Scheme Shares will be transferred to Tabcorp immediately after the Scheme Consideration is paid or issued (as applicable) to Scheme Shareholders DELISTING OF TATTS SHARES Following the Implementation Date, on a date to be determined by Tabcorp, Tatts will apply for the termination of the official quotation of Tatts Shares on the ASX. It is expected that the Tatts Bonds will remain quoted on the ASX. MEETING DETAILS AND HOW TO VOTE 35

38 10. Profile of Tatts Group 10.1 INTRODUCTION Tatts (ASX: TTS) is a leading Australian lottery, wagering and gaming services company with a diversified network of retail and direct channels and operations extending across every state and territory of Australia. Tatts is a top 100 listed company on the ASX (based on market capitalisation), with a market capitalisation of approximately $6 billion as at the date of this Scheme Booklet. For the 12 months to 30 June 2017, Tatts generated from its three businesses total revenue of $2.78 billion, $465.7 million in earnings before interest, taxes, depreciation and amortisation (from continuing operations and pre-merger costs) and $244.6 million in net profit after income tax (from continuing operations and pre-merger costs). Tatts is headquartered in Brisbane, Australia. Tatts three key businesses of lotteries, wagering and gaming services employ more than 1,500 people on a full-time equivalent basis OVERVIEW OF TATTS Figure 6 below sets out Tatts key businesses and brands and is followed by a summary of each of its key businesses. (A) CORPORATE INFORMATION Figure 6: Tatts key businesses and brands LOTTERIES WAGERING GAMING SERVICES CHARITABLE GAMES (B) OPERATIONS AND INVESTMENTS (1) Lotteries Tatts is the sole non-government owned Australian lottery operator with licences or authorities to operate in all states and territories of Australia (except Western Australia) and operates under The Lott umbrella brand for the entire lotteries business. The business has approximately 2 million registered card players and approximately 2.5 million registered online players. The Tatts / Tattersall s brand is used in the Northern Territory, Victoria and Tasmania where Tatts distributes lottery products through approximately 906 agencies, online and via mobile devices. The NSW Lotteries brand is used in New South Wales and the Australian Capital Territory where Tatts distributes products through approximately 1,383 agencies, online and via mobile devices. The Golden Casket brand is used in Queensland, Tasmania and the Northern Territory under licence from the Queensland Government. Golden Casket distributes lottery products through approximately 1,038 agencies, online and via mobile devices. The SA Lotteries brand is used in South Australia, under licence from the South Australian Government. Tatts distributes products through approximately 620 agencies, online and via mobile devices. On 12 May 2017, Tatts announced that it extended its existing lottery reseller agreements with Jumbo Interactive Limited (Jumbo) for a further 5 years. Tatts has termination rights under the reseller agreements permitting Tatts to terminate these agreements in the event (among other things) that a competitor of Tatts enters into certain distribution agreements with Jumbo or acquires more than 10% of the issued shares in Jumbo. As part of these arrangements, Tatts also subscribed for a shareholding in Jumbo under which it purchased 6,609,686 newly issued fully paid ordinary shares in Jumbo at $2.37 per share (giving Tatts a 13.04% shareholding in Jumbo as at 12 May 2017). Jumbo also granted Tatts a 12 month option to acquire a further 3,474,492 ordinary shares in Jumbo at a $2.37 strike price (being an additional 6.86% shareholding in Jumbo as at the date of this Scheme Booklet). At an extraordinary general meeting held on 12 July 2017, Jumbo shareholders passed resolutions to ratify the issue of shares to Tatts and to approve the issue of the 12 month option to Tatts. (2) Wagering Tatts holds licences on an exclusive basis to offer totalizator, fixed odds and sports wagering through retail channels in Queensland, South Australia, Tasmania and the Northern Territory. The wagering business operates under the UBET brand. Customers can bet at UBET retail outlets, online, via mobile devices, by phone and on-course at race tracks in Queensland, South Australia, Tasmania and the Northern Territory. 36 Tatts Group Limited Scheme Booklet

39 Members of Tatts Group are party to arrangements with, among others, The Queensland All Codes Racing Industry Board (Queensland Racing) and Thoroughbred Racing SA, Harness Racing SA and Greyhound Racing SA (South Australia Racing) which entitles both racing bodies to a share of wagering revenue generated pursuant to the Queensland and South Australian wagering licences held by the relevant Tatts Group Member. (3) Gaming Services Tatts gaming services businesses are consolidated under the MAX brand which comprises the MAX (formerly Maxgaming) and MAXtech (formerly Bytecraft) businesses. The MAX business operates across New South Wales, Queensland and the Northern Territory. It conducts gaming machine monitoring pursuant to an exclusive monitoring licence in New South Wales and is currently the sole gaming machine monitoring operator in the Northern Territory. It also supplies gaming machine monitoring in Queensland pursuant to a non-exclusive licence. Its core business is the supply of monitoring services for gaming machines, together with value-add services such as reporting, loyalty systems management, linked jackpots, cashless pre-commitment and ticket in ticket out services. The business currently monitors over 130,000 machines in Australia. The MAX business also supplies state-wide linked jackpots pursuant to exclusive licences in New South Wales. MAXtech provides a mix of services including warehousing, installation, relocation and repair and maintenance of gaming machines, lottery and wagering terminals and other transaction devices in Australia. (4) Charitable Games Tatts recently established a new business unit which is specifically focused on fund raising activities for the charitable and not-for-profit sector. The unit operates under the George 2 brand. Its aim is to develop and supply innovative products and technology solutions that can make a real difference to charitable organisations in their fund raising endeavours. (C) GROUP PERFORMANCE Tatts revenue and EBITDA by segment is presented below. For further information on Tatts FY17, FY16 and FY15 historical financial information see Section Figure 7: Tatts revenue and EBITDA by segment FY17 RESULTS REVENUE BY SEGMENT EBITDA BY SEGMENT Figures expressed before unallocated corporate expenses LOTTERIES 72% WAGERING 21% GAMING SERVICES 7% LOTTERIES 63% WAGERING 22% GAMING SERVICES 15% Tatts Board and senior management (D) TATTS BOARD The Tatts Board consists of the following directors: Harry Boon Chairman and Non-Executive Director Mr Boon is Chairman of the Tatts Board and has served as a Non-Executive Director of Tatts since May He is currently the Chairman of Asaleo Care Limited and formerly a Director of Toll Holdings Limited from 2006 to Mr Boon was previously Chief Executive Officer and Managing Director of ASX listed company, Ansell Limited, until he retired in 2004, a position which capped a career spanning some 28 years with the Ansell Group. Mr Boon has held 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. Mr Boon holds a Bachelor of Laws (Honours) and a Bachelor of Commerce from the University of Melbourne. Mr Boon has been invited to join the board of the Combined Group if the Scheme is Implemented and intends to accept this invitation (please refer to Section 16.3 for further details). PROFILE OF TATTS GROUP 37

40 Robbie Cooke Managing Director and Chief Executive Officer Mr Cooke is the Managing Director and Chief Executive Officer of Tatts and has served in that position since January Mr Cooke was previously Chief Executive Officer of Wotif Group from 2007, Chief Operating Officer of Wotif Group from and Head of Strategy and General Counsel at UNiTAB (now part of Tatts) from 1999 to He has worked across a wide range of industries including wagering, gaming, oil and gas and online travel retailing sectors. Mr Cooke is a member of the Australian Institute of Company Directors and Governance Institute of Australia. He holds a Bachelor of Laws (Honours) and Bachelor of Commerce from the University of Queensland together with a Diploma in Company Secretarial Practice. Lyndsey Cattermole AM Non-Executive Director Ms Cattermole has served as a Non-Executive Director of Tatts since May She was the founder and Managing Director of Aspect Computing Pty Ltd from 1974 to 2003, and a Director of Kaz Group Limited from 2001 to Ms Cattermole 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 and the Victorian Premier s Round Table and as Chairman of the Woman s and Children s Health Care Network. Ms Cattermole is a Non-Executive Director of ASX-listed Treasury Wine Estates Limited (since May 2011) and ASX-listed PACT Group Holdings Limited (since November 2013). Ms Cattermole holds a Bachelor of Science from the University of Melbourne and is a Fellow of the Australian Computer Society. Brian Jamieson Non-Executive Director Mr Jamieson has served as a Non-Executive Director of Tatts since May He is currently the Chairman of Mesoblast Limited and Sigma Pharmaceuticals Limited. Mr Jamieson has more than 30 years experience providing advice and audit services and was previously Chief Executive of Minter Ellison, Melbourne from 2002 to Prior to joining Minter Ellison, he was Managing Partner of KPMG Melbourne and Southern Regions from 1993 to 1998, Chief Executive Officer at KPMG Australia from 1998 to 2000, and Chairman of KPMG Melbourne from 2001 to He was also a KPMG Board member in Australia, and a member of the USA Management Committee. Mr Jamieson is a Fellow of the Institute of Chartered Accountants Australia and New Zealand and a Fellow of the Australian Institute of Company Directors. Julien Playoust Non-Executive Director Mr Playoust has served as a Non-Executive Director of Tatts since November He is currently a Director of private equity company MGB Equity Growth Pty Ltd, Trustee and Vice Chairman of the Art Gallery NSW Foundation, Chairman of Finance Committee and on the Advisory Boards of UNSW Arts & Design, and The Nature Conservancy. Mr Playoust has more than 25 years experience in senior management roles in both public and private companies and is currently the Managing Director of AEH Group, a private investment company. Previously, he was a management consultant at AMP, NAB and Accenture. Mr Playoust holds a Masters of Business Administration from AGSM, Bachelor of Architecture, First Class Honours and Bachelor of Science from The University of Sydney, and a Company Director Course Diploma from Australian Institute of Company Directors. Kevin Seymour AM Non-Executive Director Mr Seymour has served as a Non-Executive Director of Tatts since October He is currently Executive Chairman of Seymour Group, a private property development and investment company with interests in the energy sector, Deputy Chairman of Ariadne Australia Limited and holds Board positions with several private companies in Australia. Mr Seymour was previously Chair of Royal Brisbane Hospital Herston Redevelopment Taskforce, Independent Chair of the Queensland Government/Brisbane City Council s Brisbane Housing Company Limited, Chair and Benefactor of Community TV s Channel 31, served on the Lord Mayor s Drugs Taskforce and is an Honorary Ambassador for the City of Brisbane. 38 Tatts Group Limited Scheme Booklet

41 Dr David Watson Non-Executive Director Dr Watson has served as a Non-executive Director of Tatts since March He also served in the Federal Parliament in the House of Representatives as the member for Forde from 1984 to 1987 and in the Queensland Parliament as the member for Moggill from 1990 to 2004, during which time he was the Minister for Public Works and Housing (from April 1997 to July 1998). Prior to entering parliament, Dr Watson was Professor of Accounting and Business Finance at the University of Queensland. Dr Watson holds a Bachelor of Commerce (Hons) from the University of Queensland, and a Master of Arts and PhD from Ohio State University. Dr Watson is a Fellow of the Institute of Chartered Accountants of Australia and New Zealand, a Fellow of CPA Australia, and an Associate in Accounting of the University of Queensland. (E) SENIOR MANAGEMENT The key members of Tatts senior management team are: Name Position Robbie Cooke Managing Director and Chief Executive Officer Andrew Collins Head of Corporate Development John Corry Chief Operating Officer Charitable Gaming Ashleigh Loughnan Executive General Manager People, Property & Procurement Megan Magill Chief Marketing Officer Frank Makryllos Chief Operating Officer Gaming Neale O Connell Chief Financial Officer Brendan Parnell Chief Operating Officer Wagering Maree Patane Chief Auditor Mandy Ross Chief Information Officer Anne Tucker General Counsel and Company Secretary Sue Van Der Merwe Chief Operating Officer - Lotteries (F) TATTS INDEPENDENT DIRECTORS The Independent Directors of Tatts are Harry Boon, Lyndsey Cattermole AM, Brian Jamieson, Julien Playoust, Kevin Seymour AM and Dr David Watson. (G) TATTS DIRECTORS INTENTIONS If the Scheme is Implemented, the Tatts Board will be reconstituted by directors nominated by Tabcorp. Accordingly, it is for the reconstituted Tatts Board to determine its intentions as to: the continuation of the business of Tatts; any major changes, if any, to be made to the business of Tatts; and the future employment of the present employees of Tatts. The current intention of Tabcorp with respect to these matters is set out in Section If the Scheme is not Implemented, the current intention of the Tatts Board is described in Section 7.2. Please refer to Section 16.1 for more information regarding the interests of Tatts Directors in Tatts marketable securities CAPITAL STRUCTURE As at the date of this Scheme Booklet, the capital structure of Tatts is as follows: Type of security Number on issue Fully paid ordinary shares 1,468,519,481 Tatts Bonds 20 1,946,642 Tatts Performance Rights 818, RECENT SHARE PRICE HISTORY Tatts Shares are listed on the ASX under the code TTS. The closing price of Tatts Shares on the ASX on 17 October 2016 (i.e. the last Trading Day prior to the announcement of the Scheme) was $3.59. The closing price of Tatts Shares on the ASX on 7 September 2017, the last practicable Trading Day before the date of this Scheme Booklet, was $ Please refer to Sections 12.4(b) and 13.4(e) for further information. PROFILE OF TATTS GROUP 39

42 During the three months ending 7 September 2017: the highest recorded daily closing price for Tatts Shares on the ASX was $4.32 on 20 June 2017; and the lowest recorded daily closing price for Tatts Shares on the ASX was $3.88 on 11 August Figure 8 below shows Tatts share price performance over the 24 months to 7 September Figure 8: Tatts Shares historical share price performance ($) OCTOBER 2016 Announcement of Merger $ Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep TATTS SUBSTANTIAL SHAREHOLDERS As extracted from filings released on the ASX, in each case prior to the last practicable Trading Day prior to the date of this Scheme Booklet, the following persons were substantial holders who hold 5% or more of Tatts Shares: Security holder Number of Tatts Shares Voting power UBS Group AG and its related bodies corporate ,833, % Perpetual Limited 145,018, % Australian Super Pty Ltd 73,462, % 10.6 HISTORICAL FINANCIAL INFORMATION The historical financial information in this Section 10.6 comprising: Tatts historical consolidated income statements for the years ended 30 June 2015, 30 June 2016 and 30 June 2017 (Tatts Historical Income Statements); Tatts historical consolidated statements of financial position as at 30 June 2015, 30 June 2016 and 30 June 2017 (Tatts Historical Statements of Financial Position); and Tatts historical consolidated statements of cash flows for the years ended 30 June 2015, 30 June 2016 and 30 June 2017 (Tatts Historical Statements of Cash Flows), has been derived from Tatts financial statements for the financial years ended 30 June 2015, 30 June 2016 and 30 June 2017, which were audited by PwC and all of which received unmodified opinions (Tatts Historical Financial Information). (A) BASIS OF PREPARATION Tatts Historical Financial Information presented is in an abbreviated form and does not contain all the disclosures, presentation, statements or comparatives that are usually provided in an annual report prepared in accordance with the Corporations Act and should therefore be read in conjunction with the financial statements of Tatts for the respective periods, including the description of accounting policies contained in those financial statements and the notes to those financial statements. Tatts statutory historical consolidated income statements, statutory historical consolidated statements of financial position and historical consolidated cash flow statements are disclosed in the annual financial reports for FY15, FY16 and FY17. These documents and Tatts annual reports can be found at or the ASX website at 21 Please refer to Section 11.13(b) for further information regarding Tabcorp s cash-settled equity swap with UBS and Tabcorp s relevant interest in Tatts Shares. 40 Tatts Group Limited Scheme Booklet

43 Tatts Historical Financial Information has been prepared in accordance with the recognition and measurement principles of AAS (including the Australian Accounting Interpretations), issued by the AASB which are consistent with International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board. (B) TATTS HISTORICAL INCOME STATEMENTS 2017 $m Year ended 30 June 2016 $m 2015 (a) $m Revenue and other income 2, 778 2,928 2,920 Government share (1,291) (1,371) (1,294) Venue share / commission (407) (436) (417) Product and program fees (199) (203) (203) Other expenses from ordinary activities (415) (421) (499) EBITDA (before merger costs) Merger costs (33) (2) - EBITDA Depreciation and amortisation (78) (75) (87) EBIT Net finance costs (46) (41) (54) Income tax expense (86) (115) (110) NPAT from continuing operations Loss from discontinued operations (1) (30) (4) Statutory NPAT Note: Some totals may not sum due to rounding. (a) This information has been extracted from the audited financial statements of Tatts Group Limited for the full year ended 30 June In this period the UK Talarius operation formed part of continuing operations. Talarius was subsequently disclosed as discontinued operations for the first time in the financial statements for the year ended 30 June If Talarius had been disclosed as a discontinued operation in the financial statements for the year ended 30 June 2015, Revenue, EBIT and NPAT from continuing operations would have been $2,804 million, $414 million and $254 million respectively. Commentary on FY17 financial information (as released to ASX on 17 August 2017) At a Group level revenue was down 5.1% on FY16 at $2.78 billion. Lotteries cycled over its strongest ever jackpot run with FY16 producing 45 jackpots at or above $15 million. In FY17, Powerball and Oz Lotto generated 31 equivalent jackpots over $15 million. As a result, lotteries experienced a 5.9% fall in revenue. Wagering s revenue was down 3.7% partially impacted by the loss of 347 additional races over the prior year across all racing codes due to bad weather (a 26.2% increase in lost races) and an overall reduction of circa 2.0% in thoroughbred field sizes over the period. These factors contributed to a 6.9% fall in turnover, however the drop in revenue was not as severe due to the blended win-rate lifting 50 basis points to 15.3% (FY16: 14.8%). Gaming s monitoring operation, MAX, achieved a lift of 2.0 % in its revenue flowing from contracted monitoring fee increases and from increased sales of its suite of value-add products. The division s break and fix operation, MAXtech, continued its strategy of exiting / not renewing unprofitable and / or non-core service contracts to drive profitability and this, as expected, resulted in an 11.3% decline in revenue. Group EBITDA (before merger costs) of $465.7 million was down 6.3%. Lotteries experienced a 8.7% decline in EBITDA reflecting the softer revenue result and reflecting the loss of some scale efficiencies achieved last year from jackpot outperformance. Wagering, carrying the impact of bad weather and smaller field sizes, was down 17.1%. Higher telecommunications costs in retail venues to improve risk management systems and the continued investment in digital and traditional marketing to remain competitive, were two major cost categories which impacted wagering s EBITDA result. MAX increased its EBITDA 4.6% while MAXtech lifted its EBITDA 125.6%, driven by the culmination of a 3-year program focused on business improvement and cost reduction in both divisions. Group EBIT from continuing operations (before merger costs) for the reporting period was $387.5m, down 8.1%. Depreciation and amortisation was up 4.0% at $78.2m, a key component of this increase reflecting the amortisation of Tatts New South Wales interim monitoring right and investment in UBET retail roll-out. Group profit after tax on a continuing operations basis (before merger costs) was down 7.7% to $244.6m. Group after tax profit on a statutory basis was $220.5m down 5.7%, which includes merger costs net of tax of $23.4 million, while the FY16 statutory result included, in discontinued operations, the costs of the concluded Victorian pokies compensation litigation, and the loss on sale of the UK-based slots business, Talarius, which in combination amounted to $29.6 million net of tax. PROFILE OF TATTS GROUP 41

44 Commentary on FY16 financial information (as released to ASX on 18 August 2016) Revenue was up 4.4% on FY15 at $2.93 billion. This was predominantly due to the lotteries business segment which achieved revenue growth of 8.2% culminating from a record 45 jackpots of $15 million or more during the financial year. The revenue growth in lotteries was off-set by 3.6% revenue decline in wagering from continued consumer migration from tote to lower yielding fixed price products. MAX (previously Maxgaming) delivered increased revenue of 1.3%, while MAXtech s (previously Bytecraft) 11.3% decline in revenue came as it exited most of its unprofitable service contracts, improving profitability. Tatts Group s EBITDA of $494.8 million was 0.8% up on FY15 s result. Again, lotteries was the biggest contributor to this result, with EBITDA increasing 10.2% and the margin increasing from 15.9% to 16.2%. Wagering s margin performance at 21.9% fell from 24.3%, which saw EBITDA fall 13.2%. As mentioned, this result was impacted by a combination of a migration from tote to lower yield fixed price betting, being more responsive to the market in pricing Tatts fixed-price book, and from Tatts usage of customer rewards and bonusing. Both Tatts Gaming businesses improved on their FY15 EBITDA performances. MAX was up 0.1%, while MAXtech was up 23.0%. EBIT from continuing operations was up 1.3% in FY16 to $419.6 million. Total Tatts Group depreciation and amortisation amounted to $75.2 million, down 2.2% on FY15 due to lower depreciation in the lotteries and MAX operations. Tatts Group profit after tax from continuing operations increased 3.8% to $263.4 million (FY15: $253.9 million). Tatts Group after tax profits on a statutory basis declined 7.2% to $233.8 million (FY15: $252.0 million), noting that the FY16 result includes the impact of both the now concluded Victorian pokies compensation litigation and the sale of the UK-based slots business, Talarius, which are included in discontinued operations. Commentary on FY15 financial information (as released to ASX on 20 August 2015) At a Tatts Group level revenue was up 1.8% on FY14 at $2.92 billion. Lotteries and gaming contributed strongly to this increase, predominantly due to a price increase introduced in July 2014 within lotteries. This was offset by a decrease in wagering revenue as the Tatts Group was awaiting the UBET launch that occurred in the last two months of the reporting period and significant competitor activity. Tatts Group EBITDA of $507.4 million was 1.8% up on FY14 s result. Lotteries EBITDA increased 5.8% as its EBITDA margin lifted 50 basis points to 15.9% benefiting from the growth in the digital channel. Wagering EBITDA decreased 4.5% as a result of margins decreasing from 25.0% to 24.3% due to restructuring the wagering offering to compete in the markets. The gaming businesses all increased on their FY14 performances to provide a lift in Tatts Group s EBITDA outcome in FY15. EBIT from continuing operations increased 1.4% in FY15 to $420.3 million. Depreciation and amortisation amounted to $87.1 million, up 3.8% on FY14 as a result of the amortisation of the Queensland wagering licence. Tatts Group after tax profits from continuing operations increased 12.9% to $255.8 million (FY14: $226.6 million). Tatts Group after tax profits on a statutory basis lifted 25.7% to $252.0 million (FY14: $200.4 million), noting that the FY14 result included the $26.2 million impact of Tatts discontinued Victorian pokies operation, primarily relating to the health benefit levy charge in FY Tatts Group Limited Scheme Booklet

45 (C) TATTS HISTORICAL STATEMENTS OF FINANCIAL POSITION 2017 $m 2016 $m As at 30 June Current assets Cash and cash equivalents Receivables Inventories Current tax assets Assets classified as held for sale Derivative financial instruments Other Total current assets Non current assets Receivables Investment in an associate Available for sale financial assets Held-to-maturity investments Intangible assets 4,459 4,462 4,653 Property, plant and equipment Deferred tax assets Derivative financial instruments Other Total non current assets 4,908 4,841 4,969 TOTAL ASSETS 5,293 5,233 5,525 Current liabilities Payables Interest bearing liabilities Current tax liabilities Provisions Derivative financial instruments Other Total current liabilities ,565 Non current liabilities Trade and other payables Interest bearing liabilities 847 1, Deferred tax liabilities Provisions Derivative financial instruments Other Total non current liabilities 1,340 1, TOTAL LIABILITIES 2,335 2,261 2,554 NET ASSETS 2,958 2,973 2,971 Equity Issued capital 2,869 2,854 2,841 Retained earnings Reserves - (2) (10) TOTAL EQUITY 2,958 2,973 2, $m Note: Some totals may not sum due to rounding. PROFILE OF TATTS GROUP 43

46 (D) TATTS HISTORICAL STATEMENTS OF CASH FLOWS 2017 $m Year ended 30 June EBITDA Net interest paid (42) (38) (49) Costs paid for legal compensation claim - (27) - Income taxes paid (14) (124) (84) Change in working capital and other non-cash items Net cash inflow from operating activities Payments for property, plant and equipment and intangibles (106) (62) (102) Payments to government for future monitoring rights (68) (68) - Payments for held-to-maturity investments (20) (35) - Proceeds on disposal of controlled entities, net of cash Payments for shares in associate (16) - - Proceeds from sale of other assets Net cash inflow / (outflow) from investing activities (187) 24 (68) Net proceeds from / (repayment of) borrowings (520) 2016 $m Payments for legal compensation claim excluding interest - (540) Proceeds from issue of shares Dividends paid net of Dividend Reinvestment Plan (244) (237) (121) Net cash (outflow) from financing activities (189) (581) (639) Net (decrease) / increase in cash and cash equivalents 35 (226) (266) Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on cash and cash equivalents - (1) 1 Cash and cash equivalents at end of year Note: Some totals may not sum due to rounding. (E) MATERIAL CHANGE IN TATTS FINANCIAL POSITION SINCE ITS LAST PUBLISHED ACCOUNTS To the knowledge of the Tatts Directors, at the date of this Scheme Booklet, other than: the payment of a 100% franked final dividend of $0.08 per Tatts Share announced on 17 August 2017 to be paid on 3 October 2017, totalling $117.5 million; the accumulation of profits in the ordinary course of trading; and as disclosed in this Scheme Booklet or as otherwise disclosed to the ASX by Tatts, the financial position of Tatts has not materially changed since 30 June 2017, being the date of the Tatts FY17 financial reports for the 12 months ended 30 June 2017 (released to the ASX on 17 August 2017) NO REVENUE OR EBITDA GUIDANCE The Tatts Directors have carefully considered whether they have a reasonable basis to produce reliable and meaningful forecast EBITDA or profit information for Tatts Shareholders. The Tatts Directors have concluded that they do not have a reasonable basis to provide forecast EBITDA or profit information for Tatts on a standalone basis. The Tatts Directors have also concluded that, if the Scheme is Implemented, the performance of the Combined Group in any period will reflect a number of factors that cannot be predicted with the level of confidence required for the inclusion of forecast information in this Scheme Booklet PUBLICLY AVAILABLE INFORMATION ABOUT TATTS Tatts is a disclosing entity for the purposes of section 111AC(1) of the Corporations Act and is subject to regular reporting and disclosure obligations under the Corporations Act and the ASX Listing Rules. These obligations require Tatts to notify the ASX of information about specified matters and events as they arise for the purpose of the ASX making that information available to participants in the market. Tatts has an obligation under the ASX Listing Rules (subject to some exceptions) to notify ASX immediately upon becoming aware of any information concerning it, which a reasonable person would expect to have a material effect on the price or value of Tatts Shares. Pursuant to the Corporations Act and the ASX Listing Rules, Tatts is required to prepare and lodge with ASIC and the ASX both annual and half-yearly financial statements accompanied by a statement and report from the Tatts Directors and an audit or review report respectively. Copies of each of these documents can be obtained free of charge on Tatts website or by visiting the ASX website at ASIC also maintains a record of documents lodged with it by Tatts, and these may be obtained from, or inspected at, any office of ASIC. Information is also available on the Tatts website at $m 44 Tatts Group Limited Scheme Booklet

47 11. Profile of Tabcorp 11.1 INTRODUCTION This Section 11 has been prepared by Tabcorp and is the responsibility of Tabcorp. Tatts does not assume any responsibility for the accuracy or completeness of the information contained in this Section OVERVIEW OF TABCORP (A) CORPORATE INFORMATION Tabcorp (ASX:TAH) is a leading Australian gambling entertainment company and one of the largest publicly listed gambling businesses in the world. Tabcorp is a leader in the Australian wagering, racing media, gaming services and Keno industries, with operations across Australia, as well as internationally. Tabcorp is one of the top 100 listed companies on the ASX (based on market capitalisation), with a market capitalisation of approximately $3.4 billion as at 5 September Tabcorp s three core businesses of wagering and media, Keno, and gaming services employ more than 3,000 people. For the 12 months to 30 June 2017, Tabcorp generated total revenue of A$2,229.6 million, A$504.1 million in earnings before interest, taxes, depreciation and amortisation (before significant items) and A$178.9 million in net profit after income tax (before significant items). 22 (B) OPERATIONS AND INVESTMENTS Figure 9 below summarises Tabcorp s core businesses and is followed by a summary of each. Figure 9: Summary of Tabcorp s core businesses WAGERING & MEDIA GAMING SERVICES KENO WAGERING AND MEDIA (1) TAB operations Members of the Tabcorp Group hold licences issued under Victorian, New South Wales and Australian Capital Territory legislation that enable them to offer totalizator and fixed odds betting on racing and sporting events through retail and on-course distribution networks in Victoria, New South Wales and the Australian Capital Territory and nationally via the internet, mobile devices, and phone. Wagers are sold to customers: in each of Victoria, New South Wales and the Australian Capital Territory through the TAB branded retail network including in cash and via self-service EasyBet Terminals (EBTs); via telephone betting accounts, through Tabcorp s call centre and interactively through touch tone and speech recognition systems; via the internet through online betting systems and mobile devices; and at Victorian, New South Wales and Australian Capital Territory race tracks. Off-course wagering is the primary form of wagering in Victoria, New South Wales and the Australian Capital Territory, representing approximately 97.9% of these businesses. These wagering businesses compete with bookmakers in Victoria, New South Wales, the Australian Capital Territory and other interstate (primarily Northern Territory licensed) and international wagering operators, as well as betting exchanges. 22 FY17 significant items include costs incurred in relation to the establishment of Sun Bets of $48 million and associated impairment of $21 million, AUSTRAC civil proceedings of $62 million, AFP Cambodia investigation of $2 million, the proposed combination with Tatts of $54 million (including the impact of the Tatts cash-settled equity swap), Intecq acquisition of $5 million, and Melbourne premises relocation of $9 million. PROFILE OF TABCORP 45

48 (2) TAB Victoria Pursuant to the Victorian Wagering and Betting Licence (Victorian Wagering Licence) and the Gambling Regulation Act, in Victoria the Tabcorp Group conducts: on-course and off-course totalizator and fixed odds betting on thoroughbred, harness and greyhound racing in Australia and selected international events; totalizator and fixed odds betting on approved sporting events (e.g. AFL matches); fixed odds betting on approved non-sporting events (e.g. elections) in Australia and selected international events; the Trackside (simulated racing) product in Victorian retail agencies and licensed venues (including pubs, hotels and clubs); and the co-mingling of wagering pools with various domestic and international operators. The Victorian Wagering Licence is a single exclusive licence issued in the State authorising wagering and betting on approved betting competitions via a Victorian retail network. Tabcorp operates a network of approximately 91 TAB agencies and 645 licensed venues (including pubs and clubs) in Victoria. TAB Victoria turnover for FY17 was approximately $5.324 billion. 23 Tabcorp s Victorian operations include the SuperTAB totalizator pool. TAB ACT, RWWA (a Western Australian government entity) and various overseas totalizator operators co-mingle bets into the SuperTAB pool. The Victorian Wagering Licence expires in August 2024, but may be extended for up to a further two years at the discretion of the Victorian Government. As a condition of the granting of the Victorian Wagering Licence, the Tabcorp Group entered into a joint venture with representatives of the Victorian racing industry. The joint venture arrangements entitle the Victorian racing industry to a 50% interest in the income generated from, and the expenses incurred in, the conduct of activities under the licence. This joint venture agreement will automatically terminate on the expiry of the Victorian Wagering Licence. Under the terms of the Gambling Regulation Act and the joint venture arrangements, Tabcorp is required to pay wagering tax to the Victorian Government as well as various fees, including product, program and race fields fees to the Victorian racing industry. (3) TAB NSW Members of the Tabcorp Group hold the NSW Off-Course Totalizator Licence and the NSW On-Course Totalizator Licence (NSW Wagering Licences). Pursuant to the NSW Wagering Licences and the Totalizator Act, in New South Wales the Tabcorp Group conducts: on-course and off-course totalizator and fixed odds betting on thoroughbred, harness and greyhound racing in Australia and on selected international events; totalizator and fixed odds betting on approved sporting events (e.g. NRL matches); fixed odds betting on approved non-sporting events (e.g. elections) in Australia and selected international events; and the Trackside product, which operates in approximately 2,037 New South Wales retail agencies and licensed venues (pubs, hotels and clubs). Tabcorp operates a network of approximately 185 TAB agencies and 1,852 licensed venues (including pubs and clubs) in New South Wales. TAB NSW turnover for FY17 was approximately $6.634 billion. 24 TAB Limited operates the NSW totalizator pool, which does not pool with any other Australian totalizators (but does pool with international totalizators). The NSW Wagering Licences expire in 2097 and are exclusive until June As a condition of the grant of the NSW Wagering Licences, Tabcorp entered into commercial arrangements with representatives of the New South Wales racing industry, referred to as the NSW Racing Distribution Agreement. Under this agreement, Tabcorp is required to pay the NSW racing industry a wagering incentive fee calculated by reference to 25% of wagering earnings received by the Tabcorp Group under the NSW Wagering Licences. Under the terms of the New South Wales legislation including the Totalizator Act, Betting Tax Act 2001 (NSW), and Betting and Racing Act 1998 (NSW), and the NSW Racing Distribution Agreement, Tabcorp is also required to pay wagering tax to the New South Wales Government as well as various fees, including product and race fields fees, to the New South Wales racing industry. (4) TAB ACT Members of the Tabcorp Group hold the ACT Totalizator Licence and a Sports Bookmaking Licence 23 Consistent with financial results reporting, this includes turnover contribution from PGI. 24 Consistent with financial results reporting, this includes turnover contribution from PGI. 46 Tatts Group Limited Scheme Booklet

49 (ACT Wagering Licences). The ACT Wagering Licences allow Tabcorp to conduct: off-course and on-course totalizator and fixed odds betting on thoroughbred, harness and greyhound racing in Australia and on selected international events; totalizator and fixed odds betting on approved sporting events (e.g. NRL matches); and fixed odds betting on approved non-sporting events (e.g. elections) in Australia and selected international events. Under the ACT Wagering Licences and separate approvals in respect of Trackside and Keno, Tabcorp is the exclusive provider of totalizator and fixed odds betting in retail outlets in the Australian Capital Territory until 2064 and is the provider of the game of Keno and of Trackside until Tabcorp operates a network of 8 TAB agencies and 37 licensed venues (including pubs and clubs) in the Australian Capital Territory. (5) Luxbet Launched in September 2008, Luxbet, a wholly-owned subsidiary of Tabcorp, is a racing and sports bookmaking service licensed by the Northern Territory Racing Commission (NTRC). Luxbet is the holder of a Northern Territory sports bookmaking licence issued by the NTRC pursuant to section 90 of the Racing and Betting Act (NT). The licence expires on 30 June Luxbet offers fixed odds and tote derivative products on racing and fixed odds betting on licensed sports and novelty events. Luxbet provides its service online and through telephone accounts. As announced to the ASX on 20 June 2017, Tabcorp intends to undertake a strategic review of the Luxbet business during FY18. (6) Trackside Trackside is a computer simulated racing product which complements Tabcorp s traditional wagering products. Trackside produced turnover of $383.6 million in FY17 and operates in Victoria, New South Wales and the Australian Capital Territory, in approximately 2,800 licensed venues (pubs, hotels and clubs) and retail agencies, and is licensed in other Australian and overseas jurisdictions. (7) Sky Racing, Sky Racing World, and Sky Sports Radio Tabcorp operates: various Sky Racing television channels; and the Sky Sports Radio network in New South Wales and the Australian Capital Territory. Sky Racing television Domestic Tabcorp operates three domestic Sky Racing television channels, which broadcast thoroughbred, harness and greyhound racing to audiences in TAB agencies, hotels, clubs, race tracks, other licensed venues, online via digital channels, and into homes to pay TV subscribers. Sky Racing is connected with 361 Australian race tracks and broadcasts approximately 120,000 races each year. It transmits to: approximately 5,000 retail outlets across Australia (including TAB agencies, race tracks, and licensed venues); more than 2.8 million homes and race tracks across Australia through pay TV subscriptions; and more than 50 countries around the world via satellite, cable, mobile and the internet. In addition to various international channels, the three domestic racing channels operated by Tabcorp are Sky Racing1, Sky Racing2 and Sky Thoroughbred Central: Sky Racing1 was the first Sky Racing channel and gives viewers comprehensive Australian thoroughbred, harness and greyhound racing coverage. It also includes some international racing; Sky Racing2 features international racing, as well as offering viewers extended coverage and choice of Australian thoroughbred, harness and greyhound racing; and Sky Thoroughbred Central is a thoroughbred racing channel, showcasing thoroughbred racing from Australia and internationally, with analysis, mounting yard and expert comments. Tabcorp acquires the television broadcasting rights from racing clubs around Australia and then: broadcasts racing vision through Sky Racing television channels; and distributes racing vision internationally through third party television channels. Further to this, Tabcorp has also recently signed a two-year deal with Optus Networks Pty Ltd to broadcast the English Premier League and 2018 FIFA World Cup football content through two SKY sporting channels to TAB agencies and SKY-affiliated hotels and clubs. PROFILE OF TABCORP 47

50 International Sky Racing s international division manages: the export of Australian racing to more than 50 countries including vision, form guides and wagering data; the import of international racing content to enable wagering on that content by Tabcorp customers; and the co-mingling of wagering pools with various international operators including from New Zealand, Hong Kong, South Africa, Singapore, and the Isle of Man (i.e. Premier Gateway International). Sky Sports Radio Tabcorp also owns and operates Sky Sports Radio, which broadcasts into New South Wales and the Australian Capital Territory. Sky Sports Radio is also available nationally online. Sky Sports Radio broadcasts a range of sporting and racing shows, which contain commentary and analysis, as well as live racing commentary. Sky Racing World, LLC In the America s, Sky Racing World, LLC, a wholly owned subsidiary of Tabcorp, facilitates the distribution of racing vision to over 400 wagering outlets. (8) Other PGI A member of the Tabcorp Group has a 50% interest in the Premier Gateway International (PGI) joint venture in the Isle of Man, which provides wagering services for PGI customers and pooling services to, among others, the Tabcorp Group. Sun Bets A member of the Tabcorp Group is a party to an agreement with News UK in relation to the operation of Sun Bets, an online wagering, sports bookmaking and casino business in the UK and Ireland which commenced in August Under the agreement, a member of the Tabcorp Group is the wagering operator and holder of the relevant gambling licences for the Sun Bets business and News UK licences the Sun Bets brand and provides certain media promotion services to Tabcorp. The agreement has an initial term of 10 years (subject to the terms of the agreement), and is structured as a variable revenue share arrangement, with a minimum fee payable by Tabcorp to News UK in each year of the agreement. Unikrn A member of the Tabcorp Group is the wagering services partner of USA-based gaming, e-sports and entertainment company Unikrn. Under this arrangement, Unikrn hosts a global e-sports and gaming community platform where people can gather, game and, where legal, safely bet on organised, sanctioned multiplayer video game competitions from around the world. For certain jurisdictions, a member of the Tabcorp Group is the wagering operator that provides all necessary gambling licences and manages the business online betting functionality and account identification processes. GAMING SERVICES Tabcorp s Gaming Services includes Tabcorp Gaming Solutions (TGS), as well as Intecq Limited (Intecq), which was acquired by Tabcorp in December (1) TGS TGS provides a solutions based offering to licensed gaming venues in Victoria and New South Wales, with the aim of optimising gaming and total venue performance. This includes provision of electronic gaming machines (EGMs) to venues (with more than 10,000 EGMs under contract) as well as gaming and promotional management systems and related services. TGS re-supplies third party systems. It does not manufacture its own EGMs or supply its own gaming and promotional management systems. TGS solutions based offering includes: EGM purchase and right of access: which, for new venue signups, involves purchasing existing EGMs from venues and resupplying EGMs to these venues for a fee; EGM field services: TGS arranges for servicing, repair and maintenance of venues EGMs, loyalty and ticket-in, ticket-out (TiTo) systems; and Consultancy services: TGS supplies other services and advice to venues, such as training and advice with respect to venue refurbishment, financing, marketing, and business optimisation. (2) Intecq Intecq, through its Odyssey Gaming and ebet businesses, 25 provides monitoring services and gaming and promotional management systems and related services in New South Wales, Victoria, Queensland, Tasmania, the Australian Capital Territory and Northern Territory. 25 In order to assist in securing merger authorisation from the Australian Competition Tribunal, Tabcorp has undertaken to the ACCC to divest its Odyssey Gaming Business to a person approved by the ACCC. Further information in relation to this divestment is set out in Section 12.3(f). 48 Tatts Group Limited Scheme Booklet

51 Tabcorp announced its intention to acquire Intecq on 1 August 2016, noting it expected the business to generate EBITDA of approximately $20 million in the year following completion of integration of the business. The Intecq scheme of arrangement was subsequently implemented on 16 December Keno Keno is a game of chance in which 20 numbers between 1 and 80 are randomly drawn. Keno games are typically run every three minutes with the chance for customers to win instant prizes. Members of the Tabcorp Group hold licences or approvals issued under Victorian, Queensland, New South Wales and Australian Capital Territory legislation to operate Keno. Keno is supplied in licensed venues (hotels, clubs and casinos) and wagering agencies in Victoria, Queensland and the Australian Capital Territory, and currently in licensed venues only (hotels, clubs and casinos) in NSW. The Australian Capital Territory approval also allows for Tabcorp to accept bets/subscriptions to the Keno ACT game via the internet. The Victorian licence expires in 2022, the Queensland licence expires in 2047, the New South Wales licence expires in 2050 (which is jointly held with ClubKENO Holdings Pty Ltd, a subsidiary of ClubsNSW), and the Australian Capital Territory licence expires in Keno is distributed in 605 venues in Victoria, 995 venues in Queensland, 1,812 venues in New South Wales, and 46 venues in the Australian Capital Territory TABCORP BOARD AND SENIOR MANAGEMENT (A) TABCORP BOARD Paula Dwyer Chairman and Non-Executive Director Ms Dwyer is Chairman of the Tabcorp Board and has served as a Non-Executive Director of Tabcorp since August Ms Dwyer is currently the Chairman of Healthscope Limited and a Director of Australia and New Zealand Banking Group Limited and Lion Pty Ltd and a Member of the Kirin Holdings International Advisory Board and the Australian Takeovers Panel. Ms Dwyer was formerly a Director of Leighton Holdings Limited, Suncorp Group Limited, Foster s Group Limited, David Jones Limited and Astro Japan Property Group Limited. Ms Dwyer was also a member of the Australian Securities and Investments Commission External Advisory Panel, the Victorian Casino and Gaming Authority, and of the Victorian Gaming Commission from 1993 to Ms Dwyer had an executive career in finance, holding senior positions in investment management, investment banking and chartered accounting. David Attenborough Managing Director and Chief Executive Officer Mr Attenborough has served as Managing Director and Chief Executive Officer of Tabcorp since June 2011, previously holding the position of Managing Director Wagering since April Mr Attenborough is also currently a Director of the Australasian Gaming Council. Mr Attenborough was previously the Chief Executive Officer (South Africa) of Phumelela Gaming and Leisure Limited and prior to this held several senior executive positions with British bookmaking company Ladbrokes (formerly part of the Hilton Group Plc). Bruce Akhurst Non-Executive Director Mr Akhurst is currently the Executive Chairman of Adstream Holdings Pty Ltd and the Peter MacCallum Cancer Foundation and serves as a Director of Paul Ramsay Holdings Pty Ltd and the State Library of Victoria, and is a Council Member of RMIT University. Mr Akhurst was Chief Executive Officer of Sensis Pty Ltd from 2005 to 2012 and a Director and Chairman of FOXTEL. Mr Akhurst also spent seven years as Group Managing Director and Group General Counsel at Telstra Corporation Limited and prior to that was a Partner at Mallesons Stephen Jacques. Steven Gregg 26 Non-Executive Director Mr Gregg has served as a Non-Executive Director of Tabcorp since July Mr Gregg is currently the Chairman of Caltex Australia Limited, and a Director of Challenger Limited and William Inglis & Son Limited. Mr Gregg is also a member of the Grant Samuel non-executive Advisory Board, Trustee of the Australian Museum Trust and a Director of The Lorna Hodgkinson Sunshine Home. Mr Gregg is the former Chairman of Goodman Fielder Limited and of Austock Group Limited. Mr Gregg had an executive career in investment banking and management consulting, including as Global Head of Investment Banking and CEO at ABN Amro Bank, and Partner and Senior Adviser to McKinsey & Company. 26 Please refer to section 10.3 (page 162) of the Independent Expert s Report in relation to Steven Gregg's membership of the Grant Samuel Group Advisory Board. PROFILE OF TABCORP 49

52 Jane Hemstritch Non-Executive Director Mrs Hemstritch has served as a Non-Executive Director of Tabcorp since November Mrs Hemstritch is currently a Director of Telstra Corporation Limited and Lend Lease Group and a non-executive member of the Herbert Smith Freehills Global Council, Chairman of Victorian Opera Company Limited, and a Member of the Council of the National Library of Australia. Mrs Hemstritch was formerly a Director of Santos Limited and the Commonwealth Bank of Australia. Mrs Hemstritch was also Managing Director Asia Pacific for Accenture Limited where she was a member of Accenture s global executive leadership team and managed its business portfolio in Asia Pacific spanning twelve countries. Mrs Hemstritch is not seeking re-election as a Non-Executive Director of Tabcorp and therefore her term will end at the conclusion of Tabcorp s Annual General Meeting on 27 October Elmer Funke Kupper 27 Non-Executive Director (on leave of absence) Mr Funke Kupper served as Tabcorp s Chief Executive, Australian Business from February 2006 until September 2007, at which point he began serving as Managing Director and Chief Executive Officer of Tabcorp, until June Mr Funke Kupper has been a Non-Executive Director of Tabcorp since June Mr Funke Kupper was Managing Director and Chief Executive Officer of ASX Limited from October 2011 to March 2016 and he has held several senior executive positions with Australia and New Zealand Banking Group Limited. Prior to this, Mr Funke Kupper was a senior management consultant with McKinsey & Company and AT Kearney. Vickki McFadden Non-Executive Director Ms McFadden is currently Chairman of Eftpos Payments Australia Limited, President of the Takeovers Panel and a Director of Newcrest Mining Limited and Myer Family Investments Pty Ltd. Ms McFadden was Chairman of Skilled Group Limited prior to its acquisition by Programmed Maintenance Services Limited in 2015, and was previously a Non-Executive Director of Leighton Holdings Limited. Prior to this, Ms McFadden was Managing Director, Investment Banking at Merrill Lynch (Australia) Pty Ltd. Ms McFadden is also a Member of Chief Executive Women and a Member of the Advisory Board and Executive Committee of the UNSW Business School. Justin Milne Non-Executive Director Mr Milne has served as a Non-Executive Director of Tabcorp since August Mr Milne is currently the Chairman of the Australian Broadcasting Corporation, MYOB Group Limited and of NetComm Wireless Limited. Mr Milne is also a Director of NBN Co Limited, Members Equity Bank Limited and SMS Management and Technology Limited. Mr Milne was formerly the Chairman of pienetworks Limited, a Director of Basketball Australia Limited and Chief Executive Officer of Oz and The Microsoft Network (Australia) operated by Microsoft Corporation. Mr Milne had an executive career in telecommunications, marketing and media. Mr Milne was Group Managing Director of Telstra s broadband and media businesses from 2002 to 2010, and headed up Telstra s BigPond New Media businesses in China. Zygmunt Switkowski AO Non-Executive Director Dr Switkowski has served as a Non-Executive Director of Tabcorp since October Dr Switkowski is currently the Chairman of Suncorp Group Limited and Chairman of NBN Co Limited. Dr Switkowski is also a Director of Healthscope Limited, and Chancellor of RMIT University. Dr Switkowski is a former Director of Oil Search Limited and Lynas Corporation Limited and former Chairman of the Australian Nuclear Science and Technology Organisation and of Opera Australia. From 1999 to 2005, Dr Switkowski was the Chief Executive Officer and Managing Director of Telstra Corporation Limited and he has held the position of Chief Executive Officer of Optus Communications. Dr Switkowski also worked for Kodak (Australasia) for 18 years, serving as the Chairman and Managing Director from 1992 to As he is on a leave of absence, Mr Funke Kupper has not been involved in the preparation of the Tabcorp Information and does not assume any responsibility for the Tabcorp Information. 50 Tatts Group Limited Scheme Booklet

53 (B) SENIOR MANAGEMENT As at the date of this Scheme Booklet, Tabcorp s senior management team comprises the following members: Name Position David Attenborough Managing Director and Chief Executive Officer Damien Johnston Chief Financial Officer Merryl Dooley Executive General Manager People and Culture Sean Hughes Group General Counsel Clinton Lollback Chief Risk Officer Fiona Mead Company Secretary Claire Murphy Chief Marketing Officer Adam Rytenskild Chief Operating Officer Wagering and Media Ben Simons Chief Strategy Officer Kim Wenn Chief Information Officer 11.4 HISTORICAL FINANCIAL INFORMATION (A) BASIS OF PREPARATION The historical financial information in this Section 11.4 comprising: Tabcorp s historical consolidated income statements for the years ended 30 June 2015, 30 June 2016 and 30 June 2017 (Tabcorp s Historical Income Statements); Tabcorp s historical consolidated statements of financial position as at 30 June 2015, 30 June 2016 and 30 June 2017 (Tabcorp s Historical Statements of Financial Position); and Tabcorp s historical consolidated statements of cash flows for the years ended 30 June 2015, 30 June 2016, and 30 June 2017 (Tabcorp s Historical Statements of Cash Flows), has been derived from Tabcorp s financial statements for the financial years ended 30 June 2015, 30 June 2016 and 30 June 2017, which were audited by Ernst & Young and all of which received unqualified opinions (Tabcorp s Historical Financial Information). Tabcorp s Historical Financial Information is in an abbreviated form and does not contain all the disclosures, presentation, statements or comparatives that are usually provided in an Annual Report prepared in accordance with the Corporations Act. This information should be read in conjunction with the financial statements of Tabcorp for the respective periods, including the description of accounting policies contained in those financial statements and the notes to those financial statements. Tabcorp s statutory historical consolidated income statements, statutory historical consolidated statements of financial position and statutory historical consolidated cash flow statements are disclosed in the Annual Reports for FY15, FY16 and FY17. These reports are available from Tabcorp s website at or the ASX website at Tabcorp s Historical Financial Information has been prepared in accordance with the recognition and measurement principles of AAS (including the Australian Accounting Interpretations), issued by the AASB which are consistent with International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board. PROFILE OF TABCORP 51

54 (B) TABCORP S HISTORICAL INCOME STATEMENTS The table below provides a summary of Tabcorp s Historical Income Statements for the full years ended 30 June 2015, 30 June 2016 and 30 June Explanatory notes follow this table. Figure 10: Tabcorp Historical Income Statements 2017 $m Year ended 30 June Revenue 2,230 2,189 2,156 Commissions and fees (904) (869) (824) Government taxes and levies (313) (335) (365) Operating expenses (509) (469) (459) EBITDA excluding significant items Depreciation and amortisation (179) (179) (174) EBIT excluding significant items Net finance costs (68) (70) (78) Income tax expense (78) (81) (85) NPAT excluding significant items Significant items (after tax) (200) 28 (16) Statutory NPAT (21) $m 2015 $m (C) TABCORP HISTORICAL FINANCIAL PERFORMANCE Year ended 30 June 2017 Tabcorp s EBITDA fell by 2.3% during the year. The wagering and media segment EBITDA fell by 8.4%, driven by underperformance from Luxbet and Trackside, wet weather during the Autumn Carnival and lower than expected yields in the 6 months to June Keno EBITDA grew 2.4% during the period, driven by strong revenue growth in NSW and Victoria. Gaming Services EBITDA grew 17.1% driven by further geographic expansion of TGS and acquisition of Intecq (see Section 11.2 for further details). Intecq was included in Group results from 1 December 2016 and contributed revenue of $28.3 million and EBIT of $6.6 million Significant items of $199.7 million (after-tax) comprising of costs incurred in relation to the establishment of Sun Bets of $48 million and associated impairment of $21 million, AUSTRAC civil proceedings of $62 million, AFP Cambodia investigation of $2 million, the proposed combination with Tatts of $54 million (including the impact of the Tatts cash-settled equity swap), Intecq acquisition of $5 million, and Melbourne premises relocation of $9 million. Year ended 30 June 2016 Tabcorp s result for the year was driven by growth across all three segments. The wagering and media segment recorded 1.7% EBITDA growth, despite adverse weather conditions in the first half of the year. TAB turnover grew 2.8%, driven by strong digital customer growth and turnover growth for TAB Sports. Keno EBITDA grew 5.9% during the period, driven by brand relaunch and the introduction of jackpot pooling in New South Wales, Victoria and the Australian Capital Territory. Gaming Services EBITDA grew 3.7% in the period. During the period, Tabcorp also announced the establishment of the Sun Bets business in the UK and Ireland. Year ended 30 June 2015 Tabcorp s strong result for the year was underpinned by 7.2% EBITDA growth in its wagering and media segment which benefited from strong fixed odds performances, the impact of the FIFA World Cup, the expansion of its product offering and stringent cost control. Group EBITDA was weakened slightly by an 8.0% decline in Keno EBITDA for the year, along with flat growth in Gaming Services EBITDA of 0.9%. Tabcorp s acquisition of ACTTAB was also included in Group results from 14 October 2014, contributing revenue of $20.9 million and an EBIT loss of $3.0 million. 28 Significant items include costs incurred in relation to the establishment of Sun Bets of $48 million and associated impairment of $21 million, AUSTRAC civil proceedings of $62 million, AFP Cambodia investigation of $2 million, the proposed combination with Tatts of $54 million (including the impact of the Tatts cash-settled equity swap), Intecq acquisition of $5 million, and Melbourne premises relocation of $9 million. 29 Significant items include costs incurred in relation to the establishment of Sun Bets of $14 million and AUSTRAC civil proceedings of $14 million, as well as income tax benefits of $12 million relating to the New South Wales retail exclusivity payment and prior year research and development claims. 30 Significant items include income tax benefits received in FY15 relating to the Victorian wagering and gaming licences payment and the NSW Trackside payment and associated interest income. 52 Tatts Group Limited Scheme Booklet

55 (D) TABCORP S HISTORICAL STATEMENTS OF FINANCIAL POSITION The table below sets out Tabcorp s Historical Statements of Financial Position as at 30 June 2015, 30 June 2016 and 30 June Figure 11: Tabcorp Historical Statements of Financial Position 2017 $m 2016 $m As at 30 June 2015 $m Current assets Cash and cash equivalents Receivables Prepayments Current tax assets 5-76 Derivative financial instruments Assets held for sale Other Total current assets Non current assets Receivables Licences Other intangible assets 2,058 1,945 1,925 Property, plant and equipment Prepayments Derivative financial instruments Other Total non current assets 3,185 3,106 3,088 TOTAL ASSETS 3,741 3,303 3,384 Current liabilities Payables Interest bearing liabilities Current tax liabilities Provisions Derivative financial instruments Liabilities directly associated with assets held for sale Other Total current liabilities 1, Non current liabilities Interest bearing liabilities ,148 Deferred tax liabilities Provisions Derivative financial instruments Other Total non current liabilities ,288 TOTAL LIABILITIES 2,258 1,615 1,694 NET ASSETS 1,483 1,688 1,690 Equity Issued capital 2,444 2,431 2,426 Accumulated losses (270) (47) (32) Reserves (691) (696) (704) TOTAL EQUITY 1,483 1,688 1,690 PROFILE OF TABCORP 53

56 (E) TABCORP S HISTORICAL STATEMENTS OF CASH FLOWS The table below sets out Tabcorp s Historical Statements of Cash Flows for the years ended 30 June 2015, 30 June 2016 and 30 June Figure 12: Tabcorp Historical Statements of Cash Flows 2017 $m Year ended 30 June EBITDA excl. significant items Net interest paid (75) (68) (78) Income tax refund / (paid) (62) 11 3 Significant items before interest and tax (192) (36) - Change in working capital and other non cash items 47 (22) (33) Net operating cash flows Payments relating to cash settled equity swap (318) - - Payment for business combination, net of cash acquired (113) - (103) Capital expenditure (197) (183) (132) Proceeds from sale of property, plant & equipment and intangibles Loan repayments received from customers Net investing cash flows (624) (173) (232) Net cash flows from revolving bank facilities 585 (80) - Dividends paid (195) (173) (358) Proceeds from issue of shares Payment of transaction costs for share issue - - (7) Payments for on-market share purchase - (9) (6) Net financing cash flows 390 (262) (135) Net increase/(decrease) in cash held (12) (34) 33 Cash at beginning of period Cash at end of period $m 2015 $m (F) MATERIAL CHANGES IN FINANCIAL POSITION SINCE 30 JUNE 2017 Within the knowledge of the Tabcorp Board, the financial position of Tabcorp has not materially changed since 30 June 2017, being the date of Tabcorp s most recent reported balance sheet, other than as disclosed in this Scheme Booklet (in particular, in this Section 11.4) and other than in accordance with the impact of: the 100% franked final dividend of $0.125 per Tabcorp Share announced on 4 August 2017 with a payment date of 18 September 2017 (equivalent to $104 million); an additional unrealised loss of $25 million (pre-tax) on the Tatts equity swap since 30 June 2017, based on the Tatts closing share price of $4.01 on 5 September 2017; the accumulation of earnings in the ordinary course of trading; the trading performance of Sun Bets; significant items incurred since 30 June 2017; and generally known market conditions. (G) NEW DEBT FINANCE ARRANGEMENTS Since 31 December 2016 Tabcorp has entered into a $250 million Syndicated Facility Agreement on similar terms to the current Tabcorp Syndicated Facility. This facility will be available until the earlier of the Implementation Date or 12 months from the date of the facility. As at the date of this Scheme Booklet, the facility remains undrawn NO REVENUE OR EBITDA GUIDANCE Tabcorp has concluded that it does not have a reasonable basis to provide forecast EBITDA or profit information for Tabcorp on a standalone basis. Tabcorp has also concluded that, if the Scheme is Implemented, the performance of the Combined Group in any period will reflect a number of factors that cannot be predicted with the level of confidence required for the inclusion of forecast information in this Scheme Booklet. 54 Tatts Group Limited Scheme Booklet

57 11.6 TABCORP CAPITAL STRUCTURE (A) TABCORP SECURITIES As at the date of this Scheme Booklet, Tabcorp s issued securities are as follows: Type of security Number on issue Ordinary shares 835,267,014 Tabcorp Performance Rights 3,879,208 Tabcorp Performance Rights which are capable of being converted into 3,879,208 Tabcorp Shares. (B) TABCORP EMPLOYEE SHARE PLANS AND INCENTIVE PLANS Tabcorp provides incentive awards to employees of the Tabcorp Group under the following incentive plans: (1) Short Term Incentive plan The Short Term Performance Plan (STPP) is designed to reward employees for the achievement of the Tabcorp Group, business unit and individual performance goals over the relevant 12 month period, which are aligned to the Tabcorp Group s annual objectives for each financial year. Tabcorp s senior executive leadership team (including executive key management personnel), senior managers and mid-level managers are eligible to participate in the STPP. The STPP is delivered in cash, or a mixture of cash and restricted shares. Restricted shares are subject to a two year service condition during which time those shares may not be traded, however participants have full entitlement to dividends and voting rights. (2) Long Term Incentive plan The Long Term Performance Plan (LTPP) is designed to reward senior management for contributing to the creation of long term shareholder value and to retain key talent within Tabcorp. Tabcorp s senior executive leadership team (including executive key management personnel) and certain key senior managers are eligible to participate in the LTPP. Participants in the LTPP are allocated a maximum number of Tabcorp Performance Rights at the beginning of the performance period. These Tabcorp Performance Rights provide the participant with the right to receive Tabcorp Shares subject to meeting performance conditions, at no cost to the participant. Tabcorp Performance Rights do not attract dividends or provide voting rights. Vesting of the Tabcorp Performance Rights is dependent on meeting the minimum performance hurdle at the third anniversary of the date of allocation (i.e. a three year performance period). The performance measure for Tabcorp Performance Rights is relative total shareholder return (Relative TSR). Relative TSR measures the return received by shareholders (capital returns, dividends and share price movement) over a specific period relative to a peer group of companies. (C) RIGHTS AND LIABILITIES ATTACHING TO TABCORP SHARES Section sets out certain information in relation to the rights and liabilities attaching to Tabcorp Shares TABCORP SUBSTANTIAL SHAREHOLDERS As extracted from filings released on the ASX, in each case prior to the last practicable Trading Day prior to the date of this Scheme Booklet, the following persons were substantial holders (being 5% or more) of Tabcorp Shares: Substantial holder Number of Tabcorp Shares held Voting power (%) Perpetual Limited and its related bodies corporate 76,753, % UBS Group AG and its related bodies corporate 53,077, % BlackRock Group (BlackRock Inc. and subsidiaries) 51,451, % National Australia Bank Limited and its associated entities 42,812, % The Vanguard Group, Inc. 42,218, % PROFILE OF TABCORP 55

58 11.8 TABCORP SHARE PRICE PERFORMANCE For personal use only Figure 13: Tabcorp share prices Share price $ Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep-17 Tabcorp share price Source: IRESS 11.9 TABCORP DIVIDEND POLICY As at the date of this Scheme Booklet, Tabcorp s dividend policy is to target a dividend payout ratio of 90% of NPAT before significant items, amortisation of the Victorian Wagering Licence and Sun Bets. Tabcorp s dividend policy is consistent with its commitment to delivering strong, sustainable shareholder returns. Below is a summary of Tabcorp s recent fully franked declared dividends: Dividend (per Tabcorp Share) Final Interim Special Total FY15 $0.10 $0.10 $0.30 $0.50 FY16 $0.12 $0.12 N/A $0.24 FY17 $0.125 $0.125 N/A $0.25 The Tabcorp Board retains the discretion to determine whether or not a dividend will be declared and the amount of any dividend payment, subject to the satisfaction of section 254T of the Corporations Act. Tabcorp has historically operated a Dividend Reinvestment Plan (Tabcorp DRP) which provides Tabcorp Shareholders with a choice to reinvest dividends in additional Tabcorp Shares rather than receiving those dividends in cash. The Tabcorp DRP is currently suspended. The Tabcorp Board may decide to reactivate the plan in the future. Any decision to do so and any changes to the terms of the Tabcorp DRP will be announced on the ASX and notified on Tabcorp s website ( A copy of the terms of Tabcorp DRP is available on Tabcorp s website. See Section 12 for information in relation to dividends of the Combined Group PUBLICLY AVAILABLE INFORMATION ABOUT TABCORP Tabcorp is a disclosing entity for the purposes of section 111AC(1) of the Corporations Act and is subject to regular reporting and disclosure obligations under the Corporations Act and the ASX Listing Rules. These obligations require Tabcorp to notify the ASX of information about specified matters and events as they arise for the purpose of the ASX making that information available to participants in the market. Tabcorp has an obligation under the ASX Listing Rules (subject to some exceptions) to notify ASX immediately upon becoming aware of any information concerning it, which a reasonable person would expect to have a material effect on the price or value of Tabcorp Shares. Pursuant to the Corporations Act and the ASX Listing Rules, Tabcorp is required to prepare and lodge with ASIC and the ASX both annual and half-yearly financial statements accompanied by a statement and report from the Tabcorp Directors and an audit or review report respectively. Copies of each of these documents can be obtained free of charge on the Tabcorp website at or by visiting the ASX website at ASIC also maintains a record of documents lodged with it by Tabcorp, and these may be obtained from the ASIC website at On 16 March 2017, Tabcorp announced that the Federal Court had approved the terms of the settlement between Tabcorp and the Australian Transaction Reports and Analysis Centre (AUSTRAC). AUSTRAC commenced proceedings in July 2015 against Tabcorp and Tabcorp s New South Wales and Victorian wagering businesses 56 Tatts Group Limited Scheme Booklet

59 in relation to Tabcorp s compliance with obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). In summary, under the terms of the settlement, Tabcorp agreed to pay a penalty of $45 million (plus AUSTRAC s agreed legal costs of $1.6 million). As announced to ASX on 16 March 2017, Tabcorp will recognise an expense in respect of the penalty amount in its financial statements for the year ending 30 June The expense will be treated as a significant item FUNDING OF THE CASH CONSIDERATION The Scheme Consideration is comprised of a Cash Consideration and Share Consideration component. Details of the Cash Consideration are set out below. (A) CASH CONSIDERATION If the Scheme becomes Effective, each Scheme Shareholder will become entitled to $0.425 cash for each Tatts Share held on the Scheme Record Date. Tatts intends to pay Tatts Shareholders a fully franked Tatts Special Dividend of $0.12 per Tatts Share (subject to the availability of franking credits) immediately prior to Implementation. If the Tatts Special Dividend is paid, the Cash Consideration will be reduced by the amount of the Tatts Special Dividend. A fully franked dividend of $0.12 per Tatts Share would have approximately $0.05 per Tatts Share of franking credits attached. Based on Tatts total issued share capital as at the date of this Scheme Booklet as set out in Section 10.3, if the Scheme becomes effective the maximum Cash Consideration to be paid to Scheme Shareholders under the Scheme would be approximately $624 million. The Cash Consideration payable by Tabcorp under the Scheme will be reduced by the cash amount of the Tatts Special Dividend. Further detail in relation to the Tatts Special Dividend is set out in Section 4.3. The Scheme is not subject to any financing conditions. External debt finance arrangements Tabcorp has executed a legally binding commitment letter with each of Australia and New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, Sumitomo Mitsui Banking Corporation, Sydney Branch, Westpac Banking Corporation and BNP Paribas, Sydney Branch (the Financiers) pursuant to which the Financiers and Tabcorp, through its wholly owned subsidiary, Tabcorp Investments No.4 Pty Ltd (the Borrower), have agreed to enter into formal loan documentation to provide a debt facility to Tabcorp for a maximum aggregate amount of $4.35 billion (subject to various conditions being satisfied) (the Tabcorp Syndicated Facility). As part of the commitment letter, Tabcorp and the Financiers have agreed a term sheet in respect of the Tabcorp Syndicated Facility. Each Financier has obtained credit committee approval to the terms of the Tabcorp Syndicated Facility. The proposed Tabcorp Syndicated Facility is sufficient to pay the Cash Consideration. Tabcorp anticipates that the formal loan documentation under which the Tabcorp Syndicated Facility will be provided will be in place prior to the Second Court Date. The proposed Tabcorp Syndicated Facility will contain market standard terms and conditions for a facility of this nature. The key terms are summarised below. Conditions precedent to initial draw down The proposed Tabcorp Syndicated Facility will contain market standard conditions precedent to initial drawdown for a facility of this nature (none of which are outside the control of Tabcorp). Additional conditions relating to the Scheme include: ACCC or equivalent competition approval of the Scheme; the Scheme becoming Effective; and Tabcorp confirming to the Financiers that none of the Conditions Precedent in the Merger Implementation Deed have been amended or waived, and that this Scheme Booklet has not been amended, in a manner that would have a material adverse effect on the ability of the Borrower or the relevant Tabcorp Group members to perform their payment obligations under the proposed Tabcorp Syndicated Facility. If no drawing has occurred within 3 months of the formal loan documentation being signed, all commitments under the Tabcorp Syndicated Facility will be cancelled. As at the date of this Scheme Booklet, Tabcorp is not aware of any reason why any of the conditions precedent proposed in the Tabcorp Syndicated Facility will not be satisfied in time to allow payment in full of the Cash Consideration as and when it is due under the terms of the Scheme. Guarantee A guarantee will be given to the Financiers under the proposed Tabcorp Syndicated Facility by each of Tabcorp and other members of the Tabcorp Group. Tabcorp must ensure that key subsidiaries are guarantors. PROFILE OF TABCORP 57

60 Representations and Warranties The proposed Tabcorp Syndicated Facility will contain representations and warranties given by Tabcorp Group members to the Financiers. The representations and warranties are standard for a facility of this nature. As at the date of the Scheme Booklet, Tabcorp is not aware of any breach of a representation or warranty, nor any circumstances that would lead to a breach of a representation or warranty that would give rise to termination or cancellation of the commitments under the proposed Tabcorp Syndicated Facility. Undertakings The proposed Tabcorp Syndicated Facility will contain undertakings that are standard for a facility of this nature including, but not limited to, provision of information, negative pledge, restriction on disposal of assets, restriction on providing financial accommodation and a restriction on non-guarantors incurring financial indebtedness (in each case, subject to any applicable exceptions). In addition, Tabcorp must comply with financial covenants (a net borrowings to EBITDA ratio and an EBIT to net interest expense ratio) for each 12 month period ending on 30 June and 31 December. As at the date of this Scheme Booklet, Tabcorp is not aware of the occurrence of any breach of an undertaking or covenant, nor any circumstances that would lead to a breach of an undertaking or covenant that would give rise to termination or cancellation of the commitments under the proposed Tabcorp Syndicated Facility. Events of default and mandatory prepayment The proposed Tabcorp Syndicated Facility will contain events of default allowing the Financiers to cancel the commitments under the Tabcorp Syndicated Facility and to require immediate repayment of all outstanding loans. The events of default are standard for a facility of this nature and include, but are not limited to, payment default, breach of representation, breach of undertaking, breach of financial covenant, cross-default, insolvency, cancellation of any material licences, cessation or suspension of business, Tabcorp ceases to be listed on the ASX or shares issued by Tabcorp are suspended from trading for any period longer than 10 consecutive business days and the occurrence of an event that is reasonably likely to have a material adverse effect on the ability of the relevant Tabcorp Group members to perform their payment obligations under the proposed Tabcorp Syndicated Facility. If a person has voting power (as defined in section 610 of the Corporations Act) of more than 50% in Tabcorp, the commitment of each Financier will be cancelled and the Borrower must repay all outstanding loans within 90 days. As at the date of this Scheme Booklet, Tabcorp is not aware of the occurrence of any event or any circumstance that would be considered an event of default, that would give rise to termination or cancellation of the commitments under the proposed Tabcorp Syndicated Facility. Intra-group arrangements Pursuant to the terms of the Deed Poll, Tabcorp has irrevocably and unconditionally undertaken to provide Scheme Shareholders with, or procure that Scheme Shareholders receive, the total amount of the Cash Consideration payable by Tabcorp under the Scheme. The funds borrowed by Tabcorp Investments No.4 Pty Ltd under the proposed Tabcorp Syndicated Facility to pay the Cash Consideration will be provided to Tabcorp by way of an intercompany loan or as otherwise determined by Tabcorp. This intercompany borrowing would not be repayable prior to the time at which the Cash Consideration is provided to Scheme Shareholders as described in Section 14.3(i) INTERESTS OF TABCORP DIRECTORS (A) INTERESTS IN TABCORP SECURITIES As at the date of this Scheme Booklet, the interests of Tabcorp Directors in Tabcorp securities are set out in the below table: Director Tabcorp Shares Tabcorp Performance Rights Paula Dwyer 100,000 Nil David Attenborough 889,627 1,504,708 Bruce Akhurst 39,108 Nil Steven Gregg 15,000 Nil Jane Hemstritch 31,962 Nil Elmer Funke Kupper 64,166 Nil 58 Tatts Group Limited Scheme Booklet

61 Vickki McFadden 30,000 Nil Justin Milne 31,208 Nil Zygmunt Switkowski 91,949 Nil (B) INTERESTS IN TATTS SECURITIES As at the date of this Scheme Booklet, no Tabcorp director has a Relevant Interest in any Tatts Shares INTERESTS IN TATTS SHARES AND BENEFITS (A) TATTS SHARES AND OTHER SECURITIES ON ISSUE Details of Tatts issued securities are set out in Section (B) TABCORP S INTEREST IN TATTS SHARES Tabcorp has no shares in Tatts as at the date of this Scheme Booklet, however: Tabcorp, through its wholly-owned subsidiary, Tabcorp Investments No. 4 Pty Ltd ACN , has entered into cash-settled equity swap arrangement with UBS AG, Australia Branch (UBS) in respect of 146,705,096 Tatts Shares (Tatts equity swap). The average reference price under the Tatts equity swap is $4.34 per Tatts Share. Under the terms of the Tatts equity swap, Tabcorp s wholly-owned subsidiary, has voting rights (subject to certain conditions) over any Tatts Shares which UBS holds as part of its hedge positions, if any, in connection with the Tatts equity swap (UBS Hedged Positions) at the time of the voting event. This excludes voting rights in relation to the Scheme. Full particulars of these voting rights are contained in the Tatts equity swap attached to Tabcorp s notice of substantial holding for Tatts, lodged by Tabcorp on the ASX on 28 November Tabcorp s Relevant Interest is 9.99% representing 146,705,096 Tatts shares, by reason of the voting arrangements described above. Tabcorp has not been notified of the UBS Hedged Positions, if any. If UBS or its nominated affiliates hold less than 146,705,096 of UBS Hedged Positions, then the number of ordinary shares in which Tabcorp has a Relevant Interest, and its voting rights, will be correspondingly reduced. UBS may hold other Tatts Shares in the ordinary course of its business. Tabcorp cannot direct the voting of those Tatts Shares. (C) ACQUISITIONS OF TATTS SHARES BY TABCORP OR ITS ASSOCIATES Neither Tabcorp, nor any of its Associates has provided, or agreed to provide, consideration for Tatts Shares under any purchase or agreement to purchase during the four months ending on the day immediately before the date of this Scheme Booklet. (D) HIGHEST PRICE PAID FOR TATTS SHARES BY TABCORP OR ITS ASSOCIATES Neither Tabcorp, nor any of its Associates has provided, or agreed to provide, consideration for Tatts Shares under any purchase or agreement to purchase during the four months ending on the day immediately before the date of this Scheme Booklet. (E) PRE-SCHEME BENEFITS During the period of four months before the date of this Scheme Booklet, neither Tabcorp nor any of its Associates gave, or offered to give, or agreed to give a benefit to another person which was likely to induce the other person, or an Associate of the other person to: vote in favour of the Scheme; or dispose of Tatts Shares, and which is not offered to all Tatts Shareholders RIGHTS AND LIABILITIES ATTACHING TO NEW TABCORP SHARES The rights and liabilities attaching to New Tabcorp Shares which are issued to Tatts Shareholders as Share Consideration will be the same as those attaching to existing Tabcorp Shares. These rights and liabilities are detailed in the Tabcorp Constitution, and are subject to the Corporations Act and the ASX Listing Rules. The table below summarises some of the key rules in the Tabcorp Constitution in relation to the rights and liabilities attached to Tabcorp Shares in effect at the date of this Scheme Booklet. This summary does not purport to be exhaustive and must be read subject to the full text of Tabcorp s Constitution, available at the Tabcorp website at Tatts Shareholders should seek their own independent advice in relation to their rights and liabilities as potential holders of New Tabcorp Shares in specific circumstances. PROFILE OF TABCORP 59

62 Issue of further shares Tabcorp Share transfers Voting Dividends Rights on winding up Shareholding Restrictions Rights and powers of the TAB (NSW) Ministers Rights and powers of the Minister under the Keno Act Amendments to Tabcorp Constitution The Tabcorp Board may from time to time issue any share in the capital of Tabcorp. Tabcorp Shares are freely transferable except in certain circumstances, for example where the transfer would: be in breach of the Keno Act, the Gambling Regulation Act, or the terms of a Keno licence; or result in a person's voting power in Tabcorp exceeding 10% without the written consent of the appropriate Minister under the Keno Act. At a meeting of Tabcorp Shareholders, each Tabcorp Shareholder is entitled to attend and vote in person, by proxy, by representative, or (where approved by the Tabcorp Board) by a direct notice of a Tabcorp Shareholder s voting intention. Each Tabcorp Shareholder has one vote for each Tabcorp Share held. Holders of New Tabcorp Shares will have the right to participate fully in all dividends, other distributions and entitlements declared by Tabcorp on or after the Implementation Date. If Tabcorp is wound up, the liquidator can divide the assets of Tabcorp among its contributories in any way the liquidator thinks fit. If thought expedient, any division may be otherwise than in accordance with the legal rights of the contributories and any class of Tabcorp shareholder may be given preferential or special rights or may be excluded altogether or in part. Please refer to Section for an overview of shareholding restrictions which apply to Tabcorp. During the Relevant Period for TAB (NSW), Tabcorp or the Tabcorp Board must obtain the prior written approval of the TAB (NSW) Ministers to: alter or amend certain provisions in the Tabcorp Constitution (those defined as an Entrenched Provision for TAB (NSW) in the Tabcorp constitution); appoint any person, other than one of the four major accounting firms operating in Australia from time to time, as auditor of Tabcorp; subject to the terms of the Tabcorp Constitution, knowingly permit a transfer of Tabcorp Shares that would contravene the NSW shareholder restriction referred to in Section 11.15(B); or dispose of any interest in any shares in Tabcorp Investments No.4 Pty Ltd (ACN ), other than to a person approved in writing by the TAB (NSW) Ministers. During the Relevant Period for TAB (Qld), Tabcorp or the Tabcorp Board must obtain the prior written approval of the Minister under the Keno Act to: appoint a person as a director or alternate director; alter or amend certain provisions in the Tabcorp Constitution (those defined as an Entrenched Provision for Queensland in the Tabcorp constitution); appoint any person, other than one of the four major accounting firms operating in Australia from time to time, as auditor of Tabcorp; subject to the terms of the Tabcorp Constitution, knowingly permit a transfer of Tabcorp Shares that would contravene the Queensland shareholder restriction referred to in Section 11.15(B); or dispose of any interest in any shares in Tabcorp Gaming Holdings Limited (ACN ), other than to a person approved in writing by the appropriate Minister under the Keno Act. Except as set out above with respect to the Rights and powers of the Minister under the Keno Act and the Rights and powers of the TAB (NSW) Ministers, the Tabcorp Constitution may be modified or repealed by a special resolution of members. 60 Tatts Group Limited Scheme Booklet

63 11.15 SHAREHOLDING RESTRICTIONS AND OTHER LIMITATIONS There are a number of restrictions on shareholdings in Tabcorp which arise under legislation, requirements of various regulatory authorities or in the Tabcorp Constitution. (A) NSW TOTALIZATOR ACT AND NSW TOTALIZATOR LICENCES Under the Totalizator Act, each of the NSW Wagering Licences (refer to section 11.2(b)(3)) are subject to a condition that no person has a prohibited shareholding interest (within the meaning of Division 3 of Part 3 of the Totalizator Act) in Tabcorp, as the ultimate holding company of TAB Limited, which is the licence holding entity. A person will have a prohibited shareholding interest in Tabcorp if they are entitled (within the meaning of the legislation) to more than 10% of the total number of voting shares in Tabcorp. Section 13.3(p) discusses the possibility of disciplinary action if the terms and conditions of Tabcorp s licences are not met. Separately, Section 13.3(u) contains information in relation to circumstances in which the NSW Racing Minister can compel the divestiture of shares in TAB Limited. (B) TABCORP CONSTITUTION Tabcorp s Constitution provides that: a person must not have voting power in Tabcorp in excess of 10% without the written consent of the relevant Queensland Minister responsible for Keno. This restriction applies while Tabcorp (or one of its subsidiaries) is a holder of a Keno licence under the Keno Act (QLD) (Relevant Period for TAB (QLD)); and a person must not have voting power in Tabcorp in excess of 10% without the written consent of the relevant NSW Minister responsible for the NSW Totalizator Licences (though this is subject to the relevant NSW legislation), refer to Section 11.15(a) above. This restriction applies for a period spelt out in the Tabcorp Constitution, which is essentially while Tabcorp (or one of its subsidiaries) controls TAB Limited (Relevant Period for TAB (NSW)). Tabcorp s Constitution sets out the purposes of the shareholding restrictions and also details the powers conferred on the Tabcorp Board under the Tabcorp Constitution in relation to the enforcement of the shareholding restrictions referred to above (including, without limitation, the restriction described in Section 11.15(a)). These powers include the power to obtain information relating to shareholder interests and divestiture provisions relating to a breach of the shareholding restrictions in the Constitution and in relation to the NSW Totalizator Licences. Under Tabcorp s Constitution, all Tabcorp shareholders acknowledge and recognise that the exercise by the Tabcorp Board of the powers given to it under the Tabcorp Constitution (including those outlined above) may cause individual shareholders disadvantage and that Tabcorp shareholders have no right of action against the Tabcorp Board or Tabcorp for any loss or disadvantage incurred by them as a result of the Tabcorp Board exercising those powers. (C) GAMBLING REGULATION ACT (VIC) Under the Gambling Regulation Act, there are general provisions in relation to approvals that are required before a person becomes an associate of Tabcorp. A person will be an associate of Tabcorp where (among other things) that person has a share in the capital of Tabcorp and by virtue of that shareholding, is able to exercise a significant influence over the management or operation of the Tabcorp business. The Gambling Regulation Act also contains provisions to the effect that, where the Minister considers that a person is not suitable to be associated with the gambling business of Tabcorp, the Minister has the power to declare that person dispose of the number of shares held that would need to be disposed of in order to cause that person to cease to be an associate of Tabcorp. (D) NSW RACING DISTRIBUTION AGREEMENT As discussed in Section 11.2(b)(3), as a condition of the grant of the NSW Wagering Licences, Tabcorp entered into the NSW Racing Distribution Agreement with representatives of the New South Wales racing industry. The New South Wales racing industry is entitled to terminate the NSW Racing Distribution Agreement in certain circumstances, including if Tabcorp ceases to be admitted to the official list of ASX (which could occur, for example, following the successful takeover or acquisition of all Tabcorp Shares on issue). PROFILE OF TABCORP 61

64 12. Profile of the Combined Group The Combined Group information contained in Section 12 has been prepared by Tabcorp and is the responsibility of Tabcorp (except to the extent that the financial information is based on information provided by Tatts, for which Tatts takes responsibility). Tatts and the Tatts Directors do not take any responsibility for the accuracy or completeness of the Combined Group information (except to the extent that the Combined Group information is based on information provided by Tatts) OVERVIEW OF THE COMBINED GROUP The Transaction will create a diversified wagering, lotteries, Keno and gaming services business which will be well positioned to compete and grow in the rapidly changing and increasingly global markets in which it operates. The Combined Group will have diversified wagering, racing media, lotteries, Keno and gaming services operations in the following 4 key areas: Wagering and racing media: totalizator and fixed odds licensed businesses and retail wagering networks in all Australian states and territories in Australia other than Western Australia, offering wagering products in approximately 4,300 retail outlets, on-course at race tracks, online, and through call centres and a national Sky Racing media business; Lotteries: an Australian lotteries business with licences and authorisations to offer products in all Australian states and territories in Australia other than Western Australia in approximately 3,800 retail outlets; Keno: a Keno distribution network of over 4,000 venues in New South Wales, Victoria, Queensland, South Australia and the Australian Capital Territory; and Gaming Services: gaming machine monitoring operations in New South Wales, Queensland and the Northern Territory and venue services nationwide. The combination of the two complementary businesses is expected to: support investment and innovation, including the ongoing development of digital products; create a diversified portfolio of businesses with long-dated licences that is well positioned to invest, innovate and compete in a rapidly evolving marketplace; and assist in enhancing the sustainability of the Australian racing industry. A strong Australian racing industry is likely to deliver a broader and more engaged customer base for wagering products, which will increase support for the activities of the Combined Group and may create additional value for Combined Group shareholders. The Combined Group s commitment to investment and its enhanced operational platform will provide a strong financial base to support the racing industry, assisting in strengthening its overall sustainability. A healthy racing industry supporting a large number of race meetings with competitive prize money and strong and deep field sizes, is essential to the Combined Group s ability to offer attractive Australian wagering products. Figure 14 provides an overview of the Combined Group s businesses and brands. 31 The organisation of these businesses and brands into the Combined Group s corporate structure will be determined by the Tabcorp Board after Implementation. Figure 14: Business, brands and jurisdictions of the Combined Group THE COMBINED GROUP S BUSINESSES, BRANDS AND JURISDICTIONS Geographic Reach Business Key Brands VIC NSW ACT QLD SA TAS NT WA Intl. Wagering Lotteries Keno Gaming and Gaming Services Racing Media 31 Geographic reach excludes online operations in wagering and lotteries. 62 Tatts Group Limited Scheme Booklet

65 As at Implementation, the Combined Group is expected to be an ASX 50 company by free float market capitalisation, with: pro-forma combined revenue of approximately $5.0 billion; pro-forma combined EBITDA of approximately $915 million (before significant items and synergies); wagering, lotteries, Keno, gaming services and racing media operations; and a diversified earnings mix, as illustrated in Figure 15 below. Figure 15: Comparison of Tabcorp, Tatts and Combined Group EBITDA TABCORP FY17 EBITDA 1,2 TATTS FY17 EBITDA 1,2,3 COMBINED GROUP FY17 EBITDA 1,2,3 1 Figures expressed before any pro forma adjustments and before unallocated corporate expenses, including discontinued operations. This excludes Sun Bets. 2 Percentages may not sum to 100% because of rounding. 3 Contribution of Lotteries earnings includes Tatts SA Keno business. WAGERING & MEDIA 69% GAMING SERVICES 16% KENO 14% LOTTERIES 63% WAGERING 22% GAMING SERVICES 15% WAGERING & MEDIA 46% LOTTERIES 31% GAMING SERVICES 15% KENO 7% The Combined Group s portfolio of licences / authorisations is set out in Figure 16 below. Figure 16: Combined Group licence / authorisation portfolio 2100 SA 2098 QLD 2097 NSW 2064 ACT 2062 TAS 2035 NT 2024 VIC 2072 QLD 2052 SA 2050 NSW 2032 NT 2028 VIC 2020 TAS 2064 ACT 2050 NSW 2047 For personal use only QLD 2022 VIC 2021 INDEFINITE 2 NT 2027 INDEFINITE 2 QLD 2032 NSW Licences expiry 1 Tabcorp licences Tatts licences Source: Company filings 1 Tatts NT Wagering licence expires in 2035, Tabcorp s NT Wagering licence in 2020; some licences (e.g. Tabcorp s VIC Wagering, Tatts TAS Wagering) have renewal options post expiry; Tatts SA Lotteries licence includes SA Keno 2 Indefinite rolling renewal capability WAGERING LOTTERIES KENO GAMING SERVICES 12.2 OVERVIEW OF POTENTIAL SYNERGIES The Scheme is expected to deliver value for shareholders of both Tatts and Tabcorp through the realisation of synergies and business improvements. Tabcorp expects the Scheme to deliver at least $130 million per annum of total EBITDA from synergies and business improvements, which is expected to include at least $80 million per annum of operational expenditure synergies. The synergies and business improvements are expected to be realised in the first full year following completion of the integration of the businesses. Integration of the businesses is expected to take approximately two years, subject to the receipt of all necessary regulatory approvals. PROFILE OF THE COMBINED GROUP 63

66 The Transaction is also expected to deliver financial benefits to assist the sustainability of the Australian racing industry and is expected to result in approximately $50 million per annum of additional funding to the racing industry (see Section 5.7) in the first full year following completion of the integration of the businesses, which will flow to participants and related industries across Australia. The net one-off costs and capital expenditures are estimated to be approximately $141 million (pre-tax). 32 The required time to achieve these synergies and business improvements reflects the complexity of integrating two complex businesses. Synergies and business improvements are expected to be realised from the following areas: (A) OPERATIONAL EXPENDITURE The Scheme is expected to offer at least $80 million per annum of operational expenditure synergies, in the form of: technology integration and systems optimisation savings, including savings related to migration to a single technology platform and the consolidation of race day operations and data centre running costs, which are expected to total at least $24 million; consolidation of wagering functions including savings related to marketing, bookmakers, call centre (including improved management of redundant capacity and technology savings) and radio which are expected to total at least $19 million; and corporate cost rationalisations, including savings related to key management personnel, ASX listing costs, duplicated corporate functions (including finance, financial reporting, legal and regulatory, and human resources), procurement benefits from increased scale (including communications cost savings) and property and field services savings which are expected to total at least $37 million. Some of the operational expenditure synergies relate to areas of overlap between the two companies employee functions. Please refer to Section 12.3 for further details. (B) WAGERING PERFORMANCE OPTIMISATION UNDER THE TAB BRAND AND OPERATING MODEL (1) Fixed odds yield improvement Tabcorp intends to roll out its risk management systems and processes into the UBET business. The combined Tabcorp and Tatts fixed odds book improves the risk management capability of the Combined Group. Tabcorp also plans to expand the coverage of high yielding fixed odds products in the jurisdictions in which UBET operates, which should lead to increased fixed odds revenue. (2) Wagering turnover growth The Transaction is expected to offer wagering turnover growth, from: alignment of product offering between Tatts and Tabcorp s wagering operations, including TAB products such as Quaddie Cash Out (subject to regulatory approval); targeted investment in the UBET retail network based on TAB s market-leading multi-channel offering; rebranding of the Tatts wagering business, including its retail network and digital offering under the TAB brand; combined digital expertise to deliver leading digital products and customer experience; and potential further benefits from the increased attractiveness of merged pools, subject to regulatory and racing industry approvals. Figure 17: Historical fixed odds yield of Tatts and Tabcorp: Fixed Odds turnover growth % p.c.p. 21% 18% 19% 21% 17% 24% 15% -1% 15.6% 14.5% 14.7% 14.9% 14.1% 14.0% 13.1% 12.1% FY14 FY15 FY16 FY17 Tabcorp fixed odds yield Tatts fixed odds yield 32 Excludes transaction costs associated with the Scheme. The impact of net one-off integration costs and capital expenditure on the Combined Group's ongoing interest expense (reflected in the Combined Group Pro-Forma Financial Information in Section 12.5) is expected to be approximately $6 million per annum (before taking into account the benefit to the Combined Group's interest expense as a result of debt paydown as synergies are realised). 64 Tatts Group Limited Scheme Booklet

67 (C) KENO PERFORMANCE OPTIMISATION Tabcorp intends to drive Keno growth in South Australia through brand, pooling and digital improvements. Tabcorp achieved turnover growth of 18% following the introduction of similar measures in Victoria during FY16. This experience is expected to be a useful precedent in the context of this Scheme. (D) CAPITAL EXPENDITURE SYNERGIES It is expected that approximately $10 million per annum of capital expenditure synergies will be available to the Combined Group through the rationalisation of wagering systems development functions. These are in addition to the at least $130 million per annum of EBITDA from synergies and business improvements. These are expected to be delivered in the first full year following completion of the integration of the businesses. (E) INTEGRATION Integration of Tatts and Tabcorp is expected to take approximately two years to complete from the date of Implementation, subject to the receipt of all necessary regulatory approvals. It is anticipated that the delivery of the full run-rate of at least $130 million per annum of EBITDA from expected synergies and business improvements will be realised in the first full year following completion of the integration of the businesses. The incremental one-off costs and capital expenditure associated with integration is estimated to be approximately $141 million (pre-tax, excluding transaction costs). 33 This estimate is expected to be comprised of: approximately $111 million required to achieve Tabcorp s identified wagering and corporate synergies and business improvements of which: $71 million is expected to be classified as operating expenditure; $40 million is expected to be classified as capital expenditure; and approximately $30 million of net additional expenditure relating to the Tatts retail network required to achieve Tabcorp s identified net synergies and business improvements. This is expected to be classified as capital expenditure. There is a risk that the estimated synergies and business improvements may not be realised or that they may be realised over a longer period of time than anticipated. There is also a risk that costs associated with integration are higher than estimated. Further detail regarding these risks is described in Section 13.4(h) of this Scheme Booklet INTENTIONS IN RELATION TO TATTS AND THE COMBINED GROUP This Section sets out Tabcorp s current intentions in relation to: the continuation of the business of Tatts; any major changes to be made to the business of Tatts including any redeployment of its fixed assets; and the future employment of the present employees of Tatts, after the Implementation Date. These statements of intention are based on the information concerning Tatts, its business and the general business environment which is known to Tabcorp as at the date of this Scheme Booklet. As Tabcorp and Tatts are competitors, Tabcorp has not had the opportunity to conduct detailed due diligence inquiries on Tatts. Accordingly, the statements set out in this Section are statements of Tabcorp s current intentions only, and in this respect are forward looking statements. These statements of intention may change when the review contemplated is undertaken, and having regard to any new information which becomes available or as circumstances change. (A) REVIEW OF OPERATIONS A detailed review of the structure, operations, systems and activities of both Tabcorp and Tatts will be commenced only after the Implementation Date. The objectives of the review will be to determine the most effective path to integrate the businesses, deliver synergies and business improvements and effectively and efficiently deploy the Combined Group s resources. Further information in relation to the expectations of synergies and business improvements is set out in Section 12.2 of this Scheme Booklet. This achievement of synergies and business improvements is subject to integration risk as set out in Section 13.4(h) of this Scheme Booklet. (B) BOARD OF THE COMBINED GROUP Following Implementation, it is intended that the Tabcorp Board at that time will remain as Directors of the Combined Group. It is also intended that current Tatts Chairman, Harry Boon, will be invited to join the board of the Combined Group as a non-executive Director (subject to regulatory approvals). 33 Excludes transaction costs associated with the Scheme. The impact of net-one off integration costs and capital expenditure on the Combined Group's ongoing interest expense (reflected in the Combined Group Pro-Forma Financial Information in Section 12.5) is expected to be approximately $6 million per annum (before taking into account the benefit to the Combined Group's interest expense as a result of debt paydown as synergies are realised). PROFILE OF THE COMBINED GROUP 65

68 (C) MANAGEMENT AND EMPLOYEES OF THE COMBINED GROUP The current Tabcorp CEO, David Attenborough, and the current Tabcorp CFO, Damien Johnston, will be the CEO and CFO of the Combined Group, respectively. Tabcorp intends to announce the other members of the senior executive team of the Combined Group either on, or shortly after, the Implementation Date. The other members of senior management of the Combined Group will be determined by the Tabcorp Board as soon as practicable after Implementation. Given the breadth of the Combined Group s businesses, Tabcorp is committed to a substantial business presence in Brisbane, Melbourne and Sydney. Subject to that, as mentioned above, a detailed review of the structure, operations, systems and activities of both Tabcorp and Tatts will commence after Implementation. This review will include areas of overlap between the two companies operations, which will include certain employee functions. Tabcorp currently expects that areas of employee overlap or duplication will be identified across the Combined Group primarily in the areas in relation to wagering functions, technology, various corporate functions, procurement and property and field services. In circumstances where duplication of employee roles is identified, the current intention of Tabcorp, where possible and practicable to do so, is to seek to reassign or allocate alternative responsibilities to those affected employees within the Combined Group. However, it will not be possible for Tabcorp to offer suitable alternative roles in all cases. Where affected employees are unable to be reassigned or allocated alternative responsibilities, those employees would receive payments and other benefits to which they are entitled on departure under their terms of employment. Natural attrition may also be used to manage the impact of any changes in staffing requirements of the Combined Group. Other than as described above, it is the current intention of Tabcorp to continue the current employment of employees of Tatts. (D) CORPORATE MATTERS IN RELATION TO TATTS If the Scheme is Implemented, it is intended that: Tatts Shares will cease to be quoted on the ASX shortly after the Implementation Date. It is expected that the Tatts Bonds will remain quoted; and as Tatts will be a wholly-owned subsidiary of Tabcorp, the Tatts Board will be reconstituted so that its members consist entirely of directors nominated by Tabcorp. (E) BUSINESS, OPERATIONS AND ASSETS Tabcorp intends to continue the operation of all of the material divisions of the Combined Group in substantially the same manner as at the date of this Scheme Booklet, with the exception of the proposed divestment of the Odyssey Gaming Business as outlined below. As noted in Section 11.2(b)(5), Tabcorp also expects to undertake a strategic review of the Luxbet business during FY18. It is proposed that Tatts existing business units will be integrated into Tabcorp s corporate structure. As noted in Section 8 and this Section 12.3, the Combined Group will have a national footprint and a substantial business presence in each of Brisbane, Melbourne and Sydney. The registered address of the Combined Group s parent company will be in Melbourne. It is Tabcorp s intention that Tatts existing UBET branding will be discontinued and rebranded under Tabcorp s TAB brand. It is also intended that the Combined Group will be called Tabcorp Holdings Limited. (F) PROPOSED DIVESTMENT OF ODYSSEY GAMING BUSINESS In discussions with the ACCC prior to the date of this Scheme Booklet, concerns were raised with Tabcorp that Implementation may substantially lessen competition in a market or markets in which licensed monitoring services, electronic gaming machine (EGM) field services and in-venue gaming systems are supplied in Queensland in circumstances where (in Queensland): EGM monitoring services and field services can be supplied only by a licensed monitoring operator; only four companies have been granted licences to supply EGM monitoring services; and although there are four licensed monitoring operators, only Tabcorp s Odyssey Gaming Business and Tatts MAX business currently supply EGM monitoring services. Although Tabcorp does not consider that the Scheme would have the effect, or be likely to have the effect, of substantially lessening competition in a market or markets in which EGM monitoring services, field services or in-venue gaming systems are supplied in Queensland, in order to assist in securing merger authorisation from the Tribunal (as discussed in Section 14.2(a)(i) of this Scheme Booklet), Tabcorp has proposed to enter into a formal undertaking to the ACCC under section 87B of the CCA (Undertaking). Pursuant to the terms of the Undertaking, Tabcorp has undertaken to divest its Odyssey Gaming Business to a person approved by the ACCC. Accordingly, Tabcorp has entered into a binding sale agreement under which it will divest its Odyssey Gaming Business to Australian National Hotels Pty Limited, a subsidiary of Federal Group. The divestment is conditional only on the Scheme becoming Effective and the ACCC accepting the Undertaking or the Tribunal otherwise granting authorisation for the Scheme. If, for some reason, Tabcorp does not divest the Odyssey Gaming Business before Implementation, Tabcorp must appoint a divestiture agent (approved by the ACCC) to divest the Odyssey Gaming Business. 66 Tatts Group Limited Scheme Booklet

69 Tabcorp does not expect the divestment of the Odyssey Gaming Business to have a material financial nor operational impact on the Combined Group. Section 12.5(d) outlines the expected financial impact of the proposed divestment on the Combined Group. (G) DIVIDEND POLICY OF THE COMBINED GROUP Tabcorp expects that the Combined Group will target a dividend payout ratio of 90% of NPAT before significant items, amortisation of the Victorian Wagering Licence and Sun Bets. Tabcorp s dividend policy is consistent with its commitment to delivering strong, sustainable shareholder returns. (H) UNWIND OF CASH SETTLED EQUITY SWAP On 25 November 2016, Tabcorp announced it had entered into the Tatts equity swap in respect of 9.99% of Tatts Shares on issue. Pursuant to the terms of the Tatts equity swap, on the Effective Date of the Scheme the referenced share will automatically be amended to refer to Tabcorp Holdings Limited Shares, instead of Tatts Group Limited (please refer to Section 11.13(b) for further details). Following Implementation, Tabcorp intends to voluntarily terminate the Tatts equity swap and may incur costs in doing so. (I) AGREEMENTS WITH RACING INDUSTRIES As announced to the ASX on 9 March 2017, Tabcorp has reached agreement with Racing and Wagering Western Australia (RWWA) on the terms upon which Tabcorp will continue to provide pooling in Western Australia into the future, including in the event of a privatisation of RWWA. Tabcorp s current agreement with RWWA governing RWWA s participation in the SuperTAB pool is due to expire in At the same time, Tabcorp also reached agreement with RWWA in relation to, among other things, the conditions on which they can continue to exploit, in states or territories other than Western Australia, particular intellectual property rights they have in the TAB brand. Tabcorp has also signed a deed of understanding with Racing Queensland which provides greater certainty for Racing Queensland in relation to the benefits they are expected to receive from the Transaction. As part of the agreement, Tabcorp has committed to increase capital investment in the Queensland wagering TAB business across retail and on-course wagering facilities, as well as to increase investments in technology, sponsorships and marketing. The agreement with Racing Queensland is subject to Implementation CAPITAL STRUCTURE AND OWNERSHIP OF THE COMBINED GROUP (A) SHARE CAPITAL If the Scheme is Implemented, Tabcorp will issue approximately 1,174,815, new Tabcorp Shares to Tatts Shareholders. As a result of the Scheme, the number of Tabcorp Shares on issue will increase from 835,267,014 (being the number on issue as at the date of this Scheme Booklet) to approximately 2,010,082, (B) OTHER SECURITIES The Combined Group will also have a number of Tabcorp Performance Rights on issue which are subject to the terms of the relevant Tabcorp Performance Rights plan. It is expected that the Tatts Bonds will also remain on issue after Implementation. Tabcorp s current intention is for the Tabcorp USPP Notes to remain on issue after Implementation. After Implementation, the Tabcorp Board will review the optimal capital structure of the Combined Group, having regard to market conditions and other relevant factors at that time. The outcome of this review may result in the Tabcorp USPP Notes being refinanced or redeemed. (C) SHARE BUY-BACK Following Implementation, Tabcorp s current intention is to undertake a share buy-back of up to $500 million. Any such share buy-back is subject to Tabcorp Board approval and market conditions at the relevant time. The method, timing and terms of any such share buy-back will be determined at the relevant time. 34 Share issuance excluding any performance rights that may vest prior to the Scheme being implemented. 35 Share issuance excluding any performance rights that may vest prior to the Scheme being implemented. PROFILE OF THE COMBINED GROUP 67

70 12.5 PRO-FORMA HISTORICAL FINANCIAL INFORMATION (A) OVERVIEW OF HISTORICAL FINANCIAL PROFILE OF THE COMBINED GROUP The Combined Group Pro-Forma Financial Information set out in this Section 12.5 has been prepared to illustrate the: combined financial performance of Tabcorp and Tatts for the year ended 30 June 2017 as if the Scheme had been Implemented on 1 July 2016 (Combined Group pro-forma income statement, Section 12.5(c)); combined financial position of Tabcorp and Tatts as at 30 June 2017 as if the Scheme had been Implemented on 30 June 2017 (Combined Group pro-forma statement of financial position, Section 12.5(f)); and combined operating cash flows after capital expenditure of Tabcorp and Tatts for the year ended 30 June 2017 as if the Scheme had been Implemented on 1 July 2016 (Combined Group pro-forma cash flows, Section 12.5(i)), (together, the Combined Group Pro-Forma Financial Information). The Combined Group Pro-Forma Financial Information should be read together with the: assumptions underlying their preparation as set out in Section 12.5(b); risk factors set out in Section 13; report by PwC Securities Ltd in its capacity as Investigating Accountant as set out in Annexure B; and other information contained in this Scheme Booklet. (B) BASIS OF PREPARATION The Combined Group Pro-Forma Financial Information presented in this Section 12.5 is based on the relevant period of the: Tabcorp Historical Financial Information (presented in Section 11.4); Tatts Historical Financial Information (presented in Section 10.6); and pro-forma adjustments described in Sections 12.5(d), 12.5(g), and 12.5(j) (Pro-Forma Adjustments), which have been made to reflect certain financial impacts of the Scheme. The historical financial information presented in this Section 12.5 has been derived from the consolidated financial statements of each of Tabcorp and Tatts for the financial year ended 30 June The consolidated financial statements of Tabcorp for the financial year ended 30 June 2017 were audited by Ernst & Young and the consolidated financial statements of Tatts for the financial year ended 30 June 2017 were audited by PwC. Both of these financial statements received unmodified audit opinions. The historical financial information of Tabcorp and Tatts has been prepared in accordance with the significant accounting policies described in their respective Annual Reports for the year ended 30 June In preparing the Combined Group Pro-Forma Financial Information, Tabcorp has undertaken a review to identify significant accounting policy differences where the impact was potentially material to the Combined Group and could be reliably estimated. No material differences have been identified by Tabcorp. The Combined Group Pro-Forma Financial Information: is provided for illustrative purposes and has been prepared in accordance with the recognition and measurement principles contained in the Australian Accounting Standards (AAS); is presented in a summary form and consequently does not contain all of the disclosures that are usually provided in an annual report prepared in accordance with the Corporations Act; and has been prepared on the basis that Tabcorp is the acquiring entity for accounting purposes. Pro-Forma Adjustments have been made to reflect the financial impacts of the combination of Tabcorp and Tatts. The Combined Group Pro-Forma Financial Information presented in this Section 12.5 does not purport to reflect the likely reported financial performance, financial position or cash flows of the Combined Group for the year ending 30 June 2018 or any other period. It is likely that actual reported financial performance, financial position and cash flows in future periods will differ from the Combined Group Pro-Forma Financial Information presented in this Section The factors which may impact the actual financial performance, financial position or cash flows of the Combined Group include (but are not limited to): trading of Tabcorp and Tatts subsequent to 30 June 2017, which is not reflected in the historical financial information of either or both of Tabcorp or Tatts; the ultimate timing of the completion of the combination of Tabcorp and Tatts; 68 Tatts Group Limited Scheme Booklet

71 the ultimate timing and realisation of synergies and business improvements (and associated costs) arising from the combination of Tabcorp and Tatts (further details of which are provided in Section 5.4), although the expected costs of implementation ($141 million (pre-tax)) have been reflected in the Combined Group pro-forma statement of financial position, the expected synergies and business improvements (and associated costs) have been excluded from the Combined Group Pro-Forma Financial Information contained in this Section 12.5; finalisation of the acquisition accounting in accordance with the relevant accounting standard; and differences between the estimated amount of transaction and implementation costs and the amount ultimately incurred. (C) COMBINED GROUP PRO-FORMA INCOME STATEMENT This Section outlines the pro-forma income statement for the Combined Group as though the Scheme was implemented on 1 July The Combined Group pro-forma income statement for the year ended 30 June 2017 has been based on: Tabcorp s consolidated historical income statement for the year ended 30 June 2017, which has been derived from the financial statements of Tabcorp for the year ended 30 June 2017; Tatts consolidated historical income statement for the year ended 30 June 2017, which has been derived from the financial statements of Tatts for the year ended 30 June 2017; and pro-forma adjustments described in Section 12.5(d). The Combined Group pro-forma income statement has been prepared in order to give Tatts Shareholders an indication of the Combined Group s financial performance as if the Scheme was implemented on 1 July It does not reflect the actual financial performance of the Combined Group at the time of Implementation. The table at Figure 18 sets out the Combined Group pro-forma income statement for the year ended 30 June Notes explaining the adjustments in each column follow the table. Figure 18: Combined Group pro-forma income statement for the year ended 30 June 2017 Tabcorp $m Adjustments (D1) $m Tabcorp pro-forma $m Tatts $m Debt re-financing (D2) $m Adjustments Other (D3) $m Combined Group pro- forma $m Revenue 2, ,256 2,768 - (32) 4,992 Commissions and fees (904) (17) (921) (607) - - (1,528) Government taxes (312) (2) (314) (1,291) - - (1,605) and levies Operating expenses (510) (49) (559) (413) - 28 (944) EBITDA excluding 504 (42) (4) 915 significant items Depreciation and (179) (6) (185) (78) - 1 (262) amortisation EBIT excluding 325 (48) (3) 653 significant items Net finance costs (68) - (68) (46) (67) - (181) Income tax expense (78) 2 (76) (96) 20 1 (151) NPAT excluding 179 (46) (47) (2) 321 significant items Significant items (200) (a) 45 (155) (15) (b) - 17 (153) (c) (after tax) Loss from (1) - - (1) discontinued operations NPAT (21) (1) (22) 221 (47) (a) Tabcorp significant items (after tax) of $200 million as reported in Tabcorp s Annual Report for the year ended 30 June 2017, include costs incurred in relation to the establishment of Sun Bets ($48 million) and associated impairment ($21 million), AUSTRAC civil proceedings ($62 million), AFP Cambodia investigation ($2 million), the proposed combination with Tatts ($54 million, including the impact of the Tatts equity swap), Intecq acquisition of $5 million, and Melbourne premises relocation ($9 million). (b) Tatts significant items (after tax) of $15 million include transaction costs (post-tax) incurred to 30 June 2017 ($23 million, $33 million pre-tax) and gain on property sales (pre- and post-tax) of $8 million. Statutory EBITDA and income tax expense as reported in Tatts Annual Report for the year ended 30 June 2017 ($432 million and $86 million respectively) have been adjusted to exclude the net EBITDA and tax impact of these ($25 million and $10 million respectively) for the purposes of disclosures in this Section. (c) Combined Group pro-forma significant items (after tax) of $153 million include AUSTRAC costs ($62 million), AFP Cambodia investigation ($2 million), Sun Bets impairment ($21 million), Intecq acquisition costs ($8 million), transaction costs associated with the merger ($60 million) (excluding the net revaluation loss on the Tatts equity swap) and Melbourne premises relocation ($9 million). Offset by gain on sale of Tatts properties ($8 million). PROFILE OF THE COMBINED GROUP 69

72 (D) PRO-FORMA ADJUSTMENTS TO THE COMBINED GROUP PRO-FORMA INCOME STATEMENT (1) Tabcorp pro-forma adjustments The following adjustments relate to businesses that commenced or were acquired by Tabcorp during the year ended 30 June 2017: significant items in the historical financial information of Tabcorp for the year ended 30 June 2017 include a $48 million (post-tax) loss from the Sun Bets business. Sun Bets is a new online wagering and gaming business established in the UK and Ireland by Tabcorp, which commenced trading in August The loss therefore comprises pre-opening expenses in July 2016 and a trading loss from August In Pro-Forma Adjustments, the $48 million post-tax loss has been reclassified from significant items and has been reflected in the relevant revenue and expense line items to reflect the classification that is intended to be adopted from 1 July 2017 once the business is no longer in its start-up phase. The revenue and EBITDA recognised in relation to Sun Bets is $4 million and $46 million (loss) respectively; and the financial performance of Intecq, which was acquired by Tabcorp on 16 December 2016, that would have been included in the Tabcorp historical income statement as if the acquisition had taken place on 1 July This adjustment ($2 million profit on a post-tax basis) has been made to reflect a Combined Group pro-forma income statement which presents Intecq as if it were an ongoing business owned by Tabcorp throughout this period. The Pro-Forma Adjustment also includes a $3 million (post-tax) adjustment to significant items reflecting the transaction costs incurred by Intecq in connection with the acquisition by Tabcorp. The proforma adjustment is based on Intecq s historical financial information and does not reflect any synergies that may have been anticipated by Tabcorp at the time it acquired Intecq. The revenue and EBITDA recognised in relation to Intecq is $22 million and $4 million (profit) respectively. (2) Debt refinancing This adjustment reflects the estimated impact of interest costs on the additional borrowings of $1,335 million expected to be drawn down in connection with the Scheme. This estimated additional debt adjustment is as presented in the Combined Group pro-forma statement of financial position and summarised below. Further information Estimated drawdown of debt $m Adjustments to Combined Group pro-forma statement of financial position: Cash component of transaction consideration 12.5(g)(1) 624 Transaction costs operating expenditure (post-tax) 12.5(g)(3) 102 Implementation costs operating expenditure (post-tax) 12.5(g)(3) 49 Implementation costs capital expenditure 12.5(g)(3) 70 Share buy-back 12.5(g)(4) 500 Odyssey Gaming Business divestment 12.5(g)(5) (10) Estimated additional debt 1,335 Interest expense (pre-tax) at 5.0% p.a. 67 Interest expense (post-tax) at 5.0% p.a. 47 The pro-forma interest expense reflects the impact of this additional debt as if it had been fully drawn down on 1 July 2016 for the entire period. Further information on each component of estimated additional debt is provided in the adjustments to the Combined Group pro-forma statement of financial position. It is assumed that the additional debt is drawn down for the full 12 months and incurs interest at a rate of 5.0%. This assumption represents Tabcorp s estimate of the Combined Group s cost of debt subsequent to completion of the Scheme, and reflects: financial terms offered to Tabcorp by financial lenders in the Tabcorp Syndicated Facility, including commitment and other ancillary fees (see Section for further details); and the prevailing interest rates as at the date of this Scheme Booklet. This interest expense adjustment does not reflect: the impact of any future refinancing activity in relation to either Tabcorp s or Tatts existing debt facilities, or the impact of any future refinancing of the Tatts syndicated facility; proceeds from settlement of the Tatts equity swap and derivative financial instruments related to the Tatts USPP notes (see Section 12.5(g)(2) for more details); the impact on any future hedging activities in connection with fluctuations in future interest rates or foreign exchange rates (where applicable) which the Combined Group may choose to undertake; the impact of any change in market conditions after the date of this Scheme Booklet which would mean the interest rate assumption is no longer reflective of an appropriate interest rate that would apply to the Combined Group subsequent to completion of the Scheme; and the fact that Tabcorp s and Tatts cash balance, drawn and / or undrawn debt fluctuated during the year ended 30 June 2017, and any associated difference in net interest expense compared to a situation where these balances remained constant during that period. 70 Tatts Group Limited Scheme Booklet

73 (3) Other This adjustment reflects the following items: the impact on the Combined Group s financial performance of a divestment of Intecq s Odyssey Gaming Business (revenue of $17 million and profit before tax of $2 million). This adjustment has been made to reflect Tabcorp s commitment to divest this business to address potential competition concerns in electronic gaming machine monitoring services and repair and maintenance services in Queensland. Any sale of the Odyssey Gaming Business is subject to the receipt of ACCC and other approvals and will be subject to the Scheme completing. Further details in relation to the proposed divestment of the Odyssey Gaming Business are provided in Section 12.3(f); elimination of $15 million of revenue (nil impact on net profit after tax), being the amount of Tabcorp s revenue which is derived from Sky Racing television related transactions with Tatts for the year ended 30 June An adjustment has also been made to account for the corresponding expense recognised by Tatts for the year ended 30 June This adjustment has been made in order to present the revenue and expenses of the Combined Group as if they were derived only from transactions with external parties; and reversal of the unrealised loss of $17 million (post-tax) recognised by Tabcorp in relation to the Tatts equity swap, reported by Tabcorp as a significant item in its historical financial information for the year ended 30 June Further details in relation to the Tatts equity swap are provided in Section 13.4(l). This adjustment has been made to reflect a Combined Group pro-forma income statement that excludes any gain or loss at settlement of the Tatts equity swap. The reference price for the Tatts equity swap is $4.34 per Tatts share. As noted in Section 12.3(h) above, on the Effective Date the referenced share price of the Tatts equity swap will automatically be amended to refer to Tabcorp Shares, instead of Tatts Shares (please refer to Section 13.4(l) for further details). As a result, from this date onwards the eventual gain or loss on the Tatts equity swap will depend on Tabcorp s share price. In the event Tabcorp s share price after this date is $4.89 per share (the same as that on 17 October 2016 being the closing price of Tabcorp Shares on the last Trading Day prior to the announcement of the Scheme), the estimated post-tax loss on the Tatts equity swap, excluding transaction costs, would be $0.5 million. A $0.10 per share difference in the Tabcorp share price results in an $8 million (post-tax) additional gain or loss on the Tatts equity swap. (E) ITEMS NOT REFLECTED IN THE COMBINED GROUP PRO-FORMA INCOME STATEMENT The Combined Group pro-forma income statement has not been adjusted to reflect: the trading of either Tabcorp or Tatts since 30 June 2017; any acquisition of Intralot SA s Australian and New Zealand Businesses by Tatts. On 3 August 2016 Tatts announced that it was in discussions with Intralot SA in relation to a potential acquisition of this business. As at the date of this Scheme Booklet, Tatts has not yet entered into any binding documentation in relation to this potential acquisition; the impact of any potential licence renewals made by Tabcorp or Tatts subsequent to 30 June 2017; amortisation relating to the New South Wales CMS monitoring rights secured by Tatts in February 2016 for $209 million. The rights and amortisation periods commence in December 2017, at which point the recurring annual amortisation expense (before tax) will increase by approximately $12 million; amortisation relating to the Victorian Lotteries Licence secured by Tatts in June 2017 for $120 million. The licence and amortisation periods commence in July 2018, at which point the recurring annual amortisation expense (before tax) will increase by approximately $10 million; the full year impact of Tatts acquisition of securities in Jumbo Interactive Limited as outlined in Tatts ASX announcement dated 12 May Please refer to Section 10.2(b)(1) for further details; any potential synergies and business improvements arising following Implementation as outlined in Section 12.2 and any associated costs as outlined in Section 12.5(g) below (including depreciation and amortisation of capitalised amounts); any impact on the Combined Group s financial performance of a strategic review of the Luxbet business following Implementation. The carrying value of Luxbet non-financial business assets was approximately $16 million at 30 June The Luxbet business made a loss before tax of $13 million in the year ended 30 June 2017; or additional depreciation and amortisation relating to identified tangible and intangible assets which may arise as a result of the Transaction and the finalisation of the accounting for the Transaction in accordance with AASB 3 (refer Section 12.5(g) below). In addition to the above, the following costs, which are considered to be one-off in nature, have not been reflected in the Combined Group pro-forma income statement: estimated transaction costs expected to be incurred from 1 July 2017 of approximately $71 million (post-tax) for Tabcorp and approximately $31 million (post-tax) for Tatts (refer to Figure 20). Transaction costs of $60 million (post-tax) including costs associated with the Tatts equity swap of $4 million, incurred in the year ended 30 June 2017, were expensed in the reported historical financial information of Tabcorp and Tatts. The transaction costs are an estimate of the costs expected to be incurred directly in relation to the Scheme; PROFILE OF THE COMBINED GROUP 71

74 estimated one-off implementation costs of $71 million (pre-tax) ($49 million (post-tax)) (classified as operating expenditure) to achieve anticipated cost synergies and business improvements as outlined in Section 5.4. The remaining one-off implementation costs ($70 million, pre- and post-tax) are assumed to be capitalised as reflected in the Combined Group pro-forma statement of financial position. Any incremental depreciation and amortisation charge has not been reflected in the Combined Group pro-forma income statement above; and any movement in the value of the Tatts equity swap since 30 June The Combined Group pro-forma statement of financial position in Section 12.5(f) has been adjusted to reflect the impact of these one-off costs on the borrowings of the Combined Group, with the corresponding increase in pro-forma interest costs reflected in adjustment (2) of Section 12.5(d) to the Combined Group pro-forma income statement above. (F) COMBINED GROUP PRO-FORMA STATEMENT OF FINANCIAL POSITION This Section outlines the pro-forma statement of financial position for the Combined Group as at 30 June The pro-forma statement of financial position has been based on: Tabcorp s consolidated historical statement of financial position as at 30 June 2017, which has been derived from the financial statements of Tabcorp for the year ended 30 June 2017; Tatts consolidated historical statement of financial position as at 30 June 2017, which has been derived from the financial statements of Tatts for the year ended 30 June 2017; and pro-forma adjustments described in Section 12.5(g). The Combined Group pro-forma statement of financial position has been prepared in order to give Tatts shareholders an indication of the Combined Group s financial position as if the transaction had occurred as at 30 June It does not show the actual financial position of the Combined Group at the time of Implementation. The table at Figure 19 sets out the Combined Group pro-forma statement of financial position as at 30 June Notes explaining the adjustments in each column follow the table. Figure 19: Combined Group pro-forma statement of financial position as at 30 June 2017 Tabcorp $m Tatts $m Acquisition Debt accounting re-financing (G1) (G2) $m $m 72 Tatts Group Limited Scheme Booklet Transaction & implementation costs (G3) $m Share buy-back (G4) $m Odyssey divestment (G5) $m Combined Group Pro-forma $m Current assets Cash and cash equivalents Receivables & prepayments Current tax assets 5-5 Derivative financial instruments (310) 4 Assets held for sale (a) 13 - (13) - Other (b) Total current assets (310) - - (13) 619 Non current assets Receivables Investment in an associate Available for sale financial assets Held to maturity investments Intangible assets 2,696 4,459 2, ,621 Property, plant and equipment Prepayments Derivative financial (56) 80 instruments Other Total non current assets 3,185 4,907 2,426 (56) ,532 TOTAL ASSETS 3,741 5,293 2,426 (366) 70 - (13) 11,151 Current liabilities Payables Interest bearing liabilities (1,287) - Current tax liabilities Provisions Derivative financial instruments 32-32

75 Tabcorp $m Tatts $m Acquisition Debt accounting re-financing (G1) (G2) $m $m Transaction & implementation costs (G3) $m Share buy-back (G4) $m Odyssey divestment (G5) $m Combined Group Pro-forma $m Liabilities directly associated 3 - (3) - with assets held for sale (a) Other Total current liabilities 1, (1,287) - - (3) 1,121 Non current liabilities Payables Interest bearing liabilities (10) 3,770 Deferred tax liabilities Provisions (b) Derivative financial instruments Other 3-3 Total non current liabilities 842 1, (10) 4,428 TOTAL LIABILITIES 2,258 2, (376) (13) 5,549 NET ASSETS 1,483 2,958 1, (151) (500) - 5,602 TOTAL EQUITY 1,483 2,958 1, (151) (500) - 5,602 (a) Represents the assets and liabilities of the Odyssey Gaming Business. (b) The following line items in the Tatts statutory statement of financial position (outlined in Section 10.6) have been reclassified to align to presentation principles adopted by Tabcorp, on the basis that these principles will be applied in financial information disclosures following the proposed combination of Tatts and Tabcorp: inventories ($2 million) have been included in other current assets; and employee benefit obligations ($10 million) have been included in non-current provisions. (G) ADJUSTMENTS TO COMBINED GROUP PRO-FORMA STATEMENT OF FINANCIAL POSITION The adjustments to the Combined Group pro-forma statement of financial position relate to the numbers in the columns shown in Figure 19 and are explained below. 1) Acquisition accounting The Combined Group pro-forma statement of financial position has been compiled in accordance with the acquisition accounting principles as set out in AASB 3 but representing provisional amounts as noted below. The adjustment, which assumes the trading price of Tabcorp Shares on the Implementation Date is $4.05 (being the closing price on 5 September 2017) reflects: an increase in non-current borrowings of $624 million to fund the payment of the Cash Consideration including the Tatts Special Dividend which may be payable to existing Tatts Shareholders (refer Section 4.3) in lieu of part of the Cash Consideration; a net increase in share capital of $1,890 million reflecting: estimated Share Consideration (refer to Section 4.2) of $4,759 million, which will be satisfied by the issue of additional share capital by Tabcorp; off set by the elimination of Tatts share capital balance of $2,869 million as at 30 June 2017; and de-recognition of Tatts pre-acquisition retained earnings ($88 million); and recognition of resulting goodwill of $2,426 million (discussed below). AASB 3 requires all identifiable assets (including intangible assets and deferred tax balances) and liabilities that meet certain recognition criteria to be recognised in the Combined Group pro-forma statement of financial position. The excess of the cost of the acquisition over and above the net fair value of the identifiable assets and liabilities is to be recognised as goodwill. As discussed in Section 13.4(a), as a result of changes in the Tabcorp share price, the implied value of the Scheme Consideration is likely to change between the date of this Scheme Booklet, the date of the Scheme Meeting and the Implementation Date. As a result, the actual goodwill recognised may differ. The estimated impact of a $0.10 PROFILE OF THE COMBINED GROUP 73

76 movement in the Tabcorp share price is summarised in the below table. Tabcorp closing share price at 5 September 2017 Estimated goodwill $m Actual: $4.05 2,426 + $0.10: $4.15 2,544 - $0.10: $3.95 2,309 The acquirer is allowed a period of 12 months from the acquisition date to finalise the identification and valuation process and any resultant accounting adjustments. Tabcorp has not finalised the identification and valuation of Tatts assets and liabilities, with finalisation to take place after Implementation. For the purposes of preparing the Combined Group pro-forma statement of financial position, it has been assumed that the carrying value of assets and liabilities are equal to their fair value and that there will be no separately identifiable intangible assets other than those already recognised in the 30 June 2017 statements of financial position of Tabcorp and Tatts. Additional amortisation relating to identified intangible assets may arise as a result of the Transaction and the finalisation of the accounting for the Transaction, and has not been reflected in the Combined Group Pro-Forma Financial Information. The quantum of any additional amortisation will depend on the incremental value allocated, and the useful lives ascribed, to the identifiable intangible assets as part of the final purchase price allocation. For illustrative purposes, for every $200 million increase in value ascribed to identifiable intangibles with an average useful life of 20 years, annual pro-forma Combined Group EBIT would decrease by $10 million. For the purpose of preparing the Combined Group pro-forma statement of financial position, it has been assumed that there will be no resetting of the Combined Group s tax cost bases following the acquisition. It is, however, likely that the allocable cost amount calculation will result in a deferred tax position which is different to the position presented in the Combined Group pro-forma statement of financial position. Any resulting adjustment will have an equal but opposite impact on the amount of goodwill recognised. 2) Debt refinancing This adjustment reflects: the closure of the Tatts equity swap, assuming this was closed out on 30 June 2017 at no gain or loss, as described in Section 12.3(h) above, comprising: the reversal of the unrealised loss of $24 million (pre-tax) on the Tatts equity swap recognised by Tabcorp at 30 June 2017 reflected as an increase in current derivative financial instruments ($24 million), deferred tax liabilities ($7 million) and retained earnings of $17 million; and a reduction in current derivative financial instruments of $318 million and a corresponding reduction in current borrowings of $318 million, on the assumption that the applicable notional amount at 30 June 2017 (excluding loss) is applied to reduce current borrowings upon closure of the Tatts equity swap; the proposed refinancing of the Combined Group post Implementation assuming a Transaction date of 30 June The refinancing is reflected in the Combined Group pro-forma statement of financial position through: the refinance of Tatts current bank borrowings at 30 June 2017 of $240 million to non-current borrowings to reflect the execution of an agreement subsequent to 30 June 2017, for a $300 million facility maturing in August 2018, to replace the $300 million facility maturing in September 2017; reduction in derivative financial instrument assets (current: $16 million, non-current: $56 million) related to the refinancing of the Tatts USPP notes. It is assumed that these balances are closed out at the amounts recognised by Tatts at 30 June 2017 and applied to reduce current borrowings by $73 million; and the reclassification of remaining current borrowings as at 30 June 2017 of $664 million (after allowing for an additional $7 million of estimated interest accrued under cross-currency interest rate swaps related to Tatts USPP notes) from current to non-current borrowings in accordance with the proposed Tabcorp Syndicated Facility (refer to Section to for further details). 3) Transaction and implementation costs This adjustment reflects the impact on the pro-forma non-current borrowings (increase of $221 million) of the Combined Group of the estimated transaction costs (post 30 June 2017) of $102 million (post-tax) and estimated implementation costs of $119 million (post-tax). These costs, both on a pre- and post-tax basis, are summarised in the table below. Transaction costs are assumed to be expensed immediately as incurred, net of assumed tax deductions ($102 million reduction in retained earnings). Implementation costs relating to operating expenditure cost synergies are assumed to be expensed immediately as incurred, net of assumed tax deductions ($49 million reduction in retained earnings). The remaining implementation costs are assumed to be capitalised: capital expenditure relating to cost synergies has been reflected as an increase in intangible assets ($40 million); and 74 Tatts Group Limited Scheme Booklet

77 capital expenditure relating to business improvements has been reflected as an increase in property, plant and equipment ($30 million). No tax deductions have been assumed for these capitalised items. Figure 20: Summary of estimated transaction and implementation costs (incurred post 30 June 2017) Pre-tax $m Post-tax $m Transaction costs Tabcorp Tatts Implementation costs Cost synergies - operating expenditure Cost synergies - capital expenditure Business improvements - capital expenditure Total transaction and implementation costs ) Share buy-back Following Implementation, Tabcorp s current intention is to undertake a share buy-back of up to $500 million. Any such share buy-back is subject to Tabcorp Board approval and market conditions. This adjustment reflects the estimated impact of the buy-back on the share capital (reduction of $500 million) and non-current borrowings (increase of $500 million) of the Combined Group. The method, timing and terms of any such share buy-back will be determined at the relevant time. 5) Odyssey Gaming Business divestment This adjustment has been made to reflect Tabcorp s commitment to divest this business to address potential competition concerns in electronic gaming machine monitoring services and repair and maintenance services in Queensland. The assets and liabilities of the Business were disclosed as assets/liabilities held for sale at 30 June The divestment has been reflected on a carrying value basis, the final divestment accounting may differ to that presented. (H) ITEMS NOT REFLECTED IN THE COMBINED GROUP PRO-FORMA STATEMENT OF FINANCIAL POSITION The Combined Group pro-forma statement of financial position has not been adjusted to reflect: the trading of either Tabcorp or Tatts since 30 June 2017; payment of 100% franked final dividends of $0.125 per Tabcorp Share ($104 million) announced on 4 August 2017 and $0.08 per Tatts Share ($117 million), announced on 17 August 2017 to be paid prior to Implementation of the Scheme, as additional earnings in the period from 30 June 2017 to Implementation have not been reflected in the pro-forma adjustments; any acquisition of Intralot SA s Australian and New Zealand Businesses by Tatts. On 3 August 2016 Tatts announced that it was in discussions with Intralot SA in relation to a potential acquisition of this business. As at the date of this Scheme Booklet, Tatts has not yet entered into any binding documentation in relation to this potential acquisition; any movement in the value of the Tatts equity swap since 30 June 2017; any impact of the review of Tatts FY16 income tax return being undertaken by the Australian Tax Office; the impact of any potential licence renewals made by Tabcorp or Tatts subsequent to 30 June 2017; or the impact on the Combined Group s financial position of a strategic review of the Luxbet business following Implementation. The carrying values of the Luxbet non-financial business assets were approximately $16 million at 30 June (I) COMBINED GROUP PRO-FORMA CASH FLOWS This Section outlines the pro-forma operating cash flows after capital expenditure for the Combined Group as though the Transaction occurred on 1 July The Combined Group pro-forma cash flows for year ended 30 June 2017 have been based on: the consolidated pro-forma historical statement of cash flows of Tabcorp for the year ended 30 June 2017, which has been derived from the consolidated financial statements of Tabcorp for the full year to 30 June 2017; 36 Transaction costs are expected to be expensed immediately as incurred. Where costs are not immediately deductible for tax purposes, no tax deduction has been assumed in the pro-forma information. 37 Includes estimated costs associated with early redemption of the Tatts USPP Notes. 38 Full integration of Tatts and Tabcorp is expected to take approximately two years to complete, subject to the receipt of regulatory approvals. Accordingly, Implementation costs are expected to be incurred over this period. PROFILE OF THE COMBINED GROUP 75

78 the consolidated pro-forma historical statement of cash flows of Tatts for the year ended 30 June 2017, which has been derived from the consolidated financial statements of Tatts for the full year to 30 June 2017; and pro-forma adjustments described in Section 12.5(j). The Combined Group pro-forma cash flows have been prepared in order to give Tatts shareholders an indication of the Combined Group s operating cash flows (after capital expenditure) as if the Transaction had occurred on 1 July They do not reflect the actual operating cash flows of the Combined Group at the time of Implementation. The table at Figure 21 sets out the Combined Group pro-forma cash flows for the year ended 30 June Notes explaining the adjustments in each column follow the table: Figure 21: Combined Group pro-forma cash flows for the year ended 30 June 2017 Tabcorp $m Adjustments (J1) $m Tabcorp proforma $m Tatts Adjustments (J2) Tatts proforma $m Adjustments Debt re-financing (J3) $m Other (J4) $m Combined Group pro-forma $m Cash flows from operating activities EBITDA excluding significant items 504 (42) (4) 915 Net interest paid (75) - (75) (42) - (42) (67) - (184) Income tax paid / payable (62) 2 (60) (14) (63) (77) 20 1 (116) Change in working capital and other non cash items Net operating cash flows from 414 (40) (63) 373 (47) (3) 697 continuing operations, before significant items Payment for property, plant and (197) (1) (198) (106) - (106) - 3 (301) equipment and intangibles Net operating cash flows from continuing operations, before significant items after capital expenditure 217 (41) (63) 267 (47) (J) ADJUSTMENTS TO COMBINED GROUP PRO-FORMA CASH FLOWS (1) Tabcorp pro-forma adjustments The following adjustments, discussed in more detail in adjustment (1) of Section 12.5(d) above relate to businesses that commenced or were acquired by Tabcorp during the year ended 30 June 2017: the inclusion of the $46 million pro-forma EBITDA loss and $43 million net operating cash outflows after capital expenditure from the Sun Bets business in the relevant line items in the Combined Group pro-forma cash flow to reflect the classification that will be adopted from 1 July 2017 once the business is no longer in its start-up phase; and the estimated additional EBITDA profit ($4 million) and net operating cash inflows (after capital expenditure) of Intecq ($2 million) that would have been included in the Tabcorp historical statement of cash flows if the acquisition had taken place on 1 July (2) Tatts pro-forma adjustments This adjustment reverses a one-off tax refund ($63 million) recognised in the year ended 30 June 2017 relating to payment for the New South Wales CMS monitoring rights. (3) Debt refinancing As discussed in adjustment (2) of Section 12.5(d) above, additional interest costs will be incurred on the estimated additional borrowings expected to fund certain aspects of the Scheme. This adjustment assumes that these interest costs will be paid in the period they are assumed to have been incurred, being the year ended 30 June (4) Other This adjustment reflects the impact on the Combined Group pro-forma cash flows of a divestment of the Odyssey Gaming Business, discussed in more detail in adjustment (3) of Section 12.5(d) above. (K) ITEMS NOT REFLECTED IN THE COMBINED GROUP PRO-FORMA CASH FLOWS The Combined Group pro-forma cash flows have not been adjusted to reflect: the trading of either Tabcorp or Tatts since 30 June 2017; payment of 100% franked final dividends of $0.125 per Tabcorp Share ($104 million) announced on 4 August 2017 with a payment date of 18 September 2017, and $0.08 per Tatts Share announced on 17 August 2017 and to be paid on 3 October 2017 ($117 million), as additional earnings in the period from 30 June 2017 to 76 Tatts Group Limited Scheme Booklet

79 Implementation have not been reflected in the pro-forma adjustments; any acquisition of Intralot SA s Australian and New Zealand Businesses by Tatts. On 3 August 2016 Tatts announced that it was in discussions with Intralot SA in relation to a potential acquisition of this business. As at the date of this Scheme Booklet, Tatts has not yet entered into any binding documentation in relation to this potential acquisition; the full year impact of Tatts acquisition of securities in Jumbo Interactive Limited as outlined in Tatts ASX announcement dated 12 May Please refer to Section 10.2(b)(1) for further details; the impact on the Combined Group s pro-forma cash flows of a strategic review of the Luxbet business following Implementation. The Luxbet business generated operating cash outflows after capital expenditure and before significant items of $7 million in the year ended 30 June 2017; any debt drawdowns or repayments as the Combined Group pro-forma cash flows do not present cash flows from financing activities; any potential efficiencies and synergies or business improvements arising following Implementation as outlined in Sections 5.4 and 12.2; or the impact of any potential licence renewals made by Tabcorp or Tatts subsequent to 30 June In addition to the above, and consistent with the presentation of the Combined Group pro-forma income statement, the Combined Group pro-forma cash flow does not reflect the impact on cash of the following costs which are considered to be one-off in nature and are assumed to be funded through the drawdown of non-current borrowings (as reflected in the Combined Group statement of financial position): estimated transaction costs (excluding costs already incurred to 30 June 2017) of $133 million (pre-tax); and estimated one-off implementation costs estimated to be approximately $141 million (pre-tax). (L) FORECAST FINANCIAL INFORMATION FOR THE COMBINED GROUP The presentation of pro-forma financial information provides Tatts Shareholders with a meaningful and reliable indication of the profile of the Combined Group over the period from 1 July 2016 to 30 June 2017, however, the pro-forma financial information cannot be relied upon as indicative of Tabcorp s expectations as to the future performance of the Combined Group. The future performance of the Combined Group will inevitably be different from the information set out in the pro-forma financial information as it will reflect future performance, rather than the year ended 30 June Further details on the intentions and risks of the Combined Group are also detailed in Sections 13.3 and Tabcorp has given careful consideration to whether forecast financial statements (including any internally created valuation models) can and should be included in this Scheme Booklet in respect of the Combined Group. In particular, Tabcorp has considered whether there is a reasonable basis for the preparation and disclosure in the Scheme Booklet of reliable and useful forecast financial statements in this regard. Tabcorp has concluded that forecast financial statements for the Combined Group cannot be provided in this Scheme Booklet as it does not have a reasonable basis for such forecasts as required by applicable law and practice. PROFILE OF THE COMBINED GROUP 77

80 13. Risk Factors 13.1 INTRODUCTION The Scheme presents a number of potential risks that Tatts Shareholders should consider when deciding how to vote on the Scheme. In making your decision, you should carefully read this Scheme Booklet in its entirety. You should also carefully consider the risk factors outlined in this Section and your personal circumstances. This Section is general in nature only and does not take into account your individual objectives, financial situation, tax position or particular needs. This Section outlines some of the: risks relating to the business and operation of Tatts, including your current investment in Tatts Shares (see Section 13.2); risks specific to Tabcorp and New Tabcorp Shares (see Section 13.3); risks specific to the Scheme and the creation of the Combined Group (see Section 13.4); and other risks (see Section 13.5). You should carefully consider the risks discussed in this Section, as well as the other information contained in this Scheme Booklet before voting on the Scheme RISKS RELATING TO THE BUSINESS AND OPERATIONS OF TATTS In considering the Scheme, you should be aware that there are a number of general risk factors, as well as risks specific to Tatts and / or the industries in which it operates, which could materially and adversely affect the future operating and / or financial performance of Tatts. Many of the risks relevant to the businesses and operations of Tatts apply equally to Tabcorp. Many of these risks are currently relevant to Tatts Shareholders and will continue to be relevant to Tatts Shareholders, on the basis that after the Scheme is Implemented, Tabcorp will own Tatts and the Scheme Consideration includes New Tabcorp Shares. Tatts business operates predominantly in the gambling industry. A number of the key risks associated with Tatts business relate to the regulated nature of that industry, including: the need to hold various licences, approvals and authorisations; changes in the terms of, or the expiry or loss of exclusivity in relation to, those licences, approvals and authorisations; and changes in regulation. (A) LICENCES AND OTHER APPROVALS The conduct of wagering, lotteries and the monitoring of gaming machines is regulated by laws, licences, permits and other approvals from relevant state and territory governments. Any material non-compliance by Tatts with the relevant regulations or licence terms may result in financial penalties, or the suspension or loss of certain licences, permits or approvals which may have an adverse impact on the financial performance of Tatts or result in the loss of an operating unit and corresponding revenues from that operating unit. Tatts has an established regulatory compliance function and governance framework. Tatts regulatory compliance function monitors compliance with existing regulations, the political and regulatory environment and Tatts adherence to internal processes. (B) REGULATION AND CHANGES TO REGULATION Regulation at state, territory and federal government level is subject to change and Tatts has no control over the regulations that apply to its current or proposed activities. Pending and future changes in legislation, regulation or government policy, or decisions by courts and / or governments, may result in the prohibition of certain types of gambling, and the imposition of additional taxes or other financial and operational imposts on Tatts businesses. Such changes may reduce Tatts margins, turnover or both. For example, on 6 May 2017, the Commonwealth Government announced its intention to introduce new restrictions on gambling advertising during live sports programs broadcast on commercial television, commercial radio, subscription television, the Special Broadcasting Service (SBS) and online platforms including catch up services, and live online streaming that is aimed at Australian audiences. The new restrictions will ban gambling advertisements from five minutes before the commencement of a sporting event, during the sporting event, and until five minutes after the conclusion of the sporting event. The restrictions will apply between 5:00am and 8:30pm. Existing exemptions for advertising that occur as part of a live sporting event that consists of horse, harness or greyhound racing or that covers lotteries will remain. The Government s intention is that the reforms will be given effect via changes to the various broadcast industry Codes of Practice. In order to mitigate the risk of regulatory change in a particular jurisdiction or industry, Tatts has successfully developed a portfolio of diversified and long-term income streams across multiple jurisdictions. 78 Tatts Group Limited Scheme Booklet

81 (C) COMPETITION Each of Tatts businesses may be subject to competition from existing and new entrants at any time. More than just driving efficiencies, technological innovation is now challenging entire business models and causing disruption to industry structures. Technological developments have therefore increased, and will continue to increase, competition to Tatts businesses, regardless of exclusive licences, permits or approvals. Gambling also competes with other forms of consumer discretionary spending. Further, the rapid deregulation of the national wagering market has seen a sizeable growth in market share by the corporate bookmakers, mostly located in the Northern Territory. This rapid deregulation has the potential to have an adverse impact on Tatts earnings in the short term as market changes continue. If Tatts does not adequately respond to the competition which it faces, this may have an adverse effect on the operational and / or financial performance of Tatts. A sustained increase in competition from new entrants may result in a material failure to grow, or a loss of market share or revenues. Examples of competition experienced by Tatts in its current businesses are set out below: (1) Wagering Tatts wagering business has for some time competed with interstate and international wagering operators who accept bets over the telephone or online. The internet and other new forms of distribution have allowed new competitors to enter Tatts traditional markets without those competitors being licensed in those states and territories and often operating under more favourable fiscal regimes. There is also the possibility that, in the future, competition from interstate and international operators may extend to Tatts retail network. This would undermine the retail exclusivity of the licences that are presently held by Tatts in Queensland, South Australia, Tasmania and the Northern Territory. Tatts is actively working with the South Australian racing industry and the South Australian Government to secure long-term retail exclusivity, however the potential licensing of additional wagering operators in South Australia could result in the introduction of new entrants which would adversely affect Tatts Group s earnings. (2) Lotteries The emergence of synthetic lottery operators, including from operators such as Lottoland (a corporate bookmaker licensed in the Northern Territory) has seen competition extend to Tatts lotteries business. In August 2016, Tatts initiated legal proceedings in the Federal Court of Australia against Lottoland regarding allegations of trade mark infringement and misleading or deceptive conduct. In November 2016, the parties agreed to certain court orders including a permanent restraint on Lottoland from advertising in a way which represents that consumers can participate in and play Tatts lottery games via the Lottoland website or app. The remaining matters in dispute were settled on a confidential basis. Tatts regularly monitors Lottoland s compliance with the court orders and settlement deed but there is a risk that the court orders and settlement deed may not prevent Lottoland from advertising its betting products in a way that could potentially have a negative impact on Tatts lotteries sales. Further, there is a risk that, similarly to recent activity seen in the wagering market, competition from operators such as Lottoland may extend to Tatts lotteries retail network. On 22 May 2017, the Commonwealth Minister for Health and Minister for Sport announced the Commonwealth Government s new National Sport Plan which includes consideration of the introduction of a national sports lottery to raise funds for sport and recreation activities in Australia. If a national sports lottery were introduced, there is a risk that this could have a negative impact on Tatts lotteries sales and have an adverse effect on the operational and / or financial performance of Tatts lotteries business. (3) Gaming Services Two entities have recently acquired monitoring licences in Queensland. A sustained increase in competition from new entrants and existing operators may result in a failure to grow market share and associated revenue. (D) LICENCE EXPIRY Tatts current exclusive Victorian Lotteries Licence expires in June On 1 June 2017, the Victorian Government announced that Tatts had been awarded a new exclusive Victorian Lotteries Licence for a 10-year term. The new licence commences on 1 July 2018 and will continue in force until 30 June 2028 in accordance with its terms, with Tatts required to make a single premium payment to the Victorian Government of $120 million on 1 July Tatts New South Wales exclusive licences to operate inter-club and inter-hotel linked gaming systems are due to expire in October 2017 and October 2019 respectively. The New South Wales Government has not yet foreshadowed its intentions in relation to the expiry of those licences. Tatts cannot be certain: whether any of its licences will be renewed or whether new licences will be granted to Tatts when current licences expire; if any of its licences are renewed or new licences granted to Tatts: when they will be renewed or granted (as applicable); or the terms on which they will be renewed or granted, including whether they will be granted on an exclusive basis and the amounts which might be required to be paid by way of licence fees. RISK FACTORS 79

82 If licences are not renewed or new licences are granted to Tatts on terms which are less favourable to Tatts than the terms of its existing licences, there is a possibility that this would result in Tatts being unable to conduct the specific businesses which operate pursuant to these licences, or being unable to generate earnings equal to those currently being generated by these businesses. (E) SYSTEMS SECURITY Tatts operates a range of proprietary and non-proprietary information technology systems, including hardware and software, for existing and new infrastructure to conduct its wagering, lotteries and gaming services businesses. Tatts is exposed to the risk of failure of, or significant interruption to, its information technology systems or infrastructure which may have an adverse impact on the financial performance of Tatts. Further, a systems security failure, such as a cyber-attack, could impact upon Tatts systems and equipment, and ultimately revenue and profit. Tatts manages this risk by having system redundancy, other back-up measures, security and monitoring programs in place. However, there can be no assurance that Tatts mitigation arrangements will be sufficient to entirely prevent the risk of a significant systems failure. A prolonged failure of the information technology systems operated by Tatts which support its wagering, lotteries and gaming services businesses would result in a significant loss of revenue and profit to Tatts as it would be unable to process bets, lottery tickets and other revenue generating transactions. This may have an adverse effect on the operational and / or financial performance of Tatts. (F) RELIANCE ON THIRD PARTIES Tatts is reliant on a number of third parties for the operation of its businesses. Areas where Tatts has significant reliance on third parties include: provision and maintenance of telecommunications infrastructure between Tatts data centres and its network of venues for its lotteries, wagering and gaming services businesses; provision of racing and sporting products from racing industries and sporting bodies; provision of racing and sporting vision to Tatts network of wagering outlets; and maintenance services for critical infrastructure. Failure of, significant interruption to, or reduction in the quality of third party products and services upon which Tatts relies for a sustained period of time may result in Tatts being unable to provide certain services during that period or providing a less attractive service, which may have an adverse impact on the operating and / or financial performance of Tatts. (G) REPUTATION Tatts considers its reputation for trust and integrity as important in maintaining customer goodwill and regulatory confidence for its operations. A range of events, including a material non-compliance with regulations or licence terms, or a breach of Tatts information systems leading to the occurrence of fraudulent activity such as identity theft or credit card fraud, or other disclosure of customers personal information, could have an adverse impact on Tatts reputation and the value of its brands. This could also increase expenditure due to additional security costs and / or potential claims for compensatory damages. Significant disciplinary actions, the imposition of monetary fines or the loss of a licence in one jurisdiction would affect Tatts reputation and may adversely affect its current licences or future opportunities for licences in other jurisdictions. The consequences of such events could be significant for Tatts, including reduced revenues, increased expenses, loss of consumer trust in the relevant brand or products, and loss of a business unit. Tatts has not been party to any significant disciplinary actions and has been successful in being granted new licences and renewing or retaining licences or licence exclusivity. (H) TAXES, LEVIES, RACE FIELD FEES AND SPORTS PRODUCT FEES Taxes and levies relating to the wagering, lotteries and gaming segments of the gambling industry are currently determined by relevant governments. A material increase in the taxes and levies payable by Tatts in respect of its wagering, lotteries or gaming businesses may reduce margins and have an adverse impact on the financial performance of Tatts. Each state and territory of Australia has implemented race field fee arrangements, under which each state or territory (or its racing industry) charges wagering operators product fees for use of that industry s race field information. Some sporting bodies have also introduced sports product fees. Consequently, Tatts is required to pay product fees to the relevant racing controlling body and sports controlling body. There is the potential that fees will increase, or new fees will be introduced, and that such fees may have an adverse effect on the operational and / or financial performance of Tatts. For example, the South Australian Government has introduced a point of consumption tax of 15% on the Net Wagering Revenue of betting companies offering services to South Australia, effective from 1 July 2017 (Point of Consumption Tax). The tax will apply to all bets placed in South Australia on horse, harness and greyhound racing as well as sporting and other events, such as the winner of the Academy Awards. Tatts understands that some other state governments may be considering the introduction of a similar point of consumption tax. In May 2017, the Victorian Government announced that it was developing a point of consumption tax for online gambling, and in June 2017 the New South Wales Government announced that it was assessing the impact of changing taxation on gambling from location of supplier to the point of consumption in New South Wales, but no further details have been released. Tatts has no control over the introduction of new taxes such as the South Australian Point of Consumption Tax, and such changes may reduce Tatts margins, turnover or both. 80 Tatts Group Limited Scheme Booklet

83 In addition to gambling taxes and levies, the rate of GST and corporate tax is determined by the Commonwealth Government. A material increase in the taxes imposed by the Commonwealth Government may increase Tatts expenses and have an adverse impact on the financial performance of Tatts. (I) INDUSTRY AND ECONOMIC CONDITIONS The performance of Tatts depends to a large extent on the level of discretionary consumer spending along with other economic factors in Australia such as economic growth, interest rates, inflation, household disposable income, tax, employment levels, consumer and business sentiment and market volatility. There can be no guarantee that the current economic environment and gambling industry conditions will remain the same. There is a risk that adverse changes to general economic or industry conditions may have an adverse impact on the financial performance of Tatts, as a consequence of the potential for customer numbers and / or spend per customer to reduce leading to a loss of revenues. Changes in government fiscal, monetary and regulatory policies could also affect the performance of Tatts. (J) LITIGATION, DISPUTES AND INVESTIGATIONS From time to time, Tatts Group Members may become involved in litigation, disputes and investigations by regulatory bodies. Litigation and disputes may be with or without merit. The costs of defending and settling legal claims can be substantial, even with respect to claims which have no merit. Any material non-compliance by Tatts with relevant regulations may result in financial penalties. Should Tatts become subject to any legal proceedings, the inherent uncertainty of the litigation process could have a material adverse effect on Tatts operational and / or financial position, through increased costs or the payment of damages. There is also the risk that Tatts reputation may suffer due to the profile of, and public scrutiny surrounding, any regulatory investigation or litigation or dispute, regardless of the outcome. (K) IMPAIRMENT RISK Tatts assesses whether there is any indication that an asset may be impaired on an ongoing basis. When an indicator of impairment exists, Tatts makes a formal estimate of the recoverable amount. When the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to the recoverable amount. Adverse outcomes of some of the risk factors listed above, as well as new developments which are not currently apparent, could trigger an impairment and have a negative impact on the reported financial results of Tatts. (L) ACQUISITIONS AND DIVESTMENTS From time to time, Tatts examines new acquisition opportunities, including the opportunity to bid for new licences both domestically and internationally, which may relate to existing businesses or new areas of operation for Tatts. There is a risk that Tatts may incur substantial costs, delays or other problems in implementing its strategy for any acquired businesses, or be unsuccessful in bidding for new businesses or licences, which could negatively impact Tatts operations, profitability and / or reputation. Tatts also pursues divestment strategies from time to time. There is a risk that the divestment of an existing business may be costly and may result in variability in earnings over time. In addition, there could be liabilities that arise in connection with businesses that Tatts may sell, which could adversely affect Tatts earnings. On 24 June 2016, Tatts sold Talarius Limited. Tatts provided warranties and undertakings customary for a trade sale. No claims have been made under the warranties and undertakings and it is not possible to determine at this point in time if any claims will be made RISKS SPECIFIC TO TABCORP SHARES Many of the risks set out in Section 13.2 apply equally to Tabcorp s businesses and will continue to be relevant to the Combined Group. (A) REGULATION AND CHANGES TO THE REGULATORY ENVIRONMENT The activities of Tabcorp are conducted in highly regulated industries. The gambling activities that members of the Tabcorp Group conduct, and will conduct, and the level of competition they face, and will face, will depend to a significant extent on: the licences granted to the Tabcorp Group and to third parties; and government policy and the manner in which the relevant governments exercise their broad powers in relation to the manner in which the relevant businesses are conducted. Changes in legislation, regulation or government policy may have an adverse impact on the Tabcorp Group s operational and financial performance. Court decisions concerning the constitutionality or interpretation of such legislation, regulations or government policy may have an effect on the operational and financial performance of the Tabcorp Group. Potential changes, which would potentially negatively affect the value of the licences granted to members of the Tabcorp Group, and potentially the Tabcorp Group s financial performance include: changes in state wagering, Keno or other gambling tax rates and levies; changes or decisions concerning race fields and sports product fees, advertising restrictions and the distribution of gambling products, including through particular channels; RISK FACTORS 81

84 changes impacting on aspects of retail exclusivity; variations to permitted deduction rates and returns to players; variations to arrangements for racing industry funding; changes to the conditions in which venues offering products of members of the Tabcorp Group must operate; the introduction of additional legislation to guard against money laundering; the introduction of further legislation to implement further responsible gambling measures, such as changes to gambling advertising laws (see for example, Section 13.2(b), above); changes or decisions by government or industry concerning wagering, Keno or other forms of gambling; and any other legislative change. Any non-renewal of licences currently held by members of the Tabcorp Group, or the issue of additional wagering, Keno or other gambling licences to third parties would potentially result in the Tabcorp Group not generating the revenue it currently generates from its licences, which could adversely impact the Tabcorp Group s financial performance and financial position. (B) DEREGULATION The rapid deregulation of the national wagering market has seen a dramatic growth in market share by the corporate bookmakers, mostly located in the Northern Territory. This rapid deregulation has the potential to have an adverse impact on the Tabcorp Group s earnings in the short term as market changes continue. Tabcorp continually adjusts its wagering business model to take account of the changed market dynamics and to mitigate the adverse consequences of deregulation. (C) COMPETITION In a broad sense, gambling activities compete with other consumer products for consumers discretionary expenditure and, in particular, with other forms of leisure and entertainment including cinema, restaurants, sporting events, the internet and pay television. More specifically, the Tabcorp Group s wagering business currently competes with bookmakers in Victoria, New South Wales, and the Australian Capital Territory, and other interstate and international wagering operators who accept bets over the telephone or internet (such as corporate bookmakers based in the Northern Territory and betting exchanges). The internet and new forms of distribution have allowed new competitors to enter the Tabcorp Group s markets of Victoria, New South Wales, and the Australian Capital Territory without those competitors being licensed in those states. Further, court decisions, a relaxation of relevant advertising laws (or the way in which they have been administered) and the increasing application of competition policy have allowed other wagering operators to gain greater freedom to compete nationally. Competition from the interstate and international operators may extend to the Tabcorp Group s retail wagering network. The Tabcorp Group s Keno and gaming businesses each face competition in their respective industries. If the Tabcorp Group does not adequately respond to the competition for consumers discretionary expenditure, including competing gambling offerings, there may be an adverse effect on the operational and financial performance of the Tabcorp Group. (D) CLUBS NSW / CROWNBET ARRANGEMENTS Clubs NSW and CrownBet have recently announced a partnership arrangement in respect of digital wagering services in New South Wales clubs. If this arrangement continues (the legality of which is currently before the Supreme Court of NSW), and individual registered clubs participate, this could potentially have a negative impact on Tabcorp s retail exclusivity in New South Wales and the way in which Tabcorp operates its business in New South Wales. There is a risk that, over time, similar arrangements could be introduced in other States and Territories in which Tabcorp operates its business. (E) RACING AND SPORTS PRODUCTS Tabcorp Group s wagering business is reliant on racing industries and sporting bodies across Australia and internationally, providing a program of events for the purposes of wagering. A significant decline in the quality or number of horses, greyhounds, or sporting contests or the number of sporting and racing events, or the occurrence of an event which adversely impacts on the racing industry or sporting events, or which otherwise disrupts the scheduled racing or sporting program (such as an outbreak of equine influenza, other animal sickness pandemics, or adverse weather conditions), would have a significant adverse effect on wagering revenue and may have an adverse effect on the operational and financial performance of the Tabcorp Group. (F) RACE FIELD AND SPORTS PRODUCT FEES Each state and territory of Australia has implemented race fields arrangements, under which each state or territory (or its racing industry) charges wagering operators product fees for use of that industry s race fields information. Consequently, the Tabcorp Group is required to pay product fees to the relevant racing controlling body. Similar arrangements exist in relation to sports and the Tabcorp Group is also required to pay product fees to sports controlling bodies. There is the potential that fees will increase, or new fees will be introduced and such fees may have an adverse effect on the operational and financial performance of Tabcorp. 82 Tatts Group Limited Scheme Booklet

85 (G) TABCORP GAMING SOLUTIONS (TGS) IS UNABLE TO RETAIN ITS CONTRACTED MACHINE BASE POST 2022 In Victoria, Tabcorp currently has some gaming machines under contract until 2018 and a majority of gaming machines under contract until As the 2018 and 2022 dates are approached, the market may become concerned about the ability for TGS to retain the Victorian earnings base and may adjust its valuation accordingly. In New South Wales, clubs have the right to exit TGS contracts at any time, without cause, upon 60 days notice and payment of TGS expenses including a pre-estimate of losses likely to be suffered by TGS. (H) SUN BETS In August 2016 Tabcorp commenced operation of the Sun Bets business, which offers online wagering, sports bookmaking and casino products to residents of the United Kingdom and Ireland. The UK and Irish gambling sector is very competitive and, to date, the Sun Bets business has performed below Tabcorp s expectations. Commentary on the financial performance of Sun Bets for FY17 is contained in Section Tabcorp is currently taking steps to restructure the business to right size it to better reflect post-launch requirements. These steps include changes to leadership, team size, systems requirements and material commercial arrangements. A number of other actions have been and will continue to be taken to position Sun Bets for improved performance. If the Sun Bets business performance does not materially improve, this would have an adverse impact on Tabcorp s earnings. No assurances can be given by Tabcorp as to the future success or profitability of the Sun Bets business nor whether the business will generate sufficient revenue to cover the minimum commitments payable by Tabcorp to News UK. These minimum fees, exclusive of UK value-added tax, are 10.1 million in FY18 39 and 15.5 million in FY19, 18.3 million in FY20 and remain steady at 21.6 million for each year thereafter for the remaining 6 years of the term. If the Sun Bets business does not achieve revenue equivalent to the minimum fees in FY19 and: the parties are unable to agree that the revenue will meet the specified minimum fees in FY20 and FY21 based on current and forecast growth rates; or the business has not met agreed brand awareness targets, then the parties must seek to renegotiate the minimum fees and marketing expenditure levels for the remainder of the term. If the parties after discussions and negotiations (in good faith) are unable to reach agreement on these matters, Tabcorp may terminate the agreement with effect from 31 December If it terminates in this scenario, then in addition to incurring costs typically associated with winding down a business, Tabcorp is also required to pay 1.5 million to News UK. The effect of the termination will be that the parties respective minimum fee payment and marketing expenditure obligations cease to apply from that date and an agreed exit plan will be enacted. At each balance date, all non-current assets are reviewed for impairment if events or changes in circumstances indicate they may be impaired. When an indicator of impairment exists, Tabcorp makes a formal assessment of its recoverable amount. An impairment loss is recognised in the income statement for the amount by which the asset s carrying amount exceeds its recoverable amount. (I) POINT OF CONSUMPTION TAX IS IMPLEMENTED WITH NEGATIVE IMPACT ON TABCORP As announced on 7 July 2016, the South Australian Government will introduce a Point of Consumption Tax (see Section 13.2(h) above). All bets placed in South Australia with Australian-based betting companies will be liable for the tax. Tabcorp has also engaged with a number of other Australian state governments regarding the introduction of similar point of consumption taxes. While Tabcorp believes that the introduction of state based point of consumption laws will have a positive impact on the Tabcorp business, it is possible that the introduction of such taxes could negatively impact the Tabcorp business. (J) SOFTER WAGERING TRENDS, PARTICULARLY IN DIGITAL Softer wagering trends may negatively impact earnings and shape market expectations of future growth. (K) SKY CHANNEL BROADCAST ARRANGEMENTS AND SATELLITE RISKS Sky Channel holds rights to broadcast various race meetings held throughout Australia and internationally. Certain of the contracts pursuant to which these broadcast rights are held have expired or will expire and new contracts are being negotiated or will require renegotiation. If, for any reason, the Tabcorp Group is unable to renegotiate any of its key broadcast arrangements or to renegotiate them on materially the same or similar terms, then this may impact the operational and financial performance of the Tabcorp Group s wagering business. There is a risk that the satellites through which Sky Channel broadcasts cannot receive or transmit signals at any particular time, thereby potentially impacting wagering and sports betting revenue. Sky Channel does not have third party insurance covering this risk as its cost is considered prohibitive, however, it has in-principle agreement and the necessary technical facilities in place, that back-up satellite access would be made available with an alternative provider. 39 All references to "FY" in this Section 13.3(h) relate to the period from 1 July to 30 June in the relevant year. RISK FACTORS 83

86 There is nevertheless still a risk of a loss of broadcast coverage if Sky Channel is required to switch from one satellite to another in the event of malfunction. (L) COMPUTER SYSTEMS AND TECHNOLOGY SECURITY RISKS The Tabcorp Group s businesses rely on the successful operation of technology infrastructure. A prolonged failure of the computer systems and / or related infrastructure or technology security failure, such as a cyber-attack, could impact upon the Group s technology systems and equipment, or result in the loss or exposure of information assets, which may potentially adversely impact the reputation, operations or financial performance of the Group. (M) COMPLIANCE RISKS Any failure by members of the Tabcorp Group to meet compliance standards, values and systems at operational levels may increase exposure to a compliance failure, potentially leading to the suspension or loss of applicable gambling licences, other civil or criminal penalties and brand damage and loss of future licence or business opportunities. (N) CUSTOMER COMPLIANCE WITH REGULATORY REQUIREMENTS Any failure by existing customers of the Tabcorp Group to satisfy or to continue to satisfy, necessary regulatory requirements, including in relation to identity verification and other background checks relating to being a registered customer of the Tabcorp Group, could impact on the operations and earnings of the Tabcorp Group. (O) BREACH OF SHAREHOLDING RESTRICTIONS Section above discusses the various shareholding restrictions in Tabcorp, which arise under legislation, requirements of various regulatory authorities or in the Tabcorp Constitution. Notwithstanding these restrictions, as Tabcorp Shares are traded on the ASX, it may not be possible for Tabcorp to prevent a person from acquiring voting power in Tabcorp in excess of the 10% limitations described in Section As discussed in Section 11.15(b), there are provisions in Tabcorp s Constitution which will enable Tabcorp, in certain circumstances, to require divestment of the offending part of a person s shareholding in Tabcorp. These provisions only operate after a breach has occurred, therefore, they do not prevent such a breach occurring. If the 10% shareholding restriction contained in the condition to the NSW Totalizator Licences (refer Section 11.15(a)) above) is breached, the NSW Racing Minister could take disciplinary action against TAB Limited under the NSW Totalizator Act. Such disciplinary action could include any one or more of a fine, the suspension or cancellation of the NSW Totalizator Licences or the amendment (or imposition of further) conditions to the NSW Totalizator Licences. The NSW Racing Minister could also direct TAB Limited to take action to rectify the relevant offending situation. Any such disciplinary action (or other direction from the NSW Racing Minister to TAB Limited) could have an adverse impact on the Combined Group s operations, financial performance and the value of Tabcorp shares. (P) DISCIPLINARY ACTION AND CANCELLATION OF LICENCES OR INABILITY TO RENEW In certain situations (including, potentially, if the Tabcorp Group fails to meet the terms and conditions of its licences or other compliance requirements), the licences and authorisations that have been granted to members of the Tabcorp Group (including the Victorian Wagering Licence, the Victorian, Australian Capital Territory, New South Wales and Queensland Keno Licences, the New South Wales and Australian Capital Territory totalizator and sports bookmaking licences and the Northern Territory sports bookmaking licence) may be suspended, terminated or cancelled. As at the date of this Scheme Booklet, no member of the Tabcorp Group has been advised or is aware of the existence of any circumstance which is likely to give rise to the termination, suspension or cancellation of any of those licences. The suspension, cancellation or termination of any of the key licences or authorisations held by a member of the Tabcorp Group, or the failure by a member of the Tabcorp Group to have any existing licence or authorisation renewed (or renewed on terms that are less favourable to the Tabcorp Group), would potentially result in a loss of revenue and profit for the Tabcorp Group, which would adversely affect the Tabcorp Group s financial performance and financial position. (Q) ACCOUNTING IMPAIRMENT At each reporting date, the Tabcorp Group assesses whether there is any indication that an asset may be impaired and, where an indicator of impairment exists, makes a formal estimate of the recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to the recoverable amount. Adverse changes in assumptions or outcomes in respect of race fields or sports product fees, retail exclusivity, competition or other risk factors, as well as new developments that are not currently apparent, could trigger an impairment and have a negative impact on the reported financial results of the Tabcorp Group. (R) FUTURE DIVIDENDS AND FRANKING CAPACITY No assurances can be given in relation to the payment of future dividends. Future determinations as to the payment of dividends by Tabcorp will be at the discretion of the directors at the time and will depend upon the availability of profits, the operating results and financial condition of Tabcorp, future capital requirements, covenants in relevant financing agreements, general business and financial conditions and other factors considered relevant by the directors. 84 Tatts Group Limited Scheme Booklet

87 No assurances can be given in relation to the level of franking of future dividends. Franking capacity will depend upon the amount of tax paid in the future, the existing balance of franking credits and other factors. (S) INVESTIGATIONS From time to time members of the Tabcorp Group (as well as its current and former officers and executives) may be subject to various investigations such as tax compliance investigations carried out by the Australian Taxation Office (ATO) or investigations carried out by other Federal or State regulatory or law enforcement bodies including the ACCC, the Australian Federal Police (AFP) and AUSTRAC. By way of example and as advised to the ASX on 15 March 2016, Tabcorp is the subject of an AFP investigation into a business opportunity which Tabcorp explored in Cambodia in Tabcorp chose not to pursue that opportunity and it was never operational. Tabcorp is continuing to cooperate fully with the AFP investigation, which is ongoing. In relation to this matter, Tabcorp notified relevant wagering and gaming regulators upon Tabcorp becoming aware of the AFP s investigation in March 2016 and there have been no adverse consequences for current licences and authorisations. The outcome of any investigation may have an adverse financial effect on Tabcorp, including, on a worst case basis, if a license or authorisation held by a member of the Tabcorp Group was suspended or terminated. Probity-related implications may also arise for Tabcorp. There is also the risk that the Tabcorp Group s reputation may further suffer due to public scrutiny surrounding any such investigations regardless of their outcome. (T) LITIGATION AND DISPUTES From time to time, members of the Tabcorp Group become involved in litigation and disputes, including with regulatory or law enforcement bodies, joint venture or other business partners and third parties. In addition to the direct costs associated with any litigation or dispute and its outcome, there is also the risk that the Tabcorp Group s reputation may suffer due to the profile and public scrutiny surrounding any such litigation and disputes regardless of their outcome. Further, there is a risk that where litigation or disputes arise between a member of the Tabcorp Group, joint venture or other business partners and third parties with whom the Tabcorp Group maintains an ongoing relationship, there may be an adverse effect on such relationships. By way of example, Tabcorp is currently involved in a confidential arbitration in which representatives of the Victorian racing industry claim the Tabcorp / VicRacing joint venture has been over-charged for the supply of Sky Racing vision. Tabcorp denies and is defending the claim. As at the date of this Scheme Booklet, no decision has been made in the arbitration. (U) DIVESTITURE OF SHARES IN SUBSIDIARIES In certain circumstances, the New South Wales Minister responsible for administering the NSW Totalizator Act (NSW Racing Minister) can compel the divestiture by relevant members of the Tabcorp Group of shares in TAB Limited. Those circumstances might include a change in the shareholders or directors of Tabcorp or in the circumstances applicable to Tabcorp. For example, if a change in the shareholders or directors or circumstances of Tabcorp were considered by the NSW Racing Minister to result in Tabcorp ceasing to be a suitable person to be associated with TAB Limited, an action by the NSW Racing Minister might result in the Tabcorp Group ceasing to own the New South Wales wagering businesses conducted by TAB Limited and its subsidiaries. The potential for the Tabcorp Group to be required to dispose of shares in the companies holding any of its businesses may have an adverse effect on the operational and financial performance of the Tabcorp Group. (V) NEW SOUTH WALES FIXED ODDS WAGERING ON RACING Tabcorp s ability to continue to offer fixed odds wagering on racing in New South Wales is subject to approval by Racingcorp Pty Limited. Withdrawal of this approval is a risk. If Racingcorp Pty Limited did withdraw its approval, this would result in a reduction in the amount of revenue and profit that the Tabcorp Group generates from fixed odds wagering on racing in New South Wales. (W) AVAILABILITY AND SERVICE OF DEBT FINANCING From time to time, the Tabcorp Group will be required to refinance its debt facilities. There is no certainty as to the availability of debt facilities or the terms on which such facilities may be provided to the Tabcorp Group in the future. The Tabcorp Group s ability to refinance its debt on acceptable terms as it becomes due or to repay the debt, its ability to raise further finance on favourable terms for its businesses and to pursue opportunities and its borrowing costs will depend on market conditions and the Tabcorp Group s future operating performance. In particular, the Tabcorp Group may incur higher interest rates and / or additional fees associated with future debt refinancing. If the Tabcorp Group is unable to refinance its debt obligations, or to do so on reasonable terms, this may have an adverse effect on the financial position and performance of the Tabcorp Group and Tabcorp s ability to meet its financial obligations. The Tabcorp Group s ability to service its debt will depend on its future financial performance and if it is unable to do so, lenders to the Tabcorp Group may act to enforce their rights against it, which may impact the Tabcorp Group s financial or operating performance. (X) EMPLOYEE MATTERS The Tabcorp Group is reliant upon a number of key senior personnel and the loss of such personnel may have an impact on the performance of the Tabcorp Group. The Tabcorp Group s continued success also depends on its RISK FACTORS 85

88 ability to attract and retain qualified and highly skilled management and personnel. As with most other businesses, from time to time it may be difficult for the Tabcorp Group to hire and retain key personnel and key Tabcorp Group personnel may be sought and hired by competitors of the Tabcorp Group. (Y) RACING QUEENSLAND ARRANGEMENTS Tabcorp and Racing Queensland Limited (RQL) have entered into a commercial arrangement, conditional on the Scheme proceeding, under which the parties give various commitments in favour of each other, including that RQL consents to the change of control which would be caused by the Scheme (as required under the deed between RQL and UBET QLD Limited). From a financial perspective, among other items, Tabcorp has guaranteed a minimum amount of fees that RQL will receive under its deed with UBET in each of the three years after Implementation. This guarantee is largely in line with Tabcorp s financial estimates of the fees that will be paid to RQL. Therefore, Tabcorp currently expects that any payments by Tabcorp to RQL under the guarantee will not be material to the Combined Group. However, to the extent that the UBET business does not perform as Tabcorp expects, or other unforeseen circumstances eventuate, then material payments may need to be made under the guarantee RISKS SPECIFIC TO THE SCHEME AND TO THE CREATION OF THE COMBINED GROUP (A) UNCERTAIN EXACT VALUE OF THE SCHEME CONSIDERATION As at 7 September 2017, being the last practicable Trading Day prior to the date of this Scheme Booklet, the implied value of the Scheme Consideration was $3.66 per Tatts Share (based on a Tabcorp share price of $4.04 as at close of trading on 7 September 2017). Based on the closing price of Tabcorp shares since the announcement of the Scheme of $ , the implied value of the consideration is approximately $ per Tatts share. Tabcorp s trading price may reflect a range of factors including but not limited to (i) uncertainty in relation to obtaining approvals to authorise the combination of Tatts and Tabcorp and (ii) realisation of synergy benefits and business improvements from the merger not currently reflected in Tabcorp s share price which may be recognised by the market over time. The implied value of the Scheme Consideration will vary over time depending on the prevailing Tabcorp share price. As a result of changes in the Tabcorp share price, the implied value of the Scheme Consideration is likely to change between the date of this Scheme Booklet, the date of the Scheme Meeting and the Implementation Date. Following Implementation, the price of the New Tabcorp Shares will rise and fall based on market conditions and the performance of the Combined Group. (B) CONDITIONS PRECEDENT The Implementation is subject to a number of Conditions Precedent, which are summarised in Section 14.2(a). The Scheme will not proceed to the Second Court Date unless the Conditions Precedent are satisfied or waived (as applicable). Given that the Conditions Precedent requiring the parties to obtain competition approval and various other regulatory approvals are yet to be satisfied, there is a risk that the Second Court Date will be delayed, which will in turn delay the Implementation Date. The Scheme will not proceed if the Conditions Precedent are not satisfied or waived (as applicable) before the End Date. The status of the Conditions Precedent as at the date of this Scheme Booklet are set out in Section 14.2(a). A failure to satisfy any of the Conditions Precedent, or a delay in satisfying the Conditions Precedent and Implementing the Scheme, may adversely affect the price of Tatts Shares or Tabcorp Shares. (C) COURT APPROVAL The Court may not approve the Scheme, either at all or in the form proposed, or the Court s approval of the Scheme may be delayed. In particular, if there is a material change in circumstances between the Scheme Meeting and the Second Court Date, the Court will take the change into account in deciding whether it should approve the Scheme. If there is a material change of sufficient importance so as to materially alter the Scheme, there is a risk that the Court may not approve the Scheme on the Second Court Date. (D) CONTRACT RISK AND THIRD PARTY CONSENTS A number of contracts to which Tabcorp and Tatts are a party contain clauses that may allow the counterparty to terminate the contract as a result of a change of control, or the issue of New Tabcorp Shares, upon Implementation. If the counterparty to any such contract were to validly terminate the contract on that basis, this may have an adverse effect on the financial performance of the Combined Group, depending on the terms of the relevant contracts. As at the date of this Scheme Booklet, Tatts has sought and obtained some, but not all, of the consents or waivers which are required in these circumstances. (E) FINANCING RISKS Implementation will trigger a right for a holder of a Tatts Bond to require redemption of their Tatts Bond at face value (together with any accrued but unpaid interest). Implementation will also trigger a right for the holder of a 86 Tatts Group Limited Scheme Booklet

89 Tatts USPP Note to require Tatts to prepay the principal amount of that Tatts USPP Note (together with accrued interest). In certain circumstances, the Combined Group may be required to make an additional payment to the holders of Tatts USPP Notes. As part of implementation, Tabcorp may also seek to align certain terms of the Tabcorp USPP Notes with those of the Tabcorp Syndicated Facility. If Tabcorp cannot reach agreement with the holders of Tabcorp USPP Notes, there is a risk that Tabcorp may need to prepay the principal amount of the Tabcorp USPP Notes (together with accrued interest) and incur other associated costs and expenses. There would be adverse financial consequences for the Combined Group if the Combined Group is not able to repay or refinance any of these amounts if they become payable. It is expected that the Tatts Bonds will remain quoted on the ASX following Implementation. (F) TAX CONSEQUENCES FOR SCHEME SHAREHOLDERS If the Scheme is Implemented, there may be tax consequences for Tatts Shareholders, including tax payable on any gain on the disposal of Scheme Shares. Tatts Shareholders should seek their own professional advice regarding the individual tax consequences applicable to them. Section 15 of this Scheme Booklet contains further information regarding the tax consequences of the Scheme, including advice from KPMG regarding the expected outcome of Tatts application to the ATO for a ruling in respect of the tax treatment of the Scheme Consideration and the Tatts Special Dividend. If the ATO s final ruling is materially different from KPMG s expectations, there may be an adverse financial impact on Tatts Shareholders. (G) INVESTMENT PROFILE The businesses of Tabcorp and Tatts are largely complementary, however the earnings mix and risk profiles of the two companies on a standalone basis are somewhat different. In FY17, approximately 63% of Tatts EBITDA on a standalone basis was derived from its lotteries business while its wagering business, which operates in a highly competitive market, accounted for approximately 22% of its EBITDA during the same period. In FY17, Tabcorp derived approximately 69% of its EBITDA from its wagering and media business, with contributions of approximately 16% from its gaming services businesses and the remainder from its Keno business. It is estimated based on FY17 Combined Group EBITDA 40 that the wagering and media business will contribute approximately 46% of the Combined Group's EBITDA, while the lotteries business will contribute approximately 31% of the Combined Group's EBITDA. While Tatts Shareholders who acquire shares in the Combined Group will share in the benefit of any synergies and business improvements realised through integrating Tatts and Tabcorp s wagering businesses while also retaining exposure to Tatts lotteries business, they will also experience an increased exposure to the highly competitive wagering markets both in Australia and the UK (through the Sun Bets business). If the Combined Group does not adequately respond to the competition which it faces, particularly in the wagering market, there may be a change in consumer spending patterns which may have an adverse effect on the operational and financial performance of the Combined Group. (H) INTEGRATION There are integration risks associated with a transaction of the size and complexity of the Transaction. Tabcorp expects that value can be added for shareholders of the Combined Group by combining Tatts complementary business with those of Tabcorp, along with Tabcorp s financial discipline and execution capabilities. The board and management of the Combined Group, not the Tatts Directors or Tatts management, will be responsible for executing integration and delivering the anticipated synergies and business improvements described in this Scheme Booklet. The risk exists that any integration or strategy implementation may take longer than expected or that the extraction of potential synergies and business improvements does not occur or may incur additional costs, which would impact the Combined Group s financial performance. Tabcorp intends to mitigate this risk through careful planning and the involvement of internal staff and external experts and consultants as required. Tabcorp s management team has a strong track record of successfully integrating significant transactions, however Tabcorp has not previously integrated a transaction of this size and has not operated a lottery business previously. Tabcorp intends to mitigate these risks by the Combined Group bringing together the best management and employee talent from each of Tatts and Tabcorp. There is a residual risk that certain key personnel may leave the Combined Group, and this may have an adverse impact on the ability to efficiently and effectively integrate Tatts and Tabcorp. Tabcorp s intentions with respect to strengthening management expertise are described in Section 12.3(c). (I) KEY PERSONNEL The success and growth strategy for Tabcorp depends on its ability to attract and retain key management and operating personnel. Both Tabcorp and Tatts have qualified and experienced management teams. The loss of any key members of these teams, or Tabcorp s inability to attract the requisite personnel with suitable experience, could have an adverse effect on Tabcorp and the performance of the Combined Group. There is no assurance as to the continued availability of any such key personnel. Following Implementation, there are likely to be a number of changes to the senior management team within the Combined Group. It may take time to recruit key staff and additional managers and could lead to a period of instability which may impact on the short term performance of the Tatts businesses, the Combined Group and execution of the strategies outlined in Section Before any pro-forma adjustments and before unallocated corporate expenses, including discontinued operations. RISK FACTORS 87

90 (J) TRADING OF TABCORP ORDINARY SHARES Should Tatts Shareholders, who are recipients of Tabcorp ordinary shares received as part of the Scheme Consideration, elect to sell significant quantities of them on market soon after the Scheme takes effect, there may be an adverse effect on the market price of the ordinary shares of the Combined Group. (K) CREDIT RISK Tabcorp currently has a BBB- credit rating (with a stable outlook) with Standard & Poor s Financial Services LLC (S&P). Following announcement of the Scheme, S&P announced that the acquisition of Tatts would not affect its rating of Tabcorp. However, changes in operating conditions could impact the financial or business risk profile of the Combined Group, with adverse implications for Tabcorp s existing rating. (L) TATTS EQUITY SWAP As set out in Section 11.13(b), Tabcorp, through its wholly-owned subsidiary, Tabcorp Investments No. 4 Pty Ltd, has entered into cash-settled equity swap arrangement with UBS AG, Australia Branch in respect of 146,705,096 Tatts Shares (Tatts equity swap). As described in Section 12.3(h), Tabcorp intends to voluntarily terminate the swap following Implementation. To the extent that the Tatts equity swap remains on foot on the Effective Date of the Scheme (being the date that Tatts Shares are suspended from trading on the ASX), pursuant to the terms of the Tatts equity swap, the referenced share under the swap will automatically be amended to refer to Tabcorp Shares, instead of Tatts Shares. If this were to occur, Tabcorp would be exposed to changes in the value of its own share price, which may have a positive or negative financial impact on the Combined Group including over the period the swap is unwound. The Tatts equity swap is scheduled to terminate on 21 November 2017 or such earlier date as agreed with UBS AG or pursuant to a voluntary termination. (M) REPUTATION Brands are key assets of Tatts and Tabcorp. Successful maintenance of the reputation and value associated with these brand names will be critical to the Combined Group s businesses and its strategy for the future. It is possible that, if the Scheme is Implemented, the strategies described in this Scheme Booklet may not be achieved, resulting in the erosion of the reputation or value associated with the brand names which, in turn, could have an adverse effect on the performance and operations of the Combined Group. Other events, including a material non-compliance with regulations, or licence terms or a breach of or failure in information and technology systems, could have an adverse impact on the Combined Group s reputation and the value of its brands and increase expenditure due to additional security costs and / or potential claims for compensatory damages. Significant disciplinary actions, the imposition of monetary fines or the loss of a licence in one jurisdiction would affect the Combined Group s reputation and adversely affect its current licences or future opportunities for licences in other jurisdictions. The consequences of such events could be significant for the Combined Group, including reduced revenues, increased expenses, loss of consumer trust in the relevant brand or products and loss of a business unit. (N) ACQUISITION AND DIVESTMENT ACTIVITIES The Combined Group may pursue acquisitions of assets that meet its investment criteria as opportunities arise and if funding is available, or may seek to divest certain of its own assets if certain circumstances or opportunities arise. Such acquisitions or divestments are likely to involve a number of risks inherent in assessing the values, strengths, weaknesses and profitability of the relevant business or assets and it is possible that unexpected problems may arise. Tatts has announced that it is in negotiations with Intralot SA in relation to the potential acquisition of this business. As at the date of this Scheme Booklet, Tatts has not entered into any binding agreement to acquire the Intralot Australian and New Zealand businesses. If a binding agreement is entered into by Tatts to acquire this business, and if the Scheme becomes Effective, then for certain regulatory reasons, it may be necessary for the Combined Group to divest the Intralot business or restructure its gaming services business (in the absence of regulatory relief being obtained). There is a risk that the Combined Group would incur a loss on the divestment OTHER RISKS (A) STOCK MARKET FLUCTUATIONS AND ECONOMIC CONDITIONS The New Tabcorp Shares, which will be issued if the Scheme is Implemented, do not carry any guarantee in respect of profitability, dividends, return of capital or the price at which they may trade on the ASX. The value of the New Tabcorp Shares will be determined by the share market and will be subject to a range of factors beyond the control of Tatts, Tabcorp, the Combined Group or any of their officers or management. These factors include the demand for and availability of Tabcorp Shares, movements in domestic interest rates, exchange rates, fluctuations in the Australian and international share markets and general domestic and economic activity. Returns from an investment in the New Tabcorp Shares may also depend on general share market conditions, as well as the performance of the Combined Group. 88 Tatts Group Limited Scheme Booklet

91 (B) GENERAL ECONOMIC CONDITIONS The performance of the Combined Group will be affected by domestic and global economic conditions. Adverse changes in macroeconomic conditions, including global and country-by-country economic growth, the costs and general availability of credit, the level of inflation, interest rates, exchange rates, government policy (including fiscal, monetary, and regulatory policies), general consumption, consumer spending and sentiment, employment levels, industrial disruption, and other conditions, are outside the control of the Combined Group and may result in material adverse impacts on the Combined Group s business and operating results. (C) CURRENCY RISK The Combined Group will derive some revenues and incur some expenditures in currencies other than its functional currency (Australian dollars). As a result of the use of these different currencies, the Combined Group is subject to foreign currency fluctuations which may materially affect its financial position and operating results. (D) EQUITY DILUTION The Combined Group may undertake offerings of equities in the future. Factors including the increase in the number of fully paid shares issued, the ability of an individual shareholder to participate in the equity offer, the issue price and the possibility of selling such equities may have an adverse effect on the financial position or voting power of any individual shareholder. (E) ACCESS TO CAPITAL The Combined Group will rely on access to debt and equity financing. The ability to secure financing, or financing on acceptable terms, may be materially adversely affected by volatility in financial markets, either globally or affecting a particular geographic region, industry or economic sector, or by a downgrade in its credit rating. For these or other reasons, financing may be unavailable or the cost of financing may be significantly increased. Such inability to obtain, or increase to the costs of obtaining, financing could materially adversely affect the Combined Group s operations or financial performance. (F) ABILITY TO SERVICE OR REFINANCE DEBT The Combined Group may become unable to service or refinance its existing debt, or obtain new debt, on acceptable terms or at all, depending on future performance and cash flows of the Combined Group which are affected by various factors, some of which are outside the Combined Group s control, such as interest and exchange rates, general economic conditions and global financial markets. If any of these scenarios materialise, the Combined Group may be unable to raise financing on acceptable terms to repay maturing indebtedness. This could adversely affect the longer term prospects and financial performance of its business. Additionally, ongoing requirements to meet debt covenants may impact the Combined Group s ability to refinance debt. (G) TAX A change to the current tax regime may affect shareholders in the Combined Group. Personal tax liabilities will be the responsibility of each investor in the Combined Group. The Combined Group will not be responsible for tax or penalties incurred by investors in the Combined Group. (H) CHANGE IN ACCOUNTING OR FINANCIAL REPORTING STANDARDS AAS are set by the AASB and are outside the Combined Group s control. Changes to accounting standards issued by AASB, or changes to any other financial reporting standards, could materially adversely affect the financial performance and position reported in the Combined Group s financial statements. (I) ADDITIONAL RISKS AND UNCERTAINTIES Additional risks and uncertainties not currently known to Tatts or Tabcorp may also have a material adverse effect on Tatts, Tabcorp or the Combined Group and the information set out above in Sections 13.2, 13.3, 13.4 and this Section 13.5, does not purport to be, nor should it be construed as representing, an exhaustive list of the risks affecting Tatts, Tabcorp or the Combined Group. RISK FACTORS 89

92 14. Implementation of the Scheme 14.1 BACKGROUND On 19 October 2016, Tatts announced that it had entered into a Merger Implementation Deed with Tabcorp, under which, subject to the satisfaction or waiver of a number of Conditions Precedent, it is proposed that Tabcorp will acquire all of the ordinary shares in Tatts pursuant to a scheme of arrangement. A summary of the key elements of the Merger Implementation Deed is set out in Section A full copy of the Merger Implementation Deed was lodged with ASX on 19 October 2016 and can be obtained from or from KEY TERMS OF THE MERGER IMPLEMENTATION DEED (A) CONDITIONS PRECEDENT The Implementation of the Scheme is subject to the satisfaction or waiver of a number of Conditions Precedent, as set out below: (i) Competition approval: Before 5.00pm on the Business Day before the Second Court Date, either: (a) Tabcorp has received, either unconditionally or on terms and conditions that are acceptable to both Tabcorp and Tatts acting reasonably, by notice in writing from the ACCC stating, or stating to the effect, that, based on the information before it and other matters noted, the ACCC does not propose to intervene or seek to prevent the acquisition of Tatts Shares by Tabcorp and that notice has not been withdrawn, revoked or amended; (b) authorisation of the acquisition of Tatts Shares by Tabcorp is granted by the Australian Competition Tribunal under Part VII of the Competition and Consumer Act (2010) (Cth) (CCA) and no application has been made for judicial review of the decision of the Tribunal within the prescribed period; or (c) the Federal Court of Australia declares or makes orders to the effect that the acquisition of Tatts Shares by Tabcorp will not contravene section 50 of the CCA. Comment On 22 June 2017 the Australian Competition Tribunal granted authorisation of the acquisition of Tatts Shares by Tabcorp. Authorisation is conditional on Tabcorp divesting its Odyssey Gaming Business (which has been agreed, conditional on the Scheme proceeding). 41 On 10 July 2017, the ACCC applied to the Federal Court of Australia for judicial review of the Australian Competition Tribunal s decision to authorise the Transaction. Separately, on 12 July 2017, CrownBet Pty Ltd also applied for judicial review of the Australian Competition Tribunal s decision. As noted in Tabcorp s ASX announcement dated 11 July 2017, the ACCC has stated that it has made its application to clarify the law as it applies to all merger and non-merger authorisations. The Full Court of the Federal Court heard both the ACCC s and CrownBet s applications for judicial review on 28 and 29 August As at the date of this Scheme Booklet, the Federal Court has not yet made a decision in respect of the applications, although Tabcorp and Tatts remain confident that the authorisation will be upheld. Tabcorp will announce to the ASX any material developments relevant to the Transaction in relation to the judicial review applications. The competition approval condition has therefore not yet been satisfied. However, as announced to ASX on 4 August 2017, Tabcorp and Tatts have agreed that the competition approval condition will be waived if the applications for judicial review of the authorisation granted by the Australian Competition Tribunal are dismissed and any appeal period has expired, such that Tabcorp remains authorised under the CCA to acquire all of the ordinary shares in Tatts. Whilst no decision has been made as at the date of this Scheme Booklet, Tatts and Tabcorp have also agreed to discuss in good faith the possibility of waiving the condition in other circumstances. (ii) Other regulatory approvals Before 5.00pm on the Business Day before the Second Court Date, Tatts and Tabcorp obtain the approval of, or consent from, each of the relevant counterparties to those registrations, contracts, licences, permits or authorisations listed in the document agreed by Tabcorp and Tatts on or about the date of the Merger Implementation Deed, either unconditionally or on terms and conditions that are acceptable to both Tatts and Tabcorp acting reasonably (and terms and conditions that do not impose unduly onerous obligations or conditions on a party, or any director or officer of a party, and which would not materially adversely affect the business of the Combined Group will be regarded as reasonable), in order to: (a) permit the appointment of the directors to the Tatts Board under clause 7.2; and (b) otherwise take all steps necessary to Implement the Scheme. Comment Tatts and Tabcorp have substantially completed the process of obtaining the necessary pre-implementation approvals of the relevant gambling regulatory authorities in relation to Tabcorp acquiring Tatts and members of the Tabcorp Group becoming associates (or equivalent under the applicable legislation) of Tatts Group members, as a result of the Scheme. As at the date of this Scheme Booklet, the only relevant regulatory 41 Further information in relation to this divestment is set out in Section 12.3(f). 90 Tatts Group Limited Scheme Booklet

93 approval which has not been received is one from South Australia. Separately, as at the date of this Scheme Booklet, Tabcorp is continuing to engage with the Northern Territory Director General of Licensing in relation to the scope of the approval issued. Tabcorp expects that these remaining approvals will be obtained before the scheduled date for the Scheme Meeting. (iii) Shareholder approval Tatts Shareholders agree to the Scheme at the Scheme Meeting by the Requisite Majorities under subparagraph 411(4)(a)(ii) of the Corporations Act. (iv) Court approval The Court approves the Scheme in accordance with paragraph 411(4)(b) of the Corporations Act. (v) Quotation of New Tabcorp Shares The New Tabcorp Shares to be issued pursuant to the Scheme are approved for official quotation by ASX by 8.00 am on the Second Court Date (provided that any such approval may be subject to customary conditions). As far as Tatts is aware, as at the date of this Scheme Booklet, no circumstances have occurred which are likely to cause any of the Conditions Precedent not to be satisfied or to become incapable of satisfaction (subject to the matters described in Section 14.2(a)(i) above). These matters will continue to be assessed until 8.00am on the Second Court Date. In the event of any material change in status, Tatts will inform Tatts Shareholders of the status of the Conditions Precedent through an announcement to ASX. (B) TATTS PERFORMANCE RIGHTS AND RESTRICTED SHARES Please refer to Section 16.2 for information regarding the intentions of Tatts in respect of the Tatts Performance Rights and Restricted Shares. Tatts currently has in place the: Tatts Group Rights Plan (adopted by Tatts Group on 26 June 2014); and Tatts Long Term Executive Performance Plan (as re-adopted on 29 September 2016), (together the Tatts Group Incentive Plans). Participants in the Tatts Group Incentive Plans are entitled to receive Tatts Performance Rights or Restricted Tatts Shares (these may be subject to a disposal restriction as determined by the Tatts Board under the Tatts Group Rights Plan) which vest in accordance with the applicable Tatts Group Incentive Plan. Subject to the Tatts Board determining that some or all of the Tatts Performance Rights will vest or be cancelled prior to the Scheme Record Date (please refer to Section 16.2), under the Merger Implementation Deed, each Tatts Performance Right which is on issue as at the Scheme Record Date will be cancelled and replaced on the Implementation Date with a grant by Tabcorp to each Tatts Performance Right holder with: a right to acquire 0.80 New Tabcorp Shares per Tatts Performance Right held (to be held on terms equivalent to those terms of issue under the Tatts Group Incentive Plan); and a payment of $0.425 cash per Tatts Performance Right held, to be held in an escrow account. This cash amount will be released from escrow on the same day as the holding lock referred to below is released. 42 The terms of issue of the New Tabcorp Shares will include that: the right will convert to a New Tabcorp Share on the same date that the Tatts Performance Right would have converted into a Restricted Share or Share under the applicable Tatts Group Incentive Plan; each New Tabcorp Share issued from Tatts Performance Rights granted under the Tatts Group Rights Plan is to be subject to a trading restriction (holding lock) for a period of two years from the date of issue Long Term Performance Rights granted under the Tatts Long Term Executive Performance Plan are not subject to a trading restriction upon grant. Accordingly each New Tabcorp Share issued from 2017 Long Term Performance Rights granted under the Tatts Long Term Executive Performance Plan will not be subject to a trading restriction; and if a Tatts Performance Right holder ceases to be employed by the Combined Group during the two year trading restriction period, the Tatts Performance Right holder will be entitled to retain the right to acquire New Tabcorp Shares. 43 Similarly, each Restricted Share on issue as at the Scheme Record Date will be acquired by Tabcorp under the Scheme in exchange for: 0.80 New Tabcorp Shares per Restricted Share which are to be issued on the Implementation Date; and a payment of $0.425 cash per Restricted Share held (less the amount of the Tatts Special Dividend) to be held in an escrow account. This cash amount will be released from escrow on the same day as the holding lock 42 If the Tatts Performance Right holder ceases to be employed by the Combined Group during the two year trading restriction period, they will be entitled to receive the cash payment (which will be retained in an escrow account for the period of the trading restriction). 43 In this case the trading restrictions will continue to apply and the Tatts Performance Right holder must continue to comply with the rules of the Tatts Group Rights Plan. IMPLEMENTATION OF THE SCHEME 91

94 referred to above is released. However, if a New Tabcorp Share issued in exchange for a Restricted Share is forfeited (pursuant to its terms of issue), the relevant shareholder is not entitled to receive the cash component which will be retained by Tabcorp. Tabcorp and Tatts will use reasonable endeavours to ensure that the shares replacing the Tatts Performance Rights and Restricted Shares to be issued as set out in this Section will be structured to match the existing Tatts Performance Rights and Restricted Shares. 44 (C) EXCLUSIVITY The Merger Implementation Deed contains certain exclusivity arrangements in favour of Tabcorp. During the Exclusivity Period, Tatts must not, and must ensure that each of its Related Persons does not (directly or indirectly): (No shop) solicit, invite, encourage, initiate any Competing Proposal or inquiry, expression of interest, offers or discussions with any person which would be reasonably expected to encourage or lead to the making of an actual or potential Competing Proposal; (No talk) participate in or engage in negotiations or discussions in relation to any inquiry, expression of interest, offers or discussions with any person which would be reasonably expected to encourage or lead to the making of an actual or potential Competing Proposal or negotiate, accept or enter into any agreement or understanding in relation to an actual or potential Competing Proposal or communicate an intention to do so; or (No due diligence) make available or disclose to a Third Party any non-public information relating to the Tatts Group. The obligations in relation to no talk and no due diligence as set out above do not prohibit any action or inaction by Tatts or any of its Related Persons in relation to any actual, proposed or potential Competing Proposal, which the Tatts Board acting in good faith determines, having regard to written advice from external legal and financial advisers, is a Superior Proposal (or which may reasonably be expected to result in the Competing Proposal becoming a Superior Proposal), provided that the Competing Proposal was not directly or indirectly brought about by, or facilitated by, a breach of Tatts exclusivity obligations set out above. (D) NOTICE OF APPROACHES Tatts must notify Tabcorp as soon as possible if it, or any of Tatts Related Persons becomes aware of any actual, proposed or potential Competing Proposal or negotiations or discussions in respect of such a proposal (or an attempt to initiate such negotiations or discussions), or the provision of non-public information concerning Tatts or its business to any Third Party (except for a Government Authority) in connection with an actual, proposed or potential Competing Proposal. In such cases, Tatts must provide the identity of the party making the proposal and the terms and conditions of the actual, proposed or potential Competing Proposal to Tabcorp. Tatts has given two such notifications to Tabcorp. 45 (E) CHANGE IN RECOMMENDATION AND MATCHING RIGHT Tatts must procure that none of the Tatts Directors change their recommendation in favour of the Scheme, recommend against the Scheme or publicly recommend an actual or potential Competing Proposal unless the Tatts Board determines that the Competing Proposal would be or would likely be a Superior Proposal and has subsequently: (i) provided Tabcorp with the terms and conditions of that Competing Proposal; and (ii) given Tabcorp 5 Business Days to match or better the terms of that Competing Proposal. (F) TABCORP - NO SHOP During the Exclusivity Period, Tabcorp must not and must ensure that each of its Related Persons does not solicit, invite, encourage, initiate any Competing Proposal or inquiry, expression of interest, offers or discussions with any person which would be reasonably expected to encourage or lead to the making of an actual or potential Competing Proposal. (G) REIMBURSEMENT FEE A Reimbursement Fee of $55 million may be payable by either Tatts or Tabcorp to the other in the circumstances set out in paragraphs (h) and (i) below. The details regarding the Reimbursement Fee are set out in full in clause 14 of the Merger Implementation Deed. This fee is strictly compensatory in nature. In respect of each of Tatts and Tabcorp, if payable, this fee is intended to reimburse the relevant party for (among other things): fees for legal, financial and other professional advice and other out of pocket expenses in relation to the Scheme, 46 reasonable opportunity costs of engaging in the Scheme and the cost of management and directors time planning and Implementing the Scheme. (H) REIMBURSEMENT FEE PAYABLE BY TATTS 44 This is required to satisfy the requirements of section 83A-130 of the Tax Act. 45 Tatts provided Tabcorp with notification on 14 December 2016 and 19 April 2017 respectively of the two proposals from the consortium which are described in more detail in Section This excludes any success fee that may be payable to an external professional adviser. 92 Tatts Group Limited Scheme Booklet

95 Tatts will not be required to pay the Reimbursement Fee to Tabcorp simply because Tatts Shareholders or the Australian Competition Tribunal does not approve the Scheme. Tatts has agreed to pay Tabcorp the Reimbursement Fee if: during the Exclusivity Period any Tatts Director withdraws or adversely changes (or qualifies) his or her support of the Scheme or recommendation that Tatts Shareholders vote in favour of the Scheme, except where: the Independent Expert concludes in the Independent Expert s Report or a supplementary report that the Scheme is not in the best interests of Scheme Shareholders; 47 or circumstances arise giving Tatts the right to terminate the Merger Implementation Deed, and Tatts has given the appropriate termination notice to Tabcorp and the Scheme does not complete; during the Exclusivity Period any Tatts Director supports or endorses a Competing Proposal (including by way of accepting or voting in respect of any Tatts Shares he or she holds) or recommends that Tatts Shareholders accept or vote in favour of a Competing Proposal; a Competing Proposal announced during the Exclusivity Period (whether or not such proposal is stated to be subject to any pre-conditions) completes within 12 months of such announcement; or circumstances arise giving Tabcorp a right to terminate the Merger Implementation Deed, and Tabcorp terminates the Merger Implementation Deed, including if Tatts fails to remedy: a material breach of the Merger Implementation Deed; or a Material Adverse Change or a Prescribed Occurrence, within 5 Business Days of being notified of same. (I) REIMBURSEMENT FEE PAYABLE BY TABCORP Tabcorp agrees to pay the Reimbursement Fee to Tatts if: circumstances arise giving Tatts the right to terminate the Merger Implementation Deed, and Tatts has given the appropriate termination notice to Tabcorp; Tabcorp materially breaches the Merger Implementation Deed and the Scheme does not complete; or Tabcorp repudiates, terminates or purports to terminate the Merger Implementation Deed (except where permitted under the Merger Implementation Deed). (J) COMPETITION APPROVAL REIMBURSEMENT FEE Tabcorp must also pay a Competition Approval Reimbursement Fee of $35 million to Tatts if: the Merger Implementation Deed is terminated by either party after an application has been made to the Australian Competition Tribunal for authorisation of the Scheme, that application has been rejected, and there is no reasonable prospect of an appeal or review succeeding; or the competition approval condition in the Merger Implementation Deed is not satisfied (or waived) by the End Date, provided that: Tatts has complied with its obligations under the Merger Implementation Deed; and Tatts has used its best endeavours to procure that the competition approval condition is satisfied. If for any reason Tatts is entitled to payment of the Reimbursement Fee from Tabcorp as well as the Competition Approval Reimbursement Fee, then Tatts will only be entitled to receive the higher of the two fees. (K) REPRESENTATIONS AND WARRANTIES Tatts and Tabcorp have given representations and warranties to the other as to information contained in this Scheme Booklet, and compliance with disclosure and other obligations, and certain other representations and warranties which are customary for a transaction of this nature. The details regarding the representations and warranties are set out in full in Schedule 1 and Schedule 2 of the Merger Implementation Deed. (L) TERMINATION Either party may terminate the Merger Implementation Deed if: (Breach of the Merger Implementation Deed) at any time prior to 8.00am on the Second Court Date the other party has materially breached the Merger Implementation Deed, provided that the party entitled to terminate has given notice setting out the breach and intention to exercise its right to terminate and that breach remains unremedied within 5 Business Days (or a shorter period ending at 5.00pm on the Business Day before the Second Court Date) after the date such notice is given; (Court or Government Agency actions) at any time prior to 8.00am on the Second Court Date, the Court or another Australian Government Agency (other than the Australian Competition Tribunal) has taken action to 47 This exception does not apply if the Independent Expert's conclusion that the Scheme is not in the best interests of Scheme Shareholders is due wholly or partly to the existence of a Competing Proposal. IMPLEMENTATION OF THE SCHEME 93

96 permanently restrain or otherwise prohibit or prevent the Scheme from proceeding or has refused to do any necessary actions required to permit Implementation of the Scheme by the End Date (and such refusal is final and cannot be appealed or reviewed); (Conditions Precedent) an event occurs that prevents or would prevent any of the Conditions Precedent being satisfied as required or it becomes more likely than not that the Scheme will not become Effective by the End Date, provided that the parties have consulted in good faith to consider and agree an alternative method under which the Scheme may proceed and the parties are unable to reach agreement within 5 Business Days of becoming aware of the event or the Condition Precedent has not been waived; however a party is not entitled to terminate the Merger Implementation Deed if the relevant event is a result of that party s breach of its obligation to use reasonable endeavours to satisfy the Condition Precedent or its obligations regarding provision of certain notice to the other party (as set out fully in clause 3.2 of the Merger Implementation Deed); (Effective Date) the Effective Date for the Scheme has not occurred, or will not occur, on or before the End Date; or (Breach of representations and warranties) at any time prior to 8.00am on the Second Court Date, a party gives the other party written notice that they have breached any of their respective representations and warranties and the breach remains unremedied within 5 Business Days (or a shorter period ending at 5.00pm on the Business Day before the Second Court Date) after the date such notice is given. Tabcorp may terminate the Merger Implementation Deed if: (Material Adverse Change or Prescribed Occurrence) a Material Adverse Change or Prescribed Occurrence concerning Tatts occurs (such as an event that causes the consolidated net assets of Tatts to diminish by $600 million or more or that causes the recurring consolidated earnings of Tatts to diminish by $100 million or more) and remains unremedied for 5 Business Days (or a shorter period ending at 5.00pm on the Business Day before the Second Court Date) after Tabcorp has given written notice to Tatts setting out the relevant circumstances and its intention to exercise its termination right; or (Failure to recommend) a majority of the members of the Tatts Board: fail to recommend, withdraws or adversely changes its recommendation that Tatts Shareholders vote in favour of the Scheme; make a public statement indicating that they no longer recommend the Scheme; or make a public statement supporting or endorsing another transaction (including any Competing Proposal). Tatts may terminate the Merger Implementation Deed if: (Material Adverse Change or Prescribed Occurrence) a Material Adverse Change or Prescribed Occurrence concerning Tabcorp occurs (such as an event that causes the consolidated net assets of Tabcorp to diminish by $340 million or that causes the recurring consolidated earnings of Tabcorp to diminish by $100 million or more) and remains unremedied for five Business Days (or a shorter period ending at 5.00pm on the Business Day before the Second Court Date) after Tatts has given written notice to Tabcorp setting out the relevant circumstances and its intention to exercise its termination right; or (Failure to recommend) a majority of the members of the Tatts Board fail to recommend or withdraw their recommendation that Tatts Shareholders vote in favour of the Scheme or the Tatts Board recommends any Competing Proposal as permitted under the Merger Implementation Deed. The details regarding termination are set out in full in clause 15 of the Merger Implementation Deed KEY STEPS TO IMPLEMENT THE SCHEME (A) DEED POLL On 7 September 2017, Tabcorp executed the Deed Poll (which is attached to the Merger Implementation Deed as Attachment 2) pursuant to which Tabcorp agreed, subject to the Scheme becoming Effective, to comply with its obligations under the Scheme. A copy of the Deed Poll is provided in Annexure D. (B) COURT HEARINGS On 8 September 2017, the Court ordered that Tatts convene the Scheme Meeting to be held at the Brisbane Convention & Exhibition Centre, corner Merivale and Glenelg Streets, South Bank, Brisbane, Queensland on Wednesday, 18 October 2017 commencing at 10.00am (Brisbane time) for the purposes of considering the Scheme. The order of the Court convening the Scheme Meeting is not, and should not be treated as, an endorsement by the Court of, or any other expression of opinion by the Court on, the Scheme. If the Scheme is approved by the Requisite Majorities of Tatts Shareholders at the Scheme Meeting, Tatts will apply to the Court (on the Second Court Date) for an order approving the Scheme. The Court has discretion as to whether to grant the orders approving the Scheme, even if the Scheme is approved by the Requisite Majorities of Tatts Shareholders. The Second Court Date is expected to be held on the Business Day following the Scheme Meeting, though a later date may be sought. Any change to this date will be announced on the ASX and notified on Tatts website ( (C) ACTIONS BY TATTS AND TABCORP 94 Tatts Group Limited Scheme Booklet

97 If the Court order approving the Scheme is obtained, the directors of each of Tatts and Tabcorp will take or procure the taking of the steps required for the Scheme to proceed. In particular, Tatts will lodge with ASIC copies of the Court order under section 411 of the Corporations Act, approving the Scheme and the Scheme will become Effective. This is expected to occur on the Business Day following the Second Court Date. (D) SUSPENSION OF TRADING OF TATTS SHARES If the Scheme is Implemented, it is expected that the suspension of trading in Tatts Shares will occur from the close of trading on the Effective Date (which is expected to be the Second Court Date or the Business Day following the Second Court Date). (E) NEW TABCORP SHARES TO TRADE ON DEFERRED SETTLEMENT BASIS Tabcorp will seek confirmation from ASX that, as from the Business Day after the Effective Date (or such later date as ASX requires), the New Tabcorp Shares to be issued as part of the Scheme Consideration will be listed for quotation on the official list of ASX. The New Tabcorp Shares issued as part of the Scheme Consideration are expected to commence trading on the ASX, initially on a deferred settlement basis and, with effect from the first Business Day after the Implementation Date (or such later date as ASX requires), on an ordinary settlement basis. The exact number of New Tabcorp Shares to be issued to each Scheme Shareholder will not be known until after the Scheme Record Date and will not be confirmed to each Scheme Shareholder until they receive their holding statements following the Implementation Date. It is the responsibility of each Scheme Shareholder to confirm their holdings of New Tabcorp Shares before they trade them to avoid the risk of committing to sell more than will be issued to them. Tatts Shareholders who sell New Tabcorp Shares before they receive their holding statements or confirm their holdings of New Tabcorp Shares do so at their own risk. Neither Tatts nor Tabcorp takes any responsibility for such trading. (F) DETERMINATION OF WHO IS ENTITLED TO RECEIVE TATTS SPECIAL DIVIDEND Tatts Shareholders who are on the Tatts Share Register as at 7.00pm (Brisbane time) on the Tatts Special Dividend Record Date, will be entitled to receive the Tatts Special Dividend. The Tatts Special Dividend will only be paid if the Scheme becomes Effective. (G) DETERMINATION OF WHO ARE SCHEME SHAREHOLDERS For the purposes of establishing the identity of Scheme Shareholders, dealings in Tatts Shares will be recognised by Tatts if: in the case of dealings of the type to be effected on CHESS, the transferee is registered in the Tatts Share Register as the holder of the relevant Tatts Shares on or before the Scheme Record Date; and in all other cases, registrable transfers or transmission applications in respect of those dealings are received at the place where the Tatts Share Register is kept by 4.00pm (Brisbane time) on the Scheme Record Date (in which case Tatts must register such transfers before 7.00pm (Brisbane time) on that day), and Tatts will not accept for registration, or recognise for the purpose of establishing who are Scheme Shareholders, any transmission application or transfer in respect of Tatts Shares received after such times on the Scheme Record Date. Tatts will, until the Scheme Consideration has been paid and Tabcorp has been entered in the Tatts Share Register as the holder of all of the Scheme Shares, maintain the Tatts Share Register on this basis and the Tatts Share Register in this form, and the terms of the Scheme will solely determine entitlements to the Scheme Consideration. (H) FRACTIONAL ENTITLEMENTS AND SHARE SPLITTING OR DIVISION If the number of Scheme Shares held by a Scheme Shareholder as at the Scheme Record Date is such that the aggregate entitlement of the Scheme Shareholder to Scheme Consideration comprises: New Tabcorp Shares such that a fractional entitlement to a New Tabcorp Share arises; or cash, such that a fractional entitlement to a cent arises, then the entitlement of that Scheme Shareholder must be rounded up or down, with any such fractional entitlement of less than 0.5 being rounded down to the nearest whole number of New Tabcorp Shares (or cents, as applicable), and any such fractional entitlement of 0.5 or more will be rounded up to the nearest whole number of New Tabcorp Shares (or cents, as applicable). If Tatts and Tabcorp are each of the opinion (acting reasonably) that two or more Scheme Shareholders (each of whom holds a number of Scheme Shares which results in rounding) have, before the Scheme Record Date, been IMPLEMENTATION OF THE SCHEME 95

98 party to share splitting or division in an attempt to obtain unfair advantage by reference to such rounding, Tabcorp may require Tatts to give notice to those Scheme Shareholders: setting out their names and registered addresses as shown in the Tatts Share Register; stating that opinion; and attributing to one of them specifically identified in the notice the Scheme Shares held by all of them, and, after such notice has been given, the Scheme Shareholder specifically identified in the notice as the deemed holder of all the specified Scheme Shares will, for the purposes of the other provisions of the Scheme, be taken to hold all of those Scheme Shares and each of the other Scheme Shareholders whose names and registered addresses are set out in the notice will, for the purposes of the other provisions of the Scheme, be taken to hold no Scheme Shares. By complying with the other provisions of the Scheme relevant to the Scheme Shareholder specifically identified in the notice as the deemed holder of all the specified Scheme Shares, Tabcorp will be taken to have satisfied and discharged its obligations to the other Scheme Shareholders named in the notice under the terms of the Scheme. The details regarding fractional entitlements are set out in full in clause 4.6 of the Scheme attached as Annexure C. (I) PROVISION OF SCHEME CONSIDERATION If the Scheme becomes Effective, and by no later than the Business Day before the Implementation Date, Tabcorp must deposit (in cleared funds) an amount in Australian dollars equal to the aggregate amount of the Cash Consideration payable to each Scheme Shareholder into a trust account operated by Tatts (as trustee for the Scheme Shareholders) to be held on trust for the purpose of paying the Cash Consideration. On the Implementation Date, subject to the funds having been deposited in the manner described in the previous paragraph, Tatts will pay to each Scheme Shareholder the amount of the Cash Consideration, in Australian currency, as that Scheme Shareholder is entitled to for each Scheme Share registered in the name of that Scheme Shareholder as at the Scheme Record Date by: 48 electronic funds transfer to a bank account nominated by the Scheme Shareholder where a Scheme Shareholder has, before the Scheme Record Date, made a valid election in accordance with the requirements of the Tatts Share Registry to receive dividend payments from Tatts in that manner; or otherwise, dispatching a cheque, drawn in the name of the Scheme Shareholder, for the relevant amount in Australian currency to the Scheme Shareholder by prepaid post to their registered address (as at the Scheme Record Date). In respect of the New Tabcorp Shares which form part of the Scheme Consideration, on the Implementation Date, Tabcorp must: issue to each Scheme Shareholder (other than an Ineligible Foreign Shareholder) such number of New Tabcorp Shares as that Scheme Shareholder is entitled to as Scheme Consideration; issue to the Nominee appointed by Tabcorp such number of New Tabcorp Shares as are attributable to the Ineligible Foreign Shareholders; and procure the entry in the Tabcorp Share Register: of the name and address of each Scheme Shareholder in respect of the New Tabcorp Shares issued to them; and of the name and address of the Nominee appointed by Tabcorp in respect of those New Tabcorp Shares that would otherwise be issued to each Scheme Shareholder who is an Ineligible Foreign Shareholder. Within 5 Business Days after the Implementation Date, Tabcorp must send or procure the dispatch to each Scheme Shareholder whose New Tabcorp Shares are held on the issuer sponsored subregister of Tabcorp, or the Nominee appointed by Tabcorp (as the case may be), by prepaid post to their address (as recorded in the Tatts Share Register as at the Scheme Record Date, except in the case of the Nominee appointed by Tabcorp) of uncertificated holding statements for the New Tabcorp Shares issued to the Scheme Shareholder or the Nominee appointed by Tabcorp (as the case may be) in accordance with the Scheme. If any cheque issued to a Scheme Shareholder in the manner set out above is returned to Tatts or has not otherwise been presented for payment within six months after the date on which the cheque was presented, then Tatts may cancel that cheque. During the period of twelve months commencing on the Implementation Date, on request in writing from a Scheme Shareholder to Tatts (or the Tatts Share Registry), Tatts must reissue a cheque that was previously cancelled in accordance with the previous paragraph. (J) TATTS SHARES HELD IN JOINT NAMES In the case of Tatts Shares that are held by Scheme Shareholders in joint names: 48 The Cash Consideration payable to a Scheme Shareholder will be calculated based on the number of Tatts Shares held by such Scheme Shareholder as set out in the Tatts Share Register on the Scheme Record Date. 96 Tatts Group Limited Scheme Booklet

99 any cheque required to be paid to Scheme Shareholders will be made payable to the joint holders of those Tatts Shares; and the holding statement in respect of the New Tabcorp Shares issued to Scheme Shareholders will be issued in the names of the joint holders, and will be forwarded to the holder whose name appears first in the Tatts Share Register as at 5.00pm on the Scheme Record Date. (K) SCHEME SHAREHOLDERS WITH AN EXISTING HOLDING OF TABCORP SHARES IN A CHESS HOLDING If a Scheme Shareholder is an existing holder of both Tatts Shares and Tabcorp Shares in the same CHESS holder identification number, the standing instructions recorded in the Tatts Share Register for their Tatts Shares will apply to their New Tabcorp Shares (and any other Tabcorp Shares they hold). (L) SCHEME SHAREHOLDERS WHO DO NOT OWN TABCORP SHARES OR HAVE AN EXISTING HOLDING OF TABCORP SHARES IN AN ISSUER SPONSORED HOLDING For Scheme Shareholders who are existing holders of Tabcorp Shares in an issuer sponsored holding or who are not already a holder of Tabcorp Shares, all binding instructions or notifications between a Scheme Shareholder and Tatts (except in relation to a Scheme Shareholder s tax file number) relating to Scheme Shares including (without limitation) all instructions, notifications, or elections relating to: communications from Tatts; payments of dividends on Tatts Shares; and direct credit instructions and bank account details, will be deemed from the Record Date to be made by the Tatts Shareholder to Tabcorp, and to be a binding instruction, notification or election to, and accepted by, Tabcorp in respect of the New Tabcorp Shares issued to that Scheme Shareholder until that instruction, notification or election is revoked or amended in writing addressed to Tabcorp at the Tabcorp Share Registry. (M) INSTRUCTIONS RELATING TO TAX FILE NUMBERS Each Scheme Shareholder s instructions relating to tax file numbers and tax file number exemption disclosures, will need to be given to the Tabcorp Share Registry after New Tabcorp Shares have been issued to them. Tabcorp encourages Scheme Shareholders to therefore contact the Tabcorp Share Registry separately to provide these instructions as soon as possible after receiving their confirmations of issue of their New Tabcorp Shares. (N) INSTRUCTIONS IN RELATION TO PARTICIPATION IN ANY TATTS DIVIDEND REINVESTMENT PLAN For each Scheme Shareholder who has elected for the Tatts dividend reinvestment plan to apply to their Tatts Shares, that election is not compatible with their holding of New Tabcorp Shares and accordingly, will not be transferred to the Tabcorp Share Register. Therefore, if you would like for Tabcorp to apply its dividend reinvestment plan to your New Tabcorp Shares, you will need to contact the Tabcorp Share Registry separately to provide this instruction as soon as possible after receiving confirmation of issue of your New Tabcorp Shares. (O) INELIGIBLE FOREIGN SHAREHOLDERS Tabcorp will ensure that New Tabcorp Shares to which an Ineligible Foreign Shareholder would otherwise have been entitled (if they were a Scheme Shareholder) will be issued to the Nominee appointed by Tabcorp. Tabcorp will procure that, as soon as reasonably practicable (and in any case within no more than 15 Business Days after the Implementation Date), the Nominee: sells on the financial market conducted by ASX all of the New Tabcorp Shares issued to the Nominee in such manner, at such price and on such other terms as the Nominee reasonably determines (in good faith); and pays to Tabcorp the proceeds of sale (after deducting any applicable brokerage, stamp duty and other selling costs, taxes and charges). Promptly after the last sale of New Tabcorp Shares by the Nominee, Tabcorp will pay to each Ineligible Foreign Shareholder the proportion of the net proceeds of sale received by Tabcorp to which that Ineligible Foreign Shareholder is entitled. Neither Tabcorp nor Tatts gives any assurance as to the price that will be achieved for the sale of New Tabcorp Shares described above. The sale of the New Tabcorp Shares will be at the risk of the Ineligible Foreign Shareholder. At the absolute discretion of Tatts, Tabcorp must make payments to Ineligible Foreign Shareholders as required above: where an Ineligible Foreign Shareholder has, before the Scheme Record Date, made a valid election (through IMPLEMENTATION OF THE SCHEME 97

100 the Tatts Share Registry) to receive dividend payments by Tatts by electronic funds transfer to a bank account nominated by the Ineligible Foreign Shareholder, by paying the relevant amount in Australian currency by electronic means in accordance with that election; or by dispatching a cheque for the relevant amount in Australian currency to the Ineligible Foreign Shareholder by prepaid post to his or her registered address (as at the Scheme Record Date), such cheque being drawn in the name of the Ineligible Foreign Shareholder. If Tatts has received professional advice that any withholding or other tax is required by law to be withheld from a payment to an Ineligible Foreign Shareholder, Tatts is entitled to withhold the relevant amount before making the payment to the Ineligible Foreign Shareholder. Tatts must pay any withheld amounts to the relevant tax authorities in accordance with the applicable laws. If requested in writing by the relevant Ineligible Foreign Shareholder, Tatts will provide a receipt or other appropriate evidence of such payment to the relevant Ineligible Foreign Shareholder. (P) CIRCUMSTANCES WHERE THE ISSUE OF NEW TABCORP SHARES TO A SCHEME SHAREHOLDER WOULD RESULT IN A BREACH OF LAW OF OR A PROVISION OF THE TABCORP CONSTITUTION Where the issue of New Tabcorp Shares to which a Scheme Shareholder would otherwise be entitled under the Scheme would result in a breach of law or of a provision of the Tabcorp Constitution (see for example Section 11.15(b)), Tabcorp will on the Implementation Date: issue the maximum possible number of New Tabcorp Shares to the Scheme Shareholder without giving rise to such a breach; and to the maximum extent permitted by law, issue any further New Tabcorp Shares to which that Scheme Shareholder is otherwise entitled, to the Nominee appointed by Tabcorp. Tabcorp will procure that, as soon as practicable (and in any event not more than 15 Business Days or within such other period agreed between the relevant Scheme Shareholder and Tabcorp), the Nominee will sell those New Tabcorp Shares. The proceeds from such sale (after deduction of any applicable brokerage and other selling costs, taxes and charges) are to be remitted to the relevant Scheme Shareholders. The sale process, and the process by which Tabcorp must remit such amounts from the sale of the New Tabcorp Shares to relevant Scheme Shareholders, is equivalent to the process which applies to Ineligible Foreign Shareholders. Please refer to Section 14.3(o) above for more information RANKING OF NEW TABCORP SHARES AND ENTITLEMENT TO TABCORP DIVIDENDS The New Tabcorp Shares issued pursuant to the Scheme will rank equally in all respects with all other Tabcorp Shares on issue at the Effective Date. See Section of this Scheme Booklet for a summary of the rights and liabilities attaching to New Tabcorp Shares. 98 Tatts Group Limited Scheme Booklet

101 15. Tax Implications 15.1 INTRODUCTION (A) TAX IMPLICATIONS ADDRESSED IN THIS SECTION Tatts Group has provided below a summary of the general Australian tax consequences for Scheme Shareholders. The information contained within this summary is of a general nature only. It does not constitute specific tax advice and should not be relied upon as such. Tatts Shareholders should seek independent professional advice on the consequences of the Scheme becoming Effective, based on their particular circumstances. This summary is based on the provisions of the Tax Act as at the date of this Scheme Booklet. This summary considers the following tax implications of the Scheme: the Australian income tax implications of the Tatts FY17 Final Dividend and the Tatts Special Dividend; the Australian income tax consequences of the disposal of Tatts Shares under the Scheme; certain Australian tax implications of acquiring Tabcorp Shares; and certain stamp duty goods and services tax (GST) implications. This summary applies to Australian tax resident and non-resident shareholders who hold their shares on capital account. However, this summary will not apply to Tatts Shareholders who: hold their Tatts Shares on revenue account, as trading stock or to which the Taxation of Financial Arrangements provisions (Division 230 of the Tax Act) apply; or are financial institutions, insurance companies, partnerships, tax exempt organisations, dealers in securities or shareholders who change their tax residency while holding shares and are subject to special tax rules; or acquired their Tatts Shares because of an employee share plan and the shares are taxable under the employee share scheme rules (Division 83A of the Tax Act or former Division 13A of Part III of the Tax Act). However, the general advice provided in this Section 15 should apply to Tatts Shareholders who acquired their Tatts Shares by exercising options, where their Tatts Shares are now held as a CGT asset and are not now subject to any relevant employee share scheme rules. (B) CLASS RULING Tatts has lodged a class ruling application with the ATO seeking the Commissioner of Taxation s views on specific income tax issues for Tatts Shareholders relating to the Scheme and the Tatts FY17 Final Dividend and the Tatts Special Dividend. The class ruling has not been issued by the ATO at the date of this Scheme Booklet. When published, the class ruling will be available on the ATO s website and Tatts will make an ASX announcement in respect of its publication TATTS FY17 FINAL DIVIDEND AND TATTS SPECIAL DIVIDEND In accordance with the terms of the Merger Implementation Deed: after 31 December 2016 and before 1 July 2017, Tatts was permitted to pay a fully franked dividend in an amount not exceeding $0.095 per Tatts Share prior to the Implementation Date, and an interim dividend in the amount of $0.095 per Tatts Share was paid on 3 April 2017; and after 1 July 2017 but before 31 December 2017, Tatts is permitted to pay an additional fully franked Tatts FY17 Final Dividend in an amount not exceeding $0.08 per Tatts Share prior to the Implementation Date, and a FY17 Final Dividend in the amount of $0.08 per Tatts Share was determined on 17 August 2017 and is due to be paid on 3 October Additionally, if the Scheme becomes Effective, Tatts may pay the Tatts Special Dividend to all Tatts Shareholders on the Tatts Share Register on the Tatts Special Dividend Record Date. The Australian income tax implications for Australian resident and non-resident Tatts Shareholders to which this summary applies (and that will receive the Tatts FY17 Final Dividend and the Tatts Special Dividend) are outlined below. (A) ASSESSABILITY OF TATTS FY17 FINAL DIVIDEND AND TATTS SPECIAL DIVIDEND Tatts Shareholders who are Australian tax residents and receive the Tatts FY17 Final Dividend and the Tatts Special Dividend should include the amount of the dividend received as assessable income in their income tax return for the year in which the Tatts FY17 Final Dividend and the Tatts Special Dividend payments are received. (1) Australian resident individuals and complying superannuation entities The Tatts FY17 Final Dividend and the Tatts Special Dividend will constitute assessable income of an Australian tax resident Tatts Shareholder. Australian tax resident Tatts Shareholders who are individuals or that are complying superannuation entities should include (as applicable) the Tatts FY17 Final Dividend and the Tatts Special Dividend in their assessable income (part of this income may then be exempt to complying superannuation entities to the extent that it relates to their current pension liabilities) in the year the dividend is paid, together with any franking credit attached to that dividend. These Tatts Shareholders should be entitled to a tax offset equal to the franking credit attached to the dividend. The tax offset can be applied to reduce the tax payable on Tatts Shareholders taxable income. Where the tax offset exceeds the tax payable on Tatts Shareholders taxable income, these Tatts Shareholders should be entitled to a tax refund. TAX IMPLICATIONS 99

102 To the extent that the dividend is unfranked, a Tatts Shareholder will generally be taxed at his or her prevailing marginal rate on the dividend received with no tax offset. (2) Australian resident trusts and partnerships Tatts Shareholders who are trustees (other than trustees of complying superannuation entities) or partnerships must include the amount of the dividend together with any franking credit in determining the net income of the trust or partnership for the income year in which the dividend is paid. The applicable laws relating to the treatment of dividends, and in particular franked dividends, for trusts and partnerships are complex but, providing that certain conditions are satisfied, both the liability to pay tax on the dividend (and any franking credits) and the tax offset provided by any franking credits can flow through to the beneficiaries or partners. (3) Non-Australian resident individuals and corporate Tatts Shareholders Dividends paid to a Tatts Shareholder who is a non-resident of Australia should not be subject to Australian dividend withholding tax to the extent that the Tatts FY17 Final Dividend and Tatts Special Dividend have been franked or, if unfranked, the dividends have been declared to be conduit foreign income. To the extent that the Tatts FY17 Final Dividend or Tatts Special Dividend is unfranked and has not been declared to be conduit foreign income, Australian dividend withholding tax will be required to be withheld by Tatts on behalf of that Tatts Shareholder at a rate not exceeding 30%. Dividend withholding tax may be reduced under an applicable double taxation agreement which Australia has with certain treaty countries. (4) Shares held at risk The benefit of franking credits can be denied where a Tatts Shareholder is not a qualified person. In this case the Tatts Shareholder will not need to include an amount for the franking credits in their assessable income and will not be entitled to a tax offset. Broadly, to be a qualified person, two tests must be satisfied: the holding period rule; and the related payment rule. Under the holding period rule, a Tatts Shareholder will be required to hold shares at risk for more than 45 days continuously (measured as the period commencing the day after the Tatts Shares were acquired and ending on the 45th day after the Tatts Shares become ex-dividend) in order to qualify for franking benefits, including franking credits. This holding period rule is subject to certain exceptions, including where the total franking offsets of an individual in a year of income do not exceed $5,000. Special rules apply to trusts and beneficiaries. Under the related payment rule, a different testing period applies where the Tatts Shareholder has made, or is under an obligation to make, a related payment in relation to the Tatts FY17 Final Dividend and Tatts Special Dividend. The related payment rule requires the Tatts Shareholder to have held the Tatts Shares at risk for the continuous 45 day period as above but within the limited period commencing on the 45th day before, and ending on the 45th day after, the day the Tatts Shares become ex-dividend. Tatts Shareholders should seek professional advice to determine if these requirements, as they apply to them, have been satisfied. (5) Dividend washing Dividend washing is a practice through which taxpayers seek to claim two sets of franking credits by selling shares held on the ASX and then effectively repurchasing the same parcel of shares on a special ASX trading market. The timing of this transaction occurs after the taxpayer becomes entitled to the dividend but before the official record date for dividend entitlements. Where applicable, no tax offset is available (nor is an amount required to be included in your assessable income) for a dividend received on the parcel of shares purchased on the special ASX trading market. Tatts Shareholders should consider the impact of these changes having regard to their own personal circumstances DISPOSAL OF TATTS SHARES If the Scheme is Implemented, Tabcorp will acquire all of the Tatts Shares and Tatts Shareholders will receive Share Consideration of 0.80 Tabcorp Shares per each Tatts Share held (please refer to Section 4 of this Scheme Booklet). In addition, Tatts Shareholders will receive Cash Consideration of $0.425 per Tatts Share (adjusted for the amount of any Tatts Special Dividend paid to Tatts Shareholders). (A) AUSTRALIAN TAX RESIDENTS (1) Australian capital gains tax (CGT) The disposal of Tatts Shares by a Tatts Shareholder who is an Australian tax resident will constitute a CGT event for Australian income tax purposes. The CGT event should occur when the change of ownership of the Tatts Shares occurs, i.e. on the Implementation Date. 100 Tatts Group Limited Scheme Booklet

103 Tatts Shareholders will: make a capital gain if the capital proceeds from the disposal of their Tatts Shares are greater than the cost base of the Tatts Shares (subject to the application of partial rollover relief discussed below); or make a capital loss if the capital proceeds from the disposal of their Tatts Shares are less than the cost base of their Tatts Shares. Tatts Shareholders who make a capital gain on disposal of their Tatts Shares will be required to include the net capital gain (if any) for the income year in their assessable income (except where the Tatts Shareholders are pre-cgt Tatts Shareholders, i.e. Tatts Shareholders who have held, or are deemed to have held, their Tatts Shares since prior to 20 September 1985, in which case any such capital gain would be disregarded). Specific CGT rollover provisions are relevant to the Scheme. These are outlined in Section 15.3(b) below. (2) Capital proceeds The capital proceeds for the CGT event arising from the disposal of Tatts Shares under the Scheme should include the Scheme Consideration. As such, the value of the capital proceeds should consist of the Cash Consideration received under the Scheme and the market value of the property received in the form of Tabcorp Shares. An issue arises as to whether the payment of the Tatts FY17 Final Dividend and the Tatts Special Dividend also form part of the capital proceeds from the disposal of Tatts Shares by Tatts Shareholders pursuant to the Scheme. Whether the Tatts FY17 Final Dividend and the Tatts Special Dividend are considered to form part of the capital proceeds from the disposal of the Tatts Shares forms part of the class ruling application. Based on the facts and circumstances of the Scheme, it is expected that neither the Tatts FY17 Final Dividend nor the Tatts Special Dividend will constitute capital proceeds from the disposal of the Tatts Shares. Consequently, the capital proceeds should be equal to the Scheme Consideration (being 0.80 Tabcorp Shares for each Tatts Share plus cash consideration of $0.425 per Tatts Share, reduced by the amount of the Tatts Special Dividend paid). (3) Cost base The cost base and reduced cost base of Tatts Shares will generally include the amount paid to acquire the Tatts Shares and the market value of any property given to acquire the Tatts Shares, plus any incidental costs of acquisition (e.g. brokerage fees and stamp duty). The cost base of each Tatts Share will depend on the individual circumstances of each Tatts Shareholder. Tatts Shares acquired in different transactions may have different cost bases and therefore capital gains may arise in respect of some Tatts Shares while capital losses may arise in respect of other Tatts Shares. (4) Indexation Tatts Shareholders who acquired their Tatts Shares at or before am on 21 September 1999 and have held their Tatts Shares for at least 12 months can choose to increase the cost base of their Tatts Shares for indexation based on the CPI movement from the date of acquisition of the Tatts Shares to 30 September Tatts Shareholders who choose to apply indexation forego the opportunity to apply the CGT discount, where it might otherwise be available (please refer to Section 15.3(a)(5)). In addition, indexation does not apply to a reduced cost base. This means that indexation cannot apply to increase the amount of a capital loss. (5) CGT discount Generally, Tatts Shareholders who are individuals, trusts, and complying superannuation funds that have held Tatts Shares for at least 12 months at the time of disposal should be entitled to the CGT discount in calculating the amount of capital gain on disposal of their Tatts Shares. The CGT discount is applied after available capital losses have been offset to reduce the capital gain. The applicable CGT discount which would reduce a capital gain arising from the disposal of Tatts Shares is as follows: 50% for individuals and trusts; and 33⅓% for a complying superannuation fund. As the rules relating to discount capital gains for trusts are complex, Tatts Group recommends that Tatts Shareholders who are trustees seek their own independent advice on how the CGT discount provisions will apply to them and the trust s beneficiaries. The CGT discount is not available for Tatts Shareholders that are companies. (B) SCRIP-FOR-SCRIP ROLLOVER RELIEF Tatts Shareholders who would otherwise make a capital gain on the disposal of their Tatts Shares under the Scheme may choose scrip-for-scrip rollover relief to the extent that the capital gain made on the disposal of a Tatts Share is attributable to the receipt of a New Tabcorp Share. The eligibility for scrip-for-scrip rollover relief is part of the class ruling application. TAX IMPLICATIONS 101

104 (1) Consequences of choosing scrip-for-scrip rollover relief In the event that partial CGT scrip-for-scrip rollover relief is available and has been chosen by a Tatts Shareholder, the part of the capital gain that relates to the offer consideration in the form of Tabcorp Shares (i.e. the Share Consideration) may be disregarded. Any part of the capital gain that relates to the offer consideration that is non-scrip consideration (i.e. the Cash Consideration) cannot be disregarded. Where a Tatts Shareholder has applied partial CGT scrip-for-scrip rollover relief, the cost base of the New Tabcorp Shares received as part of the Scheme Consideration should be equal to the cost base of their original Tatts Shares, reduced by an amount of the cost base that is reasonably attributable to the cash proceeds. Under the Merger Implementation Deed, the Cash Consideration component of the Scheme Consideration will be equal to $0.425 per Tatts Share, less the amount of the Tatts Special Dividend paid. The following example illustrates how the cost base of Tabcorp Shares issued under the Scheme is to be determined where scrip-for-scrip rollover relief is available to and chosen by Tatts Shareholders. Example The figures used in this example are for illustrative purposes only. Cost base of 1,000 original Tatts Shares (issued at $1 per share): = $1,000 Capital proceeds received as a result of the Scheme Consideration: = 1,000 x $4.209 = $4, made up as follows: Cash consideration $0.425 Scrip consideration $3.784* Total $4.209 Prima facie capital gain (capital proceeds less cost base): = $3, * This figure is based on 0.80 of the Tabcorp closing price at 1 December Cost base of original Tatts Shares exchanged for the cash consideration: = Original cost base x (cash consideration) / total consideration = $1,000 x ($0.425)/$4.209 = $ Cost base of New Tabcorp Shares acquired: = $1,000 - $ = $ Capital gain realised under the Scheme (in respect of the Cash Consideration): = ($0.425 x 1000) - $ = $ Capital gain deferred under the Scheme (in respect of the Share Consideration): = ($3.784 x 1000) - $ = $2, Where partial CGT scrip-for-scrip rollover relief has been chosen by a Tatts Shareholder, the Tabcorp Shares will be deemed to have been acquired at the time the Tatts Shares were originally acquired. This will be relevant for the purposes of determining eligibility for the CGT discount for a subsequent disposal of Tabcorp Shares. The benefit of choosing CGT scrip-for-scrip rollover relief will depend upon the individual circumstances of each Tatts Shareholder. (2) Choosing rollover relief Generally, a choice to adopt scrip-for-scrip rollover relief must be made by a Tatts Shareholder before lodgement of that Tatts Shareholders income tax return for the income year in which the CGT event occurs. No formal election notice to choose scrip-for-scrip rollover relief is required to be lodged with the ATO. The Tatts Shareholder s income tax return should, however, be prepared in a manner consistent with electing for scrip-forscrip rollover relief. 102 Tatts Group Limited Scheme Booklet

105 (3) Consequences of not choosing CGT scrip-for-scrip rollover relief Tatts Shareholders who are ineligible to choose CGT scrip-for-scrip rollover, or elect not to choose it, will be assessed on any capital gain derived on the disposal of their Tatts Shares. The first element of the cost base of each New Tabcorp Share received in consideration for the disposal of Tatts Shares should be equal to the market value of those Tatts Shares on the date the Tabcorp Shares are issued. The acquisition date of the New Tabcorp Share should be the issue date. This will be relevant for the purposes of determining whether a Tatts Shareholder is eligible for the CGT discount in relation to a subsequent disposal of Tabcorp Shares. (C) NON-AUSTRALIAN TAX RESIDENT TATTS SHAREHOLDERS Tatts Shareholders that are non-australian tax residents that derive a capital gain on disposal of their Tatts Shares under the Scheme would be subject to the Australian CGT rules to the extent that the Tatts Shares are characterised as taxable Australian property. Generally, these Tatts Shareholders would be subject to Australian income tax on any capital gain derived if: they (together with any of their associates) hold 10% or more of Tatts (at the time of disposal or throughout a 12 month period during the two years before disposal); the majority of Tatts assets consist of real property situated in Australia; and they do not choose scrip-for scrip rollover. Tatts Shareholders that are non-australian tax residents should seek their own independent tax advice as to the tax implications of the Scheme, including the tax implications in their country of residence GST No GST liability should arise to Tatts Shareholders on either the disposal of their Tatts Shares or on the acquisition of Tabcorp Shares under the Scheme STAMP DUTY There is no stamp duty payable by Tatts Shareholders on either the disposal of their Tatts Shares or on the acquisition of Tabcorp Shares under the Scheme. TAX IMPLICATIONS 103

106 16. Additional information This Section sets out the additional information required by section 412(1) of the Corporations Act and Part 3 of Schedule 8 of the Corporations Regulations, as well as some additional information that may be relevant to Tatts Shareholders in making a decision on how to vote at the Scheme Meeting MARKETABLE SECURITIES HELD BY OR ON BEHALF OF TATTS DIRECTORS (A) INTERESTS OF TATTS DIRECTORS IN MARKETABLE SECURITIES OF TATTS The marketable securities of Tatts which are held or controlled by Tatts Directors are listed below. Tatts Director Number of Tatts Shares Rights over Tatts Shares Harry Boon 150,000 Nil Robbie Cooke 744, , Lyndsey Cattermole 182,663 Nil Brian Jamieson 114,734 Nil Julien Playoust 25,000 Nil Kevin Seymour 14,108,306 Nil David Watson 25,000 Nil All Tatts Directors who hold Tatts Shares intend to vote in favour of the Scheme, in each case in respect of all Tatts Shares held or controlled by them in the absence of a Superior Proposal and subject to the Independent Expert continuing to conclude that the Scheme is in the best interests of Tatts Shareholders. (B) DEALINGS OF TATTS DIRECTORS IN TATTS SECURITIES No Tatts Director acquired or disposed of a Relevant Interest in any Tatts securities in the four month period ending on the date immediately prior to the date of this Scheme Booklet. (C) INTERESTS OF TATTS DIRECTORS IN MARKETABLE SECURITIES OF TABCORP No marketable securities of Tabcorp are held or controlled by Tatts Directors and no such persons are otherwise entitled to such securities as at the date of this Scheme Booklet. (D) DEALINGS OF TATTS DIRECTORS IN TABCORP SECURITIES No Tatts Director acquired or disposed of a Relevant Interest in any Tabcorp securities in the four month period ending on the date immediately prior to the date of this Scheme Booklet. Except as stated in this Section 16.1: there are no marketable securities of Tatts held by or on behalf of Tatts Directors as at the date of this Scheme Booklet; there are no marketable securities of Tabcorp held by or on behalf of Tatts Directors as at the date of this Scheme Booklet; and there has been no dealing by any of the Tatts Directors in any marketable securities of Tatts or Tabcorp in the four months preceding the date of this Scheme Booklet TATTS RESTRICTED SHARES AND PERFORMANCE RIGHTS (A) MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER FY16 PERFORMANCE RIGHTS Pursuant to the Tatts Group Rights Plan, Tatts Shareholders passed a resolution at Tatts 2016 Annual General Meeting (held on 27 October 2016) to issue 240,711 Tatts Performance Rights to Tatts Managing Director and Chief Executive Officer, Mr Robbie Cooke, as part of his at risk performance based incentive for FY16 (MD/CEO Performance Rights). The MD/CEO Performance Rights are subject to a time based hurdle and are exercisable into Restricted Shares approximately 12 months after being granted (this is expected to take place in late October 2017). The Restricted Shares are subject to a 2 year disposal restriction (Disposal Restriction Period). There are no other vesting conditions attached to the exercise of the MD/CEO Performance Rights. If the Scheme becomes Effective and the Effective Date is a date earlier than the date that is 12 months after the issue of the MD/CEO Performance Rights, the Tatts Board currently intends to waive the 12 month exercise restriction and the Disposal Restriction Period and would therefore issue 240,711 Tatts Shares to Mr Cooke immediately prior to the Effective Date (subject to receiving a notice of exercise from Mr Cooke). (B) PERFORMANCE RIGHTS GRANTED TO TATTS EMPLOYEES UNDER TATTS RIGHTS PLANS On 7 October 2016, in accordance with the Tatts Group Rights Plan, Tatts issued 227,155 Tatts Performance Rights to employees as part of their at risk performance based incentive for FY16 (2016 Performance Rights). Since that time 2,593 of the 2016 Performance Rights have been forfeited. The 2016 Performance Rights are subject to a time based hurdle, and are exercisable into Restricted Shares 12 months after the date of issue and are subject to the same 2 year Disposal Restriction Period. There are no other vesting conditions attached to the exercise of the 2016 Performance Rights. 49 Please refer to Section 16.2 for further information. 104 Tatts Group Limited Scheme Booklet

107 Subject to receipt of valid notices of exercise from participants, it is expected that 224,562 Tatts Shares will be issued in accordance with the Tatts Group Rights Plan, prior to Implementation of the Scheme. The Tatts Board currently intends to waive the Disposal Restriction Period on these Tatts Shares immediately prior to the Effective Date. On 12 April 2017, in accordance with the Tatts Long Term Executive Performance Plan, Tatts issued 352,830 Tatts Performance Rights to senior executives (excluding Mr Cooke) (2017 Long Term Performance Rights). The 2017 Long Term Performance Rights are subject to a performance condition which is measured over a 3 year performance period (1 August 2016 to 30 July 2019). The 2017 Long Term Performance Rights only vest if Tatts volume weighted average share price for the 10 trading days prior to 30 July 2019 is at or above the share price performance condition. The share price performance condition is determined by grossing up Tatts share price at the commencement of the three year performance period by the rolling compound annual growth rate returns of the ASX All Ordinaries Index over 15 years, for each year of the 3 year performance period. All of the rights will lapse if the performance condition is not satisfied. If the share price performance condition is satisfied, all of the 2017 Long Term Performance Rights will be issued. No Disposal Restriction Period applies to the 2017 Long Term Performance Rights. If the Scheme becomes Effective, and subject to obtaining any necessary approvals and the entry into an agreement between Tatts and the relevant 2017 Long Term Performance Rights holder, all of the 2017 Long Term Performance Rights on issue will be cancelled in consideration for a cash payment to each holder. The payment will be based on the value of the maximum potential entitlement of each holder (determined having regard to Tatts volume weighted average share price for the 10 trading days prior to the Effective Date) discounted to reflect the pro rata portion (approximately 1/3) of the performance period which has elapsed since the date the 2017 Long Term Performance Rights were issued. (C) RESTRICTED SHARES If the Scheme becomes Effective, the Tatts Board intends to: immediately prior to the Effective Date, waive the Disposal Restriction Period applying to Restricted Shares and release the holding lock and any other disposal restrictions on all Tatts Shares issued to Tatts employees in accordance with the terms of the Tatts Group Incentive Plans (including to Mr Cooke); and on the Effective Date, release any holding lock on Tatts Shares which are no longer subject to the Disposal Restriction Period PAYMENTS OR OTHER BENEFITS TO TATTS DIRECTORS, OFFICERS OR EXECUTIVES If the Scheme is Implemented, the Tatts Directors will cease to be directors of Tatts from the Implementation Date. The Tatts Directors (excluding Mr Boon and Mr Cooke) are entitled to a payment in consideration for the Tatts Directors agreeing to a non-compete restraint for 12 months after the Effective Date. The aggregate payment to be made to all Tatts Directors is $462,500. Each Tatts Director, with the exception of Mr Boon and Mr Cooke, is therefore entitled to a non-compete payment of $92,500, which is payable upon Implementation. Mr Harry Boon, Tatts current Chairman, has been invited to join the board of the Combined Group if the Scheme is Implemented. As a non-executive director of the Combined Group, Mr Boon will be entitled to receive non-executive director s remuneration 50 for his services and will be entitled to enter into a deed of access, indemnity and insurance with the Combined Group. If the Scheme is Implemented, Mr Cooke will cease employment with Tatts and will be entitled to a payment of 12 months fixed annual remuneration in lieu of notice 51 and accrued statutory leave entitlements ordinarily payable by Tatts when an employee is terminated by reason of redundancy. Mr Cooke is also eligible to be considered for a variable incentive payment for FY18. The maximum variable incentive amount to which Mr Cooke may be entitled for FY18 is $2,091,000, with any amount actually awarded to be determined in accordance with Mr Cooke s employment contract, at the discretion of the Board and by reference to the achievement of performance measures set by the Board. The proposed treatment of Tatts Performance Rights held by Mr Cooke is set out in Section As disclosed in Tatts' 2017 Annual Report, prior to entering into the Merger Implementation Deed with Tabcorp, the Tatts Board determined to offer retention arrangements to approximately 470 team members, including eleven officers and executives (Executives). A maximum total retention pool of $20.5 million was approved by the Tatts Board. For Executives, the retention arrangements comprise of the payment of a percentage of the Executive s then current fixed annual remuneration, ranging from 40% to 120% of the Executive s then current fixed annual remuneration. The retention payments will be paid 90 days after the Implementation Date, or an earlier date agreed to by both Tatts and Tabcorp (Retention Payment Date), provided that the Executive remains an employee of and has not resigned from the Combined Group prior to the Retention Payment Date for that Executive. Assuming that all Executives offered retention arrangements were paid the retention arrangements, the Combined Group would pay an aggregate amount of approximately $6.4 million. 50 Non-executive directors of Tabcorp receive base Board fees of $145,000 per annum and additional fees for membership of Tabcorp Board committees. 51 Mr Cooke will be paid $2,091,000 in lieu of notice. ADDITIONAL INFORMATION 105

108 If the Scheme is Implemented, the senior management of the Combined Group will be determined by the board of the Combined Group as soon practicable after the Implementation Date. If Executives of Tatts cease to be employees of the Combined Group, those Executives will be paid termination entitlements in accordance with the terms of their employment contracts. Termination entitlement payments for Tatts Executives comprise accrued statutory entitlements as well as payments equal to between 6 and 12 months fixed annual remuneration at the time of redundancy PAYMENTS OR OTHER BENEFITS TO CERTAIN PERSONS BY TABCORP Except as set out below or otherwise disclosed in this Scheme Booklet, there is no payment or other benefit that is proposed to be made or given: to any Tatts Director or proposed director of Tabcorp to induce them to become, or to qualify as, a director of the Combined Group; or for services provided by any Tatts Director or person named in Sections 10.2(d) and 10.2(e) in connection with the formation or promotion of the Combined Group or the offer of New Tabcorp Shares under the Scheme CREDITORS OF TATTS GROUP The Scheme will not affect the interests of creditors of Tatts. No new liability in respect of the Scheme will be incurred by Tatts other than the costs of Implementation of the Scheme. Tatts has paid and is paying all its creditors within normal terms of trade. It is solvent and is trading in an ordinary commercial manner NO UNACCEPTABLE CIRCUMSTANCES The Tatts Directors do not believe that the Scheme involves any circumstances in relation to the affairs of Tatts that could reasonably be characterised as constituting unacceptable circumstances for the purposes of section 657A of the Corporations Act ASX WAIVERS ASX has granted Tatts a waiver from ASX Listing Rule 6.23, which provides that a change which has the effect of cancelling an option (which would include any of the Tatts Performance Rights) for consideration can only be made if holders of ordinary securities approve the change, to the extent necessary to allow Tatts to permit the treatment of the Tatts Performance Rights as set out in Section INTERNATIONAL OFFER RESTRICTIONS This Scheme Booklet does not constitute an offer of shares in any jurisdiction in which it would be unlawful. In particular, this Scheme Booklet may not be distributed to any person and the New Tabcorp Shares may not be offered or sold, in any country outside Australia, except to the extent provided below. (A) CANADA The Transaction relates to the shares of an Australian company and is being made by means of a scheme of arrangement provided for and governed under Australian company law. A transaction effected by means of a scheme of arrangement is not subject to the takeover bid rules or the proxy solicitation rules of applicable Canadian securities laws. Accordingly, the Transaction is subject to the disclosure requirements, rules and practices applicable in Australia to schemes of arrangement, which differ from the requirements of applicable Canadian law. The New Tabcorp Shares issued pursuant to the Transaction are expected to be issued in reliance upon an exemption from the prospectus requirements of applicable Canadian securities laws for the issuance of securities under a statutory arrangement and accordingly will be subject to restrictions on re-sale under Canadian securities laws and may only be re-sold pursuant to an available exemption from such restrictions. Each Canadian holder of Tatts Shares is urged to consult such shareholder s independent professional advisers regarding such re-sale restrictions and applicable Canadian federal and provincial tax consequences of the Scheme applicable to such shareholder. (B) FINLAND This Scheme Booklet is being issued in Finland in circumstances which do not require the publication of a prospectus within the meaning of Prospectus Directive. Accordingly, the Finnish Financial Supervisory Authority has not reviewed the contents of this Scheme Booklet and is not responsible for the accuracy of the information represented therein. For the purposes of this provision, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including Amending Directive 2010/73/EU), and includes any relevant implementing measures in the Relevant Member State. (C) FRANCE This Scheme Booklet is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L of the French Monetary and Financial Code (Code monétaire et financier) and Articles et seq. of the General Regulation of the French Autorité des marchés financiers (AMF). The New Tabcorp Shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. 106 Tatts Group Limited Scheme Booklet

109 This Scheme Booklet and any other material relating to the Scheme have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed (directly or indirectly) to the public in France. The New Tabcorp Shares will only be made available pursuant to the Scheme in France to (i) persons providing investment management services to third parties; (ii) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L II-2 and D of the French Monetary and Financial Code and any implementing regulation and / or (iii) a restricted number of non-qualified investors (cercle restreint d investisseurs) acting for their own account, as defined in and in accordance with Articles L II-2 and D.411-4, of the French Monetary and Financial Code and any implementing regulation. Pursuant to Article of the General Regulation of the AMF, to the extent applicable, investors in France are informed that (i) no prospectus has been submitted to the approval of the AMF; (ii) the investors, acquiring New Tabcorp Shares pursuant to the Scheme in the context of Articles L II-2 of the French Monetary and Financial Code may only do so on their own account and under the conditions set out in Articles D.411-1, D , D , D.744-1, D754-1 and D of the French Monetary and Financial Code; and (iii) the New Tabcorp Shares cannot be distributed (directly or indirectly) to the public otherwise than in accordance with Articles L.411-1, L.411-2, L and L to L of the French Monetary and Financial Code. (D) GERMANY This Scheme Booklet does not constitute a prospectus within the meaning of section 3 of the German Securities Prospectus Act (as amended) (Wertpapierprospektgesetz WpPG), and has not been prepared in accordance with EU and other prospectus regulation applicable in Germany and a copy has not been, and will not be, approved by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht). This Scheme Booklet does not constitute or form part of an offer to the public to sell or issue any security under the meaning of the WpPG or any other law applicable in Germany, and does not constitute or form part of an invitation or offer to buy any security under the meaning of the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz) or any other law applicable in Germany. This Scheme Booklet should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in Germany, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this document comes should inform themselves about and observe any applicable restrictions. (E) HONG KONG The contents of this Scheme Booklet have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the Scheme. If you are in any doubt about any of the contents of this Scheme Booklet, you should obtain independent professional advice. (F) JAPAN The New Tabcorp Shares have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (FIEA). The New Tabcorp Shares may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except (i) pursuant to an exemption from the registration requirements of the FIEA and (ii) otherwise in compliance with the FIEA and other relevant laws, regulations and governmental guidelines of Japan. (G) MALAYSIA The New Tabcorp Shares are only issued to the existing Tatts Shareholders on the basis that the issue of the New Tabcorp Shares falls within one or more of the exempted categories listed under Schedules 6 and 7 or Sections 229(1)(b) and 230(1)(b) of the CMSA. If any New Tabcorp Shares are issued to you pursuant to the Scheme, you are solely responsible for seeking appropriate advice and for compliance with all applicable laws and requirements (as may be applicable to your particular individual circumstances). (H) THE NETHERLANDS This Scheme Booklet does not constitute a prospectus within the meaning of article 5:2 of the Dutch Financial Supervision Act (as amended) (Wet op het financieel toezicht,- DFSA), and has not been prepared in accordance with EU and other prospectus regulation applicable in The Netherlands and a copy has not been, and will not be, filed with or approved by The Netherlands Authority for the Financial Markets (Stichting Autoriteit Financiële Markten). This Scheme Booklet contains no offer to the public of securities under the meaning of the DFSA or otherwise and does not constitute an invitation or offer to sell or the solicitation of an invitation or offer to buy any security except in reliance upon an exemption from the obligation to publish an (approved) prospectus in accordance with applicable laws or regulations. This Scheme Booklet should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in The Netherlands, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this document comes should inform themselves about and observe any applicable restrictions. ADDITIONAL INFORMATION 107

110 (I) NEW ZEALAND Tabcorp is entitled to offer the Scrip Consideration to New Zealand Tatts Shareholders pursuant to the New Zealand Financial Markets Conduct (Incidental Offers) Exemption Notice (J) SINGAPORE This Scheme Booklet is personal to you and may not be shared with anyone else. Neither this Scheme Booklet nor any copy of it may be taken or transmitted into any country where the distribution or dissemination is prohibited. This Scheme Booklet is being furnished to you on a confidential basis and solely for your information and may not be reproduced, disclosed, or distributed to any other person. The information, tools and materials represented in this Scheme Booklet are provided to you for information purposes only, and on the basis that you are an existing Tatts Shareholder. In the event that you are not an existing Tatts Shareholder, please return this Scheme Booklet immediately. Nothing in this Scheme Booklet constitutes investment, legal, accounting or tax advice or a representation that your voting in favour of the Scheme is suitable or appropriate to your individual circumstances or otherwise constitutes a personal recommendation to you. This Scheme Booklet and any other document or material relating to New Tabcorp Shares have not been, and will not be, lodged or registered as a prospectus in Singapore with the Monetary Authority of Singapore and the offering made under this Scheme Booklet is not regulated by any financial supervisory authority pursuant to any legislation in Singapore. Accordingly, this Scheme Booklet and any other document or materials in connection with the offer or sale, or invitation for subscription or purchase, of Tabcorp Shares, may not be issued, circulated or distributed, nor may Tabcorp Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore except pursuant to and in accordance with exemptions in the Securities and Futures Act, Chapter 289 of Singapore (SFA), or as otherwise pursuant to, and in accordance with the conditions of any other applicable provisions of the SFA. Any offer is not made to you with a view to New Tabcorp Shares being subsequently offered for sale to any other party. There may be on-sale restrictions in Singapore that may be applicable to investors who acquire New Tabcorp Shares. As such, you are advised to acquaint yourself with the SFA provisions relating to resale restrictions in Singapore and comply accordingly. (K) SWEDEN This Scheme Booklet is being issued in Sweden in the circumstances which do not require the publication of a prospectus within the meaning of Prospectus Directive. Accordingly, the Swedish Financial Supervisory Authority has not reviewed the contents of this Scheme Booklet and is not responsible for the accuracy of the information represented therein. For the purposes of this provision, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including Amending Directive 2010/73/EU), and includes any relevant implementing measures in the Relevant Member State. (L) TAIWAN The issue of New Tabcorp Shares as described in this Scheme Booklet have not been and will not be registered with the Financial Supervisory Commission of Taiwan, the Republic of China pursuant to relevant securities laws and regulations and the New Tabcorp Shares may not be offered or sold in Taiwan, the Republic of China through a public offering or in circumstance which constitutes an offer within the meaning of the Securities and Exchange Act of Taiwan, the Republic of China that requires a registration or approval of the Financial Supervisory Commission of Taiwan, the Republic of China. No person or entity in Taiwan, the Republic of China has been authorised to offer or sell the New Tabcorp Shares in Taiwan, the Republic of China. (M) THAILAND The offering of New Tabcorp Shares in Thailand is being made pursuant to the Notification of the Securities and Exchange Commission No. GorJor. 2/2015 entitled Exceptions of Submission of Registration Statement for Offering of Shares issued by a Foreign Company and Considered an Offering by way of Private Placement. The issuer may offer or sell the shares in Thailand only to (i) a maximum of 50 investors during any twelve-month period; or (ii) institutional investors. (N) UNITED ARAB EMIRATES This Scheme Booklet is strictly private and confidential and is being distributed only to Tatts Shareholders with a registered address in the United Arab Emirates (UAE). It must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. By receiving this Scheme Booklet, the person or entity to whom it has been issued understands, acknowledges and agrees that neither this Scheme Booklet (nor the securities to which it relates) have been approved, filed or registered with the UAE Central Bank, the UAE Securities and Commodities Authority or any other relevant authorities in the UAE. No marketing or any financial products or services has been or will be made from within the UAE. This does not constitute a public offer of securities in the UAE under Federal Law No.2 of 2015 concerning Commercial Companies (as amended) or otherwise. (O) UNITED KINGDOM This Scheme Booklet does not constitute a prospectus within the meaning of section 85 of the Financial Services 108 Tatts Group Limited Scheme Booklet

111 and Markets Act 2000 (as amended) (FSMA), and has not been drawn up in accordance with the Prospectus Rules published by the Financial Conduct Authority (FCA) and a copy has not been, and will not be, approved or filed with the FCA. This document contains no offer to the public under the meaning of FSMA, the UK Companies Act 2006 or otherwise and does not constitute an invitation or offer to sell or the solicitation of an invitation or offer to buy any security. If you are in any doubt as to the content of this Scheme Booklet or as to what action you should take, you are recommended to seek your own personal financial advice immediately from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under FSMA if you are resident in the UK or, if not, from another appropriately authorised independent financial adviser. This Scheme Booklet should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the UK, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Scheme Booklet comes should inform themselves about and observe any applicable restrictions. (P) UNITED STATES OF AMERICA The Transaction relates to the shares of an Australian company and is being made by means of a scheme of arrangement provided for and governed under Australian company law. A transaction effected by means of a scheme of arrangement is not subject to the tender offer rules or the proxy solicitation rules under the US Exchange Act. Accordingly, the Scheme is subject to the disclosure requirements, rules and practices applicable in Australia to schemes of arrangement, which differ from the disclosure requirements of US proxy solicitation or tender offer rules under the US Exchange Act. If, in the future, Tabcorp exercises the right to implement the Transaction by way of a takeover offer and determines to extend the offer into the US, the Transaction will be made in compliance with applicable US securities laws and regulations, including the applicable US Exchange Act tender offer rules. Financial information included in this document has been prepared in accordance with, where relevant, AAS (including the Australian Accounting Interpretations), issued by the AASB which are consistent with International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board and may not be comparable to financial information of US companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the US. It may be difficult for US holders of Tatts Shares to effect service of process within the US on Tabcorp, Tatts and / or any of their respective officers and directors or to enforce their rights and any claims arising out of US federal securities laws, since Tabcorp and Tatts are located in a non-us jurisdiction, and some or all of their officers and directors may be residents of a non-us jurisdiction. US holders of Tatts Shares may not be able to sue a non-us company or its officers or directors in a non-us court for violations of the US securities laws. Further, it may be difficult to compel a non-us company and its affiliates to subject themselves to a US court s judgement. This Scheme Booklet does not constitute an offer of securities for sale in the US or an offer to acquire or exchange securities in the US. The New Tabcorp Shares have not been and will not be registered under the US Securities Act or under the securities laws of any state or other jurisdiction of the US. Accordingly, the New Tabcorp Shares may not be offered, sold, resold, delivered, distributed or otherwise transferred, directly or indirectly, in or into the US absent registration under the US Securities Act or an exemption therefrom. The New Tabcorp Shares issued pursuant to the Scheme are expected to be issued in reliance upon the exemption from the registration requirements of the US Securities Act provided by Section 3(a)(10) thereof. For the purposes of qualifying for such exemption, Tatts will advise the Court that its sanctioning of the Scheme will be relied upon by Tabcorp as an approval of the Scheme following a hearing on its fairness to Tatts Shareholders. Each US holder of Tatts Shares is urged to consult his or her independent professional adviser immediately regarding the US federal, state and local and non-us tax consequences of the Scheme applicable to him CONSENTS (A) CONSENT TO BE NAMED The following parties have given and have not, before the time of registration of this Scheme Booklet by ASIC, withdrawn their written consent to be named in this Scheme Booklet in the form and context in which they are named: Tabcorp as the acquirer of Tatts Shares pursuant to the Scheme; Grant Samuel as the Independent Expert; PwC Securities Ltd as the Investigating Accountant; PwC as Tatts auditor; Ernst & Young as Tabcorp s auditor; Goldman Sachs as financial adviser to Tatts; Clayton Utz as legal adviser to Tatts; ADDITIONAL INFORMATION 109

112 KPMG as the author of Section 15; Computershare Investor Services as the Tatts Share Registry; and Link Market Services as the Tabcorp Share Registry. (B) CONSENT TO BE NAMED AND TO THE INCLUSION OF INFORMATION Tabcorp has given and has not, before the date of this Scheme Booklet, withdrawn its written consent to the inclusion of Tabcorp Information and other statements in this Scheme Booklet said to be based on Tabcorp Information or statements made by Tabcorp, in each case in the form and context in which they appear in this Scheme Booklet. Grant Samuel has given and has not, before the date of this Scheme Booklet, withdrawn its written consent to be named as the Independent Expert in this Scheme Booklet and to the inclusion of the Independent Expert s Report set out in Annexure A, and other statements in this Scheme Booklet said to be based on statements made by Grant Samuel, in each case in the form and context in which they appear in this Scheme Booklet. PwC Securities Ltd has given and has not, before the date of this Scheme Booklet, withdrawn its written consent to be named as the Investigating Accountant in this Scheme Booklet and to the inclusion of the Investigating Accountant s Report set out in Annexure B, and other statements in this Scheme Booklet said to be based on statements made by PwC Securities Ltd in each case in the form and context in which they appear in this Scheme Booklet. PwC has given and has not, before the date of this Scheme Booklet, withdrawn its written consent to be named as Tatts auditor in this Scheme Booklet and to the inclusion of statements in this Scheme Booklet in relation to its role in respect of Tatts financial reports and other statements in this Scheme Booklet said to be based on statements made by PwC, in each case in the form and context in which they appear in this Scheme Booklet. Ernst & Young has given and has not, before the date of this Scheme Booklet, withdrawn its written consent to being named as the auditor of Tabcorp (with respect to the financial statements for the years ended 30 June 2015, 30 June 2016 and 30 June 2017) in this Scheme Booklet. KPMG has given and has not, before the time of registration of this Scheme Booklet by ASIC, withdrawn its written consent to the inclusion of Section 15 in the form and context in which it is included and to all references in this Scheme Booklet to that Section in the form and context in which they appear. Goldman Sachs has also given and has not, before the time of registration of this Scheme Booklet by ASIC, withdrawn its written consent to being named in this Scheme Booklet as Tatts financial adviser. Clayton Utz has also given and has not, before the time of registration of this Scheme Booklet by ASIC, withdrawn its written consent to being named in this Scheme Booklet as Tatts legal adviser. Computershare Investor Services has also given and has not, before the time of registration of this Scheme Booklet by ASIC, withdrawn its written consent to being named in this Scheme Booklet as the Tatts Share Registry. Computershare Investor Services has had no involvement in the preparation of any part of the Scheme Booklet other than being named as Tatts Share Registry. Computershare Investor Services has not authorised or caused issue of, and expressly disclaims and takes no responsibility for, any part of the Scheme Booklet. Link Market Services has also given and has not, before the time of registration of this Scheme Booklet by ASIC, withdrawn its written consent to being named in this Scheme Booklet as the Tabcorp Share Registry FEES The fees set out in this Section only relate to fees payable by Tatts in connection with the Scheme. Such fees include payments to: Goldman Sachs for acting as financial adviser; Clayton Utz for acting as legal adviser; Grant Samuel for acting as the independent expert and for providing the Independent Expert s Report; PwC Securities Ltd for acting as Investigating Accountant to Tatts; KPMG for providing tax advice to Tatts and various other services; and Computershare Investor Services for acting as the Tatts Share Registry and providing various other services. In aggregate, if the Scheme is Implemented Tatts expects to pay approximately $70 million (excluding GST) in transaction costs. In aggregate, if the Scheme is not Implemented, Tatts expects to pay approximately $55 million (excluding GST) in transaction costs. 110 Tatts Group Limited Scheme Booklet

113 16.11 DISCLOSURE OF INTERESTS OF CERTAIN PERSONS Except as disclosed elsewhere in this Scheme Booklet, no Tatts Director or person named in Section 16.1 holds as at the date of this Scheme Booklet or held at any time during the preceding two years, any interest in: the formation or promotion of Tabcorp; the property acquired or proposed to be acquired by Tabcorp in connection with its formation or promotion or the offer of the New Tabcorp Shares under the Scheme; or the offer of New Tabcorp Shares under the Scheme DISCLAIMERS Each person referred to in Section 16.9: does not make, or purport to make, any statement in this Scheme Booklet other than those statements made in the capacity and to the extent the person has provided its consent, as referred to above; and to the maximum extent permitted by law, expressly disclaims and takes no responsibility for any part of this Scheme Booklet other than as described in this Section with that person s consent OTHER INFORMATION MATERIAL TO THE MAKING OF A DECISION IN RELATION TO THE SCHEME Except as set out in this Scheme Booklet, there is no other information material to the making of a decision in relation to the Scheme, being information that is within the knowledge of any Tatts Director, or any director of any Related Body Corporate of Tatts, which has not previously been disclosed to Tatts Shareholders SUPPLEMENTARY INFORMATION Tatts will issue a supplementary document to this Scheme Booklet if it becomes aware of any of the following between the date of lodgement of this Scheme Booklet for registration by ASIC and the Scheme Meeting: a material statement in this Scheme Booklet is false or misleading; a material omission from this Scheme Booklet; a significant change affecting a matter included in this Scheme Booklet; or a significant new matter has arisen that would have been required to be included in this Scheme Booklet if it had arisen before the date of lodgement of this Scheme Booklet for registration by ASIC. Depending on the nature and timing of the changed circumstances and subject to obtaining any relevant approvals, Tatts may circulate and publish any supplementary document by: approaching the Court for a direction as to what is appropriate in the circumstances; placing an advertisement in a prominently published newspaper which is circulated generally throughout Australia; posting the supplementary document on the Tatts website; or making an announcement to the ASX DATE OF SCHEME BOOKLET This Scheme Booklet is dated 8 September ADDITIONAL INFORMATION 111

114 17. Definitions and Interpretation 17.1 DEFINITIONS 2017 Long Term Performance Right has the meaning given in Section 16.2(b) of this Scheme Booklet. AAS means the Australian Accounting Standards as published by the AASB from time to time. AASB means the Australian Accounting Standards Board. ACCC means the Australian Competition and Consumer Commission. ACT Wagering Licences has the meaning given in Section 11.2(b)(4) of this Scheme Booklet. Annexure means an annexure of this Scheme Booklet. ASIC means the Australian Securities and Investments Commission. Associate has the meaning given in section 12 of the Corporations Act. ASX means ASX Limited ABN or, as the context requires, the financial market operated by it known as the Australian Securities Exchange. ASX Listing Rules means the listing rules of ASX from time to time as modified by any express written waiver or exemption given by ASX. Australian Competition Tribunal means the tribunal of that name established under Part III of the CCA. Business Day means a day which is a Business Day within the meaning given in the ASX Listing Rules. Cash Consideration means a cash amount of $0.425 per Tatts Share, less the amount of any Tatts Special Dividend. CCA means the Competition and Consumer Act 2010 (Cth). CGT means capital gains tax. CHESS means the Clearing House Electronic Subregister System for the electronic transfer of Tatts Shares and other financial products operated by ASX Settlement Pty Limited ABN Combined Group means Tabcorp following the successful Implementation of the Scheme. Competing Proposal means, in relation to Tatts or Tabcorp, any proposal, agreement, arrangement or transaction (or expression of interest thereof), which, if entered into or completed, would result in a Third Party (either alone or together with any Associate): (a) directly or indirectly acquiring a Relevant Interest in, or having a right to acquire, a legal, beneficial or economic interest in, or control of, 10% or more of the share capital of the party or any material Subsidiary of the party; (b) acquiring Control of the party or any material Subsidiary of the party; (c) directly or indirectly acquiring or becoming the holder of, or otherwise acquire or have a right to acquire, a legal, beneficial or economic interest in, or control of, all or a substantial part of the party s business or assets or the business or assets of the group consisting of the party and its Subsidiaries; (d) otherwise directly or indirectly acquiring or merging with the party or a material Subsidiary of the party; or (e) being required to abandon, or otherwise fail to proceed with, the Transaction, whether by way of takeover bid, members or creditors scheme of arrangement, shareholder approved acquisition, capital reduction, buy-back, sale or purchase of shares, other securities or assets, assignment of assets and liabilities, incorporated or unincorporated joint venture, dual-listed company (or other synthetic merger), deed of company arrangement, any debt for equity arrangement or other transaction or arrangement. Competition Approval Reimbursement Fee means a fee of $35,000,000 payable in the circumstances described in Section 14.2(j) of this Scheme Booklet. Conditions Precedent means the Conditions Precedent to the Scheme set out in clause 3.1 of the Merger Implementation Deed and summarised in Section 14.2(a) of this Scheme Booklet. Control has the meaning given in section 50AA of the Corporations Act. Corporations Act means the Corporations Act 2001 (Cth). Corporations Regulations means the Corporations Regulations 2001 (Cth). Court means the Supreme Court of Victoria. CPI means the consumer price index published by the Australian Bureau of Statistics. Deed Poll means the deed poll executed by Tabcorp in favour of Tatts Shareholders in the form set out in Annexure D. EBIT means earnings before interest and tax. 112 Tatts Group Limited Scheme Booklet

115 EBITDA means earnings before interest, tax, depreciation and amortisation. Effective means, when used in relation to the Scheme, the coming into effect, pursuant to section 411(10) of the Corporations Act, of the order of the Court made under section 411(4)(b) of the Corporations Act in relation to the Scheme by lodgement of same with ASIC. Effective Date means the date on which the Scheme becomes Effective. End Date means the date by which the Condition Precedents in the Merger Implementation Deed must be satisfied or waived, which will be automatically extended from 30 September 2017 to 31 December 2017 as a result of the judicial review applications described in Section 14.2(a)(i). Excluded Shareholder means each Tabcorp Group Member that holds, or on whose behalf a person holds, Tatts Shares. Exclusivity Period means the period from and including the date of the Merger Implementation Deed to the earlier of: (a) the date of termination of the Merger Implementation Deed; (b) the End Date; and (c) the Effective Date. Financial Year means in respect of either Tatts or Tabcorp, the 12 month period ending on 30 June. A reference to FY has a corresponding meaning. First Court Date means the first day of the hearing of an application made to the Court for an order pursuant to section 411(1) of the Corporations Act convening the Scheme Meeting or, if the hearing of such application is adjourned for any reason, means the first day of the adjourned hearing. Gambling Regulation Act means the Gambling Regulation Act 2003 (Vic). Government Agency means any foreign or Australian government or governmental, semi-governmental, administrative, fiscal or judicial body, department, commission, authority, tribunal, agency or entity, or any minister of the Crown in right of the Commonwealth of Australia or any State, and any other federal, state, provincial, or local government, whether foreign or Australian. Grant Samuel means Grant Samuel & Associates Pty Limited ABN GST means goods and services tax. Implementation means the issuing and payment (as applicable) of the Scheme Consideration to Scheme Shareholders and the transfer of the Scheme Shares to Tabcorp pursuant to the Scheme. A reference to Implement or Implemented has a corresponding meaning. Implementation Date means 5 Business Days following the Scheme Record Date or such other date as Tatts and Tabcorp agree in writing. Independent Expert means Grant Samuel. Independent Expert s Report means the report from the Independent Expert in respect of the Scheme, a copy of which is set out in Annexure A. Ineligible Foreign Shareholder means a Scheme Shareholder whose address shown in the Tatts Share Register on the Scheme Record Date is a place outside Australia (and its external territories) other than Canada, Finland, France, Germany, Hong Kong, Japan, Malaysia, The Netherlands, New Zealand, Singapore, Sweden, Taiwan, Thailand, United Arab Emirates, United Kingdom, or the United States of America, unless Tabcorp (acting reasonably and after consultation with Tatts) determines that it is lawful and not unduly onerous or impracticable to issue that Scheme Shareholder with New Tabcorp Shares when the Scheme becomes Effective. Investigating Accountant means PwC Securities Ltd. Investigating Accountant s Report means the report from the Investigating Accountant in respect of the Scheme, a copy of which is set out in Annexure B. Keno Act means the Keno Act 1996 (Qld). Material Adverse Change has the meaning given in clause 1.1 of the Merger Implementation Deed as summarised in Section 14.2(l) of this Scheme Booklet. Merger Implementation Deed means the Merger Implementation Deed entered into between Tatts and Tabcorp on 18 October 2016, a copy of which was released to ASX by Tatts on 19 October New Tabcorp Share means a fully paid ordinary share in Tabcorp to be issued to Scheme Shareholders under the Scheme. Nominee means a person or persons appointed by Tabcorp to sell the New Tabcorp Shares which are DEFINITIONS AND INTERPRETATION 113

116 attributable to: (a) Ineligible Foreign Shareholders; or (b) a Scheme Shareholder, but where the issue to such Scheme Shareholder would give rise to a breach of law or of a provision of the Tabcorp Constitution, under the terms of the Scheme. Notice of Scheme Meeting means the notice of meeting relating to the Scheme Meeting, which is contained in Annexure E. NPAT means net profit after tax. NSW Wagering Licences has the meaning given in Section 11.2(b)(3) of this Scheme Booklet. Odyssey Gaming Business means the electronic gaming machine monitoring business conducted by Odyssey Gaming Limited (ACN ). Permitted Ordinary Course Dividend means a dividend permitted to be paid by Tatts or Tabcorp in accordance with clause 6.2 of the Merger Implementation Deed, as summarised in Section 4.4 of this Scheme Booklet. Point of Consumption Tax has the meaning given in Section 13.2(h) of this Scheme Booklet. Prescribed Occurrence has the meaning given in clause 1.1 of the Merger Implementation Deed. Proxy Form means the proxy form for the Scheme Meeting accompanying this Scheme Booklet, or the electronic version of that proxy form, utilised for electronic proxy lodgement at PwC means PricewaterhouseCoopers. PwC Securities Ltd means PricewaterhouseCoopers Securities Ltd ABN Reimbursement Fee means the fee of $55,000,000 payable by Tatts or Tabcorp (as applicable) in accordance with the Merger Implementation Deed, as summarised in Section 14.2(g) of this Scheme Booklet. Related Body Corporate of a corporation means a related body corporate of that corporation within the meaning of section 50 of the Corporations Act. Related Person means in respect of either Tatts or Tabcorp (each a party) or its Related Bodies Corporate, each director, officer, employee, financial adviser retained by a party in relation to the Transaction or a Competing Proposal from time to time (and each director, officer, employee, or contractor of that financial adviser), agent or representative of that party or Related Body Corporate. Relevant Interest has the meaning given in sections 608 and 609 of the Corporations Act. Relevant Period for TAB (NSW) has the meaning given in Section 11.15(b). Relevant Period for TAB (QLD) has the meaning in Section 11.15(b). Requisite Majorities means in relation to the Scheme Resolution, the Scheme Resolution being passed by: (a) unless the Court orders otherwise - a majority in number of Tatts Shareholders present and voting at the Scheme Meeting (in person, by proxy or by corporate representative or attorney); and (b) at least 75% of the total number of votes cast on the Scheme Resolution (in person, by proxy or by corporate representative or attorney) at the Scheme Meeting. Restricted Share means a Tatts Share which is subject to a disposal restriction, as determined by the Tatts Board under the Tatts Group Rights Plan. Scheme means the scheme of arrangement under Part 5.1 of the Corporations Act proposed between Tatts and the Tatts Shareholders, the form of which is contained in Annexure C, subject to any alterations or conditions made or required by the Court under section 411(6) of the Corporations Act and approved in writing by Tatts. Scheme Booklet means this booklet, including the Annexures. Scheme Consideration means the consideration to be provided by Tabcorp to each Scheme Shareholder for the transfer to Tabcorp of each Scheme Share, being for each Tatts Share held by a Scheme Shareholder as at the Scheme Record Date, the Cash Consideration and Share Consideration. Scheme Meeting means the meeting of Tatts Shareholders ordered by the Court to be convened under section 411(1) of the Corporations Act to consider and vote on the Scheme and includes any meeting convened following any adjournment or postponement of that meeting. Scheme Record Date means 5 Business Days after the Effective Date, or such other time and date agreed in writing between Tabcorp and Tatts. Scheme Resolution means the resolution to be put to Tatts Shareholders at the Scheme Meeting to approve the Scheme, as set out in the Notice of Scheme Meeting. Scheme Share means a Tatts Share held by a Scheme Shareholder as at the Scheme Record Date. Scheme Shareholder means a Tatts Shareholder as at the Scheme Record Date. 114 Tatts Group Limited Scheme Booklet

117 Second Court Date means the first day on which an application made to the Court for an order under section 411(4)(b) of the Corporations Act approving the Scheme is heard or, if the application is adjourned or subject to appeal for any reason, the day on which the adjourned application is heard. Section means a section of this Scheme Booklet. Share Consideration means 0.80 New Tabcorp Shares. Subsidiary means a subsidiary within the meaning given in the Corporations Act. Superior Proposal means, in relation to Tatts, a bona fide Competing Proposal received by it from a Third Party: (a) which, if entered into or completed, would result in a Third Party acquiring Control of Tatts; (b) not resulting from a breach by Tatts of any of its obligations under clause 13 of the Merger Implementation Deed; and (c) which the Tatts Board, acting in good faith, and after receiving written advice from its legal and financial advisers, determines would, if completed substantially in accordance with its terms, likely be more favourable to Tatts Shareholders (as a whole) than the Transaction, taking into account all terms and conditions and other aspects of the Competing Proposal (including any timing considerations, any conditions precedent or other matters affecting the probability of the Competing Proposal being completed). Tabcorp means Tabcorp Holdings Limited ABN Tabcorp Board means the board of directors of Tabcorp. Tabcorp Constitution means the constitution of Tabcorp (as amended from time to time). Tabcorp Director means a director of Tabcorp. Tabcorp Group means Tabcorp and each of its Subsidiaries, and a reference to Tabcorp Group Member or a member of the Tabcorp Group is to Tabcorp or any of its Subsidiaries. Tabcorp Information means information regarding the Tabcorp Group and the Combined Group provided by Tabcorp to Tatts in writing for inclusion in this Scheme Booklet, being the letter from the Chairman of Tabcorp, the profile of Tabcorp in Section 11 and the profile of the Combined Group in Section 12, the risks specific to New Tabcorp Shares in Section 13.3, the risks specific to the Scheme and the creation of the Combined Group in Sections 13.4(g) (n), other risks relating to the Combined Group in Section 13.5, and the international offer restrictions in Section Tabcorp Performance Right means a right to be issued a Tabcorp Share in accordance with the terms of the Tabcorp Long Term Performance Plan. Tabcorp Representation and Warranty means each representation and warranty of Tabcorp set out in Schedule 1 of the Merger Implementation Deed. Tabcorp Share means a fully paid ordinary share in the capital of Tabcorp. Tabcorp Shareholder means a holder of Tabcorp Shares from time to time. Tabcorp Share Registry means Link Market Services ABN of Tower 4, Collins Square, 727 Collins Street, Melbourne, Victoria, Australia Tabcorp USPP Notes means the private placement notes issued by Tabcorp, through its wholly owned subsidiary, Tabcorp Investments No. 4 Pty Ltd, to US investors pursuant to the Note and Guarantee Agreement dated 27 April 2012, as amended. TAB Limited means TAB Limited ACN , being a wholly-owned subsidiary of Tabcorp. Tatts means Tatts Group Limited ABN Tatts Board means the board of directors of Tatts. Tatts Bonds means the debt securities issued by Tatts that are listed on the ASX under the code TTSHA and which commenced trading on the ASX on a normal settlement basis on 4 July Tatts Director means a director of Tatts. Tatts FY17 Final Dividend means a fully franked dividend in an amount not exceeding $0.08 per Tatts Share that may be paid by Tatts between 1 July 2017 and 31 December 2017 prior to the Implementation Date. Tatts Group means Tatts and each of its Subsidiaries, and a reference to a Tatts Group Member or a member of the Tatts Group is to Tatts or any of its Subsidiaries. Tatts Group Rights Plans means the Tatts Group Rights Plan adopted by Tatts Group on 26 June 2014 and the Tatts Long Term Executive Performance Plan as re-adopted by the Tatts Group on 29 September Tatts Information means all information included in this Scheme Booklet, other than the Tabcorp Information and the Independent Expert s Report. Tatts Performance Right means a right to be issued a Restricted Share or a Tatts Share (as applicable) in accordance with the terms of the Tatts Group Rights Plans. DEFINITIONS AND INTERPRETATION 115

118 Tatts Representation and Warranty means each representation and warranty of Tatts set out in Schedule 2 of the Merger Implementation Deed. Tatts Share means a fully paid ordinary share in the capital of Tatts. Tatts Shareholder means a holder of Tatts Shares from time to time. Tatts Shareholder Information Line means the information service available to Tatts Shareholders by telephoning (callers within Australia) or (callers outside Australia) on Business Days between 8.30am and 5.30pm (Brisbane time). Tatts Share Register means the register of members of Tatts maintained by the Tatts Share Registry in accordance with the Corporations Act. Tatts Share Registry means Computershare Investor Services Pty Limited ABN of 117 Victoria Street, West End, Queensland, Australia Tatts Special Dividend means a cash dividend of up to $0.25 per Tatts Share, which may be declared and paid by Tatts to all Tatts Shareholders on the Tatts Share Register on the Tatts Special Dividend Record Date subject to the Scheme becoming Effective and Tatts complying with the requirements of section 254T of the Corporations Act. Tatts Special Dividend Payment Date means the date for payment of the Tatts Special Dividend. Tatts Special Dividend Record Date means the record date for the Tatts Special Dividend, as set out in Section 3 of this Scheme Booklet. Tatts USPP Notes means the private placement notes issued by Tatts to US debt investors pursuant to the Note Purchase Agreement dated 21 December Tax Act means the Income Tax Assessment Act 1936 (Cth) and the Income Tax Assessment Act 1997 (Cth). TGS means Tabcorp Gaming Solutions as described in Section 11.2 of this Scheme Booklet. Third Party means a person other than Tabcorp, Tatts, or their respective Related Bodies Corporate or Associates. Totalizator Act means the Totalizator Act 1997 (NSW). Trading Day has the meaning given in the ASX Listing Rules. Transaction means the acquisition of the Scheme Shares by Tabcorp through the Implementation of the Scheme. Victorian Lotteries Licence means a public lottery licence within the meaning of the Gambling Regulation Act. VIC Wagering Licence has the meaning given in Section 11.2(b)(2) of this Scheme Booklet. VWAP means volume weighted average price INTERPRETATION In this Scheme Booklet, unless the context otherwise appears: (a) words and phrases have the same meaning (if any) given to them in the Corporations Act; (b) words importing the singular include the plural and vice versa and a word of any gender includes the corresponding words of any other gender; (c) if a word or phrase is given a defined meaning, any other part of speech or grammatical form of that word or phrase has a corresponding meaning; (d) the word including or any other form of that word is not a word of limitation; (e) a reference to a person or an expression importing a natural person includes an individual, the estate of an individual, a corporation, a regulatory authority, an incorporated or unincorporated association or parties in a joint venture, a partnership and a trust; (f) a reference to a party includes that party s executors, administrators, successors and permitted assigns, including persons taking by way of novation and, in the case of a trustee, includes any substituted or additional trustee; (g) a reference to a party, clause, schedule, exhibit, attachment or annexure is a reference to a party, clause, schedule, exhibit, attachment or annexure to or of this agreement, and a reference to this agreement includes all schedules, exhibits, attachments and annexures to it; (h) a reference to an agency or body if that agency or body ceases to exist or is reconstituted, renamed or replaced or has its powers or function removed (obsolete body), means the agency or body which performs most closely the functions of the obsolete body; (i) a reference to any statute, regulation, proclamation, ordinance or by law includes all statutes, regulations, proclamations, ordinances, or by laws amending, varying, consolidating or replacing it; (j) a reference to a statute includes any regulations or other instruments made under it (delegated legislation) and a reference to a statute or delegated legislation or a provision of either includes consolidations, amendments, re-enactments and replacements; 116 Tatts Group Limited Scheme Booklet

119 (k) headings and bold type are for convenience only and do not affect the interpretation of this Scheme Booklet; (l) a reference to time is a reference to time in Brisbane, Queensland, Australia; (m) a reference to writing includes facsimile transmissions; and (n) a reference to dollars, $, cents and currency is a reference to the lawful currency of the Commonwealth of Australia. DEFINITIONS AND INTERPRETATION 117

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121 Annexure A Independent Expert s Report 119

122 GRANT SAMUEL & ASSOCIATES LEVEL 19 GOVERNOR MACQUARIE TOWER 1 FARRER PLACE SYDNEY NSW September 2017 The Directors Tatts Group Limited 87 Ipswich Road Woolloongabba QLD 4102 GPO BOX 4301 SYDNEY NSW 2001 T: / F: Dear Directors Proposed Combination with Tabcorp Holdings Limited 1 Introduction On 19 October 2016, Tatts Group Limited ( Tatts ) and Tabcorp Holdings Limited ( Tabcorp ) announced that they had entered into a Merger Implementation Deed to combine the two companies. The combination is to be implemented by way of a scheme of arrangement under Section 411 of the Corporations Act, 2001 ( Corporations Act ) between Tatts and its shareholders ( the Scheme ). If the Scheme is implemented, Tatts shareholders will receive, for each share in Tatts, consideration of: 0.80 Tabcorp shares; plus 42.5 cents cash (reduced by any Tatts special dividend 1 ). As a result, Tabcorp will acquire Tatts and existing Tatts shareholders will, in aggregate, hold approximately 58.4% of the shares in the combined company (referred to in this report as the Combined Group ) while existing Tabcorp shareholders will hold the remaining 41.6% 2. Tatts is a provider of gambling services in Australia with revenue in FY17 3 of $2.8 billion. It operates all public lotteries in Australia (except in Western Australia) as well as wagering and gaming services businesses. Tatts is listed on the Australian Securities Exchange ( ASX ) and, prior to the announcement of the Scheme, had a market capitalisation of around $5.3 billion. Tabcorp is an Australian gambling entertainment company with revenue in FY17 of $2.3 billion. It operates the largest wagering business in Australia with an estimated 36% market share. Tabcorp is also listed on the ASX and, prior to the announcement of the Scheme, had a market capitalisation of $4.0 billion. The Scheme is subject to a number of conditions which are set out in full in the Notice of Meeting and Explanatory Statement ( Scheme Booklet ) to be sent by Tatts to its shareholders. Subject to an independent expert determining that the Scheme is in the best interests of shareholders and in the absence of a superior proposal, each director of Tatts has recommended the Scheme and intends to vote shares held or controlled by them in favour of the Scheme. The directors of Tatts have engaged Grant Samuel & Associates Pty Limited ( Grant Samuel ) to prepare an independent expert s report setting out whether, in its opinion, the Scheme is in the best interests of shareholders. A copy of the report (including this letter) will accompany the Scheme Booklet to be sent to shareholders by Tatts. This letter contains a summary of Grant Samuel s opinion and main conclusions. 1 Under the Merger Implementation Deed, subject to the Scheme becoming effective, Tatts may declare and pay a fully franked special dividend of up to 25 cents per Tatts share and the cash component of the Scheme consideration will be reduced by the cash amount of the dividend. Tatts intends to pay a fully franked special dividend of 12 cents per share, subject to the availability of franking credits. 2 Based on 1,468,519,481 Tatts shares currently on issue. Including the 465,273 shares that could be issued upon the acceleration of the vesting of Tatts performance rights prior to implementation of the Scheme (see Section 16.2 of the Scheme Booklet) means that former Tatts shareholders will collectively hold 58.5% of shares on issue in the Combined Group while existing Tabcorp shareholders will hold the remaining 41.5%. 3 FYXX = financial year end 30 June 20XX. GRANT SAMUEL & ASSOCIATES PTY LIMITED ABN AFS LICENCE NO Tatts Group Limited Scheme Booklet

123 2 Summary of Opinion In Grant Samuel s opinion, the Scheme is in the best interests of Tatts shareholders, in the absence of a superior proposal. The Scheme brings together two major Australian gambling entertainment groups. It involves Tabcorp acquiring 100% of the shares in Tatts but, while the Scheme is technically a control transaction, the commercial reality is that, from a shareholder s perspective, it is a merger (notwithstanding the proposed board and management). Tatts shareholders will, in aggregate, own 58.4% of the Combined Group and Tabcorp shareholders will own the remaining 41.6% 2. Accordingly, the analysis of fairness is different to that for a conventional control transaction. Rather than estimating the full underlying value of Tatts including a control premium, the Scheme will be fair to Tatts shareholders if the share of the value of the Combined Group received by them is equal to (or greater than) their proportionate contribution of value. Specifically, Grant Samuel has considered the relative contributions of sharemarket value and fundamental (underlying) value. On the basis of sharemarket values, the aggregate interest of Tatts shareholders in the Combined Group is materially favourable in comparison to the share contributed by them (reflecting the premium inherent in the transaction terms at the time of announcement). Based on share prices over the three months prior to the announcement of the Scheme on 19 October 2016, Tatts shareholders are contributing approximately 56-58% of the value but are receiving a 61% share of the value. The outcome is similar in terms of relative contributions of fundamental value. Based on Grant Samuel s estimate of fundamental value, Tatts shareholders are contributing approximately 57-59% of equity value compared to the 61% of that value they will receive (i.e. 58.4% of the Combined Group plus 42.5 cents cash per Tatts share). In effect, Tabcorp is paying away synergy benefits arising from the merger to Tatts shareholders to enhance the attraction of the transaction to Tatts shareholders. Accordingly, in Grant Samuel s view, the terms of the Scheme are fair to Tatts shareholders. If the Scheme is looked at as a takeover, the terms, in fact, provide a meaningful premium and payment for synergies. As the terms of the Scheme are fair, they are also reasonable and, therefore, the Scheme is in the best interests of Tatts shareholders. In any event, Grant Samuel believes that the advantages and benefits of the Scheme for Tatts shareholders outweigh the disadvantages, risks and costs. The key benefits include: the creation, under a single corporate umbrella, of a diversified Australian gambling entertainment company with: an integrated national platform (except for Western Australia) across lotteries, wagering and gaming services; a suite of long dated licences (except in Victoria); a more balanced portfolio of businesses; and scale that will add depth to capabilities and underpin the capacity to compete in wagering and, potentially, expand offshore; the combination of the two wagering businesses to create a national retail, on-course and online platform (except for Western Australia) under a unified TAB brand provides arguably the best opportunity (given the geographic complementarity and common heritage) to turn around Tatts wagering business and to meet the continuing competitive challenges from corporate bookmakers. The strengthening of the business will be underpinned by: alignment of the product offering; concentrating marketing expenditure on a single brand; 2 ANNEXURE A - INDEPENDENT EXPERT S REPORT 121

124 better margins (as a result of synergy benefits) that will provide capacity to increase marketing and technology expenditure where needed; and a stronger racing industry providing better product as a result of increased funding; significant cost savings and business improvements, primarily in corporate/head office and the wagering business. Tatts and Tabcorp estimate synergy benefits of at least $130 million per annum at the EBITDA level to be fully realised over a three year period 4. These benefits have a notional value (net of one off costs of $141 million) of around 60 cents per Combined Group share 5 if they are realised in full (of which there is no guarantee); and a material uplift in earnings per share ( EPS ) (underlying) and dividend per share for Tatts shareholders (on an equivalent basis) if the expected synergy benefits are realised in full. There is no guarantee that the synergies and business improvements will be realised. The disadvantages, risks and costs of the Scheme are not trivial but are outweighed by the benefits. They include: the Scheme will result in Tatts shareholders having a significantly lower exposure to lotteries (31% compared to 63% based on FY17 EBITDA) and a much higher exposure to wagering (46% compared to 22%). There is a higher degree of risk attached to the future operating performance of wagering businesses; the significant re-engineering of the business operations involved in the integration of the two companies will inevitably give rise to risks of delays and unanticipated costs; Tatts shareholders will be faced with an almost entirely new board and management team running the Combined Group; the expected synergy benefits and business improvements are uncertain and subject to risks as to achievability and time frame, particularly in relation to expected revenue enhancements. These risks are magnified to the extent that some of the synergy benefits are expected to be realised in the second and third years following implementation of the Scheme. However, lower risk cost savings do represent the majority of the estimated $130 million; transaction costs are estimated at $200 million (of which $67 million was expensed by Tatts and Tabcorp in FY17) and subsequent integration costs at approximately $141 million; the Scheme will result in an increase in gearing 6 from 24% to 32.4% (after synergies but before the intended share buyback). The higher debt (resulting from the cash payment and transaction/integration costs) will result in ongoing interest charges that will reduce the earnings of the Combined Group (although it should be recognised that $624 million of the increase in debt relates to cash paid directly to Tatts shareholders). The proforma year one incremental interest expense (excluding the impact of the intended share buyback) is estimated to be $42 million 7 ; and 4 Tatts and Tabcorp estimate that the Scheme will generate at least $130 million in annual EBITDA synergies and business improvements (including at least $80 million of operational expenditure savings) and $10 million per annum of capital expenditure synergies (after allowing for the share attributable to the racing industry). The estimated one off costs to achieve these synergies are $141 million. The synergies are expected to be fully realised in the first full year following completion of the integration of the businesses with integration expected to take approximately two years from implementation. However, there is no guarantee that the synergies and business improvements will be realised and the risk of realisation is increased by the time period over which they are expected to be realised (particularly the business improvements). 5 Calculated as $130 million (estimated synergies and business improvements) multiplied by estimated EBITDA multiple of 10 times less estimated integration costs net of tax benefits ($119 million) divided by shares on issue in Combined Group (2,010.1 million shares). The EBITDA multiple used in the estimate of the notional value is a blended rate reflecting the mix of businesses of the Combined Group. It compares to the FY17 EBITDA multiples at which Tatts and Tabcorp are currently trading, 15.3 times and 9.3 times respectively. 6 Net borrowings/net assets plus net borrowings. 7 Calculated based on an increase in net borrowings of $835 million (i.e. excluding the intended share buyback) at a 5% interest rate (see Section 12.5(c) of the Scheme Booklet and Section 6.4 of the full report) Tatts Group Limited Scheme Booklet

125 the terms of the Scheme do not deliver a full premium for control to Tatts shareholders (although a full premium for control would not be expected given that the transaction is essentially a merger). Moreover, at a practical level a future takeover offer for the Combined Group (incorporating a full premium for control) is arguably less likely than for a standalone Tatts. On the other hand, there are no absolute impediments to a future change of control transaction and Tatts shareholders are receiving some premium under the Scheme (around 20.8% based on share prices immediately prior to announcement of the Scheme). Overall, Grant Samuel s judgement is that Tatts shareholders will be better off if the Scheme is implemented than if it is not. The combined effect of the premium implicit in the merger terms and the potential value uplift if the expected synergies are realised should mean that the market value of a Tatts shareholder s interest in the Combined Group (together with the cash payment of 42.5 cents per share) will be greater than the market value of their Tatts shareholding in the absence of the Scheme (or any other similar transaction). 3 Key Conclusions The commercial rationale for the Scheme is compelling. Tatts has a strong and successful Lotteries business and a stable and growing gaming services business but its wagering business has experienced difficult trading conditions over the past few years with EBITDA declining by 23% between FY13 and FY16, with a further fall in FY17 (albeit partially wet weather impacted). This decline is largely attributable to the significant inroads made by corporate bookmakers through the online wagering segment. Management has devoted significant resources to reinvigorating the business including a rebranding project that will unify retail, on-course and online wagering under the UBET brand. However, in the current highly competitive and rapidly changing environment, it will be challenging to achieve any significant degree of success notwithstanding the progress made to date. The Scheme brings together what are two naturally allied businesses in wagering and will create: one of the largest gambling entertainment companies in Australia and a leader in global terms 8 ; a more balanced portfolio of businesses across lotteries, wagering and gaming services; and scale that will add depth to capabilities and underpin the capacity to compete in wagering and, potentially, expand offshore. More importantly, given the commonality and shared heritage of the wagering business operations (retail and on-course wagering under exclusive state government licences) and the geographic complementarity of their operations, it is not only a logical business combination, but also one that: is the most likely to be successful in transforming the wagering business of Tatts through creation of a national retail, on-course and online platform (apart from Western Australia); and will generate the highest level of synergy benefits to potentially flow to Tatts shareholders. The key benefits of combining the two wagering businesses include the following: better market positioning through the unified use of the TAB brand across all regions, all product lines and all distribution channels. The TAB brand is synonymous with wagering throughout Australia and has very high recognition and credibility with customers. With the combined marketing resources of the two companies focused on a single, long established and widely known brand there is expected to be: 8 Based on Tabcorp s closing share price on 5 September 2017 ($4.05), the proforma market capitalisation of the Combined Group is approximately $8.1 billion. The only other ASX listed gambling entertainment businesses of comparable size are Aristocrat Leisure Limited and Crown Resorts Limited which have market capitalisations of approximately $13.5 billion and $8.0 billion respectively. In terms of net revenue, the Combined Group will be the second largest market participant globally after International Game Technology plc (with Ladbrokes Coral plc the next largest). 4 ANNEXURE A - INDEPENDENT EXPERT S REPORT 123

126 - a more effective competitive presence in the online segment against corporate bookmakers; and - improved retail and on-course wagering activity levels in the former Tatts markets (and, in turn, a stronger presence in these segments will contribute to the online business); strengthening of the retail and on-course operations in Tatts markets through: - expansion of product offerings to include key Tabcorp products; - targeted investment in the Tatts retail network and digital assets (such as network upgrades and extending self service); and - aligning the digital offering (Sky Racing) for Tatts customers to the same level as Tabcorp customers; Tabcorp estimates that the Scheme will result in increased payments to the racing industry of at least $50 million per annum. A stronger racing industry should, in turn, enhance the wagering business (e.g. through more races, better quality races as a result of increased prize money or better on-course attendance through increased marketing); and the Scheme provides a pathway to creating a single national pool (or, at the very least, consolidating two of the pools) for pari-mutuel wagering, albeit subject to regulatory and racing industry approvals. A single national pool would significantly improve the attractiveness of this type of betting particularly for smaller regional race meetings. Tatts and Tabcorp estimate that, after allowing for the share attributable to the racing industry, the Scheme will generate at least $130 million in annual EBITDA synergies and business improvements (including at least $80 million of operational expenditure savings) and $10 million per annum of capital expenditure synergies. The estimated one off costs to achieve these synergies are $141 million (pre tax). The synergies are expected to be fully realised in the first full year following completion of the integration of the businesses with integration expected to take approximately two years from implementation (i.e. in FY21). The expected synergies and business improvements include: operational expenditure savings based on a detailed ground up review undertaken by Tatts and Tabcorp. This review identified duplicate wagering and corporate functions and operating costs. Increased scale is also expected to bring procurement savings. Operational savings represent around 65% of the identified synergies; revenue gains from optimisation of the performance of Tatts wagering business. These gains have two components: - an improvement in the yield from Tatts fixed odds wagering business to bring it more in line with that achieved by Tabcorp; and - increased wagering turnover in Tatts markets (as a result of rebranding, selective investment and other benefits outlined above); and optimisation of the South Australian Keno business managed by Tatts (subject to regulatory approval) by application of a number of the measures (branding, pooling and digital technologies) that Tabcorp has used to reinvigorate its Keno business. There are risks and uncertainties associated with these synergies and business improvements (see below). Accordingly, there is no certainty that they will be realised. Moreover, the risk of realisation is increased to the extent that some of the synergies are not expected to be realised immediately, but rather only during the second and third years following implementation of the Scheme (particularly the business improvements). The expected synergy benefits (net of one off costs) have a notional value of around 60 cents per Combined Group share 5 if they are realised in full (of which there is no guarantee) Tatts Group Limited Scheme Booklet

127 The terms of the Scheme are fair to Tatts shareholders. The Scheme involves Tabcorp acquiring 100% of the shares in Tatts. In a typical control transaction fairness involves comparing the full underlying value of the target with the value of the offer (with any scrip component to be valued at market value (i.e. minority value)). However, while there are some factors that would suggest that there is a change of control (e.g. the proposed board and management), upon implementation of the Scheme Tatts shareholders will, in aggregate, own 58.4% of the Combined Group, there will be no controlling shareholder and Tatts shareholders will retain the opportunity to receive a control premium at some time in the future. On this basis, in Grant Samuel s opinion, the better view is that merger analysis is the appropriate basis by which to evaluate fairness. Accordingly, in assessing fairness, rather than estimating the full underlying value of Tatts including a control premium, Grant Samuel has compared the share of the value of the Combined Group received by Tatts shareholders with the relative contribution by Tatts shareholders of sharemarket value and fundamental (underlying) value. Sharemarket Value Tatts contribution to the aggregate sharemarket value of the two companies (based on daily closing prices) compared to the share of the combined sharemarket value received by Tatts shareholders (based on trading from 1 July 2015 to 17 October 2016, the last trading date prior to announcement of the Scheme) is shown in the following chart: Tatts - Share of Combined Market Value (1 July October 2016) 64% 63% 62% 61% 60% 59% 58% 57% 56% 55% 54% Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Tatts Contribution Tatts Share of Combined Market Value Source: IRESS and Grant Samuel analysis Notes: (1) Market capitalisation has been calculated based on shares currently on issue. (2) Tatts shareholders share of the combined market value includes the cash component of the Scheme consideration (42.5 cents per Tatts share). The following table shows the relative contributions based on VWAPs 9 compared to the relative values received under the Scheme terms by the shareholders of each company across different periods prior to the announcement of the Scheme: 9 VWAP = volume weighted average price. 6 ANNEXURE A - INDEPENDENT EXPERT S REPORT 125

128 Tatts Share of Combined Sharemarket Value 17 October 2016 Period to 17 October 2016 (VWAP) Last One One Three Six Twelve VWAP Price week month months months months Tatts Price $3.59 $3.60 $3.62 $3.66 $3.83 $3.80 $3.90 Market capitalisation (1) ($ million) A 5,272 5,287 5,316 5,375 5,624 5,654 5,727 Tabcorp Price $4.89 $4.88 $5.05 $5.01 $4.95 $4.65 $4.54 Market capitalisation ($ million) B 4,085 4,076 4,218 4,185 4,135 3,884 3,792 Combined sharemarket value ($ million) C = A+B 9,357 9,363 9,534 9,560 9,759 9,538 9,519 Tatts % contribution A/C 56.3% 56.5% 55.8% 56.2% 57.6% 59.3% 60.2% Tabcorp % contribution B/C 43.7% 43.5% 44.2% 43.8% 42.4% 40.7% 39.8% Combined sharemarket value after cash component ($ million) D = C E (2) 8,733 8,739 8,910 8,936 9,135 8,914 8,895 Share of combined sharemarket value received ($ million) Tatts F = (D x 58.4% (3) ) + E (2) 5,724 5,728 5,827 5,843 5,959 5,830 5,819 Tabcorp G = (D x 41.6% (3) ) 3,633 3,635 3,707 3,717 3,800 3,708 3,700 Tatts % received F/C 61.2% 61.2% 61.1% 61.1% 61.1% 61.1% 61.1% Tabcorp % received G/C 38.8% 38.8% 38.9% 38.9% 38.9% 38.9% 38.9% Source: IRESS and Grant Samuel analysis Notes: (1) Market capitalisation based on shares currently on issue. (2) Where E = the cash component ($624.1 million) 10. (3) On implementation of the Scheme existing Tatts shareholders will hold approximately 58.4% of the Combined Group and existing Tabcorp shareholders will hold 41.6%. The analysis demonstrates that, based on recent sharemarket prices prior to the announcement (since mid 2016), Tatts shareholders are contributing a lower share of the combined sharemarket value (56-58%) than they are receiving (~61%). More than ten months have elapsed since the announcement of the Scheme. Both companies have announced results for 1HY17 11 and FY17 and there have been a number of company specific events that have arisen. Both companies have been affected by a downturn in operating performance and oneoff or rectifiable issues. It is not possible to reliably assess where the shares of the two companies would now be trading if the Scheme had not been agreed but, in the absence of the Scheme, Grant Samuel believes it is unlikely that the Tatts share price would have strengthened materially relative to Tabcorp. Fundamental Value The following table compares the value contributed by Tatts and Tabcorp shareholders based on Grant Samuel s estimate of the fundamental value of each to the share of fundamental value received by the shareholders of each company: 10 Calculated based on 1,468,519,481 Tatts shares and 42.5 cents per share. 11 1HY17 = six months ended 31 December HY17 = six months ended 30 June Tatts Group Limited Scheme Booklet

129 Fundamental Value Analysis ($ million) Fundamental Value Ranges Tatts (Section 7.2) A 5, ,867.4 Tabcorp (Section 7.3) B 3, ,355.5 Combined Group (aggregate) C = A+B 9, ,222.9 Less: Cash component to Tatts shareholders D (624.1) 10 (624.1) Proforma Combined Group (aggregate) E = C - D 8, ,598.9 Value Received Tatts F = (58.4% (1) x E) + D 5, , Value Received Tabcorp G = (41.6% (1) x E) 3, ,993.1 Relative Value Contributed Tatts shareholders A/C 59.0% 57.4% Tabcorp shareholders B/C 41.0% 42.6% Relative Value Received Tatts shareholders F/C 61.2% 60.9% Tabcorp shareholders G/C 38.8% 39.1% Source: Grant Samuel analysis Note: (1) On implementation of the Scheme existing Tatts shareholders will hold approximately 58.4% of the Combined Group and existing Tabcorp shareholders will hold 41.6%. The values are based on Grant Samuel s estimate of the fundamental value of the operating businesses of Tatts and Tabcorp (see Sections 7.1 of the full report for a detailed discussion of the valuation approach). In particular, it should be noted that: separate values have been ascribed to each operating business (lotteries, wagering and gaming services); the value of each operating business has been assessed by reference to both the capitalisation of earnings and discounted cash flow ( DCF ) methodologies and reflect the characteristics and outlook for each business. The cash flow forecasts underpinning the DCF are based on business as usual; and the values for each business represent a control value (i.e. value of 100% of the business) as they are currently operated but do not purport to represent the full underlying value that might be realised if the businesses were sold on the open market as the analysis does not take into account the synergies that might be available to potential purchasers. The full realisable value would include value for factors such as listed company and head office savings as well as operational savings, particularly in wagering (where likely (ultimate) acquirers may have some overlap). Synergies have been excluded from the analysis to assist in ensuring the value of the various businesses is estimated consistently across the two companies. This analysis shows that Tatts shareholders are receiving a greater share of the fundamental value of the Combined Group ( %) 13 than their contribution of value ( %) 14. Low High 12 The value received by Tatts shareholders does not recognise that some Tatts shareholders may realise additional value from the franking credits that will attach to the fully franked special dividend of 12 cents per share that Tatts intends to pay (subject to the availability of franking credits) in accordance with the terms of the Merger Implementation Deed (refer Section 9.5 for more details) 13 Midpoint value received 61.08%. If the fundamental value ranges are matched on a low/high and high/low basis, the relative value received by Tatts shareholders is in the range % but the midpoint does not change. 14 Midpoint value contribution 58.2%. If the fundamental value ranges are matched on a low/high and high/low basis, the relative value contribution by Tatts shareholders is in the range % but the midpoint does not change. 8 ANNEXURE A - INDEPENDENT EXPERT S REPORT 127

130 Conclusion Overall, the analysis shows that Tatts shareholders collective interest in the Combined Group will be greater than their contribution of value to the Combined Group. This outcome is the corollary of the premium implicit in the transaction terms at the time of announcement and suggests that Tabcorp is paying away synergy benefits arising from the merger to Tatts shareholders to enhance the attraction of the transaction to Tatts shareholders. Accordingly, in Grant Samuel s opinion, the terms of the Scheme are fair to Tatts shareholders. Value of the Consideration Tatts shareholders will receive shares in Tabcorp plus 42.5 cents cash under the Scheme. The market value of the consideration will therefore depend on the Tabcorp share price. Based on Tabcorp s recent trading range of $ , the Scheme provides to Tatts shareholders consideration with a current market value of $ per Tatts share. In considering this value range shareholders should be aware that while the recent trading range should incorporate the impact of the Scheme on Tabcorp (including the potential synergy benefits which are already in the public domain), the effects are likely to be discounted to reflect: uncertainty as to completion of the Scheme because of the applications by the Australian Competition & Consumer Commission and CrownBet Pty Limited to the Full Federal Court of Australia for judicial review of the Australian Competition Tribunal s decision to authorise the combination of Tatts and Tabcorp; and risks associated with realising the expected synergy benefits and business improvements (which are expected to be realised over a three year period). In this context, Tabcorp s recent trading range ($ ) implies multiples of Combined Group proforma FY17 EBITDA (before synergies) of times ( times if the expected $130 million of synergies are assumed in full) suggesting little value for synergy benefits is being factored into current Tabcorp share prices. Accordingly, it is reasonable to expect some improvement in the Tabcorp share price once there is certainty of implementation and as evidence of achievement of the synergy benefits emerges. The table below summarises the value parameters of the Scheme at various alternative Tabcorp share prices: Scheme Value Parameters Tabcorp Share Price $4.00 $4.20 $4.40 $4.60 $4.80 $5.00 Value of Scheme per Tatts share $3.63 $3.79 $3.95 $4.11 $4.27 $4.43 Premium - Last price on 17 October 2016 ($3.59) 1.0% 5.4% 9.9% 14.3% 18.8% 23.3% Payment for synergy benefits - Value range - low ($ millions) (81) ,094 - Value range - high ($ millions) (551) (316) (81) Source: Grant Samuel analysis In considering these parameters, it is important to note that: Tatts is a mature stable business and is perceived as a yield stock (i.e. dividend yield is a key driver of the market price); and it is not unreasonable to assume that, in light of its weak FY17 operating performance and other factors, the Tatts share price in the absence of the Scheme would now be lower than immediately prior to the announcement on 19 October 2016 (i.e. the effective premium would be higher than indicated above) Tatts Group Limited Scheme Booklet

131 In any event, the value of the consideration cannot be compared directly with a takeover offer price (where shareholders give up control to a third party bidder). The nature of the Scheme means that: shareholders still have the potential to receive an offer for the Combined Group incorporating a premium for control; and any comparison needs to take into consideration a range of factors in addition to value (e.g. residual exposure, tax and certainty of completion). Tatts has been valued at $ billion (excluding synergies). The valuation of Tatts (excluding synergies) is set out in Section 7.2 of the full report and summarised below: Tatts - Valuation Summary (excluding synergies) ($ millions) Full Report Value Range Section Reference Low High Lotteries , ,200.0 Wagering , ,200.0 Gaming Corporate/Unallocated (850.0) (950.0) Value of business operations , ,050.0 Other assets and liabilities (102.5) (95.2) Enterprise value 6, ,954.8 Net borrowings (1,087.4) (1,087.4) Value of equity 5, ,867.4 The separate values attributed to Tatts business operations do not reflect the standalone value of each business as Tatts: runs an integrated core technology platform that services both its Lotteries and Wagering businesses and generates significant efficiencies. If the businesses were assessed on a standalone basis it would be necessary to estimate the incremental costs that would be incurred following separation; and does not fully allocate all operating, shared services or corporate costs to each of the businesses. Therefore, the value attributed to each business operation reflects Tatts current operating structure. The values for each business operation also excludes any synergies that may be available to potential acquirers. On this basis, while the value attributed to Tatts by Grant Samuel represents a control value, it does not represent full underlying value 15. The value of the key Lotteries business reflects high multiples of earnings: 15 Refer Section 7.1 of the full report for details of Grant Samuel s valuation approach. 10 ANNEXURE A - INDEPENDENT EXPERT S REPORT 129

132 Tatts Lotteries Business Implied Valuation Parameters Variable ($ million) Range of Parameters Low High Value range ($ million) 5,800 6,200 Multiple of EBITDA 16 (times) FY16 (adjusted actual) FY17 (adjusted actual) FY18 (broker median) Multiple of EBITA 18 (times) FY16 (adjusted actual) FY17 (adjusted actual) FY18 (broker median) These high multiples are considered appropriate for Lotteries having regard to: its national footprint (except for Western Australia), suite of long dated licences (except Victoria), 98% share of the lotteries market (in its jurisdictions), high penetration and broad product portfolio; the annuity style income with its track record of steady growth and outlook for continued steady growth, subject to some variability depending on the level of major jackpots ( $15 million); and the low level of capital intensity (capital expenditure is approximately 5-10% of EBITDA). The value was cross checked to a DCF analysis which examined a number of alternative scenarios using a discount rate (weighted average cost of capital) of %. Tatts Wagering business was valued at much lower multiples (circa times EBITDA and times EBITA) reflecting: its poor track record since FY13 (albeit the value range allows for improved performance following recent and continuing investment in the UBET roll out); the challenging outlook for the business given the weak online market position and the ongoing intense competition from corporate bookmakers; and the higher capital intensity of wagering. The supporting DCF analysis for this business considered a number of scenarios using a discount rate of %. 16 EBITDA is earnings from continuing operations before net interest, tax, depreciation and amortisation and significant and nonrecurring items. 17 Tatts has not included FY18 forecast information in the Scheme Booklet. To provide an indication of Tatts expected financial performance, Grant Samuel has considered brokers forecasts (see Appendix 1). 18 EBITA is earnings from continuing operations before net interest, tax, amortisation of licences, brands and agreements and significant and non-recurring items Tatts Group Limited Scheme Booklet

133 Tabcorp has been valued at $ billion (excluding synergies). The value of Tabcorp (excluding synergies) is set out in Section 7.3 of the full report and summarised below: Tabcorp - Valuation Summary (excluding synergies) ($ millions) Full Report Section Reference Value Range Low High Wagering & Media (excluding Sun Bets) , ,100.0 Keno Gaming Services Value of business operations (excluding Sun Bets) , ,675.0 Other assets and liabilities (including Sun Bets) (119.2) (44.2) Enterprise value 5, ,630.8 Net borrowings (1,275.3) (1,275.3) Value of equity 3, ,355.5 In contrast to Tatts, Tabcorp s businesses operate separately and all operating, shared services and corporate costs are allocated. However, as with Tatts, the values for each business operation exclude any synergies that may be available to potential acquirers and, therefore, the value attributed to Tabcorp by Grant Samuel does not represent full underlying value 15. The value of Tabcorp s Wagering & Media business implies the following multiples: Tabcorp s Wagering & Media Business Implied Valuation Parameters Variable Range of Parameters ($ million) Low High Value range ($ million) 3,700 4,100 Multiple of EBITDA (times) FY16 (actual) FY17 (actual) FY18 (broker median) Multiple of EBITA (times) FY16 (actual) FY17 (actual) FY18 (broker median) The multiples implied by the FY17 actual earnings are higher than those implied by the FY16 actual earnings and the median brokers forecasts reflecting the impact on FY17 performance of the prolonged periods of wet weather experienced across the eastern seaboard and the poor performance of Trackside and Luxbet. Adjusting for the Luxbet losses, the implied FY17 actual EBITDA and EBITA multiples fall to times and times respectively. These multiples reflect that Tabcorp s Wagering & Media business has: a strong market presence. It is the single largest market participant in the Australian wagering industry with a 36% share and a relatively strong online presence (circa 20% share). It owns and operates the two leading Australian wagering brands TAB and Sky Racing; a track record of steady, if modest, growth in operating earnings over the last 2-3 years, notwithstanding the inroads made by corporate bookmakers; long term wagering licences (except in Victoria) and broadcast rights for Sky Racing; and retail licences in strong racing states (Victoria and New South Wales). 19 Tabcorp has not included FY18 forecast information in the Scheme Booklet. To provide an indication of Tabcorp s expected financial performance, Grant Samuel has considered brokers forecasts (see Appendix 2). 12 ANNEXURE A - INDEPENDENT EXPERT S REPORT 131

134 However, these multiples also reflect: the relatively mature nature of the Australian wagering sector; the expectation that the trends in wagering (including aggressive competition from online corporate bookmakers, the shift to the lower yielding fixed odds betting and sports betting products and the migration from retail to digital distribution channels) will continue; the ongoing cycle of relatively short term licences in Victoria (12-14 year term compared to up to 99 years for other jurisdictions) which creates uncertainty and risk given the importance of the Victorian wagering market; and the importance and complexity of ongoing relationships with the racing industry in each State and Territory. The supporting DCF analysis for this business also considered a number of scenarios using a discount rate of % (i.e. the same as used for the Tatts Wagering business). There is a material uplift in earnings per share and dividends per share if the expected synergy benefits are realised in full. The Scheme is expected to result in a material uplift in attributable EPS (underlying) and dividends per share for Tatts shareholders (on an equivalent basis) if the synergy benefits are realised (of which there is no guarantee). The impact is illustrated below based on proforma results for FY17, the merger ratio, the proforma analysis set out in the Scheme Booklet and Section 6.4 of the full report and a Combined Group share price of $ : Proforma FY17 Impact per Equivalent Tatts Share Tatts (standalone) 21 Combined Group 22 Equivalent Tatts Share 23 Change Absolute % EPS (underlying) - before synergies and buyback % - after synergies and before buyback % - after synergies and buyback % Dividends per share - before synergies and buyback % - after synergies and before buyback % - after synergies and buyback % Source: Scheme Booklet and Grant Samuel analysis The uplift in EPS (underlying) is underpinned by the expected synergy benefits 4. While EPS (underlying) decreases if synergy benefits are excluded, this primarily reflects increased interest costs (see below) as well as operating losses associated with Tabcorp s Luxbet business (which is to be the subject of a strategic review in FY18) and Tabcorp s start up business Sun Bets. If synergy benefits are included, the uplift in EPS (underlying) is material as the proforma analysis assumes the synergy benefits are available immediately upon implementation. However, in reality, the synergies are expected to emerge over a two year integration period with only around 60% expected in the first full year following implementation of the Scheme. The proforma analysis also assumes the one off costs associated with achieving the synergies are incurred upon implementation in all cases (although this assumption does not have a material impact on proforma earnings). 20 Being the Tabcorp share price used in the proforma FY17 financial information in the Scheme Booklet (closing price on 5 September 2017). 21 Proforma EPS for Tatts (standalone) calculated based on Section 12.5(c) of the Scheme Booklet and dividends per share for Tatts (standalone) comprise actual dividends paid for 2HY16 (8 cents) and 1HY17 (9.5 cents). 22 Combined Group data sourced from Section 6.4 of the full report. 23 Calculated at Tabcorp shares for every Tatts share, being the sum of the scrip consideration of 0.80 Tabcorp shares plus 42.5 cents cash reinvested in Tabcorp shares at a price of $4.05 (closing price on 5 September 2017) Tatts Group Limited Scheme Booklet

135 Nonetheless, a material increase in EPS (underlying) is necessary for Tatts shareholders given the Combined Group will have a lower proportion of the higher rated Lotteries business (relative to Tatts on a standalone basis). To the extent EPS (underlying) increases, dividends per share increases based on the Combined Group s targeted dividend payout ratio. Moreover, the Combined Group s targeted payout ratio represents an increase in payout ratio for Tatts shareholders. There are some disadvantages, risks and costs which are not trivial but are outweighed by the advantages and benefits. The disadvantages, risks and costs of the Scheme for Tatts shareholders include: Change in the mix of exposure to Lotteries and Wagering If the Scheme is implemented, Tatts shareholders will have a significantly lower exposure to the Lotteries business (31% compared to 63% based on FY17 EBITDA) and a significantly higher exposure to the Wagering business (46% compared to 22%). There will undoubtedly be some Tatts shareholders who will not welcome this dilution of their exposure to the Lotteries business, particularly in view of: the relative performance of the two businesses over the past few years; the attractive annuity style income stream of the Lotteries business with its national platform (except for Western Australia) and 98% market share; and the much more challenging environment of wagering with its intense competition and rapidly evolving technologies. There are higher risks attached to the future performance of the wagering business (even once merged), particularly the potential impacts of regulatory changes, competition, changes in operating costs (including industry payments), licence renewals and the broadcasting rights environment. While these factors are important, Tatts shareholders also need to recognise that: the Lotteries business has its own challenges that could impact materially on future returns to shareholders including fluctuations in jackpot frequency, the potential costs and uncertainty of the Victorian lottery licence (which is expected to expire every ten years after 2028) and the threats of new competitors such as Lottoland and a national sports lottery; the Tatts Wagering business, to which shareholders are fully exposed, faces a number of significant challenges as a standalone business and needs a real game changer to help turn around performance; the Combined Group will have a more balanced portfolio of exposures to the various segments of the gambling entertainment industry; and they are receiving a share of value (~61%) that is higher than the value that they are contributing whether measured by sharemarket value or fundamental value. Integration Risks Blending two organisations always involves some risk because of different skill sets, historical work priorities and practices, operational philosophies and organisational culture. The identified operational cost savings involve: a significant level of redundancies with a potential loss of corporate knowledge and industry relationships; and rationalisation of wagering systems. Inevitably, there are risks of delays and increased costs in implementation of such a major overhaul. Merger integration and systems changes are fraught with challenges and problems. Accordingly, there is no certainty that the estimated synergies and business improvements 4 of the Scheme will be achieved although there are a number of mitigating factors. 14 ANNEXURE A - INDEPENDENT EXPERT S REPORT 133

136 New Board and Management From the perspective of Tatts shareholders, they will be faced with an almost entirely new board and senior management team running the Combined Group. To the extent shareholders were comfortable and satisfied with the existing Tatts board and management, the Scheme creates a degree of risk and uncertainty (for example, Tabcorp has no experience in running a lotteries business). On the other hand, the board and management of Tabcorp are well credentialed, the situation will provide continuity of oversight for the integration process and shareholders of the Combined Group have the power to change the composition of the board if they are not satisfied with the performance. Transaction and Integration Costs Transaction costs (such as stamp duty, advisory and other implementation costs) are estimated to be approximately $200 million, of which $67 million was expensed by Tatts and Tabcorp in FY17. This estimate includes costs associated with the competition approval process, costs associated with early redemption of the Tatts loan notes and retention payments. Integration costs associated with achieving the expected synergies are estimated at $141 million, $71 million of which are expected to be classified as operating expenditure with the balance ($70 million) classified as capital expenditure. In addition, the Combined Group will incur incremental interest costs as a result of the increase in net debt represented by these one off costs (net of tax). Tatts shareholders will, in aggregate, bear 58.4% of these costs. The transaction costs represent approximately 2.5% of the proforma market capitalisation of the Combined Group ($8.1 billion). Increased Financial Risk The proforma financial gearing of the Combined Group will be higher than Tatts existing gearing if the Scheme is implemented and will increase further if the intended share buyback is undertaken: Proforma Impact on Gearing Tatts (standalone) 24 Combined Group 25 Change Absolute % Gross borrowings/ebitda 26 - before synergies and buyback 2.5x 3.6x +1.1x +44% - after synergies and before buyback 2.5x 3.1x +0.6x +24% - after synergies and buyback 2.5x 3.6x +1.1x +44% Net borrowings/net assets plus net borrowings - before synergies and buyback 24.0% 32.4% +8.5% +35% - after synergies and before buyback 24.0% 32.4% +8.5% +35% - after synergies and buyback 24.0% 38.0% +14.0% +59% Source: Scheme Booklet and Grant Samuel analysis The increase is largely due to the cash component of the consideration being paid under the Scheme to Tatts shareholders (42.5 cents per Tatts share or $624 million) but it also reflects transaction and integration costs associated with the transaction. This increase in debt will incur additional interest costs ($42 million 7 per annum on a pre tax basis) that will reduce the net earnings of the Combined Group (as reflected in the Combined Group Proforma Income Statement as set out in Section 12.5 of the Scheme Booklet). However: 24 Proforma data for Tatts (standalone) calculated based on Section 12.5(c) and Section 12.5(f) of the Scheme Booklet. 25 Combined Group data sourced from Section 6.5 of the full report. 26 Gross borrowings are interest bearing loans before derivative financial instruments and EBITDA is before significant items (as reflected in the Combined Group Proforma Income Statement as set out in Section 12.5 of the Scheme Booklet) Tatts Group Limited Scheme Booklet

137 the higher gearing is more efficient from a purely financial point of view; the proforma gearing levels are still within the bounds of financial prudence for a business with the business risk profile of the Combined Group; the proforma gearing levels prior to the intended share buyback (specifically gross borrowings/ebitda) are materially lower if the estimated synergy benefits 4 are taken into account; and the cash component of the consideration ($624 million), which is a major part of the increase in debt, is simply a result of distributing cash directly to Tatts shareholders. Reduced scope for future takeover Based on substantial shareholder notices lodged for Tatts and Tabcorp at the date of this report, no shareholder is expected to hold more than 9.6% of the shares on issue in the Combined Group on implementation of the Scheme. Accordingly, notwithstanding the shareholding restrictions in Tabcorp s Constitution 27 (see below), it is open for any third party to make a takeover offer for the Combined Group enabling shareholders to receive a premium for control. However, as a matter of practice it is less likely that there would be such an offer for the Combined Group than for a standalone Tatts as the potential for such an offer is limited by: the scale of the Combined Group; the greater potential for issues under the Foreign Acquisition and Takeovers Act, 1975; and requirements in Tabcorp s Constitution that any shareholding above 10% be approved by the Queensland Government and the New South Wales Government. Tatts shareholders should also recognise that there are no absolute impediments to a future change of control transaction and under the Scheme terms they are, in fact, receiving some premium (around 20.8% based on share prices immediately prior to announcement of the Scheme). Other Section 13 of the Scheme Booklet details a number of other risks relating to Tatts, investment in Tabcorp and the Combined Group and the Scheme. Shareholders should consider these risks in making a decision on whether to vote for the Scheme. There is no superior alternative presently available although there is potential for one to emerge. On 19 April 2017, Tatts announced that it had received a revised indicative proposal from the Pacific Consortium 28 ( the Pacific Consortium Revised Indicative Proposal ) under which Tatts shareholders would receive $4.21 in cash for each Tatts share. The revised proposal followed an earlier proposal from the Pacific Consortium in December On 28 April 2017, the board of Tatts announced that it had determined that the revised proposal was not a superior proposal and could not reasonably be expected to result in a superior proposal when compared to the Scheme and would, therefore, continue to recommend the Scheme to Tatts shareholders. Pacific Consortium has ceased to work on this proposal For details on Tabcorp shareholding restrictions and other limitations see Section of the Scheme Booklet. 28 The Pacific Consortium comprised First State Superannuation Scheme, Morgan Stanley Infrastructure Inc., as adviser to and manager of North Haven Infrastructure Partners IILP, one or more affiliates of Kohlberg Kravis Roberts & Co. L.P. and Macquarie Corporate Holdings Pty Limited. In mid 2016, Tatts had discussions with certain members of the Pacific Consortium. 29 On 28 April 2017, the Pacific Consortium released a media statement in which it expressed its disappointment and stated that Given the current approach of the Tatts Board the Consortium does not intend to undertake further work on its Proposal. 16 ANNEXURE A - INDEPENDENT EXPERT S REPORT 135

138 Accordingly, the Pacific Consortium Revised Proposal is not a proposal that is presently available to Tatts shareholders. However, it does indicate that there is potential for an alternative proposal to the Scheme and this needs to be considered by Tatts shareholders prior to making their decision in relation to the Scheme. The following factors are relevant to that assessment: it is possible that the Pacific Consortium could reactivate and put forward a further improved proposal or another party (such as an offshore gambling entertainment operator) could put forward an alternative proposal prior to the shareholder meeting. Assuming the Pacific Consortium (or an alternative party) requires due diligence, the decision as to whether or not such a proposal is put to shareholders lies in the hands of the directors of Tatts. Unless the directors determine it to be superior, or likely to become superior, to the Scheme (subject to Tabcorp s right to match) the alternative proposal cannot proceed; it is open for the Pacific Consortium to make an offer directly to Tatts shareholders (e.g. through a formal takeover offer) even if it was not deemed to be superior, or likely to become superior, to the Scheme. However, given that both of its proposals envisaged a due diligence process (which would only be available with the support of the Tatts board) it is unlikely that such an offer would be forthcoming. The scale and complexity of the Tatts business would suggest an offer from any alternative party without due diligence is unlikely, although not inconceivable; shareholders could vote to reject the Scheme if they believed any alternative proposal was superior (even if the directors of Tatts did not), in the expectation that such a proposal would remain on foot post meeting and that, in those circumstances, the directors would then seek to engage with the offeror. There are significant risks in such a strategy and any decision would depend on the specific circumstances; shareholders could also vote to reject the Scheme even if there was no specific alternative proposal in the hope one might emerge subsequently. However, there has been sufficient time for alternative parties to assess Tatts and to develop a proposal (at least since October 2016, if not late 2015) and there will be some months before final shareholder and regulatory approvals are received. If no new alternative proposal is received or announced prior to the shareholder meeting to approve the Scheme, it is reasonable to assume that the Scheme is the best and only option available to shareholders; and the decision as to the relative merits of alternative proposals is not just a question of the headline price. If a counter proposal is, for example, a 100% cash offer (or even a predominantly cash offer), then shareholders are very clearly selling control of the Tatts business to a third party under which they will have no ongoing exposure to the business and its growth potential (i.e. it is a one time sale opportunity). In contrast, under the Scheme they are not giving up control but will, in aggregate, control the Combined Group, will continue to have an exposure (albeit diluted) to the Tatts business and have a 58.4% (aggregate) share of future growth and any synergy benefits realised from the Scheme (which are notionally worth around 60 cents per Combined Group share 5 (net of one off costs) if achieved in full (of which there is no guarantee)). They will also retain the opportunity to sell control of the Combined Group at some future time. In addition, there may be other differences between proposals including: - taxation consequences. For example, a cash offer may result in capital gains tax ( CGT ) liabilities for some shareholders while scrip offers may provide CGT rollover relief; and - certainty and timing of completion particularly where there are extensive regulatory approvals required. Accordingly, any comparison of proposals must be a more nuanced comparison across a number of dimensions (e.g. value, control, residual exposure, tax and certainty) Tatts Group Limited Scheme Booklet

139 4 Other Matters This report is general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of individual Tatts shareholders. Accordingly, before acting in relation to their investment, shareholders should consider the appropriateness of the advice having regard to their own objectives, financial situation or needs. Shareholders should read the Scheme Booklet issued by Tatts in relation to the Scheme. Grant Samuel has not been engaged to provide a recommendation to shareholders in relation to the Scheme, the responsibility for which lies with the directors of Tatts. In any event, the decision whether to vote for or against the Scheme is a matter for individual shareholders, based on their own views as to value and business strategy, their expectations about future economic and market conditions and their particular circumstances including risk profile, liquidity preference, investment strategy, portfolio structure and tax position. Shareholders who are in doubt as to the action they should take in relation to the Scheme should consult their own professional adviser. Similarly, it is a matter for individual shareholders as to whether to buy, hold or sell shares in Tatts, Tabcorp or the Combined Group. These are investment decisions upon which Grant Samuel does not offer an opinion and are independent of a decision on whether to vote for the Scheme. Shareholders should consult their own professional adviser in this regard. Grant Samuel has prepared a Financial Services Guide as required by the Corporations Act, The Financial Services Guide is included at the beginning of the full report. This letter is a summary of Grant Samuel s opinion. The full report from which this summary has been extracted is attached and should be read in conjunction with this summary. The opinion is made as at the date of this letter and reflects circumstances and conditions as at that date. Yours faithfully GRANT SAMUEL & ASSOCIATES PTY LIMITED 18 ANNEXURE A - INDEPENDENT EXPERT S REPORT 137

140 Financial Services Guide and Independent Expert s Report in relation to the Proposed Combination with Tabcorp Holdings Limited Grant Samuel & Associates Pty Limited (ABN ) 8 September Tatts Group Limited Scheme Booklet

141 GRANT SAMUEL & ASSOCIATES LEVEL 19 GOVERNOR MACQUARIE TOWER 1 FARRER PLACE SYDNEY NSW 2000 GPO BOX 4301 SYDNEY NSW 2001 T: / F: Financial Services Guide Grant Samuel & Associates Pty Limited ( Grant Samuel ) holds Australian Financial Services Licence No authorising it to provide financial product advice on securities and interests in managed investments schemes to wholesale and retail clients. The Corporations Act, 2001 requires Grant Samuel to provide this Financial Services Guide ( FSG ) in connection with its provision of an independent expert s report ( Report ) which is included in a document ( Disclosure Document ) provided to members by the company or other entity ( Entity ) for which Grant Samuel prepares the Report. Grant Samuel does not accept instructions from retail clients. Grant Samuel provides no financial services directly to retail clients and receives no remuneration from retail clients for financial services. Grant Samuel does not provide any personal retail financial product advice to retail investors nor does it provide market-related advice to retail investors. When providing Reports, Grant Samuel s client is the Entity to which it provides the Report. Grant Samuel receives its remuneration from the Entity. In respect of the Report for Tatts Group Limited ( Tatts ) in relation to the proposal to combine with Tabcorp Holdings Limited ( the Tatts Report ), Grant Samuel will receive a fixed fee of $1,500,000 plus reimbursement of out-of-pocket expenses for the preparation of the Report (as stated in Section 10.3 of the Tatts Report). No related body corporate of Grant Samuel, or any of the directors or employees of Grant Samuel or of any of those related bodies or any associate receives any remuneration or other benefit attributable to the preparation and provision of the Tatts Report. Grant Samuel is required to be independent of the Entity in order to provide a Report. The guidelines for independence in the preparation of Reports are set out in Regulatory Guide 112 issued by the Australian Securities & Investments Commission on 30 March The following information in relation to the independence of Grant Samuel is stated in Section 10.3 of the Tatts Report: Grant Samuel and its related entities do not have at the date of this report, and have not had within the previous two years, any business or professional relationship with Tatts or Tabcorp or any financial or other interest that could reasonably be regarded as capable of affecting its ability to provide an unbiased opinion in relation to the Scheme. Grant Samuel advises that: Grant Samuel was retained by Tabcorp to prepare an independent expert s report in relation to the demerger of Echo Entertainment Group Limited dated 15 April 2011; and Steven Gregg, a non-executive director of Tabcorp, is a member of the Grant Samuel Group Advisory Board (an informal panel of senior business people) and from time to time consults to Grant Samuel Group. He has a minor non-voting holding (<1%) of shares in Grant Samuel Group Pty Limited, the parent company of Grant Samuel. Mr Gregg has no involvement in the management or operations of Grant Samuel and has no access to confidential information held by Grant Samuel. Grant Samuel had no part in the formulation of the Scheme. Its only role has been the preparation of this report. Grant Samuel will receive a fixed fee of $1,850,000 for the preparation of this report. This fee is not contingent on the conclusions reached or the outcome of the Scheme. Grant Samuel s out of pocket expenses in relation to the preparation of the report will be reimbursed. Grant Samuel will receive no other benefit for the preparation of this report. Grant Samuel has internal complaints-handling mechanisms and is a member of the Financial Ombudsman Service, No If you have any concerns regarding the Tatts Report, please contact the Compliance Officer in writing at Level 19, Governor Macquarie Tower, 1 Farrer Place, Sydney NSW If you are not satisfied with how we respond, you may contact the Financial Ombudsman Service at GPO Box 3 Melbourne VIC 3001 or This service is provided free of charge. Grant Samuel holds professional indemnity insurance which satisfies the compensation requirements of the Corporations Act, Grant Samuel is only responsible for the Tatts Report and this FSG. Complaints or questions about the Disclosure Document should not be directed to Grant Samuel which is not responsible for that document. Grant Samuel will not respond in any way that might involve any provision of financial product advice to any retail investor. GRANT SAMUEL & ASSOCIATES PTY LIMITED ABN AFS LICENCE NO ANNEXURE A - INDEPENDENT EXPERT S REPORT 139

142 Table of Contents 1 Introduction Terms of the Scheme Competition Approval Tabcorp s Equity Interest Pacific Consortium Proposal Other Scope of the Report Purpose of the Report Basis of Evaluation Sources of the Information Limitations and Reliance on Information Industry Overview Australian Gambling Industry Wagering Lotteries and Keno Gaming Monitoring and Services Regulation, Licensing and Taxation Recent Developments Profile of Tatts Background Business Overview Financial Performance Financial Position Cash Flow Tax Position Capital Structure and Ownership Share Price Performance Business Operations Profile of Tabcorp Background Business Overview Financial Performance Financial Position Cash Flow Taxation Position Capital Structure and Ownership Share Price Performance Business Operations Profile of Combined Group Operations Directors and Management Capital Structure and Ownership Earnings and Dividends Financial Position Valuation Summary Valuation Approach Valuation of Tatts Valuation of Tabcorp Tatts Group Limited Scheme Booklet

143 8 Valuation of Business Operations Lotteries and Keno Wagering Gaming Monitoring and Services Evaluation of the Scheme Summary Fairness Reasonableness Alternatives Other Matters Shareholder Decision Qualifications, Declarations and Consents Qualifications Disclaimers Independence Declarations Consents Other Appendices 1 Tatts Broker Consensus Forecasts 2 Tabcorp Broker Consensus Forecasts 3 Valuation Methodologies 4 Market Evidence 5 Selection of Discount Rates ANNEXURE A - INDEPENDENT EXPERT S REPORT 141

144 1 Introduction 1.1 Terms of the Scheme On 19 October 2016, Tatts Group Limited ( Tatts ) and Tabcorp Holdings Limited ( Tabcorp ) announced that they had entered into a Merger Implementation Deed to combine the two companies 1. The combination is to be implemented by way of a scheme of arrangement under Section 411 of the Corporations Act, 2001 ( Corporations Act ) between Tatts and its shareholders ( the Scheme ). If the Scheme is implemented, Tatts shareholders will receive, for each share in Tatts, consideration of: 0.80 Tabcorp shares; plus 42.5 cents cash (reduced by any Tatts special dividend 2 ). As a result, Tabcorp will acquire Tatts and existing Tatts shareholders will, in aggregate, hold approximately 58.4% of the shares in the combined company (referred to in this report as the Combined Group ) while existing Tabcorp shareholders will hold the remaining 41.6% 3. Tabcorp is an Australian gambling entertainment company with annual revenue in excess of $2 billion. It is listed on the Australian Securities Exchange ( ASX ) and, prior to the announcement of the Scheme, had a market capitalisation of $4.1 billion. The Scheme is subject to a number of conditions which are set out in full in the Notice of Meeting and Explanatory Statement ( Scheme Booklet ) to be sent by Tatts to its shareholders, including competition regulatory approval and the approval of Tatts shareholders by the requisite majorities. Other elements of the Scheme include: Tatts and Tabcorp have agreed to certain exclusivity arrangements during the exclusivity period 4 including: for Tatts, no-shop, no-talk and no-due diligence restrictions, a notification obligation and a provision of information obligation. The no-talk and no-due diligence provisions are subject to a carve out in respect of the fiduciary and statutory obligations of Tatts directors; and for Tabcorp, no-shop restrictions and a notification obligation; Tabcorp has been granted the right to match a competing proposal for Tatts and cannot terminate the Scheme if it receives a competing proposal from a third party 5 ; reimbursement fees of $55 million (exclusive of GST) are payable by Tatts and Tabcorp in certain (differing) circumstances; a competition approval reimbursement fee of $35 million (exclusive of GST) is payable by Tabcorp to Tatts in certain circumstances; 1 On 16 November 2015, Tatts announced that it had held discussions with Tabcorp in relation to a nil premium merger of equals transaction but, as the parties were unable to agree terms, discussions had ended. 2 Under the Merger Implementation Deed, subject to the Scheme becoming effective, Tatts may declare and pay a fully franked special dividend of up to 25 cents per Tatts share and the cash component of the Scheme consideration will be reduced by the cash amount of the dividend. Tatts intends to pay a fully franked special dividend of 12 cents per share, subject to the availability of franking credits. 3 Based on 1,468,519,481 Tatts shares currently on issue. Including the 465,273 shares that could be issued upon the acceleration of the vesting of Tatts performance rights prior to implementation of the Scheme (see Section 16.2 of the Scheme Booklet) means that former Tatts shareholders will collectively hold 58.5% of shares on issue in the Combined Group while existing Tabcorp shareholders will hold the remaining 41.5%. 4 The period from 19 October 2016 to the earlier of the date on which the Scheme becomes effective, the date the Merger Implementation Deed is terminated and 30 September 2017 (or 31 December 2017, if the competition approval condition has not been satisfied or waived by 30 September 2017). 5 A competing proposal means in relation to a party (i.e. either Tatts or Tabcorp) any proposal, agreement, arrangement or transaction (or expression of interest therefore) which, if entered into or completed, would result in a third party: directly or indirectly acquiring a relevant interest in, or having the right to acquire a legal, beneficial or economic interest in, or control of, 10% or more of the share capital in the party or any material subsidiary of the party; acquiring control of the party or a material subsidiary of the party; directly or indirectly acquiring or become the holder of, or otherwise acquire or have the right to acquire a legal, beneficial or economic interest in, or control of, all or a substantial part of the party s business or assets or the business or assets of the party and its subsidiaries; directly or indirectly acquiring or merging with the party or a material subsidiary of the party; or require the party to abandon, or otherwise fail to proceed with, the Scheme. Each successive material modification or variation of any proposal, agreement, arrangement or transaction in relation to a competing proposal will constitute a new competing proposal Tatts Group Limited Scheme Booklet

145 the board of the Combined Group will comprise the directors of Tabcorp at implementation of the Scheme plus Mr Harry Boon, the Chairman of Tatts at 19 October 2016, who will join the board as a non-executive director. The Chairman and the Chief Executive Officer ( CEO ) of the Combined Group will be the Chairman and CEO of Tabcorp at 19 October 2016 or such other individuals that the Tabcorp board may nominate to those positions. Other senior management will be determined by the board of the Combined Group; unless Tabcorp determines otherwise, Tatts shareholders with registered addresses outside Australia and its external territories other than Canada, Finland, France, Germany, Hong Kong, Japan, Malaysia, The Netherlands, New Zealand, Singapore, Sweden, Taiwan, Thailand, the United Arab Emirates, the United Kingdom or the United States of America will be ineligible foreign shareholders and will not receive Tabcorp shares. Such shareholders will receive in cash the net proceeds (i.e. after brokerage and transaction costs) of the sale on the ASX of the Tabcorp shares to which they would otherwise have been entitled; Tabcorp shares issued to Tatts shareholders will rank equally with all other Tabcorp shares on issue. Before implementation of the Scheme, after 1 July 2017 and before 31 December 2017, Tabcorp may pay a fully franked dividend not exceeding 12.5 cents per Tabcorp share and Tatts may pay a fully franked dividend not exceeding 8 cents per Tatts share; each Tatts performance right on issue at implementation of the Scheme will be cancelled and replaced with Tabcorp performance rights to acquire 0.80 Combined Group shares plus 42.5 cents cash (adjusted for the Tatts special dividend) for every Tatts performance right held. The Tabcorp performance rights are to be granted on terms equivalent to the existing rights and the cash amounts will be held in escrow pending satisfaction of the terms of grant; each restricted Tatts share on issue at implementation of the Scheme will be acquired by Tabcorp under the Scheme. The consideration under the Scheme (Combined Group shares plus cash) will be subject to the same holding lock and trading restrictions as the Tatts restricted shares; and the Combined Group intends to undertake a $500 million share buyback following implementation of the Scheme, subject to board approval and market conditions. Subject to an independent expert determining that the Scheme is in the best interests of shareholders and in the absence of a superior proposal, each director of Tatts has recommended the Scheme and intends to vote shares held or controlled by them in favour of the Scheme. 1.2 Competition Approval The Scheme is subject to competition regulatory approval. Since announcement, Tabcorp has been engaging with the Australian Competition & Consumer Commission ( ACCC ) and lodged an informal clearance application in November On 9 March 2017, the ACCC issued a Statement of Issues ( SOI ) setting out its preliminary views in relation to the effect of the proposed combination on competition in the wagering, racing media and gaming industries. In the SOI, the ACCC raised a concern in relation to the electronic gaming machine monitoring services and repair and maintenance services in Queensland. To address this issue, Tabcorp announced on 18 April 2017 that it had executed agreements to divest its Odyssey Gaming Services business ( Odyssey Gaming ) to a subsidiary of Federal Group, subject to relevant competition approvals and implementation of the Scheme. On 13 March 2017, Tabcorp lodged an application with the Australian Competition Tribunal ( Tribunal ) for authorisation to proceed with the proposed combination and withdrew its application for informal clearance by the ACCC. On 22 June 2017, the Tribunal authorised the proposed combination subject to the divestment of Odyssey Gaming as announced on 18 April On 10 July 2017, the ACCC applied to the Full Federal Court of Australia for judicial review of the authorisation and on 13 July 2017, CrownBet Pty Ltd ( CrownBet ) 6 also applied for judicial review. The Full Federal Court heard the applications for judicial review on 28 and 29 August The outcome of these judicial review applications is subject to a right to apply to the High Court for special leave to appeal the Full Federal Court s decision within 28 days of that decision. 6 CrownBet is 62% owned by ASX listed company Crown Resorts Limited. 2 ANNEXURE A - INDEPENDENT EXPERT S REPORT 143

146 1.3 Tabcorp s Equity Interest On 25 November 2016, Tabcorp announced that it had entered into a cash-settled equity swap agreement with UBS Group AG, Australia Branch ( UBS ) in respect of 146,705,096 Tatts shares (9.99% of shares on issue). The equity swap has an average reference price of $4.34 per Tatts share and provides Tabcorp with voting rights (subject to certain conditions 7 ) over the Tatts shares held by UBS in connection with the equity swap and payments equivalent to any cash dividends paid by Tatts in respect of the shares. 1.4 Pacific Consortium Proposal On 14 December 2016, Tatts announced that it had received an unsolicited, indicative proposal from a consortium of four financial investors ( the Pacific Consortium 8 ) to acquire 100% of Tatts for cash and scrip consideration. The proposal involved two parallel schemes of arrangement under Section 411 of the Corporations Act between Tatts and its shareholders, one for the separation of Tatts wagering and gaming businesses ( Wagering & Gaming Co ) and the second for the 100% acquisition of Tatts which, at that time, would comprise only the Tatts Lotteries business. The Pacific Consortium s indicative proposal valued each Tatts share in the range $4.40 to $5.00 including: $3.40 in cash (comprising $3.105 cash, a $0.20 fully franked special dividend and $0.095 fully franked interim dividend); and one share in Wagering & Gaming Co (which was attributed a value of $1.00 to $1.60 per share by the Pacific Consortium). On 23 December 2016, the Tatts board announced that it had concluded that the indicative proposal was not a superior proposal to the Scheme and, therefore, under the terms of the Merger Implementation Deed with Tabcorp was unable to grant the Pacific Consortium due diligence or otherwise engage in discussions regarding its proposal. On 19 April 2017, Tatts announced that it had received a revised indicative proposal from the Pacific Consortium under which Tatts shareholders would receive $4.21 in cash for each Tatts share ( the Pacific Consortium Revised Indicative Proposal ) with the proposal to be implemented by way of a scheme of arrangement under Section 411 of the Corporations Act. The proposal allowed for Tatts to pay a fully franked dividend of up to 25 cents per share immediately prior to implementation which would reduce the $4.21 cash consideration. On 24 April 2017, Tatts announced that the Pacific Consortium Revised Indicative Proposal had been amended to permit Tatts to pay dividends to its shareholders in the ordinary course without reduction of the $4.21 cash consideration if the Pacific Consortium had not closed the transaction by 31 December Tatts noted that under the terms of the proposal, Tatts shareholders will not receive a final dividend for FY17 9. On 28 April 2017, the board of Tatts announced that it had determined that the Pacific Consortium Revised Indicative Proposal was not a superior proposal and could not reasonably be expected to result in a superior proposal when compared to the Scheme and, therefore, was unable to provide due diligence or engage with the Pacific Consortium. Accordingly, the board of Tatts announced that it would continue to recommend the Scheme to Tatts shareholders in the absence of a superior proposal and subject to an independent expert concluding that the Scheme is in the best interests of Tatts shareholders. 1.5 Other In this report, references to Tatts and Tabcorp include the companies and their subsidiaries respectively (i.e. a reference to Tatts holding a licence may mean that one of its subsidiaries is the actual licence holder). 7 In particular, Tabcorp has no voting rights in relation to the Scheme. 8 The Pacific Consortium comprised First State Superannuation Scheme, Morgan Stanley Infrastructure Inc., as adviser to and manager of North Haven Infrastructure Partners IILP, one or more affiliates of Kohlberg Kravis Roberts & Co. L.P. and Macquarie Corporate Holdings Pty Limited. In mid 2016, Tatts had previously had discussions with certain members of the Pacific Consortium. 9 FYXX = financial year end 30 June 20XX Tatts Group Limited Scheme Booklet

147 2 Scope of the Report 2.1 Purpose of the Report Under Section 411 of the Corporations Act, the Scheme must be approved by a majority in number (i.e. more than 50%) of each class of shareholders present and voting (either in person or by proxy) at the meeting, representing at least 75% of the votes cast on the resolution. If approved by Tatts shareholders, the Scheme will then be subject to approval by the Supreme Court of Victoria. Part 3 of Schedule 8 to the Corporations Regulations prescribes the information to be sent to shareholders in relation to such schemes. Part 3 of Schedule 8 requires an independent expert s report in relation to a scheme of arrangement to be prepared when a party to a scheme of arrangement has a prescribed shareholding in the company subject to the scheme, or where any of its directors are also directors of the company subject to the scheme. In those circumstances, the independent expert s report must state whether the scheme of arrangement is in the best interests of shareholders subject to the scheme and must state reasons for that opinion. Although there is no requirement in the present circumstances for an independent expert s report pursuant to the Corporations Act or the ASX Listing Rules, the directors of Tatts have engaged Grant Samuel & Associates Pty Limited ( Grant Samuel ) to prepare an independent expert s report setting out whether, in its opinion, the Scheme is in the best interests of Tatts shareholders and to state reasons for that opinion. A copy of the report will accompany the Scheme Booklet to be sent to shareholders by Tatts. This report is general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of individual Tatts shareholders. Accordingly, before acting in relation to their investment, shareholders should consider the appropriateness of the advice having regard to their own objectives, financial situation or needs. Shareholders should read the Scheme Booklet issued by Tatts in relation to the Scheme. Voting for or against the Scheme is a matter for individual shareholders based on their views as to value, their expectations about future market conditions and their particular circumstances including risk profile, liquidity preference, investment strategy, portfolio structure and tax position. Shareholders who are in doubt as to the action they should take in relation to the Scheme should consult their own professional adviser. Similarly, it is a matter for individual shareholders as to whether to buy, hold or sell shares in Tatts, Tabcorp or the Combined Group. These are investment decisions upon which Grant Samuel does not offer an opinion and are independent of a decision on whether to vote for or against the Scheme. Shareholders should consult their own professional adviser in this regard. 2.2 Basis of Evaluation There is no legal definition of the expression in the best interests. However, the Australian Securities & Investments Commission ( ASIC ) has issued Regulatory Guide 111 ( RG111 ) which establishes guidelines in respect of independent expert s reports. RG111 differentiates between the analysis required for control transactions and other transactions. The Scheme involves Tabcorp acquiring 100% of Tatts and therefore qualifies as a control transaction. In the context of control transactions (whether by takeover bid, by scheme of arrangement, by the issue of securities or by selective capital reduction or buyback), the expert is required to distinguish between fair and reasonable. A proposal that was fair and reasonable or not fair but reasonable would be in the best interests of shareholders (being the opinion required under Part 3 of Schedule 8). For most other transactions, the expert should consider the overall commercial effect of the proposal, the circumstances that have led to the proposal and the alternatives available. The expert must weigh up the advantages and disadvantages of the proposal and form an overall view as to whether the shareholders are likely to be better off if the proposal is implemented than if it is not. In this case, if the advantages outweigh the disadvantages, such a proposal would be in the best interests of shareholders. 4 ANNEXURE A - INDEPENDENT EXPERT S REPORT 145

148 For the purposes of a control transaction, fair and reasonable are treated as two separate concepts. Fairness involves questions of value while reasonableness relates to a variety of other issues that might impact on a shareholder s decision as to whether or not to accept an offer or vote in favour of a change of control transaction. Fairness is a more demanding criteria. A fair proposal will always be reasonable but a reasonable proposal will not necessarily be fair. A proposal could be considered reasonable if there were valid reasons to accept an offer or vote in favour notwithstanding that it was not fair (e.g. if the bidder already controlled the target and the offer was well above the prevailing market price). Under RG111, fairness in a control transaction is to be assessed by comparing the value of the consideration offered with the full underlying value of the target assuming 100% of the target was available to be acquired. Where the consideration comprises scrip in the offeror, the value of the consideration is to be assessed as the expected trading price of those securities (i.e. on a minority or portfolio interest basis) post completion of the transaction. RG111 does provide for some flexibility in the basis of the assessment of fairness depending on the particular circumstances of the transaction. RG states that a different approach may be appropriate where there is a merger of entities of equivalent value when control of the merged entity will be shared equally between the bidder and the target. In this case, the expert may be justified in using an equivalent approach to valuing the securities of the bidder and the target. This alternative analysis is generally referred to as merger analysis and normally involves comparison of the exchange ratio with the relative contributions of the two sets of shareholders across a range of parameters (including sharemarket value and full underlying value). From the perspective of Tatts shareholders, there are factors that infer that there is a change of control in favour of Tabcorp under the Scheme: Tabcorp will acquire 100% of Tatts; on the date of announcement of the Scheme, the agreed terms implied a premium for Tatts shareholders of 20.8% compared to the price at which Tatts shares last traded prior; the Board of Tabcorp will continue unchanged other than the appointment of the current Chairman of Tatts (Mr Harry Boon) as an additional non-executive director; and David Attenborough and Damien Johnston, the current Tabcorp CEO and Chief Financial Officer ( CFO ) respectively, will continue in those roles for the Combined Group. The balance of the senior management team will be determined by the Board of the Combined Group. However: the market value of the target company (Tatts) exceeds that of the acquirer (Tabcorp); Tatts shareholders will collectively hold approximately 58.4% of the Combined Group while existing Tabcorp shareholders will hold only around 41.6%; a change of control at a board and management level should not be confused with a change of control from the perspective of a shareholder: board and management positions are temporal in nature; senior management positions are determined by the board; and board positions are ultimately subject to the control of shareholders and Tatts shareholders will, in aggregate, have the voting power (58.4%) to change the Board of the Combined Group. Ultimately, management and board serve at the behest of shareholders; based on substantial shareholder notices lodged for Tatts and Tabcorp at the date of this report, no shareholder is expected to hold more than 9.6% of the shares on issue in the Combined Group on implementation of the Scheme. Accordingly, although Tabcorp s Tatts Group Limited Scheme Booklet

149 Constitution contains restrictions prohibiting a person from having voting power of more than 10% in Tabcorp without the written consent of the appropriate ministers of the states of Queensland and New South Wales ( NSW ) 10, Tatts shareholders will retain the opportunity to receive a takeover offer incorporating a premium for control at some time in the future. In this regard, Tatts shareholders will not give up control by participating in the Scheme and will retain their interest in the Tatts business (albeit diluted). This situation contrasts directly with, say, a cash takeover where shareholders have effectively sold the business to a third party; and previous discussions which failed to reach agreement between Tatts and Tabcorp (in late 2015) were premised on a nil premium merger of equals. The premium arising under the Scheme largely reflects the relative movement in market prices since that time. While the Scheme does not precisely fit the merger of equals envisaged under RG111.31, in Grant Samuel s opinion, merger analysis is the appropriate basis on which to evaluate fairness. Accordingly, Grant Samuel has assessed whether the Scheme is fair by comparing the share of value of the Combined Group received by Tatts shareholders with the value contributed by Tatts shareholders to that entity. For this purpose, Grant Samuel has had regard to relative contributions of both sharemarket value and estimated fundamental value. In any event, Grant Samuel has also considered the terms of the Scheme from a takeover/change of control perspective. In assessing reasonableness, the advantages and disadvantages of the Scheme have been considered, including: the expected quantum and timing of synergies expected as a result of the Scheme; the impact of the Scheme on key investment metrics for Tatts shareholders (e.g. earnings, dividends); the investment characteristics of the Combined Group compared to Tatts on a standalone basis; the impact on the composition of the share register and sharemarket liquidity; the likelihood of an alternative offer and the opportunity for alternative transactions in future; other advantages and benefits of the Scheme for Tatts shareholders; and other disadvantages, risks and costs of the Scheme for Tatts shareholders. 2.3 Sources of the Information In preparing this report, Grant Samuel held discussions with, and obtained information from, senior management of Tatts and its advisers and senior management of Tabcorp and its advisers. The following information was utilised and relied upon, without independent verification, in preparing this report: the Scheme Booklet (including earlier drafts); annual reports of Tatts and Tabcorp for the seven years ended 30 June 2017; press releases, public announcements and analyst presentation material and other public filings by Tatts and Tabcorp including information available on their websites; brokers reports and recent press articles on Tatts, Tabcorp and the gaming, wagering and lottery industries in Australia and internationally; 10 For more details on Tabcorp shareholding restrictions and other limitations see Section of the Scheme Booklet. 6 ANNEXURE A - INDEPENDENT EXPERT S REPORT 147

150 sharemarket data and related information on Australian and international listed companies engaged in the gaming, wagering and lottery industries in Australia and internationally and on acquisitions of companies and businesses in that industry; information relating to the Australian and international gaming, wagering and lottery industries (as appropriate); and other confidential documents, board papers, presentations, working papers and third party reports provided by Tatts including the budget for FY18 and longer term projections for Tatts prepared by Tatts management. In addition, Tabcorp provided non-public confidential information including a draft budget for FY18 for Tabcorp prepared by Tabcorp management. 2.4 Limitations and Reliance on Information Grant Samuel believes that its opinion must be considered as a whole and that selecting portions of the analysis or factors considered by it, without considering all factors and analyses together, could create a misleading view of the process employed and the conclusions reached. Any attempt to do so could lead to undue emphasis on a particular factor or analysis. The preparation of an opinion is a complex process and is not necessarily susceptible to partial analysis or summary. Grant Samuel s opinion is based on economic, sharemarket, business trading, financial and other conditions and expectations prevailing at the date of this report. These conditions can change significantly over relatively short periods of time. If they did change materially, subsequent to the date of this report, the opinion could be different in these changed circumstances. This report is also based upon financial and other information provided by Tatts and its advisers. Grant Samuel has considered and relied upon this information. Tatts has represented in writing to Grant Samuel that to its knowledge the information provided by it was then, and is now, complete and not incorrect or misleading in any material respect. The report is also based upon financial and other information provided by Tabcorp and its advisers. Grant Samuel has considered and utilised this information. Grant Samuel has no reason to believe that any material facts have been withheld. The information provided to Grant Samuel has been evaluated through analysis, inquiry and review to the extent that it considers necessary or appropriate for the purposes of forming an opinion as to whether the Scheme is in the best interests of Tatts shareholders. However, Grant Samuel does not warrant that its inquiries have identified or verified all the matters that an audit, extensive examination or due diligence investigation might disclose. While Grant Samuel has made what it considers to be appropriate inquiries for the purposes of forming its opinion, due diligence of the type undertaken by companies and their advisers in relation to, for example, prospectuses or profit forecasts, is beyond the scope of an independent expert. Accordingly, this report and the opinions expressed in it should be considered more in the nature of an overall review of the anticipated commercial and financial implications rather than a comprehensive audit or investigation of detailed matters. An important part of the information used in forming an opinion of the kind expressed in this report is comprised of the opinions and judgement of management. This type of information was also evaluated through analysis, inquiry and review to the extent practical. However, such information is often not capable of external verification or validation. Preparation of this report does not imply that Grant Samuel has audited in any way the management accounts or other records of Tatts or Tabcorp. It is understood that the accounting information that was provided was prepared in accordance with generally accepted accounting principles and in a manner consistent with the method of accounting in previous years (except where noted) Tatts Group Limited Scheme Booklet

151 The information provided to Grant Samuel included: the budget for Tatts for FY18 ( Tatts FY18 Budget ); a draft budget for Tabcorp for FY18 prepared by management but not yet endorsed by the Directors of Tabcorp ( Tabcorp FY18 Draft Budget ); the proforma consolidated income statement for the Combined Group for FY17 assuming the Scheme was implemented on 1 July 2016 ( Combined Group Proforma Income Statement ); the proforma consolidated cash flow statement for the Combined Group for FY17 assuming the Scheme was implemented on 1 July 2016 ( Combined Group Proforma Cash Flow Statement ); and the proforma consolidated financial position for the Combined Group as at 30 June 2017 assuming the Scheme was implemented on that date ( Combined Group Proforma Financial Position ). Tatts is responsible for the Tatts FY18 Budget and Tabcorp is responsible for the Tabcorp FY18 Draft Budget (collectively the forward looking information ). Tabcorp is responsible for the Combined Group Proforma Income Statement and the Combined Group Proforma Financial Position (except to the extent that the Combined Group Proforma Income Statement and the Combined Group Financial Position is based on information provided by Tatts, for which Tatts takes responsibility) (collectively the proforma information ). Grant Samuel has considered and, to the extent deemed appropriate, relied on the forward looking information and the proforma information for the purposes of its analysis. Grant Samuel has not investigated this financial information in terms of the reasonableness of the underlying assumptions, accuracy of compilation or application of assumptions. However, Grant Samuel considers that, based on the inquiries it has undertaken and only for the purposes of its analysis for this report (which do not constitute, and are not as extensive as, an audit or accountant s examination), there are reasonable grounds to believe that the forward looking information has been prepared on a reasonable basis. In forming this view, Grant Samuel has taken the following factors into account that: the Tatts FY18 Budget has been approved by the Directors of Tatts; both Tatts and Tabcorp have sophisticated management and financial reporting processes. The prospective financial information is based on detailed budgeting processes involving preparation of ground up forecasts by the respective management and is subject to ongoing analysis and revision to reflect the impact of actual performance or assessments of likely future performance; and the Combined Group Proforma Income Statement, the Combined Group Proforma Cash Flow Statement and the Combined Group Proforma Financial Position set out in Section 12 of the Scheme Booklet has been subject to review by PricewaterhouseCoopers Securities Ltd ( PwC Securities ) and its Investigating Accountant s Report is attached as Annexure B to the Scheme Booklet. Tatts and Tabcorp have not included FY18 forecast information in the Scheme Booklet and therefore the Tatts FY18 Budget and Tabcorp FY18 Draft Budget have not been disclosed in this report. In order to provide an indication of the expected financial performance of Tatts and Tabcorp, Grant Samuel has considered brokers forecasts for Tatts (see Appendix 1) and Tabcorp (see Appendix 2). Grant Samuel has used the median of the brokers forecasts to review the parameters implied by its valuations of Tatts and Tabcorp. Based on the information it has reviewed, Grant Samuel considers that the median brokers FY18 forecasts for Tatts and Tabcorp represent information that is useful for analytical purposes (except where noted otherwise). The information provided to Grant Samuel also included longer term earnings projections prepared by the management of Tatts. Grant Samuel has not relied on these projections for the purposes of its report but has considered this information in its review of the future business strategies and prospects of Tatts. 8 ANNEXURE A - INDEPENDENT EXPERT S REPORT 149

152 Grant Samuel has no reason to believe that the forward looking information reflects any material bias, either positive or negative. However, the achievability of the forward looking information and the projections is not warranted or guaranteed by Grant Samuel. Future profits and cash flows are inherently uncertain. They are predictions by management of future events that cannot be assured and are necessarily based on assumptions, many of which are beyond the control of the company or its management. Actual results may be significantly more or less favourable. As part of its analysis, Grant Samuel has reviewed the sensitivity of net present values to changes in key variables. The sensitivity analysis isolates a limited number of assumptions and shows the impact of variations to those assumptions. No opinion is expressed as to the probability or otherwise of those variations occurring. Actual variations may be greater or less than those modelled. In addition to not representing best and worst outcomes, the sensitivity analysis does not, and does not purport to, show the impact of all possible variations to the business model. The actual performance of the business may be negatively or positively impacted by a range of factors including, but not limited to: changes to the assumptions other than those considered in the sensitivity analysis; greater or lesser variations to the assumptions considered in the sensitivity analysis than those modelled; and combinations of different variations to a number of different assumptions that may produce outcomes different to the combinations modelled. In forming its opinion, Grant Samuel has also assumed that: matters such as title, compliance with laws and regulations and contracts in place are in good standing and will remain so and that there are no material legal proceedings, other than as publicly disclosed; the information set out in the Scheme Booklet sent by Tatts to its shareholders is complete, accurate and fairly presented in all material respects; the publicly available information relied on by Grant Samuel in its analysis was accurate and not misleading; the Scheme will be implemented in accordance with its terms; and the legal mechanisms to implement the Scheme are correct and will be effective. To the extent that there are legal issues relating to assets, properties, or business interests or issues relating to compliance with applicable laws, regulations, and policies, Grant Samuel assumes no responsibility and offers no legal opinion or interpretation on any issue Tatts Group Limited Scheme Booklet

153 3 Industry Overview 3.1 Australian Gambling Industry Gambling turnover 11 in Australia FY15 was $191.9 billion and gambling expenditure 11 was estimated to be $22.7 billion 12. The Australian gambling industry is relatively mature. Although year on year growth has varied, average annual growth over the past ten years has been broadly in line with growth in the economy (at 3% per year). Gambling activities compete with other consumer products and services for consumers discretionary expenditure and, in particular, with other forms of leisure and entertainment including cinema, restaurants, sporting events, the internet and pay television. Although gambling expenditure has represented a declining percentage of household disposable income, it appears to have stabilised at around 2% over the past six years: Australian Gambling Expenditure (FY06 to FY15) $ billions % 1% 1% 10% 10% 10% 13% 14% 14% 1% 1% 10% 8% 15% 16% 17% 17% 18% 18% 19% 1% 9% 16% 19% 1% 2% 2% 10% 10% 9% 16% 16% 16% 20% 20% 21% 1% 9% 16% 23% 3.0% 2.5% 2.0% 1.5% 1.0% % 58% 56% 55% 55% 55% 53% 52% 52% 51% 0.5% Year ended 30 June 0.0% Keno Wagering Gaming machines Lotteries Casinos Gambling expenditure as a % of household disposable income Source: Australian Gambling Statistics, 32nd edition, Queensland Government Statistician s Office, Queensland Treasury Note: Gambling expenditure by product excludes minor gambling (raffles, bingo, lucky envelopes etc.) which represents less than 1% of total gambling expenditure. It should be noted that gambling expenditure as a percentage of household disposable income on a State and Territory basis has been impacted by significant growth in gambling expenditure (in dollars and as a percentage of household disposable income) in the Northern Territory. However, this growth reflects the significant proportion of gambling business in the Northern Territory that comes from interstate and international markets using online services (e.g. via corporate bookmakers licensed in the Northern Territory). The trend in all other States and Territories is a declining proportion of household disposable income being spent on gambling. In FY15, expenditure on electronic gaming machines ( EGMs ) (in clubs and hotels) represented just over half of all gambling expenditure, with wagering representing 16%, lotteries 9% and Keno (in clubs and hotels) 1%. The balance of gambling expenditure (23%) was in casinos (table gaming, EGMs and Keno). 11 Gambling turnover is the total amount gambled. Gambling expenditure is gambling turnover less the total amount won by players. 12 Source: Australian Gambling Statistics, 32nd edition, Queensland Government Statistician s Office, Queensland Treasury. FY15 is the latest information available at the date of this report. All market size and share information in this Section has been sourced from this publication unless stated otherwise. 10 ANNEXURE A - INDEPENDENT EXPERT S REPORT 151

154 The proportion of total gambling expenditure spent in casinos and on wagering has increased over the past ten years (from 17% to 23% and from 13% to 16% respectively). In the case of wagering, this has been due to growth in sports wagering (with racing wagering representing a declining proportion of total gambling expenditure), largely through online channels. The increasing proportion of gambling expenditure in casinos and on wagering has been at the expense of EGMs and lotteries (which have declined from 59% to 51% and 10% to 9% of gambling expenditure respectively). NSW, Victoria and Queensland together account for approximately 80% of gambling expenditure in Australia 13, in line with the concentration of the population in these eastern seaboard States. Excluding the Northern Territory (which has unusually high per capita gambling expenditure for the reasons set out above), NSW, Victoria and Queensland also lead on a per capita basis, with gambling expenditure in the range $1,000-1,500 in FY The Australian gambling industry is highly competitive. In recent years, there has been considerable growth in online gambling (from both domestic and internationally owned operators), particularly sports betting. Competition is expected to remain intense, with operators continuing to focus on the key drivers of technological development, product innovation, convenience and marketing. The balance of this section focuses on the sectors of the Australian gambling industry in which Tatts and Tabcorp operate (i.e. wagering, lotteries and gaming monitoring and services). 3.2 Wagering The wagering market in Australia is made up of betting on local and international racing (thoroughbred, harness and greyhound), sporting activities and novelty events (such as election outcomes). Betting takes place with bookmakers and Totalizator Agency Boards ( TABs ), both on-course and off-course. Over the past ten years, wagering turnover has grown at approximately 4% per annum and was estimated to be $24.8 billion in FY15, driven by growth in sports wagering. Increased coverage of racing and sporting events and competition from new entrants have also stimulated demand. A TAB is licensed to operate in each Australian State and Territory to undertake wagering activities in retail outlets (including pubs and clubs), on-course, by telephone and online. TABs were established by State and Territory governments in the 1950s and 1960s 15 to counteract illegal off-course betting on racing and to provide funding to the racing industry. Sports betting was not permitted until the 1980s. Almost all TABs have subsequently been privatised, starting with the Victorian TAB, which was acquired by Tabcorp in Today, Tabcorp is licensed to operate TABs in NSW, Victoria and the Australian Capital Territory ( ACT ) and Tatts is licensed to operate TABs in Queensland, South Australia, the Northern Territory and Tasmania. The terms and exclusivity arrangements for each licence vary, details of which are set out in Sections and respectively. In Western Australia, the TAB continues to be operated by a government owned organisation 16. TABs initially offered pari-mutuel wagering, where wagers for each bet type are placed into a pool which, after deducting a commission, is shared among the customers who selected the winners. Under pari-mutuel wagering, the odds (and therefore the payout) adjust over time in response to flows in the amount of money wagered by individual event participants (in contrast to fixed odds wagering, where the odds are fixed at the time of laying the bet). 13 With NSW representing 39%, Victoria representing 25% and Queensland representing 16%. 14 The equivalent per capita gambling turnover in FY15 was in the range $9,200-13, Although the Tasmanian TAB did not commence operations until There is currently some market speculation that the Western Australian Government may seek to privatise its TAB in the near future Tatts Group Limited Scheme Booklet

155 There are three TAB pools (for the purposes of determining the total amount wagered and the payout on a wagering event), the Victorian TAB pool ( SuperTAB ) (which includes Victoria, the ACT and Western Australia as well as various overseas totalizator operators that co-mingle bets into the SuperTAB pool), the NSW pool (which does not pool with any other Australian totalizators but does pool with overseas totalizators) and the Queensland pool (to which Queensland, South Australia, the Northern Territory and Tasmania are parties). At a retail level (i.e. in pubs, clubs and their own outlets), TABs are essentially State or Territory based monopolies but they compete with on-course bookmakers in each jurisdiction and with other interstate and internationally owned wagering operators that accept bets over the telephone or online, including corporate bookmakers and betting exchanges 17. Court decisions, relaxation of advertising laws (or their administration) and technology advances have allowed other wagering operators to compete nationally. In particular, the 2008 High Court decision removing restrictions that prevented bookmakers licensed in one jurisdiction from advertising in another enabled the entry of corporate bookmakers into the Australian sports betting market. As a result of differences in the regulatory environments in Australian States and Territories, the majority of corporate bookmakers are licensed in the Northern Territory: Bookmakers and Betting Exchange Operators Licensed in the Northern Territory bet365 (United Kingdom private) PlayON 18 (United Kingdom private) BetChoice/Unibet (Kindred Group plc) PointsBet (Australian private) Betfair 17 (Crown Resorts Limited) Sportsbetting.com.au (Australian private) Betting.Club (Australian private) Sportsbet (Paddy Power Betfair plc) CrownBet (62% Crown Resorts Limited) SportChamps (Australian private) DraftStars 18 (CrownBet/News Corporation) TopBetta (TopBetta Holdings Limited) Ladbrokes (Ladbrokes Coral plc) UBET (Tatts) Lottoland (United Kingdom private) Weather Lottery (Activistic Limited) Luxbet (Tabcorp) William Hill (William Hill plc) MoneyBall 18 (Australian private) Source: Note: Ownership shown in brackets. Many are owned by major listed Australian and international gambling companies. The large number of corporate bookmakers licensed in the Northern Territory has driven rapid growth in the Northern Territory wagering market but their focus is the national online wagering market where they now represent well over 50% of turnover. In contrast to TABs, which pay State or Territory gambling taxes and make substantial payments to the relevant racing industry (e.g. through revenue or profit share agreements), corporate bookmakers licensed in the Northern Territory pay minimal taxes (as the Northern Territory has a relatively low tax regime, with payments to the government capped at $575,000 per operator, per annum). However, deregulation of the national wagering market has also seen the introduction of race fields fees legislation across Australia, which allows racing codes in each State and Territory (other than the Northern Territory) to charge wagering operators (including corporate bookmakers) for the use of race fields information, irrespective of the domicile of the operator. Legislation has also been introduced in several jurisdictions to support the imposition by sports controlling bodies of fees payable by wagering operators betting on relevant sporting events. In addition, many sporting events, teams and stadiums have entered into commercial marketing arrangements with corporate bookmakers and TABs (to receive marketing and product fees based on betting revenues). Recent trends in the wagering market have included: 17 A betting exchange is a market place for gamblers to trade wagers and bet against each other rather than against a bookmaker. Betfair (which is wholly owned by Crown Resorts) is the only licensed betting exchange in Australia. It is licensed in the Northern Territory and operates nationally, with most of its business generated from interstate and international customers. 18 Fantasy sports operator. 12 ANNEXURE A - INDEPENDENT EXPERT S REPORT 153

156 increased wagering on sports events. While the majority of wagering turnover continues to be on racing ($17.6 billion in FY15 compared to $7.2 billion on sports events), wagering on sports events has increased rapidly: 25.0 Australian Wagering Turnover ( to ) 20.0 $ billions Year ended 30 June Racing Sport Source: Australian Gambling Statistics, 32nd edition, Queensland Government Statistician s Office, Queensland Treasury Over the past ten years, wagering on sports events has grown at an average rate of 16% per annum (compared to approximately 1% average annual growth for wagering on racing), increasing its share of the total wagering market from ~10% in FY06 to ~30% in FY15; a shift from pari-mutuel to fixed odds betting. This change in customer preference has resulted in pari-mutuel betting declining, both in terms of dollar amount and as a percentage of total wagering turnover: 100% Australian Wagering Turnover - Pari-Mutuel vs Fixed Odds ( to ) 90% 80% 70% 60% 50% 11% 11% 13% 13% 15% 16% 17% 10% 11% 12% 12% 14% 16% 17% 21% 21% 24% 24% 29% 29% 40% 30% 20% 79% 79% 75% 75% 71% 68% 67% 59% 51% 42% 10% 0% Year ended 30 June Pari-mutuel Fixed odds racing Fixed odds sport Source: Australian Gambling Statistics, 32nd edition, Queensland Government Statistician s Office, Queensland Treasury Tatts Group Limited Scheme Booklet

157 While some of this shift has resulted from the growth in wagering on sports events (which is almost entirely fixed odds), there has also been a shift to fixed odds betting in racing. Fixed odds betting in racing has increased from 10% of total racing wagering in FY06 to approximately 40% of total racing wagering in FY15. Although the total racing wagering market has grown by around 1% per annum over the past ten years, this reflects average annual growth of around 16% for fixed odds wagering and an average annual decline in parimutuel wagering of around 1%. As fixed odds wagering generates lower yields than pari-mutuel wagering, this trend puts pressure on the operating margins of TAB licence holders such as Tabcorp and Tatts; and migration away from traditional retail to digital distribution channels, in particular mobile. This trend has been driven by the digital transformation that has taken place in Australia and customer preference/convenience as well as the introduction and growth of corporate bookmakers (that almost exclusively operate online). Just over half of all wagering turnover is estimated to take place via digital distribution channels, an increase from 12% ten years ago, with all other distribution channels declining in importance: 100% 90% 80% 70% 60% 50% 40% 30% 20% Australian Wagering Turnover by Distribution Channel ( to ) 12% 24% 10% 54% 18% 23% 9% 50% 23% 26% 23% 21% 30% 18% 8% 9% 8% 35% 37% 16% 14% 7% 6% 46% 44% 44% 42% 43% 41% 13% 7% 47% 11% 6% 51% 10% 5% 39% 36% 34% 10% 0% Year ended 30 June Retail On course Telephone Digital Source: Tabcorp This trend has resulted in increased access and competition which has lead to wagering expenditure moving from TABs to corporate bookmakers, necessitating significant ongoing investment by TABs in digital distribution channels and digital products to maintain their competitive position. Associated with this trend has been some shift from pre-game to inplay betting. However, in-play betting is prohibited online in Australia but is permitted in person in retail outlets or by telephone and has reportedly been offered by (largely unregulated) offshore wagering providers. While TABs have maintained their leading (albeit declining) share of the total wagering market (estimated to be around 54% in FY15, refer to the chart below for details), corporate bookmakers have a much larger share of wagering turnover via the digital distribution channel. While it is difficult to source reliable data (particularly in relation to Western Australia), it is estimated that corporate bookmakers account for well over 50% of wagering turnover via the digital distribution channel. The result has been a significant increase in the market share of corporate bookmakers. They are estimated to have represented 46% of total wagering turnover in FY16 (up from 25% in FY06), growing at an average rate of over 6% per annum over the 11 years to FY16 at the expense of 14 ANNEXURE A - INDEPENDENT EXPERT S REPORT 155

158 TABs. Tabcorp s market share (including Luxbet Pty Ltd ( Luxbet )) is estimated to have fallen from 48% to 36% and Tatts market share has fallen from 16% to 11% (despite both acquiring additional government owned TABs over this period): 100% Australian Wagering Turnover - TABs vs Bookmakers (2005/06 to 2015/16) 90% 80% 70% 60% 50% 40% 25% 28% 29% 30% 29% 29% 27% 31% 10% 11% 11% 13% 12% 12% 13% 9% 16% 16% 15% 15% 15% 14% 15% 15% 34% 9% 13% 39% 8% 13% 46% 7% 11% 30% 20% 10% 48% 46% 44% 43% 44% 43% 46% 45% 43% 41% 36% 0% Source: Australian Racing Fact Books 2005/06 to 2015/16 Note: Tabcorp s market share does not include the contribution from Luxbet from FY09 to FY11 as this information was not disclosed by Tabcorp in this period. As a result, its market share is slightly understated in those three years. It is argued that a significant part of this market share gain is attributable to the structural benefits enjoyed by corporate bookmakers over most TABs in terms of a lower tax burden (as most are licensed in the Northern Territory) and lower operating expenses (due to no retail presence). These structural benefits enable corporate bookmakers to spend materially more (proportionately) on marketing and offer better odds, attracting customers away from TABs. These trends are indicative of the extremely competitive nature of the Australian wagering market, driving wagering operators to increase expenditure on advertising and branding and focus on product innovation (such as multi-bets and cash outs ) to attract customers. 3.3 Lotteries and Keno Year ended 30 June Tabcorp Tatts Other TABs Bookmakers Lotteries are broadly defined as games of chance and the sector includes lotto, instant lottery ( scratchies ), charitable and other lotteries 19 and sports pools. While Keno is a lottery-style game, it has been considered separately from other forms of lotteries for the purposes of this analysis. Lotteries Over the past ten years, lotteries turnover in Australia (excluding Keno) has grown at approximately 2.5% per annum (slightly below the level of nominal economic growth) and was estimated to be $4.9 billion in FY15. Growth in turnover has differed significantly between lotto and other products, with lotto growing at an average rate of 3.3% per annum while instant lottery, charitable and other lotteries and sports pools have experienced an average decline in annual growth of 1.7%, 6.4% and 2.9% respectively. Lotto represents the majority of turnover, increasing from 81% of the market in FY06 to 88% in FY15. Instant 19 Charitable and other lotteries are lotteries run by or on behalf of charitable or not-for-profit organisations the profits from which are used to fund research and community and welfare programs. Charitable lotteries are separately regulated by State and Territory governments and are not considered in detail in this section Tatts Group Limited Scheme Booklet

159 lotteries turnover has fallen from 16% to 10% and charitable and other lotteries has fallen from 4% to 1%. Pools turnover has remained at less than 0.5% of total lotteries turnover: 6.0 For personal use only Australian Lotteries Turnover ( to ) $ billions Year ended 30 June Lotto Instant Lottery Charitable and Other Lotteries Pools Source: Australian Gambling Statistics, 32nd edition, Queensland Government Statistician s Office, Queensland Treasury Note: FY10 turnover is incomplete as it only includes three months of data from NSW. Approximately 50% of lotteries turnover is generated in Victoria and NSW (each with around 25% of the market). Queensland and Western Australia are the next largest markets, at 21% and 17% of turnover respectively. Although a relatively small market (turnover of $104 million in FY15), the Northern Territory has recorded the highest average annual growth rate over the past ten years of almost 12%, with Western Australia also recording above average annual growth at 4.7%. Annual turnover and revenue reflect a core base of activity (regular participants buying every week) with fluctuations from year to year driven by the number of major jackpots (usually defined as a jackpot with value $15 million). As a result, the number of major jackpots influences the performance of lotteries businesses and can lead to unpredictable variations in turnover and revenue from year to year. The first lotteries in Australia were established in Sydney in the 1880s as privately operated Tattersall s sweepstakes. Tattersall s (now Tatts) was the only private lottery business in Australia (operating in Tasmania, Victoria and the ACT) until the Northern Territory introduced a private lottery in Lotteries in other States and Territories were originally operated by State and Territory governments (in particular, to raise funds for social welfare programs). The Northern Territory lottery and the operations of each of the government run lotteries other than the Western Australian lottery have subsequently been acquired by Tatts. As a result, Tatts is the largest lotteries operator in Australia, with licences/agreements to operate lotteries in all States and Territories in Australia other than Western Australia, where lotteries are operated by the Western Australian government through Lotterywest. Details of Tatts lotteries licences and exclusivity arrangements in each jurisdiction and a description of the range of lotteries products offered by Tatts are set out in Section of this report. Although lottery licences (and lottery brands) are state or territory based, the majority of lottery games operate on a national basis through lottery blocs, an arrangement under which the prize funds from each jurisdiction in certain games are pooled to create increased prize pools with significantly larger jackpots that are offered nationally. There is a lottery bloc operating in 16 ANNEXURE A - INDEPENDENT EXPERT S REPORT 157

160 respect of each of the following games: Saturday Lotto, Monday and Wednesday Lotto, Super 66, Set for Life, OZ Lotto, Powerball, Draw Lotteries, Instant Lottery as well as the Australian Soccer Pools Bloc (covering The Pools). Tatts is the administrator of all lottery blocs. The administrator of each lottery bloc calculates the national prize pools, conducts the lottery draws and calculates the payments for each prize category. Lotteries products are distributed through an extensive agency network including newsagents, convenience outlets, service stations, supermarkets and other retailers: Estimated Number of Lottery Outlets in Australia ( ) Jurisdiction Number of Outlets NSW 1,374 Queensland 960 Victoria 790 South Australia 616 Western Australia 533 Tasmania 93 ACT 44 Northern Territory 24 Total 4,434 Source: Australasian Gaming Council, A Guide to Australasia s Gambling Industries 2015/2016, Chapter One. There are regulatory restrictions on the types of outlets that can sell lottery tickets that differ by jurisdiction (e.g. in NSW Tatts has agreed not to expand into major supermarket chains before 31 March 2018). Lottery tickets can also be purchased online (via the internet or a mobile app) through: the digital distribution channels of licensees Tatts and Lotterywest; and authorised online resellers of lotteries such as the ASX-listed Jumbo Interactive Limited ( Jumbo ) (operating as ozlotteries.com) and the privately owned Netlotto (via netlotto.com.au). While still a relatively small proportion of total lotteries turnover (estimated to be less than 15%), the digital distribution channel is growing rapidly (at around 20-30% per year) and is a more profitable sales channel than the retail distribution channel. Digital distribution has assisted in broadening the appeal of lotteries products as it is more attractive to the younger demographic. In FY16, a new competitor entered the Australian lotteries sector following the Northern Territory issuing a five year online sports betting licence to Lottoland Australia Pty Ltd (a subsidiary of Gibraltar-based company Lottoland Limited ( Lottoland )) in December 2015 to enable Lottoland to offer betting services in Australia. Lottoland is also licensed in the United Kingdom and Ireland, where it has been operating for three years. Lottoland is not a lottery operator, but a bookmaker that allows customers to bet on the outcome of Australian and overseas lotteries. Using an insurance-based model, winning customers can be paid an amount equivalent to a winning ticket in the lottery itself. Under its licence, Lottoland can accept bets on Australian and overseas lotteries that are approved as declared betting events by the Northern Territory government. It offers its services to Australians in all States and Territories except South Australia, where betting on lotteries has not been approved. Lottoland has no relationship or affiliation with the operators of the lotteries and bets do not contribute to the prize pool. Lottoland s online bookmaking licence also allows it to offer customers incentives such as welcome bonus bets, two-for-one offers and special bonus prizes in some jurisdictions. It is unclear what impact Lottoland will have on the Australian lotteries sector, although there is the potential for it to have a negative impact on the incumbent operators through its ability to entice customers with incentives and enable participation in overseas lotteries where the Tatts Group Limited Scheme Booklet

161 prize pools are significantly larger than they are in Australia (e.g. the US$1.5 billion United States Powerball jackpot offered in January 2016). Lottoland has undertaken an aggressive marketing campaign and claims to have around 400,000 Australian customers (compared to Tatts over 2.2 million online customers). Keno Keno is a random numbers game played every three minutes (rapid draw) that offers customers the chance to win instant prizes and jackpots. The customer wagers that their chosen numbers will match any of the 20 numbers randomly selected from a group of 80 numbers. The payout for each wager is established by rules (i.e. it is fixed) and is independent of the total wagers made on the game (except in the case of jackpots, where jackpot growth amounts to 10% of each jackpot ticket purchased). In most States and Territories, Keno is linked to all venues that have signed a Keno Agency Agreement within a particular jurisdiction, enabling the operator to offer large jackpot prizes. NSW, Victoria, the ACT and Queensland 20 (i.e. the Keno licences operated by Tabcorp) operate under a single jackpot pool. Keno is offered in clubs, hotels, wagering outlets and casinos throughout Australia (other than in Western Australia, where Keno is only available in the casino). There are almost 4,500 Keno outlets in Australia, the majority of which are in NSW and Queensland: Estimated Number of Keno Outlets in Australia ( ) Jurisdiction Licensee Number of Outlets NSW Club Keno Holdings Pty Ltd and Tabcorp 1,800 Queensland Tabcorp 1,108 Victoria Tabcorp 639 South Australia SA Lotteries Commission (Tatts as Master Agent) Tasmania Federal Group 166 Northern Territory SKYCITY Entertainment Group Limited ( SKYCITY ) 70 ACT ACTTAB (Tabcorp) Western Australia Crown Resorts Limited 1 Total 4,442 Source: Australasian Gaming Council, A Guide to Australasia s Gambling Industries 2015/2016, Chapter One. The number of Keno outlets in the table above includes TABs in some States and Territories (e.g. Tabcorp s Keno business operates in TABs in Victoria, Queensland and the ACT). Details of the Keno licences held by Tabcorp are set out in Section In relation to the remaining licences: Tatts manages Keno in South Australia under a 40 year Master Agency Agreement with the Lotteries Commission of South Australia (which runs until December 2052); the Federal Group has an exclusive right to operate Keno throughout Tasmania until 30 June The 15 year exclusive licence then converts to a rolling five year licence renewable annually; and in the Northern Territory, SKYCITY (owner of the SKYCITY Darwin Casino), under its Casino Licence with the Northern Territory government, is granted a concession to operate Keno throughout hotels and clubs in the Northern Territory until Keno is operated at Lasseters Casino in Alice Springs under an agreement with SKYCITY. Over the past ten years, Keno turnover has grown at approximately 4% per annum and was estimated to be $1.2 billion in FY15. This rate of growth is higher than the total wagering market but reflects structural changes in the Keno market in FY09 (regulatory approval for the expansion of Keno into NSW hotels and expansion of Keno into South Australian TAB 20 NSW, Victoria and the ACT commenced jackpot pooling in FY15. Queensland joined the pool effective from December Keno games are available for purchase from 616 agencies throughout South Australia as well as at selected South Australian TAB agencies, a count of which is not available. 22 Keno is also available to ACTTAB account holders online. 18 ANNEXURE A - INDEPENDENT EXPERT S REPORT 159

162 outlets), FY11 (the roll out of self service terminals in NSW) and FY12 (the restructure of the Victorian gaming industry including the issue of a new Keno licence to Tabcorp and the roll out of Keno to a much larger number of venues). Approximately 80% of Keno turnover is in NSW and Queensland: For personal use only 1.4 Australian Keno Turnover ( to ) $ billions Year ended 30 June NSW Queensland South Australia Victoria Other Source: Australian Gambling Statistics, 32nd edition, Queensland Government Statistician s Office, Queensland Treasury Note: Data from FY07 onwards is incomplete as Keno turnover from Tasmania is not available. These structural changes are reflected in an average annual growth in Keno turnover in NSW of approximately 5% over the past ten years, slightly higher than growth in Australian Keno turnover. In contrast, average annual growth in Queensland Keno turnover over the same period has been slightly lower at approximately 3% per annum. Victoria has recorded significantly higher average annual growth in turnover of almost 10%, although this was primarily driven by Keno turnover doubling in FY13 (albeit from a low base) following commencement of the new Keno licence in April While Lottoland is not a Keno operator, it accepts bets on overseas Keno draws. The lotteries and Keno sectors have experienced low growth in most product segments, reflecting high penetration levels (particularly in older demographics) and limited online capability (particularly under previous government ownership). Recent and ongoing investment, especially on brand refresh and digital offerings, is aimed at broadening their demographic appeal to include younger consumers. 3.4 Gaming Monitoring and Services The gaming market has four main groups of participants, EGM manufacturers and suppliers, EGM operators/owners, EGM monitors and providers of services to EGM operators. The major manufacturers and suppliers of EGMs in Australia are IGT Global Solutions Corporation ( IGT Global Solutions ) (a wholly owned subsidiary of United States listed International Game Technology plc) and ASX listed Aristocrat Leisure Limited ( Aristocrat ). IGT Global Solutions and Aristocrat also provide gaming services. All States and Territories have EGMs available at licensed venues (casinos, clubs and hotels) other than Western Australia, which only has EGMs at the casino and the ACT, where the casino is not licensed to provide EGMs. Each jurisdiction has restrictions on the number of EGMs (on a state-wide, Tatts Group Limited Scheme Booklet

163 industry, regional and/or venue basis) and caps vary by jurisdiction. It is estimated that there are more than 195,000 EGMs in casinos, clubs and hotels in Australia, the majority of which are in NSW: Estimated Number of EGMs in Australia by Venue ( ) Jurisdiction Hotels Clubs Casino(s) Other Total NSW 23,278 70,086 1,500-94,864 Queensland 19,290 23,578 3,829-46,697 Victoria 13,526 12,738 2,628-28,892 South Australia 10,564 1, ,367 ACT 66 4, ,022 Tasmania 2, , ,495 Western Australia - - 2,252-2,252 Northern Territory ,145 Total 69, ,051 13, ,734 Source: Australasian Gaming Council, A Guide to Australasia s Gambling Industries 2015/2016, Chapter One. Typically, licensed venues (casinos, clubs and hotels) own or lease and operate the EGMs and an independent third party is appointed to monitor the EGM operations (other than in Western Australia where there are only EGMs at the casino). EGM monitoring activities vary according to the terms of each licence but generally include: ensuring that the installed gaming equipment in clubs and hotels is the correct type that has been approved by the regulatory authority; monitoring EGM transactions to ensure compliance and integrity; and providing data and information on EGMs for regulatory, taxation and research purposes. EGM monitoring operators are licensed to operate by State and Territory governments either on an exclusive or non-exclusive basis or the relevant regulator will monitor EGMs themselves. The monitoring market is summarised below: Gaming Monitoring Operations in Australia Jurisdiction Licence Holder Licence Expiry NSW MAX (Tatts) 30 November 2032 Queensland MAX (Tatts) 18 August 2027 (renewable for further 10 year terms) Odyssey Gaming (Tabcorp) 10 years from grant (renewable for further 10 year terms) Utopia Gaming Systems 10 years from grant (renewable for further 10 year terms) (Banktech) PVS Australia 10 years from grant (renewable for further 10 year terms) Victoria Intralot Gaming (Intralot) 15 August 2027 South Australia Independent Gaming na 25 Corporation 24 ACT ACT Gambling and Racing na Commission Tasmania Network Gaming (Federal na Group) Western Australia Gaming and Wagering na Commission Northern Territory MAX (Tatts) 1 July 2021 (renewable for further 5 year terms) Source: Tatts There are differences between jurisdictions as to the licensing structure of monitoring. In some jurisdictions, the monitoring licence is exclusive (such as NSW), while in other jurisdictions the 23 Refers to 36 EGMs available on Tasmania s two Trans-Tasman Line Ferries. This figure is not included in the Tasmanian or national total EGMs. 24 Independent Gaming Corporation is jointly owned by Australian Hotels Association (SA) and Licensed Clubs Association of SA Inc. 25 na = not applicable 20 ANNEXURE A - INDEPENDENT EXPERT S REPORT 161

164 licence is not exclusive (such as Queensland). In all jurisdictions, there are centralised monitoring systems operated by the licensee. Providers of monitoring services also often provide gaming services: gaming and promotional management systems and related services (financial reporting and reconciliation, player tracking/loyalty services, business intelligence/data and analytics, cashless gaming solutions, cashier redemption equipment etc.); and repair and maintenance services to venues (on-site maintenance, workshop repair, warehousing and distribution, help desk services), although there are also independent systems providers. There are also independent providers of venue services that aim to optimise the performance of clubs and hotels through providing one of more of the following services: financing the purchase of EGMs; gaming product selection and placement; marketing and loyalty plans; data and analytics services; venue design and refurbishment; responsible gaming and compliance leadership; and management support and training. 3.5 Regulation, Licensing and Taxation The Australian gambling industry is highly regulated. The supervision and control of gambling activities is primarily the responsibility of individual State and Territory governments, each of which has enacted legislation to regulate gambling activities in their respective jurisdictions. A licence, permit or approval is required to conduct most forms of gambling activity, with each jurisdiction determining licence fees/payments, setting licence conditions (including permissible advertising) and regulating or approving products. In addition to licence fees (whether one off lump sum amounts, annual fees or a combination of both), State and Territory governments impose: gaming operator taxes, which are generally a percentage of gambling turnover or revenue, with the rate often increasing progressively as turnover or revenue increase; and mandatory contributions or levies to fund government spending on community health programs, including grants (e.g. for research into gambling), services for people affected by gambling and gambling harm minimisation programs. Gaming operator taxes and contributions/levies vary by product and jurisdiction. Total government revenue from gambling in FY15 was $5.8 billion 26. Licensed wagering operators in each State and Territory are also generally required to enter into agreements with the relevant racing controlling bodies under which they pay: product fee contributions (usually based on a percentage of revenue or profit generated from wagering activities); and race field fees (the racing industries in each State and Territory other than the Northern Territory charge wagering operators race field fees for use of the racing industry s race fields information). Payments received from wagering businesses are the main source of funding for the racing industry. While corporate bookmakers pay race field fees, they do not pay product fee contributions (which are only paid by the TABs to the racing industry in the jurisdiction in which the TAB is licensed). Product fee contributions represent the majority of racing industry funding. 26 Source: Australian Gambling Statistics, 32nd edition, Queensland Government Statistician s Office, Queensland Treasury. FY15 is the latest information available at the date of this report Tatts Group Limited Scheme Booklet

165 Operators engaged in wagering activities also pay product fee contributions to sports controlling bodies. In addition to State and Territory regulation, the Federal Government has enacted the Interactive Gambling Act, Cth 2001 ( Interactive Gambling Act ), which prohibits the offer of interactive gambling services (e.g. casino style games and live sports or in-play wagering over the internet) to Australian citizens. There are exceptions for wagering in the form of racing and sports betting (and in the case of sporting events, prior to the event commencing) and lotteries, but the provision of internet casino gaming and online EGM gaming is strictly prohibited. However, while it is illegal for operators to offer interactive gambling products to Australian citizens, it is not illegal for Australian citizens to gamble online. As a result, unlicensed offshore interactive gambling operators have attempted to circumvent the intent of the legislation. 3.6 Recent Developments There have been a number of recent regulatory and other developments, primarily impacting the wagering sector of the gambling industry: in August 2016, legislation was passed to ban greyhound racing in NSW from 1 July 2017 following an inquiry which found evidence of systemic animal cruelty. In response to community reaction, the NSW Government subsequently provided in principle support for greyhound racing, subject to the industry agreeing to strict animal welfare regulations. The Greyhound Industry Reform Panel was established to determine this new regime and, with the NSW Government adopting all but one of the Panel s 122 recommendations, legislation to repeal the ban and deliver the new regime was passed on 6 April In any event, the impact on the wagering sector of the ban was not expected to be material; in November 2016, the Federal Government introduced amendments to the Interactive Gambling Act into parliament to combat illegal offshore wagering (implementing parts of the 2015 O Farrell Review into Illegal Offshore Wagering released in April 2016). The legislation has three components: making it clear that it is illegal for overseas gambling companies to offer gambling products to Australian citizens unless they hold a licence in the relevant State or Territory. The legislation empowers the Australian Communications and Media Authority ( ACMA ) with new civil penalties, makes ACMA responsible for the complaint handling process and introduces disruption measures to curb illegal offshore gambling activity; specifically prohibiting click-to-call in-play wagering services (clarifying the original intention of the Interactive Gambling Act); and establishing a national consumer protection framework. The amending legislation passed both houses and received royal assent in August The legislation is expected to have the greatest impact on corporate bookmakers (particularly from foreign jurisdictions). To the extent that the legislation is successful in preventing illegal online wagering, this will likely benefit incumbent operators such as Tatts and Tabcorp as their competitors will no longer offer online in-play betting on sports, only by telephone (whereas Tatts and Tabcorp will be able to offer in-play wagering in person in retail outlets and by telephone); effective from 1 July 2017, the South Australian Government has introduced a point of consumption tax of 15% on the net wagering revenue of betting companies offering services to South Australia (subject to an annual tax free threshold of $150,000). All racing, sports and other bets placed in South Australia with Australian based betting companies will be liable for the tax. Companies liable to pay the tax include South Australian licensed bookmakers (although for Tatts (UBET) the tax for bets placed on racing is expected to be offset by a reduction in fees paid to the racing industry), authorised interstate betting operators (including TABs in other states) and corporate bookmakers. South Australia is the first Australian jurisdiction to introduce a wagering tax based on the place of consumption (although it has been in place in the United Kingdom since late 2014). The wagering tax is expected to raise annual revenue of around $9 million for the South Australian Government. 22 ANNEXURE A - INDEPENDENT EXPERT S REPORT 163

166 At this stage, it is unclear how the legislation will be enforced, whether other operators will be able to offset taxes paid under existing licences against the point of consumption tax or whether other States and Territories will follow South Australia s lead 27. The impact is expected to be greater on internationally owned and interstate based online gambling operators (e.g. corporate bookmakers) that currently pay no tax in South Australia despite offering services to South Australian customers; in February 2017, Clubs NSW (representing more than 1,200 clubs and 6.7 million members) announced that it entered into a ten year partnership with CrownBet (62% owned by ASX listed Crown Resorts Limited ( Crown Resorts )) which, among other things, would provide clubs with commissions when customers in clubs place bets online through a CrownBet app and enable CrownBet to provide other digital wagering services in venues. Clubs in NSW will be given incentives to sign up customers and will receive commissions on bets placed. The app will also tie in with the CrownBet rewards program. If successful, this partnership may have an impact on Tabcorp s wagering business, particularly its retail TAB operations in NSW. However, the extent of the impact is unclear, particularly given Tabcorp s recently implemented digital commission model where clubs, hotels and TAB agents are paid commissions when a customer bets through TAB s digital platforms within their venue. Tabcorp is of the view that the combination of features that comprise the service may cause CrownBet (or the owner or occupier of a NSW venue facilitating that service) to contravene NSW wagering legislation. In May 2017, CrownBet lodged an application with the Supreme Court of NSW seeking a declaration that the proposed service is lawful. Finalisation of this matter is not expected until late 2017; in April 2017, the Federal Government announced that it had reached in-principle agreement with State and Territory governments to introduce broad reforms to provide stronger consumer protections in online gambling. Specifically, eleven measures have been agreed including a prohibition of lines of credit being offered by wagering providers ( credit betting ) and the establishment of a national self-exclusion register for online wagering. Several of the measures are expected to be implemented by the end of The ban on credit betting applies only to online wagering and an exemption has been made for on-course bookmakers for phone based and in-person betting only. The ban is expected to have an immaterial impact on growth in wagering and little or no impact on Tatts or Tabcorp; in May 2017, the Federal Government announced a package of reforms for Australia s free to air broadcasting sector including further restrictions on gambling advertising and promotions during live sports programs. Specifically, all gambling promotions will be prohibited from five minutes before the scheduled start of play, during the event and for five minutes after the conclusion of play. The new restrictions will apply between 5am and 8.30pm to television, radio, subscription television, online services (including catch up services) and live online streaming that are aimed at Australian audiences. Consistent with existing rules, after 8.30pm gambling advertisements will not be permitted during play and live odds will be prohibited while the existing exemptions for advertising that occurs as part of a live sporting event that consists of horse, harness or greyhound racing or that covers lotteries will remain. The changes are expected to commence in March 2018 for the traditional broadcast platforms with online restrictions to apply as soon as practicable following industry consultation. Advertising has contributed significantly to the growth in the market share of the corporate bookmakers, however at this stage it is unclear how the online restrictions will be enforced or if these increased restrictions on advertising will slow this growth; the 2017/18 Federal Budget in May 2017 raised the prospect of the establishment of a national sports and heritage lottery. Subsequently, the Sports Minister has stated that a national lottery will be developed following consultation with key stakeholders including state and territory governments, sporting bodies and lottery operators; and in September 2017, there was press mention to a new Australian based global online lottery and gambling business, Neds, that is expected to launch in the near future. No further information on Neds is currently available. 27 In May 2017, Victoria announced that it proposed to introduce a point of consumption tax but no details have been released. Western Australia and NSW have also announced investigations or interest in introducing a point of consumption tax Tatts Group Limited Scheme Booklet

167 4 Profile of Tatts 4.1 Background Tatts origins can be traced back to 1881 when George Adams organised a public sweep on the Sydney Cup horse race. Operating as Tattersall s, the business grew over the next 120 years to become a leading operator in the gaming and lotteries segments in Australia. The company was listed on the ASX in July 2005 as Tattersall s Limited. At listing, Tatts operated public lotteries in Victoria, Tasmania, the ACT and the Northern Territory under the Tattersall s brand, was one of two licensed non-casino EGM operators in Victoria and held interests in international gaming and lotteries businesses (primarily in South Africa and Sweden) and gaming services businesses in Australia. Around 70% of revenue and 90% of EBITDA was generated by gaming activities. Since listing, Tatts has expanded both organically and by acquisition. The key events in this period include: the merger with ASX listed UNiTAB Limited ( UNiTAB ) completed in October Listed in 1999 as TAB Queensland Limited, UNiTAB was a provider of totalizator and fixed odds betting products in Queensland, South Australia and the Northern Territory and a provider of gaming machine monitoring services in Queensland, the Northern Territory and NSW. Following the merger, the company changed its name to Tatts Group Limited; the acquisition of Golden Casket Lottery Corporation Limited ( Golden Casket ), the exclusive lottery operator in Queensland, from the Queensland Government in June This transaction involved appointment as a licensed lottery operator under the Golden Casket brand until 2072 (65 years); the acquisition of Talarius Plc ( Talarius ), an operator of retail based EGM venues in the United Kingdom, in three steps in November 2005 (10.5%), February 2007 (50%) and January 2008 (100%). Tatts announced it had sold Talarius on 27 June 2016; the acquisition of NSW Lotteries Corporation Pty Ltd ( NSW Lotteries ), the exclusive lottery operator in NSW, from the NSW Government in April This transaction included the grant of a 40 year exclusive licence to conduct public lotteries in NSW; the acquisition of Tote Tasmania Pty Ltd ( Tote Tasmania ), the Tasmanian TAB, from the Tasmanian Government in March This transaction included the grant of a 50 year wagering licence as well as an option for an additional 49 years (at no additional cost); and acquisition of the right to manage the lottery and wide area Keno service in South Australia ( SA Lotteries ) for 40 years on behalf of the Lotteries Commission of South Australia from December During this period, Tatts also sold its international interests and a number of its licence arrangements were renewed, extended or restructured. In particular, in April 2008 the Victorian Government announced a restructure of gaming, wagering and Keno licences in Victoria beyond 2012 with no compensation payable to the licensees (Tatts and Tabcorp) on expiry of their licences. The effect of this announcement was to end the Tatts Pokies business. In August 2012, on expiry of its licence, Tatts commenced legal proceedings against the State of Victoria for compensation. Tatts was successful in the Supreme Court of Victoria and $540.5 million (compensation plus interest) was received by Tatts on 27 June 2014 and held until all legal avenues of appeal were exhausted by the State of Victoria. While the Victorian Court of Appeal dismissed the State of Victoria s appeal in December 2014, in March 2016 the High Court of Australia upheld the appeal with the result that Tatts had to repay the $540.5 million plus interest and costs. Today, Tatts is a leading provider of non casino gambling services in Australia. It is an ASX 100 company and, prior to announcement of the Scheme, had a market capitalisation of around $5.3 billion. 24 ANNEXURE A - INDEPENDENT EXPERT S REPORT 165

168 4.2 Business Overview Tatts operates lotteries, wagering and gaming services businesses using wide-area network technology to deliver services to customers through retail and direct channels. It is headquartered in Brisbane, employs around 2,350 people (around 1,800 full time equivalents) across Australia and generates over $2.8 billion in annual revenue. Tatts operates three business divisions - Lotteries, Wagering and Gaming, each comprising a portfolio of licences and/or businesses. In FY17, around 72% of Tatts revenue and 63% of EBITDA was generated by Lotteries: Tatts Year ended 30 June 2017 Revenue by Division EBITDA by Division Gaming 7% Gaming 15% Wagering 21% Wagering 22% Lotteries 72% Lotteries 63% Source: Tatts Notes: (1) Excluding discontinued operations. (2) Revenue is before eliminations and EBITDA is before Corporate/Unallocated costs. (3) Percentages may not sum to 100% due to rounding. During FY17 Tatts established a new business division (known as George 2 ) focussed on fund raising activities for the charitable and not for profit sector. The first product supported by George 2 is the Charity Raffle with which it has partnered 13 football teams in three states. Tatts is looking to expand the footprint of this division nationally and is developing a fund raising platform. Notwithstanding its state based regulatory framework, Tatts operates a national business achieving substantial efficiencies by centralising core functions, particularly information technology ( IT ), marketing, legal and financial services. Tatts business divisions are described, and their financial performance discussed, in Section 4.9 of this report. 4.3 Financial Performance Historical Financial Performance Set out below is a summary of the reported financial performance of Tatts for the six years ended 30 June The Victorian Government restructure of gaming, wagering and Keno licences ended the Tatts Pokies business on expiry of its gaming licence on 15 August As part of the transition to the new licence holder, Tatts provided monitoring services and support until 15 February Tatts Pokies was reported as a discontinued operation in FY13 and FY12 results were restated on that basis Tatts Group Limited Scheme Booklet

169 Tatts Reported Financial Performance ($ millions) 2012 restated actual Year ended 30 June 2014 actual 2015 actual 2016 actual 2017 actual Revenue 2, , , , , ,778.5 Statutory outgoings (1,817.9) (1,982.1) (1,890.2) (1,913.7) (2,010.3) (1,897.4) Operating expenses (423.4) (476.5) (479.7) (498.8) (423.0) (448.8) EBITDA (as reported) Depreciation and amortisation (91.0) (84.1) (83.9) (87.1) (75.2) (78.2) EBIT (as reported) Net interest expense (99.3) (103.0) (87.9) (54.2) (41.1) (46.4) Operating profit before tax Income tax expense (63.8) (75.7) (100.0) (110.3) (115.1) (86.5) Operating profit after tax Profit/(loss) discontinued operations (26.2) (3.8) (29.6) (0.7) NPAT 31 attributable to Tatts shareholders Statistics Basic EPS Basic EPS (continuing operations) Dividends per share Dividend payout ratio % 94.5% 84.4% 93.2% 97.2% 115.9% Amount of dividend franked 100% 100% 100% 100% 100% 100% Interest cover x 4.8x 5.7x 9.4x 12.0x 9.3x Source: Tatts and Grant Samuel analysis Revenue includes lotteries revenue (gross lottery subscriptions less prizes payable following the official draw plus management fees from the operation of SA Lotteries), wagering revenue (residual income after deducting the statutory returns to customers from wagering turnover when the event is completed), revenue from the sale of goods or services, rental and sub-lease rental income, interest income on unpaid prizes and prize reserves and other revenue. The increase in revenue in FY13 reflects the first full year contribution from Tote Tasmania (acquired March 2012) and management fees from SA Lotteries (commenced December 2012). Statutory outgoings comprise the government share of revenue (in accordance with relevant licence arrangements), the share of revenue and/or commissions owed to the venue where the wager was placed and product and program fees payable by the Wagering division to the racing industries. Operating expenses include employee expenses, telecommunications and technology, marketing and promotions and property expenses. The increase in operating expenses in FY15 reflects increased marketing and promotions costs associated with the launch of UBET on 30 April 2015, increased headcount in wagering and shared services (technology and marketing) and foreign currency movements in relation to Talarius compared to FY14. The decrease in FY16 reflects the shift of Talarius to a discontinued operation and the increase in FY17 reflects one off costs associated with the Scheme ($33.4 million). Depreciation and amortisation includes amortisation of acquired intangibles such as licences, brands and lottery agreements. Profit/(loss) from discontinued operations primarily reflects Tatts Pokies (including profits from operations, the realisation of assets and other costs associated with the associated litigation) and in FY16 also includes Talarius. 28 Restated by Tatts to report Tatts Pokies as a discontinued operation. 29 EBITDA (as reported) is earnings before net interest, tax and depreciation and amortisation. 30 EBIT (as reported) is earnings before net interest and tax. That is, it includes earnings from discontinued operations (where not separately recognised) and significant and non-recurring items. 31 NPAT is net profit after tax. 32 EPS is earnings per share. 33 Dividend payout ratio is based on basic EPS (continuing operations). Tatts targets a dividend payout ratio of around 90% of NPAT from continuing operations on a fully franked basis. 34 Interest cover is EBITDA (as reported) divided by net interest expense. 26 ANNEXURE A - INDEPENDENT EXPERT S REPORT 167

170 Analysis of Tatts operating performance on a consolidated basis over the last six years is made difficult by significant and non-recurring items, the results of Talarius prior to FY16, unallocated rental revenue 35 and gains on sale of property. Grant Samuel has adjusted revenue, EBITDA, EBITA and EBIT to remove these items as set out below: Tatts Adjusted Financial Performance ($ millions) Year ended 30 June 2012 restated 2013 actual 2014 actual 2015 actual 2016 actual 2017 actual Reported revenue 2, , , , , ,778.5 Less: Talarius revenue (69.2) (78.0) (103.6) (115.9) - - Less: Gain on sale of property and other (10.2) Less: Unallocated rental revenue (9.4) (9.8) (8.7) (4.5) - - Adjusted revenue 2, , , , , ,768.3 Reported EBITDA Less: Talarius EBITDA (7.0) (7.7) (13.6) (16.4) - - Less: Gain on sale of property and other (10.2) Less: Unallocated rental revenue (9.4) (9.8) (8.7) (4.5) - - Less: Significant and non-recurring items: - Share of associate profits (0.2) (0.1) Other income - (1.6) Restructuring costs Merger costs Adjusted EBITDA Depreciation and other amortisation 38 (64.1) (55.4) (52.7) (51.9) (50.7) (51.9) Adjusted EBITA Amortisation of licences, brands, agreements 38 (17.2) (20.0) (21.7) (25.0) (24.5) (26.3) Adjusted EBIT Statistics Revenue growth 11.0% (3.7%) 1.6% 4.6% (5.5%) EBITDA growth 16.7% (1.8%) 2.2% 2.2% (8.5%) EBITA growth 22.2% (1.4%) 2.7% 2.7% (9.8%) EBIT growth 22.5% (1.9%) 2.0% 3.0% (10.8%) EBITDA margin 16.2% 17.0% 17.3% 17.4% 17.0% 16.5% EBITA margin 14.2% 15.1% 15.4% 15.6% 15.3% 14.6% EBIT margin 13.0% 14.4% 14.6% 14.7% 14.5% 13.7% Source: Tatts and Grant Samuel analysis FY13 was a year of transition for Tatts with that year s results impacted by the acquisition of Tote Tasmania (March 2012) and the SA Lotteries management rights (December 2012), the appointment of a new CEO effective 1 January 2013, relocation of corporate head office to Brisbane, an internal restructuring and increased expenditure on digital activities. As a result, FY14 is considered the base year for Tatts continuing operations. On an adjusted consolidated basis Tatts has seen a decline in EBITDA margin to 16.5% since FY14. However, Tatts operating performance is better understood by examining the performance of each of the business divisions. Set out below is a summary of Tatts adjusted financial performance by business division: 35 Unallocated rental revenue relates to rental income received on pokies properties that Tatts developed in prior years. These properties were divested in FY Restructuring costs include redundancy and other costs and in FY12 primarily relate to the integration of Tote Tasmania ($12.6 million) and in FY13 to the relocation of Tatts head office to Brisbane ($11.3 million). 37 EBITDA is earnings from continuing operations before net interest, tax, depreciation and amortisation and significant and nonrecurring items. 38 For continuing operations only (i.e. excluding Talarius). 39 EBITA is earnings from continuing operations before net interest, tax, amortisation of licences, brands and agreements and significant and non-recurring items 40 EBIT is earnings from continuing operations before net interest, tax and significant and non-recurring items Tatts Group Limited Scheme Booklet

171 Tatts Adjusted Financial Performance by Division ($ millions) 2012 restated 2013 actual Year ended 30 June 2014 actual 2015 actual 2016 actual 2017 actual Adjusted revenue Lotteries 1, , , , , ,014.0 Wagering Gaming Eliminations 41 (31.0) (31.2) (30.2) (31.0) (32.0) (35.8) Total 2, , , , , ,768.3 Adjusted EBITDA Lotteries Wagering Gaming Corporate/Unallocated (39.2) (45.2) (44.3) (47.3) (50.5) (46.1) Total Adjusted EBITA Lotteries Wagering Gaming Corporate/Unallocated (56.5) (60.1) (61.5) (64.9) (67.8) (64.1) Total Adjusted EBIT Lotteries Wagering Gaming Corporate/Unallocated (56.5) (60.1) (61.4) (64.9) (67.8) (64.1) Total Source: Grant Samuel analysis The operating performance of each of Tatts divisions is discussed in Section 4.9 of this report. Forecast Financial Performance Tatts has not publicly released earnings forecasts for FY18. In order to provide an indication of the expected future financial performance of Tatts, Grant Samuel has considered brokers forecasts for Tatts (see Appendix 1). The median brokers FY18 forecast indicates a 4% increase in revenue and a 6% increase in EBITDA (at an EBITDA margin of 16.8%) relative to FY17 implying operating performance more in line (albeit lower) with FY16. Set out below is a summary of the forecast financial performance for Tatts: Tatts Forecast Financial Performance ($ millions) Year end 30 June 2017 adjusted/reported 2018 broker median Revenue 2, ,882.3 EBITDA EBITA EBIT NPAT (before discontinued operations and merger costs) Basic EPS (continuing operations) 15.1 Dividends per share 17.5 Source: Scheme Booklet and Grant Samuel analysis (see Appendix 1) The forecast performance can be further analysed by business operation. While not all brokers provide a breakdown of earnings forecasts for Tatts by business operation, in Grant Samuel s view, the available median brokers forecasts for Lotteries are useful for analytical purposes. 41 Eliminations relate to revenue earned by MAXtech (a Gaming business) from Wagering and MAX (another Gaming business). 28 ANNEXURE A - INDEPENDENT EXPERT S REPORT 169

172 However, the median brokers forecasts for Wagering and Gaming are materially different to the Tatts FY18 Budget and have therefore not been included in the table below (see Appendix 1). Lotteries Tatts Forecast Financial Performance by Division ($ millions) 2017 adjusted/reported Year end 30 June 2018 broker median Revenue 2, ,117.0 EBITDA EBITA EBIT Wagering Revenue not used EBITDA not used EBITA 98.5 not used EBIT 90.9 not used Gaming Revenue (before eliminations) not used EBITDA 75.4 not used EBITA 64.3 not used EBIT 60.5 not used Source: Scheme Booklet and Grant Samuel analysis (see Appendix 1) 4.4 Financial Position The financial position of Tatts as at 30 June 2017 is summarised below: Tatts - Financial Position ($ millions) As at 30 June 2017 actual Trade and other receivables 80.6 Inventories 1.8 Trade and other payables (608.0) Provisions (18.4) Net working capital (544.0) Property, plant and equipment (net) Goodwill 3,475.5 Other intangible assets (net) NSW monitoring rights Term deposits and managed fund investment 75.4 Investment in Jumbo 15.7 Unlisted investments 1.7 SA Lotteries monies held in trust (net) - Derivative financial instruments (net) 72.3 Deferred tax liabilities (net) (270.3) Retirement benefit obligations (10.1) Wagering licence payable (56.6) Other payables (non current) (150.4) Other non current liabilities (net) (2.8) Total funds employed 3,889.3 Cash and cash equivalents Interest bearing loans (1,160.3) Net borrowings (931.5) Equity attributable to Tatts shareholders 2, Including prize reserves which are estimated based on prizes payable to customers and vary daily. At 30 June 2017, prize reserves totalled $109.0 million Tatts Group Limited Scheme Booklet

173 Tatts - Financial Position ($ millions) As at 30 June 2017 actual Statistics Shares on issue at period end (millions) 1,468.5 Net assets per share $2.01 NTA 43 per share ($1.12) Leverage ratio % Gearing % Gross borrowings/ebitda x Source: Tatts and Grant Samuel analysis Tatts typically operates with substantial negative working capital as revenue is generated primarily in cash or via cash payments systems while a significant proportion of payments are made over longer timeframes (e.g. product payments, wagering taxes, major lottery prizes). In addition, the timing of jackpot lottery draws can impact the net working capital balances at balance date. Property, plant and equipment (net) comprises freehold land and buildings ($48.9 million), freehold improvements ($7.7), leasehold improvements ($21.5 million), plant and equipment ($67.0 million) and assets under development 47 ($12.0 million). Goodwill primarily relates to the acquisition of UNiTAB and Golden Casket in FY07, NSW Lotteries in FY10 and Tote Tasmania in FY12. It is allocated to divisions as follows: Lotteries ($1,511 million), Wagering ($1,454 million) and Gaming ($510 million). Other intangible assets (net) comprise: Tatts Other Intangibles (net) ($ millions) Finite Life Indefinite Life Total Licences Brands Software Other Software (work in progress) Total Source: Tatts Intangible assets with finite lives are amortised on a straight line basis over their estimated useful lives. Brands assessed as having indefinite lives were acquired with UNiTAB and include $46.3 million used in Wagering and $7.1 million used in Gaming. Licences (including rights) are used across all of Tatts business divisions. Software and work in progress comprise costs associated in developing products or systems that will contribute to future periods (either by revenue and/or cost reduction). Other comprises costs associated with a number of agreements associated with Lotteries including in Queensland, the Northern Territory and South Australia. In March 2016, the NSW Government issued rights to Tatts to operate a Central Monitoring System covering all EGMs across the state. The rights are to commence on 1 December 2017 and continue to 30 November 2032 (15 years). The total cost to Tatts of these rights is $205 million. At 30 June 2017, Tatts has paid two of three instalments for the rights with the final instalment due on 30 November NTA is net tangible assets, which is net assets less goodwill and other intangible assets (including the NSW monitoring rights). 44 Defined as net debt divided by total capital. Net debt is calculated as total borrowings (interest veering liabilities plus derivative financial liabilities and bank guarantees) less cash and cash equivalents (less prize reserves and other committed cash amounts). Total capital is equity (including non controlling interests) plus net debt. 45 Gearing is net borrowings divided by net assets plus net borrowings. 46 Gross borrowings are interest bearing loans before derivative financial instruments and EBITDA is before significant items. 47 Assets under development include assets acquired but not activated within the business at period end. 30 ANNEXURE A - INDEPENDENT EXPERT S REPORT 171

174 Term deposits and managed fund investments ($75.4 million) represent funds invested to pay winners under the Set for Life lottery and Live the Life instant ticket game. These funds match the face value of the annuity liabilities payable to winners. Investment in Jumbo represents the 6,609,686 shares (13.04% interest) that Tatts acquired in May The investment is accounted for as an equity accounted associate. Tatts also holds a 12 month option to acquire a further 3,474,492 shares at the same price ($2.37 per share). Unlisted investments ($1.7 million) comprise investments in digital radio broadcasting and a software business. Tatts exclusively manages the lottery and wide area Keno services in South Australia on behalf of the Lotteries Commission of South Australia. It holds monies on trust for SA Lotteries and has a liability to SA Lotteries for the same amount. Tatts uses derivative financial instruments to manage its exposure to fluctuations in foreign exchange rates and interest rates. At 30 June 2017, interest rate swap contracts covering approximately 22% of the loan principal outstanding had a negative value of $2.3 million. In addition, Tatts has entered into cross currency interest rate swaps which had a positive value of $74.6 million. Retirement benefit obligations ($10.1 million) represent Tatts net defined benefit liability in relation to employees who transferred to Tatts on the acquisition of NSW Lotteries and on the acquisition of Golden Casket. Wagering licence payable ($56.6 million 48 ) represents the net present value for the balance payable ($75 million, payable in two instalments in July 2020 and July 2023) in relation to its Queensland race and sports wagering licences (see Section 4.9.2). Other non-current payables include unclaimed prizes and other prize liabilities. Other non-current liabilities (net) include trade and other receivables ($0.4 million) net of employee provisions ($3.2 million). Tatts net borrowings are unsecured and comprise both capital markets instruments and bank facilities as follows: Facility Tatts Net Borrowings at 30 June 2017 ($ millions) Facility Size Amount Drawn Term/Maturity Syndicated Multi-Currency Revolving Facility (unsecured): - Tranche Sep Tranche July Tranche Feb Tranche Sep , Bilateral Facility (unsecured) Feb 2019 Loan Notes (USPP) (unsecured) Dec 2017, Dec 2020 Tatts Bonds (unsecured) Jul , ,164.3 Capitalised borrowing costs (4.0) Total interest bearing liabilities 1,160.3 Cash and cash equivalents (228.8) 51 Net borrowings Source: Tatts While Tatts does not maintain a public credit rating, it targets a leverage ratio consistent with an investment grade rating. At 30 June 2017, Tatts leverage ratio was 26.3%. 48 This amount represents the net present value of the certain payments to be made (i.e. $67.5 million, which excludes the $7.5 million contingent payable). 49 Tatts extended this tranche to August 2018 after 30 June Under these arrangements, a change of control represents a mandatory pre-payment event. 50 Reflects the fair value in Australian dollars of the US denominated loan notes at the time the notes were issued. 51 Including prize reserves and fund investments totalling $109.0 million. These amounts are restricted cash Tatts Group Limited Scheme Booklet

175 The syndicated and bilateral facilities are unsecured but subject to financial covenants over the Tatts Group. A change of control of Tatts is a review event under these facilities (except under the extension of Tranche 1 to August 2018, for which a change of control is a mandatory pre-payment event). Tatts derivatives arrangements are linked to the syndicated facility. Should that facility be cancelled the derivatives will also be cancelled. Tatts completed a US$225 million private placement on 21 December 2010 ( USPP ). The loan notes were issued in two tranches, US$55 million with a seven year maturity and US$170 million with a ten year maturity. These notes contain undertakings and financial covenants similar to the bank facilities. In the event of a change of control, a repurchase offer (face value plus accrued interest) must be made to noteholders and in certain circumstances a make whole payment may be payable. The carrying value of the loan notes ($299.6 million) is the fair value of the notes at the A$:US$ exchange rate as at 30 June 2017 and reflects a decrease in Tatts Australian dollar liability in comparison to the liability when the notes were issued ($302 million). Negative movements in the exchange rate are mitigated by the cross currency interest rate swaps asset ($74.6 million). On 29 June 2012, Tatts raised $194.7 million from the issue of 1,946,642 Tatts Bonds at $100 each. The bonds mature on 5 July 2019, provide investors quarterly interest payments calculated as 3.1% over the three month bank bill rate, are unsecured and are listed on the ASX. The bonds are guaranteed by material subsidiaries of Tatts in line with other existing senior unsecured debt arrangements. Holders have the benefit of a negative pledge in order to ensure that they will always have the same or similar security of other holders of debt capital market instruments issued by Tatts (although this does not restrict Tatts from granting security in relation to bank debt). Holders have the right to require redemption (face value plus interest accrued but unpaid) prior to maturity in the event of change of control or if a delisting event occurs. At 30 June 2017, Tatts disclosed contingent liabilities in respect of guarantees for bank facilities drawn down of $83.6 million. In addition, Tatts has the following commitments for expenditure: capital expenditure of $17.3 million payable within one year; non-cancellable operating lease commitments for motor vehicles and buildings totalling $147.2 million, of which $72.2 million relates to payments later than five years; non-cancellable operating commitments totalling $279.6 million, all of which is payable within five years. These commitments include the final instalment for the NSW central monitoring rights ($68.3 million) which is due for payment on 30 November 2017 and the $120 million payable on 1 July 2018 for the new ten year Victorian lottery licence; non-cancellable employment contracts totalling $2.4 million, of which $2.1 million relates to payments within one year. 4.5 Cash Flow Tatts operations generate substantial cash enabling it to invest in its businesses and to maintain a relatively high dividend payout. Set out below is a summary of cash flow for the five years ended 30 June 2017: 32 ANNEXURE A - INDEPENDENT EXPERT S REPORT 173

176 Tatts - Cash Flow (as reported) ($ millions) 2013 actual 2014 actual Year ended 30 June 2015 actual 2016 actual 2017 actual EBITDA (as reported) Changes in working capital and other adjustments 47.2 (35.1) (21.3) Capital expenditure: - property, plant and equipment (49.8) (60.3) (45.3) (35.9) (35.8) - businesses (428.6) intangibles (19.1) (15.2) (19.1) (26.4) (69.8) - government licences and rights - - (37.5) (68.3) (68.3) (497.5) (75.5) (101.9) (130.6) (173.9) Operating cash flow Tax paid (127.7) (114.9) (84.0) (124.4) (13.6) Net interest paid (98.8) (84.7) (48.9) (38.4) (45.6) Dividends paid (net) (173.5) (126.6) (121.0) (237.4) (243.5) Payment for investments (15.9) Proceeds from sale of business/assets 87.8 (0.3) Victorian compensation claim (567.1) - Other (net) (35.2) (19.8) Net cash generated / (used) (248.7) (432.8) (1.8) Net cash (borrowings) opening (1,017.0) (1,265.7) (663.9) (496.9) (929.7) Net cash (borrowings) closing (1,265.7) (663.9) (496.9) (929.7) (931.5) Source: Tatts and Grant Samuel analysis Intangible capital expenditure in FY13 reflects Tatts acquisition of the management rights to SA Lotteries for $427 million. Proceeds from sale of business/assets in FY13 primarily relate to the sale of the Tatts Pokies EGMs and in FY16 the sale of Talarius. In FY14, Tatts received $540.5 million compensation from the Victorian Government in relation to Tatts Pokies but was required to repay that amount plus interest ($567.1 million) in FY16. In FY17, Tatts paid $138.1 million for intangibles including $68.3 million towards the $205 million payable to the NSW Government for the right to operate the central monitoring system in NSW and a $30 million instalment payment in relation to the Queensland racing licence. 4.6 Tax Position Under the Australian tax consolidation regime, Tatts and its wholly owned Australian resident entities have elected to be taxed as a single entity. Tatts has no carried forward income tax losses but approximately $270 million in carried forward capital losses primarily arising from the sale of Talarius. At 30 June 2017 Tatts had approximately $71 million in accumulated franking credits (after allowing for the impact on the franking account for the final FY17 dividend of 8 cents per share which is to be paid on 3 October 2017). 4.7 Capital Structure and Ownership Capital Structure Tatts has the following equity securities on issue: 1,468,519,481 ordinary shares; and 818,103 performance rights over unissued ordinary shares. Historically, Tatts has operated a relatively short term incentive plan for eligible employees other than the CEO whose remuneration terms are set out in an employment contract. In August 2016, Tatts announced a restructure of its long term remuneration framework for the senior executive team (being all direct reports to the CEO) and an intention to retain many of the features of the previous plan for other participants Tatts Group Limited Scheme Booklet

177 Tatts historical incentive plans involve the award of an annual incentive to eligible employees in the form of cash and rights over unissued shares. The rights granted under the plans have no dividend entitlements or voting rights and were able to be exercised at no cost 12 months after grant provided the employee remained employed by Tatts. No performance rights are outstanding under the inactive long term incentive plan while 224,562 performance rights are outstanding under an active short term incentive plan. The shares acquired on exercise of the rights are placed in a restricted class for a further two years whether employment continues or not. While restricted, the shares carry dividend entitlements and voting rights. Currently, 1,013,603 Tatts shares are subject to restriction. In the event of a change of control, the board has discretion to determine the treatment of performance rights and restricted shares. 240,711 performance rights have been granted to the CEO in relation to FY16 are exercisable into restricted shares (two years) and expire in October In the event of a change of control, the board has discretion to determine the treatment of these performance rights and any restricted shares held by the CEO. Tatts has launched a new long term incentive plan for senior executives which involves the grant of performance rights which entitle the participant to receive shares in Tatts on a onefor-one basis for nil consideration. The rights vest at the end of a three year performance period subject to the achievement of performance hurdles. There are currently 352,830 rights on issue under this plan. In the event of a change of control, the board has discretion to determine the treatment of unvested performance rights. Tatts operates a dividend reinvestment plan which enables investors to reinvest dividends in new ordinary shares without brokerage or handling costs. In accordance with the terms of the Merger Implementation Deed, the plan is currently suspended Ownership At 28 July 2017, there were 68,171 registered shareholders in Tatts. The top 20 registered shareholders accounted for approximately 68% of the ordinary shares on issue and are principally institutional nominee or custodian companies. Tatts shareholders are predominantly Australian based investors and around 92% of registered shareholders hold less than 10,000 shares although this represents less than 12% if shares on issue. Tatts has received notices from the following substantial shareholders: Tatts Substantial Shareholders Shareholder Date of Notice Number of Shares Percentage 52 UBS 21 February ,833, % 53 Tabcorp 28 November ,705, % 54 Perpetual Limited 24 July ,018, % AustralianSuper Pty Ltd 5 May ,462, % Source: Tatts 4.8 Share Price Performance The following graph illustrates the movement in the Tatts share price and trading volumes since 1 January 2014: 52 Calculated by reference to 1,468,519,481 shares on issue. 53 UBS s relevant interest may include shares held in relation to Tabcorp s interest. 54 Tabcorp s 9.99% relevant interest arises due to the cash-settled equity swap agreement with UBS in relation to 146,705,096 shares. Tabcorp is not aware of UBS s hedged positions and, if UBS holds less than 146,705,096 shares, Tabcorp s interest will be lower. 34 ANNEXURE A - INDEPENDENT EXPERT S REPORT 175

178 Price For personal use only $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 Tatts - Share Price and Trading Volume (January September 2017) Scheme announcement Pacific Consortium indicative proposal $0.00 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Pacific Consortium revised indicative proposal 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Volume (000's) Source: IRESS After the expiry of its Victorian gaming licence in August 2012, Tatts share price rose to around $3.00 at December 2012 and over the 18 months to June 2014 traded broadly in the range of $ , at a VWAP 55 of $3.12. After increasing to $3.50 following the 27 June 2014 Supreme Court of Victoria decision awarding compensation to Tatts, the share price fell back to around $3.00 after the Victorian Government s announcement that it would appeal the decision. On the back of improving profits and failure of the Victorian Government s initial appeal, Tatts shares traded up to around $4.00 in the period October 2014 to November 2015, notwithstanding FY15 earnings being marginally below market expectations. Following media speculation, on 16 November 2015 Tatts and Tabcorp confirmed that they had held discussion regarding a nil premium merger but had been unable to agree terms. Nevertheless, the Tatts share price climbed to above $4.20 before declining back to around $4.00 by February The share price fell to around $3.60 on the 2 March 2016 announcement that the High Court had upheld the Victorian Government s appeal and that Tatts had to repay the compensation previously received plus interest and costs. From then until announcement of the Scheme on 19 October 2016, Tatts shares traded mostly in the range $ (at a VWAP of $3.81) and closed at $3.59 on 17 October The share price jumped to around $4.17 following announcement of the Scheme but drifted back to settle around $3.90, below the implied value of the Scheme at announcement ($4.34 per share). Upon announcement of Tabcorp s 9.99% relevant interest on 25 November 2016, the Tatts share price jumped back to around $4.20 and jumped again to around $4.50 on announcement of the Pacific Consortium s indicative proposal on 14 December Following rejection of that Pacific Consortium s initial proposal on 23 December 2016, the Tatts share price traded lower to around $4.20 rising again to around $4.40 following Tabcorp s application to the Tribunal for authorisation to proceed with the proposed combination with Tatts. Since rejection of the Pacific Consortium Revised Indicative Proposal on 28 April 2017, Tatts share price has generally tracked the Tabcorp share price (albeit at a premium to the merger terms). In this context, while during May-June 2017 both share prices drifted lower in line with the market, since the announcement of the Tribunal s authorisation of the merger on 20 June 2017 trading in the shares of both companies has been relatively volatile on lower volumes. Major movements have occurred around corporate announcements including the 10 July VWAP = volume weighted average price Tatts Group Limited Scheme Booklet

179 announcement of the ACCC s application for judicial review of the Tribunal s decision to authorise the combination, the release of Tabcorp s FY17 financial results on 4 August 2017 and the release of Tatts FY17 financial results on 17 August Since 17 August 2017, Tatts shares have traded in the range $ , at a VWAP of $4.18. Tatts shares commenced trading on an ex dividend basis (8 cents per share) on 1 September 2017 and closed at $4.01 on 5 September Tatts is a top 100 ASX company, a member of all major indices and has no limitations on free float. It is a reasonably liquid stock and average weekly volume over the twelve months prior to the announcement of the Scheme represented approximately 1.8% of average shares on issue or annual turnover of around 93% of total average issued capital. Tatt s weighting in the S&P/ASX 200 Index and S&P/ASX 200 Consumer Services Index is approximately 0.4% and 10.9% respectively. The following graph illustrates the performance of Tatts shares since 1 January 2014 relative to these indices: Tatts vs S&P/ASX 200 Index and S&P/ASX 200 Consumer Services Index (January September 2017) Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Source: IRESS Tatts S&P/ASX 200 Index S&P/ASX 200 Consumer Services Index After generally underperforming both indices in the 18 months to June 2014, Tatts has subsequently mirrored the indices while experiencing periods of under and over performance associated with company specific factors (including the Victorian compensation case, announcement of the 2015 merger discussions and announcement of the Scheme and the Pacific Consortium indicative proposal). This is not unexpected as underlying economic conditions, consumer sentiment and consumer discretionary income are key drivers of gambling expenditure. 36 ANNEXURE A - INDEPENDENT EXPERT S REPORT 177

180 4.9 Business Operations Lotteries Operations Tatts operates all public lotteries in Australia except in Western Australia. It markets a range of branded lottery games using a multi-channel distribution model. Tatts lottery operations are regulated by legislation and the provisions of agreements entered into by various of its subsidiaries as summarised below: Lotteries Agreement Framework State/Territory Key Agreements Brand Term Expiry Retail Exclusivity Queensland Licensed Lottery Operator 65 years July 2072 Yes 56 NSW Operator Licence 40 years April 2050 Yes Victoria Cat. One Public Lottery Licence 10 years June Yes ACT Product approvals (various) 58 Indefinite 59 n/a 60 Yes Tasmania Foreign games permit Lottery Licence - foreign games permit 5 years 5 years June 2018 June 2020 No No Northern Territory Operator Agreement Lottery Licence - Soccer Pools Foreign games permit 20 years 10 years 10 years June 2032 July 2022 June 2018 No No No South Australia Master Agency Agreement years Dec 2052 Yes Source: Tatts Note: Tatts also holds rights to provide lotteries in Norfolk Island (indefinite but able to be revoked by either party on one month s written notice) and the Cook Islands (expiring 30 June 2018). In conjunction with operator agreements, in Queensland, NSW and South Australia Tatts has exclusive use of the Golden Casket, NSW Lotteries and SA Lotteries brands respectively, while it owns the Tatts brand used in other jurisdictions. In addition, on acquisition of Golden Casket in June 2007, Tatts agreed that Golden Casket s head office would remain in Queensland and that it would establish a national lottery centre in Queensland to oversee its Lotteries business. The current Victorian lottery licence expires in June On 1 June 2017, the Victorian Government announced that Tatts had been awarded a new licence for the ten years from 1 July 2018 until 30 June 2028 under the same fiscal arrangements in return for $120 million payable on 1 July Due to the management arrangements in South Australia, revenue from the sale of lottery tickets in South Australia is not recognised by Tatts but management fee income (effectively equivalent to operator margin) is recognised as revenue. Lotteries operates as a national business with centralised core functions located in Brisbane. It 56 Retail exclusivity expired in August 2016 but product exclusivity remains for current lottery products (i.e. effective exclusivity). 57 On 1 June 2017 Tatts was awarded a new ten year licence to 30 June NSW products distributed in the ACT. 59 Unless revoked or surrendered. 60 n/a = not applicable 61 Under the Master Agency Agreement, Tatts also manages the wide area Keno service in South Australia. 62 The increase in licence amortisation as a result of this payment is around $10 million per annum from FY Tatts Group Limited Scheme Booklet

181 operates a portfolio of lottery games under well recognised brands which are predominantly offered nationally (on a pooled basis) 63 and targeted to meet the needs of different types of players: Brand Non-Jackpot Draw Lotteries Branded Products Game Type Multi-Jurisdiction Bloc Pooling Proportion of FY17 Product Revenue 64 Traditional National 35.2% Traditional National 8.7% Daily traditional National 4.3% Jackpot Draw 48.2% Jackpot National 21.8% Jackpot National 18.0% Jackpot Tatts only 1.7% Other 41.5% Instant Tatts only 8.6% Rapid draw na 65 Add-on Various 1.7% Sports pools National Source: Tatts 10.3% 100.0% Set for Life was launched in August 2015 targeting a younger demographic. It was Australia s first new lottery game in 20 years. Lucky Lotteries was repositioned as a multi-jurisdictional game in March In June 2016, Tatts introduced The Lott as an umbrella brand for the Lotteries division to enable it to enhance its customer experience and broaden its distribution channels (e.g. loyalty programs, gift cards). Tatts introduced player registration in Today, it has around 2 million registered cardholders and around 1.67 million customers with active online lottery accounts. Sales are recorded by reference to a player s registered address. Approximately 90% of Tatts lottery product revenue is generated by lottery draw games, with around half of that revenue from non jackpot draw games. The non jackpot draw games form a 63 Prize pools for major games are pooled nationally and Tatts offers these games in its licensed jurisdictions while Lotterywest offers the games in Western Australia. 64 Product revenue is lotteries revenue (including master agent fee from South Australia) excluding other lotteries revenue (including terminal fees, internet commissions, interest revenue). 65 In South Australia only. 38 ANNEXURE A - INDEPENDENT EXPERT S REPORT 179

182 reliable base revenue stream (and are referred to as the base week games) while revenue from jackpot draws is more volatile being dependent on the number and size of jackpots each year. Over the last five years, Tatts has seen average growth in non-jackpot turnover (including instants) of 2.5% per annum and average growth in jackpot turnover of 5.0% per annum. As a result, jackpot games now account for around 38% of total lottery turnover (up from 36%). While operating as a national business, Lotteries is subject to different cost (such as tax rates, basis for tax and prescribed player return to players) and regulatory requirements in each of its jurisdictions and, as a consequence, operating margins differ by state/territory. Lotteries adopts a multi-channel distribution model including traditional over the counter retail outlets, digital channels and reseller agreements. It competes for a share of the consumer entertainment expenditure and is therefore heavily reliant on marketing and advertising and the integrity of its brands. Under Lotteries agency franchise retail model, the agent pays the ticket price paid by players to Tatts plus franchise fees less the agent commission to Tatts. Minor prizes are paid to players via the retail agent with major prizes paid by Tatts. The retail network currently comprises around 3,900 retail outlets across Australia (except Western Australia) including newsagencies, convenience stores, hotels/clubs and kiosks. Tatts manages and supports the retail network focusing on business performance, retail presentation and retailer training (e.g. selling skills, product knowledge, terminal operation, regulatory obligations). There is a focus on ensuring a strong retail brand identity nationally and improving player experience at the point of sale. Recently, Tatts has streamlined its retail format and introduced digital point of sale technology. It is also investigating other retail channels but is being careful not to cannibalise existing sales channels. Some restrictions exist under Tatts operating agreements which impact its retail operations. For example, lottery agencies are restricted to businesses that employ less than 50 employees in Queensland and Tatts has agreed not to expand into major supermarkets chains in NSW before 31 March Tatts has invested, and is continuing to invest, in digital distribution channels (internet and mobile) for Lotteries. All of Tatts lottery products, except instants, are able to be sold online. As a consequence, online sales have grown to 14.5% of revenue (excluding SA Lotteries). Tatts experience is that average sales value per transaction is higher online but, more importantly, the margin to Tatts from online sales (via proprietary channels) is higher. A new mobile app was launched at the same time as The Lott in June 2016 and Tatts intends to continue to develop its current Lotteries website. These initiatives are intended to improve player convenience and brand experience (e.g. use of random surprise prizes ) and enable Tatts to leverage its extensive registered customer database to better target marketing efforts. Care is being taken not to harm the traditional retail outlet network by developing ways both distribution channels can benefit (e.g. digital point of sale technology). Tatts has also entered into reseller agreements with third parties (e.g. ASX listed Jumbo) primarily in relation to internet or mail order distribution 66. Lotteries uses a proprietary lottery technology platform that was developed by Tatts technology division and rolled out across its lottery jurisdictions since The platform is unique and provides Lotteries with considerable flexibility for innovation (as Tatts does not depend on a third party supplier to update or improve the platform). A team of software developers dedicated to Lotteries is located in Tatts technology division and Lotteries also accesses other technology expertise located in Brisbane. 66 On 12 May 2017, Tatts announced that it had expanded its commercial relationship with Jumbo with a five year extension and expansion of the existing lottery reseller agreements. Tatts also agreed to subscribe $15.66 million for 6,609,686 shares in Jumbo (a 13.04% interest) and was granted a 12 month option to acquire a further 3,474,492 Jumbo shares at the same price ($2.37 per share) Tatts Group Limited Scheme Booklet

183 Historical Operating Performance The adjusted operating performance of Lotteries for the six years ended 30 June 2017 is summarised below: Lotteries Adjusted Historical Operating Performance ($ millions) Year ended 30 June 2012 restated 2013 actual 2014 actual 2015 actual 2016 actual 2017 actual Number of jackpots ( $15 million) Average value of jackpot pool ( $15m) $23.0m $29.0m $25.7m $25.3m $28.8m $24.2m Digital sales as percentage of revenue % 8.2% 9.4% 11.1% 13.5% 14.5% Adjusted revenue 1, , , , , ,014.0 Adjusted EBITDA Depreciation and other amortisation (9.9) (11.3) (9.5) (10.5) (10.0) (9.5) Adjusted EBITA Amortisation of licences, brands, agreements (11.3) (13.9) (15.6) (15.6) (15.6) (15.6) Adjusted EBIT Capital expenditure Statistics Adjusted revenue growth 13.6% (4.3%) 2.8% 8.2% (5.9%) Adjusted EBITDA growth 31.5% 0.3% 5.8% 10.1% (8.7%) Adjusted EBITA growth 32.3% 1.0% 5.7% 10.6% (8.7%) Adjusted EBIT growth 32.8% 0.4% 6.0% 11.1% (9.2%) Adjusted EBITDA margin 12.7% 14.7% 15.4% 15.9% 16.2% 15.7% Adjusted EBITA margin 12.2% 14.2% 14.9% 15.4% 15.7% 15.2% Adjusted EBIT margin 11.5% 13.5% 14.1% 14.6% 15.0% 14.4% Capex 69 as % of adjusted EBITDA 8.2% 6.2% 2.6% 0.9% 1.2% 1.8% Capex as % of depreciation and other amortisation 185.5% 162.8% 80.4% 26.5% 43.8% 61.1% Source: Tatts and Grant Samuel analysis The acquisition of the management rights to SA Lotteries effective December 2012 combined with a record run (until that date) of jackpots with a value $15 million (including an Australian record $112 million jackpot in Oz Lotto) and a restructure of the Powerball game (designed to generate larger jackpots) resulted in substantial growth in revenue and profitability in FY13. Therefore, as the first year reflecting a full contribution from SA Lotteries, FY14 is considered the base year for analysis of Lotteries performance. In this regard, in FY14 Lotteries generated a small increase in profits on lower revenue (reflecting lower jackpots). This result reflects the differing revenue structure associated with the SA Lotteries management rights (i.e. Tatts revenue from SA Lotteries comprises management fees and commissions due to its selling agents rather than the gross subscriptions less prizes payable received in its other jurisdictions). Furthermore, during FY14 Lotteries expanded the jurisdiction coverage for Monday and Wednesday Lotto, launched multi-jurisdictional instant games, completed the roll out of its proprietary TattsTech lottery system and launched the Tatts.com lotteries app. Notwithstanding a lower number of jackpots, in FY15 Lotteries generated increased revenue and profits with improved profit margins reflecting (in part) the increasing proportion of revenue generated digitally as well as tight control of costs. This was followed by a record revenue and profit performance in FY16 on the back of a record run of jackpots (45 with a value $15 million including six jackpots with a value $50 million) and continued growth in digital sales. In addition, in FY16 Tatts launched Set for Life, Australia s first new lottery game in 20 years and commenced initiatives to better leverage its registered customer base. 67 Excluding South Australia. 68 Capital expenditure comprises amounts incurred by Lotteries. It does not include expenditure on the centralised technology platform (reflected in Corporate/Unallocated in Section 4.9.4) part of which is attributable to Lotteries. 69 Capex = capital expenditure 40 ANNEXURE A - INDEPENDENT EXPERT S REPORT 181

184 In FY17, Lotteries was challenged to match the record FY16 operating performance and came up short, primarily as a result of a lower number of jackpots with a value $15 million. Lotteries generated 31 jackpots with an average value of $24.2 million in comparison to 45 jackpots with an average value of $28.8 million in FY16. This resulted in a substantial decline (around 15%) in revenue from the key jackpot games, Oz Lotto and Powerball. This shortfall was, in part, offset by an increase in revenue relative to FY16 by the balance of the game portfolio. As a consequence, overall revenue decreased by 5.9% delivering a 8.7% decrease in EBITDA at a lower margin (reflecting increased marketing spend, launch costs for The Lott and a decrease in scale benefits). While the FY17 operating result may be considered disappointing, it highlights the variability associated with jackpot games and the importance of a balanced game portfolio. In this regard, Lotteries FY17 result is not substantially out of line with its performance in FY14 and FY15. Capital expenditure is focussed on Lotteries distribution network and fluctuates depending on projects that are being rolled out. The expenditure in FY12 and FY13 reflects the rollout of Tatts lottery terminals nationally and the technology platform following the acquisition of SA Lotteries. Strategy and Outlook Lotteries business strategy is focussed on: growing revenue through marketing/promotional activity, product innovation and data utilisation; improving profitability by increasing efficiency through use of technology; improving customer experience; and building closer bonds with key stakeholders and communities. While lotteries are generally considered to attract an older demographic customer base, product innovation (e.g. Set for Life, surprise games) and Tatts investment in digital technology (internet and mobile apps) has been well received across the market and is attracting a younger demographic. The introduction of digital point of sale displays at its retail outlets and a retail image refresh are important initiatives for the business. Leveraging its strong brands, Tatts is launching a gift card program (cards are to be sold through more than 5,000 new outlets but redeemable only in existing lottery agencies or online) and Lucky Lotteries in South Australia. Tatts strong brand recognition and reputation for integrity means it is well positioned to meet competition from online lottery products and synthetic gaming products. It is also working to ensure that regulators and the market understand the difference between the online wagering products (e.g. those provided by Lottoland) and its lottery offering. While Lotteries has benefited in recent years from the expansion of games across jurisdictions, the launch of new games, changes to games, increased distribution channels and technology expenditure, overall sales momentum and profitability remains dependent on the number and size of jackpots as well as the timing of major prize days. In this regard, Tatts management of its portfolio of lottery games (including both jackpot and non-jackpot games) is important in mitigating jackpot volatility. In the absence of unusually high or low jackpot sequences, revenue growth over the medium to long term is expected to be around 2-3% per annum although the risk of technology disruption and competition will remain Tatts Group Limited Scheme Booklet

185 4.9.2 Wagering Operations The Wagering division provides: in person totalizator and fixed odds wagering on horse racing, harness racing and greyhound racing in Queensland, South Australia, Tasmania and the Northern Territory: through the UBET retail network of around 1,400 agencies and licensed venues; and on-course; in person wagering on other sports and events (predominantly on a fixed odds basis) in Queensland, South Australia, Tasmania and the Northern Territory through the UBET retail network; and totalizator and fixed odds wagering by telephone, internet and mobile devices from anywhere in Australia or permitted overseas jurisdictions. Wagering also: owns and operates RadioTAB offering a range of sports and racing broadcasting in its jurisdictions and online; and is a Keno agent in Queensland (licence held by Tabcorp, see Section 5.9.2). Tatts wagering operations are regulated by legislation and licence agreements entered into by subsidiaries as summarised below: Tatts Wagering Licences State/Territory Licence Term Expiry Retail Exclusivity Queensland Race Wagering Licence 99 years June 2098 Yes (until 30 June 2044) Sports Wagering Licence 99 years June 2098 Yes (until 30 June 2044) South Australia Major Betting Operations Licence 99 years June 2100 Yes (until 30 June 2017) 70 Tasmania Tasmanian Gaming Licence 50 years 71 March 2062 Yes (until March 2027) Northern Territory Totalizator Licence 20 years October 2035 Yes Sports Bookmaker Licence 20 years October 2035 No Source: Tatts Tatts operates the UBET totalizator pool providing pooling services to its pari-mutuel wagering operations across its jurisdictions (not for third parties). Tatts has relationships with the racing industries in each of the jurisdictions in which it operates whereby it pays race field fees, product fees, wagering taxes and/or other industry funding payments. The arrangements differ by jurisdiction. Queensland represents over 60% of Wagering s turnover. Following a period of licensing exclusivity negotiations, on 27 June 2014 Tatts reached agreement with the Queensland Government and Racing Queensland to establish a new framework for the conduct of race and sports wagering in Queensland. Under this agreement: Tatts sports wagering and race wagering licences were aligned by the extension of the sports wagering licence to 2098 with retail exclusivity secured for both licences to 2044; wagering tax rates were decreased to 14% of commission for pari-mutuel betting (from 20%) and 10% of gross revenue for fixed price betting (from 20%); product fee arrangements with Racing Queensland were maintained with the variable fee at 39% of gross wagering revenue and direct offset of Australian race field fees and international racing costs against the variable product fee (except in certain circumstances); 70 Retail exclusivity in South Australia was extended to 30 June 2017 and Tatts is working with the South Australian Government and the South Australian racing industry to secure long term retail exclusivity under its current licence. 71 May be renewed for a further 49 years if certain conditions are met. 42 ANNEXURE A - INDEPENDENT EXPERT S REPORT 183

186 additional product fees were established: a 2.5% share of fixed price sports betting revenue generated from Queensland bricks and mortar retail outlets, capped at $5 million per annum (indexed); and a fixed product fee of $15 million per annum (indexed 80% of CPI 72 ); Tatts committed to a new regional racing marketing fund and to create 50/50 joint ventures for initiatives that have the potential to generate additional revenue for the racing industry and to agreed levels of marketing and network expansion; and Tatts was appointed the exclusive betting partner for on-course advertising. The objective of the new framework is to level the playing field for Tatts relative to out of state betting operators. In return for the new arrangements, Tatts agreed to pay Queensland a $150 million licence fee (with $15 million subject to conditions) in four instalments 73. Wagering operates as a national business with centralised core functions located in Brisbane. While operating as a national business, it is subject to different cost, regulatory and industry requirements in each jurisdiction and, as a consequence, operating margins differ by state/territory. Wagering adopts a multi-channel distribution model offering wagering products through retail outlets, by telephone, online (websites) and via mobile devices. These channels are summarised below: Channel Wagering Distribution Channels at 30 June 2017 Jurisdiction Queensland South Australia Tasmania Northern Territory Other Retail Channel Agencies/branches Licensed venues ,110 On-course Standalone self service terminal Total ,477 Online and Telephone Channel Active customer accounts ,222 21,859 9,413 2,894 52, ,124 Source: Tatts Retail is Tatts largest, albeit declining, distribution channel: Total 72 CPI = consumer price index 73 At 30 June 2017, $75 million of the licence fee was outstanding and due to be paid in two instalments on 1 July 2020 and 1 July 2023 including a $7.5 million payment which is subject to conditions (see Section 4.4 of this report). 74 Being accounts of customers that placed at least one bet online or by telephone in the year ended 30 June Including NSW, the ACT, Victoria and Western Australia Tatts Group Limited Scheme Booklet

187 Turnover by Distribution Channel (FY13 to FY17) Tatts Wagering Turnover ($million) 3,566 3,587 3,604 3,753 3,503 Turnover by Product (FY17) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 3% 3% 3% 3% 2% 8% 7% 6% 5% 5% 20% 23% 26% 30% 32% 69% 67% 65% 62% 61% FY13 FY14 FY15 FY16 FY17 Fixed price - racing 47% Fixed price - sports 9% Other 1% Pari-mutuel 43% Retail Digital Phone On-course Source: Tatts Note: Including Keno in Queensland but excluding other betting The decline in turnover through the retail and phone distribution channels is being replaced by growth in revenue from the digital channel. In FY17, the digital channel generated 31.7% of wagering turnover (up from 20.2% in FY13) with mobile representing 47% of digital turnover. Tatts currently has around 190,000 active customer accounts 74. In the period FY12-FY16, Wagering s turnover (excluding international and Keno turnover) grew at a slower rate (around 1% per annum) than the Australian wagering market (2.4% per annum). As a result, Tatts market share was estimated to have fallen to around 11% by FY16 (from 16% in FY06) with its share of the online channel estimated at 7% (see Section 3.2). The negative impact of poor weather and small fields on racing during FY17 resulted in total turnover at levels similar to FY12. At the same time, the proportion of Wagering s domestic turnover represented by fixed price betting has increased from 27% in FY12 to around 56% in FY17. The growth in fixed price betting has largely occurred in racing with sports betting remaining a relatively small proportion (9%) of turnover: Wagering - Turnover by Product (FY12-FY17) 100% 90% 80% 70% 60% 50% 7% 7% 7% 7% 9% 9% 20% 24% 40% 30% 73% 69% 63% 56% 20% 47% 44% 10% 0% FY12 FY13 FY14 FY15 FY16 FY17 Pari-mutuel Fixed price - racing Fixed price - sports Source: Tatts Note: Excluding Keno in Queensland and other betting. 30% 37% 44% 47% 44 ANNEXURE A - INDEPENDENT EXPERT S REPORT 185

188 In response to the increased competition from corporate bookmakers and the impact of the migration to fixed odds betting, in FY13 Wagering commenced a business review. This process resulted in the launch of UBET on 30 April In addition to the introduction of a new unified brand and livery for the retail network and online 76, UBET involves the integrated roll out of new digital assets, an expanded product offering, a co-ordinated marketing capability and cash self service terminals. To 30 June 2017, around 480 of the retail network venues have been upgraded. The UBET roll out is continuing together with increased investment in marketing and promotion. Tatts retail network includes standalone owned branches and third party agencies as well as agencies in licensed venues and on-course. It manages and supports its retail and venue network focusing on business performance, retail presentation and training (e.g. product knowledge, terminal operation, regulatory obligations). In recent years, it has commenced the roll out of card based self service terminals in outlets. Tatts has received approval and is now rolling out cash self service terminals. Wagering uses a proprietary technology platform which was developed by Tatts technology division. This platform provides considerable flexibility both for product innovation and yield management. A team of software developers dedicated to Wagering is located in Tatts technology division and Wagering also accesses other technology expertise located in Brisbane. Tatts is continuing to invest in technology and digital distribution channels for Wagering. Historical Operating Performance The adjusted operating performance of Wagering for the six years ended 30 June 2017 is summarised below: Wagering Adjusted Historical Operating Performance ($ millions) Year ended 30 June 2012 restated 2013 actual 2014 actual 2015 actual 2016 actual 2017 actual Total turnover 77 3, , , , , ,841.9 Domestic turnover 78 3, , , , , ,503.3 Domestic turnover by bet type: - Pari-mutuel 72.5% 68.7% 62.8% 55.6% 47.1% 43.7% - Fixed price 27.5% 31.3% 37.2% 44.4% 52.9% 56.3% Domestic turnover by product: - Racing 93.4% 93.2% 92.4% 92.2% 91.3% 91.3% - Sports 6.6% 6.8% 7.6% 7.8% 8.7% 8.7% Fixed price domestic turnover by product: - Racing 76.1% 78.6% 79.7% 82.6% 83.6% 84.6% - Sports 23.9% 21.4% 20.3% 17.4%. 16.4% 15.4% Average yield: - Total 16.4% 16.4% 16.1% 16.0% 14.8% 15.3% - Pari-mutuel 17.9% 17.9% 18.1% 18.3% 18.6% 17.0% - Fixed price 13.9% 14.9% 14.1% 14.0% 12.1% 13.1% Adjusted revenue Adjusted EBITDA Depreciation and other amortisation (16.2) (14.3) (12.6) (10.3) (10.8) (13.3) Adjusted EBITA Amortisation of licences and brands (3.8) (4.0) (4.1) (7.3) (6.8) (6.8) Adjusted EBIT Capital expenditure Prior to the launch of UBET, the Tatts retail network was operated under a range of legacy brands (including TAB, TattsBet, Tote and SA TAB) and its online presence was branded tatts.com. 77 Total turnover includes domestic racing and sports betting, Keno in Queensland and other betting. 78 Domestic turnover excludes Keno in Queensland and other betting. 79 Capital expenditure includes amounts incurred by Wagering. It does not include expenditure on the centralised technology platform (which is reflected in Corporate/Unallocated in Section 4.9.4), a substantial proportion of which would relate to the Wagering division Tatts Group Limited Scheme Booklet

189 Wagering Adjusted Historical Operating Performance ($ millions) 2012 restated 2013 actual Year ended 30 June 2014 actual 2015 actual 2016 actual 2017 actual Statistics Growth in: - Total turnover 2.1% 5.7% (0.3%) (0.9%) 4.1% (6.9%) - Domestic turnover 1.7% 1.8% 0.6% 0.6% 4.2% (6.7%) - Pari-mutuel domestic turnover (4.6%) (3.5%) (8.1%) (10.9%) (11.7%) (13.4%) - Fixed price domestic turnover 23.0% 16.0% 19.8% 20.0% 24.1% (0.7%) Adjusted revenue growth 5.0% (1.8%) (1.5%) (3.6%) (3.7%) Adjusted EBITDA growth 10.2% (6.7%) (4.5%) (13.3%) (16.7%) Adjusted EBITA growth 12.8% (6.3%) (3.4%) (14.6%) (20.3%) Adjusted EBIT growth 13.0% (6.5%) (5.7%) (15.1%) (21.5%) Adjusted EBITDA margin 25.1% 26.4% 25.1% 24.3% 21.9% 18.9% Adjusted EBITA margin 22.5% 24.2% 23.1% 22.7% 20.1% 16.6% Adjusted EBIT margin 21.9% 23.6% 22.5% 21.5% 19.0% 15.5% Capex as % of adjusted EBITDA 8.7% 3.7% 8.2% 19.8% 21.1% 31.0% Capex as % of depreciation and other amortisation 83.8% 44.3% 105.6% 295.0% 260.8% 257.7% Source: Tatts and Grant Samuel analysis FY13 reflects the first full year contribution from Tote Tasmania (acquired in March 2012). Since then, Wagering s operating performance has been under pressure as a result of industry structural changes (impact of corporate bookmakers and accelerated migration to fixed odds betting) as well as increased uptake of online and mobile channels by customers. In this regard, Tatts has: faced soft retail economic conditions in the key Queensland market (on the back of the downturn in the commodities sector and drought); experienced strong growth in lower margin fixed price betting (to over half of turnover) and high growth in the higher margin digital channel (to over 30% of turnover); adopted more competitive odds pricing and invested in customer loyalty (through rewards and bonuses) in order to compete with corporate bookmakers; and seen an increase in overheads associated with the launch of UBET (marketing, promotional and technology costs). These factors have resulted in limited growth in overall turnover, a reduction in the blended yield (and therefore Tatts revenue) and an increase in operating expenses as a percentage of revenue across the period. Over the three years FY13 to FY16, Wagering saw a cumulative decline in revenue of around 7% and EBITDA of around 23%, with an acceleration of the decline in FY16. In particular, Wagering experienced pressure on yields achieved on fixed price betting (which now accounts for over 50% of total domestic turnover). Competitive market conditions continued in FY17 with market turnover negatively impacted by poor weather (the number of lost races in the period was 1,674, 26% higher than in FY16) and, in some states, reduced field sizes. These events, together with a focus on risk management of customers and refining promotional offers, resulted in a 6.9% reduction in turnover for Tatts with continued migration to fixed odds betting in racing (pari-mutuel betting declined by 13.4%). However, due to a focus on yield optimisation (the blended yield was 15.3% compared to 14.8% in FY16), Tatts revenue declined by only 3.7% compared to FY16. This decline plus higher telecommunications costs in retail venues (associated with increased customer risk management) and digital and marketing costs, saw Tatts deliver a 16.7% decrease in EBITDA at a substantially lower margin relative to prior years. Capital expenditure is focussed on Wagering s distribution network and fluctuates depending on the roll out of specific projects. For example, the increase in expenditure since FY15 reflects the launch of UBET and the associated outlet refurbishment costs with this expenditure level expected to continue through FY19. The next terminal replacement project is not expected prior to FY ANNEXURE A - INDEPENDENT EXPERT S REPORT 187

190 Strategy and Outlook Wagering is focused on strengthening its business by improving customer experience and brand loyalty (e.g. app upgrading, refreshing its retail presence, increasing rewards and bonuses), continued innovation in product offering (e.g. increased range of sports/exotic bets) and digital marketing and improving product yields (e.g. launch of automatic yield management technology). Having substantially completed the roll out of the UBET branding, it is focused on continuing the roll out of UBET format stores. Although Wagering has a strong long term retail market presence in its jurisdictions and has rolled out a new unified brand (UBET) across all channels, it faces a number of challenges in the short to medium term including: the continuing shift from retail (where it has effective retail exclusivity in its jurisdictions) to online wagering where Tatts has a low market share and faces intense competition from Tabcorp and corporate bookmakers (who enjoy certain structural advantages); continued margin pressure from the shift to fixed odds and the impact of competition on odds and yields; and the inevitable difficulties of establishing a new brand in a contested field where competitors are devoting greater marketing resources Gaming Operations Gaming provides monitoring and other business services to gaming venue operators. Following the sale of Talarius in FY16, this division is now focused on providing services to businesses in Australia and comprises two separate but related businesses, MAX and MAXtech. MAX provides services to gaming venues in Queensland, NSW and the Northern Territory. Its core business is the supply of government mandated EGM monitoring services. It is: the exclusive supplier of monitoring services in NSW. The NSW licence has been extended to 30 November 2017 and a new licence recently issued for the period from 1 December 2017 to 30 November 2032 (15 years) 80 ; and a non exclusive provider of monitoring services in the Northern Territory and Queensland. Its only competitors operate in Queensland and include Odyssey Gaming which is owned by Tabcorp. MAX is estimated to have an 81% market share in Queensland. MAX also supplies maintenance services and gaming and promotional management systems and related services to gaming venues. Maintenance services are provided to MAX by MAXtech. Other services include financial reporting and reconciliation systems, player tracking and loyalty systems, cashless gaming systems, business intelligence programs, kiosks and cashier redemption equipment and linked jackpot products. MAX operates both proprietary and licensed technology platforms through which value added services can be accessed by venues. Other than in NSW where it is the exclusive provider of monitoring services, MAX enters into contracts with venue owners. It has around 3,600 contracted venues including major licensed clubs (particularly in Queensland) and a number of large hotel portfolios. MAX s unique position in monitoring provides the ability to provide other value adding services to contracted venues. MAX generates around 51% of its revenue in Queensland/Northern Territory and 49% in NSW. In comparison, MAXtech provides maintenance services, end to end technical and logistics support to owners of EGMs, lotteries and wagering terminals and other transaction devices across Australia. It provides installation and relocation services from a team of field technicians (both employed and contracted), technical repairs and maintenance workshops in each state, warehousing and logistics management for parts and equipment for machines and a national help desk. 80 Amortisation of the payment for the new licence commences in December Tatts Group Limited Scheme Booklet

191 Around 44% of MAXtech s revenue is generated by services provided to MAX and Tatts Wagering and Lotteries businesses on a nil margin basis. This proportion has increased recently from around 33% as a consequence of a business strategy to exit or not renew unprofitable third party contracts. Following a recent internal restructure, these two businesses are being operated on an integrated basis to leverage their leading market position providing services to more EGMs and gaming venues than any other provider in Australia: Gaming Australian Footprint State/Territory MAX MAXtech EGMs Venues EGMs Venues NSW 95,103 2,594 1, Queensland 34, , Victoria , South Australia , Western Australia - - 2,400 1 Northern Territory 1, , ACT Tasmania Total 131,035 3,607 60,272 1,716 Estimated market share ~72% ~75% ~33% ~36% Source: Tatts Historical Operating Performance The adjusted operating performance of Gaming for the six years ended 30 June 2017 is summarised below: Gaming Adjusted Historical Operating Performance ($ millions) Year ended 30 June 2012 restated 2013 actual 2014 actual 2015 actual 2016 actual 2017 actual Adjusted revenue - MAX MAXtech Total adjusted revenue Adjusted EBITDA - MAX MAXtech 8.4 (0.2) Total adjusted EBITDA Depreciation and other amortisation - MAX (19.2) (12.9) (11.3) (11.3) (10.2) (8.9) - MAXtech (1.5) (2.0) (2.1) (2.2) (2.4) (2.2) (20.7) (14.9) (13.4) (13.5) (12.6) (11.1) Adjusted EBITA - MAX MAXtech 6.9 (2.2) (1.3) Total adjusted EBITA Amortisation of licences and brands - MAX (2.1) (2.1) (2.1) (2.1) (2.1) (3.9) - MAXtech (2.1) (2.1) (2.1) (2.1) (2.1) (3.8) Adjusted EBIT - MAX MAXtech 6.9 (2.3) (1.3) Total adjusted EBIT ANNEXURE A - INDEPENDENT EXPERT S REPORT 189

192 Gaming Adjusted Historical Operating Performance ($ millions) 2012 restated 2013 actual Year ended 30 June 2014 actual 2015 actual 2016 actual 2017 actual Capital expenditure - MAX MAXtech Total capital expenditure Statistic - Gaming (total) Adjusted revenue growth 4.9% (3.5%) (0.1%) (4.6%) (3.8%) Adjusted EBITDA growth (15.3%) 1.9% 5.5% 4.1% 7.4% Adjusted EBITA growth (10.3%) 5.4% 6.9% 6.7% 11.8% Adjusted EBIT growth (10.7%) 5.7% 7.2% 6.9% 9.0% Adjusted EBITDA margin 34.0% 27.5% 29.0% 30.6% 33.4% 37.3% Adjusted EBITA margin 24.5% 21.0% 22.9% 24.5% 27.4% 31.9% Adjusted EBIT margin 23.6% 20.1% 22.0% 23.6% 26.4% 30.0% Capex as % of adjusted EBITDA 13.0% 15.5% 11.3% 10.4% 13.8% 23.5% Capex as % of depreciation and other amortisation 46.6% 65.8% 54.2% 52.3% 77.0% 161.0% Source: Tatts and Grant Samuel analysis Around 55% of MAX s revenue is derived from monitoring activities. While monitoring contracts include annual fee increases and other services have been introduced, MAX has generated minimal growth in revenue over the period due to a small decline in EGM s in NSW and increasing competition (particularly in Queensland as new monitoring operators have been licensed) across the period. Together with increased technology costs, these factors have resulted in a minor erosion in EBITDA margins. While the new central monitoring system licence in NSW underpins the future of the business for the next 16 years, it will have no material impact (either positive or negative) on MAX s earnings as it is the incumbent licensee. MAXtech s operating performance in FY13 and FY14 was impacted by a number of unprofitable third party contracts. Furthermore, as 30-40% of revenue across the period has been generated from other Tatts businesses on a nil margin basis, MAXtech s operating margins are proportionately lower than comparable businesses. A recent business restructure and the exit or non-renewal of a number of contracts has returned the business to profitability. In FY17, MAX grew revenue by 2.0% over FY16 primarily due to annual contracted increases in monitoring fees, an increase in the number of EGM s installed with MAXconnect and an increase in ticket-in-ticket-out 81 installations. This increase resulted in a 4.6% increase in EBITDA. In comparison, MAXtech s revenue decreased 11.3% as it continued its strategy of exiting or not renewing unprofitable contracts. This resulted in a 34% increase in EBITDA and an improved margin of 9.4%. With its repositioned cost base, MAXtech is now focusing on securing new third party contracts for its core competencies. The increase in amortisation of licences and brands in FY17 reflects the extension of the existing NSW monitoring licence to 30 November Capital expenditure for MAX and MAXtech primarily relates to software development. The increase reflected in FY17 reflects expenditure for the NSW central monitoring system by MAX. Strategy and Outlook Gaming s objective is to be the most sought after provider of business solutions for gaming venue operators. It is focussed on: executing its EGM monitoring services efficiently and competing effectively in the Queensland market; and leveraging its monitoring activities into providing value added services to gaming venues (e.g. promotional and management systems) and expanding the footprint of the technical and logistics support activities of MAXtech. 81 A technology used in EGMs whereby the machine prints out a barcoded slip of paper indicating the amount of money represented which can then either be redeemed for cash or inserted for play into other machines with the same technology Tatts Group Limited Scheme Booklet

193 Expectations are for steady, albeit modest, growth in earnings over the medium term: underpinned by the new 15 year monitoring licence in NSW; assuming market share is largely maintained in Queensland; assuming some success in expanding value added services; and reflecting the restructuring and turnaround in the MAXtech business. Opportunities also exist to strengthen its platform (e.g. the potential acquisition of Intralot S.A. s ( Intralot ) Victorian and New Zealand monitoring businesses 82 ). Nevertheless, Gaming is vulnerable to increased competition (in particular from Odyssey Gaming, its competitor in Queensland) and consequent loss of contracts as well as technology disruption Corporate/Unallocated Tatts corporate and shared services costs are estimated to be around $130 million, of which around $80 million (primarily information and digital technology costs) are allocated to the operating divisions as well as corporate office. The unallocated costs of around $50 million represent the costs associated with running Tatts head office and include: information and digital technology costs (around $10 million); costs of being a listed company (board of directors, annual reports and shareholder communications, share registry, listing fees, investor relations) (around $5 million); and the Tatts executive office (such as costs associated with the offices of the CEO and CFO, company secretarial and legal, group finance, internal audit, human resources and business development etc.) (around $35 million) 83. Corporate/unallocated costs have grown reflecting changes in Tatts business and increased group investment in IT and digital marketing which ultimately relate to business operations but are not fully allocated to them: Corporate/Unallocated Adjusted Historical Operating Performance ($ millions) Year ended 30 June 2012 restated 2013 actual 2014 actual 2015 actual 2016 actual 2017 actual Adjusted EBITDA (39.2) (45.2) (44.3) (47.3) (50.5) (46.1) Depreciation and other amortisation (17.3) (14.9) (17.1) (17.6) (17.3) (18.0) Adjusted EBITA (56.5) (60.1) (61.4) (64.9) (67.8) (64.1) Amortisation of licences and brands Adjusted EBIT (56.5) (60.1) (61.4) (64.9) (67.8) (64.1) Capital expenditure - technology other Total Capex as % of depreciation and other amortisation 79.8% 111.9% 139.3% 118.5% 124.2% 96.1% Source: Tatts and Grant Samuel analysis Technology capital expenditure reflects capital costs associated with the centralised technology platform (including storage and server capacity, telecommunications upgrade, cyber security) not allocated to the business divisions (particularly Lotteries and Wagering). Other capital expenditure relates to corporate properties and corporate software. Technology capital expenditure across the period has been driven by acquisitions and technology upgrades. 82 Intralot holds exclusive EGM monitoring licences in Victoria (expiry August 2027) and New Zealand (expiry May 2022) and operates New Zealand s integrated gambling platform (expires May 2020). In August 2016, Tatts announced that it was conducting exclusive confirmatory due diligence in relation to the acquisition of these businesses. 83 These costs include employee bonuses which are not allocated to the operating divisions. 84 Including capital expenditure incurred in relation to properties no longer owned by Tatts, the earnings of which have been excluded as non-recurring in Section ANNEXURE A - INDEPENDENT EXPERT S REPORT 191

194 5 Profile of Tabcorp 5.1 Background Tabcorp listed on the ASX in August 1994, following the privatisation of the Victorian TAB. Tabcorp acquired the business formerly conducted by the Victorian TAB and licences to conduct wagering and gaming in Victoria. The gaming licence allowed Tabcorp to operate EGMs and Keno in Victoria (similar to the licence held by Tatts with each company operating 50% of the total EGMs permitted in Victoria). The wagering licence allowed Tabcorp to offer totalizator betting for racing and fixed odds betting on sporting events. At the same time, Tabcorp and the Victorian Racing Industry ( VicRacing ) formed an unincorporated joint venture for the operation of a wagering and gaming business in Victoria. Under the joint venture agreement, VicRacing was entitled to a 25% share of the profit from Tabcorp s Victorian wagering and gaming businesses and supplied racing services to Tabcorp in return for a racing program fee, product supply fee and marketing fee. The joint venture agreement and the licences ran until August Following its listing, Tabcorp grew significantly through acquisitions and expansion into new sectors: in late 1999, Tabcorp acquired Star City Holdings Limited, the owner of the Star City hotel and casino complex in Sydney; in early 2000, Tabcorp acquired Structured Data Systems Pty Ltd, a developer of networked wagering systems (including Trackside), Keno systems and animated games; in late 2003, Tabcorp merged with Jupiters Limited, which owned hotel and casino complexes in Brisbane, the Gold Coast and Townsville in Queensland as well as EGM monitoring operations in Queensland and NSW (which Tabcorp was required to divest); in late 2004 Tabcorp completed the takeover of NSW based wagering and media company, TAB Limited (competing with an offer from UNiTAB); and in late 2008, in response to competition changes in the Australian wagering market, Luxbet was launched as Tabcorp s Northern Territory licensed online and telephone corporate bookmaking service. In addition, in June 2006, Tabcorp announced a proposed cash and scrip takeover of UNiTAB, competing with the Tatts proposed merger of equals. However, in August 2006, the ACCC announced that it would oppose the takeover and, as a result, Tabcorp did not proceed with the takeover. UNiTAB was ultimately acquired by Tatts. In June 2011, Tabcorp demerged its casino operations, resulting in Tabcorp s casinos business being separately listed as Echo Entertainment Group Limited (now The Star Entertainment Group Limited) and the wagering, gaming and Keno businesses being retained by Tabcorp. The August 2012 restructure of the Victorian gambling industry had a significant impact on Tabcorp. Under the new arrangements, gaming moved to a venue based model where hotels and clubs held EGM entitlements directly and there was a single Keno licence with distribution expanded to include all venues with a liquor licence. The single exclusive licence for racing and sports wagering was retained following a competitive tender process. Following this restructure, Tabcorp: exited the Tabaret gaming business (which had been a significant contributor to Tabcorp s earnings, generating ~25% of group EBIT); was issued a new 12 year Victorian Wagering and Betting Licence (to 2024) and entered into a new 50:50 joint venture with VicRacing; was awarded a ten year Victorian Keno Licence (to April 2022); and commenced a new business, TGS, which provides gaming services in Victoria and NSW Tatts Group Limited Scheme Booklet

195 Following the closure of its Tabaret gaming business and the grant of new gaming licences to gaming venues, Tabcorp sought a payment of $686.8 million from the Victorian Government which it believed it was entitled to under the relevant legislation (Tatts also sought compensation in relation to the termination of its gaming licence). The Victorian Government formed the view that Tabcorp was not entitled to any payment. Tabcorp pursued legal action seeking payment from the Victorian Government, however the legal action concluded unsuccessfully in March 2016 with the High Court of Australia dismissing an appeal by Tabcorp. Since the demerger of its casino operations and the restructure of the Victorian gambling industry, Tabcorp has focussed on strengthening its remaining businesses, including through the acquisition of: the Australian Capital Territory TAB ( ACTTAB ) business for $105.5 million, completed in October ACTTAB provides totalizator and fixed odds betting, Keno and Trackside products in the ACT through a network of eight TAB agencies and 37 licensed venues as well as telephone and online platforms. As part of the acquisition, Tabcorp was issued with a 50 year exclusive totalizator licence, a sports bookmaking licence for an initial term of 15 years with further rolling extensions to a total term of 50 years and ongoing approvals to offer Keno and Trackside products for 50 years; and Intecq Limited ( Intecq ) for $127.7 million. Intecq was an ASX listed gaming systems company providing integrated gaming technology solutions, gaming management systems and monitoring services to more than 1,200 licensed venues across Australia. Tabcorp announced the acquisition of Intecq by way of a scheme of arrangement on 1 August The scheme was approved by Intecq shareholders on 20 October 2016 and was implemented on 16 December In August 2016, Tabcorp launched Sun Bets, a new online sports bookmaking and casino products business, in conjunction with News UK, a subsidiary of News Corporation. Sun Bets aims to access the $7 billion United Kingdom and Ireland online gambling markets through The Sun newspaper s readers. Today, Tabcorp is a leading Australian gambling entertainment company with operations throughout Victoria, NSW, Queensland, the Northern Territory and the ACT and more than 3,000 employees. It is a top 100 ASX listed company and, prior to announcement of the Scheme, had a market capitalisation of approximately $4.0 billion. 5.2 Business Overview Tabcorp operates three businesses Wagering & Media, Keno and Gaming Services. The Wagering & Media business is the largest contributor to Tabcorp s performance, representing 84% of revenue and 70% of EBIT: Tabcorp Year ended 30 June 2017 Revenue by Division EBIT by Division Keno 10% Gaming Services 6% Gaming Services 15% Keno 15% Source: Tabcorp Wagering & Media 84% Wagering & Media 70% Tabcorp s business divisions are described, and their financial performance discussed, in Section 5.9 of this report. 52 ANNEXURE A - INDEPENDENT EXPERT S REPORT 193

196 5.3 Financial Performance Historical Financial Performance The historical financial performance of Tabcorp for the five years ended 30 June 2017 is summarised below: Tabcorp Historical Financial Performance ($ millions) Year ended 30 June 2013 actual 2014 actual 2015 actual 2016 actual 2017 actual Revenue 2, , , , ,229.6 Taxes, levies, commissions and fees (1,117.6) (1,120.3) (1,188.8) (1,204.2) (1,223.3) Operating expenses (421.7) (433.4) (458.6) (468.7) (502.2) EBITDA Depreciation and other amortisation (105.5) (116.5) (125.1) (130.1) (129.4) EBITA Amortisation of licences (45.6) (47.9) (48.4) (48.5) (49.3) EBIT Net interest expense (103.7) (97.2) (78.5) (69.9) (68.3) Operating profit before tax Income tax expense (70.0) (75.1) (84.8) (81.4) (78.2) Operating profit after tax Profit/(loss) from discontinued operations (21.0) (19.5) Significant items (net of tax) (16.2) (199.7) NPAT attributable to Tabcorp shareholders (20.8) Statistics Basic EPS (operating profit after tax) 18.9c 19.8c 21.7c 22.4c 21.4c Dividends per share 19.0c 16.0c 50.0c c 25.0c Dividend payout ratio 86 82% 74% 189% 90% 98% Amount of dividend franked 100% 100% 100% 100% 100% Revenue growth 2.0% 1.8% 5.7% 1.5% 1.9% EBITDA growth 9.5% 4.8% 4.5% 1.5% (2.3%) EBITA growth 4.0% 3.1% 3.6% 0.7% (2.9%) EBIT growth (4.3%) 2.8% 4.0% 0.8% (3.5%) EBITDA margin 23.2% 23.8% 23.6% 23.6% 22.6% EBITA margin 17.9% 18.1% 17.8% 17.6% 16.8% EBIT margin 15.6% 15.8% 15.5% 15.4% 14.6% Taxes, commissions, levies and fees as % of revenue 55.8% 54.9% 55.2% 55.0% 54.9% Operating expenses as % of revenue 21.1% 21.2% 21.3% 21.4% 22.5% EBITDA/net interest expense 4.5x 5.0x 6.5x 7.4x 7.4x Source: Tabcorp and Grant Samuel analysis Tabcorp s reported NPAT has been erratic over the last five years due to the impact of discontinued operations and one off items: discontinued operations reflect Tabcorp s Victorian Tabaret gaming business operations up to 15 August 2012, which generated NPAT of $26.2 million offset by a goodwill write off of $47.2 million in FY13 and in FY14 reflect the Health Benefit levy imposed by the Victorian Government on the Tabaret gaming business; and the material significant item in FY15 was tax benefits relating to the Victorian wagering and gaming licences payment and the NSW Trackside payment and associated interest income. Significant items in FY16 and FY13 were a number of offsetting items 87, including costs of 85 FY15 dividend per share includes 30 cent per share special dividend. 86 Dividend payout ratio based on NPAT before significant items and amortisation of the Victorian Wagering and Betting Licence. 87 Significant items in FY16 were costs relating to establishment of Sun Bets ($14.4 million) and AUSTRAC civil proceedings ($13.6 million) partially offset by income tax benefits relating to the NSW retail exclusivity payment and prior year research and development claims ($11.8 million). In FY13, significant items were $14.3 million relating to a GST refund, $7.5 million relating to the close out of a right held by TGS and an income tax benefit of $5.3 million relating to acquisition of Tab Limited in 2004, offset by an $18.6 million impairment charge for the Victorian Keno licence Tatts Group Limited Scheme Booklet

197 $13.6 million in relation to Australian Transaction Reports and Analysis Centre ( AUSTRAC ) civil proceedings against Tabcorp, commenced in July The AUSTRAC proceedings involved Tabcorp s compliance with obligations under the Anti- Money Laundering and Counter-Terrorism Financing Act, In response to these allegations, Tabcorp adopted a new AML/CTF program in December 2015, which included substantial investment in enhanced capability, processes, systems and controls. In FY17, further costs of $61.8 million (after tax) were incurred in relation to the AUSTRAC proceedings. On 16 February 2017, Tabcorp announced that it had entered into an agreement with AUSTRAC to resolve the Federal Court proceedings under which Tabcorp would pay a penalty of $45 million plus AUSTRAC s legal costs on an agreed basis. The Federal Court approved this settlement on 16 March Other significant items in FY17 were a surplus lease space provision (relating to Tabcorp s head office relocation) of $8.9 million, Intecq acquisition costs of $4.9 million, costs associated with the AFP investigation of $1.9 million, costs associated with the Scheme of $33.0 million and a net loss of $20.9 million relating to the cash-settled equity swap with UBS in relation to shares in Tatts (see Section 1.2 for details). Tabcorp also treated its Sun Bets operations as a significant item in FY17 as the business is in the development phase. Sun Bets reported an after tax loss of $47.6 million for FY17 and, in addition, there was a $20.7 million write down of Sun Bets assets. The Sun Bets EBITDA loss was greater than anticipated when Tabcorp released its 1HY17 88 results on 2 February 2017, reflecting a slower than expected take up by customers, lower yields and higher than expected operating expenses. The EBITDA loss includes a provision for restructuring and other steps to be taken by Tabcorp (including changes to leadership, team size, systems requirements and material commercial arrangements) to better reflect post launch requirements and to position Sun Bets for improved performance in FY18. In addition, revenue and earnings in FY13 (and growth over the previous year) were impacted by the new structure for the Victorian gambling industry from 16 August 2012, in particular the new 50:50 joint venture arrangements with VicRacing (compared to the previous 75:25 joint venture), new race fields arrangements, the new Victorian Keno licence (with Tabcorp as the sole licensee rather than a joint licensee with Tatts) and the commencement of the TGS business. Tabcorp s underlying operating performance has been more predictable, showing consistent, albeit low single digit growth in revenue. FY14 was the first full year of operation under the new structure for the Victorian gambling industry. The higher revenue growth achieved in FY15 reflects the impact of the acquisition of ACTTAB from 14 October 2014, which contributed revenue of $20.9 million across the Wagering & Media and Keno businesses for the 8½ months to 30 June 2015 as well as strong growth in fixed odds revenue across racing and sports. Tabcorp s FY17 results include seven months of contribution from Intecq, following completion of its acquisition in December 2016 (revenue of $28.3 million, EBITDA of $9.2 million and EBIT of $6.6 million). Approximately 55% of revenue is returned to racing and venue partners and state governments in the form of racing industry payments, venue commissions and wagering and Keno taxes: Tabcorp Taxes, Commissions, Levies and Fees ($ millions) Year ended 30 June 2013 actual 2014 actual 2015 actual 2016 actual 2017 actual Racing industry fees Government taxes and levies Operating commissions Cost of goods sold (Intecq) Taxes, commissions, levies and fees 1, , , , ,223.3 % of revenue 55.8% 54.9% 55.2% 55.0% 54.9% Source: Tabcorp 88 1HY17 = six months ended 31 December HY17 = six months ended 30 June ANNEXURE A - INDEPENDENT EXPERT S REPORT 195

198 Racing industry fees include the wagering incentive fee paid to the NSW racing industry ( NSW Racing ) (see Section for details), race field fees, broadcast rights and racing industry contributions from international business. Tabcorp has reported a gradual decline in margins over the last five years (with the EBITDA margin falling from 23.8% in FY14 to 22.6% in FY17 and the EBITA margin falling from 18.1% to 16.8% over the same period). The majority of the decline was experienced in FY17 when operating expenses, which had previously been maintained at around 21% of revenue, increased to 22.5% of revenue, driven by the acquisition of Intecq and investments in technology, capability, marketing, risk and compliance. Excluding the impact of the Intecq acquisition, operating expense growth in FY17 was 4.6% (although still 22.3% of revenue excluding Intecq). As a result, despite revenue growth of 1.9% in FY17, EBITDA and EBIT fell by 2.3% and 3.5% respectively. Tabcorp has announced that a review of the cost base is underway. It should be noted that Tabcorp s EBITDA, EBITA and EBIT include: numerous small one off items, particularly in the Wagering & Gaming business in FY14 and FY15 (see Section for details); and unallocated costs, which are usually immaterial, but which amounted to $6.7 million in FY16 (see Section for details). Tabcorp announced a target dividend payout ratio for FY14 of 80% of NPAT before significant items and before amortisation of the Victorian Wagering and Betting Licence. From FY15, the target dividend payout ratio was increased to 90%. Post FY17, Tabcorp s target dividend payout ratio was adjusted to be 90% of NPAT before significant items, amortisation of the Victorian Wagering and Betting Licence and Sun Bets. Tabcorp has gradually increased its return on invested capital from 12.4% in FY13 to % in FY15 and FY16. The return on invested capital fell to 12.5% in FY17 reflecting a combination of the decline in EBIT and an increase in average invested capital. Forecast Financial Performance Tabcorp has not publicly released earnings forecasts for FY18. In order to provide an indication of the expected future financial performance of Tabcorp, Grant Samuel has considered brokers forecasts for Tabcorp. The brokers forecasts considered by Grant Samuel are those that include Intecq but exclude Sun Bets (see Appendix 2). Set out below is a summary of the forecast financial performance for Tabcorp: Tabcorp Forecast Financial Performance (excluding Sun Bets) ($ millions) Year end 30 June 2017 actual 2018 broker median Revenue 2, ,306.0 EBITDA EBITA EBIT NPAT (before significant items) Basic EPS (operating profit after tax) 21.4c Dividends per share 25.0c Source: Scheme Booklet and Grant Samuel analysis (see Appendix 2) The median brokers forecast for FY18 indicates a 3.4% increase in revenue, a 5.7% increase in EBITDA (at an EBITDA margin of 23.1%), a 5.2% increase in EBITA and a 6.0% increase in EBIT, over FY17 performance. The higher than average growth rates in FY18 reflect, inter alia, the prolonged periods of wet weather experienced across the eastern seaboard in 2HY17 not being repeated in FY18, a strategic review of the loss making Luxbet business during FY18 and a full year contribution from Intecq and other new venues in NSW including Panthers Group Tatts Group Limited Scheme Booklet

199 Not all brokers provide a breakdown of earnings forecasts by business operation. For those brokers that do, in some cases it is unclear whether the forecasts include or exclude Sun Bets. Nevertheless, in Grant Samuel s view, the resulting median brokers forecasts by business operation are (except where noted otherwise) useful for analytical purposes: Tabcorp Forecast Financial Performance by Division ($ millions) Year end 30 June 2017 actual 2018 broker median Wagering & Media (excluding Sun Bets) Revenue 1, ,899.0 EBITDA EBITA EBIT Keno Revenue EBITDA EBITA 55.5 not used EBIT 49.5 not used Gaming Services (including Intecq 89 ) Revenue EBITDA EBITA 47.9 not used EBIT 47.9 not used Source: Tabcorp and Grant Samuel analysis (see Appendix 2) The median brokers forecasts of EBITA and EBIT for Keno and Gaming Services are materially different to the Tabcorp FY18 Draft Budget and have therefore not been included in the table above. See Appendix 2 for details. 5.4 Financial Position The financial position of Tabcorp as at 30 June 2017 (audited) is summarised below: Tabcorp - Financial Position ($ millions) As at 30 June 2017 actual Debtors and prepayments (current) 81.0 Creditors and accruals (361.8) Net working capital (280.8) Property, plant and equipment (net) Goodwill 1,512.6 Licences (net) NSW Trackside concessions and retail exclusivity (net) Other intangible assets (net) Assets held for sale (net) 10.5 Derivative financial instruments (net) Deferred tax liabilities (net) (60.5) Provisions (99.4) Other (net) Total funds employed 3, The FY17 results only include a contribution from Intecq for seven months. See Section 7.1 for the adjustments made to FY17 earnings to calculate proforma earnings as if Intecq had been part of Tabcorp for the full FY17 year. 56 ANNEXURE A - INDEPENDENT EXPERT S REPORT 197

200 Tabcorp - Financial Position ($ millions) As at 30 June 2017 actual Cash and cash equivalents Interest bearing loans (1,658.3) Net borrowings (1,544.0) Equity attributable to Tabcorp shareholders 1,483.4 Statistics Shares on issue at period end (millions) Net assets per share $1.78 NTA per share $(1.45) Gearing % Gross borrowings/ebitda 46,90 2.6x Source: Tabcorp and Grant Samuel analysis Similar to Tatts, Tabcorp also operates with substantial negative working capital as revenue is generated primarily in cash or via cash payments systems while a significant proportion of payments are made over longer timeframes. The vast majority of funds employed is represented by intangible assets. This reflects the nature of Tabcorp s business which operates under various licences, as well as goodwill that has arisen as a result of acquisitions: details of Tabcorp s various licences are summarised below: Tabcorp Licences at 30 June 2017 ($ millions) Licence Cost Accumulated Carrying Amortisation value Expiry Victorian Wagering and Betting Licence (170.1) NSW Wagering Licence (47.9) Keno licences (47.7) ACT Totalizator and Sports Bookmaking Licences 18.4 (1.0) Total licences (266.7) Source: Tabcorp Tabcorp s licences are carried at cost and are amortised over the life of the licence. Cost includes the initial acquisition cost plus the cost of extending a licence (e.g. the extension of the Queensland Keno licence in FY14) less any impairment of a licence (e.g. the impairment of the Victorian Keno licence in FY13); the NSW Trackside concessions (which expire in 2097) and NSW retail exclusivity (which expires in 2033) are recorded at cost and are also amortised over their estimated useful life; other intangible assets of $365.8 million are brand names, media content and broadcast rights, Luxbet customer contracts and software. Brand names and media content and broadcast rights are part of Tabcorp s Wagering & Media business and are not amortised on the basis that they have an indefinite life. Luxbet customer contracts are amortised and had a written down value of $3.6 million as at 30 June 2017; and goodwill of $1,512.6 million has been recorded as a result of acquisitions. Of this amount, $1,277.8 million is attributed to the Wagering & Media business, $154.0 million is attributed to the Keno business and $80.8 million is attributed to the Gaming Services business (arising from the acquisition of Intecq in December 2016). 90 For the purposes of this calculation, net borrowings as at 30 June 2017 excludes $325 million related to the cash-settled equity swap. 91 The Victorian Keno licence expires in 2022, the Queensland Keno licence expires in 2047 and the NSW Keno licence expires in The ACT Sports Bookmaking Licence was granted for an initial term of 15 years with further rolling extensions to a total term of 50 years Tatts Group Limited Scheme Booklet

201 Tabcorp targets an investment grade credit rating and manages gearing primarily through the ratio of gross debt to EBITDA. It has a Standard & Poor s Finance Services LLC ( S&P ) corporate rating of BBB-/Stable. On 18 October 2016, S&P announced that its rating was unaffected by the announcement of the Scheme. Tabcorp s borrowings are a combination of bank loans and USPPs: Tabcorp Net Borrowings at 30 June 2017 ($ millions) Facility Facility Size Carrying amount Term/Maturity Bank loans December June June December June , ,372.9 USPP US$ April 2019 US$ April 2022 US$ Total interest bearing liabilities 1,658.3 Cash and short term deposits (114.3) Net borrowings (reported) 93 1,544.0 Source: Tabcorp Bank loans are floating interest rate facilities that are unsecured and subject to financial undertakings as to gearing and interest cover. The $575 million bridging finance facility was arranged in November 2016 to: fund the cash-settled equity swap it entered into in respect of a 9.99% shareholding in Tatts. As at 30 June 2017, $325 million of this facility was drawn in relation to this swap and is offset by a $293.6 million cash-settled equity swap included in derivative financial instruments. Proceeds from the close out of the cash-settled equity swap must be applied to the $325 million trance of this facility; and facilitate the redemption of Tabcorp s subordinated notes in March Tabcorp has also entered into a $250 million Syndicated Facility Agreement on similar terms to the current Tabcorp syndicated facility. This facility will be available until the earlier of implementation of the Scheme or 12 months from the date of the facility and was undrawn at the date of the Scheme Booklet. A number of Tabcorp s bank loans have maturity dates in the next 12 months. These loans are intended to be refinanced by a new bank facility in respect of the proposed combination with Tatts. Tabcorp has executed a legally binding commitment letter with a number of domestic and international banks which is expected to provide sufficient capacity to refinance facilities as required and management has initiated discussions with the relevant banks for an extension of the December 2017 facility to a later date. The USPP are fixed interest rate US$ debt with an aggregate principal of US$220.0 million. Tabcorp has cross currency swaps in place that are designed to hedge the principal and interest obligations of the USPP debt. Under these swap arrangements, the aggregate A$ amount payable at maturity of the USPP is $210.5 million. Tabcorp also uses interest rate swaps to manage its exposure to interest rate risk on bank loans and subordinated notes. At 30 June 2017, the mark to market value of these interest rate swaps was a liability of $47.3 million. 93 Economic net borrowings were $1,468.5 million (including the USPP debt at the A$ principal repayable under cross currency swaps). 58 ANNEXURE A - INDEPENDENT EXPERT S REPORT 199

202 Included in derivative financial instruments at 30 June 2017 (in addition to the cross currency and interest rate swaps and the cash-settled equity swap referred to above) is an open betting positions liability of $10.5 million. These are amounts bet on events, the outcome of which has not been determined at the balance date, and are part of Tabcorp s business operations. At 30 June 2017, Tabcorp had a cash balance of $114.3 million, $26.9 million of which was restricted cash (i.e. primarily customer balance amounts the use of which is restricted under Tabcorp s licences). Other includes fixed term loans receivable of $10.4 million that relate to Tabcorp s Gaming Services business and generate interest income (which is included in the earnings performance for the Gaming Services business (see Section 5.9.3). Provisions are employee benefit provisions ($31.4 million) and provisions relating to premises (lease incentives, make good provisions and surplus lease space provisions) ($68.0 million). 5.5 Cash Flow Tabcorp s cash flow for the five years ended 30 June 2017 is summarised below: Tabcorp - Cash Flow ($ millions) Year ended 30 June 2013 actual 2014 actual 2015 actual 2016 actual 2017 actual EBITDA Changes in working capital and other adjustments (33.4) (57.7) (145.0) Capital expenditure (net) (188.5) (196.3) (131.6) (176.6) (195.5) Operating cash flow Tax paid (108.4) (75.2) (61.5) Net interest paid (101.5) (100.1) (77.8) (68.4) (75.1) Dividends paid (116.1) (67.0) (357.6) (173.3) (194.5) Acquisitions (net of cash) - - (103.3) - (113.2) Payments relating to cash-settled equity swap (317.5) Proceeds from share issues/payment for share buybacks (0.5) (8.8) - Other (1.5) Net cash generated / (used) (41.7) (596.4) Net borrowings opening (1,072.6) (1,144.7) (967.5) (987.7) (954.4) Non cash movements (30.4) 5.6 (53.4) (12.7) 6.8 Net borrowings closing (1,144.7) (967.5) (987.7) (954.4) (1,544.0) Source: Tabcorp and Grant Samuel analysis Tabcorp s business operations have generated strong net cash flows that have been utilised to make acquisitions (such as ACTTAB, completed in October 2014 and Intecq, completed in December 2016) and to reduce net borrowings. The following observations are made in relation to these cash flows: changes in working capital and other adjustments include a $21.5 million receipt in FY14 and a pre tax $32.9 million outflow in FY15 for Health Benefit levy related to the discontinued Victorian Tabaret gaming business operations. In FY16 and FY17, changes in working capital and other adjustments include cash outflows of $36.2 million and $159.8 million respectively relating to significant items (including $20.7 million of Sun Bets capital expenditure that was impaired); capital expenditure in FY14 includes $20 million for the Queensland Keno licence extension and $50 million for the NSW retail wagering exclusivity extension and in FY16 includes $25 million for the NSW Keno licence extension and $19.1 million on Sun Bets as well as investment in technology platforms and digital development capabilities; tax paid includes a cash inflow of $55.9 million in FY15 and $74.7 million in FY16 relating to the income tax benefit from the Victorian Wagering and Gaming licences; Tatts Group Limited Scheme Booklet

203 dividends paid in FY15 includes the special dividend of 30 cents per share ($229.7 million); to maintain Tabcorp s balance sheet and capital position, the special dividend was funded through a 1 for 12 pro-rata, renounceable entitlement offer at $3.70 per share that raised approximately $236 million; and the significant use of cash in FY17 ($430.7 million) was primarily the result of the acquisition of Intecq ($113.2 million) and entering into the cash-settled equity swap ($317.5 million). 5.6 Taxation Position Under the Australian tax consolidation regime, Tabcorp and its wholly owned Australian resident entities have elected to be taxed as a single entity. Tabcorp has no Australian carried forward income tax but as at 30 June 2017 had capital losses totalling $149 million. It also had income tax losses arising in the United Kingdom of $39 million which had not been recognised as at 30 June 2017 but which are available for offsetting against future taxable profits in the United Kingdom. At 30 June 2017, Tabcorp had $103.7 million in accumulated franking credits (before allowing for dividends payable in relation to FY17). 5.7 Capital Structure and Ownership Capital Structure Tabcorp has the following equity securities on issue: 835,267,014 ordinary shares; and 3,879,208 performance rights issued pursuant to Tabcorp s long term incentive plan. Ordinary shares include restricted shares issued under Tabcorp s short term performance plan, on appointment or for retention. Restricted shares are subject to a two year service condition during which time the restricted shares may not be traded although participants have full entitlement to dividends and voting rights. Restricted shares are forfeited on cessation of employment during the restriction period (except in special circumstances) and are subject to claw back if the Board considers this to be appropriate. Unvested restricted shares are recorded by Tabcorp as treasury shares. Tabcorp operates a long term incentive plan under which its senior management are granted performance rights. Each performance right entitles the holder to receive one Tabcorp ordinary share for no consideration, subject to meeting performance conditions at the end of a three year period. Performance rights have no dividend entitlements or voting rights. Unvested performance rights lapse on cessation of employment (except in special circumstances) and are subject to claw back if the Board considers this to be appropriate. Tabcorp operates a dividend reinvestment plan which enables shareholders to invest some or all of their dividends into acquiring additional Tabcorp ordinary shares at a discount determined by the Tabcorp Board and without incurring any brokerage or handling costs. In accordance with the terms of the Merger Implementation Deed, the plan is currently suspended Ownership At 30 June 2017 Tabcorp had approximately 113,500 registered shareholders. The top five registered shareholders represent more than 65% of the ordinary shares on issue and are institutional nominee companies. Tabcorp has received notices from the following substantial shareholders: 60 ANNEXURE A - INDEPENDENT EXPERT S REPORT 201

204 Tabcorp Substantial Shareholders Shareholder Date of Notice Number of Shares Percentage 94 For personal use only Perpetual Limited 2 June ,753, % UBS Group AG 22 March ,077, % BlackRock Group 17 March ,451, % National Australia Bank Limited 4 August ,812, % The Vanguard Group, Inc 28 June ,218, % Source: Tabcorp, IRESS As a consequence of agreements with the States of Queensland and NSW, Tabcorp s Constitution contains restrictions prohibiting a person from having a voting power of more than 10% in Tabcorp without the written consent of the appropriate ministers of each state. Tabcorp may refuse to register any transfer of shares which would contravene these shareholding restrictions or require divestiture of the shares that cause an individual to exceed the shareholding restrictions Share Price Performance The following graph illustrates the movement in the Tabcorp share price and trading volumes since 1 January 2014: $6.00 Tabcorp - Share Price and Trading Volume (January September 2017) Pacific Consortium Scheme indicative proposal announcement Pacific Consortium revised indicative proposal 24,000 $ ,000 Price $4.00 $3.00 $ ,000 12,000 8,000 Volume (000's) $1.00 4,000 $0.00 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 0 Source: IRESS Note: Share prices prior to 10 February 2015 are adjusted for the 1 for 12 renounceable rights issue at $3.70 per share and share prices prior to 6 March 2015 are adjusted for the 30 cent special dividend. The Tabcorp share price (adjusted for the 1 for 12 renounceable rights issue and the 30 cent special dividend) generally followed an upward trend from January 2014 to March 2015, with more significant increases in the share price towards the end of this period in response to: positive first quarter of FY15 trading results and an investor day (mid-october 2014); and reaching agreement on NSW thoroughbred media rights, positive FY15 first half results (with NPAT before significant items increasing by 21.8%) and the announcement of the 30 cents per share special dividend to be funded by a 1 for 12 renounceable entitlement offer at $3.70 per share (mid-january 2015). 94 Calculated based on 835,267,014 shares on issue Tatts Group Limited Scheme Booklet

205 Following completion of the 1 for 12 renounceable entitlement offer, Tabcorp shares generally traded in the range $4.50 to $5.00 through to October 2015, reaching a high of $5.23 on 17 August 2015 on the back of the release of the FY15 results, which reported a 157.5% increase in statutory NPAT due to one off income tax benefits of $163.2 million and a 14.7% increase in NPAT before significant items. There was a general decline in the share price over the following months, reflecting soft market conditions generally as well as the: announcement in mid-november 2015 that confidential discussions between Tabcorp and Tatts regarding a potential nil premium merger of equals had concluded with the parties unable to reach agreement on key transaction terms, in particular the exchange ratio; High Court dismissal of an appeal in relation to an action by Tabcorp against the State of Victoria (where it was seeking a payment of $686.8 million) in early March 2016; and announcement that Tabcorp had accepted Mr Elmer Funke Kupper s request to be granted a leave of absence from the Board of Directors until completion of an Australian Federal Police investigation into Tabcorp s activities in relation to a business opportunity in Cambodia in 2009/2010 which Tabcorp did not pursue ( AFP Cambodia investigation ). The share price reached a low of $3.87 on 22 March 2016 following this announcement. Although there was subsequently a partial recovery in the share price, it did not trade above $4.50 until the end of June 2016 but then rose quickly to around $5.00. Tabcorp shares traded as high as $5.165 after the release of the FY16 results in early August 2016 and, following an 18 cent fall on 10 August 2016 as shares commenced trading on an ex-dividend basis, traded in a reasonably tight range around $5.00. Tabcorp shares closed at $4.89 on 17 October 2016, the last trading day prior to announcement of the Scheme. Tabcorp shares traded up to a high of $5.12 in the days following announcement of the Scheme. However, they subsequently reverted to a downward trend, falling as low as $4.47 by mid- November 2016 with the share price then reacting to subsequent events: closing at $4.63 on 25 November 2016, following the announcement by Tabcorp that it had entered into a cash-settled equity swap in relation to 9.99% of Tatts shares; increasing to close at $4.72 on 28 November 2016 on the back of media speculation that an international gaming group may make an offer for Tabcorp; falling as low as $4.54 on 14 December 2016, following the Tatts announcement that it had received an unsolicited confidential, non-binding, indicative and conditional proposal from the Pacific Consortium, although the share price recovered over the following days and closed at $4.76 on 23 December 2016 after Tatts determined that the Pacific Consortium proposal was not a superior proposal; closing at $4.50 (down 5%) following the announcement of Tabcorp s 1HY17 results on 2 February Although underlying performance was reasonable, the result was marred by an increase in significant items, which included the Sun Bets operations. The share price fell a further 29 cents to $4.25 on 7 February 2016, in part due to it being quoted on an exdividend basis from 7 February 2017 as well as the announcement of a partnership between CrownBet and Clubs NSW that, if successful, could have an impact on Tabcorp s revenue from the NSW wagering market; and closing at $4.47 (up 2.8%) on 9 March 2017, following the ACCC s release of a Statement of Issues in relation to the Scheme that was regarded by the market as relatively benign. The share price continued an upward trend, closing at $4.60 (up 2.5%) on 13 March 2017, after Tabcorp announced that it had withdrawn its informal application for clearance by the ACCC and would seek authorisation for the Scheme from the Tribunal on the basis that a Tribunal decision would provide greater transaction certainty as it enabled public benefits to be taken into account. Since Tatts announced on 28 April 2017 that its Board had determined that the Pacific Consortium Revised Indicative Proposal was not superior to the Scheme, the Tabcorp share price has trended down: 62 ANNEXURE A - INDEPENDENT EXPERT S REPORT 203

206 until the 20 June 2017 (the date the Tribunal announced its decision to authorise the combination of Tatts and Tabcorp), the decline was generally in line with the market as a whole; following the Tribunal s decision and Tabcorp s FY17 trading update (that was below market expectations) on 20 June 2017, the share price fell 7% to around $4.30 by 4 July 2017; and following the 10 July 2017 announcement that the ACCC would apply to the Full Federal Court for judicial review of the Tribunal s authorisation. the share price closed at $4.29. While the share price closed up at $4.35 on 4 August 2017 following release of Tabcorp s FY17 results, it then fell over the next ten days to close at $3.97 on 16 August 2017 (the day prior to release of Tatts FY17 results). The share price bounced back to around $4.20 following the release of Tatts FY17 results on 17 August 2017 and has since traded in a range of $ (at a VWAP of $4.15) and closed at $4.05 on 5 September Tabcorp is a top 100 ASX company, a member of all major indices and has no limitations on free float. It is a reasonably liquid stock and average weekly volume over the twelve months prior to announcement of the Scheme represented approximately 2.6% of average shares on issue or annual turnover of around 136% of total average issued capital. Tabcorp s weighting in the S&P/ASX 200 Index and the S&P/ASX 200 Consumer Services Index is approximately 0.2% and 6.1% respectively. The following graph illustrates the performance of Tabcorp shares since 1 January 2014 relative to these indices: Tabcorp vs S&P/ASX 200 Index and S&P/ASX 200 Consumer Services Index (January September 2017) Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Tabcorp S&P/ASX 200 Index S&P/ASX 200 Consumer Services Index Source: IRESS Note: Share prices prior to 10 February 2015 are adjusted for the 1:12 renounceable rights issue at $3.70 per share and share prices prior to 6 March 2015 are adjusted for the 30 cent special dividend. Other than for a period of outperformance from October 2014 to January 2015, periods of underperformance from November 2015 to March 2016 and in February 2017 due to material, company specific factors (see the discussion above) and volatility in the period June to August 2017, Tabcorp shares have generally traded in line with the market (as represented by the S&P/ASX 200 Index). This is not unexpected given that underlying economic conditions, consumer sentiment and consumer discretionary income are some of the key drivers of expenditure on gambling activities. Tabcorp s performance has also closely followed the S&P/ASX 200 Consumer Services Index, which is dominated by gambling related companies (together these companies represent approximately 65% of the index) Tatts Group Limited Scheme Booklet

207 5.9 Business Operations Wagering & Media Operations Tabcorp holds licences to operate totalizator and fixed odds wagering on racing and sporting events through the TAB branded retail network of around 2,800 agencies and licensed venues as well as through on-course, telephone, internet and mobile device channels in NSW, Victoria and the ACT. It also operates a Northern Territory licensed national online (telephone, internet and mobile device) racing, sport and novelty product bookmaking service, Luxbet. Luxbet fills a gap in Tabcorp s fixed odds betting business where it did not have a full product offering, enabling it to offer fixed and tote odds racing and a full suite of fixed odds sports and novelty event offerings online in the fast growing corporate bookmaking market. Details of Tabcorp s Australian wagering licences are summarised below: Licence Tabcorp Australian Wagering Licences Upfront Cost ($ millions) Annual Fee ($ millions) Term (years) Expiry Victorian Wagering and Betting Licence NSW Wagering Licence ACT Totalizator and Sports Bookmaking Licences (+CPI) Northern Territory Racing and Sports Wagering Licence - nd Source: Tabcorp NSW and Victoria represent approximately 50% and 40% respectively of Wagering & Media s turnover. Under the NSW Wagering Licence, Tabcorp was the sole provider of totalizator and fixed odds betting in the retail environment in NSW until June In September 2013, Tabcorp agreed to pay the NSW Government $75 million ($50 million up front plus a further $25 million payable over ten years from 2024) to extend its retail exclusivity period for 20 years to Tabcorp also has retail exclusivity in Victoria and the ACT as part of its wagering licences in these states (with no requirement for additional payments). Totalizator betting in NSW provides access to the standalone NSW pool. Totalizator betting in Victoria and the ACT provides access to the SuperTAB pool, which also combines bets received from Racing and Wagering Western Australia ( RWWA ), the State operated totalizator in Western Australia. Other products offered by Tabcorp s Wagering & Media business are: Trackside, a computer simulated racing product operating in Victoria, NSW and the ACT and licensed in other Australian and international jurisdictions. In January 2011, Tabcorp reached agreement with the NSW racing industry ( Racing NSW ) and the NSW Government on a funding package for the redevelopment of Randwick racecourse. Under this agreement, Tabcorp paid Racing NSW $150 million for approval to introduce Trackside in its NSW retail network. This NSW Trackside concession expires in 2097 (in line with the expiry of the NSW Wagering Licence); and Sun Bets, which offers online wagering, sports bookmaking and casino products to residents of the United Kingdom and Ireland, was launched in August 2016 in conjunction with News UK. As at 30 June 2017, Sun Bets had 176,245 account customers (approximately 80% of which had deposited funds). Under the agreement, 95 The Victorian Wagering and Betting Licence may be extended for a further two years at the discretion of the responsible minister. 96 The ACT Sports Bookmaking Licence was granted for an initial term of 15 years (to October 2029) with further rolling extensions to a total term of 50 years. 97 nd = not disclosed. 64 ANNEXURE A - INDEPENDENT EXPERT S REPORT 205

208 Tabcorp is the wagering operator and holder of the relevant gambling licences (a United Kingdom Remote Operating Licence with no expiry and an Irish Remote Bookmakers Licence expiring in June 2017) and News UK licences the Sun Bets brand and provides certain media promotion services to customers. Tabcorp and News UK have entered into a variable revenue share arrangement (after allowing for taxes, levies and fees) with a minimum fee payable by Tabcorp to News UK in each year of the agreement. The minimum fees payable (exclusive of United Kingdom value added tax) are 10.1 million in FY18, 15.5 million in FY19, 18.3 million in FY20 and 21.6 million each year for the remaining six years of the term. The agreement runs for an initial term of ten years with extensions subject to performance. If Sun Bets does not achieve revenue equivalent to the minimum fees in FY19 and certain other conditions are satisfied, (see Section 13.3(h) of the Scheme Booklet), Tabcorp may terminate the agreement with effect from 31 December 2019 and, in addition to incurring costs typically associated with winding down a business, Tabcorp will also be required to pay News UK 1.5 million. Wagering & Media includes Tabcorp s 50% interest in Premier Gateway International Ltd ( PGI ), an incorporated joint venture with South African-based Phumelela Gaming & Leisure Ltd ( Phumelela ) which was established in PGI is a totalizator business in the Isle of Man (operating under a licence expiring in January 2019) that provides wagering services for PGI customers and pooling services for Tabcorp and other international wagering operators in jurisdictions outside of Australia. Tabcorp s international pooling partners include Phumelela (South Africa), the Singapore Turf Club, the Hong Kong Jockey Club, the New Zealand Racing Board and the German Tote. PGI s role as an international totalizator gateway business is a step towards achieving global co-mingling of totalizator pools, creating greater liquidity and making totalizator betting more attractive to customers. Tabcorp has longstanding marketing relationships with a number of racing industry participants. In FY16, it extended its sponsorship of the Victorian Racing Club to 2024 and in FY15, it entered into a three year partnership with the National Jockeys Trust. Tabcorp also sponsors the Australian Trainers Association and TasRacing and has a partnership with Thoroughbred Breeders Australia. Wagering & Media also includes Tabcorp s Sky Racing and Sky Sports Radio media business. Media and vision are regarded as integral to Tabcorp s wagering business and key drivers of wagering activity: Sky Racing operates three Sky Racing television channels that broadcast approximately 120,000 live national and international thoroughbred, greyhound and harness races per annum (including importing overseas races to Australia) to 2.8 million homes (pay television subscribers) and race tracks and 5,400 commercial outlets in Australia (TAB retail outlets, hotels, clubs and other licensed venues). The business also manages the export of Australian racing coverage to more than 50 countries (including vision, form guides and wagering data); and the Sky Sports Radio network broadcasts more than 1,500 races each week throughout NSW and the ACT and has advertising and sponsorship arrangements with Radio Sports National. In 2015, Tabcorp reached agreement on broadcast rights arrangements for Victorian and NSW thoroughbred racing through to 2020 and respectively. As a result of these arrangements, Tabcorp s online and mobile wagering customers have digital access to all Australian racing vision live through TAB digital platforms, a feature which is currently unique among wagering operators. Other key media rights recently extended are RWWA (all codes) until 2021, Perth Racing until , Tasmania (all codes) until 2026 and South Australian thoroughbreds (on a non exclusive basis) until Racing NSW has two 5 year extension options (at its election) that would take the agreement to Perth Racing has a 2 year extension option (at its election) that would take the agreement to Tatts Group Limited Scheme Booklet

209 Tabcorp has a multi-channel distribution model that it believes provides it with a key competitive advantage. Retail is the largest, albeit declining, distribution channel, with its share of turnover declining from 58% in FY13 to 51% in FY17: 100% 90% 80% 70% 60% 50% Tabcorp Wagering & Media Turnover by Distribution Channel (FY13 to FY17) 10% 9% 8% 8% 8% 5% 6% 6% 6% 5% 6% 5% 5% 4% 4% 21% 24% 28% 30% 34% TAB Sports 10% Revenue by Product (FY17) Luxbet 2% Trackside 4% Media 8% 40% 30% 58% 55% 53% 51% 49% 20% 10% 0% FY13 FY14 FY15 FY16 FY17 Retail Digital Call Centre Luxbet Other Source: Tabcorp Note: Other turnover includes on-course, premium customers and PGI. TAB Racing - fixed odds 27% TAB Racing - totalisator 49% The decline in retail distribution is being replaced by growth in digital distribution, which represented 36% of turnover in FY17 (up from 21% in FY13). Turnover from digital channels increased by 12% in FY16 and 13.9% in FY17, and has grown at an average rate of more than 15% per year over the last five years. In relation to the digital distribution channel: Tabcorp had 475,000 active account customers as at 30 June 2017 and more than 300,000 active loyalty members; and mobile is the primary digital distribution channel, representing 68% of digital turnover in FY17 (increasing from 35% in FY13). Tabcorp intends to continue to increase digital integration with the retail channel to improve the customer experience and grow wagering turnover. To this end, in FY17, Tabcorp: rolled out its digital commission model to retail venue partners. Under this model, clubs, hotels and TAB agents are paid commission when a customer bets through TAB digital platforms within their venue. Venue partners also receive commission on out-ofvenue digital activity conducted by account customers signed up in their venue; and launched Check & Collect, enabling customers to scan winning tickets on their TAB app and have winnings immediately deposited into their TAB account. However, while Tabcorp has a leading share of the Australian wagering market (at around 40% of total wagering turnover), its share of digital turnover is estimated to be lower, at around 30%, with the corporate bookmakers collectively representing well over 50% of digital turnover. TAB Racing (fixed odds and totalizator) has consistently represented the majority (in the range 75% to 78%) of Wagering & Media revenue by product. Although totalizator revenues have been declining (by 5% per year on average over the last five years), this has been more than offset by growth in fixed odds revenue. Racing fixed odds revenue grew by 16.4% in FY16 and 20.8% in FY17 and has grown at an average rate of over 25% per year over the past five years. As a result, revenue from fixed odds wagering on racing has increased its proportion of racing revenue from 15% in FY13 to 36% in FY17 and its proportion of total wagering revenue from 12% in FY13 to 30% in FY17. TAB Sports has consistently represented 8-10% of Wagering & Media s revenue over the past five years and has grown at a more subdued 6.3% per year (on average). This lower 66 ANNEXURE A - INDEPENDENT EXPERT S REPORT 207

210 rate of growth reflects a combination of lower yields and the intense competition from corporate bookmakers. The key drivers of growth in the Wagering & Media business are innovative new products (e.g. Fixed Odds Partial Cash Out launched in January 2016 and the Quaddie Cash Out launched in September 2016) and investment in digital platforms and marketing. In FY16, Tabcorp significantly increased its in-house digital capability, enabling quicker design and delivery of new products. Historical Operating Performance The historical operating performance of Tabcorp s Wagering & Media business for the five years ended 30 June 2017 is summarised below: Wagering & Media Historical Operating Performance ($ millions) Year ended 30 June 2013 actual 2014 actual 2015 actual 2016 actual 2017 actual Turnover , , , , ,771.5 TAB Racing totalizator yield 17.2% 17.3% 17.5% 17.6% 17.6% TAB Racing fixed odds yield 14.2% 14.6% 16.1% 15.4% 15.5% TAB Sports yield 13.3% 14.2% 14.8% 13.3% 13.2% Average yield 16.0% 16.1% 16.5% 16.1% 15.9% Wagering revenue 101 1, , , , ,694.1 Media revenue Total revenue 1, , , , ,873.0 Taxes, levies, commissions and fees (1,028.5) (1,029.8) (1,099.4) (1,112.7) (1,122.2) Operating expenses (351.0) (357.3) (381.7) (378.2) (400.8) EBITDA Depreciation and other amortisation (69.9) (73.9) (85.4) (86.7) (78.7) EBITA Amortisation of licences (37.1) (42.7) (43.2) (43.2) (43.3) EBIT Capital expenditure Statistics Turnover growth 3.7% 1.1% 3.8% 2.7% 0.6% Wagering revenue growth (4.8%) 0.9% 7.4% 0.9% (0.2%) Total revenue growth (3.7%) 1.5% 6.9% 0.9% - EBITDA growth (9.0%) 5.6% 7.2% 1.7% (8.4%) EBITA growth (12.0%) 5.6% 7.2% 1.7% (8.2%) EBIT growth (20.8%) 4.0% 5.6% 2.0% (9.6%) EBITDA margin 19.4% 20.2% 20.2% 20.4% 18.7% EBITA margin 15.3% 15.9% 15.6% 15.8% 14.5% EBIT margin 13.1% 13.5% 13.3% 13.5% 12.2% Taxes, levies, commissions and fees as % of revenue 60.1% 59.3% 59.2% 59.4% 59.9% Operating expenses as % of revenue 20.5% 20.6% 20.6% 20.2% 21.4% Capex as % of EBITDA 20.3% 20.9% 21.1% 16.9% 23.7% Capex as % of depreciation and other amortisation 96.6% 99.2% 92.7% 74.5% 105.2% Source: Tabcorp and Grant Samuel analysis The performance of Tabcorp s Wagering & Media business reflects the different arrangements in place in each of the states in which it operates: 100 Turnover includes 100% of Victorian turnover (i.e. including VicRacing s 50% share of Victorian turnover). 101 Wagering revenue includes 50% of Victorian revenue (i.e. excluding VicRacing s 50% share of Victorian revenue). 102 External revenue (i.e. does not include intercompany racing media revenue from Tabcorp operated wagering venues). 103 Capital expenditure includes an allocation of corporate capital expenditure and excludes Sun Bets capital expenditure Tatts Group Limited Scheme Booklet

211 in Victoria, Tabcorp has a 50:50 unincorporated joint venture with VicRacing in relation to activities conducted under the Victorian wagering and betting licence. Tabcorp receives 50% of the revenue and incurs 50% of the expenses of the joint venture as well as charging the joint venture for the provision of employee, management and asset services; in NSW, Tabcorp retains 100% of the revenue and expenses associated with its NSW totalizator licences but pays NSW Racing a wagering incentive fee equivalent to 25% of NSW wagering earnings (excluding race field costs and Trackside earnings) which is included in taxes, levies, commissions and fees; and the ACT is a low tax and product fee regime. No wagering tax is payable to the ACT government on the ACT totalizator licence and wagering tax on the ACT sports bookmaking licence is at an effective rate of less than 1% of turnover (which is included in taxes, levies, commissions and fees). Turnover has increased steadily until FY17, with lower growth in FY14 reflecting soft retail conditions in Tabcorp s key NSW and Victorian wagering markets. In FY17, turnover was impacted by prolonged periods of wet weather experienced across the eastern seaboard in 2HY17, particularly in NSW during the autumn carnival (March to April 2017) and general consumer softness, as well as poor performance from Luxbet. The performance of Tabcorp s Wagering & Media business in FY13 was impacted by the new structure for the Victorian gambling industry from 16 August Assuming a full year of the new Victorian arrangements, FY13 EBIT would have been $10.9 million lower due to the 50:50 joint venture ($8.7 million) and race fields arrangements ($2.2 million). Subsequent to FY13, wagering revenue has grown consistently, with fixed odds and digital being the key drivers of wagering growth. The significant turnover growth in these areas has more than offset the lower yields generated on fixed odds racing ( %) and sport ( %) compared to totalizator racing ( %). As a result, the overall yield has been maintained at around 16% other than in FY15. Higher wagering revenue growth in FY15 reflected a significant increase in fixed odds racing yields (from 14.6% in FY14 to 15.9% in FY15), assisted by better risk management and growth in multibets 104. Multibets are higher yielding products which are more profitable for Tabcorp. Growth in multibets has helped to offset the impact of the shift to lower yielding fixed odds wagering and sports betting. Wagering revenue growth in FY15 also benefited from the acquisition of ACTTAB from 14 October 2014 as well as investment in the multi-channel customer experience and continued product expansion and innovation. Both FY14 and FY15 benefited from wagering on the Football World Cup (contributing revenue of $14.9 million in FY14 and $10.3 million in FY15). Wagering revenue growth was lower at 1.0% in FY16 despite a 2.7% increase in turnover and a full year impact from ACTTAB due to lower fixed odds yields across TAB Racing (15.2% in FY16 compared to 15.9% in FY15) and TAB Sports (13.3% in FY16 compared to 14.8% in FY15), which were impacted by favourable results for customers, particularly in the second half of the year. Revenue from TAB Sports declined by almost 4% in FY16. Lower fixed odds yields, particularly in TAB Sports may have also reflected increased competition from corporate bookmakers (offering free bets and tighter odds etc.), in particular CrownBet (which spent more than $80 million on marketing in FY16 and almost quadrupled its wagering revenue to $157 million). 104 A multibet is a type of bet where the customer combines a series of single bets into one bet with the odds multiplying with each additional bet. Each time a leg is successful, the dividend and original bet from that leg are bet on the next leg. The more legs in a multibet, the larger the dividend. 68 ANNEXURE A - INDEPENDENT EXPERT S REPORT 209

212 Wagering revenue fell marginally (by 0.2%) in FY17. However, this was primarily a result of weaker revenue from Trackside (where revenue declined by 14.6%) and Luxbet. A review of Trackside s product and marketing activity has been completed with new initiatives planned for FY18. There was significant growth in fixed odds revenue, particularly racing in FY17, underpinned by a turnaround in racing yields. TAB Racing totalizator performance fell by 7.4%, partly impacted by lower premium customer activity as well as wet weather during the Autumn Carnival. Media has made a strong contribution to Tabcorp s Wagering & Media business, with revenue growing from $153.5 million in FY13 to $178.9 million in FY17. Growth in revenue has resulted from expanding the international export of racing vision (i.e. the distribution of Australian and New Zealand racing to foreign markets) and international comingling. Taxes, levies, commissions and fees paid to racing and venue partners and State and Territory governments has consistently represented around 60% of Wagering & Media s revenue. At the earnings level, revenue growth in FY15 was offset in part by an increase in Victorian, Queensland and South Australian race fields fees from 1 July 2014 (there was a 25% increase in race field fees from $73 million to $92 million in FY15) and higher amortisation associated with an increased level of expenditure on the development of digital products and platforms. Margins improved slightly over the four years to FY16, primarily due to tight control over operating costs which fell from 20.6% to 20.2% of revenue. Margins declined in FY17, due to: the launch of digital commissions and increased race field fees in Queensland from 1 January 2017; an increase in operating costs to 21.4% of revenue, driven by additional investment in technology, marketing (e.g. the new marketing campaign We Love a Bet, launched in August 2016 and enhancement of the TAB app), risk and compliance; losses incurred by Luxbet (which reported an EBITDA loss of $8 million and an EBIT loss of $13 million in FY17). A strategic review of Luxbet is underway. This resulted in a decline in the EBITDA margin from 20.4% to 18.7%. The EBITA margin in FY17 declined from 15.8% to 14.5%, the smaller decline reflecting the benefit of lower depreciation and amortisation following several digital assets becoming fully depreciated in FY16. Amortisation of licences is primarily amortisation of the Victorian Wagering and Betting Licence of $34.9 million per annum. EBITDA, EBITA and EBIT include the impact of: one off costs from the acquisition of Sky s United States vision agent and its rebranding as Sky Racing World US and one off restructuring charges in FY14; and $5.8 million of one off acquisition and integration costs relating to the ACTTAB acquisition in FY15. Adjusting FY15 earnings to exclude these one off costs increases the growth in margins achieved in FY15 but also shows that performance was flat in FY16. Strategy and Outlook The focus for FY18 for Wagering & Media is to deliver strong performance through differentiated customer experiences across retail, digital and media, a compelling value proposition and brand leadership. This is expected to be achieved specifically through: Tatts Group Limited Scheme Booklet

213 building on the momentum in digital and fixed odds by delivering innovative products and customer experiences across all channels; completing the strategic review of the Luxbet business; rolling out new Trackside initiatives following completion of the review of product and marketing activity; and continuing to invest in Sky broadcasting coverage. Sun Bets Wagering & Media s operating performance excludes Sun Bets, which commenced operations in August 2016 (and was treated as a significant item in FY17). The operating performance of Sun Bets in FY17 is summarised below: Sun Bets Historical Operating Performance ($ millions) Year ended 30 June 2017 actual Turnover Average yield 2.3% Revenue 4.6 Taxes, levies, commissions and fees (19.2) Operating expenses (31.6) EBITDA (46.2) Depreciation and other amortisation (4.6) EBITA (50.8) Amortisation of licences - EBIT (50.8) Source: Tabcorp The initial focus of Sun Bets was on a digital offering comprising sportsbook and an online casino as well as establishing the brand in The Sun newspaper s media assets. The initial marketing campaign resulted in the acquisition of 176,245 customers by 30 June 2017 (approximately 80% of which had deposited funds). The low yield of 2.3% reflects midsingle digit trading results, offset by significant bonus bet and promotional offers used to drive customer engagement. Following an operational review, several initiatives have been implemented including changes to leadership, team size and commercial arrangements to improve the positioning of the business for FY18. The key focus in FY18 is: improved integration with The Sun s Dream Team ahead of the Football Season; continued enhancement of the sportsbook and casino offering; and implementation of revised marketing and customer relationship management strategies to improve retention and share of wallet outcomes. Tabcorp has a fixed revenue payment obligation to News UK of 11.1 million in FY ANNEXURE A - INDEPENDENT EXPERT S REPORT 211

214 5.9.2 Keno Operations Tabcorp s Keno business operates in 3,458 licensed venues in NSW, Victoria, Queensland and the ACT and TABs in Victoria, Queensland and the ACT. It is also available online in the ACT and selected venues in NSW. Details of Tabcorp s Keno licences and approvals are summarised below: Licence Tabcorp Keno Licences and Approvals Upfront Cost ($ millions) Annual Fee ($ millions) Term (years) Expiry Victorian Keno Licence Queensland Keno Licence 43.7 (initial) - 19 (up to 2022) (extension) - 25 (from 2022) NSW Keno Licence (+ 2.5% pa) 107 ACT Approval to Conduct Keno Source: Tabcorp In recent years, Tabcorp has repositioned its Keno business to focus on enhancing the customer experience and digital and product innovation, with the aim of increasing customer engagement and broadening participation (in particular from the younger demographic). To this end, Tabcorp completed a rebrand of its Keno business in FY16 and over the past 18 months has: increased engagement through pooled jackpots. Jackpot pooling commenced between NSW and Victoria in FY16 and the ACT and Queensland joined the Keno jackpot pool in July 2016 and December 2016, respectively. As a result of pooling, jackpots grow faster and create the opportunity for greater engagement and participation from customers; and launched a new product, Mega Millions in NSW in November 2016, giving customers the chance to spend $2 to win $5 million, aimed at increasing the appeal of Keno and generating increased engagement with customers in-venue. Significant investment in digital and product innovation is expected to continue: a new app has recently been released to customers in the ACT which offers leading customer on-boarding and usability; and a digital play in-venue product for the NSW market has been developed under the new NSW Keno licence. This product was launched in 2HY17 as a pilot to more than 100 venues (full roll out remains subject to regulatory approvals). Features of the new product include full game play, digital wallet, digital commissions for venues and technology to confine game play to venue. The product is expected to broaden the appeal of Keno and enhance growth opportunities from FY18. Historical Operating Performance The historical operating performance of Tabcorp s Keno business for the five years ended 30 June 2017 is summarised below: 105 The upfront cost of the Victorian Keno Licence is prior to an $18.6 million impairment resulting from slower than expected revenue growth following commencement of the business in April In NSW, Tabcorp operates Keno under a management agreement with ClubKENO Holdings Pty Ltd, a wholly owned subsidiary of the Registered Clubs Association of New South Wales. 107 The annual fee for the NSW Keno licence increases to $4.5 million in 2022 (indexed at 2.5% per annum). 108 Ongoing approval to offer Keno products in the ACT for 50 years was granted as part of the acquisition of ACTTAB in October Tatts Group Limited Scheme Booklet

215 Keno Historical Operating Performance ($ millions) 2013 actual 2014 actual Year ended 30 June 2015 actual 2016 actual 2017 actual Venues 3,654 3,622 3,612 3,568 3,616 Ticket count (millions) Average ticket size $10.60 $10.70 $11.00 $11.20 $11.60 Revenue Taxes, levies, commissions and fees (89.1) (90.5) (88.6) (90.4) (90.8) Operating expenses (40.8) (41.2) (44.0) (47.8) (49.9) EBITDA Depreciation and other amortisation (14.8) (15.3) (13.7) (14.3) (16.5) EBITA Amortisation of licences (8.5) (5.2) (5.2) (5.3) (6.0) EBIT Capital expenditure Statistics Revenue growth 12.2% (0.7%) (2.4%) 4.8% 2.0% EBITDA growth 23.0% (4.4%) (8.0%) 5.9% 2.4% EBITA growth 22.1% (6.3%) (7.4%) 6.3% (0.9%) EBIT growth 13.2% (1.0%) (8.1%) 6.7% (2.4%) EBITDA margin 36.8% 35.4% 33.4% 33.7% 33.9% EBITA margin 29.6% 27.9% 26.5% 26.9% 26.1% EBIT margin 25.4% 25.4% 23.9% 24.3% 23.3% Taxes, levies, commissions and fees as % of revenue 43.4% 44.4% 44.5% 43.4% 42.7% Operating expenses as % of revenue 19.9% 20.2% 22.1% 22.9% 23.5% Capex as % of EBITDA 24.5% 22.0% 25.0% 27.2% 25.0% Capex as % of depreciation and other amortisation 125.0% 103.9% 121.2% 133.6% 109.1% Source: Tabcorp and Grant Samuel analysis In addition to the net yield on ticket sales, revenue from Tabcorp s Keno business includes equipment rental fees and equipment sales, which represent approximately 15-20% of total revenue 110. The substantial growth in revenue and earnings in FY13 reflected the contribution from the new Victorian business, where Tabcorp became the sole Victorian Keno licence holder from April The larger increase in EBITDA was due to the FY12 EBITDA including $4 million of Victorian Keno start up costs. Performance declined in FY14 and FY15 (despite the addition of ACTTAB Keno from October 2014), with declining numbers of venues and ticket sales more than offsetting an average increase in ticket size. This decline in performance reflected a combination of soft retail trading conditions (especially in Queensland) as well as lack of investment in the Keno product. In FY14, the decline was offset in part by a reduction in amortisation expense due to the extension of Queensland Keno licence. In FY15, the increase in operating expenses reflected investment in digital capability and the customer experience, the Keno brand and product transformation, with further investment in FY16. Following this significant investment in rebranding as well as the introduction of jackpot pooling across NSW and Victoria, Tabcorp s Keno business returned to growth in FY16. Although the number of venues continued to decline, ticket sales increased and margins improved. FY16 was also the first full year contribution from ACTTAB Keno. 109 Capital expenditure includes an allocation of corporate capital expenditure. 110 Revenue from equipment rental fees and equipment sales was $40.1 million in FY13, $38.3 million in FY14, $29.2 million in FY15, $29.4 million in FY16 and $29.0 million in FY ANNEXURE A - INDEPENDENT EXPERT S REPORT 213

216 This momentum continued in FY17, with an increase in venues, ticket count and average ticket size each contributing to turnover (which increased by 3.6%) and revenue growth and an improved EBITDA margin (despite a decline in performance in Queensland). The Mega Millions product (launched in November 2016) contributed approximately 3.7% of total Keno sales in NSW in FY17. However, EBITA and EBIT declined marginally reflecting the impact of higher depreciation and other amortisation associated with the increased investment as well as a full year impact of amortisation associated with the extended arrangements for the NSW Keno licence. Strategy and Outlook The Keno business intends to continue to invest in product enhancement and initiatives, an enhanced retail customer experience and digital innovation to drive further growth. In FY18, the key focus for the Keno business is: promoting jackpot pooling; and driving digital in-venue growth in NSW Gaming Services Operations TGS commenced operations in 2012 following the restructuring of the Victorian gambling industry. It was established as a vehicle to exploit Tabcorp s expertise in the operation of EGMs. TGS provides specialised services (including marketing, compliance, responsible gambling, venue refurbishment and machine procurement), strategic advice and financing to licensed gaming venues. The initial focus was on the Victorian market where operators had limited experience in the management of EGMs (in contrast, NSW has a long history of EGMs being owned and operated by venues). TGS key priorities are expansion and optimising gaming and total venue performance. At 30 June 2017, TGS had approximately 10,650 EGMs under contract, 8,700 EGMs in Victoria (with 89% contracted through to 2022) and approximately 1,950 EGMs in NSW (including 125 EGMs that commenced billing during 1HY17 and 1,056 EGMs from the Panthers Group contract). The five year contract with the Panthers Group was signed in January 2017, covering four venues and 1,056 EGMs in NSW. This contract represents a significant step forward for TGS in the NSW market. The sign up of additional venues continues to be progressed. TGS has a loyalty program that covers 75% of contracted EGMs in Victoria and had 426,705 active members at 30 June The acquisition of Intecq in December 2016, which has agreements with over 1,200 licensed venues and a network of more than 70,000 EGMs across Australia, provides increased scale and diversification for Gaming Services, including an expanded geographic footprint and the ability to offer an expanded product and service offering (including EGM monitoring) across a larger customer base. Historical Operating Performance The historical operating performance of Tabcorp s Gaming Services business for the five years ended 30 June 2017 is summarised below: Tatts Group Limited Scheme Booklet

217 Gaming Services Historical Operating Performance ($ millions) 2013 actual 2014 actual Year ended 30 June 2015 actual 2016 actual 2017 actual Number of EGMs under contract (at period end) 8,500 8,500 8,820 9,620 10,650 Revenue Taxes, levies, commissions and fees - - (0.8) (1.1) (10.3) Operating expenses (28.0) (31.1) (31.2) (36.0) (51.5) EBITDA Depreciation and other amortisation (20.8) (27.3) (26.0) (29.1) (34.2) EBITA Amortisation of licences EBIT Capital expenditure Statistics Revenue growth 13.7% 1.5% 7.6% 34.2% EBITDA growth 14.9% 0.9% 3.7% 17.1% EBITA/EBIT growth 5.9% 4.8% (1.4%) 16.8% EBITDA margin 67.6% 68.3% 67.9% 65.4% 57.1% EBITA/EBIT margin 43.5% 40.5% 41.8% 38.2% 33.3% Taxes, levies, commissions and fees as % of revenue % 1.0% 7.2% Operating expenses as % of revenue 32.4% 31.7% 31.3% 33.6% 35.8% Capex as % of EBITDA 64.3% 64.9% 69.4% 71.6% 70.5% Capex as % of depreciation and other amortisation 180.3% 159.3% 180.4% 172.5% 169.3% Source: Tabcorp and Grant Samuel analysis TGS commenced operations on 16 August As a result, the performance for FY13 represents only ten and a half months of operation, with FY14 being the first full year of operation. Revenue includes interest earned on loans provided to venue operators to enable investment in EGMs. Interest earned has fallen from $4.7 million in FY13 to around $1 million in FY17, reflecting the repayment of loan capital by venue operators. TGS has generated consistent growth in revenue and earnings since FY12, faltering only at the EBITA level in FY16. Growth in revenue and earnings has been supported by the approval of TGS s in-egm loyalty program, which was rolled out from the second half of FY14 and the expansion into NSW from FY15, following receipt of a NSW Gaming Machine Dealer s Licence. TGS signed up two NSW venues (120 EGMs) at the end of FY14 that commenced generating revenue in FY15. By the end of FY16, TGS had signed up 800 EGMs in NSW, increasing to 920 EGMs at 31 December The increase in the number of EGMs under contract in NSW has been offset in part by loss of EGMs as a result of venues closing or discontinuing their gaming operations. FY16 EBITA was impacted by additional operating expenditure of ~$5 million per annum to support growth combined with an increase in depreciation and amortisation from investment in the NSW expansion. TGS is a higher margin business than Wagering & Media and Keno. While it has higher operating expenses as a percentage of revenue, it does not pay any material taxes, commissions or industry fees. The decline in the EBITDA margin in FY17 was due to the extension of Victorian contracts through to 2022 at lower rates (resulting in a decline in revenue in the short term, but locking revenue in for the long term) as well as the consolidation of Intecq. FY17 includes 111 Capital expenditure includes an allocation of corporate capital expenditure. 74 ANNEXURE A - INDEPENDENT EXPERT S REPORT 215

218 seven month of contribution from Intecq following its acquisition in December 2016 (revenue of $28.3 million, EBITDA of $9.2 million, EBITA of $6.6 million). FY17 performance excluding Intecq was relatively strong, with growth in revenue of 7.8% partially offset by increased expenses (EBITDA growth of 4.0%), although this was largely offset by an increase in depreciation and amortisation at the EBITA/EBIT level. Margins declined slightly to 63.1% (EBITDA) and 35.7% (EBITA/EBIT). Strategy and Outlook In FY18 and future years, Gaming Services will focus on building a sustainable business and expanding its venue footprint through: driving venue performance (e.g. through providing the optimal product offering including first-to-market games, driving visitation through loyalty programs and providing capital to improve the customer experience in-venue); expansion (into NSW and other jurisdictions), through signing up additional venues; and the integration of Intecq to capture further synergies Corporate/Unallocated Tabcorp s corporate overheads are allocated to its business operations. However, the EBITDA, EBITA and EBIT from Tabcorp s business operations do not aggregate to consolidated group EBITDA, EBITA and EBIT due to other unallocated expenses: Unallocated Expenses Historical Financial Performance ($ millions) Year ended 30 June 2013 actual 2014 actual 2015 actual 2016 actual 2017 actual Wagering & Media Keno Gaming Services Total business operations EBITDA Unallocated expenses (1.9) (3.8) (1.7) (6.7) - Consolidated group EBITDA Wagering & Media Keno Gaming Services Total business operations EBITA Unallocated expenses (1.9) (3.8) (1.7) (6.7) - Consolidated group EBITA Wagering & Media Keno Gaming Services Total business operations EBIT Unallocated expenses (1.9) (3.8) (1.7) (6.7) - Consolidated group EBIT Source: Tabcorp and Grant Samuel analysis Unallocated expenses represent one off or unusual items of expenditure that are not individually or collectively significant (at less than 1% of consolidated group EBITDA, EBITA and EBIT). Over the FY13 to FY15 period, these expenses were primarily legal fees in relation to the Victorian wagering and gaming licence litigation. Unallocated expenses were higher in FY16 at $6.7 million and related to the Victorian wagering and gaming licence litigation, the AFP Cambodia investigation and merger discussions with Tatts. There were no unallocated expenses in FY17. Expenses incurred in relation to the AFP Cambodia investigation were treated as a significant item in FY Tatts Group Limited Scheme Booklet

219 6 Profile of Combined Group 6.1 Operations The Combined Group will be a diversified gambling entertainment group called Tabcorp Holdings Limited. It will have wagering, lotteries, Keno, gaming services and racing media operations, proforma combined revenue of approximately $5.0 billion and proforma EBITDA (before significant items and intended share buyback) of approximately $915 million. The contribution by segment to proforma FY17 EBITDA for the Combined Group is as follows: Combined Group Proforma FY17 Revenue EBITDA (i) Gaming Services 7% Keno 4% Gaming Services 16% Keno 7% Wagering & Media 49% Wagering & Media 46% Lotteries 40% Lotteries 31% Source: Scheme Booklet Notes: (1) EBITDA before Corporate/Unallocated costs, significant items and proforma adjustments detailed in Section 12.5(f) (i.e. Sun Bets, Intecq and Odyssey Gaming). A detailed description of the Combined Group (including identified potential synergies and Tabcorp s intentions) is set out in Section 12 of the Scheme Booklet. In particular, if the Scheme is implemented, Tabcorp intends to: divest Odyssey Gaming; pursue a strategic review of the Luxbet business during FY18; and integrate the businesses and implement a plan to extract the identified potential synergies. 6.2 Directors and Management The Combined Group s board will comprise the directors of Tabcorp at implementation of the Scheme plus Mr Harry Boon, the Chairman of Tatts at 19 October 2016, who will join the board as a non-executive director. The current Chairman of Tabcorp (Paula Dwyer) will be Chairman of the Combined Group. David Attenborough (the current CEO of Tabcorp) and Damien Johnston (the current CFO of Tabcorp) will be CEO and CFO of the Combined Group respectively. The balance of the senior management team will be determined by the Combined Group board. 76 ANNEXURE A - INDEPENDENT EXPERT S REPORT 217

220 6.3 Capital Structure and Ownership Following implementation of the Scheme, the Combined Group will have 2,010,082,599 3 shares on issue. It will also have at least 3,879,208 performance rights on issue 112. Former Tatts shareholders will collectively hold approximately 58.4% of the shares on issue and former Tabcorp shareholders will collectively hold approximately 41.6% 3. Based on substantial shareholder notices lodged for Tatts and Tabcorp at the date of this report, no shareholder is expected to hold more than 9.6% of the shares on issue in the Combined Group on implementation of the Scheme. There will be no change to the restrictions in the Tabcorp Constitution prohibiting a person from having a voting power of more than 10% in Tabcorp 10. The Combined Group intends to undertake a share buyback of up to $500 million. The method, timing and terms of any buyback are subject to market conditions and board approval at the time. 6.4 Earnings and Dividends The Combined Group Proforma Income Statement (including a description of the assumptions and adjustments made) is set out in Section 12.5(c) of the Scheme Booklet. The Combined Group Proforma Income Statement has been prepared by Tabcorp (including information about Tatts, for which Tatts takes responsibility) and has been reviewed by PwC Securities. PwC Securities Investigating Accountant s Report is attached as Annexure B to the Scheme Booklet. The Combined Group Proforma Income Statement represents the aggregation of Tatts proforma FY17 financial performance and Tabcorp s FY17 proforma financial performance and is presented after the intended share buyback and before the expected synergies and business improvements 113. For analytical purposes, Grant Samuel has adjusted the Combined Group Proforma Income Statement to present three other proforma scenarios, namely: before expected synergies and before the intended share buyback; after expected synergies and before the intended share buyback; and after expected synergies and after the intended share buyback. 112 Being the Tabcorp performance rights currently on issue. 113 Tatts and Tabcorp estimate that the Scheme will generate at least $130 million in annual EBITDA synergies and business improvements (including at least $80 million of operational expenditure savings) and $10 million per annum of capital expenditure synergies (after allowing for the share attributable to the racing industry). The estimated one off costs to achieve these synergies are $141 million. The synergies are expected to be fully realised in the first full year following completion of the integration of the businesses with integration expected to take approximately two years from implementation. However, there is no guarantee that the synergies and business improvements will be realised and the risk of realisation is increased by the time period over which they are expected to be realised (particularly the business improvements) Tatts Group Limited Scheme Booklet

221 Combined Group Proforma Income Statement ($ millions) Before Synergies 114 and After Buyback Adjusted by Grant Samuel Before Synergies and Buyback After Synergies and Before Buyback After Synergies and Buyback Revenue 4,992 4,992 4,992 4,992 Commissions and fees (1,528) (1,528) (1,528) (1,528) Government taxes and levies (1,605) (1,605) (1,605) (1,605) Operating expenses (944) (944) (944) (944) Synergies and business improvements EBITDA ,045 1,045 Depreciation and other amortisation 115 (186) (186) (186) (186) EBITA Amortisation of licences, brand names and agreements 115 (76) (76) (76) (76) EBIT Net interest expense (181) (156) (156) (181) Operating profit before tax Income tax expense (151) (159) (198) (190) Operating profit after tax Profit/(loss) from discontinued items (153) (153) (153) (153) Significant items (net of tax) (1) (1) (1) (1) NPAT attributable to Combined Group shareholders Statistics Weighted average shares on issue (million) 1, , , ,885.2 Basic EPS (NPAT) Underlying EPS (operating profit after tax) Dividends per share EBITDA margin 18.3% 18.3% 20.9% 20.9% EBITA margin 14.6% 14.6% 17.2% 17.2% EBIT margin 13.1% 13.1% 15.7% 15.7% EBITDA/Net interest expense 5.1x 5.9x 6.7x 5.8x Source: Scheme Booklet and Grant Samuel analysis Note: Grant Samuel has adjusted the Proforma Income Statement for analytical purposes including to present EBITA 115. The Combined Group Proforma Income Statement as presented in the Scheme Booklet has been prepared on the basis that it: assumes that the Scheme was completed on 1 July 2016; reflects: the issue of 1,174,815,585 Tabcorp shares to Tatts shareholders; interest cost associated with the estimated $1,335 million increase in borrowings under the Scheme (including for payment of the cash component to Tatts shareholders, payment of transaction and integration costs and the intended $500 million share buyback) at an interest rate of 5% per annum; proforma adjustments for businesses that commenced or were acquired by Tabcorp during FY17. In particular: 114 Before Synergies is before synergies and business improvements but after the interest impact of integration costs to obtain those benefits. If integration costs are also excluded from the increase in borrowings, basic EPS increases to 9.1, underlying EPS increases to 17.2 and gearing is lower at 31.3%. 115 Total depreciation and amortisation per the Scheme Booklet is $262 million. Grant Samuel has determined amortisation of licences, brand names and agreements by identifying the respective FY17 charges for Tatts and Tabcorp and allowing for the proforma adjustment for Tabcorp and the proforma adjustment for the divestment of Odyssey Gaming. 116 Assuming the intended $500 million share buyback is undertaken on 1 July 2016 at price of $4.05 per share (being Tabcorp closing price as at 5 September 2017). 117 While the dividend policy will be determined by the board of the Combined Group, for analysis purposes Grant Samuel has estimated dividends per share based on the Combined Group s target dividend payout ratio of 90% of NPAT before significant items and amortisation of the Victorian Wagering and Betting Licence and Sun Bets. 78 ANNEXURE A - INDEPENDENT EXPERT S REPORT 219

222 - it is assumed that Intecq was acquired on 1 July 2016 and the transaction costs incurred by Intecq are treated as significant items; and - the operating loss of Sun Bets from commencement of trading (August 2016) to 30 June 2017 ($48 million post tax) has been reclassified from significant items to operating earnings; reversal of the unrealised loss recognised by Tabcorp in FY17 in relation to the Tatts equity swap; the elimination of intercompany trading between Tatts and Tabcorp in FY17; transaction costs incurred by Tatts and Tabcorp prior to 30 June 2017 (as significant items); Tabcorp s commitment to divest Odyssey Gaming; and the intended $500 million share buyback; and does not reflect: trading of either Tatts or Tabcorp since 30 June 2017; the impact of: - any licence renewals/modifications made by Tabcorp or Tatts since 30 June 2017; - a strategic review of the Luxbet business by Tabcorp; - Tatts acquisition of shares in Jumbo in May 2017; and - any movement in the value of Tabcorp s equity swap in relation to Tatts shares; amortisation of $14 million per annum relating to the NSW monitoring rights secured by Tatts which commence in December 2017; amortisation of $12 million per annum relating to the Victorian lotteries licence secured by Tatts which commences in July 2018; the potential acquisition of Intralot s Australian and New Zealand EGM monitoring businesses by Tatts; additional depreciation and amortisation relating to identified tangible and intangible assets which might arise as a result of the transaction and the finalisation of acquisition accounting for the transaction; transaction costs to be incurred by Tatts and Tabcorp post 30 June 2017 (which are expected to be recognised as significant items); the at least $130 million of synergies and business improvements expected to be realised following integration of the businesses 113 ; and integration costs to achieve the synergies (which are expected to be classified as operating expenditure and recognised as significant items). As the Scheme is expected to complete post 30 June 2017, the impact of the Scheme on Tatts and Tabcorp s FY17 earnings was limited to transaction costs. However, the impact of the Scheme on Tabcorp s FY18 earnings is expected to be material. Tabcorp will also incur the transaction and other costs which are not reflected in the Combined Group Proforma Income Statement. The Board of the Combined Group will determine the dividend policy of the Combined Group depending on financial and other circumstances at the time. It is Tabcorp s current intention that the Combined Group will target a dividend payout ratio of 90% of NPAT before significant items, amortisation of the Victorian Wagering and Betting Licence and Sun Bets (see Section 12.3(g) of the Scheme Booklet). Dividends are anticipated to be paid twice yearly (in respect of the periods ending December and June) and are expected to be franked Tatts Group Limited Scheme Booklet

223 6.5 Financial Position The Combined Group Proforma Financial Position (including a description of the assumptions and adjustments made) is set out in Section 12.5(f) of the Scheme Booklet. It has been prepared by Tabcorp (including information provided by Tatts, for which Tatts takes responsibility), on the basis that the Scheme was implemented on 30 June 2017 and has been reviewed by PwC Securities. PwC Securities Investigating Accountant s Report is attached as Annexure B to the Scheme Booklet. The Combined Group Proforma Financial Position is summarised below. The Combined Group Proforma Financial Position represents the aggregation of the Tatts financial position at 30 June 2017 (see Section 4.4) and the Tabcorp financial position at 30 June 2017 (see Section 5.4) and is presented after the intended share buyback and before expected synergies and business improvements 113. For analytical purposes, Grant Samuel has adjusted the Combined Group Proforma Financial Position to present three other proforma scenarios, namely: before expected synergies and before the intended share buyback; after expected synergies and before the intended share buyback; after expected synergies and after the intended share buyback. Combined Group Proforma Financial Position ($ millions) Adjusted by Grant Samuel Before Synergies 114 Before After After and After Synergies Synergies Synergies and and Before and Buyback Buyback Buyback Buyback Receivables, inventories and other current assets Payables, provisions and other current liabilities (988) (988) (988) (988) Net working capital (825) (825) (825) (825) Property, plant and equipment (net) Goodwill and other intangible assets 118 (net) 9,763 9,763 9,763 9,763 Derivative financial instruments Deferred tax liabilities (net) (338) (338) (338) (338) Other non current liabilities (net) (117) (117) (117) (117) Total funds employed 9,029 9,029 9,029 9,029 Cash and cash equivalents Interest bearing loans (3,770) (3,270) (3,270) (3,770) Net borrowings (3,427) (2,927) (2,927) (3,427) Equity attributable to Combined Group shareholders 5,602 6,102 6,102 5,602 Statistics Shares on issue at period end (million) 1, , , ,895.7 Net assets per share $2.96 $3.04 $3.04 $2.96 NTA per share ($2.19) ($1.82) ($1.82) ($2.19) Gearing 38.0% 32.4% 32.4% 38.0% Gross borrowings/ebitda 4.1x 3.6x 3.1x 3.6x Source: Scheme Booklet and Grant Samuel analysis Note: Grant Samuel has adjusted the presentation of the Combined Group Proforma Financial Positon for analytical purposes. The Combined Group Proforma Financial Position recognises all aspects of the Scheme. It reflects: the acquisition of Tatts by the issue of 1,174,815,585 shares and payment of 42.5 cents per share to Tatts shareholders; the recognition of goodwill based on an issue price of $4.05 per share. Purchase price accounting (including recognition of separately identifiable intangible assets and goodwill) will not be finalised until after implementation of the transaction; 118 Including licences, NSW Trackside concessions and retail exclusivity and NSW monitoring rights. 80 ANNEXURE A - INDEPENDENT EXPERT S REPORT 221

224 the estimated $1,335 million increase in borrowings under the Scheme (including for payment of the cash component to Tatts shareholders, payment of transaction and integration costs and the intended $500 million share buyback); and the divestment of Odyssey Gaming. It does not reflect: trading of either Tatts or Tabcorp since 30 June 2017; the payment of final dividends in relation to FY17 by Tatts and Tabcorp; any movement in the value of the Tatts equity swap since 30 June 2017; the potential acquisition of Intralot s Australian and New Zealand EGM monitoring businesses by Tatts; the impact of any licence renewals/modifications made since 30 June 2017; the impact of a strategic review of the Luxbet business; or any resetting of the Combined Group s tax cost basis following implementation. The Proforma Financial Position shows that the Combined Group (prior to the buyback) will have: net borrowings of $2.9 billion and gearing of 32.4%; and negative net working capital reflecting the extent to which it receives income on a cash basis. S&P has announced that the acquisition of Tatts would not affect Tabcorp s existing credit rating (BBB-/Stable) Tatts Group Limited Scheme Booklet

225 7 Valuation Summary 7.1 Valuation Approach Overview The purpose of the valuation analysis is to enable an assessment of the relative contributions of value by the shareholders of Tatts and Tabcorp compared to the share of the Combined Group that they each receive. In this context, the critical issue is not so much the absolute level of value but rather that the valuations of the two companies are estimated on a consistent basis. Accordingly, the values for the business operations have been estimated on the basis of fair value for 100% of the business as a going concern but on a standalone basis excluding synergies (i.e. as they are currently operated). The reasons for this approach include the following: where the potential synergy benefits are effectively being shared by the two sets of shareholders in a predominantly scrip based merger, they are not directly relevant to the measurement of relative value contributions (synergies are seldom contributed exclusively by, or solely attributable to, one or other party and any allocation will inevitably be arbitrary); significant synergies have been identified as part of the Scheme but: the standard approach to valuation is to incorporate only those synergies available to, or common to, more than one potential acquirer (e.g. listed company/head office cost savings). Synergies unique to one acquirer are excluded; a significant proportion of the identified synergies are specific to Tabcorp reflecting the complementary nature of the two wagering businesses; other potential acquirers would likely have different types and amounts of operating synergies (beyond listed company/head office cost savings) available to them but estimating such benefits for as yet unknown parties is highly speculative; a cash buyer of Tatts would have a different approach to the level of synergies it was prepared to pay away to Tatts shareholders; and to estimate the full realisable value of both companies it would be necessary to make an estimate of potential (common) synergies for an acquirer of each of: - Tatts and Tabcorp s wagering businesses; - Tatts Lotteries business; and - Tatts and Tabcorp s gaming businesses. The data to undertake this analysis is not readily available; and the analysis would also require analysis of dis-synergies that might arise in separating the businesses. In particular, Tatts runs an integrated core technology platform that services both its Lotteries and Wagering businesses and generates significant efficiencies. If the businesses are assessed as individual operations potentially sold to different acquirers it would be necessary to estimate the incremental technology (and other operating) costs that would be incurred. The net effect is that incorporating synergies would add considerable complexity and uncertainty to the valuation task (exacerbating any reliability issues) without adding any meaningful degree of insight into the fairness or otherwise of the terms of the Scheme. As such, the values estimated by Grant Samuel represent a control value but do not represent the full underlying value that might be realised if the businesses were sold on the open market in a competitive process where acquirers would factor in synergies available to them (as envisaged for control transactions by RG 111). The values attributed to the business operations of Tatts and Tabcorp by Grant Samuel are judgements derived through iterative processes having regard to a number of valuation methodologies and parameters. A general discussion of valuation methodologies is set out in 82 ANNEXURE A - INDEPENDENT EXPERT S REPORT 223

226 Appendix 3. The primary focus was on the capitalisation of earnings or cash flows (multiples of EBITDA and EBITA/EBIT) methodology with discounted cash flow ( DCF ) analysis used as a cross check. Grant Samuel is not aware of any commonly used rules of thumb that are appropriate for the business operations of Tatts and Tabcorp and a net assets/realisation of assets methodology is not appropriate for either company. The objective is to determine values that are consistent with the market evidence as to multiples and fits with the output of DCF analysis. Grant Samuel s values for equity in Tatts and Tabcorp have then been estimated by aggregating the estimated value of each company s business operations together with the realisable value of non-trading assets and deducting external borrowings and non-trading liabilities. Specific Issues The following factors should be noted when considering the values assessed by Grant Samuel: Single Business or Sum of the Parts Valuation In estimating values for the operating businesses of Tatts and Tabcorp, Grant Samuel considered whether to value each as an integrated business or as a portfolio of businesses. While there are arguments supporting valuation of the business operations of each company as a single business (e.g. economic drivers of the businesses are similar except that Tatts Lotteries division has defensive characteristics that are not present in the other businesses), the business operations have been valued separately as: they are structured and operated as separate divisions with limited interactions at a customer level; transaction evidence is available for each of the business divisions; and there are a number of listed companies comparable to each of the business divisions. Tabcorp s Wagering & Media business division has been valued as a single business as it is operated on an integrated basis and Tabcorp considers racing media an integral part of its wagering offering. Overhead Allocations The operating performance of Tabcorp s divisions reflect the full allocation of Tabcorp s corporate overheads (including listed company costs) except for some unallocated expenses which represent one off or unusual items. In contrast, Tatts does not fully allocate all shared services costs to its business divisions (i.e. there is a Corporate/Unallocated net expense of around $46 million in FY17). In addition, the Corporate/Unallocated segment also incurs a non trivial level of capital expenditure which relates to the technology infrastructure utilised by both Tatts Lotteries and Wagering businesses. Accordingly, the performance of the operating businesses of Tatts cannot be readily compared to Tabcorp s businesses (or other peer group entities) in terms of parameters such as earnings margins and capital intensity. In addition, MAXtech provides services to MAX and Tatts Wagering and Lotteries businesses on a nil margin basis. The results of Wagering therefore do not reflect a full external cost for those services, albeit that such costs are a relatively small proportion of costs. These factors also mean that the values attributed to each of Tatts businesses do not represent the true underlying value as a standalone business (although the effect is neutralised at a group level). In any event, the values do not reflect any allowance for potential synergies or dis-synergies (see above) and are therefore not estimates of realisable value Tatts Group Limited Scheme Booklet

227 Earnings for Valuation Purposes For analysis and valuation purposes Grant Samuel has adjusted the historical earnings for both Tatts and Tabcorp to remove discontinued operations and non-recurring items. This analysis is set out in Sections 4.3 and 5.3 of this report, respectively. However, in the case of Tabcorp, the acquisition of Intecq in December 2016 means that: actual FY16 earnings do not include any contribution from Intecq; and actual FY17 earnings does not reflect a full year contribution from Intecq (only seven months from acquisition). As the valuation of the Gaming Services business (and Tabcorp) includes Intecq, it is necessary to calculate proforma earnings for the Gaming Services business and Tabcorp that include a full year contribution from Intecq so that implied multiples implied by the valuation are not overstated. The adjustments made to the earnings of the Gaming Services business and Tabcorp are set out below: Tabcorp Calculation of Proforma Earnings for Valuation Purposes ($ millions) Year end 30 June Section Reference 2016 actual 2017 actual Gaming Services EBITDA 5.9.3, Less: actual Intecq EBITDA contribution (9.2) Plus: proforma 12 month Intecq contribution 119 footnote Proforma Gaming Services EBITDA Depreciation and other amortisation 5.9.3, 5.3 (29.1) (34.2) Less: actual Intecq depreciation and other amortisation 120 footnote Plus: proforma 12 month Intecq depreciation and other amortisation footnote (4.0) (4.5) Proforma Gaming Services EBITA Tabcorp (group) EBITDA 5.9.3, Less: actual/forecast Intecq EBITDA contribution (9.2) Plus: proforma 12 month Intecq contribution 119 footnote Proforma Tabcorp EBITDA Depreciation and other amortisation 5.3 (130.1) (129.4) Less: actual Intecq depreciation and other amortisation Plus: proforma 12 month Intecq depreciation and other amortisation footnote 119 (4.0) (4.5) Proforma Tabcorp EBITA The proforma 12 month Intecq contribution is based on Intecq s actual results for FY16 and the 7 month contribution annualised (after allowing for $1 million in cost savings) for FY Intecq s proforma 12 month depreciation and amortisation is based on Intecq s actual results for FY16 and the 7 month depreciation and amortisation annualised for FY ANNEXURE A - INDEPENDENT EXPERT S REPORT 225

228 DCF Analysis Neither Tatts and Tabcorp management have prepared detailed projections for their businesses beyond FY18. Nevertheless, Grant Samuel has used DCF analysis as a cross check of the capitalisation of earnings based valuations. Grant Samuel has developed DCF models that allow the key drivers of earnings and capital expenditure to be modelled. The DCF models are based on a number of assumptions that, after discussions with the respective managements, Grant Samuel considers reasonable. However, the models do not constitute a forecast or projection by Grant Samuel of the future performance of Tatts or Tabcorp s business operations and no assurance or warranty is given that future performance will be consistent with the assumptions adopted in the models. Valuation Date Tatts and Tabcorp have been valued as at 30 June 2017 and the DCF analysis has been prepared from 1 July The primary reference point for the valuations are the respective balance sheets as at 30 June While adjustments have been made for significant subsequent events such as the payment of FY17 final dividends, no adjustments have been made for movements in other balance sheet items, in particular, the mark to market of derivatives (as these vary daily and will continue to do so prior to implementation of the Scheme). Franking Credits Under Australia s dividend imputation system, domestic equity investors receive a taxation credit (franking credit) for tax paid by a company. The franking credit attaches to any dividends paid by a company and the franking credit offsets personal tax for Australian investors. To the extent that personal tax has been fully offset the individual will receive a refund of the balance of the franking credit. Franking credits therefore have value to the recipient. However, in Grant Samuel s opinion, while acquirers are attracted by franking credits there is no clear evidence that they will actually pay extra for a company with them (at any rate the sharemarket evidence used by Grant Samuel in valuing Tatts and Tabcorp s business operations will already reflect the market value impact of the existence of franking credits). Further, franking credits are not an asset of the company in the sense that they can be readily realised for a cash sum that is capable of being received by all shareholders. The value of franking credits can only be realised by shareholders themselves when they receive distributions. Importantly, the value of franking credits is dependent on the tax position of each individual shareholder. To some shareholders (e.g. overseas shareholders) they may have very little or no value. Similarly, if they are attached to a distribution which would otherwise take the form of a capital gain taxed at concessional rates there may be minimal net benefit (in fact, there may be some categories of shareholders who are worse off in this situation such as shareholders with a capital loss on disposal of the shares). Accordingly, while franking credits may have value to some shareholders they do not affect the underlying value of the company itself. No value has therefore been attributed to accumulated franking credits (after allowing for the final FY17 dividend) in the context of the respective values of Tatts or Tabcorp as a whole. Grant Samuel notes that part of the cash component of the consideration to be received by Tatts shareholders under the Scheme may be paid as a fully franked special dividend. In this case, some shareholders may realise additional value from the franking credits (i.e. they will be better off in after tax terms than they would otherwise be) (see Section 9.5 for more details) Tatts Group Limited Scheme Booklet

229 7.2 Valuation of Tatts Summary For the purposes of its relative contribution analysis, Grant Samuel has valued Tatts in the range $5,410-5,867 million as summarised below: Tatts - Valuation Summary ($ millions) Section Value Range Reference Low High Business operations , ,050.0 Other assets and liabilities (102.5) (95.2) Enterprise value 6, ,954.8 Net borrowings (1,087.4) (1,087.4) Value of equity 5, ,867.4 The valuation represents the estimated control value of Tatts on a standalone basis. It includes a premium for control but does not include any value for synergies that may be available to purchasers of Tatts. The value exceeds the price at which, based on current market conditions, Grant Samuel would expect Tatts shares to trade on the ASX Business Operations Grant Samuel s valuation of Tatts business operations is summarised below: Tatts - Valuation of Business Operations ($ millions) Section Value Range Reference Low High Lotteries ,800 6,200 Wagering ,100 1,200 Gaming Corporate/Unallocated (850) (950) Value of business operations 6,600 7,050 The valuation of each of Tatts operating businesses is considered in more detail in Section 8 and the value attributed to Corporate/Unallocated is discussed in Section below. The values attributed to each business operations represents an overall judgement having regard to a number of valuation methodologies and parameters, including capitalisation of earnings or cash flows (multiples of EBITDA and EBITA) and DCF analysis. The overall multiples implied by the valuation of Tatts business operations are summarised below: 86 ANNEXURE A - INDEPENDENT EXPERT S REPORT 227

230 Tatts Business Operations Implied Valuation Parameters Variable ($ million) Range of Parameters Low High Value range ($ million) 6,600 7,050 Multiple of EBITDA (times) FY16 (adjusted actual) FY17 (adjusted actual) FY18 (broker median) Multiple of EBITA (times) FY16 (adjusted actual) FY17 (adjusted actual) FY18 (broker median) The implied multiples reflect a blend of Tatts different operating businesses as well as characteristics of the Australian gambling industry. As the Australian gambling industry is highly regulated and relatively mature, overall growth is largely limited to that in the economy with short term fluctuations reflecting specific aspects of Tatts businesses. In particular, with Lotteries representing around 75% of the value (before corporate/ unallocated), the overall multiples largely reflect the higher multiples attributable to a lotteries business (compared to a wagering business) as a result of its stable, annuity style income with a steady, albeit modest, growth profile. In particular, the Lotteries business enjoys: a virtual national monopoly in lotteries (except for Western Australia). In its markets, Tatts has a share of over 98% of all lotteries sold; reasonably predictable levels of demand with the only significant swing factor being the number of larger jackpots ( $15 million) which can vary materially from year to year; with the exception of Victoria, a portfolio of long term licences with remaining concession periods of between 15 and 55 years with around 80% of EBITDA from licences that run at least 33 years. Tatts has recently been awarded the new ten year Victorian lottery licence to 30 June The value analysis allows for the cost of retaining the licence; and low levels of capital expenditure intensity relative to a wagering business. On the other hand, while Tatts Wagering business also enjoys the benefit of long term licences in all its jurisdictions (underpinned by long term retail exclusivity in key markets such as Queensland and, potentially, South Australia) it has performed poorly over the last few years with EBITDA falling by 23% between FY13 and FY16 (and a further decrease in FY17, albeit partially wet weather impacted). This deterioration reflects the inroads made by corporate bookmakers (particularly through online wagering) and the business faces a number of challenges going forward. Accordingly, the value of this business reflects much lower multiples Corporate/Unallocated Tatts operating structure is based on centralised core functions. Around 60% of these costs are allocated directly to the operating businesses but around $50 million (at EBITDA level) are not allocated including costs of being a listed company, the costs associated with group executive office (including all employee bonuses across the group) and certain information and digital technology costs. In addition, depreciation and other amortisation 121 Tatts has not included FY18 forecast information in the Scheme Booklet. To provide an indication of Tatts expected financial performance, Grant Samuel has considered brokers forecasts (see Appendix 1) Tatts Group Limited Scheme Booklet

231 totalling around $18 million is incurred at the corporate level. This charge relates to capital expenditure for technology assets primarily used by the Lotteries and Wagering businesses (estimated to be shared evenly) and a small amount for corporate capital expenditure. Grant Samuel has attributed a capitalised value of $(850)-(950) million to these residual costs (of around $50 million at EBITDA level and $70 million at EBITA level). This value represents multiples of times EBITA. The multiple range is lower than the multiple range implied by the aggregate value attributed to the business operations for FY17 and FY18. This average is impacted by the high multiples attributed to the Lotteries business. It would not be appropriate to use this multiple as it is not reflective of an allocation on an activity basis. Based on discussions with Tatts, Grant Samuel has used a 45/45/10 (Lotteries/Wagering/Gaming) split to calculate the appropriate multiples to apply to Corporate/Unallocated costs. The value attributed to Corporate/Unallocated has been reviewed by reference to DCF analysis. The DCF model forecasts nominal after tax cash flows from 1 July 2017 to 30 June 2027 (10 years) with a terminal value calculated by capitalising net after tax cash flows using the perpetuity method and assuming a long term growth rate of 2.5%. The cash flows include the technology capital expenditure not allocated to Lotteries and Wagering as well as general corporate capital expenditure. Corporate/Unallocated costs and capital expenditure are assumed to grow at the rate of inflation (2.5%) and a corporate tax rate of 30% is assumed. Discount rates in the range % have been used 122. The NPV outcomes based on these assumptions are $(785)-(850) million. The capitalised value for Corporate/Unallocated is substantial but reflects the level of costs not allocated to Tatts business operations Other Assets and Liabilities Tatts other assets and liabilities have been valued in the range $(95.2)-(102.5) million and include: 6,609,686 shares in Jumbo which have been attributed a value of $ million which is higher than Tatts book value at 30 June 2017 of $15.7 million (reflecting cost at $2.37 per share). The value reflects recent sharemarket prices for Jumbo shares (broadly in the range of $ ) as well as the 15 cent special dividend declared by Jumbo on 11 July 2017 and paid in August 2017; Tatts unlisted investments at book value at 30 June 2017 ($1.7 million); Tatts obligation to fund the defined retirement benefits of employees who transferred on acquisition of NSW Lotteries. The net liability at 30 June 2017 ($10.1 million) has been tax effected assuming a 30% corporate tax rate ($(7.1) million); the outstanding payments for the Queensland race and sports wagering licences. The liability range of $(41.7)-(48.3) million represents the net present value of future cash payments net of the remaining available tax benefits calculated at a discount rate of 4%. The top end of the range allows for the contingent amount of the outstanding payments; and the final payment ($68.3 million) due to be made by Tatts on 30 November 2017 in relation to the NSW centralised monitoring system licence to the NSW Government. No separate value has been attributed to: accumulated franking credits at 30 June 2017 ($71 million); and carried forward capital losses at 30 June 2017 ($270 million). While the losses can be carried forward indefinitely, they can only be utilised if capital gains are generated. 122 These rates are derived from the discount rates (weighted average cost of capital) used in the DCF analysis for Tatts operating businesses and reflect a 45/45/10 (Lotteries/Wagering/Gaming) split. The rationale for selection of the discount rates for the businesses is set out in Appendix ANNEXURE A - INDEPENDENT EXPERT S REPORT 229

232 7.2.5 Net Borrowings Tatts net borrowings for valuation purposes are $1,087.4 million. This amount reflects Tatts reported net borrowings as at 30 June 2017 adjusted as follows: Tatts Adjusted Net Borrowings ($ millions) Net borrowings as at 30 June 2017 (Section 4.4) (931.5) Restricted cash (prize reserves and fund investments) (109.0) Capitalised borrowings costs (4.0) USPP cross currency swaps 74.6 Final FY17 dividend (117.5) Adjusted net borrowings as at 30 June 2017 (1,087.4) The adjustments made are: prize reserves and fund investments have been removed as these cash balances are restricted and not available to Tatts. Interest earned on these balances is included by Tatts in operating earnings (i.e. EBITDA etc.) for the Lotteries business; capitalised borrowing costs have been removed as they are non cash asset that are amortised over the life of the relevant borrowings; the adjustment for the cross currency swaps balance at 30 June 2017 ($74.6 million asset) has been made to incorporate the impact of Tatts hedging in relation to the USPP borrowings; Tatts is to pay a 8 cents per share dividend relating to FY17 on 3 October This dividend was not provided for at 30 June Valuation of Tabcorp Summary For the purposes of its relative contribution analysis, Grant Samuel has valued Tabcorp in the range $3,755-4,355 million as summarised below: Tabcorp - Valuation Summary ($ millions) Section Value Range Reference Low High Business operations , ,675.0 Other assets and liabilities (119.2) (44.2) Enterprise value 5, ,630.8 Net borrowings (1,275.3) (1,275.3) Value of equity 3, ,355.5 The valuation represents the estimated control value of Tabcorp on a standalone basis. It includes a premium for control but does not include any value for synergies that may be available to purchasers of Tabcorp. The value exceeds the price at which, based on current market conditions, Grant Samuel would expect Tabcorp shares to trade on the ASX Business Operations Grant Samuel s valuation of Tabcorp s business operations (excluding Sun Bets) is summarised below: Tatts Group Limited Scheme Booklet

233 Tabcorp - Valuation of Business Operations (excluding Sun Bets) ($ millions) Section Reference Low Value Range High Wagering & Media (excluding Sun Bets) ,700 4,100 Keno Gaming Services Value of business operations (excluding Sun Bets) 5,150 5,675 The valuation of each of Tabcorp s business operations is considered in more detail in Section (Wagering & Media, excluding Sun Bets), Section and Section (Gaming Services). The values attributed to each business operations represent overall judgements having regard to a number of valuation methodologies and parameters, including capitalisation of earnings or cash flows (multiples of EBITDA and EBITA) and DCF analysis. The overall multiples implied by the valuation of Tabcorp s business operations are summarised below: Tabcorp s Business Operations Implied Valuation Parameters Variable Range of Parameters ($ million) Low High Value Range ($ million) 5,150 5,675 Multiple of EBITDA (times) FY16 (proforma actual) FY17 (proforma actual) FY18 (broker median) Multiple of EBITA (times) FY16 (proforma actual) FY17 (proforma actual) FY18 (broker median) The multiples implied by the FY17 proforma actual earnings are higher than those implied by the FY16 proforma actual and the FY18 broker median, reflecting the impact on FY17 performance of the prolonged periods of wet weather experienced across the eastern seaboard in 2HY17, the underperformance of Trackside and Luxbet and only a part year contribution from new venues in NSW including Panthers Group. Adjusting for Luxbet, the implied FY17 proforma EBITDA and EBITA multiples fall to times and times respectively. In any event, in considering the parameters implied by its valuation, Grant Samuel has placed greater weight on the multiples implied for FY18. The overall implied multiples reflect a number of characteristics of the Australian gambling industry generally, including its relatively maturity, with overall growth generally limited to growth in the economy over the medium to long term. More specifically, as the Wagering & Media business represents the majority of the value of Tabcorp s business operations, the overall implied multiples also reflect characteristics of the Australian wagering sector, in particular: 123 FY16 actual and FY17 actual EBITDA and EBITA (before significant items) are proforma for a full year contribution from Intecq (see Section 7.1). 124 Tabcorp has not included FY18 forecast information in the Scheme Booklet. To provide an indication of Tabcorp s expected financial performance, Grant Samuel has considered brokers forecasts (see Appendix 2). 90 ANNEXURE A - INDEPENDENT EXPERT S REPORT 231

234 trends in wagering, such as the rapid growth of, and aggressive competition from, online corporate bookmakers, the shifts from pari-mutuel to fixed odds betting and from racing to sports betting and the migration from retail to digital distribution channels. It is expected that these trends will continue and continue to impact on Tabcorp s wagering turnover and yields; the importance of ongoing relationships with the racing industry in each State and Territory to the business and the need to have in place arrangements with each racing industry that require various payments (revenue/profit share, race fields fees etc); and favourable regulatory reforms expected to be implemented in the short term such as more rigorous enforcement of the ban on in-play betting and the introduction of a point of consumption tax (in South Australia). These regulatory changes are expected to benefit Tabcorp (relative to online corporate bookmakers). The overall multiples also reflect the attributes of Tabcorp s business operations and take into account factors such as Tabcorp s: market leading position in the Australian wagering market; unique multi-channel distribution model for wagering, with exclusive retail presence in all States in which licences are held and a leading digital offering; integrated racing media business which provides a point of differentiation for its wagering business; significant investment in technology (digital, marketing, compliance and risk management) focused on delivering market leading products and customer experience; well established and recognised (and, in the case of wagering, market leading) brands TAB, Sky Racing, Keno; long term licences for wagering and Keno (except in Victoria); recent refresh of the Keno business (brand, consumer awareness, new products, enhanced retail experience, digital innovation), pooling across all States/Territories (NSW, ACT, Victoria and Queensland) and the turnaround in performance in FY16 and FY17; and proven performance of the Gaming Services offering, the scale of the business (compared to its competitors) and the term (five years) of the majority of its contracts as well as significant new contracts such as Panthers Group and upside from the acquisition of Intecq. These positive factors for the Gaming Services business are offset in part by the capital intensity of the Gaming Services business (which constrains the EBITDA multiples) Sun Bets Grant Samuel has separately attributed a value to Sun Bets, reflecting the start up nature of this business. Sun Bets incurred a loss of $16.8 million in FY16 and, after commencing operations in August 2016, generated an EBITDA loss of $46.2 million in FY17. In addition to these operating losses, Tabcorp has invested $29 million in establishment and set up costs. This amounts to a total investment in Sun Bets of $92 million. The United Kingdom online gambling market is substantial (with annual turnover of around $7 billion) and attractive (a regulated market experiencing double digit revenue growth). Tabcorp believes that Sun Bets is an attractive opportunity with significant potential. It has the backing of the strong brand News UK brand The Sun, which has a readership of 4.2 million daily and it requires only a small share of the United Kingdom online gambling market for Sun Bets to become a profitable business Tatts Group Limited Scheme Booklet

235 However, there is no certainty at this early stage that Tabcorp s international expansion will become profitable. The United Kingdom online gambling market is extremely competitive and there are a large number of existing participants with less than 5% market share that are seeking to increase their scale. Furthermore, the agreement with News UK is for an initial term of ten years (subject to Tabcorp s December 2019 termination right in certain circumstances) and there is no certainty that the agreement will be extended at the end of this period. Extension of the agreement is dependent on, among other things, the performance of Sun Bets. News UK has the relationship with the customer, and without access to The Sun s extensive customer base, the viability of the business (even if it does become profitable in time) is uncertain. In addition, in its initial months of operation, Sun Bets has incurred greater losses than anticipated. Prior to its launch in August 2016, Tabcorp expected Sun Bets to generate a variable contribution margin of approximately 20% and operating expenses of approximately $25 million in FY17. As a result of the revenue share arrangement with News UK and significant bonus bets and promotional offers, Sun Bets actual result was a variable contribution loss of $14.6 million (on revenue of $4.6 million) and operating expenses of $60.8 million. However, despite its slow start, Tabcorp does expect to access The Sun s more than one million fantasy football competition customers from mid Analysts have mixed views on the success of Sun Bets, ranging from improving EBIT losses but slightly below breakeven over the medium term to an expectation that it will develop sufficient scale to breakeven in FY19 and generate positive EBITDA by FY20. Grant Samuel has attributed a value to Tabcorp s interest in Sun Bets of $(25)-50 million on the basis that: on one hand, the value could be significantly less than nil as it is expected to generate losses over the next few years and there is no certainty that it will reach breakeven. Tabcorp is required to make minimum payments to News UK (exclusive of United Kingdom value added tax) of 10.1 million in FY18, 15.5 million in FY19, 18.3 million in FY20 and 21.6 million each year for the remaining six years of the term. The earliest Tabcorp is able to terminate the arrangement with News UK is 31 December 2019; and on the other hand, Tabcorp would expect to recoup the capital and operating losses that it has incurred. While this may be regarded as conservative (at both ends of the range), it is the only sensible approach given the wide range of possible values that could be attributed to Sun Bets under the full range of performance scenarios. The value attributed to Sun Bets of $(25)-50 million has been included in other assets and liabilities (see Section below) Other Assets and Liabilities Tabcorp s other assets and liabilities have been valued in the range $(119)-(44) million and comprise: the value attributed to Sun Bets of $(25)-50 million (see Section above); the mark to market of derivative financial instruments as at 30 June 2017, other than cross currency swaps relating to the USPPs which are included in net borrowings (see Section 7.3.5) and open betting positions; the mark to market of the cash-settled equity swap of $293.6 million (net of borrowings of $325 million) as at 30 June 2017; surplus lease space provisions relating to a property in the ACT and Tabcorp s head office at Bowen Crescent in Melbourne (tax effected); and restructuring costs and costs associated with the AFP Cambodia investigation expected to be incurred in FY18 (tax effected). 92 ANNEXURE A - INDEPENDENT EXPERT S REPORT 233

236 7.3.5 Net Borrowings Tabcorp s net borrowings for valuation purposes are $1,275.3 million. This amount reflects Tabcorp s reported net borrowings as at 30 June 2017 adjusted as follows: Tabcorp Adjusted Net Borrowings ($ millions) Net borrowings as at 30 June 2017 (Section 5.4) (1,544.0) Restricted cash (26.9) Capitalised borrowing costs (2.7) USPP cross currency swaps 77.7 Cash-settled equity swap borrowings Final FY17 dividend (104.4) Adjusted net borrowings as at 30 June 2017 (1,275.3) Net borrowings have been adjusted to exclude restricted cash on the basis that this cash is primarily customer balance amounts, the use of which is restricted under Tabcorp s licences. Capitalised borrowings costs have been added back to net borrowings as they are a non cash asset (that is amortised over the life of the relevant borrowings). The adjustment for the mark to market of USPP cross currency swaps gives a better indication of the market value of Tabcorp s debt and incorporates the impact of hedging strategies that it employs to minimise its exposure to fluctuations in the US$ exchange rate. Tabcorp has entered into swap arrangements so that the aggregate A$ amount payable at maturity of the USPPs is $210.5 million. The $325 million of borrowings used to fund the cash-settled equity swap Tabcorp entered into in respect of a 9.99% shareholding in Tatts has been excluded from net borrowings as it does not relate to Tabcorp s business operations. These borrowings have been offset against a $337.8 million derivative financial instrument and included in other assets and liabilities (see Section 7.3.4). Tabcorp s net borrowings have also been adjusted to reflect the final FY17 dividend of 12.5 cents per share to be paid on 18 September This dividend was not provided for at 30 June Tatts Group Limited Scheme Booklet

237 8 Valuation of Business Operations 8.1 Lotteries and Keno Market Evidence Transaction Evidence There is limited transaction evidence for lottery businesses reflecting that, in most developed countries, lotteries are generally owned and operated by government owned entities (although a recent trend has emerged in the United States whereby the management of state lotteries is contracted to third parties on a fee for service rather than profit participation basis). Appendix 4 contains an analysis of the earnings multiples implied by acquisitions of lottery businesses since 2009 as well as Tatts acquisition of Golden Casket Lottery Corporation in The following charts summarise the historical and forecast EBITDA and EBITA multiples for transactions in the lotteries industry in Australia and in Europe: Lottery Transactions Historical EBITDA Multiples (before synergies) Australia Europe Median = 12.5x Median = 8.0x NSW Lotteries (Mar 10) SA Lotteries (Nov 12) Golden Casket (Apr 07) Source: Grant Samuel analysis (see Appendix 4) Note: Historical earnings for OPAP and Hellenic State Lotteries have been adjusted to reflect an additional 30% gaming tax imposed by the Greek Government and for the Irish National Lottery have been adjusted to reflect the increase in the annual contribution to good causes under the licence awarded. Irish Lottery (Oct 13) Hellenic State (Dec 12) OPAP (33%) (May 13) Camelot (Mar 10) NSW Lotteries (Mar 10) SA Lotteries (Nov 12) Golden Casket (Apr 07) Hellenic State (Dec 12) OPAP (33%) (May 13) For personal use only Lottery Transactions Forecast EBITDA Multiples (before synergies) Australia Europe Median = 10.5x 43.5 Median = 8.4x Source: Grant Samuel analysis (see Appendix 4) 94 ANNEXURE A - INDEPENDENT EXPERT S REPORT 235

238 Lottery Transactions Historical EBITA Multiples (before synergies) Australia Europe Median = 15.2x 13.5 Median = 7.5x Golden Casket (Apr 07) NSW Lotteries (Mar 10) SA Lotteries (Nov 12) OPAP (33%) (May 13) Camelot (Mar 10) Source: Grant Samuel analysis (see Appendix 4) NSW Lotteries (Mar 10) Golden Casket (Apr 07) SA Lotteries (Nov 12) OPAP (33%) (May 13) For personal use only Lottery Transactions Forecast EBITA Multiples (before synergies) Australia Europe Median = 15.5x Source: Grant Samuel analysis (see Appendix 4) None of the transactions is directly comparable to Tatts Lotteries business or Tabcorp s Keno business. However, the evidence is useful in considering appropriate valuations parameters for these businesses. In considering this transaction evidence the following factors should be taken into consideration: most of the available evidence reflects the privatisation of a government owned business and/or the acquisition of a licence to operate a lottery business in a jurisdiction for a designated period (e.g. Tatts acquisition of NSW Lotteries Corporation Pty Ltd in conjunction with the grant of a 40 year licence to conduct public lotteries in NSW and Premier Lotteries Ireland Limited s ( PLI ) acquisition of a 20 year licence to operate the Irish National Lottery from the Irish Government); none of the transactions involves the acquisition of an entity holding a portfolio of lottery licences/rights operated as a market leading, integrated business (such as Tatts Lotteries division). The most comparable business is OPAP S.A. ( OPAP ) with an Tatts Group Limited Scheme Booklet

239 estimated 71% share of the Greek gaming market. At the time of the transaction, OPAP held an exclusive land based concession for lotteries, sports betting (ex-horse racing) and scratch-it games and there was an expectation that it was to be granted an exclusive online licence; the acquisition of a 33% interest in OPAP involves a non-controlling stake, however, the interest is strategic being the largest shareholding in the listed company (the next largest holding being 5%) and the transaction was the culmination of a competitive international tender process (albeit the Greek Government was under financial pressure); while the licences/rights underlying the Australian transactions are long term in nature (in excess of 40 years), those underlying the European transactions are generally for less than 20 years (e.g. 20 years for the Irish National Lottery, ten years plus possible five year extension for The National Lottery in the United Kingdom and 12 years for the Hellenic State Lotteries). All things being equal, a shorter duration licence will be less valuable and will warrant lower multiples. Arguably, beyond 30 years the value impact is lower but it can make a material difference if the term is less than, say, 15 years. The acquisition of Camelot Group plc ( Camelot ) occurred at a time when the remaining term of the licence for The National Lottery was nine years (potentially 14 years) and the acquisition of a 33% interest in OPAP occurred when the remaining term of its land based concession was less than 20 years; the profitability of each of the lottery businesses acquired varies reflecting factors specific to the business and/or the jurisdictions in which it operates. The EBITDA margins at acquisition of the Irish National Lottery and Camelot (The National Lottery in the United Kingdom) were around 3% and 2.3% respectively compared to the Australian lottery businesses (in the range of 10-20%), Hellenic State Lotteries (around 13%) and OPAP (around 20%). In this context, it should be noted that jurisdictions granting lottery licences generally receive an upfront payment and a percentage of annual ticket sales throughout the concession period (gaming tax). This approach allows the jurisdiction to realise a capital amount (in lieu of the dividend stream it would otherwise have received) and to share in increased revenue while the operator benefits both from increased revenue and operating efficiencies. This approach was adopted by the Irish Government in the grant of the 20 year licence with the operator (PLI) entitled to 35% of gross gaming revenue and all benefits achieved via operating efficiencies. In comparison, while there is no upfront payment for the licence for The National Lottery in the United Kingdom, the licence required Camelot to invest in infrastructure, pay lottery duty of 12% of gross ticket sales and to maximise returns to good causes in the community by increasing sales and reducing operating costs. Under this approach, the benefits from efficient operation are not solely for the operator and, although it is a private for profit company, Camelot generates low EBITDA margins relative to other private lottery operators; the multiples implied for the Irish National Lottery are substantially higher than other transaction evidence. This transaction represents the privatisation of the lottery in that PLI was awarded a 20 year licence to operate the lottery for 405 million cash and agreement to take on the staff and management of the previous licence holder (an Irish government owned company). The transaction was announced in October 2013 and completed in February 2014 but operations under the licence only commenced on 30 November Under the licence the ongoing contribution to good causes from the lottery was set at 65% of gross gaming revenue. At the time of the transaction, no information was released regarding the earnings that PLI expected from the Irish National Lottery. Therefore, the historical EBITDA multiple for the transaction (43.5 times) has been calculated by reference to the trading results of the previous operator adjusted to reflect the terms of the new licence. 96 ANNEXURE A - INDEPENDENT EXPERT S REPORT 237

240 However, this analysis is unlikely to be reflective of the underlying earnings expected at the time and, accordingly, little weight should be placed on the historical multiples. A review of the financial statements for PLI for the period from 30 November 2014 to 31 December 2015 indicates that, while gross gaming revenue remained around 44% of gross ticket sales, the EBITDA margin from operation of the Irish National Lottery had increased from 3% (proforma basis) to 10.5%. This increase in margin suggests substantial operational efficiencies and cost savings had been achieved by PLI. Allowing for this margin improvement, decreases the implied EBITDA multiple for the transaction to 13.8 times. However, this analysis is based on PLI s results in the year following commencement of operations (subsequent results are not yet publicly available) and, as synergies typically emerge over a number of years, the effective multiple for this transaction is likely lower than 13.8 times (i.e. more in line with the transaction evidence for lottery businesses with concession periods of less than 20 years); the historical multiples 125 implied by the acquisition of Camelot are relatively low. Camelot operates The National Lottery in the United Kingdom having done so since the initial seven year licence was awarded in May 1994 (first tickets sold in November 1994). It successfully bid for the second seven year licence (commenced in January 2002) and the third licence which is for a ten year term from February 2009 with a possible five year extension 126. The low multiples implied by this transaction are likely to reflect both: the short licence period at acquisition of the company (nine years plus a possible five year extension); and the more limited operational leverage available to the holder of The National Lottery licence (i.e. profit improvements not solely retained by the operator). In this context, since acquisition Camelot s EBITDA margin has remained low relative to its peers (3.6% in the year ended 31 March 2016 compared to 2.3% at acquisition); and cost synergies are a feature of the Australian transactions (SA Lotteries, NSW Lotteries, Golden Casket), substantially reducing the effective multiples paid. As all of these lottery businesses were all acquired by Tatts, significant cost savings were expected both as a result of operational efficiencies by a private operator (relative to public ownership) and from integrating the businesses with Tatts existing lotteries infrastructure. The following table shows the effective multiple for these transactions: Recent Australian Transactions Synergy Adjusted Multiples Target Forecast EBITDA Multiple (times) Unadjusted Adjusted 127 SA Lotteries NSW Lotteries Golden Casket Source: Grant Samuel analysis (see Appendix 4) Similarly, while no data is available, significant privatisation and integration cost synergies would have been expected on the acquisition of the Hellenic State Lotteries licence by OPAP. In contrast, improved profitability of the Irish National Lottery following acquisition reflects only operational efficiencies achieved by a new private operator (as discussed above). 125 There are no earnings projections to prepare forecast implied multiples as Camelot is a private company. 126 During the year ended 31 March 2012, Camelot was granted a four year extension of the licence until February Adjusted by reference to median broker forecast cost savings. 128 If the total uplift in EBITDA from the acquisition announced by Tatts (c. $60 million) is allowed rather than the median broker forecast, the adjusted forecast multiple implied for the acquisition of NSW Lotteries declines further to around 7.0 times Tatts Group Limited Scheme Booklet

241 While none of the transaction targets is directly comparable to Tatts in terms of the mix of activities, scale and geographic reach, it should be noted that: the Australian transactions were completed by Tatts itself and these businesses remain integral to Tatts integrated Lotteries business; and the multiples paid in Australia have generally been higher than in Europe (reflecting the length of the concession period). Grant Samuel also notes that the Pacific Consortium s indicative proposal of December 2016 attributed an enterprise value of approximately $5.5 billion to Tatts Lotteries business (based on $3.305 cash per share 129 plus $663 million of net debt) and assumed forecast FY17 EBITDA for the division of $353.6 million. On this basis, the proposal implied an historical EBITDA multiple of 16.0 times and a forecast EBITDA multiple of 15.6 times for Tatts Lotteries. However, as the indicative proposal was not formalised, was superceded by the Pacific Consortium Revised Indicative Proposal which had a lower aggregate value ($4.21 cash per Tatts share) and no apportionment of value between businesses, caution is warranted when considering this benchmark. The Pacific Consortium Revised Indicative Proposal implied forecast FY17 and FY18 EBITDA multiples of 14.5 times and 15.2 times respectively for Tatts. These multiples are a blend of Tatts three businesses (albeit mostly Lotteries). Given the performance of Tatts Wagering business and the value parameters for wagering and gaming services businesses, the multiples for Tatts Lotteries business implied by this proposal would be above the overall multiples. However, as this proposal was deemed not superior to the Scheme and has not been formalised, caution is also warranted when considering this benchmark. Evidence from Sharemarket Prices There are few listed lottery companies. In part, this reflects that in most developed countries lottery businesses are generally owned and operated by government entities. However, in three jurisdictions (Australia, Italy and Greece) the market leading lottery operator is a private listed enterprise (respectively Tatts, Lottomatica and OPAP). In this context: Lottomatica is a wholly owned Italian subsidiary of International Game Technology plc ( IGT plc ), a United States listed global gambling company. IGT plc provides technology products and services across all gaming markets to business and retail customers in more than 100 countries. IGT plc s lottery segment accounts for around 40% of total revenue. Its activities include the operation and management of lotteries, the provision of lottery and gaming systems, software and machines, lottery facility and management services and lottery research and development. The segment generates EBITDA margins in the range 30-40%. IGT plc s Italian lottery business account for only around 15% of total revenue and is estimated to hold a 94% share of the Italian lotteries market (while IGT plc has a 32% share of the total Italian gaming market). Lottomatica was the sole concessionaire for the Italian Lotto game from 1993 to In mid 2016, a consortium led by Lottomatica (61.5% interest) was awarded a nine year concession (to 2025) for Lotto in return for upfront payments totalling 770 million and a 130 million investment in new lottery technology infrastructure (systems, terminals). In addition to holding the concession to the Italian Lotto game, IGT plc provides services to 40 of the 45 United States lotteries including management services in three jurisdictions (Illinois, Indiana and New Jersey) where it manages the day to day operation of each lottery (on a fee for service basis) subject to oversight by the jurisdiction; and 129 Ignoring the 9.5 cent fully franked 1HY17 dividend. 98 ANNEXURE A - INDEPENDENT EXPERT S REPORT 239

242 OPAP is Greek company listed on the Athens Stock Exchange. It is the exclusive licensed operator of: all numerical lotteries (seven games including Keno) and sports betting (four games) in Greece under a 20 year licence which was due to expire in 2020 but was extended in 2011 to 2030 (in return for 375 million and a 5% further royalty). Originally land based, in 2013 the licence was extended to encompass any technological means (except for online sports betting in the period); horse racing in Greece under a 20 year licence which expires in 2036; 35,000 video lottery games under a ten year licence which expires in 2027; and passive and instant (scratch) lotteries in Greece under a licence that expires in 2026 via its 67% controlling shareholding in Hellenic Lotteries S.A. OPAP is estimated to hold around 73% of the Greek gaming market and is a major participant in the Cypriot gaming market (5% of revenue). Its games are distributed through a network of over 4,000 retail outlets (dedicated and branded agencies) as well as online. Passive and instant lotteries are also distributed via an additional 3,800 points of sale (e.g. kiosks, street vendors). In the year ended 31 December 2016, OPAP generated 60% of revenue from lotteries, 29% from sports betting and 11% from passive and instant lotteries. Overall EBITDA margin was 22% with Lotteries (including passive and instant lotteries) contributing around 72% of EBITDA at a 22% margin. The following table summarises the historical and forecast EBITDA and EBITA multiples for OPAP and IGT plc as at 1 September 2017: Company Sharemarket Ratings of Selected Listed Companies Lotteries Market Capitalisation (millions) Historical EBITDA Multiple (times) Forecast Year 1 Forecast Year 2 Historical EBITA Multiple (times) Forecast Year 1 Forecast Year 2 OPAP 3, IGT plc US$4, Source: Grant Samuel analysis (see Appendix 4) The following factors are relevant to consideration of these trading multiples: the multiples are based on share prices and do not include a premium for control; the multiples are based on earnings for 31 December year ends. While Tatts and Tabcorp have 30 June year ends, no alignment of the financial data with has been undertaken. It would be expected that forecast multiples for the year ending 31 December 2017 (forecast year one) would be slightly higher than for the year ending 30 June 2018; brokers are projecting overall growth in EBITDA of around 13% per annum for OPAP through to December This growth reflects the rollout of video lottery terminals and virtual games from 2017 (partially cannibalising some of OPAP s lottery business revenue) and an increasing contribution from horse racing; IGT plc was formed in 2014 following GTECH S.p.A s acquisition of International Game Technology and the reorganisation of the combined group under a new holding company. This transaction was expected to generate cost savings of around US$230 million per annum and revenue synergies of US$50 million per annum. As the transaction completed in April 2015, these savings are expected to emerge over the period to Brokers are projecting lower revenue and earnings in 2017 (forecast year one) based on IGT plc s guidance of lower jackpot and recent performance as well as the negative earnings impact of IGT plc s decreased interest (from 100% to 61.5%) in the Lotto concession in Italy; and Tatts Group Limited Scheme Booklet

243 both companies have a restricted free float with major strategic shareholders. Investment fund Emma Delta Hellenic Holdings Limited holds a 33% interest in OPAP and the De Agostini family holds a 51% interest in IGT plc. Nevertheless, there are active markets for both companies and their share prices are likely to reflect fair value for their underlying businesses. Evidence from the sharemarket ratings for OPAP and IGT plc need to be treated with caution as: neither company is a pure lottery business. Both have a mix of activities and the scale and geographic reach of those activities differ; both have limited terms for their lottery licences 13 years for OPAP and eight years for IGT plc; and differences in growth and inflationary expectations, industry and market conditions and differing tax regimes impact sharemarket valuations and, therefore, multiples. Tatts itself provides an additional data point. Prior to the announcement of the Scheme on 19 October 2016, Tatts was trading at a forecast FY17 EBITDA multiple of 12.5 times and a FY17 EBITA multiple of 13.8 times (and higher multiples of 13.2 times and 14.6 times based on the VWAP over the previous six months). These multiples are a blend of its three businesses (albeit mostly Lotteries). Given the performance of Tatts Wagering business and the value parameters of other wagering and gaming services businesses, the implied multiples for Tatts Lotteries business would be above the overall multiples Value of Tatts Lotteries Business Summary Grant Samuel estimates the value of Tatts Lotteries business to be in the range $5,800-6,200 million. The primary approach to valuation was capitalisation of earnings with DCF analysis used as a cross check. The value range allows for the new ten year Victorian lottery licence from 30 June 2018 for a payment of $120 million. The value range also allows for the fact that further payments will be required if Tatts retains the licence beyond The other major licences held by Tatts are of sufficient tenor that Grant Samuel does not believe it is necessary to allow for further renewal costs. As discussed in Section 7.1 of this report, it is important to note that Grant Samuel s estimate does not represent the value of Lotteries as a standalone business as: Tatts does not fully allocate shared services costs and certain operational capital expenditure to its business divisions; there would be incremental costs on separation of Lotteries from the Tatts operating structure and the loss of the substantial efficiencies achieved by centralising the core technology platforms and functions for Lotteries and Wagering; and it does not include any allowance for synergies potentially available to an acquirer. Accordingly, while the value estimated by Grant Samuel represents a control value, it does not represent the full underlying value that might be realised if the Lotteries business was sold on the open market in a competitive process The value range for Tatts Lotteries business of $5,800-6,200 million exceeds the value implied by the Pacific Consortium s initial indicative proposal ($5,500 million). No conclusion can be drawn from this fact as detailed assumptions underlying the Pacific Consortium s implied value were not disclosed, the Pacific Consortium did not have access to Tatts to undertake due diligence and the indicative proposal has been superceded. 100 ANNEXURE A - INDEPENDENT EXPERT S REPORT 241

244 Earnings Multiple Analysis The earnings multiples implied by the valuation of Tatts Lotteries business are summarised below: Tatts Lotteries Business Implied Valuation Parameters Variable ($ million) Range of Parameters Low High Value range ($ million) 5,800 6,200 Multiple of EBITDA (times) FY16 (adjusted actual) FY17 (adjusted actual) FY18 (broker median) Multiple of EBITA (times) FY16 (adjusted actual) FY17 (adjusted actual) FY18 (broker median) The multiples implied by FY17 (adjusted actual) are higher than implied by the FY16 (adjusted actual) results and FY18 broker median forecasts as: FY16 was a record year for Tatts Lotteries on the back of a record run of jackpots (45 jackpots with a value of $15 million including six jackpots with a value $50 million); and with a materially lower number of jackpots, FY17 was a low year with FY18 expected to return to a more normal level of jackpots (and earnings). In considering the parameters implied by its valuation, Grant Samuel has placed greater weight on the multiples implied for FY18. The implied multiples have been calculated based on earnings excluding any costs associated with retention of the Victorian lottery licence (albeit the value range allows for these costs). Accordingly, the true multiples implied by Grant Samuel s value range are around 3-4% higher. The multiples implied by the valuation of Lotteries are higher than those implied by recent transaction evidence and the current trading multiples for companies with substantial lotteries operations. This is considered appropriate as: market evidence for lotteries businesses is limited. There are few transactions as most lottery businesses remain owned by government owned entities and there are no listed entities (other than Tatts) for which lotteries is the primary business operation. Nevertheless, the market evidence provides some guidance for the value of Tatts Lotteries business: transactions involving Australian lotteries have generally been completed based on higher multiples than those for European lotteries 131. In Grant Samuel s view, this reflects: - the length of the underlying licence/rights concession periods. The licences underlying the European transactions have been granted for period of less than 20 years while the licences underlying the Australian transactions are long term (generally in excess of 40 years); - differences in regulatory regimes, growth and inflationary expectations, industry and market conditions and tax regimes 132 ; and 131 The only exception being the acquisition of the Irish National Lottery, the multiples for which are very high (and an outlier) possibly reflecting the expectation of substantial profit improvements from both cost savings and increased revenue opportunities. 132 The terms of the licence for The National Lottery in the United Kingdom (i.e. under the licence the benefits from efficient operation are not solely for the operator) are atypical and therefore the transaction is less meaningful Tatts Group Limited Scheme Booklet

245 - the consistent performance and steady growth of both the Australian economy and the lotteries business overall; the Australian transactions are all privatisations of single jurisdiction lottery businesses by an existing Australian lottery operator (Tatts) which was expected to achieve substantial cost savings. While the effective (after cost savings) multiples for these transactions are lower (in the range 7-10 times forecast EBITDA) 133, none of the transactions involve an entity holding a portfolio of long term lottery licences across a range of jurisdictions (i.e. with substantial economies of scale and cost synergies). In contrast, Tatts now operates a national platform (except for Western Australia); the transactions are somewhat dated, with the majority being announced in the period Since that time, with a continuing low interest rate environment, investor interest in high cash yielding, stable growth assets has increased significantly. This is evidenced by the reduction in yields (notwithstanding recent interest rate increases) and in rates of return implied by transactions involving property and infrastructure assets; and while neither OPAP or IGT plc is a pure lottery business (in fact, the lotteries are not their dominant business activity), they are trading at forecast multiples broadly in the range of 7-8 times EBITDA and 9-10 times EBITA. These multiples exclude any premium for control and reflect the blend of their business activities (including wagering and gaming, gambling services and payment services), relatively short lottery licence concession periods (less than 20 years) and the market conditions and tax regimes in which the companies operate. In Grant Samuel s view, an incumbent, pure lottery operator with long term licences (in excess of 40 years) would be attributed higher multiples than these companies. In this regard, Tatts (while not a pure lottery business) was trading at materially higher multiples prior to the announcement of the Scheme a forecast FY17 EBITDA multiple of 12.5 times and a FY17 EBITA multiple of 13.8 times immediately prior to announcement of the Scheme. Moreover, the implied multiple for its Lotteries business would be even higher; and the Pacific Consortium s initial indicative proposal implied a forecast EBITDA multiples of 15.6 times for Tatts Lotteries business. However, this proposal has been superceded and the value attributed to Lotteries under the revised proposal is not disclosed. Nevertheless, the initial proposal indicates that, assuming market conditions remain the same, an acquirer may be prepared to pay a price for Tatts Lotteries business that implies a multiple higher than can be observed from market evidence; Tatts' Lotteries is a globally unique lottery business and has a number of attributes that justify relatively high multiples: it is the market leader in the Australian lottery sector. It operates public lotteries in all jurisdictions except Western Australia (which remains state government owned) accounting for around 80% of Australian lottery sales and over 98% within its markets; it operates a portfolio of long term lottery licences with remaining concession periods of between 15 and 55 years (except for Victoria) with around 80% of EBITDA from licences to run at least 33 years; 133 Similarly, the multiples calculated for the European transactions involving Hellenic State Lotteries and the Irish National Lottery reflect lottery business privatisations. While data relating to post acquisition earnings is unavailable or incomplete for these transactions, the effective multiples for these transactions would be similar or lower than the Australian privatisation transactions. 134 The exceptions being the May 2013 acquisition of a 33% interest in OPAP and the October 2013 acquisition of the Irish National Lottery, albeit both were the culmination of tender processes commenced during ANNEXURE A - INDEPENDENT EXPERT S REPORT 243

246 it operates a portfolio of lottery games (both jackpot and non jackpot) under well recognised brands across seven regulatory jurisdictions (albeit all in Australia) deriving substantial diversification benefits; it is as a national business deriving substantial efficiencies from centralised lottery functions and national prize pooling as well as benefiting from Tatts' centralised group core functions, particularly technology and marketing; its proprietary technology platform provides considerable flexibility for product innovation; its established multi-channel distribution model (based on an extensive traditional "over the counter" retail network and a digital presence) provides substantial market penetration but with potential to grow (particularly the digital channel as only 13.5% of revenue is from digital sales); and it is a low capital intensity business even if 50% of the technology capital expenditure reported in the Corporate/Unallocated segment is notionally allocated (capital expenditure is around 5-10% of EBITDA). On the other hand, the higher multiples that would be justified by these characteristics may be constrained by: the mature nature of the Australian lottery sector with low (but stable) rates of growth subject to variability depending on jackpot frequency; the ageing demographic of the traditional lottery ticket purchaser; increasing competition from other types of gaming particularly online (e.g. Lottoland, sports betting) as well competition from other forms of entertainment; potential impacts from the proposed national sports and heritage lottery; and the limited potential for further cost savings (given the prior integration of the state based lottery businesses). Notwithstanding the protection offered by its licence structures, Tatts Lotteries has recognised the online threat and focussed on strengthening its digital offering (with the additional benefit of improved margins), growing its distribution channels (e.g. gift cards via a range of outlets) and increasing customer engagement (e.g. introducing new games, restructuring games to generate larger jackpots and offering a range of loyalty benefits); and there has been growing investor interest in assets generating annuity style incomes (i.e. high cash yielding, stable growth) such as real estate and infrastructure. There is evidence that the market for these assets has rerated over time and, in the low interest rate environment, investors have pursued these assets aggressively (reflected in lower yields/higher multiples). Moreover, the market appears to have recognised that lottery businesses exhibit the desired annuity characteristics. This is evidenced by: recent acquisitions by financial investors (e.g. Emma Delta s acquisition of a 33% interest in OPAP, Ontario Teachers Pension Plan s ( OTPP ) acquisition of Camelot and PLI s acquisition of the Irish National Lottery (80% owned by OTPP); and Pacific Consortium s indicative proposals for Tatts with the consortium comprising financial investors with the initial proposal implying notional yields (EBITA/offer price) for Tatts Lotteries of around 6%. In this context, Tatts Lotteries generates modest but reliable growth (with some fluctuations from year to year due to jackpot frequency), is not capital intensive and faces limited competition due to its virtual national monopoly. While there are indications that the interest rate cycle may be turning, low interest rates are expected to continue for some time and assets generating annuity style incomes will remain attractive to investors. On this basis, Grant Samuel considers that the multiples implied by the valuation of Tatts Lotteries business are appropriate Tatts Group Limited Scheme Booklet

247 DCF Analysis The DCF model for Tatts Lotteries business forecasts nominal after tax cash flows from 1 July 2017 to 30 June 2027 (10 years) with a terminal value calculated by capitalising net after tax cash flows using the perpetuity method and assuming a long term growth rate of 3.5%. Discount rates (weighted average cost of capital) in the range 7.5-8% have been used. The rationale for selection of the discount rate is set out in Appendix 5. A corporate tax rate of 30% has been assumed. The DCF model is based on the Tatts FY18 Budget, is high level in nature and does not have discrete assumptions for each lottery jurisdiction or individual products. This means that Grant Samuel s analysis is based on assumptions for revenue, operating expenses and capital expenditure for the business as a whole. The DCF model assumes the new ten year Victorian lottery licence to 30 June 2028 and that the licence is retained over the longer term. It is also assumed that the licences for Tasmania are retained by Tatts. No allowance has been made for the renewal of lottery licences in other jurisdictions given the significantly longer term of these licences. The DCF analysis considers a number of different scenarios. Scenario A assumes: the Tatts FY18 Budget; the lottery ticket turnover grows at a rate of 4% per annum after FY18. No specific assumptions are made in relation to jackpot frequency; no change to prize percentages, statutory outgoings (lottery taxes, government levies) and venue share/commission arrangements such that Tatts revenue grows at 4% per annum after FY18 (i.e. margin before operating expenses is constant); operating expenses grow at a rate of 85% of revenue growth in the period FY19-FY21 and 90% of revenue growth thereafter (this equates to growth of 3.4% in FY19-FY21 and 3.6% thereafter); shared costs allocated to Lotteries are based on current levels and grow at the inflation rate (2.5%); the resulting EBITDA margin is 16% in FY18 but lower in FY19 increasing across the period of the cash flows to 15.8% (as operating expenses grow at a rate below revenue growth); payment of $120 million on 1 July 2018 for the new ten year Victorian lottery licence (which is assumed to be tax deductible over five years) and assumed annual payments for subsequent renewals based on this amount grown by the inflation rate (2.5%); capital expenditure (excluding expenditure on licences) is based on current levels and grows at the inflation rate (2.5%). In the long term this equates to around 2.7% of EBITDA. Capital expenditure excludes the ongoing investment in technology which is reflected in Corporate/Unallocated; tax depreciation is calculated by category having regard to written down value at 30 June 2016 at rates claimed by Tatts and capital expenditure is assumed to be depreciated for tax purposes at a 25% rate; an annual increase in the negative working capital balance (reflecting the cash nature of the business) has been calculated as -12% of revenue; and a normalisation adjustment in the terminal cash flow such that capital expenditure (excluding expenditure on licences) equals tax depreciation. The net present value ( NPV ) of Scenario A is $5,635-6,333 million based on discount rates of 7.5-8%. Grant Samuel has developed a number of scenarios that review the impact of certain assumptions on NPV. Each scenario assumes as a starting point that the Tatts FY18 Budget 104 ANNEXURE A - INDEPENDENT EXPERT S REPORT 245

248 is achieved. Longer term assumptions have been made by Grant Samuel following discussion with Tatts management. A description of each scenario is outlined in the table below: Tatts Lotteries Business DCF Scenarios Scenario Description Scenario A As above Scenario B Scenario A except that lottery ticket sales (and therefore revenue) grow at 3.5% per annum after FY18 Scenario C Scenario A except that operating and allocated expenses grow at a lower rate (in aggregate, 2.5% in FY19-FY21 and 2.8% thereafter) Scenario D Scenario A except that capital expenditure increases 50% Scenario E Scenario A except that operating and allocated expenses grow at a higher rate (in aggregate 3.7% after FY18) The NPV outcomes are depicted diagrammatically below: Tatts' Lotteries Business - NPV Outcomes (at % discount rates) Value Range $5,800-6,200 million Scenario A Scenario B Scenario C Scenario D Scenario E 4,500 5,000 5,500 6,000 6,500 7,000 Value ($ millions) NPV outcomes from DCF analyses are subject to significant limitations and should always be treated with considerable caution. In this regard, the NPVs fall is a relatively wide range across the different scenarios, highlighting the sensitivity to small changes in assumptions. Terminal values represent between 65-68% of the NPV outcomes presented above. It should also be noted that such scenario analysis does not take into account the operational flexibility that management has to react to changes in the markets in which they operate. The NPV outcomes are particularly sensitive to growth in lottery ticket turnover and less sensitive to changes in operating expenses and capital expenditure. In this regard, Scenario A is based on a cost base which reflects Tatts existing business model, strategic initiatives and expectations. In Grant Samuel s opinion, notwithstanding the uncertainties inherent in the analysis, the DCF analysis provides general support for the valuation range for Tatts Lotteries business of $5,800-6,200 million Tatts Group Limited Scheme Booklet

249 8.1.3 Value of Tabcorp s Keno Business Summary 135 See Section 5.3 and Appendix nc = not calculated Grant Samuel estimates the value of Tabcorp s Keno business to be in the range $ million. The primary approach to valuation was capitalisation of earnings with DCF analysis used as a cross check. As discussed in Section 7.1 of this report, it is important to note that Grant Samuel s estimate does not include any allowance for synergies potentially available to an acquirer. Accordingly, while the value estimated by Grant Samuel represents a control value, it does not represent the full underlying value that might be realised if the Keno business was sold on the open market in a competitive process. Earnings Multiple Analysis The earnings multiples implied by the valuation of Tabcorp s Keno business are summarised below: Tabcorp s Keno Business Implied Valuation Parameters Variable ($ million) Range of Parameters Low High Value range ($ million) Multiple of EBITDA (times) FY16 (actual) FY17 (actual) FY18 (broker median) Multiple of EBITA (times) FY16 (actual) FY17 (actual) FY18 (broker median) 124 not used 135 nc 136 nc While the consolidated median brokers forecasts for FY18 and the Keno median brokers forecast for FY18 EBITDA are sufficiently close to the Tabcorp FY18 Draft Budget to be useful for analytical purposes, this is not the case with the median brokers forecasts for Keno FY18 EBITA (which is materially higher than the Tabcorp FY18 Draft Budget). The FY18 EBITA multiples implied by Tabcorp FY18 Draft Budget for Keno are higher than both the FY16 and FY17 actual EBITA multiples. None of the transactions or the listed company discussed above are directly comparable to Tabcorp s Keno business. There is very little information available on the multiples implied by the acquisition of Keno businesses as they are usually acquired as part of a larger gambling business and represent a relatively small proportion of the overall business acquired (e.g. Tabcorp s acquisition of ACTTAB included a licence to operate Keno in the ACT for 50 years). Having said this, there are sufficient similarities between Keno and lotteries businesses such that the multiples analysis for lotteries businesses provides some guidance for the valuation of Tabcorp s Keno business. In forming its view on the implied multiples for Tabcorp s Keno business, Grant Samuel has also taken into account the following factors: Tabcorp holds Keno licences in the strong Keno states of NSW and Queensland, where 80% of Australian Keno turnover is generated; the Keno business operates under long term licences (except in Victoria, see comments below). Tabcorp s Keno licences in Queensland, NSW and the ACT run until 2047, 2050 and 2064 respectively; 106 ANNEXURE A - INDEPENDENT EXPERT S REPORT 247

250 the recently completed refresh of the Keno business (brand, consumer engagement, new products, an enhanced retail experience and digital innovation) and, in particular: the roll out of products such as Mega Millions (with larger jackpots) beyond NSW and the development and launch of new products currently under development; and the new Keno app and online gameplay as well as the addition of digital in venue play in NSW (launched in February 2017), should broaden the demographic appeal of Keno (especially among younger consumers) and drive customer participation; the recent (December 2016) addition of Queensland to the Keno prize pool (expanding the pool to all States/Territories in which Tabcorp operates) will result in faster jackpot growth, driving customer engagement and participation; and the turnaround in performance experienced in FY16 and FY17 and is expected to continue in FY18 as the refresh is rolled out to the venue network. On the other hand, Keno is a relatively mature business with limited ongoing growth opportunities outside of growth in the overall economy. Payment of NSW licence fees also commences in FY18 ($3 million per year indexed to CPI, increasing to $4 million in FY22) which is not reflected in the FY17 multiples. The business is also exposed to risks associated with: an ongoing cycle of relatively short term licences in Victoria (ten year term compared to up to 50 years for other Keno licences) which creates uncertainty. This risk is mitigated by the relatively smaller size of the Victorian Keno market; the requirement for regulatory approvals which could delay the introduction of new products (e.g. the expansion Mega Millions to Victoria and Queensland) and digital opportunities; and state specific economic factors, such as the continued decline in the mining and rural sectors in Queensland which has had an adverse impact on Keno ticket sales. In this context, the multiples implied by Grant Samuel s valuation of Tabcorp s Keno business of times FY18 forecast EBITDA are: within the range of multiples implied by recent Australian transactions involving lotteries businesses of times forecast EBITDA (before taking into account synergies). The multiples implied by Grant Samuel s valuation of Tabcorp s Keno business are above the range of multiples implied by recent Australian transactions after allowing for estimated synergies (which are considerably lower at 7-8 times forecast EBITDA). Having said this, the specific circumstances of each of the Australian transactions (see Section 8.1.1) also need to be taken into account; not inconsistent with the trading multiples of relevant listed companies (after allowing for a premium for control), although this evidence is limited and the companies have a mix of activities; and materially lower than the multiples implied by Grant Samuel s valuation of Tatts Lotteries business of times forecast FY18 EBITDA. In Grant Samuel s view, the multiples implied by its valuation of Tabcorp s Keno business are appropriate, particularly relative to the multiples implied by Grant Samuel s valuation of Tatts Lotteries business, given: the smaller scale of Tabcorp s Keno business, with operations in only three States/Territories compared to Tatts national (other than Western Australia) Lotteries business (and the synergies this provides); its higher capital intensity (capital expenditure/ebitda of ~20% compared to 5-10% for Tatts lotteries business); Keno being a more specialised product compared to lotteries; and lower profile, prize money and overall penetration relative to Tatts Lotteries business Tatts Group Limited Scheme Booklet

251 DCF Analysis The DCF model for Tabcorp s Keno business forecasts nominal after tax cash flows from 1 July 2017 to 30 June 2027 (10 years) with a terminal value calculated by capitalising net after tax cash flows using the perpetuity method and assuming a long term growth rate of 3%. Discount rates (weighted average cost of capital) in the range % have been used. The rationale for selection of the discount rate is set out in Appendix 5. A corporate tax rate of 30% has been assumed (before adjusting for the non-deductibility of licence amortisation). The DCF model allows assumptions to be made for each of the key drivers of revenue (ticket count, average ticket size and yield) and makes specific assumptions for taxes, levies, commissions and fees, operating expenses (including the commencement of NSW licence fees in FY18 and the increase in these fees in FY22) and capital expenditure. It also assumes that the Victorian Keno licence is renewed in FY22 for a further ten years. No allowance has been made for the renewal of Keno licences in other jurisdictions given the significantly longer term of these licences (i.e. they expire well after the end of the 10½ year cash flow period). Amortisation of licences is modelled separately from depreciation and other amortisation. The DCF analysis considers a number of different scenarios. Scenario A assumes: ticket sales grow at population growth of 1.5% per year and ticket size grows at inflation of 2.5% per year except over the period FY18 to FY19, when both grow at a higher rate (resulting in turnover growth of ~6% per year) to reflect the impact of the roll out of the refresh of the Keno business (including the full year impact of the Mega Millions product and digital in-venue in NSW which were launched during FY17) and pooling across jurisdictions; an average yield across all products of 15.8%, consistent with the FY18 average yield; revenue from equipment rental fees and equipment sales remains at FY17 levels of $30 million per annum; NSW licence fee of $3 million commences in FY18 (indexed by inflation in subsequent years), increasing to $4.5 million in FY22 (indexed by inflation in subsequent years); taxes, commissions, levies and fees (excluding the NSW licence fee payments which have been modelled separately) are assumed to be 43% of revenue, consistent with the historical trend; operating expenses are calculated as ~24% of revenue. This level of operating expenses is consistent with FY17 and reflects the investment in the refresh of the Keno business; the resulting EBITDA margin is around 32% over the period of the cash flows, a decline from historical levels of 33-34% due to the commencement of the NSW licence fee and the increase in this fee from FY22; capital expenditure (excluding expenditure on licences) is calculated as a percentage of EBITDA based on the trend over the past four years after allowing for the additional capital expenditure over the FY15 to FY17 period related to the refresh of the Keno business. This results in annual capital expenditure of approximately 20% of EBITDA (or $15-18 million in FY18 and FY19); the Victorian Keno licence is renewed in FY22 at cost equivalent to that paid for the recent extensions of the NSW and Queensland Keno licences, taking into account the relative size of the Victorian Keno market (i.e. it is significantly smaller than the NSW and Queensland Keno markets); depreciation and amortisation (other than amortisation of licences) increases to 130% of capital expenditure in FY21 and FY22, reflecting the increase in depreciation and amortisation associated with the increase in capital expenditure over the FY15 to FY17 period. Depreciation and amortisation gradually falls to 100% of capital expenditure by FY25 and remains at that level. Amortisation of licences is treated separately in line with the current amortisation schedule and allowing for a reduction in amortisation associated with the renewal of the Victorian Keno licence in FY22; 108 ANNEXURE A - INDEPENDENT EXPERT S REPORT 249

252 working capital has been calculated as -12% of revenue, reflecting the cash nature of the Keno business (i.e. the majority of its receipts are in cash whereas its creditors are largely on normal creditor terms); and an adjustment to the terminal value to allow for the ongoing award of short term licences in Victoria (equivalent to the adjusted annual amortisation charge). Forecasts of operational assumptions are uncertain and there is significant scope for differences in opinion on key assumptions. As a result of these uncertainties, there is a range of outcomes that could occur. Accordingly, Grant Samuel has considered a number of scenarios that analyse the impact of possible variations in key assumptions. Each scenario assumes as a starting point that the FY18 management estimate is achieved. Longer term assumptions have been made by Grant Samuel following discussion with Tabcorp management. A description of each scenario is outlined in the table below: Scenario Scenario A Scenario B Scenario C Scenario D Scenario E Tabcorp s Keno Business DCF Scenarios Description As above Scenario A except that ticket growth is at 50% of population growth from FY20 (to reflect lower than anticipated take up of digital offering or a slowing economy in NSW or Victoria (or continuing slow economy in Queensland)) Scenario A except that yield increases to 16% from FY20 Scenario A except that operating expenses increase by inflation rather than as a % of revenue from FY20 Scenario A except the Victorian licence renewal in FY22 is based on cost in FY12 (after impairment) indexed by inflation The NPV outcomes are depicted diagrammatically below: Tabcorp's Keno Business - NPV Outcomes (at % discount rates) Value Range ($ million) Scenario A Scenario B Scenario C Scenario D Scenario E NPV ($ millions) NPV outcomes from DCF analyses are subject to significant limitations and should always be treated with considerable caution. In this regard, the NPVs fall in a relatively wide range across the different scenarios, highlighting the sensitivity to small changes in assumptions. Terminal values represent ~60% of the NPV outcomes presented above. It should also be noted that such scenario analysis does not take into account the operational flexibility that management has to react to changes in the markets in which the business operates Tatts Group Limited Scheme Booklet

253 8.2 Wagering The NPV outcomes are particularly sensitive to the cost to renew the Victorian licence in FY22 (Scenario E), although a scenario where Tabcorp renews its Victorian licence at a price based on the cost in FY12 is considered extremely unlikely (and this is reflected in the value range adopted). In Grant Samuel s opinion, notwithstanding the uncertainties inherent in the analysis, the DCF analysis supports a range of values for Tabcorp s Keno business of $ million Market Evidence Transaction Evidence Appendix 4 sets out the earnings multiples implied by acquisitions of wagering businesses over the past ten years (as well as other key Australian transactions beyond this period). The following charts summarise the historical and forecast EBITDA and EBITA multiples for transactions in the wagering industry in Australia and Europe: 17.7x Median = 12.4x 12.7x 12.5x 12.3x 12.3x 12.0x 15.0x 13.2x 11.3x 10.1x 9.6x 8.0x 6.6x 6.1x 4.0x UNiTAB (Mar 06) ACTTAB (Jul 14) Tote Tasmania (Dec 11) TAB (May 04) Centrebet (May 11) Sportsbet (39.2%) (May 11) Sportsbet (9.8%) (Feb 10) Sportsbet (51%) (May 09) Betchoice (Feb 12) Retail and online Online only Source: Grant Samuel analysis (see Appendix 4) Notes: (1) Forecast earnings for the year ended 30 June 2006 have been used to calculate implied historical multiples for the merger of UNiTAB with Tattersall s. (2) Forecast earnings for the year ended 30 June 2011 have been used to calculate implied historical multiples for the acquisition of Centrebet. (3) Implied multiples for acquisitions of interests in Sportsbet reflect actual consideration paid (i.e. including contingent consideration for the May 2009 acquisition and excluding contingent consideration for the May 2011 acquisition). IAS (Jun 09) For personal use only Wagering Transactions Historical EBITDA Multiples (before synergies) Australia Europe Median = 14.1x Median = 7.3x Betfair (Aug 15) Sky Bet (80%) (Dec 14) bwin.party (Sep 15) Sportingbet (Dec 12) Coral Group (Jul 15) 110 ANNEXURE A - INDEPENDENT EXPERT S REPORT 251

254 Wagering Transactions Forecast EBITDA Multiples (before synergies) Australia Europe 15.4x Median = 12.7x Median = 10.9x 12.9x 12.5x 11.4x 10.3x Median = 7.3x 8.9x 7.5x 7.3x 7.5x 4.7x UNiTAB (Mar 06) TAB (May 04) Centrebet (May 11) Sportsbet (39.2%) (May 11) IAS (Jun 09) Retail and online Source: Grant Samuel analysis (see Appendix 4) Note: Implied multiples for acquisitions of interests in Sportsbet reflect actual consideration paid (i.e. excluding contingent consideration for the May 2011 acquisition). Betfair (Aug 15) Sky Bet (80%) (Dec 14) Online only bwin.party (Sep 15) Sportingbet (Dec 12) Coral Group (Jul 15) 21.8x 20.9x 16.7x 16.0x 16.0x 16.0x 17.6x 16.0x 13.0x 5.2x TAB (May 04) UNiTAB (Mar 06) ACTTAB (Jul 14) Centrebet (May 11) IAS (Jun 09) Betfair (Aug 15) bwin.party (Sep 15) Sportingbet (Dec 12) Sky Bet (80%) (Dec 14) Coral Group (Jul 15) For personal use only Wagering Transactions Historical EBITA Multiples (before synergies) Australia Europe Median = 19.3x Median = 16.0x Median = 10.6x Retail and online Online only Source: Grant Samuel analysis (see Appendix 4) Tatts Group Limited Scheme Booklet

255 21.2x 14.1x 14.0x 19.3x 13.6x 9.1x 11.7x 6.2x TAB (May 04) UNiTAB (Mar 06) Centrebet (May 11) IAS (Jun 09) bwin.party (Sep 15) Betfair (Aug 15) Sky Bet (80%) (Dec 14) Sportingbet (Dec 12) For personal use only Wagering Transactions Forecast EBITA Multiples (before synergies) Australia Europe Median = 14.1x Median = 16.5x Median = 7.7x Retail and online Online only Source: Grant Samuel analysis (see Appendix 4) None of the transactions is directly comparable to either Tabcorp s or Tatts wagering businesses in terms of the mix of activities and, in most cases, scale and geographic reach. However, the evidence is useful in considering appropriate valuation parameters for their underlying business activities. In particular, there is a clear disparity between the implied multiples for transactions involving primarily retail businesses and exclusively online businesses. Australian online transactions have generally occurred at lower multiples than the primarily retail business transactions, but the reverse has been the case in Europe (albeit based on limited transaction evidence for primarily retail businesses). This reflects in part: the date of the transactions. Most of the European online transactions have taken place during when the importance of digital distribution has been much more evident. This is in contrast to the Australian online transactions, most of which were completed over the 2009 to 2011 period; the relative size of the transactions. The Australian online transactions are considerably smaller than the European online transactions. Despite the strategic importance of most of the Australian online acquisitions (i.e. overseas gambling companies gaining immediate entry to the fast growing Australian online wagering market 137 ), all of these transactions were valued at less than $350 million. This is particularly evident in the very low multiples implied by the acquisitions of Betchoice ($20 million transaction size) and International All Sports ($40 million transaction size) and indicates the importance of scale; and the lack of synergies available in Australian online transactions. As the acquirers have been overseas gambling companies, there are no or minimal cost savings (other than Sportingbet s acquisition of Centrebet where cost savings were expected to be achieved). In contrast, the European online transactions have been predominantly in market transactions with significant identified cost savings (in particular, the bwin.party and Betfair acquisitions) which is reflected in higher implied multiples. The implied multiples after allowing for expected cost savings are considerably lower. However, exceptions to this general observation and other relevant points to note include the following: the acquisitions of Centrebet and the remaining 39.2% interest in Sportsbet took place at high historical multiples. These high multiples reflect their relatively larger size 137 Other than the acquisition of IAS by the Australian business Sportsbet, which is reflected in the lower multiples for this transaction. 112 ANNEXURE A - INDEPENDENT EXPERT S REPORT 253

256 (compared to other Australian online transactions) as well as the particular circumstances of each transaction: the acquisition of Centrebet took place during a period where Centrebet had significantly increased its marketing expenditure (by ~$3 million) that was not expected to benefit earnings until subsequent years. As a result, the implied historical multiples are not particularly meaningful. Of more relevance are the significantly lower forecast multiples (of 7.5 times EBITDA and 9.1 times EBITA), which are more in line with multiples for other online wagering transactions; and the acquisition of the remaining 39.2% interest in Sportsbet by Paddy Power took Paddy Power s ownership interest to 100%. It was acknowledged at the time that the implied historical multiples were high but this was justified on the basis that Paddy Power would obtain access to the benefits of full control (even through it already owned a controlling 60.8% interest). This transaction also avoided a call option exercisable by Paddy Power in 2012 or 2013 at a fixed multiple of EBITDA that would have resulted in a materially higher consideration for the 39.2% interest; the merger of Betfair with Paddy Power in 2015 took place at very high implied multiples (17.7 times historical EBITDA and 15.4 times forecast EBITDA) which, as the transaction was structured as a nil premium merger, did not reflect any premium for control. Even after allowing for identified cost savings, the EBITDA multiples decline to (a still relatively high) 12.5 times (historical) and 11.3 times (forecast). These multiples reflect the growth prospects of the merged group as well as the transformational nature of the merger, which created one of the world s largest online betting and gaming companies and the world s largest regulated online gambling operator. Paddy Power and Betfair operate complementary businesses and each control their own platform (i.e. they do not rely on third parties for product delivery). The merger created a more geographically (and therefore regulatory and tax) diversified group (54% United Kingdom, 18% Australia, 15% Ireland, 5% United States, 2% other regulated markets, 6% unregulated markets), with an unrivalled set of capabilities across product, price/promotion, marketing and customer service and is well positioned to compete across all its markets over the medium to long term; and the February 2010 acquisition by Paddy Power of a 9.8% interest in Sportsbet was not a control transaction. Paddy Power acquired this interest from a shareholder with no executive role in the business. The historical EBITDA multiple (of 8 times) can be discounted on this basis. Focussing on the primarily retail transactions (which are more relevant for attributing value to Tabcorp s and Tatts wagering businesses): there is relative consistency among Australian primarily retail transactions at around times historical and times forecast EBITDA and times historical and 14 times forecast EBITA. However, the following factors should be taken into consideration: the transactions involving ACTTAB and Tote Tasmania involved the privatisation of government owned businesses, were acquisitions of businesses licensed to operate in a single State/Territory and, in the case of the Tote Tasmania transaction took place more than five years ago. While higher multiples can arguably be justified for businesses licensed in more than one jurisdiction, the cost synergies expected from these privatisations were significant (particularly in the case of the bolt on acquisitions of ACTTAB and Tote Tasmania), reducing the multiples considerably (e.g. historical EBITDA multiples for ACTTAB and Tote Tasmania fall from ~12.5 times to ~7.5 times); the UNiTAB merger with Tattersall s is the only transaction involving licences across a number of jurisdictions, but it: - involves arguably less attractive wagering markets (particularly South Australia and the Northern Territory, and to a lesser extent Queensland); Tatts Group Limited Scheme Booklet

257 - was expected to achieve some cost savings which, when taken into account, reduce the historical EBITDA multiple from 12.7 times to 11.3 times and the forecast EBITDA multiple from 11.4 times to 10.3 times; - was structured as a nil premium merger, implying that the appropriate control multiples (either pre or post synergies) for UNiTAB would be higher. Tabcorp s proposed takeover offer for UNiTAB at same time (which was rejected by UNiTAB) was at the same consideration as the merger; and - took place more than ten years ago. There have been significant structural changes in the Australian wagering market in subsequent years (particularly the impact of corporate bookmakers and digital distribution) which would be expected to have the impact of lowering transaction multiples. The implied multiples for UNiTAB are also blended multiples reflecting a combination of UNiTAB s wagering and gaming business operations. However, the majority of UNiTAB s revenue was from wagering (~80%); and the merger of Coral Group with Ladbrokes is the only recent European transaction involving a primarily retail wagering business. It was completed at lower multiples (relative to the Australian transactions) of 9.6 times historical and 8.9 times forecast EBITDA and 13.0 times historical EBITA. Significant cost savings were expected to be achieved, reducing the multiples to 7.3 times historical EBITDA and 6.9 times forecast EBITDA. The merger was a reasonably large transaction ( 1.1 billion), but was structured as a nil premium merger so it would be expected that the multiples implied by the transaction would be lower than equivalent full control value multiples. It is also a very recent transaction (completed in February 2016) compared to the Australian primarily retail transactions (i.e. it has taken place in a more competitive market) which would be expected to have the impact of reducing implied multiples. Evidence from Sharemarket Prices There are no Australian listed companies with operations similar to Tabcorp s Wagering & Media or Tatts Wagering businesses. Consequently, Grant Samuel has considered international listed wagering companies operating in (or primarily in) regulated gaming markets. Appendix 4 sets out the earnings multiples implied by the share prices of these companies as at 1 September The following charts summarise the historical and current year (FY17) forecast EBITDA and EBITA multiples for these companies: 15.9x 11.6x 11.2x 10.2x 8.4x 7.4x Ladbrokes Coral William Hill Paddy Power Betfair GVC Holdings Stars Group Betsson For personal use only Listed Wagering Companies Historical EBITDA Multiples Primarily Retail Primarily or Exclusively Online Median: 11.4x Source: Grant Samuel analysis (see Appendix 4) 114 ANNEXURE A - INDEPENDENT EXPERT S REPORT 255

258 Listed Wagering Companies Current Year Forecast EBITDA Multiples Primarily Retail Primarily or Exclusively Online 12.7x 10.1x 10.0x Median: 10.1x 9.4x 7.2x 7.1x Ladbrokes Coral William Hill Paddy Power Betfair Stars Group Betsson GVC Holdings Source: Grant Samuel analysis (see Appendix 4) 19.3x 12.4x 13.6x 12.1x 11.6x 9.6x Ladbrokes Coral William Hill Paddy Power Betfair GVC Holdings Betsson Stars Group For personal use only Listed Wagering Companies Historical EBITA Multiples Primarily Retail Primarily or Exclusively Online Median: 12.9x Source: Grant Samuel analysis (see Appendix 4) Tatts Group Limited Scheme Booklet

259 10.1x 9.1x 15.3x 12.5x 11.3x 10.3x Ladbrokes Coral William Hill Paddy Power Betfair Betsson GVC Holdings Stars Group For personal use only Listed Wagering Companies Current Year Forecast EBITA Multiples Primarily Retail Primarily or Exclusively Online Median: 11.9x Source: Grant Samuel analysis (see Appendix 4) The following factors are relevant to consideration of the comparable company multiples: the multiples for the listed companies are based on share prices and do not include a premium for control; the current year forecast multiples for all companies are based on earnings for the year ending 31 December 2017 (or the 52 weeks ending close to 31 December 2017). The financial data has not been aligned to correspond to Tabcorp s and Tatts 30 June year ends. It would be expected that forecast multiples for the year ending 31 December 2017 would be slightly higher than for the year ending 30 June 2018; a number of the comparable companies were involved in transactions during 2016 and The historical multiples for GVC Holdings (acquisition of bwin.party completed in February 2016), Paddy Power Betfair (merger completed in February 2016) and Ladbrokes Coral (merger completed in November 2016 following the divestment of 359 licensed betting offices required by the Competition and Markets Authority) are based on proforma earnings (i.e. as if each of the transactions had been effective from 1 January 2016). Kindred Group plc completed the acquisition of Red32 plc in June Its historical and current forecast trading multiples have been excluded from the charts shown above as no proforma information is available and the historical and current year forecast (which includes a part year of Red32 plc) are not meaningful; a number of Tabcorp s and Tatts major competitors are local operations of these international listed companies. Ladbrokes Coral (Ladbrokes), William Hill (William Hill), Paddy Power Betfair (Sportsbet) and Kindred (BetChoice/Unibet) all operate as corporate bookmakers in Australia. However, none of these companies is directly comparable to the wagering businesses operated by Tabcorp and Tatts: GVC Holdings, Stars Group and Bettson are exclusively online sports betting and gaming businesses (with no retail operations); Paddy Power Betfair does have a retail presence through its 600 Paddy Power licensed betting offices across the United Kingdom but is also predominantly an online sports betting and gaming business. Its online businesses contribute approximately 80% of revenue and 87% of EBITA. Paddy Power Betfair is also a significantly larger business than the other listed companies (with a market capitalisation of around 7.2 billion compared to William Hill and Ladbrokes Coral at billion). Its high multiples reflect the benefits of scale, including the expected synergies from the Betfair merger (completed in February 2016, with synergies not expected to be achieved in full until the third year 116 ANNEXURE A - INDEPENDENT EXPERT S REPORT 257

260 following completion) and the medium term revenue growth prospects for the merged group; the primarily retail wagering companies trade at lower multiples than the primarily or exclusively online wagering companies: times historical EBITDA and times forecast EBITDA (compared to a median of 11.4 times historical EBITDA and 10.1 times forecast EBITDA for primarily or exclusively online wagering companies); and times historical EBITA and times forecast EBITA (compared to a median of 12.9 times historical EBITA and 11.9 times forecast EBITA for primarily or exclusively online wagering companies). The premium ratings for primarily or exclusively online wagering companies reflect the higher growth outlook for online wagering compared to retail wagering and the structural benefits of online wagering businesses (lower operating expenses due to no retail presence). The primarily retail wagering companies are the most comparable to Tabcorp s and Tatts wagering businesses: William Hill operates retail wagering businesses (in the United Kingdom and the United States) and online wagering businesses (principally in the United Kingdom and Australia) and derives 15% of its revenue from international markets (Australia, the United States, Italy and Spain, which are all regulated wagering markets). A greater proportion of its revenue is generated from online wagering (approximately 40%) compared to Ladbrokes Coral (25% of revenue) and it has a 15% share of the online wagering market in the United Kingdom (reflected in its higher trading multiples). The United Kingdom online business is around 50% sports betting and 50% gaming and the retail business includes over the counter betting and gaming machines (around 50% each); and Ladbrokes Coral has the largest number of licensed betting offices in the United Kingdom (more than 40% market share). Retail wagering represents 75% of revenue and ~85% of EBITA. Ladbrokes Coral also has an extensive international portfolio of regulated businesses (retail and online operations in Italy, Belgium and Spain and an online operation in Australia). Despite its greater exposure to retail wagering, it is trading at higher multiples than William Hill, which may reflect a rerating following the recently completed merger. One of the key benefits from the merger is expected to be the potential for faster online growth from a dual-brand strategy and cross-brand marketing. Online wagering is expected to represent more than 40% of EBITDA by Willian Hill and Ladbrokes Coral also have substantial online gaming (i.e. casino, poker) businesses which are facing regulatory uncertainty with a triennial review of gaming machine stakes and prizes underway in the United Kingdom. An update was originally expected in April/May 2017 but this was delayed until October 2017, following the decision to call a general election for 8 June Prior to announcement of the Scheme on 19 October 2016, Tabcorp (which is primarily a wagering business, generating 73% of EBITDA from its Wagering & Media business) was trading at forecast FY17 multiples of 9.2 times EBITDA and 12.3 times EBITA Tatts Group Limited Scheme Booklet

261 8.2.2 Value of Tabcorp s Wagering & Media Business Summary Grant Samuel estimates the value of Tabcorp s Wagering & Media business (excluding Sun Bets) to be in the range $3,700-4,100 million. The primary approach to valuation was capitalisation of earnings with DCF used as a cross check. As discussed in Section 7.1 of this report, it is important to note that Grant Samuel s estimate does not include any allowance for synergies potentially available to an acquirer. Accordingly, while the value estimated by Grant Samuel represents a control value, it does not represent the full underlying value that might be realised if the Wagering & Media business was sold on the open market in a competitive process. All references to Tabcorp s Wagering & Media business in this Section exclude Sun Bets. Sun Bets has been valued separately, reflecting the start up nature of this business (see Section 7.3.3). Earnings Multiples Analysis The earnings multiples implied by the valuation of Tabcorp s Wagering & Media are summarised below: Tabcorp s Wagering & Media Business Implied Valuation Parameters Variable Range of Parameters ($ million) Low High Value range ($ million) 3,700 4,100 Multiple of EBITDA (times) FY16 (actual) FY17 (actual) FY18 (broker median) Multiple of EBITA (times) FY16 (actual) FY17 (actual) FY18 (broker median) The multiples implied by the FY17 actual earnings are higher than those implied by the FY16 actual earnings reflecting the impact on FY17 performance of the prolonged periods of wet weather experienced across the eastern seaboard in 2HY17 and the poor performance of Trackside and Luxbet. Adjusting for the Luxbet losses, the implied FY17 actual EBITDA and EBITA multiples fall to times and times respectively. The implied multiples are similar to those implied by other relevant Australian transactions and higher than the multiples implied by recent relevant transactions and the trading multiples of comparable listed wagering companies in Europe. This is considered appropriate as: all of the Australian transactions are significantly smaller than Tabcorp s Wagering & Media business. The largest, Tabcorp s acquisition of TAB (12.3 times historical EBITDA and 10.3 times forecast EBITDA) and the merger of UNiTAB and Tattersall s (12.7 times historical EBITDA and 11.4 times forecast EBITDA), are both around half the size of Tabcorp s Wagering & Media business. Higher multiples can be justified for larger businesses given the benefits of scale (such as pooling, risk management, leveraging of back office functions etc). 118 ANNEXURE A - INDEPENDENT EXPERT S REPORT 259

262 In addition, the merger of UNiTAB and Tattersalls involved TABs in Queensland, South Australia and the Northern Territory and was structured as a nil premium merger. Higher multiples can be justified for Tabcorp s Wagering & Media business on a full control value basis given its position as the largest Australian wagering business with licences in the key wagering markets of NSW and Victoria. However, these factors are offset, at least in part, by current conditions in the Australian wagering market (i.e. a much more competitive market and a cycle of relatively short term licences in Victoria) in contrast to Australian wagering market conditions at the time of these transactions (2003 to 2006) when TABs were essentially state-based monopolies and there was limited, if any, competition from corporate bookmakers; the merger of Coral Group and Ladbrokes is the only recent European transaction involving a primarily retail wagering business. It was a reasonably large transaction ( 1.1 billion), but was structured as a nil premium merger so it would be expected that the multiples implied by the transaction (of 9.6 times historical and 8.9 times forecast EBITDA and 13.0 times historical EBITA) would be lower than equivalent control value multiples; and Ladbrokes Coral and William Hill are a similar size to Tabcorp s Wagering & Media business and both generate the majority of their revenue from retail wagering operations. This is in contrast to the other listed comparable companies which are either primarily (i.e. Paddy Power Betfair) or exclusively online wagering businesses with a higher growth outlook that justifies their higher trading multiples. Paddy Power Betfair is also significantly larger than Tabcorp s Wagering & Media business. Ladbrokes Coral and William Hill are trading at forecast multiples of times EBITDA and times EBITA (before allowing for any premium for control). Although these two companies have some contrasting characteristics (e.g. international businesses and extensive gaming activities) they do have a number of similarities to Tabcorp s Wagering & Media business: Ladbrokes Coral is the leading operator of licenced betting offices in the United Kingdom with more than 40% market share (as is Tabcorp in Australia); online wagering represents approximately 40% of William Hill s revenue (similar to Tabcorp); and William Hill has a 15% share of the online wagering market in the United Kingdom (similar to Tabcorp, including Luxbet). The implied multiples also reflect the highly regulated nature of the Australian wagering sector, which may provide some upside in the short term from regulatory reforms such as more rigorous enforcement of the ban on in-play betting and the introduction of a point of consumption tax (particularly if it is adopted in jurisdictions outside of South Australia). These regulatory changes, if successfully implemented, are expected to benefit incumbents such as Tabcorp (and Tatts) as they will require online competitors to cease offering products that Tabcorp will still be able to provide (albeit only in person in retail outlets and by telephone) and pay taxes where they currently pay no or minimal tax. Tabcorp s Wagering & Media business has a number of attributes that would justify relatively high multiples: market leading position in the Australian wagering market, with an estimated 40% share of total wagering turnover; unique multi-channel distribution model for wagering including: exclusive retail presence in all States in which licences are held; and a leading digital offering (through the TAB website and the recently upgraded TAB app), as well as increasing digital integration with the retail channel (e.g Tatts Group Limited Scheme Booklet

263 venue digital commissions and Check & Collect ) to improve the customer experience and grow wagering turnover; an integrated racing media business which is a core driver of wagering activity, is complementary to the TAB retail offering and provides a point of differentiation for Tabcorp s Wagering & Media business; a wide range of products and content including exclusive products (e.g. Trackside and Quaddie Cash Out) and Sky Racing content available on digital platforms; the two leading Australian wagering brands TAB and Sky Racing; consistent earnings performance, with reasonably stable margins and modest earnings growth despite the impact of corporate bookmakers; significant recent investment in development of proprietary software, in particular for fixed odds yield management and product enables Tabcorp to effectively manage fixed odds risk; long term wagering licences (except in Victoria, see comments below) and broadcast rights for Sky Racing. Tabcorp s wagering licences in Queensland, NSW and the ACT run until 2047, 2050 and 2064 respectively. Broadcast rights for Victorian and NSW thoroughbred racing (the key markets) run to 2020 and 2025 respectively. On the other hand, the higher multiples that would be justified by these attractive characteristics are constrained by: the relatively mature nature of the Australian wagering sector; trends in wagering, including: the rapid growth and aggressive competition from online corporate bookmakers, including the potential for online competitors to encroach on the retail exclusivity of TAB licence holders (such as the recent partnership between CrownBet and Clubs NSW, although its legality is yet to be tested); the shifts from pari-mutuel to fixed odds betting and from racing to sports betting. Fixed odds racing and sports betting are lower yield wagering products compared to totalizator betting; and the migration from retail to digital distribution channels. The expectation is that these trends will continue and will have an ongoing impact on Tabcorp s wagering turnover and yields, particularly given Tabcorp s higher exposure to racing wagering (low growth) as opposed to sports wagering (high growth). While other trends have positive implications for Tabcorp (e.g. the shift to lower yield fixed odds betting is more than offset by the growth in fixed odds turnover and fixed odds betting is taxed at a lower rate) and Tabcorp has a leading digital offering, it will need to continue to invest significantly in technology, new products and marketing to maintain its market position as online corporate bookmakers continue to invest to grow their market share; an ongoing cycle of relatively short term licences in Victoria (12-14 year term compared to up to 99 years for other jurisdictions) which creates uncertainty and risk, particularly given the importance of the Victorian wagering market, the second largest wagering market in Australia (excluding the Northern Territory where market share is distorted by corporate bookmakers licensed in that Territory) representing approximately 17% of Australian wagering turnover. There is uncertainty as to whether the licence will be renewed and, if it is, on what terms. Tabcorp paid around $420 million for the 12 year Victorian Wagering and Betting in 2012 and it would be expected that a similarly significant capital outlay would be required to retain the licence in 2024 (and every years thereafter); and 120 ANNEXURE A - INDEPENDENT EXPERT S REPORT 261

264 the importance and complexity of ongoing relationships with the racing industry in each State and Territory and the requirement to have in place arrangements with each racing industry that require various payments (product fee contributions, race fields fees etc). On balance, Grant Samuel believes that the multiples implied by the valuation of Tabcorp s Wagering & Media business of times median broker consensus FY18 EBITDA and times median broker consensus FY18 EBITA are appropriate. DCF Analysis The DCF model for Tabcorp s Wagering & Media business forecasts nominal after tax cash flows from 1 July 2017 to 30 June 2027 (10 years) with a terminal value calculated by capitalising net after tax cash flows using the perpetuity method and assuming a long term growth rate of 3%. Discount rates (weighted average cost of capital) in the range % have been used. The rationale for selection of the discount rate is set out in Appendix 5. A corporate tax rate of 30% has been assumed (before adjusting for the non-deductibility of licence amortisation). The DCF model has discrete assumptions for wagering products in each State/Territory. This allows for different growth profiles for key products such as totalizator racing, fixed odds racing and sports betting as well as enabling the arrangements with VicRacing (where 50% of revenue from the Victorian wagering business is paid to the racing industry) to be explicitly modelled. Assumptions for taxes, levies, commissions and fees, operating expenses and capital expenditure are made for the wagering business as a whole. The DCF model also assumes that the Victorian Wagering and Betting licence is renewed in FY24 (and is not extended for a further two years) for a further 12 years. No allowance has been made for the renewal of wagering licences in other jurisdictions given the significantly longer term of these licences (i.e. they expire well after the end of the 10 year cash flow period). Amortisation of licences is modelled separately from depreciation and other amortisation. The DCF analysis considers a number of different scenarios. Scenario A assumes: growth in fixed odds racing betting is expected to continue to more than offset the ongoing decline in totalizator racing betting as customers continue to transfer to digital distribution channels. As a result, TAB racing turnover generally grows modestly, the rate of growth increasing as fixed odds racing betting becomes a greater proportion of TAB racing turnover (moving from 42% of racing wagering turnover in FY17 to more than 80% by FY27). Total racing wagering turnover grows by an average of ~4% per year over the period of the cash flows; moderate growth of 7.5% per year is assumed in sports betting turnover, consistent with the historical trend; Trackside and PGI turnover are assumed to remain flat at FY17 levels (other than a small uplift in FY19 for Trackside to reflect the impact of new initiatives implemented during FY18) given the nature of these products (i.e. retail/totalizator products impacted by retail/totalizator racing trends); Luxbet is assumed to breakeven FY18 either through restructuring or closure; as a result of these trends, fixed odds wagering (including racing and sports) increases from ~50% of turnover in FY17 to ~80% of turnover in FY27; yields are assumed to remain at current levels, although the movement to fixed odds and sports betting over the period of the cash flows results in a slight decline in the average yield (before taxes etc), from 16.8% in FY18 to 16.0% by FY27; the outcome of these turnover and yield assumptions is that revenue grows at an average rate of 4.0% per year over the period of the cash flows (from FY18), with declining revenue from totalizator racing betting more than offset by the increase in revenue from fixed odds wagering and continued growth in sports betting revenue; Tatts Group Limited Scheme Booklet

265 other revenue (NSW unclaimed dividends, equipment rental charge for electronic betting terminals in retail venues, cost recovery from the Victorian joint venture, pooling commissions) is assumed to remain flat at $70 million per year; racing media revenue is assumed to grow by 4% each year, reflecting higher revenue from increased importing and exporting of racing product and new revenue model arrangements offset in part by savings passed on to venue subscribers; total revenue grows at an average rate of 3.9% per year over the period of the cash flows; taxes, commissions, levies and fees are calculated as a percentage of revenue and are assumed to remain at the current level of 59.7% of revenue over the period of the cash flows. Any benefit from a greater proportion of revenue being generated from fixed odds wagering is assumed to be offset by increases in race field fee regimes and other taxes (e.g. point of consumption taxes); the result is a constant variable contribution margin of around 40%; operating expenses are calculated as a percentage of revenue (20.6%, a reduction from the 21.4% reported in FY17 to reflect the impact of the review of the Tabcorp cost base during FY18); the resulting EBITDA margin is around 20% for the period of the cash flows; capital expenditure (excluding expenditure on licences) is calculated as 4% of revenue, consistent with the trend over the past four years. This level of capital expenditure reflects a continuation of the significant investment in technology to drive customer acquisition and retention; the Victorian Wagering and Betting licence is renewed in FY24 at a cost equivalent to that paid in FY12, adjusted to reflect the decline in Victorian racing wagering turnover over recent years (of around -4% per annum); the additional payments for NSW retail exclusivity are incorporated ($25 million payable over ten years from FY24); depreciation and amortisation (other than amortisation of licences) is calculated as 100% of capital expenditure based on the trend over the past four years. Amortisation of licences is treated separately in line with the current amortisation schedule (allowing for the change in amortisation associated with the renewal of the Victorian Wagering and Betting Licence in FY24 and the additional payment for the extension of retail exclusivity in NSW ($25 million over ten years from FY24); working capital has been calculated as -12% of revenue, reflecting the cash nature of the Wagering & Media business (i.e. most of its receipts are in cash whereas its creditors are largely on normal creditor terms); and an adjustment to the terminal value to allow for the ongoing award of short term licences in Victoria (equivalent to the annual amortisation charge indexed to reflect the decline in Victorian racing wagering turnover). Forecasts of operational assumptions are uncertain and there is significant scope for differences in opinion on key assumptions. As a result of these uncertainties, there is a range of outcomes that could occur. Accordingly, Grant Samuel has considered a number of scenarios that analyse the impact of possible variations in key assumptions. Each scenario assumes as a starting point that the FY18 management estimate is achieved. Longer term assumptions have been made by Grant Samuel following discussion with Tabcorp management. A description of each scenario is outlined in the table below: 122 ANNEXURE A - INDEPENDENT EXPERT S REPORT 263

266 Scenario Scenario A Scenario B Scenario C Scenario D Scenario E Tabcorp s Wagering & Media Business DCF Scenarios Description As above Scenario A except that wagering revenue grows on average by 3% per annum from FY19 (reflecting faster than anticipated decline in retail distribution channels or slower growth in digital channels due to increased competition) Scenario A except that taxes, commissions, levies and fees fall as a % of revenue over the period as fixed odds wagering becomes a greater proportion of overall wagering Scenario A except that operating expenses increase to 21% of revenue from FY19 Scenario A except the Victorian licence renewal in FY24 is based on cost in FY12 indexed by inflation The NPV outcomes are depicted diagrammatically below: Tabcorp's Wagering & Media Business - NPV Outcomes (at % discount rates) Value Range ($3,700-4,100 million) Scenario A Scenario B Scenario C Scenario D Scenario E 3,400 3,500 3,600 3,700 3,800 3,900 4,000 4,100 4,200 4,300 4,400 NPV ($ millions) NPV outcomes from DCF analyses are subject to significant limitations and should always be treated with considerable caution. In this regard, the NPVs fall in a relatively wide range across the different scenarios, highlighting the sensitivity to small changes in assumptions. Terminal values represent ~60% of the NPV outcomes presented above. It should also be noted that such scenario analysis does not take into account the operational flexibility that management has to react to changes in the markets in which the business operates. The NPV outcomes are most sensitive to the cost to renew the Victorian licence in FY24 (Scenario E), followed closely by growth in wagering revenue (Scenario B). As would be expected, changes to taxes, commissions, levies and fees (Scenario C) and operating expenses (Scenario D) have relatively less impact (albeit still material) on the NPV outcomes. In Grant Samuel s opinion, notwithstanding the uncertainties inherent in the analysis, the DCF analysis supports a range of values for Tabcorp s Wagering & Media business of $3,700-4,100 million Tatts Group Limited Scheme Booklet

267 8.2.3 Value of Tatts Wagering Business Summary Grant Samuel estimates the value of Tatts Wagering business to be in the range $1,100-1,200 million. The primary approach to valuation was capitalisation of earnings with DCF analysis used as a cross check. The value range allows for the current discussions with the South Australian Government and the South Australian racing industry to extend retail exclusivity under its long term licence (retail exclusivity is due to expire on 30 June 2017). Previous experience suggests that these discussions will result in additional costs for Tatts Wagering. The retail exclusivity periods under the other wagering licences held by Tatts are of sufficient tenor that Grant Samuel does not believe it necessary to allow for further retail exclusivity costs. As discussed in Section 7.1 of this report, it is important to note that Grant Samuel s estimate does not represent the value of Tatts Wagering business as a standalone business as: Tatts does not fully allocate shared services costs and certain operational capital expenditure to its business divisions; Wagering receives services from MAXtech on a nil margin basis (i.e. operating costs are understated); it does not include any allowance for synergies potentially available to an acquirer; and there would be incremental costs on separation of Wagering from the Tatts operating structure and the loss of the substantial efficiencies achieved by centralising the core technology platforms and functions for Lotteries and Wagering. Accordingly, while the value estimated by Grant Samuel represents a control value, it does not represent the full underlying value that might be realised if the Wagering business was sold on the open market in a competitive process. Earnings Multiple Analysis The earnings multiples implied by the valuation of Tatts Wagering business are summarised below: Tatts Wagering Business Implied Valuation Parameters Variable Range of Parameters ($ million) Low High Value range ($ million) 1,100 1,200 Multiple of EBITDA (times) FY16 (adjusted actual) FY17 (adjusted actual) FY18 (broker median) 138 not used nc nc Multiple of EBITA (times) FY16 (adjusted actual) FY17 (adjusted actual) FY18 (broker median) 138 not used nc nc The multiples implied by the FY17 (adjusted actual) results are higher than implied by the FY16 (adjusted actual) results reflecting the impact of prolonged periods of wet weather and Wagering s operating performance which has remained under competitive pressure during FY17. While it halted the decline in blended yield, in FY17 Wagering experienced a 3.7% decrease in revenue compared to FY16 and a 16.7% decrease in EBITDA (primarily due to higher telecommunications and marketing costs). Broker projections for FY See Section 4.3 and Appendix ANNEXURE A - INDEPENDENT EXPERT S REPORT 265

268 project a 5.4% decrease in earnings but appear not to allow for the impact of wet weather in Tatts FY17 results. Broker median forecasts for FY18 are materially lower than the Tatts FY18 Budget and have therefore not been used. The implied multiples have been calculated based on earnings excluding any costs associated with extending retail exclusivity in South Australia (albeit the value range allows for these costs). The true multiples implied by Grant Samuel s value range are not materially higher (< 2%). The EBITDA multiples implied by the valuation of Tatts Wagering business are broadly similar to those implied by Grant Samuel s valuation of Tabcorp s Wagering & Media business (Section 8.2.2) while the EBITA multiples are lower. Notwithstanding the relatively weaker market position and inferior performance of the Tatts Wagering business, this outcome is considered appropriate as: Grant Samuel s value range allows for improved performance following recent and continuing investment in the UBET brand rollout (i.e. the multiples are calculated on earnings not reflective of the full expected benefits of this investment). In this regard, Grant Samuel notes that the selected value is supported by DCF analysis (see below); and depreciation and other amortisation for Tatts Wagering does not include any expense relating to technology capital expenditure recognised in Corporate/Unallocated but attributable to the division. EBITA for Tatts Wagering is, therefore, higher than it would be on a fully allocated basis (as in the case of Tabcorp s Wagering & Media business) and the implied EBITA multiples are lower. Moreover, Tatts Wagering business has a number of attributes that support the implied multiples. It: holds long term licences to operate in Queensland, South Australia, the Northern Territory and Tasmania (over 90% of EBITDA from licences to run at least 45 years); has remaining retail exclusivity periods under its licences of years (except for South Australia); has an estimated 11% share of the Australian wagering market; has experienced strong growth in the higher margin digital channel to over 30% of turnover; operates a proprietary technology platform providing considerable operational flexibility; is a relatively low capital intensity business even if 50% of the technology capital expenditure reported in the Corporate/Unallocated Segment is notionally allocated (capital expenditure is generally around 20% of EBITDA, albeit currently higher during the UBET rollout); and the recent deterioration in performance does provide some degree of turnaround potential (compared to Tabcorp). On the other hand, it: is a significantly smaller business than Tabcorp with wagering turnover of ~$4 billion compared to Tabcorp s ~$12 billion and a market share less than a third of Tabcorp s leading 36% market share; has experienced a larger decline in market share (~20%) than Tabcorp (~15%) since FY06, while facing the same wagering industry structural changes; is heavily reliant of the Queensland wagering market (65% of turnover); has underperformed over the last five years. Soft economic conditions in Queensland combined with intense competition from corporate bookmakers and Tabcorp has led to growth in overall turnover below the market rate, a reduction in blended yield and increased operating expenses. As a result, in the period FY13 to FY16 Wagering experienced a 7% decline in revenue and a 23% decline in EBITDA. In the same period, Tabcorp has grown revenue by around 9% and EBITDA by 15%. While both Tatts Group Limited Scheme Booklet

269 companies experienced decreased revenue and earnings in wagering in FY17, the impact on Tatts was more pronounced, reflecting differences in weather between their respective jurisdictions and the greater proportion of its turnover generated by racing (~91% compared to ~80% for Tabcorp); has launched a new unified brand (UBET) into a highly competitive market. Tatts faces challenges in building effective brand recognition given corporate bookmakers are spending heavily on television and other marketing and can afford to do so because of structural advantages of lower operating costs and taxes; and is committed to significant investment in the roll out of the UBET brand and image as well as new digital assets, an expanded product offering, co-ordinated marketing capability and self service terminals. With only around a third of its retail network refurbished to date, capital expenditure of around $60 million is expected across FY18 and FY19 in addition to increased operating expenses. On this basis, Grant Samuel considers that the multiples implied by the valuation of Tatts Wagering business are appropriate. DCF Analysis The DCF model for Tatts Wagering business forecasts nominal after tax cash flows from 1 July 2017 to 30 June 2027 (10 years) with a terminal value calculated by capitalising net after tax cash flows using the perpetuity method and assuming a long term growth rate of 2.5%. Discount rates (weighted average cost of capital) in the range % have been used. The rationale for selection of the discount rate is set out in Appendix 5. A corporate tax rate of 30% has been assumed. The DCF model is based on the Tatts FY18 Budget, is high level in nature and does not have discrete assumptions for each wagering jurisdiction or individual products. This means that Grant Samuel s analysis is based on assumptions for revenue, operating expenses and capital expenditure for the business as a whole. The DCF model assumes that Tatts will extend retail exclusivity in South Australia. The DCF analysis considers a number of different scenarios. Scenario A assumes: the Tatts FY18 Budget; revenue grows at a rate of 2.5% per annum after FY18; no change to statutory outgoings and venue share/commission arrangements such that margin before operating expenses is constant; operating expenses grow in line with revenue and shared costs allocated to Wagering are based on current levels and grow at the inflation rate (2.5%); an additional annual payment from FY19 is assumed for the cost of extending retail exclusivity in South Australia. This cost increases by the rate of inflation (2.5%). The annual payment has the impact of decreasing the EBITDA margin from 20.3% to 20% in FY19; capital expenditure is based on current levels (including the UBET roll out) and grows at the inflation rate (2.5%). In the long term this equates to around 15% of EBITDA. Capital expenditure excludes the ongoing investment in technology which is reflected in Corporate/Unallocated; tax depreciation is calculated by category having regard to written down value at 30 June 2016 at rates claimed by Tatts and capital expenditure is assumed to be depreciated for tax purposes at a 25% rate; an annual increase in the negative working capital balance (given the cash nature of the business) has been calculated as -12% of revenue; and a normalisation adjustment in the terminal cash flow such that capital expenditure equals tax depreciation. The NPV of Scenario A is $1,110-1,201 million based on discount rates of %. 126 ANNEXURE A - INDEPENDENT EXPERT S REPORT 267

270 Grant Samuel has developed a number of scenarios that review the impact of certain assumptions on NPV. Each scenario assumes as a starting point that the Tatts FY18 Budget is achieved. Longer term assumptions have been made by Grant Samuel following discussion with Tatts management. A description of each scenario is outlined in the table below: Tatts' Wagering Business DCF Scenarios Scenario Description Scenario A As above Scenario B Scenario A except that revenue grows at 2% per annum Scenario C Scenario A except that margin before operating expenses decreases by 1% Scenario D Scenario A except that operating and allocated expenses grow at a lower rate (in aggregate, 3% in FY19 and 2.0% thereafter) Scenario E Scenario A except that capital expenditure increases 50% Scenario F Scenario A except that operating and allocated expenses grow at a higher rate (in aggregate, 4% in FY19 and 3.0% thereafter) The NPV outcomes are depicted diagrammatically below: Tatts' Wagering Business - NPV Outcomes (at % discount rates) Value Range $1,100-1,200 million Scenario A Scenario B Scenario C Scenario D Scenario E Scenario F ,000 1,050 1,100 1,150 1,200 1,250 1,300 Value ($ millions) NPV outcomes from DCF analyses are subject to significant limitations and should always be treated with considerable caution. In this regard, the NPVs fall is a relatively wide range across the different scenarios, highlighting the sensitivity to small changes in assumptions. Terminal values represent between 55-60% of the NPV outcomes presented above. It should also be noted that such scenario analysis does not take into account the operational flexibility that management has to react to changes in the markets in which they operate. The NPV outcomes are particularly sensitive to growth in revenue and operating margin (revenue net of statutory outgoings and commissions). Due to the smaller size of the Wagering business, the NPV outcomes are more sensitive to changes in operating expenses and capital expenditure than the NPV outcomes for Tatts Lotteries business. Scenario A is based on a cost base which reflects Tatts existing wagering business model, strategic initiatives and expectations. This scenario assumes no real growth in revenue throughout the cash flow period. While this assumption is not demanding (and Tatts would be seeking higher revenue growth in the short term given its investment in UBET), it needs to be considered in light of Wagering s recent operating performance. In Grant Samuel s opinion, notwithstanding the uncertainties inherent in the analysis, the DCF analysis provides general support for the valuation range for Tatts Wagering business of $1,100-1,200 million Tatts Group Limited Scheme Booklet

271 8.3 Gaming Monitoring and Services Market Evidence Transaction Evidence There is limited transaction evidence available for gaming services businesses. Appendix 4 sets out the earnings multiples implied by recent acquisitions of gaming services companies in Australia as well as transactions involving other gaming companies that have taken place internationally. The most recent of the two Australian transactions, Tabcorp s acquisition of Intecq (completed in December 2016), is the most relevant, albeit not directly comparable to Tabcorp s or Tatts gaming services businesses in terms of the mix of activities and scale. Intecq provides integrated gaming technology solutions (including gaming management systems, LMO services and business intelligence tools and expertise) through two divisions, ebet and Odyssey Gaming. It has commercial agreements with over 1,200 customers operating over 73,000 EGMs. This acquisition took place at implied multiples of 9.7 times historical and 8.3 times forecast EBITDA and 13.6 times historical and 11.0 times forecast EBITA (before synergies). Intecq s business is complementary to Tabcorp s TGS business and significant cost synergies are expected to be achieved. Taking these cost synergies into account, the historical and forecast EBITDA multiples fall to 6.5 times and 5.8 times respectively. The acquisition by ebet (which was subsequently renamed Intecq) of Odyssey Gaming occurred at significantly lower multiples of 4.2 times historical EBITDA and 8.7 times historical EBITA. These low multiples would have reflected the small size of the business (the equity consideration was only $3 million) as well as the specific circumstances of the transaction (Odyssey Gaming s two largest shareholders, representing approximately 68% of the equity, were in receivership and indicated their intention to accept the offer). The international transactions involve companies primarily involved in the provision of games (rather than gaming services) and, in two of the three transactions, were considerably larger businesses. The large gaming transactions, being the acquisitions of International Game Technology and Oldford Group Limited (the owner of Rational Group, the world s largest poker business) took place at reasonably consistent multiples of around 8-10 times historical and 8-9 times forecast EBITDA and around 10.5 times historical EBITA. Although Sisal Group S.p.A ( Sisal Group ) was the second largest gaming company in Italy, the low multiples implied by its acquisition by CVC Capital Partners (5.9 times historical EBITDA and 7.7 times historical EBITA) can be discounted given Sisal Group s business mix (approximately one third of earnings came from payment services with the balance from the provision of games and machines/terminals) and its extremely high gearing (the acquisition price of 1 billion included 932 million in borrowings). Evidence from Sharemarket Prices There are no Australian listed companies with operations similar to Tatts Gaming or Tabcorp s Gaming Services businesses. Grant Samuel has considered international listed gaming monitoring and servicing companies operating in regulated gaming markets, but even internationally, the number of listed companies that engage in these types of activities is limited, with only two companies identified. Appendix 4 sets out the earnings multiples implied by the share prices of these companies as at 1 September The multiples for the listed companies are based on share prices and do not include a premium for control. In addition, the current year forecast multiples are based on earnings 128 ANNEXURE A - INDEPENDENT EXPERT S REPORT 269

272 for the year ending 31 December The financial data has not been aligned to correspond to Tatts and Tabcorp s 30 June year ends. It would be expected that forecast multiples for the year ending 31 December 2017 would be slightly higher than forecast multiples for the year ending 30 June Intralot is listed on the Athens Stock Exchange. It is a global business that offers a portfolio of gaming systems and product solutions and services across all gaming activities (lottery, wagering, interactive, video lottery terminals). In Australia, Intralot provides the electronic monitoring system for all hotel and club gaming machines in Victoria as well as data and information on gaming machines for regulatory, taxation and research purposes (Tatts has been in discussion with Intralot to acquire its Australian and New Zealand businesses). Intralot has a leading market position as a supplier of integrated gaming systems and services, a broad geographic presence, a diversified portfolio of long term contracts and a track record of contract renewal and winning new contracts. However, Intralot s very low trading multiples of around 3 times EBITDA and 4 times EBITA probably reflect its: complicated operating structure: around 60% of EBITDA in 2016 was generated by joint ventures which are consolidated for accounting purposes (i.e. 100% of earnings are reflected in Intralot s income statement) 139 ; and it owns interests in a number of joint ventures of material size which are equity accounted (a number of which have been recently established); poor historical performance (with losses from continuing operations recorded in 2014 and 2015); presence in a number of emerging markets; high leverage (book gearing of 72% as at 30 June 2017); and low free float with five shareholders holding around 51% (the executive chairman is the largest shareholder with a 20% interest). It is also possible that Intralot s share price has been impacted by market conditions in Greece generally (albeit the majority of Intralot s operations are outside Greece). Intralot has recently sold a number of businesses (including to form joint ventures) and is in the process of shifting to an asset-light business model to improve margins and reduce debt. IGT plc, a United States listed company, also provides technology, products and services across all gaming activities to business and retail customers in more than 100 countries as well as operating Lottomatica (see Section 8.1.1). Gaming represents approximately 52% of revenue. IGT plc has a strong presence in Australia, historically in designing games, but now offers a total solution of games, game management systems and services. IGT plc is trading at 6.8 times historical and 7.2 times forecast EBITDA and 8.8 times historical and 9.6 times forecast EBITA. These multiples are not inconsistent with the Intecq transaction multiples after taking into account the different size and activities of the two businesses and allowing for a premium for control. 139 Adjusting EBITDA for outside equity interests in consolidated joint ventures, increases the historical EBITDA multiple to 4.6 times Tatts Group Limited Scheme Booklet

273 8.3.2 Value of Tatts Gaming Business Summary Grant Samuel estimates the value of Tatts Gaming business to be in the range $ million. The primary approach to valuation was capitalisation of earnings with DCF analysis used as a cross check. The value range for Tatts Gaming allows for the fact that the exclusive licence to provide EGM monitoring services in NSW expires in 2032 and that further payments will be required if Tatts is to retain the licence over the long term. Accordingly, the value analysis allows for the net present value of the assumed renewal cost in 2032 (and subsequent payments every 15 years). The value range makes no allowance for the potential acquisition of Intralot s Victorian and New Zealand EGM monitoring businesses. As discussed in Section 7.1 of this report, it is important to note that Grant Samuel s estimate does not represent the value of Tatts Gaming business as a standalone business as: Tatts does not fully allocate shared services costs and certain operational capital expenditure to its business divisions; MAXtech provides services to MAX and Tatts Wagering and Lotteries businesses on a nil margin basis; it does not include any allowance for synergies potentially available to an acquirer; and there would be incremental costs on separation of Gaming from the Tatts operating structure. Accordingly, while the value estimated by Grant Samuel represents a control value, it does not represent the full underlying value that might be realised if the Gaming business was sold on the open market in a competitive process. Earnings Multiple Analysis The earnings multiples implied by the valuation of Tatts Gaming business are summarised below: Tatts Gaming Business Implied Valuation Parameters Variable ($ million) Range of Parameters Low High Value range ($ million) Multiple of EBITDA (times) FY16 (adjusted actual) FY17 (adjusted actual) FY18 (broker median) 138 not used nc nc Multiple of EBITA (times) FY16 (adjusted actual) FY17 (adjusted actual) FY18 (broker median) 138 not used nc nc The implied multiples reflect a blend of Gaming s two businesses as well as the highly regulated and mature Australian gambling industry. As MAX represents around 90% of the value of Gaming and derives around 55% of its revenue from EGM monitoring activities, the implied multiples would reflect the steady, albeit low, growth profile of the monitoring business. In Grant Samuel s view, the multiples implied by its valuation of Tatts Gaming business are appropriate. In forming this view the following factors have been taken into account: 130 ANNEXURE A - INDEPENDENT EXPERT S REPORT 271

274 the market evidence for gaming services businesses is limited and there are no transactions or listed companies directly comparable to Tatts Gaming business. Nevertheless, the market evidence provides some value guidance: the most comparable business is Intecq which was acquired by Tabcorp in December 2016 on forecast multiples of 8.3 times EBITDA and 11 times EBITA. After allowing for expected cost synergies, the implied EBITDA multiple declines to 5.8 times; Odyssey Gaming (a division of Intecq) is a direct competitor of MAX in the Queensland EGM monitoring market and was acquired in May 2011 at historical multiples of 4.2 times EBITDA and 8.7 times EBITA. These multiples are low reflecting both the size of the business (revenue of $9.5 million) and the financial distress of two shareholders (representing 68%) at the time of the transaction; the Australian transactions are smaller in size with a narrower range of activities than Tatts Gaming business which suggests higher multiples. In this context, the large international transactions completed at forecast multiples of 8-9 times EBITDA (before synergies); while IGT plc is not directly comparable (being substantially larger in size and a provider of a broader range of products and services across all gaming markets globally), it is trading at forecast multiples of around 7 times EBITDA and 9 times EBITA (i.e. without a premium for control); Intralot s activities are more comparable but it is larger in size with a global footprint. Its trading multiples are relatively low, likely reflecting its poor recent operating performance, high gearing and complicated operating structure; and market evidence for acquisitions of facilities management businesses in recent years indicates forecast multiples broadly in the range of 6-8 times EBITDA and 8-10 times EBITA; Gaming s core business is the supply of government mandated EGM monitoring services (55% of MAX s revenue). This business enables MAX to provide other value added services to gaming venues and MAXtech to provide technical and logistic support to EGM owners. In this regard, it is the leading provider of such services in Australia being: the exclusive supplier of these services in NSW under a right that expires in November 2032 (15 years); and a non-exclusive provider in the Northern Territory and Queensland with a 100% market share in the Northern Territory and an 80% market share in Queensland (its only active competitor is Odyssey Gaming). However, there is limited expectation for more than modest growth for Gaming as: monitoring revenue (which accounts for around a third of Gaming s revenue) is subject to annual contracted increases in fees (typically no greater than inflation); the number of EGMs is highly regulated; and MAX operates only in its licensed jurisdictions and is not structured to provide value added services in other jurisdictions (although MAXtech has a national footprint); MAXtech has underperformed in recent years and has been restructured. While performance has improved, uncertainty remains whether the turnaround will be successful in a competitive market. Furthermore, MAXtech s profitability is low relative to comparable businesses reflecting that 30-40% of its revenue is from services provided to MAX and Tatts Wagering and Lotteries businesses on a nil margin basis; and Tatts Gaming business is a relatively low capital intensity business (capital expenditure is around 10-15% of EBITDA, albeit currently higher due to the replacement of the billing system). On this basis, Grant Samuel considers that the multiples implied by the valuation of Tatts Wagering business are appropriate Tatts Group Limited Scheme Booklet

275 DCF Analysis The DCF model for Tatts Gaming business forecasts nominal after tax cash flows from 1 July 2017 to 30 June 2027 (10 years) with a terminal value calculated by capitalising net after tax cash flows using the perpetuity method and assuming a long term growth rate of 2.5%. Discount rates (weighted average cost of capital) in the range 9-9.5% have been used. The rationale for selection of the discount rate is set out in Appendix 5. A corporate tax rate of 30% has been assumed. The DCF model is based on the Tatts FY18 Budget, is high level in nature and does not have discrete assumptions for individual services. This means that Grant Samuel s analysis is based on assumptions for revenue, operating expenses and capital expenditure for the business as a whole. The DCF model assumes that the licence to provide EGM monitoring services in NSW is renewed (for a cost) in December The DCF analysis considers a number of different scenarios. Scenario A assumes: the Tatts FY18 Budget; revenue grows at a rate of 2.5% per annum after FY18; operating expenses grow in line with revenue and shared costs allocated to Gaming are based on current levels and grow at the inflation rate (2.5%). The resulting EBITDA margin is 36% across the cash flow period; a payment to retain the NSW monitoring services licence of $301 million is made in FY33. This amount is based on the $205 million paid in FY16-FY17 for the current licence increased by inflation (2.5%); capital expenditure is based on current levels and grows at the inflation rate (2.5%). In the long term this equates to around 17% of EBITDA; tax depreciation is calculated by category having regard to written down value at 30 June 2016 at rates claimed by Tatts and capital expenditure is assumed to be depreciated for tax purposes at a 25% rate; an annual increase in the net working capital balance has been calculated as 5% of revenue; and a normalisation adjustment in the terminal cash flow such that capital expenditure equals tax depreciation. The NPV of Scenario A is $ million based on discount rates of 9-9.5%. Grant Samuel has developed a number of scenarios that review the impact of certain assumptions on NPV. Each scenario assumes as a starting point that the Tatts FY18 Budget is achieved. Longer term assumptions have been made by Grant Samuel following discussion with Tatts management. A description of each scenario is outlined in the table below: Tatts Gaming Business DCF Scenarios Scenario Description Scenario A As above Scenario B Scenario A revenue grows at 2.0% per annum. Scenario C Scenario A except that operating expenses grow at a lower rate (2.3% per annum) and allocated expenses grow at 2% per annum Scenario D Scenario A except that capital expenditure increases 50% Scenario E Scenario A except that operating expenses grow at a higher rate (2.8% per annum) and allocated expenses grow at 3% per annum 132 ANNEXURE A - INDEPENDENT EXPERT S REPORT 273

276 The NPV outcomes are depicted diagrammatically below: Tatts' Gaming Business - NPV Outcomes (at 9-9.5% discount rates) Value Range $ million Scenario A Scenario B Scenario C Scenario D Scenario E Value ($ millions) NPV outcomes from DCF analyses are subject to significant limitations and should always be treated with considerable caution. In this regard, the NPVs fall is a relatively wide range across the different scenarios, highlighting the sensitivity to small changes in assumptions. Terminal values represent between 45-50% of the NPV outcomes presented above. It should also be noted that such scenario analysis does not take into account the operational flexibility that management has to react to changes in the markets in which they operate. In Grant Samuel s opinion, notwithstanding the uncertainties inherent in the analysis, the DCF analysis provides general support for the valuation range for Tatts Gaming business of $ million Value of Tabcorp s Gaming Services Business Summary Grant Samuel estimates the value of Tabcorp s Gaming Services business to be in the range $ million. The primary approach to valuation was capitalisation of earnings with DCF analysis used as a cross check. This value estimate includes Odyssey Gaming, even though Tabcorp has agreed to sell this business as part of the Scheme on the basis that: it is part of Tabcorp s Gaming Services business today; and it is assumed that Tabcorp will sell the business for its market value. As discussed in Section 7.1 of this report, it is important to note that Grant Samuel s estimate does not include any allowance for synergies potentially available to an acquirer. Accordingly, while the value estimated by Grant Samuel represents a control value, it does not represent the full underlying value that might be realised if the Gaming Services business was sold on the open market in a competitive process. Earnings Multiples Analysis The earnings multiples implied by the valuation of Tabcorp s Gaming Services business are summarised below: Tatts Group Limited Scheme Booklet

277 Tabcorp s Gaming Services Business Implied Valuation Parameters Variable ($ million) Range of Parameters Low High Value range ($ million) Multiple of EBITDA (times) FY16 (proforma actual) FY17 (proforma actual) FY18 (broker median) Multiple of EBITA (times) FY16 (proforma actual) FY17 (proforma actual) FY18 (broker median) 124 not used 135 nc nc While the consolidated median brokers forecasts for FY18 and the Gaming Services median brokers forecast for FY18 EBITDA are sufficiently close to the Tabcorp FY18 Draft Budget to be useful for analytical purposes, this is not the case with the median brokers forecasts for Gaming Services FY18 EBITA (which is materially higher than the Tabcorp FY18 Draft Budget). The FY18 EBITA multiples implied by Tabcorp FY18 Draft Budget for Gaming Services are higher than both the FY16 and FY17 actual EBITA multiples. In Grant Samuel s view, the multiples implied by its valuation of Tabcorp s Gaming Services business are appropriate. In forming its view, Grant Samuel has taken into account the: proven performance of the Gaming Services offering, demonstrated by TGS venues outperforming non TGS venues in both Victoria and NSW; scale of the business (in terms of number of EGMs contracted) and the breadth of services offered (relative to its competitors); long term (five years) nature of the majority of its contracts. 89% of EGMs in Victoria are under contract until August 2022 (i.e. the expiry of the EGM entitlements); successful expansion into the NSW market, with 1,950 EGMs under contract achieved within the past two years, including 1,056 EGMs from the contract with Panthers Group (commenced in January 2017) which has created strong momentum in the business; upside from the Panthers Group contract. The first full year of contribution from the Panthers Group contract will be FY18 which is reflected in the forecast multiple based on FY18 EBITDA falling to times; and upside from the acquisition of Intecq. The full benefit from synergies is not expected to be achieved until FY20. Consequently, the implied FY17 and FY18 multiples are higher than they would be if full synergies were taken into account. Offsetting these positive attributes are a number of factors that would constrain the appropriate multiples for Tabcorp s Gaming Services business: the number of EGMs is regulated and has remained relatively flat over the past ten years (a total of 187,459 EGMs were estimated to be operating in hotels and clubs in FY06, falling to 183,386 in FY15), albeit the vast majority of these are the eastern seaboard States of NSW, Queensland and Victoria where TGS operates; there is uncertainty around the perpetuity of the business given the nature of the contracts. While 89% of Victorian contracts are secured through to August 2022, there is no certainty after expiry of the current EGM entitlements that: the structure of the gaming industry in Victoria will not change again; or all EGMs under contract will renew (and for what term); and 134 ANNEXURE A - INDEPENDENT EXPERT S REPORT 275

278 the capital intensity of the TGS business. Under the contracts with venues, TGS acquires the EGMs provided to the venues (which are paid for by the venues through the agreed monthly contract payments). As a result, capital expenditure represents a significant proportion (around 70%) of TGS operating cash flow (or EBITDA) (excluding Intecq). To take into account the capital intensity of the business, Grant Samuel has given more weight to the implied EBITA multiples. Multiples of times FY16 proforma EBITA and times FY17 proforma EBITA are high but they are considered to be reasonable considering that they do not include: the full year impact from the Panthers Group contract (first full year is FY18); and the full expected synergies from the Intecq acquisition. While the transaction and trading evidence is limited, it does provide a comparative benchmark: the EBITDA multiples implied by Grant Samuel s valuation of Tabcorp s Gaming Services business are generally below those implied by other international transactions (8-10 times historical EBITDA and 8-9 times forecast EBITDA) and below those implied by Tabcorp s acquisition of Intecq. These multiples are considered reasonable taking into account: the capital intensive nature of Tabcorp s Gaming Services business (Intecq is significantly less capital intensive but represents only 15% of EBITDA and 20% of EBITA); the significantly larger size and broader range of activities of the international transactions (which would warrant higher multiples); and the synergies available to Tabcorp from its acquisition of Intecq. After allowing for expected cost synergies, the implied forecast EBITDA multiple falls to 5.8 times. Intecq is a much smaller business than Gaming Services (and would warrant a lower multiple on a post synergies basis). The implied EBITDA multiples are also not inconsistent with IGT plc s trading multiples (6.7 times historical and 7.1 times forecast EBITDA), allowing for the differences in size and range of activities as well as some premium for control; and the EBITA multiples implied by the Grant Samuel s valuation of Tabcorp s Gaming Services business are slightly above, but generally consistent with, those implied by relevant transaction and trading multiples. On balance and, in particular, taking into account the upside from the Panthers Group contract and the Intecq acquisition and the constraint of the capital intensity of the business, Grant Samuel believes that the multiples implied by the valuation of Tabcorp s Gaming Services business of times forecast FY18 EBITDA and times historical EBITA are appropriate. DCF Analysis The DCF model for Tabcorp s Gaming Services business forecasts nominal after tax cash flows from 1 July 2017 to 30 June 2027 (10 years) with a terminal value calculated by capitalising net after tax cash flows using the perpetuity method and assuming a long term growth rate of 3%. Discount rates (weighted average cost of capital) in the range % have been used. The rationale for selection of the discount rate is set out in Appendix 5. A corporate tax rate of 30% has been assumed. The DCF model allows assumptions to be made for the key drivers of revenue (number of EGMs under contract by State and average rate per EGM per day) and makes specific assumptions for taxes, levies, commissions and fees, operating expenses and capital expenditure. The Intecq business has been modelled separately and allows assumptions to Tatts Group Limited Scheme Booklet

279 be made for revenue growth, gross margin, operating expenses and capital expenditure. It also allows integration costs and synergies (cost savings and revenue synergies) to be separately modelled. The DCF analysis considers a number of different scenarios. Scenario A assumes: there is continued growth in EGMs under management, averaging approximately 8% per annum driven by: no further growth in EGMs under management in Victoria and 5% of Victorian venues on five year agreements do not recommit post FY22; continued expansion into NSW, managing 10,000 EGMs (11% of the NSW EGM market and 23% of Intecq NSW EGMs) by the end of the period of the cash flows; and expansion into Queensland from FY19, gradually growing to 5,000 EGMs (12% of the Queensland EGM market and 23% of Intecq Queensland EGMs) by the end of the period of the cash flows. Other than the non-renewal of the Victorian agreements referred to above, all agreements are assumed to renew for rolling five year periods; the average rate per EGM per day decreases from $30.99 in FY17 as new contracts in NSW and then Queensland are secured at a lower average price (~$29.70). The average rate is assumed to increase at 1% per annum in subsequent years while the number of EGMs under management grows and then by inflation of 2.5% per annum in FY26 and FY27 as the number of EGMs under management stabilises; as a result of these assumptions, revenue from EGM management operations increases by an average of 9.3% per year over the period of the cash flows; interest on loans to venue operators falls gradually over the period to FY22 as existing loans are repaid and this business is wound down. The loan repayments are also allowed for in the cash flows; taxes, commissions, levies and fees are assumed to be 2.8% of revenue, consistent with the historical trend; operating expenses increased as a percentage of revenue in FY16 and FY17 as a step change was embedded into the business. This increase represented investment in the capability to acquire EGMs under management and support the expanded network as well as technology investments for customer analytics. Operating expenses are assumed to remain at this higher level (of around 34% of revenue) and continue to grow in excess of inflation to support the NSW and Queensland expansion; these assumptions result in an EBITDA margin of 63.5% for the period of the cash flows; capital expenditure is split into existing contractual obligation capital expenditure (all Victorian EGMs and NSW and Queensland EGMs in the second year) and growth capital expenditure (all new EGMs under management in NSW and Queensland in the first year), and is calculated on a per EGM basis. An allowance is also made for an allocation of corporate capital expenditure. As a result, capital expenditure is in the range 70-80% of EBITDA while the business grows, falling to around 55% once the business stabilises in FY26 and FY27. This relatively high level of capital expenditure reflects the capital intensity of the business; depreciation and amortisation increases, reflecting investment in the expansion into NSW and Queensland and investment in contractual product deployment, from around 58% of capital expenditure in FY18, gradually increasing to 100% of capital expenditure by the end of the period of the cash flows; working capital has been calculated as 5% of revenue; and Intecq has been modelled separately. Scenario A assumes a value equal to Tabcorp s acquisition price of $114.8 million. For other scenarios, the key assumptions include: 136 ANNEXURE A - INDEPENDENT EXPERT S REPORT 277

280 an EBITDA contribution of close to $18 million by FY20 (including cost synergies of $7 million achieved over a three year period but excluding revenue synergies); revenue growth at inflation of 2.5% per year; taxes, commissions, levies and fees are calculated as a percentage of revenue and are assumed to remain at the FY18 level of around 33.5% of revenue over the period of the cash flows; the result is a constant variable contribution margin of 66.5%; operating expenses (before cost synergies) increase by inflation of 2.5% per year; the EBITDA margin increases from around 24% in FY18 to almost 31% in FY19, reflecting the impact of achieving cost synergies, and remains at that level for the balance of the cash flow period; capital expenditure is assumed to be $4 million per year in FY18, indexed by inflation in subsequent years; depreciation and amortisation is calculated as 100% of capital expenditure, consistent with the historical trend; and working capital has been calculated as 14% of revenue. Forecasts of operational assumptions are uncertain and there is significant scope for differences in opinion on key assumptions. As a result of these uncertainties, there is a range of outcomes that could occur. Accordingly, Grant Samuel has considered a number of scenarios that analyse the impact of possible variations in key assumptions. Each scenario assumes as a starting point that the FY18 management estimate is achieved. Longer term assumptions have been made by Grant Samuel following discussion with Tabcorp management. A description of each scenario is outlined in the table below: Scenario Scenario A Scenario B Scenario C Scenario D Scenario E Tabcorp s Gaming Services Business DCF Scenarios Description As above, with Intecq included at Tabcorp s acquisition price of $114.8 million Scenario A except with Intecq included as per the assumptions outlined above (including cost synergies) Scenario B except expansion into NSW from FY19 is 20% lower (8,630 EGMs by FY25) and expansion into Queensland from FY19 is 30% lower (3,500 EGMs by FY25) Scenario B except Intecq revenue synergies contribute $3 million to EBITDA from FY19 Scenario B except that the increase in average rate per EGM per day from FY20 is limited to 1% per annum for the period of the cash flows The NPV outcomes are depicted diagrammatically below: Tatts Group Limited Scheme Booklet

281 Tabcorp's Gaming Services Business - NPV Outcomes (at % discount rates) Value Range ($ million) Scenario A Scenario B Scenario C Scenario D Scenario E NPV ($ millions) NPV outcomes from DCF analyses are subject to significant limitations and should always be treated with considerable caution. In this regard, the NPVs fall in a relatively wide range across the different scenarios, highlighting the sensitivity to small changes in assumptions. Terminal values represent ~70% of the NPV outcomes presented above. It should also be noted that such scenario analysis does not take into account the operational flexibility that management has to react to changes in the markets in which the business operates. The NPV outcomes are particularly sensitive to changes in the number of EGMs under management (Scenario C) and average rate per EGM per day (Scenario E). In Grant Samuel s opinion, notwithstanding the uncertainties inherent in the analysis, the DCF analysis supports a range of values for Tabcorp s Gaming Services business of $ million. 138 ANNEXURE A - INDEPENDENT EXPERT S REPORT 279

282 9 Evaluation of the Scheme 9.1 Summary In Grant Samuel s opinion, the Scheme is in the best interests of Tatts shareholders, in the absence of a superior proposal. The Scheme brings together two major Australian gambling entertainment groups. It involves Tabcorp acquiring 100% of the shares in Tatts but, while the Scheme is technically a control transaction, the commercial reality is that, from a shareholder s perspective, it is a merger (notwithstanding the proposed board and management). Tatts shareholders will, in aggregate, own 58.4% of the Combined Group and Tabcorp shareholders will own the remaining 41.6% 3. Accordingly, the analysis of fairness is different to that for a conventional control transaction. Rather than estimating the full underlying value of Tatts including a control premium, the Scheme will be fair to Tatts shareholders if the share of the value of the Combined Group received by them is equal to (or greater than) their proportionate contribution of value. Specifically, Grant Samuel has considered the relative contributions of sharemarket value and fundamental (underlying) value. On the basis of sharemarket values, the aggregate interest of Tatts shareholders in the Combined Group is materially favourable in comparison to the share contributed by them (reflecting the premium inherent in the transaction terms at the time of announcement). Based on share prices over the three months prior to the announcement of the Scheme on 19 October 2016, Tatts shareholders are contributing approximately 56-58% of the value but are receiving a 61% share of the value. The outcome is similar in terms of relative contributions of fundamental value. Based on Grant Samuel s estimate of fundamental value, Tatts shareholders are contributing approximately 57-59% of equity value compared to the 61% of that value they will receive (i.e. 58.4% of the Combined Group plus 42.5 cents cash per Tatts share). In effect, Tabcorp is paying away synergy benefits arising from the merger to Tatts shareholders to enhance the attraction of the transaction to Tatts shareholders. Accordingly, in Grant Samuel s view, the terms of the Scheme are fair to Tatts shareholders. If the Scheme is looked at as a takeover, the terms, in fact, provide a meaningful premium and payment for synergies. As the terms of the Scheme are fair, they are also reasonable and, therefore, the Scheme is in the best interests of Tatts shareholders. In any event, Grant Samuel believes that the advantages and benefits of the Scheme for Tatts shareholders outweigh the disadvantages, risks and costs. The key benefits include: the creation, under a single corporate umbrella, of a diversified Australian gambling entertainment company with: an integrated national platform (except for Western Australia) across lotteries, wagering and gaming services; a suite of long dated licences (except in Victoria); a more balanced portfolio of businesses; and scale that will add depth to capabilities and underpin the capacity to compete in wagering and, potentially, expand offshore; the combination of the two wagering businesses to create a national retail, on-course and online platform (except for Western Australia) under a unified TAB brand provides arguably the best opportunity (given the geographic complementarity and common heritage) to turn around Tatts wagering business and to meet the continuing competitive challenges from corporate bookmakers. The strengthening of the business will be underpinned by: alignment of the product offering; concentrating marketing expenditure on a single brand; better margins (as a result of the synergy benefits) that will provide capacity to increase marketing and technology expenditure where needed; and a stronger racing industry providing better product as a result of increased funding; Tatts Group Limited Scheme Booklet

283 significant cost savings and business improvements, primarily in corporate/head office and the wagering business. Tatts and Tabcorp estimate synergy benefits of at least $130 million per annum at the EBITDA level to be fully realised over a three year period. These benefits have a notional value (net of one off costs of $141 million) of around 60 cents per Combined Group share 140 if they are realised in full (of which there is no guarantee); and a material uplift in EPS (underlying) and dividend per share for Tatts shareholders (on an equivalent basis) if the expected synergy benefits are realised in full. There is no guarantee that the synergies and business improvements will be realised. The disadvantages, risks and costs of the Scheme are not trivial but are outweighed by the benefits. They include: the Scheme will result in Tatts shareholders having a significantly lower exposure to lotteries (31% compared to 63% based on FY17 EBITDA) and a much higher exposure to wagering (46% compared to 22%). There is a higher degree to risk attached to the future operating performance of wagering businesses; the significant re-engineering of the business operations involved in the integration of the two companies will inevitably give rise to risks of delays and unanticipated costs; Tatts shareholders will be faced with an almost entirely new board and management team running the Combined Group; the expected synergy benefits and business improvements are uncertain and subject to risks as to achievability and time frame, particularly in relation to expected revenue enhancements. These risks are magnified to the extent that some of the synergy benefits are expected to be realised in the second and third years following implementation of the Scheme. However, lower risk cost savings do represent the majority of the estimated $130 million; transaction costs are estimated at $200 million (of which $67 million was expensed by Tatts and Tabcorp in FY17) and subsequent integration costs at approximately $141 million; the Scheme will result in an increase in gearing 141 from 24% to 32.4% (after synergies but before the intended share buyback). The higher debt (resulting from the cash payment and transaction/integration costs) will result in ongoing interest charges that will reduce the earnings of the Combined Group (although it should be recognised that $624 million of the increase in debt relates to cash paid directly to Tatts shareholders). The proforma year one incremental interest expense (excluding the impact of the intended share buyback) is estimated to be $42 million 142 ; and the terms of the Scheme do not deliver a full premium for control to Tatts shareholders (although a full premium for control would not be expected given that the transaction is essentially a merger). Moreover, at a practical level a future takeover offer for the Combined Group (incorporating a full premium for control) is arguably less likely than for a standalone Tatts. On the other hand, there are no absolute impediments to a future change of control transaction and Tatts shareholders are receiving some premium under the Scheme (around 20.8% based on share prices immediately prior to announcement of the Scheme). Overall, Grant Samuel s judgement is that Tatts shareholders will be better off if the Scheme is implemented than if it is not. The combined effect of the premium implicit in the merger terms and the potential value uplift if the expected synergies are realised should mean that the market value of a Tatts shareholder s interest in the Combined Group (together with the cash payment of 42.5 cents per share) will be greater than the market value of their Tatts shareholding in the absence of the Scheme (or any other similar transaction). 140 Calculated as $130 million (estimated synergies and business improvements) multiplied by estimated EBITDA multiple of 10 times less estimated integration costs net of tax benefits ($119 million) divided by shares on issue in Combined Group (2,010.1 million shares). The EBITDA multiple used in the estimate of the notional value is a blended rate reflecting the mix of businesses of the Combined Group. It compares to the FY17 EBITDA multiples at which Tatts and Tabcorp are currently trading, 15.3 times and 9.3 times respectively. 141 Net borrowings/net assets plus net borrowings. 142 Calculated based on an increase in net borrowings of $835 million (i.e. excluding the intended share buyback) at a 5% interest rate (see Section 12.5(c) of the Scheme Booklet and Section 6.4). 140 ANNEXURE A - INDEPENDENT EXPERT S REPORT 281

284 9.2 Fairness Approach The Scheme involves Tabcorp acquiring 100% of the shares in Tatts. In a typical control transaction fairness involves comparing the full underlying value of the target with the value of the offer (with any scrip component to be valued at market value (i.e. minority value)). However, while there are factors that would suggest that there is a change of control (e.g. the proposed board and management), upon implementation of the Scheme Tatts shareholders will, in aggregate, own 58.4% of the Combined Group, there will be no controlling shareholder and Tatts shareholders will retain the opportunity to receive a control premium at some time in the future. On this basis, as discussed in Section 2.2 of this report, while the Scheme does not precisely fit the merger of equals exception envisaged by RG (which provides for an alternative approach that values both parties on the same basis), in Grant Samuel s opinion, the better view is that merger analysis is the appropriate basis on which to evaluate fairness. Accordingly, in assessing fairness, rather than estimating the full underlying value of Tatts including a premium for control, Grant Samuel has compared the share of the value of the Combined Group received by Tatts shareholders with the relative contribution by Tatts shareholders of: sharemarket value. This analysis considers the value the sharemarket places on Tatts and Tabcorp; and Grant Samuel s estimate of fundamental (underlying) value. For completeness, Grant Samuel has also considered the terms of the Scheme from the perspective of a takeover/change of control transaction Merger Analysis Sharemarket Value There is an active, well informed market for shares in both Tatts and Tabcorp. Accordingly, sharemarket values provide an objective measure of the contributions of value to the Combined Group to be made by each of Tatts and Tabcorp shareholders. Given the active markets in both Tatts and Tabcorp, it is reasonable to conclude that pre-announcement sharemarket values reflect the market s consensus view on the value of both companies (at that time). Tatts contribution to the aggregate sharemarket value of the two companies (based on daily closing prices) compared to the share of the combined sharemarket value received by Tatts shareholders (based on trading from 1 July 2015 to 17 October 2016, the last trading date prior to announcement of the Scheme) is shown in the following chart: Tatts Group Limited Scheme Booklet

285 Tatts - Share of Combined Market Value (1 July October 2016) 64% 63% 62% 61% 60% 59% 58% 57% 56% 55% 54% Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Tatts Contribution Source: IRESS and Grant Samuel analysis Notes: (1) Market capitalisation has been calculated based on shares currently on issue. (2) Tatts shareholders share of the combined market value includes the cash component of the Scheme consideration (42.5 cents per Tatts share). The following table shows the relative contributions based on VWAPs compared to the relative values received under the Scheme terms by the shareholders of each company across different periods prior to the announcement of the Scheme: Tatts Share of Combined Sharemarket Value 17 October 2016 Period to 17 October 2016 (VWAP) Last Price VWAP One week One month Three months Six months Twelve months Tatts Price $3.59 $3.60 $3.62 $3.66 $3.83 $3.80 $3.90 Market capitalisation (1) ($ million) A 5,272 5,287 5,316 5,375 5,624 5,654 5,727 Tabcorp Price $4.89 $4.88 $5.05 $5.01 $4.95 $4.65 $4.54 Market capitalisation ($ million) B 4,085 4,076 4,218 4,185 4,135 3,884 3,792 Combined sharemarket value ($ million) C = A+B 9,357 9,363 9,534 9,560 9,759 9,538 9,519 Tatts % contribution A/C 56.3% 56.5% 55.8% 56.2% 57.6% 59.3% 60.2% Tabcorp % contribution B/C 43.7% 43.5% 44.2% 43.8% 42.4% 40.7% 39.8% Combined sharemarket value after cash component ($ million) D = C E (2) 8,733 8,739 8,910 8,936 9,135 8,914 8,895 Share of combined sharemarket value received ($ million) Tatts F = (D x 58.4% (3) ) + E (2) 5,724 5,728 5,827 5,843 5,959 5,830 5,819 Tabcorp G = (D x 41.6% (3) ) 3,633 3,635 3,707 3,717 3,800 3,708 3,700 Tatts % received F/C 61.2% 61.2% 61.1% 61.1% 61.1% 61.1% 61.1% Tabcorp % received G/C 38.8% 38.8% 38.9% 38.9% 38.9% 38.9% 38.9% Source: IRESS and Grant Samuel analysis Notes: (1) Market capitalisation based on shares currently on issue. (2) Where E = the cash component ($624.1 million) 143. (3) On implementation of the Scheme existing Tatts shareholders will hold approximately 58.4% of the Combined Group and existing Tabcorp shareholders will hold 41.6%. 143 Calculated based on 1,468,519,481 Tatts shares and 42.5 cents per share. Tatts Share of Combined Market Value 142 ANNEXURE A - INDEPENDENT EXPERT S REPORT 283

286 The analysis demonstrates that, based on recent sharemarket prices prior to the announcement (since mid 2016), Tatts shareholders are contributing a lower share of the combined sharemarket value (56-58%) than they are receiving (~61%). Based on prices earlier in 2016, the terms are less (but still) favourable but these prices are less relevant as they do not take account of more recent events including the public release of FY16 results for both Tatts and Tabcorp. In theory, the most recent share prices reflect the best market estimate of values, because they incorporate the most recent information on broader economic and business conditions and company specific matters such as operating performance. Tabcorp released its FY16 results on 4 August 2016 and Tatts announced its FY16 results on 18 August In August 2016, Tatts was followed by 13 broker analysts while Tabcorp was followed by ten broker analysts. All of these analysts published research following the release of the FY16 results. Immediately prior to the announcement of the Scheme, Tatts and Tabcorp were trading at different earnings multiples: Sharemarket Ratings (pre announcement) FY17 (broker median forecast) Tatts Tabcorp Last price (17 October 2016) $3.59 $4.89 EBITDA multiple 12.5x 9.2x EBITA multiple 13.8x 12.3x EBIT multiple 14.5x 14.0x Price/earnings (NPAT) multiple 19.7x 20.6x Source: Brokers reports, Grant Samuel analysis The differential likely reflects market views as to various factors including: the relative strengths and weaknesses of the respective wagering businesses with Tabcorp s business being regarded as significantly stronger; the attractions of Tatts Lotteries business which is generally accorded a much higher earnings multiple than wagering because of its low volatility, annuity style income and absence of major competitive threats; and Tabcorp s higher capital intensity (suppressing its EBITDA multiple). However, there is no reason to believe these differences reflect anything other than rational assessments of a well informed market. Accordingly, it is reasonable to conclude that the sharemarket values for both companies immediately prior to the announcement of the Scheme provide the best indication of the sharemarket s views on the value of Tatts and Tabcorp on a standalone basis (at that time). Nevertheless, analysis of relative contributions of value based on sharemarket prices needs to be treated with some caution. Sharemarket views on value can shift significantly in short periods of time although: the sharemarket prices of Tatts and Tabcorp have historically exhibited relatively low levels of volatility and have tended to trade within reasonably narrow bands; and to the extent that there is mispricing by the market, the analysis of contributions of estimated fundamental (underlying) value should provide additional comfort. In this context, it is important to note that: more than ten months have elapsed since the announcement of the Scheme. Both companies have announced results for 1HY17 and FY17. There have also been a number of company specific events that have arisen (e.g. the announcement of the partnership between CrownBet and Clubs NSW which could adversely impact Tatts Group Limited Scheme Booklet

287 Tabcorp s business). It is not possible to reliably assess where the shares of the two companies would now be trading if the Scheme had not been agreed. The 1HY17 results for both companies released in February 2017 were generally regarded by the market as disappointing. Tabcorp s results included a materially higher than expected loss from the nascent Sun Bets business and further costs in relation to the AUSTRAC proceedings. However, Tabcorp s underlying operating results were considered to be reasonable with modest year on year earnings growth and stable margins and return on invested capital. In contrast, Tatts announced declines in core operating earnings with Lotteries down 10% at the EBITDA level (albeit due largely to a weak run of major jackpots) and Wagering down 12% (partly attributable to unusually poor weather affecting race meetings). These results were below market expectations at the time of announcement of the Scheme (19 October 2016). Tatts FY17 result was broadly consistent with the trends evidenced in the 1HY17 results (i.e. lower frequency of lottery jackpots and decline in wagering relative to FY16). Tabcorp s operating earnings in FY17 also declined but arguably to a greater extent for reasons that are one off, rectifiable (e.g. Luxbet losses, AUSTRAC settlement) or start up (e.g. Sun Bets) in nature (albeit it experienced a step up in operating expenses reflecting increases in marketing and risk and compliance capability). Accordingly, in the absence of the Scheme, it is unlikely that the Tatts share price would have strengthened materially relative to Tabcorp (thus making the exchange ratio less favourable). The potential value impact (if any) of the CrownBet/Clubs NSW partnership is entirely speculative. There was a significant fall in the Tabcorp share price (circa 19 cents) at the time it was announced (7 February 2017) but the share price subsequently recovered. Grant Samuel is not aware of any other announcements or events in this period (relating to business operations) that would have had a material impact on the share prices of either company; and the Tabcorp share price has shown a high level of volatility following announcement of the Scheme, reflecting a variety of events including the Pacific Consortium announcements, the CrownBet/Clubs NSW announcement, the AUSTRAC proceedings and regulatory actions associated with the Scheme. It has traded as high as $5.12 and as low as $3.91 (a $1.21 range). While recent prices reflect Tabcorp s FY17 results, the share price also appears to be influenced by the regulatory uncertainty associated with the Scheme. On 5 September Tabcorp shares closed at a price of $4.05, 17.2% lower than the price at announcement of the Scheme. On balance, Grant Samuel believes that the sharemarket analysis is sufficiently robust to be a valuable benchmark in assessing the relative contribution of value by Tatts shareholders. Fundamental Value The following table compares the value contributed by Tatts and Tabcorp shareholders based on Grant Samuel s estimate of the fundamental value of each company as set out in Section 7.2 and 7.3 of this report to the share of fundamental value received by the shareholders of each company. The values: are based on Grant Samuel s estimate of the fundamental value of the operating businesses of Tatts and Tabcorp (see Sections 7.2 and 7.3 respectively). In particular, it should be noted that: separate values have been ascribed to each operating business (lotteries, wagering and gaming services); the value of each operating business has been assessed by reference to both the capitalisation of earnings and DCF methodologies and reflect the characteristics and outlook for each business; and the values for each business represent a control value (i.e. value of 100% of the business) but do not purport to represent the full underlying value that might 144 ANNEXURE A - INDEPENDENT EXPERT S REPORT 285

288 be realised if the businesses were sold on the open market as the analysis does not take into account the synergies that might be available to potential purchasers. The full realisable value for each company would include value for factors such as listed company and head office cost savings as well as operational savings, particularly in wagering (where likely acquirers may have some overlap). Synergies have been excluded to assist in ensuring the value of the various businesses is estimated consistently across the two companies; and reflect the balance sheets as at 30 June 2017 but allow for the payment of final dividends paid by both Tatts and Tabcorp and certain other post balance date events. Estimates of the underlying value of Tatts and Tabcorp are imprecise. While both the lotteries and wagering sectors are relatively mature: the wagering business is undergoing significant change through digital technology (online betting) and competition. Corporate bookmakers have increased their market share over the past decade from 25% to approximately 46% of all wagering across Australia (and dominate the faster growing online segment). The next few years is likely to see increasing digital penetration, technological advances and changes in the competitive landscape, all of which are difficult to predict with any reliability; and there are limited benchmarks from which to estimate appropriate earnings multiples for a change of control transaction (i.e. for assessing underlying value) particularly for the Lotteries business where there is no directly comparable transaction or listed company. Nonetheless, the analysis suggests that Tatts shareholders are contributing a % 144 share of the fundamental value of the Combined Group: Fundamental Value Analysis ($ million) Fundamental Value Ranges Low High Tatts (Section 7.2) A 5, ,867.4 Tabcorp (Section 7.3) B 3, ,355.5 Combined Group (aggregate) C = A+B 9, ,222.9 Less: Cash component to Tatts shareholders D (624.1) 143 (624.1) Proforma Combined Group (aggregate) E = C - D 8, ,598.8 Value Received Tatts F = (58.4% (1) x E) + D 5, , Value Received Tabcorp G = (41.6% (1) x E) 3, ,993.1 Relative Value Contributed Tatts shareholders A/C 59.0% 57.4% Tabcorp shareholders B/C 41.0% 42.6% Relative Value Received Tatts shareholders F/C 61.2% 60.9% Tabcorp shareholders G/C 38.8% 39.1% Source: Grant Samuel analysis Note: (1) On implementation of the Scheme existing Tatts shareholders will hold approximately 58.4% of the Combined Group and existing Tabcorp shareholders will hold 41.6%. This analysis shows that Tatts shareholders are receiving a greater share of the fundamental value of the Combined Group ( %) 146 than their contribution of value ( %). 144 Midpoint value contribution 58.2%. If the fundamental value ranges are matched on a low/high and high/low basis, the relative value contribution by Tatts shareholders is in the range % but the midpoint does not change. 145 The value received by Tatts shareholders does not recognise that some Tatts shareholders may realise additional value from the franking credits that will attach to the fully franked special dividend of 12 cents per share that Tatts intends to pay (subject to the availability of franking credits) in accordance with the terms of the Merger Implementation Deed (refer Section 9.5 for more details). 146 Midpoint value received 61.08%. If the fundamental value ranges are matched on a low/high and high/low basis, the relative value received by Tatts shareholders is in the range % but the midpoint does not change Tatts Group Limited Scheme Booklet

289 Other Parameters Grant Samuel has not considered the relative contributions of Tatts and Tabcorp shareholders to the Combined Group based on other financial metrics (such as earnings or net assets): an analysis based on earnings contributions is not useful because it does not take into account the different multiples appropriate for each business. In particular, Tatts major earnings contributor is the Lotteries business (63% of EBITDA in FY17) which warrants a much higher earnings multiple than Wagering. In contrast, Tabcorp has no exposure to lotteries; and an analysis based on net assets is not meaningful because the most significant asset in the balance sheets of Tatts and Tabcorp is goodwill and other intangible assets, the quantum of which depends on, inter alia: the extent of recent acquisitions; the timing of recent licence renewals and the structure of any capital payments; and capitalisation and amortisation policies of the respective companies. Analysis based on net tangible assets would be misleading as they are an immaterial factor in the market valuation of either business. Conclusion The contribution of value by Tatts shareholders to the Combined Group relative to the share of value received under the terms of the Scheme is summarised below: Tatts Shareholders - Share of Value Value Contributed Value Received Uplift Absolute % Sharemarket Value Announcement 56.5% 61.2% 4.7% 8.3% One month 56.2% 61.1% 4.9% 8.7% Three months 57.6% 61.1% 3.5% 3.5% Fundamental Value High 57.4% 60.9% 3.5% 6.1% Low 59.0% 61.2% 2.2% 3.7% Overall, the analysis shows that Tatts shareholders collective share of value will be greater than their contribution of value to the Combined Group. This outcome is the corollary of the premium implicit in the transaction terms at the time of announcement and suggests that Tabcorp is paying away synergy benefits arising from the merger to Tatts shareholders to enhance the attraction of the transaction to Tatts shareholders. Accordingly, in Grant Samuel s opinion, the terms of the Scheme are fair to Tatts shareholders. 146 ANNEXURE A - INDEPENDENT EXPERT S REPORT 287

290 9.2.3 Takeover Analysis While Grant Samuel does not consider it to be the appropriate basis for evaluation, the Scheme can also be looked at as a takeover/change of control transaction. Under this construct, it is necessary to assess a value for the consideration being offered. In this case, Tatts shareholders will receive 0.8 shares in Tabcorp plus 42.5 cents cash for each share in Tatts. The market value of the consideration will therefore depend on the Tabcorp share price. Conventionally, for a scrip offer, the starting point is the market price of the offeror s shares. It is then necessary to address two questions: is there any reason why the market price is not a true reflection of the fair market value of the offeror s shares?; and will the proposed transaction, if implemented, have a material impact on the price? Tabcorp shares are well traded with reasonable liquidity and Tabcorp is closely followed by a number of analysts. However: the Tabcorp share price has been volatile since the announcement of the Scheme on 19 October 2016 and has traded in a wide range (~$1.20): Tabcorp - Share Price and Trading Volume (19 October September 2017) Tatts FY17 results Price $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 Pacific Consortium indicative proposal CrownBet/ Clubs NSW announcement Pacific Consortium revised indicative proposal Tabcorp FY17 results 24,000 20,000 16,000 12,000 8,000 Volume (000's) $3.00 4,000 $2.50 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 0 Source: IRESS While the share price has generally trended down across the period, it has been impacted by a number of specific events (including the CrownBet/Clubs NSW announcement, the Pacific Consortium announcements, the Tribunal decision and the ACCC application for judicial review of that decision). More recently, the FY17 results of Tabcorp and Tatts have had some impact; and the Scheme will have a material impact on Tabcorp, more than doubling its issued capital and NPAT, materially changing the mix of earnings and delivering (if achieved) synergies of at least $130 million per annum. However, the impacts are all readily able to be estimated by the market (analysts can easily prepare models combining the business from publicly available data) and the terms of the Scheme and estimated synergy benefits have been in the public domain since the announcement on 19 October In this respect, the impacts should be already incorporated into the Tabcorp share price. At the same time, the impacts of the Scheme are unlikely to be fully incorporated in recent trading (i.e. the benefits are risk adjusted) reflecting: Tatts Group Limited Scheme Booklet

291 a risk that the Scheme will not be completed either because shareholders do not approve it, an alternative offeror succeeds or there are regulatory actions (e.g. stopping the transaction or imposing changes that incur significant costs or otherwise adversely impact earnings). In this respect: - there was substantial regulatory uncertainty (relating to competition approvals) until the announcement on 20 June 2017 by the Tribunal. While this decision would have been expected to have positively impacted the Tabcorp share price, on the same day Tabcorp announced a trading update for FY17 which was below market expectations. As a result, while Tabcorp shares initially traded up to a high of $4.89 on the day (5.6% higher than the previous day close), they traded down to close at $4.65 (marginally up on the previous day); - Tabcorp shares then traded down ahead of the announcement on 10 July 2017 that the ACCC was to apply for judicial review of the Tribunal s decision. The share price closed at $4.29 on 10 July 2017 (7.7% lower than on 20 June 2017); and - subsequently the share price has slid lower (albeit with jumps around the FY17 results announcements of both Tabcorp and Tatts). Tabcorp shares traded in the range $ on August 2017 (the Full Federal Court hearing days for the applications for judicial review). Even if the outcome of the applications for review is in Tabcorp s favour, the decision is subject to a right to apply to the High Court for special leave to appeal. Therefore, regulatory uncertainty will continue for a period. In any event, even if the regulatory uncertainty is resolved, some risks will remain (shareholder approval, alternative offeror) until the Scheme is implemented; and risks associated with realising the estimated synergy benefits and business improvements (which are expected to be realised over a three year period) (see Section 9.3.2(iii) for a discussion on the expected synergy benefits and Section 9.3.3(ii) for a discussion on integration risks). Based on Tabcorp s recent trading range of $ , the Scheme provides to Tatts shareholders consideration with a current market value of $ per Tatts share. Looked at as a takeover, this value range: represents very small premiums ( %) over the Tatts share price prior to the announcement of the Scheme ($3.59); and implies a value for Tatts of $ billion in line with Grant Samuel s estimated value of 100% of the equity in Tatts of $ billion excluding synergies (see Section 7.2). In other words, current share prices do not imply any payment to Tatts shareholders for the estimated synergies under the Scheme. However, as discussed above, current Tabcorp share prices are unlikely to be incorporating fully the impacts of the Scheme. In this context, the recent trading range ($ ) implies multiples of Combined Group proforma FY17 EBITDA (before synergies) ($915 million 147 ) of times ( times if the expected $130 million of synergies are assumed in full) suggesting little value for synergy benefits is being factored into current Tabcorp share prices. Accordingly, it is reasonable to expect some improvement in the Tabcorp share price once there is certainty of implementation of the Scheme and as evidence of achievement of the expected synergy benefits emerges. The table below summarises the value parameters of the Scheme at various alternative Tabcorp share prices: 147 See Section ANNEXURE A - INDEPENDENT EXPERT S REPORT 289

292 Scheme Value Parameters Tabcorp Share Price $4.00 $4.20 $4.40 $4.60 $4.80 $5.00 Combined Group Parameters Proforma EBITDA multiple No synergy benefits 12.0x 12.4x 12.9x 13.3x 13.7x 14.2x - With synergy benefits 10.5x 10.9x 11.3x 11.6x 12.0x 12.4x Proforma price earnings multiple No synergy benefits 23.8x 25.0x 26.2x 27.4x 28.5x 29.7x - With synergy benefits 18.7x 19.7x 20.6x 21.6x 22.5x 23.4x Proforma dividend yield No synergy benefits 4.2% 4.0% 3.8% 3.6% 3.5% 3.3% - With synergy benefits 5.2% 5.0% 4.7% 4.5% 4.3% 4.2% Value for Tatts Shareholders Value of Scheme per Tatts share $3.63 $3.79 $3.95 $4.11 $4.27 $4.43 Premium - Last price on 17 October 2016 ($3.59) 1.0% 5.4% 9.9% 14.3% 18.8% 23.3% Payment for synergy benefits - Value range - low ($ millions) (81) ,094 - Value range - high ($ millions) (551) (316) (81) Source: Grant Samuel analysis In considering these parameters, it is important to note that: unless Tabcorp shares trade at prices greater than $4.80, premiums implied by the Scheme are not particularly high compared to control premiums typically observed in takeover transactions (usually in the range of 20-35% although many transactions fall outside this band). However, Tatts is a mature stable business that pays out around 100% of profits and is perceived as a yield stock (i.e. dividend yield is a key driver of the market price similar to listed infrastructure and property entities). Control premiums for these types of businesses are typically at the lower end of the spectrum; while it is to some degree speculative, it is not unreasonable to assume that, in light of the weak FY17 operating performance and other factors, the Tatts share price in the absence of the Scheme would now be lower than immediately prior to the announcement on 19 October This suggests that the effective premium would be higher than indicated above; many of the estimated synergy benefits under the Scheme are unique to Tabcorp because of the complementarity of the two wagering businesses (i.e. they are greater than those available to alternative acquirers); and the proforma earnings and dividends used in the table: are based on FY17 results, not forecast earnings; and where synergy benefits 113 are assumed, reflect the full synergy benefits although these are only expected to emerge over time, with the full run rate expected to be realised in the first full year following completion of the integration of the businesses (with integration expected to take approximately two years from implementation). In any event, as discussed in Section 9.4, the value of the consideration cannot be compared directly with a takeover offer price (where shareholders give up control to a third party bidder). The nature of the Scheme means that: shareholders still have the potential to receive an offer for the Combined Group incorporating a premium for control; and any comparison needs to take into consideration a range of factors in addition to value (e.g. residual exposure, tax and certainty of completion). 148 Calculated based on Combined Group shares on issue before buyback (2,010,082,599), proforma net debt (before share buyback) and EBITDA and operating profit after tax (with and without synergies) as set out in Sections 6.4 and Calculated based on dividends per share (with and without synergies) as set out in Section Tatts Group Limited Scheme Booklet

293 9.3 Reasonableness Conclusion As the Scheme is fair, it is also reasonable. In any event, there are a number of other factors that support the reasonableness of the Scheme which shareholders should consider in determining whether or not to vote for the Scheme. These factors (which comprise both advantages and benefits and disadvantages, risks and costs) are set out below Advantages and Benefits (i) Creation of a leading, diversified gambling entertainment company The Scheme will create, under a single corporate umbrella, a diversified Australian gambling entertainment company with: an integrated national platform (except for Western Australia) across three key segments of the gambling entertainment industry: lotteries; retail, on-course and online wagering; and gaming services; a suite of long dated licences (except in Victoria); a more balanced portfolio than Tatts and Tabcorp on a standalone basis and no segment representing more than 50% of earnings (based on proforma FY17 EBITDA); scale that will: add depth to marketing, operational and technological capabilities; enable the businesses to compete more effectively, particularly in wagering; and provide greater capability to pursue growth options in offshore markets. The proforma market capitalisation of the Combined Group, based on Tabcorp s closing share price on 5 September 2017 ($4.05), is approximately $8.1 billion. The only other ASX listed gambling entertainment businesses of comparable size are Aristocrat Leisure Limited (a developer, manufacturer and distributor of gaming content, platforms and systems) and Crown Resorts Limited (a gaming and entertainment business) which have market capitalisations of approximately $13.5 billion and $8.0 billion respectively. The Combined Group will be significant within the global industry, being the second largest market participant (in terms of net revenue) after IGT plc (with Ladbrokes Coral the next largest). (ii) Significant strengthening of the Wagering business The wagering sector in Australia developed over the past 60 years from a series of state government owned enterprises that operated on-course and off-course betting operations within that state on an exclusive basis (i.e. no other operators were allowed within that state). Each state largely operated independently with different sets of rules and regulations. Starting in 1994, the TABs across Australia have generally been privatised and now, with the exception of Western Australia, are all owned by either Tatts or Tabcorp. The combination of the Tatts and Tabcorp wagering businesses to create a single national retail and on-course platform (except for Western Australia) can be seen as a natural evolution for two allied businesses that share a common heritage. More importantly, with the advent of online wagering and in a competitive environment that has seen significant inroads being made by corporate bookmakers, strengthening the wagering business has become a strategic priority for both Tatts and Tabcorp. In particular, the Tatts Wagering business has suffered from flat turnover and declining yields. With little change in its cost base (except for marketing), there has been a 23% decline in EBITDA between FY13 and FY16 and a further fall in FY17. This deterioration in performance prompted a major review of the business which led to a significant overhaul of operations that began in ANNEXURE A - INDEPENDENT EXPERT S REPORT 291

294 The key benefits of combining the two wagering businesses include the following: better market positioning through the unified use of the TAB brand across all regions, all product lines and all distribution channels. The TAB brand is synonymous with wagering throughout Australia and has very high recognition and credibility with customers. As part of its revamp, Tatts introduced the UBET brand and has been rolling it out across its retail network in Queensland, South Australia, Northern Territory and Tasmania in order to provide branding consistency across its markets and with its online offering (which could not use the TAB brand as that was already used by Tabcorp). However, Tatts faces a number of challenges in building effective recognition for a new brand in an environment where the corporate bookmakers are spending heavily on television advertising and other marketing and can afford to spend more because of structural advantages through lower operating costs (e.g. no retail network) and taxes. Indeed, notwithstanding it only has an online presence, TAB has a higher brand awareness score than UBET in Queensland. With the combined marketing resources of the two companies focused on a single, long established and widely known brand there is expected to be: a more effective competitive presence in the online segment against corporate bookmakers; and improved retail and on-course wagering activity levels in the former Tatts markets (and, in turn, a stronger retail and on-course presence will contribute to the online business); Tabcorp management also plans to strengthen the retail and on-course operations in Tatts markets through: expansion of product offerings to include key Tabcorp products (e.g. bet types such as Quaddie Cash Out, introduction of Trackside); targeted investment in the Tatts retail network such as upgrading of top performing sites within the network and extending self service; and aligning the digital offering (Sky Racing) for Tatts customers to the same level as Tabcorp customers; the substantial level of synergies expected to be realised (see (iii) below) are predominantly in the wagering business (>75%) and are expected to contribute to a significant uplift in margins for the business. Stronger margins will provide more capacity to invest as necessary (e.g. in marketing or technology) to compete against the corporate bookmakers; under the arrangements with the racing industry, a number of the major synergy benefits (including both revenue growth and some cost savings) will, assuming they are realised, result in additional payments to the industry. Tabcorp estimates the increased industry payments will be at least $50 million per annum which should enhance the long term sustainability of the Australia racing industry. A stronger racing industry should, in turn, enhance the wagering business (e.g. through more races, better quality races as a result of increased prize money or better on-course attendance through increased marketing); and the pari-mutuel system of betting in Australia currently involves three separate pools Victoria (including ACT and Western Australia), Queensland (including South Australia, Tasmania and the Northern Territory) and NSW. The national (excluding Western Australia) platform that will result from the Scheme provides a pathway to creating a single national pool (or, at the very least, consolidating two of the pools), albeit subject to regulatory and racing industry approvals. A single national pool would significantly improve the attractiveness of this type of betting particularly for smaller regional race meetings which, under the current system, can suffer from very small pools that adversely affect the returns available to customers Tatts Group Limited Scheme Booklet

295 (iii) A substantial level of synergies It is estimated that the Scheme will generate at least $130 million in annual EBITDA synergies and business improvements and $10 million per annum of capital expenditure synergies (after allowing for the share attributable to the racing industry). The synergies are expected to be fully realised in the first full year following completion of the integration of the businesses with integration expected to take approximately two years from implementation (i.e. in FY21). The expected $130 million in synergies and business improvements include: at least $80 million per annum of operational expenditure savings primarily in the wagering business and corporate overheads. These savings have been based on a detailed ground up review undertaken by Tatts and Tabcorp. This review identified duplicate wagering and corporate functions (including IT, bookmakers, call centre, technology, marketing, senior management, financial reporting and human resources) and operating costs (such as IT systems, public company costs, property and field services). Increased scale is also expected to bring procurement savings; revenue gains from optimisation of the performance of Tatts wagering business. These gains have two components: an improvement in the yield from Tatts fixed odds wagering business to bring it more in line with that achieved by Tabcorp (Tatts currently realises yields that are approximately 2% lower than Tabcorp while also underachieving in terms of turnover growth). The major contribution is expected to come from switching the business over to Tabcorp s proprietary fixed odds management system which provides a number of more sophisticated analytical tools (e.g. by venue). The increased size of the combined book will also assist in improving yields (e.g. through internal netting off of positions). Tabcorp also plans to extend some of its higher yielding products (e.g. extended multi bets) to the Tatts customer base. The synergy estimate represents an increase in yield in the order of 2.5% (based on Tabcorp s experience on acquisition of ACTTAB); and increased wagering turnover in Tatts markets. Statistics indicate that TAB wagering turnover in Queensland and South Australia is significantly below that of NSW and Victoria (over $500 per capita lower). The precise reasons for this are unknown, and some element of it may be structural, but it is reasonable to assume that some of it reflects the relative brand weakness of the Tatts business. The UBET business will be rebranded to TAB and Tabcorp plans other initiatives (product expansion, network upgrade, digital alignment etc.). The synergy estimate represents an uplift in per capita spend in Tatts markets of around 15% which is effectively a market share gain (relative to corporate bookmakers) but to levels still below levels inherent in Tabcorp markets; and optimisation of the South Australian Keno business managed by Tatts (subject to regulatory approval) by application of a number of the measures (branding, pooling and digital technologies) that Tabcorp has used to reinvigorate its Keno business. Capital expenditure savings of $10 million per annum (compared to the current combined expenditure levels) are expected through the rationalisation of wagering systems. There is no guarantee that the synergies and business improvements and capital expenditure savings will be realised. Moreover, the risk of realisation is increased to the extent that some of the synergies are not expected to be realised immediately, but rather during the second and third years following implementation of the Scheme (particularly the business improvements). See Section 9.3.3(ii) for a discussion of the risks and uncertainties associated with these synergies and business improvements. One off costs associated with achieving the synergies are estimated at $141 million (pre tax). $71 million of these costs are expected to be classified as operating expenditure with 152 ANNEXURE A - INDEPENDENT EXPERT S REPORT 293

296 the balance ($70 million) classified as capital expenditure. In addition, the Combined Group will incur incremental interest costs as a result of the increase in net debt represented by these one off costs (net of tax). The proforma year one incremental interest expense (excluding the impact of the share buyback) is estimated to be $42 million 142. This interest cost is reflected in the Combined Group Income Statement (see Section 6.4). The expected synergy benefits (net of one off costs) have a notional value of around 60 cents per Combined Group share 140 if they are realised in full (of which there is no guarantee). (iv) Impact on earnings and dividends The Scheme is expected to result in a material uplift in attributable EPS (underlying) and dividends per share for Tatts shareholders (on an equivalent basis) if the synergy benefits are realised in full (of which there is no guarantee). The impact is illustrated below based on proforma results for FY17, the merger ratio, the proforma analysis set out in the Scheme Booklet and Section 6.4 of this report and a Combined Group share price of $ : Proforma FY17 Impact per Equivalent Tatts Share Tatts (standalone) 151 Combined Group 152 Equivalent Tatts Share 153 Change Absolute % EPS (underlying) - before synergies and buyback % - after synergies and before buyback % - after synergies and buyback % Dividends per share - before synergies and buyback % - after synergies and before buyback % - after synergies and buyback % Source: Scheme Booklet and Grant Samuel analysis The uplift in EPS (underlying) is underpinned by the expected synergy benefits 113. While EPS (underlying) decreases if synergy benefits are excluded, this primarily reflects interest on the estimated increase in debt as well as operating losses associated with Tabcorp s Luxbet business (which is to be the subject of a strategic review in FY18) and Tabcorp s start up business Sun Bets. If synergy benefits are included, the uplift in EPS (underlying) is material as the proforma analysis assumes the synergy benefits are available immediately upon implementation. In reality, the synergies are expected to emerge over a two year integration period with only around 60% expected in the first full year following implementation of the Scheme. The proforma analysis also assumes the one off costs associated with achieving the synergies are incurred upon implementation in all cases (although this assumption does not have a material impact on proforma earnings). Furthermore, the above analysis is based on the assumptions underlying the Combined Group proforma analysis and the actual EPS impact may be different following finalisation of acquisition accounting and the operating performance of the Combined Group. Nonetheless, a material increase in EPS (underlying) is necessary for Tatts shareholders given the Combined Group will have a lower proportion of the higher rated Lotteries business (relative to Tatts on a standalone basis). 150 Being the Tabcorp share price used in the proforma FY17 financial information in the Scheme Booklet (closing price on 5 September 2017). 151 Proforma EPS for Tatts (standalone) is calculated based on NPAT (excluding significant items) as set out in Section 12.5(c) of the Scheme Booklet ($237 million) and dividends per share for Tatts (standalone) comprise actual dividends paid for FY17 (17.5 cents). 152 Combined Group data sourced from Section 6.4 of this report. 153 Calculated at Tabcorp shares for every Tatts share, being the sum of the scrip consideration of 0.80 Tabcorp shares plus 42.5 cents cash reinvested in Tabcorp shares at a price of $4.05 (closing price on 5 September 2017) Tatts Group Limited Scheme Booklet

297 To the extent EPS (underlying) increases, dividends per share increases based on the Combined Group s targeted dividend payout ratio (90% of NPAT before significant items, amortisation of the Victorian Wagering and Betting Licence and Sun Bets) as shown above. It should be noted that the Combined Group s targeted payout ratio effectively represents an increase in payout ratio for Tatts shareholders as Tatts standalone policy targets a payout ratio of 90% of NPAT from continuing operations (i.e. after amortisation of licences, brands and agreements). The actual dividend policy will be determined by the board of the Combined Group having regard to financial and other circumstances at the time. (v) Stronger base for offshore expansion Both Tatts and Tabcorp have had some forays into offshore markets and have ambitions to pursue further opportunities: Tatts has previously owned businesses in South Africa and Sweden and it recently sold Talarius, an operator of retail based EGM venues in the United Kingdom, in which it had a controlling interest for almost ten years. It has also explored acquiring lottery businesses in other markets such as New Zealand and Europe (and would continue to do so if the Scheme does not proceed); and in 2016, Tabcorp established the Sun Bets business in the United Kingdom in partnership with The Sun newspaper owned by News UK. Tabcorp plans to build on this initial investment to develop a broader online wagering presence in the United Kingdom and, potentially, in parts of Europe. The increased scale, financial resources and technological depth of the Combined Group will enhance the ability to pursue these opportunities without over exposing shareholders. (vi) Increased market presence The Combined Group will have a proforma market capitalisation of $8.1 billion (based on the Tabcorp share price on 5 September 2017). On this basis, it will be a top 50 ASX company (rank around 50). Increased scale should increase investor awareness and liquidity although: both Tatts and Tabcorp are already well within the ASX200 (the key investment index), ranking around 60 and 90 respectively; both Tatts and Tabcorp already have reasonable liquidity and the merger itself will not directly have any impact on liquidity except for the benefit of combining into a single pool; and there is no net effect on index weighting that would automatically lead to increased demand for shares in the Combined Group Disadvantages, Risks and Costs The disadvantages, risks and costs of the Scheme for Tatts shareholders include: (i) Change in the mix of exposure to Lotteries and Wagering If the Scheme is implemented, Tatts shareholders will have: significantly lower exposure to the Lotteries business. Based on proforma FY17 earnings, the EBITDA contribution from Lotteries will fall from 63% to 31%; and a significantly higher exposure to the Wagering business. Based on proforma FY17 earnings, the EBITDA contribution from Wagering will increase from 22% to 46%. There will undoubtedly be some Tatts shareholders who will not welcome this dilution of their exposure to the Lotteries business, particularly in view of: 154 ANNEXURE A - INDEPENDENT EXPERT S REPORT 295

298 the strong performance of the Lotteries business over the past few years compared to the declining earnings of the Tatts Wagering business; the attractive annuity style income stream of the Lotteries business with its national platform (except for Western Australia) and 98% market share compared to the much more challenging environment of wagering with its intense competition, rapidly evolving technologies and complex arrangements with the racing industry; and the much more challenging environment of wagering with its intense competition and rapidly evolving technologies. There are higher risks attached to the future performance of the wagering business (even once merged), particularly the potential impacts of regulatory changes, competition, changes in operating costs (including industry payments), licence renewals and the broadcasting rights environment. While these factors are important, Tatts shareholders also need to recognise that: the Lotteries business has its own challenges that could impact materially on future returns to shareholders: earnings are not invulnerable to downturns. The results in FY17 show a decline in earnings (8.7% at the EBITDA level), largely as a result of a significant reduction in the level of major jackpots compared to FY16. While a return to a more normal level of jackpots is expected in FY18 this is never guaranteed (see Section 4.9.2); while Tatts has been awarded the new ten year Victorian lottery licence from 1 July 2018, Victoria s practice of limiting licences to ten years means Tatts will face the uncertainty and cost of renewal on an ongoing basis; and the sector is not immune from competition and new participants (such as Lottoland) can be expected to take an increasing share of Australian lottery outlays (even if they do not necessarily become a significant force). The proposed sports and heritage lottery announced in the recent Federal budget could also adversely impact on earnings from Lotteries over time (even if operated by Tatts); the Tatts Wagering business, to which shareholders are fully exposed, faces a number of significant challenges as a standalone business. The Scheme will create a national platform (except for Western Australia) for wagering under a unified TAB brand that is a much stronger business than either a standalone Tatts or Tabcorp and is better able to compete with the corporate bookmakers (see Section 9.3.2); the Combined Group will have a more balanced portfolio of exposures to the various segments of the gambling entertainment industry; and they are receiving a share of value (~61%) that is higher than the value that they are contributing whether measured by sharemarket value or fundamental value. (ii) Integration Risks There are implementation risks in any merger. In this case, there will be a significant reengineering of the operational side of the business particularly in relation to corporate overheads and systems and technology for the wagering businesses and the integration of the gaming services businesses. Blending two organisations always involves some risk because of different skill sets, historical work priorities and practices, operational philosophies and organisational culture. The identified operational cost savings involve: a significant level of redundancies with a potential loss of corporate knowledge and industry relationships; and rationalisation of wagering systems. Inevitably, there are risks of delays and increased costs in implementation of such a major Tatts Group Limited Scheme Booklet

299 overhaul. Merger integration and systems changes are fraught with challenges and problems. In this case, there are complexities from the fact that to some extent Tatts runs an integrated corporate and technology function covering both Wagering and Lotteries. Accordingly, there is no certainty that the estimated synergies and business improvements 113 of the Scheme will be achieved. However, these risks may be mitigated by the following factors: the estimated synergy benefits have been developed jointly by Tabcorp and Tatts over a reasonably lengthy period of time (starting with the initial merger discussions in late 2015); the integration plan envisages a carefully staged two year implementation program; around 62% of the $130 million in expected annual synergies are cost savings to which a higher level of confidence can normally be attributed. The revenue uplifts come from fixed odds yield improvement and turnover uplift and are less certain but both are supported by: evidence based differentials in performance parameters between Tatts and Tabcorp; and Tabcorp s track record from the recent acquisition of ACTTAB and (to a lesser extent) Intecq; the synergy estimates do not include a number of other planned initiatives that may also improve performance of the Combined Group including: the potential for national pools for pari-mutuel (totalizator) betting, or at least for some degree of consolidation from the current three pools; longer term revenue benefits from, for example: - the strengthening of the racing industry (e.g. through additional funding arising from synergy benefits) and the access to a nationally integrated platform; and - the greater scale and depth of the Combined Group enhancing the ability to pursue offshore expansion in all three segments of the business; integration of the two gaming services businesses; and application of additional marketing and technological skills and resources to the Lotteries business; and the fact that the existing board and management of Tabcorp will be in control of the integration process. This situation is likely to lead to clearer and faster decision making than in cases where control at this level is being shared and there is a need for balance and consultation. (iii) New Board and Management From the perspective of Tatts shareholders, they will be faced with an almost entirely new board and senior management team running the Combined Group. To the extent shareholders were comfortable and satisfied with the existing Tatts board and management, the Scheme creates a degree of risk and uncertainty (for example, Tabcorp has no experience in running a lotteries business). On the other hand: the board and management of Tabcorp are well credentialed with a track record of improving Tabcorp performance over the past 2-3 years; the situation will at least provide clarity and continuity which can be contrasted with the uncertainty that arises in many mergers where boards and management teams that have never previously worked together have to be blended ; and shareholders of the Combined Group have the power to change the composition of the board if they are not satisfied with the performance. In this context, Tatts shareholders will, at least initially, in aggregate own 58.4% of the Combined Group giving them the dominant voice. 156 ANNEXURE A - INDEPENDENT EXPERT S REPORT 297

300 (iv) Transaction and Integration Costs Transaction and integration costs related to the Scheme are estimated to total around $341 million. These costs comprise: transaction costs (such as stamp duty, advisory and other costs) of $200 million, of which $67 million was expensed by Tatts and Tabcorp in FY17. This estimate includes costs associated with the competition approval process, costs associated with early redemption of the Tatts USPP loan notes and retention payments; and integration costs associated with the expected operational synergies and business improvement and capital expenditure synergies of $141 million, $71 million of which are expected to be classified as operating expenditure and $70 million as capital expenditure. Tatts shareholders will, in aggregate, bear 58.4% of these costs. The transaction costs represent approximately 2.5% of the proforma market capitalisation of the Combined Group ($8.1 billion). Of the total costs, approximately $55 million will be incurred by Tatts (and therefore its shareholders) on a standalone basis if the Scheme is not implemented (including $33.4 million expensed in FY17). In certain circumstances, Tatts will also be liable to pay Tabcorp a $55 million reimbursement fee (e.g. if Tatts changes its recommendation in favour of a superior proposal). On the other hand, in certain circumstances, Tabcorp will be liable to pay Tatts a $55 million reimbursement fee or, in other circumstances, a $35 million competition approval reimbursement fee. However, should Tatts become entitled to receive both of fees from Tabcorp, it will only be entitled to retain the higher fee (i.e. the $55 million reimbursement fee). (v) Increased Financial Risk The proforma financial gearing of the Combined Group will be higher than Tatts existing gearing if the Scheme is implemented and will increase further if the intended share buyback is undertaken: Proforma Impact on Gearing Tatts (standalone) 154 Combined Group 155 Change Absolute % Gross borrowings/ebitda 46 - before synergies and buyback 2.5x 3.6x +1.1x +44% - after synergies and before buyback 2.5x 3.1x +0.6x +24% - after synergies and buyback 2.5x 3.6x +1.1x +44% Net borrowings/net asset plus net borrowings - before synergies and buyback 24.0% 32.4% +8.5% +35% - after synergies and before buyback 24.0% 32.4% +8.5% +35% - after synergies and buyback 24.0% 38.0% +14.0% +59% Source: Scheme Booklet and Grant Samuel analysis The increase is largely due to the cash component of the consideration being paid under the Scheme to Tatts shareholders (42.5 cents per share or $624 million) but it also reflects transaction and integration costs associated with the transaction. This increase in debt will incur additional interest costs ($42 million per annum on a pre tax basis) that will reduce the net earnings of the Combined Group (as reflected in the Combined Group Proforma Income Statement as set out in Section 12.5 of the Scheme Booklet). 154 Proforma data for Tatts (standalone) calculated based on Section 12.5(c) and Section 12.5(f) of the Scheme Booklet. 155 Combined Group data sourced from Section 6.5 of this report Tatts Group Limited Scheme Booklet

301 However: the higher gearing is more efficient from a purely financial point of view. Arguably, Tatts was previously undergeared having regard to the low risk annuity style income stream of its Lotteries business (63% of EBITDA in FY17); the proforma gearing levels are still within the bounds of financial prudence for a company with the business risk profile of the Combined Group. S&P has indicated that its credit rating for Tabcorp (BBB-/Stable) is unaffected by the Scheme; the proforma gearing levels prior to the intended share buyback (specifically gross borrowings/ebitda) are materially lower if the estimated synergy benefits 113 are taken into account; and the cash component of the consideration ($624 million), which is a major part of the increase in debt, is simply a result of distributing cash directly to Tatts shareholders. (vi) Reduced scope for future takeover While the proposal from the Pacific Consortium has not proceeded it does indicate that there is potential for Tatts shareholders to receive a takeover offer incorporating a change of control and a premium for control. Based on substantial shareholder notices lodged for Tatts and Tabcorp at the date of this report, no shareholder is expected to hold more than 9.6% of the shares on issue in the Combined Group on implementation of the Scheme. Accordingly, notwithstanding the shareholding restrictions in the Tabcorp Constitution 10 (see below), it is open for any third party to make a takeover offer for the Combined Group enabling shareholders to receive a premium for control. However, as a matter of practice it is less likely that there would be such an offer for the Combined Group than for a standalone Tatts as the potential for such an offer is limited by: the scale of the Combined Group. With a proforma market capitalisation of approximately $8.1 billion, it is beyond the practical reach of likely Australian buyers (of which there are no obvious candidates from a business combination point of view) and, indeed, most offshore industry acquirers; the potential for issues under the Foreign Acquisition and Takeovers Act, 1975 in view of the effective national (excluding Western Australia) monopoly licences held by the Combined Group across both retail and on-course wagering and lotteries and the interdependence with the racing industry; and Tabcorp has restrictions in its Constitution limiting shareholdings to 10% unless such an increase is approved by (the relevant persons within) the Queensland Government and the NSW Government. Similar approvals have been granted in other transactions and the primary purpose is to protect probity but: the approvals are outside the control of Tabcorp and its shareholders; the situation for the Combined Group may be more complex. For example, the likely acquirers are offshore whereas the previous approvals were in the context of domestic transactions; and at the very least, it raises the spectre of certain conditions being imposed. Tatts shareholders should also recognise that there are no absolute impediments to a future change of control transaction and under the Scheme terms they are, in fact, receiving some premium (around 20.8% based on share prices immediately prior to announcement of the Scheme). (vii) Other Section 13 of the Scheme Booklet details a number of other risks relating to Tatts, investment in Tabcorp and the Combined Group and the Scheme. Shareholders should consider these risks in making a decision on whether to vote for the Scheme. 158 ANNEXURE A - INDEPENDENT EXPERT S REPORT 299

302 9.4 Alternatives Prior to recommending the Scheme on 19 October 2016, the board of Tatts: engaged with Tabcorp in late 2015 in relation to a potential nil premium merger but was unable to agree mutually acceptable terms at that time; held discussions in mid 2016 with certain members of the Pacific Consortium; and considered Tatts strategic landscape and alternatives and undertook a detailed assessment of the ability to achieve the identified cost savings. The board also formally considered a number of alternatives such as demerging one or more of its businesses, selling certain assets and maintaining the status quo. Having assessed the pros and cons of each, the Board concluded that the Scheme was the most attractive alternative available. Tatts has agreed to no-shop, no-talk and no-due diligence provisions and Tabcorp has agreed to a no-shop provision. Tabcorp has the right to match any competing proposal for Tatts that might be made by another party. On 14 December 2016, the Pacific Consortium announced an alternative indicative proposal under which Tatts shareholders would receive $3.40 cash per share (representing a payment to acquire Tatts Lotteries business) and a share in a new listed company that would own Tatts Wagering and Gaming businesses. The Pacific Consortium attributed a value to these shares of between $1.00 (as a trading value) and $1.60 (under a change of control transaction), representing an aggregate value of $ per Tatts share. On 23 December 2017, the board of Tatts announced that it did not consider the Pacific Consortium proposal to be superior, or likely to become superior, to the Scheme and would continue to recommend the Scheme to Tatts shareholders. On 19 April 2017, Tatts announced that it had received the Pacific Consortium Revised Indicative Proposal under which Tatts shareholders would receive $4.21 in cash for each Tatts share. On 28 April 2017, the board of Tatts announced that it had determined that this proposal was not a superior proposal and could not reasonably be expected to result in a superior proposal when comparted to the Scheme and would, therefore, continue to recommend the Scheme to Tatts shareholders. Pacific Consortium has ceased to work on this proposal 156. Accordingly, the Pacific Consortium Revised Indicative Proposal is not a proposal that is presently available to Tatts shareholders. However, it does indicate that there is potential for an alternative proposal to the Scheme and this needs to be considered by Tatts shareholders prior to making their decision in relation to the Scheme. The following factors are relevant to that assessment: it is possible that the Pacific Consortium could reactivate and put forward a further proposal or another party (such as an offshore gambling entertainment operator) could put forward an alternative proposal prior to the shareholder meeting. Assuming the Pacific Consortium (or an alternative party) requires due diligence, the decision as to whether or not such a proposal is put before shareholders lies in the hands of the directors of Tatts. Unless the directors determine it to be superior, or likely to become superior, to the Scheme (subject to Tabcorp s rights to match), the alternative proposal cannot proceed; it is open for the Pacific Consortium to make an offer directly to Tatts shareholders (e.g. through a formal takeover offer) even if it was not deemed to be superior, or likely to become superior, to the Scheme. However, given that both of its proposals envisaged a due diligence process (which would only be available with the support of the Tatts board) it is unlikely that such an offer would be forthcoming. The scale and complexity of the Tatts business would suggest an offer from any alternative party without due diligence is unlikely, although not inconceivable; shareholders could vote to reject the Scheme if they believed any alternative proposal was superior (even if the directors of Tatts did not), in the expectation that such a proposal would 156 On 28 April 2017, the Pacific Consortium released a media statement in response to this decision in which it expressed its disappointment and stated that Given the current approach of the Tatts Board the Consortium does not intend to undertake further work on its Proposal Tatts Group Limited Scheme Booklet

303 remain on foot post meeting and that, in those circumstances, the directors would then seek to engage with the offeror. There are significant risks in such a strategy. For example, the alternative acquirer may ultimately find its due diligence not satisfactory and could withdraw or seek to amend its offer. The merits of such a strategy would depend on the specific circumstances; shareholders could also vote to reject the Scheme even if there was no specific alternative proposal in the hope one might emerge subsequently. However, there has been sufficient time for alternative parties to assess Tatts and to develop a proposal (at least since October 2016, if not late 2015) and there will be some months before final shareholder and regulatory approvals are received. If no new alternative proposal is received or announced prior to the shareholder meeting to approve the Scheme, it is reasonable to assume that the Scheme is the best and only option available to shareholders; and the decision as to the relative merits of alternative proposals is not just a question of the headline price. If a counter proposal is, for example, a 100% cash offer (or even a predominantly cash offer), then shareholders are very clearly selling control of the Tatts business to a third party under which they will have no ongoing exposure to the business and its growth potential (i.e. it is a one time sale opportunity). 9.5 Other Matters In contrast, under the Scheme they are not giving up control but will in aggregate control the Combined Group, will continue to have an exposure (albeit diluted) to the Tatts business and have a 58.4% (aggregate) share of future growth and any synergy benefits realised from the Scheme (which are notionally worth around 60 cents per Combined Group share 140 (net of one off costs) if achieved in full (of which there is no guarantee)). They will also retain the opportunity to sell control of the Combined Group at some future time. In addition, there may be other differences between proposals including: taxation consequences. For example, a cash offer may result in capital gains tax ( CGT ) liabilities for some shareholders while scrip offers may provide CGT rollover relief; and certainty and timing of completion particularly where there are extensive regulatory approvals required. Accordingly, any comparison of proposals must be a more nuanced comparison across a number of dimensions (e.g. value, control, residual exposure, tax and certainty). Taxation Consequences Details on taxation consequences of the Scheme for Australian and non-resident shareholders who are individuals, complying superannuation entities and companies that hold their investment on capital account are set out in Section 15 of the Scheme Booklet. This section was prepared by KPMG and addresses tax consequences associated with Tatts FY17 final dividend, the special dividend, the disposal of Tatts shares under the Scheme and the holding and disposing of Combined Group shares received under the Scheme. The Scheme will give rise to a CGT event for Tatts shareholders. Australian resident shareholders are expected to be eligible to receive CGT scrip rollover relief if a capital gain would otherwise have been made from the exchange of Tatts shares for Combined Group shares. If shareholders receive rollover relief the capital gain that would otherwise be generated will be deferred until they dispose the Combined Group shares. For a shareholder who chooses not to receive rollover relief, the CGT provisions will apply. Tatts has applied to the Australian Taxation Office for a class ruling to confirm, amongst other matters, the availability of CGT scrip for scrip rollover relief and whether Tatts shareholders will be entitled to the imputation benefits associated with any franking credits attached to the special dividend. In any event, the taxation consequences for shareholders will depend upon their individual circumstances. If in any doubt, shareholders should consult their own professional adviser. 160 ANNEXURE A - INDEPENDENT EXPERT S REPORT 301

304 Dividends The Scheme consideration includes a cash component of 42.5 cents per share which may be partly satisfied by the payment of a 12 cent fully franked special dividend by Tatts. In Grant Samuel s opinion, it is not appropriate for the assessment of the Scheme to: factor into the value of Tatts the value of accumulated franking credits; or include in the value of the consideration the value of the franking credits attached to the special dividend. The reasons are manifold but not the least of these is that the franking credits do not have value to a company per se but only have value to the shareholders of a company (when attached to dividends) and the value of those credits to each shareholder varies depending on their individual circumstances. Nevertheless, it needs to be recognised that, where part of the consideration comprises a franked dividend, some shareholders may realise additional value from the franking credits (i.e. they are better off in after tax terms than they would have been had the same amount been paid as part of consideration under the Scheme and been received as a capital gain). On the other hand, as the balance of the consideration may be subject to CGT scrip rollover relief, the payment of capital gains tax would have been deferred until the shareholder ultimately realises the investment in Combined Group. Ineligible Foreign Shareholders Ineligible foreign shareholders (i.e. Tatts shareholders with registered addresses outside Australia and its external territories other than Canada, Finland, France, Germany, Hong Kong, Japan, Malaysia, The Netherlands, New Zealand, Singapore, Sweden, Taiwan, Thailand, the United Arab Emirates, the United Kingdom or the United States of America and any other jurisdiction Tabcorp deems appropriate) are not entitled to receive shares in the Combined Group. However: the Combined Group shares that they would otherwise have received will be sold on market and they will receive the cash proceeds on sale (after payment of any applicable brokerage, taxes and costs) in Australian dollars; they can acquire Combined Group shares through the ASX if they wish to retain an exposure to the Combined Group; and shareholders representing less than <0.5% of Tatts issued shares are expected to be affected by these provisions. However, ineligible foreign shareholders will receive the cash component of the consideration (including any special dividend paid by Tatts). 9.6 Shareholder Decision Grant Samuel has been engaged to prepare an independent expert s report setting out whether in its opinion the Scheme is in the best interests of Tatts shareholders and to state reasons for that opinion. Grant Samuel has not been engaged to provide a recommendation to shareholders in relation to the Scheme, the responsibility for which lies with the directors of Tatts. In any event, the decision whether to vote for or against the Scheme is a matter for individual shareholders based on each shareholder s views as to value, their expectations about future market conditions and their particular circumstances including risk profile, liquidity preference, investment strategy, portfolio structure and tax position. In particular, taxation consequences may vary from shareholder to shareholder. If in any doubt as to the action they should take in relation to the Scheme, shareholders should consult their own professional adviser. Similarly, it is a matter for individual shareholders as to whether to buy, hold or sell shares in Tatts, Tabcorp or the Combined Group. These are investment decisions upon which Grant Samuel does not offer an opinion and are independent of a decision on whether to vote for or against the Scheme. Shareholders should consult their own professional adviser in this regard Tatts Group Limited Scheme Booklet

305 10 Qualifications, Declarations and Consents 10.1 Qualifications The Grant Samuel group of companies provide corporate advisory services (in relation to mergers and acquisitions, capital raisings, debt raisings, corporate restructurings and financial matters generally) and provides marketing and distribution services to fund managers. The primary activity of Grant Samuel & Associates Pty Limited is the preparation of corporate and business valuations and the provision of independent advice and expert s reports in connection with mergers and acquisitions, takeovers and capital reconstructions. Since inception in 1988, Grant Samuel and its related companies have prepared more than 530 public independent expert and appraisal reports. The persons responsible for preparing this report on behalf of Grant Samuel are Caleena Stilwell BBus FCA F Fin GAICD, Stephen Wilson BCom MCom(Hons) CA(NZ) SF Fin and Jaye Gardner BCom LLB (Hons) CA SF Fin GAICD. Each has a significant number of years of experience in relevant corporate advisory matters. Jeffrey Birse BA BCom(Hons) CFA, Tom Rowe BCom MBA and Jardee Kininmonth BCom (Hons) assisted in the preparation of the report. Each of the above persons is a representative of Grant Samuel pursuant to its Australian Financial Services Licence under Part 7.6 of the Corporations Act Disclaimers It is not intended that this report should be used or relied upon for any purpose other than as an expression of Grant Samuel s opinion as to whether the Scheme is in the best interests of shareholders. Grant Samuel expressly disclaims any liability to any Tatts shareholder who relies or purports to rely on the report for any other purpose and to any other party who relies or purports to rely on the report for any purpose whatsoever. Grant Samuel has had no involvement in the preparation of the Scheme Booklet issued by Tatts and has not verified or approved any of the contents of the Scheme Booklet. Grant Samuel does not accept any responsibility for the contents of the Scheme Booklet (except for this report) Independence Grant Samuel and its related entities do not have at the date of this report, and have not had within the previous two years, any business or professional relationship with Tatts or Tabcorp or any financial or other interest that could reasonably be regarded as capable of affecting its ability to provide an unbiased opinion in relation to the Scheme. Grant Samuel advises that: Grant Samuel was retained by Tabcorp to prepare an independent expert s report in relation to the demerger of Echo Entertainment Group Limited dated 15 April 2011; and Steven Gregg, a non-executive director of Tabcorp, is a member of the Grant Samuel Group Advisory Board (an informal panel of senior business people) and from time to time consults to Grant Samuel Group. He has a minor non-voting holding (<1%) of shares in Grant Samuel Group Pty Limited, the parent company of Grant Samuel. Mr Gregg has no involvement in the management or operations of Grant Samuel and has no access to confidential information held by Grant Samuel. Grant Samuel had no part in the formulation of the Scheme. Its only role has been the preparation of this report. Grant Samuel will receive a fixed fee of $1,850,000 for the preparation of this report. This fee is not contingent on the conclusions reached or the outcome of the Scheme. Grant Samuel s out of pocket expenses in relation to the preparation of the report will be reimbursed. Grant Samuel will receive no other benefit for the preparation of this report. Grant Samuel considers itself to be independent in terms of Regulatory Guide 112 issued by the ASIC on 30 March ANNEXURE A - INDEPENDENT EXPERT S REPORT 303

306 10.4 Declarations Tatts has agreed that it will indemnify Grant Samuel and its employees and officers in respect of any liability suffered or incurred as a result of or in connection with the preparation of the report. This indemnity will not apply in respect of the proportion of any liability found by a court to be primarily caused by any conduct involving gross negligence or wilful misconduct by Grant Samuel or as a direct result of a material breach by Grant Samuel of its engagement letter. Tatts has also agreed to indemnify Grant Samuel and its employees and officers for time spent and reasonable legal costs and expenses incurred in relation to any inquiry or proceeding initiated by any person. Any claims by Tatts are limited to an amount equal to the fees paid to Grant Samuel. Where Grant Samuel or its employees and officers are found to have been grossly negligent or engaged in wilful misconduct or to have materially breached its engagement letter, Grant Samuel shall bear the proportion of such costs caused by its action. On 30 June 2017, a draft of this report was lodged with ASIC as part of a draft Scheme Booklet. Prior to that date, advance drafts of the report had been provided to Tatts and its advisers and also to Tabcorp and its advisers. Certain changes were made to the drafting of the report as a result of the circulation of that draft report. There was no alteration to the methodology, evaluation or conclusions as a result of issuing the drafts. In July 2017, following the applications by the ACCC and CrownBet to the Full Federal Court of Australia for judicial review of the Tribunal s authorisation of the proposed combination, the process of preparing the Scheme Booklet was delayed pending the release of the FY17 financial results of Tatts and Tabcorp. As a consequence, the draft report has been updated to reflect those and other announcements by Tatts and Tabcorp, changes to market and other relevant information since June This update resulted in changes in presentation and conclusions in relation to the fundamental values of Tatts and Tabcorp but no change to Grant Samuel s opinion that the Scheme is in the best interests of Tatts shareholders, in the absence of a superior proposal. Advance drafts of the updated report were provided to Tatts and its advisers and also to Tabcorp and its advisers. Certain changes were made to the drafting of the report as a result of the circulation of the revised draft report. There was no alteration to the methodology, evaluation or conclusions as a result of issuing the drafts Consents Grant Samuel consents to the issuing of this report in the form and context in which it is to be included in the Scheme Booklet to be sent to shareholders of Tatts. Neither the whole nor any part of this report nor any reference thereto may be included in any other document without the prior written consent of Grant Samuel as to the form and context in which it appears Other The accompanying letter dated 8 September 2017 and the Appendices form part of this report. Grant Samuel has prepared a Financial Services Guide as required by the Corporations Act. The Financial Services Guide is set out at the beginning of this report. GRANT SAMUEL & ASSOCIATES PTY LIMITED 8 September Tatts Group Limited Scheme Booklet

307 Appendix 1 Tatts Broker Consensus Forecasts Tatts Group Limited ( Tatts ) has not publicly released earnings forecasts for FY18 1 or beyond. Accordingly, the FY18 multiples implied by the valuation of Tatts in the Grant Samuel report are based on median broker forecasts. Set out below is a summary of FY18 business operation forecasts prepared by brokers that follow Tatts in the Australian stockmarket: Tatts FY18 Broker Forecasts (Business Operations) ($ millions) Broker Date Revenue EBITDA 2 EBITA 3 EBIT 4 Broker 1 17 Aug 2017 na na na na Broker 2 17 Aug , Broker 3 17 Aug , Broker 4 17 Aug , Broker 5 17 Aug , Broker 6 17 Aug , Broker 7 18 Aug , Broker 8 17 Aug , Broker 9 17 Aug , Broker Aug , Broker Aug , Minimum 2, Maximum 2, Median 2, Average 2, Source: Brokers reports, Grant Samuel analysis When reviewing this data the following should be noted: the forecasts presented above represent the latest available broker forecasts for Tatts since announcement of its FY17 results on 17 August 2017; as far as Grant Samuel is aware, Tatts is currently followed by 14 brokers, of which 11 are presented above. Of the three brokers not shown, one has not published research since 17 August 2017, one is restricted and has not published research since April 2017 and one has not has not published any research since October 2016; while Broker 1 has published research on Tabcorp and the Combined Group, it has not published separate forecasts for Tatts; none of the brokers have separately identified amortisation of acquired intangible assets. In the table above, Grant Samuel has assumed that $33.1 million 5 of each broker s depreciation and amortisation charge relates to amortisation of licences, brands and agreements (i.e. acquired intangible assets) in FY18; and as far as is possible to identify from a review of the brokers reports, Grant Samuel believes that the earnings forecasts do not incorporate any other one-off adjustments or non-recurring items. The median brokers forecasts for FY18 are sufficiently close to the Tatts FY18 Budget to be useful for analytical purposes. Set out below is a summary of forecasts for Tatts business divisions prepared by brokers that follow Tatts in the Australian stockmarket. When reviewing this data the following should be noted: only five of the 11 brokers that have published research since the release of Tatts FY17 financial results have provided FY18 forecasts by business division; 1 FYXX = financial year ended 30 June 20XX. 2 EBITDA is earnings from continuing operations before net interest, tax, depreciation and amortisation and significant and non-recurring items. 3 EBITA is earnings from continuing operations before net interest, tax, amortisation of licences, brands and agreements and significant and non-recurring items. 4 EBIT is earnings from continuing operations before net interest, tax and significant and non-recurring items 5 Amortisation of licences, brands and agreements for FY17 estimated at $26.3 million plus incremental amortisation in FY18 relating to the acquisition of the NSW central monitoring rights. 1 ANNEXURE A - INDEPENDENT EXPERT S REPORT 305

308 only two of the five brokers have provided forecasts by division at the EBIT level and none has provided forecasts by division at the EBITA level. In the following tables, Grant Samuel has: allocated forecast depreciation and amortisation of each of the five brokers between business divisions in the same proportion as included in the Tatts FY18 Budget; and allocated the assumed $33.1 million of amortisation of licences, brands and agreements to divisions as follows: $15.6 million for Lotteries, $6.8 million for Wagering and $10.7 million for Gaming. Lotteries Lotteries FY18 Broker Forecasts ($ millions) Broker Date Revenue EBITDA EBITA EBIT Broker 2 17 Aug , Broker 5 17 Aug , Broker 6 17 Aug , Broker 8 17 Aug , Broker Aug , Minimum 2, Maximum 2, Median 2, Average 2, Source: Brokers reports, Grant Samuel analysis The FY18 median brokers forecasts for Lotteries are sufficiently close to the Tatts FY18 Budget to be useful for analytical purposes. Wagering Wagering FY18 Broker Forecasts ($ millions) Broker Date Revenue EBITDA EBITA EBIT Broker 2 17 Aug Broker 5 17 Aug Broker 6 17 Aug Broker 8 17 Aug Broker Aug Minimum Maximum Median Average Source: Brokers reports, Grant Samuel analysis The FY18 median brokers forecasts for Wagering are materially lower than the Tatts FY18 Budget. As a result, the median brokers forecasts have not been used in considering FY18 multiples. Gaming Gaming FY18 Broker Forecasts ($ millions) Broker Date Revenue EBITDA EBITA EBIT Broker 2 17 Aug Broker 5 17 Aug Broker 6 17 Aug Broker 8 17 Aug Broker Aug Minimum Maximum Median Average Source: Brokers reports, Grant Samuel analysis The FY18 median brokers forecasts for Gaming are materially higher than the Tatts FY18 Budget. As a result, the median brokers forecasts have not been used in considering FY18 multiples Tatts Group Limited Scheme Booklet

309 Appendix 2 Tabcorp Broker Consensus Forecasts Tabcorp Holdings Limited ( Tabcorp ) has not publicly released earnings forecasts for FY18 1. Accordingly, the FY18 multiples implied by the valuation of Tabcorp in the Grant Samuel report are based on median broker forecasts. Set out below is a summary of forecasts prepared by brokers that follow Tabcorp in the Australian stockmarket: Tabcorp FY18 Broker Forecasts ($ millions) Broker Date Revenue EBITDA 2 EBITA 3 EBIT 4 Broker 1 4 Aug , Broker 2 6 Aug , Broker 3 4 Aug , Broker 4 4 Aug , Broker 5 7 Aug , Minimum 2, Maximum 2, Median 2, Average 2, Source: Brokers reports, Grant Samuel analysis When reviewing this data the following should be noted: the forecasts presented above represent the latest available broker forecasts for Tabcorp; the brokers presented are those who have published research on Tabcorp following Tabcorp s announcement of its FY17 results on 4 August 2017; while eight brokers have published research on Tabcorp following Tabcorp s announcement of its FY17 trading update, not all of these brokers are shown in the table above: in FY17, Tabcorp treated Sun Bets as a significant item (EBITDA loss of $46.2 million and EBIT loss of $50.8 million) but noted that it would be reported as part of business operations from FY18 onwards. The treatment of Sun Bets in FY18 differs between brokers, with some continuing to treat it separately (as a separate business unit, excluded from normalised earnings or otherwise separately disclosed) and others including it in Wagering & Media s operating performance (consistent with Tabcorp s expected treatment). Where the performance of Sun Bets is not able to be separated from Wagering & Media s operating performance, Grant Samuel has excluded those brokers forecasts in calculating the median broker forecast. This applies to two of the eight brokers who have published research on Tabcorp; and one brokers forecast assumes that the Scheme is implemented and provides combined earnings for Tabcorp and Tatts for FY18. This brokers forecast has also been excluded in calculating the relevant median broker forecast; none of the brokers have separately identified amortisation of licences. In the table above, Grant Samuel has assumed that $49.3 million of each broker s depreciation and amortisation charge relates to amortisation of licences in FY18; and as far as is possible to identify from a review of the brokers reports, Grant Samuel believes that the earnings forecasts do not incorporate any other one-off adjustments or significant items. The median brokers forecasts for FY18 are sufficiently close to the Tabcorp FY18 Draft Budget to be useful for analytical purposes. 1 FYXX = financial year end 30 June 20XX. 2 EBITDA is earnings from continuing operations before net interest, tax, depreciation and amortisation and significant and nonrecurring items. 3 EBITA is earnings from continuing operations before net interest, tax, amortisation of licences, brands and agreements and significant and non-recurring items. 4 EBIT is earnings from continuing operations before net interest, tax and significant and non-recurring items. 1 ANNEXURE A - INDEPENDENT EXPERT S REPORT 307

310 Set out below is a summary of forecasts for Tabcorp s business divisions prepared by brokers that follow Tabcorp in the Australian stockmarket. When reviewing this data the following should be noted: only three of the five brokers that have published research on Tabcorp since the release of Tabcorp s FY17 results provided forecasts by business division; not all brokers provide each of revenue, EBITDA and EBIT by business division. Two brokers provide revenue and EBITDA by business division and one broker provides EBIT by business division. In the following tables, Grant Samuel has allocated the consolidated forecast FY18 depreciation and amortisation of each of the three brokers (or the median if an individual broker forecast is not available) between business divisions in the same proportion as depreciation and amortisation has been forecast by Tabcorp in FY18; and none of the brokers has separately identified amortisation of licences. In the tables below, Grant Samuel has assumed that $43.3 million of amortisation of licences relates to Wagering & Media and $6.0 million relates to Keno in FY18. Wagering & Media Wagering & Media FY18 Broker Forecasts ($ millions) Broker Date Revenue EBITDA EBITA EBIT Broker 1 4 Aug , Broker 2 6 Aug , Broker 3 7 Aug , Minimum 1, Maximum 1, Median 1, Average 1, Source: Brokers reports, Grant Samuel analysis The FY18 median brokers forecasts for Wagering & Media are sufficiently close to the Tabcorp FY18 Draft Budget to be useful for analytical purposes. Keno Keno FY18 Broker Forecasts ($ millions) Broker Date Revenue EBITDA EBITA EBIT Broker 1 4 Aug Broker 2 6 Aug Broker 3 7 Aug Minimum Maximum Median Average Source: Brokers reports, Grant Samuel analysis The FY18 median brokers forecasts of revenue and EBITDA for Keno are sufficiently close to the Tabcorp FY18 Draft Budget to be useful for analytical purposes. However, the FY18 median brokers forecasts for EBITA and EBIT are materially (greater than 5%) higher than the Tabcorp FY18 Draft Budget. As a result, these median brokers forecasts have not been used in considering FY18 multiples Tatts Group Limited Scheme Booklet

311 Gaming Services Gaming Services FY18 Broker Forecasts ($ millions) Broker Date Revenue EBITDA EBITA EBIT Broker 1 4 Aug Broker 2 6 Aug Broker 3 7 Aug Minimum Maximum Median Average Source: Brokers reports, Grant Samuel analysis The FY18 median brokers forecasts of revenue and EBITDA for Gaming Services are sufficiently close to the Tabcorp FY18 Draft Budget to be useful for analytical purposes. However, the median brokers forecasts for EBITA and EBIT are materially (greater than 20%) higher than the Tabcorp FY18 Draft Budget. As a result, these median brokers forecasts have not been used in considering FY18 multiples. 3 ANNEXURE A - INDEPENDENT EXPERT S REPORT 309

312 Appendix 3 Valuation Methodologies 1 Overview The most reliable evidence as to the value of a business is the price at which the business or a comparable business has been bought and sold in an arm s length transaction. In the absence of direct market evidence of value, estimates of value are made using methodologies that infer value from other available evidence. There are four primary valuation methodologies that are commonly used for valuing businesses: capitalisation of earnings or cash flows; discounting of projected cash flows; industry rules of thumb; and estimation of the aggregate proceeds from an orderly realisation of assets. Each of these valuation methodologies has application in different circumstances. The primary criterion for determining which methodology is appropriate is the actual practice adopted by purchasers of the type of business involved. 2 Capitalisation of Earnings or Cash Flows Capitalisation of earnings or cash flows is the most commonly used method for valuation of industrial businesses. This methodology is most appropriate for industrial businesses with a substantial operating history and a consistent earnings trend that is sufficiently stable to be indicative of ongoing earnings potential. This methodology is not particularly suitable for start-up businesses, businesses with an erratic earnings pattern or businesses that have unusual capital expenditure requirements. This methodology involves capitalising the earnings or cash flows of a business at a multiple that reflects the risks of the business and the stream of income that it generates. These multiples can be applied to a number of different earnings or cash flow measures including EBITDA 1, EBITA 2, EBIT 3 or NPAT 4. These are referred to respectively as EBITDA multiples, EBITA multiples, EBIT multiples and price earnings multiples. Price earnings multiples are commonly used in the context of the sharemarket. EBITDA, EBITA and EBIT multiples are more commonly used in valuing whole businesses for acquisition purposes where gearing is in the control of the acquirer but are also used extensively in sharemarket analysis. Where an ongoing business with relatively stable and predictable cash flows is being valued, Grant Samuel uses capitalised earnings or operating cash flows as a primary reference point. Application of this valuation methodology involves: estimation of earnings or cash flow levels that a purchaser would utilise for valuation purposes having regard to historical and forecast operating results, non-recurring items of income and expenditure and known factors likely to impact on operating performance; and consideration of an appropriate capitalisation multiple having regard to the market rating of comparable businesses, the extent and nature of competition, the time period of earnings used, the quality of earnings, growth prospects and relative business risk. The choice between parameters is usually not critical and should give a similar result. All are commonly used in the valuation of industrial businesses. EBITDA can be preferable to EBITA or EBIT if depreciation or non-cash charges distort earnings or make comparisons between companies difficult. On the other hand, EBIT can better adjust for differences in relative capital expenditure intensity. 1 EBITDA is earnings before net interest, tax, depreciation, amortisation, other income and significant and non-recurring items. 2 EBITA is earnings before net interest, tax, amortisation of acquired intangibles, other income and significant and non-recurring items. 3 EBIT is earnings before net interest, tax, other income and significant and non-recurring items. 4 NPAT is net profit after tax Tatts Group Limited Scheme Booklet

313 Determination of the appropriate earnings multiple is usually the most judgemental element of a valuation. Definitive or even indicative offers for a particular asset or business can provide the most reliable support for selection of an appropriate earnings multiple. In the absence of meaningful offers it is necessary to infer the appropriate multiple from other evidence. The usual approach used by valuers is to determine the multiple that other buyers have been prepared to pay for similar businesses in the recent past. A pattern may emerge from transactions involving similar businesses with sales typically taking place at prices corresponding to earnings multiples within a particular range. This range will generally reflect the growth prospects and risks of those businesses. Mature, low growth businesses will, in the absence of other factors, attract lower multiples than those businesses with potential for significant growth in earnings. An alternative approach in valuing businesses is to review the multiples at which shares in listed companies in the same industry sector trade on the sharemarket. This gives an indication of the price levels at which portfolio investors are prepared to invest in these businesses. However, share prices reflect trades in small parcels of shares (portfolio interests) rather than whole companies and it is necessary to adjust for this factor. In interpreting and evaluating such data it is necessary to recognise that: multiples based on listed company share prices do not include a premium for control and are therefore often (but not always) less than multiples that would apply to acquisitions of similar companies. However, while the premium paid to obtain control in takeovers is observable (typically in the range 20-35%) it is inappropriate to simply add a premium to listed multiples. The premium for control is an outcome of the valuation process, not a determinant of value. Premiums are paid for reasons that vary from case to case and may be substantial due to synergy or other benefits available to the acquirer. In other situations, premiums may be minimal or even zero. There are transactions where no corporate buyer is prepared to pay a price in excess of the prices paid by sharemarket investors; acquisition multiples from comparable transactions are therefore usually seen as a better guide when valuing 100% of a business but the data tends to be less transparent and information on forecast earnings is often unavailable; the analysis will give a range of outcomes from which averages or medians can be determined but it is not appropriate to simply apply such measures to the company being valued. The most important part of valuation is to evaluate the attributes of the specific company being valued and to distinguish it from its peers so as to form a judgement as to where on the spectrum it appropriately belongs; acquisition multiples are a product of the economic and other circumstances at the time of the transaction. However, each transaction will be the product of a unique combination of factors, including: economic factors (e.g. economic growth, inflation, interest rates) affecting the markets in which the company operates; strategic attractions of the business - its particular strengths and weaknesses, market position of the business, strength of competition and barriers to entry; the company s own performance and growth trajectory; rationalisation or synergy benefits available to the acquirer; the structural and regulatory framework; investment and sharemarket conditions at the time; and the number of competing buyers for a business; acquisitions and listed companies in different countries can be analysed for comparative purposes, but it is necessary to give consideration to differences in overall sharemarket levels and ratings between countries, economic factors (economic growth, inflation, interest rates) and market structures (competition etc.) and the regulatory framework. It is not appropriate to adjust multiples in a mechanistic way for differences in interest rates or sharemarket levels; acquisition multiples are based on the target s earnings but the price paid normally reflects the fact that there were synergies available to the acquirer (at least if the acquirer is a trade buyer with existing businesses in the same or a related industry). If the target s earnings were adjusted for these 2 ANNEXURE A - INDEPENDENT EXPERT S REPORT 311

314 synergies, the effective multiple paid by the acquirer would be lower than that calculated on the target s earnings; and while EBITDA multiples are commonly used benchmarks they are an incomplete measure of cash flow. The appropriate multiple is affected by, among other things, the level of capital expenditure (and working capital investment) relative to EBITDA. In this respect: EBITA or EBIT multiples can in some circumstances be a better guide because (assuming depreciation is a reasonable proxy for capital expenditure) they effectively adjust for relative capital intensity and present a better approximation of free cash flow. However, capital expenditure is lumpy and depreciation expense may not be a reliable guide. In addition, there can be differences between companies in the basis of calculation of depreciation; and businesses that generate higher EBITDA margins than their peer group companies will, all other things being equal, warrant higher EBITDA multiples because free cash flow will, in relative terms, be higher (as capital expenditure is a smaller proportion of earnings). The analysis of comparable transactions and sharemarket prices for comparable companies will not always lead to an obvious conclusion as to which multiple or range of multiples will apply. There will often be a wide spread of multiples and the application of judgement becomes critical. Moreover, it is necessary to consider the particular attributes of the business being valued and decide whether it warrants a higher or lower multiple than the comparable companies. This assessment is essentially a judgement. 3 Discounted Cash Flow Discounting of projected cash flows has a strong theoretical basis. It is the most commonly used method for valuation in a number of industries, including resources, and for the valuation of start-up projects where earnings during the first few years can be negative but it is also widely used in the valuation of established industrial businesses. Discounted cash flow ( DCF ) valuations involve calculating the net present value of projected cash flows. This methodology is able to explicitly capture depleting resources, development projects and fixed terms contracts (which are typical in the resources sector), the effect of a turnaround in the business, the ramp up to maturity or significant changes expected in capital expenditure patterns. The cash flows are discounted using a discount rate which reflects the risk associated with the cash flow stream. Considerable judgement is required in estimating future cash flows and it is generally necessary to place great reliance on medium to long term projections prepared by management. The discount rate is also not an observable number and must be inferred from other data (usually only historical). None of this data is particularly reliable so estimates of the discount rate necessarily involve a substantial element of judgement. In addition, even where cash flow forecasts are available, the terminal or continuing value is usually a high proportion of value. Accordingly, the multiple used in assessing this terminal value becomes the critical determinant in the valuation (i.e. it is a de facto cash flow capitalisation valuation). The net present value is typically extremely sensitive to relatively small changes in underlying assumptions, few of which are capable of being predicted with accuracy, particularly beyond the first two or three years. The arbitrary assumptions that need to be made and the width of any value range mean the results are often not meaningful or reliable. Notwithstanding these limitations, DCF valuations are commonly used and can at least play a role in providing a check on alternative methodologies, not least because explicit and relatively detailed assumptions as to expected future performance need to be made. 4 Industry Rules of Thumb Industry rules of thumb are commonly used in some industries. These are generally used as a cross check of the result determined by a capitalised earnings valuation or by discounting cash flows. While they are only used as a cross check in most cases, industry rules of thumb can be the primary basis on which buyers determine prices in some industries. In any event, it should be recognised that rules of thumb are usually relatively crude and prone to misinterpretation. 5 Net Assets/Realisation of Assets Valuations based on an estimate of the aggregate proceeds from an orderly realisation of assets are commonly applied to businesses that are not going concerns. They effectively reflect liquidation values and typically attribute no value to any goodwill associated with ongoing trading Tatts Group Limited Scheme Booklet

315 Appendix 4 Market Evidence Valuation analysis involves the review of earnings and other multiples that buyers have been willing to pay for similar businesses in the recent past and a review of the multiples at which shares in comparable listed companies trade on stockmarkets. This analysis will not always lead to an obvious conclusion of an appropriate range of multiples as there will often be a wide spread of multiples. It is necessary to consider the particular attributes of the business being valued as well as the prevailing economic conditions. Tatts Group Limited ( Tatts ) and Tabcorp Holdings Limited ( Tabcorp ) operate in the gambling sector in Australia providing lotteries, wagering and gaming services. Grant Samuel s review of evidence of valuation parameters has encompassed transactions and listed companies involved in similar activities in Australia and internationally. 1 Valuation Evidence from Transactions Set out below is a summary of recent transactions that Grant Samuel considers relevant to the valuation of Tatts and Tabcorp and for which there is sufficient information to calculate meaningful valuation parameters. In this regard: only transactions since the commencement of the economic downturn in 2009 for which there is sufficient information to calculate meaningful valuation parameters have been presented (except for the merger of UNiTAB Limited ( UNiTAB ) and Tattersall s Limited ( Tattersall s ) which formed Tatts in 2006, Tatts acquisition of Golden Casket Lottery Corporation in 2007 and Tabcorp s acquisition of TAB Limited ( TAB ) in 2003); since 2009 there has been considerable activity involving international wagering companies (such as Ladbrokes plc ( Ladbrokes ), William Hill plc ( William Hill ), Sportingbet plc ( Sportingbet ), Paddy Power plc ( Paddy Power ), UniBet Group plc ( UniBet ) (now Kindred Group plc ( Kindred ))) establishing a footprint in the Australian wagering sector by acquiring Australian online corporate bookmakers (such as Betstar, Tom Waterhouse, Betchoice Corporation Pty Ltd ( Betchoice ), Centrebet International Limited ( Centrebet ) and Sportsbet Pty Limited ( Sportsbet )). In addition, Crown Resorts Limited ( Crown ) has acquired the remaining 50% of Betfair Australasia (a betting exchange in Australia and New Zealand) and then merged Betfair Australasia s sports book activities with the online corporate bookmaker BetEasy Pty Limited to form CrownBet Group in which it retains a 62% interest. Due to a lack of financial information and the start-up nature of the businesses, no multiples can be calculated for many of these transactions (Betstar, Tom Waterhouse, Betfair Australasia and CrownBet); and consolidation in the international wagering and gaming sector has increased since 2014 (e.g. Ladbrokes/Coral Group, Paddy Power/Betfair Group plc ( Betfair ), GVC Holdings plc ( GVC )/ bwin.party digital entertainment plc ( bwin )). In addition, during 2016 William Hill has held merger discussions with Amaya Inc. (now The Stars Group, Inc. ( Stars Group )) (October 2016) and rejected a proposal from 888 Holdings and Rank Group (August 2016). The recent transactions are categorised by primary activity and region: Recent Transaction Evidence Consid- Date Target Transaction eration 1 (millions) Lotteries Australia Nov 12 SA Lotteries management rights EBITDA Multiple 2 (times) EBITA Multiple 3 (times) Historical Forecast Historical Forecast Acquisition by Tatts $ Implied equity value if 100% of the company or business had been acquired. 2 Represents gross consideration divided by EBITDA. Gross consideration is the sum of the equity and/or cash consideration plus borrowings net of cash. EBITDA is earnings before net interest, tax, depreciation and amortisation, investment income and significant and non-recurring items. 3 Represents gross consideration divided by EBITA. EBITA is earnings before net interest, tax, amortisation of acquired intangibles, investment income and significant and non-recurring items. 1 ANNEXURE A - INDEPENDENT EXPERT S REPORT 313

316 Recent Transaction Evidence Consideration 1 (millions) EBITDA Multiple 2 (times) EBITA Multiple 3 (times) Date Target Transaction Historical Forecast Historical Forecast Mar 10 NSW Lotteries Acquisition by Tatts $ Corporation Apr 07 Golden Casket Lottery Acquisition by Tatts $ Corporation Europe May 13 OPAP Acquisition of 33% by Emma Delta 2, Oct 13 Irish National Lottery Acquisition by Premier Lotteries na 4 na na Ireland Dec 12 Hellenic State Lotteries Acquisition of 12 year licence by na na Hellenic Lotteries S.A. Mar 10 Camelot Group Acquisition by Ontario Teachers na 7.4 na Pension Plan Wagering Australia - Retail Jul 14 ACTTAB Acquisition by Tabcorp $ na 16.0 na Dec 11 Tote Tasmania Acquisition by Tatts $ na nmf 5 na Mar 06 UNiTAB Merger with Tattersall s $1, Nov 03 TAB Acquisition by Tabcorp $2, Australia - Online Feb 12 Betchoice Acquisition by UniBet $ na na na May 11 Centrebet Acquisition by Sportingbet $ Dec 10 Sportsbet Acquisition of remaining 39.2% by Paddy Power Feb 10 Sportsbet Acquisition of additional 9.8% by Paddy Power Jun 09 International All Sports Acquisition of remaining 80% by Sportsbet $ na na $ na na na $ May 09 Sportsbet Acquisition of 51% by Paddy Power $ na na na Europe - Retail Jul 15 Coral Group Merger with Ladbrokes 1, na Europe - Online Sep 15 bwin Acquisition by GVC 1, Aug 15 Betfair Merger with Paddy Power 2, Dec 14 Sky Bet Acquisition of 80% by CVC Capital Partners Oct 12 Sportingbet Acquisition by GVC and William Hill Gaming Services - Australia Aug 16 Intecq Acquisition by Tabcorp $ May 11 Odyssey Gaming Acquisition by ebet $3 4.2 na 8.7 na Other Gaming - International May 16 Sisal Group Acquisition by CVC Capital Partners na 7.7 na Jul 14 International Game Acquisition by GTECH US$4, Technology Jun 14 Oldford Group Acquisition by Amaya US$4, na Source: Grant Samuel analysis 11 4 na = not available 5 nmf = not meaningful 6 Forecast earnings for the year ending 30 June 2006 have been used to calculate implied historical multiples. 7 Forecast earnings for the year ending 30 June 2011 have been used to calculate implied historical multiples. 8 Consideration range is the initial consideration paid on the low end and the maximum consideration payable on the high end. 9 Based on annualised half year EBITDA. 10 Forecast earnings for the year ending 27 September 2015 have been used to calculate implied historical multiples. 11 Grant Samuel analysis based on data obtained from IRESS, Capital IQ, company announcements, transaction documentation and, in the absence of company published financial forecasts, brokers reports. Where company financial forecasts are not available, the median of the financial forecasts prepared by a range of brokers has generally been used to derive relevant forecast value parameters. The source, date and number of broker reports utilised for each transaction depends on analyst coverage, availability and corporate activity Tatts Group Limited Scheme Booklet

317 A summary of each transaction is set out below: Lotteries Management rights to SA Lotteries / Tatts Group Limited On 27 November 2012, the South Australian Government announced the appointment of Tatts to manage the lottery and Keno service in South Australia ( SA Lotteries ) for 40 years on behalf of the Lotteries Commission of South Australia. Tatts paid $427 million for these rights. The acquisition is consistent with Tatt s strategy of consolidating lottery operations and offers an opportunity to drive further operating efficiencies from a single lottery operating system. Under the arrangements, Tatts derives master agents fee revenue equal to gross sales less prizes, gaming taxes, GST and agents commissions. As South Australia s lottery fiscal regime is relatively attractive (generating an operating margin of around 16%, approximately 5% higher than the next highest lottery regime), SA Lotteries profit margins are higher than other states. In FY12, SA Lotteries sold 51 million tickets with Saturday X Lotto the most popular game, accounting for around 35% of sale lotter businesses. SA Lotteries has a distribution network of 576 lottery agents and under the terms of the transaction these agents were given protected continuity and commissions for five years. After taking into account the median broker expectation of cost savings ($13 million), the EBITDA multiples implied by the transaction decline to 9.1 times (historical) and 8.0 times (forecast). NSW Lotteries Corporation Pty Ltd / Tatts Group Limited On 2 March 2010, the New South Wales ( NSW ) Government announced Tatts as the successful bidder for NSW Lotteries Corporation Pty Ltd (the exclusive lottery operator in NSW and licenced lottery operator in the Australian Capital Territory ( ACT ) ( NSW Lotteries ) for $850 million. This transaction involved Tatts acquiring the equity in NSW Lotteries and the grant of a 40 year licence to Tatts to exclusively conduct public lotteries in NSW. The acquisition is consistent with Tatt s strategy of consolidating lottery operations and offers an opportunity to drive further operating efficiencies from a single lottery operating system. In FY09, NSW Lotteries generated sales revenue of $1.3 billion and EBITDA of $62.3 million. NSW Lotteries has a distribution network of 1,552 agencies across NSW and the ACT selling all lottery products and 31 outlets selling instant scratchies only. After taking into account the median broker expectation of cost savings ($22 million), the EBITDA multiples implied by the transaction decline to 10.4 times (historical) and 10.3 times (forecast). If the total expected uplift in EBITDA announced by Tatts is allowed (c. $60 million), the implied EBITDA multiples decline to around 7.1 times. Golden Casket Lottery Corporation / Tatts Group Limited On 16 April 2007, Tatts announced that it had agreed to acquire Golden Casket Lottery Corporation ( Golden Casket ), the exclusive lottery operator in Queensland, from the Queensland Government for $530 million. Under the terms of the transaction, Tatts agreed to retain Golden Casket s head office in Queensland, establish a national lottery centre and complete a new lottery terminal replacement program and the Queensland Government retained ownership of the lottery licence and Golden Casket brand, appointed Golden Casket as the licensed lottery operator until 2072 and granted royalty free exclusive use of the Golden Casket brand for that period and agreed not to issue another lottery licence until at least after 2016 without compensating Tatts. The acquisition was a logical operational fit for Tatts expanding its national presence and increasing the revenue contribution from regulated lotteries. After taking into account the median broker expectation of cost savings ($18 million), the EBITDA multiples implied by the transaction decline to 7.7 times (historical) and 7.3 times (forecast). 33% of Greek Organisation of Football Prognostics S.A. / Emma Delta Hellenic Holdings Ltd On 1 May 2013, the Greek Government, through the Hellenic Republic Asset Development Fund ( HRADF ), announced the sale of its 33% stake in Greek Organisation of Football Prognostics S.A. ( OPAP ) to Emma Delta Hellenic Holdings Limited ( Emma Delta ) for total consideration of 712 million. The consideration comprised 652 million for the equity and a 60 million dividend relating to the 2012 financial year. OPAP is listed on the Athens Stock Exchange and is the leading gaming company in Greece, with a significant presence in Cyprus. It is estimated to have a 71% share of the Greek gaming market, operating and managing numerical lotteries, facilitating sports betting games and distributing instant scratch-it games through a sales network of over 4,500 points of sale. It holds an exclusive land based concession on lotteries and sports betting (ex-horse racing) which expires in OPAP does not offer online gaming services but there is a general expectation 3 ANNEXURE A - INDEPENDENT EXPERT S REPORT 315

318 that the Greek Government is going to grant an exclusive online licence to OPAP. In December 2012, OPAP announced that a consortium led by it had been successful in acquiring a 12 year concession to manage Greek State Lotteries (5% of the Greek gaming market) subject to regulatory approvals. The transaction was the culmination of a competitive international tender process by HRADF. Ahead of the transaction the Greek Government introduced an additional tax of 30% on gross gaming revenue ( GGR ). Even with the increased gaming taxes, OPAP generates a EBITDA margin of around 20%, materially higher than other lottery businesses the subject of recent transactions albeit not inconsistent with listed European peers. Under the new taxation regime, the transaction value implies a pro forma historical EBITDA multiple of 6.8 times. While the transaction involves a non-controlling stake, it is strategic being the largest shareholding in the company (the next largest 5%). Irish National Lottery / Premier Lotteries Ireland Limited On 3 October 2013, Premier Lotteries Ireland Limited ( PLI ), a company owned by Ontario Teachers Pension Plan ( OTPP ) (80%), An Post Group and An Post Pension Funds, was announced as the successful acquirer of a 20 year licence to operate the National Lottery by the Irish Government from November PLI paid consideration of the 405 million and agreed to take on the staff and management of the previous licence holder, An Post National Lottery Company, which had operated the national lottery since The national lottery operates lottery games to raise money for good causes in an efficient and socially responsible way. In the year ended 31 December 2012, total turnover was 735 million (of which <2% were online sales) which generated GGR of 329 million and a net surplus of 225 million. Under the terms of the new licence, the ongoing annual contribution to Good Causes was increased to 65% of GGR but no changes were made to the commission structure for retailers. Under the terms of the new licence, the transaction implies multiples in excess of 30 times EBITDA notwithstanding a relatively short 20 year licence term, implying a high expectation of cost savings. After taking into account cost savings of around 20 million (as implied by PLI s post acquisition financial statements), the EBITDA multiples implied by the transaction decline to 13 times. Hellenic State Lotteries / Hellenic Lotteries S.A. On 12 December 2012, HRADF announced Hellenic Lotteries S.A. as the successful bidder for the 12 year concession for the exclusive rights to the production, operation, circulation, promotion and management of the Hellenic State Lotteries. At announcement, Hellenic Lotteries S.A. was a consortium comprising OPAP, Lottomatica Group, Scientific Games Corporation and Intralot S.A. ( Intralot ). Hellenic Lotteries S.A. agreed to pay 190 million upfront and to guarantee a minimum of 580 million in additional payments over the concession period. The licence was signed on 30 July Lottomatica Group decided to exit the consortium and the members are now OPAP (67%), Scientific Games Corporation (16.5%) and Intralot (16.5%). The multiples have been calculated assuming the new taxation regime introduced by the Greek Government (30% of GGR). Camelot Group plc / Ontario Teachers Pension Plan On 25 March 2010, OTPP announced the acquisition of Camelot Group plc ( Camelot ), the holder of the exclusive licence to operate the United Kingdom National Lottery, for 389 million. In 1994, the United Kingdom National Lottery Commission awarded Camelot a seven year licence to run the national lottery and in December 2000 awarded Camelot a second seven year licence commencing in January In August 2007 Camelot was awarded a third licence, this time for 10 years from February 2009 with a possible extension for a period of up to five years. Therefore, at the time of acquisition, Camelot held an exclusive licence with a remaining term of nine years (and potentially 14 years). Camelot develops and markets new games, manages the lottery infrastructure and works with a distribution network of over 27,500 retailers (accounting for almost 90% of all sales). Although a for profit company, under its licence Camelot is required to maximise the returns to Good Causes (it currently returns more than 40% of sales) and has committed to reduce operating expenses from 5% of sales to 4% by Therefore, it is focused on increasing sales and delivering services efficiently. Under the current licence, Camelot was also required to replace the entire network of lottery terminals (introducing new touch screen terminals, media screens and printers) and to connect its retailers to an upgraded gaming system via a new communications network. It did so in the first year of the licence. In the year ended 31 March 2010, Camelot generated gross ticket sales of 5.5 billion (with national lottery products accounting for almost 90% of sales) and EBITDA of 63.3 million (<2% of sales). The multiples implied by the transaction are low (at around 5 times EBITDA) reflecting both the licence arrangements (whereby the licence holder s ability to increase profits is limited) and the short licence period (9-14 years) Tatts Group Limited Scheme Booklet

319 Wagering ACTTAB / Tabcorp Holdings Limited On 30 July 2014, Tabcorp announced that it had agreed to acquire ACTTAB from the ACT Government for $105.5 million following a competitive bid process. ACTTAB provided totalisator and fixed odds wagering, Keno and Trackside products. It operates through 53 retail outlets located throughout the ACT as well as telephone and internet platforms. The ACT is considered a low taxing wagering regime relative to other Australian jurisdictions. Under the terms of the agreement, the ACT Government issued exclusive operating licences for various products; totalisator (50 years), sports bookmaking (15 years, with rolling extensions to 50 years), Keno (50 years) and Trackside (50 years) and reduced the annual totalisator licence fee to $1 million plus CPI increases. Based on the amended licence arrangements, the transaction implies a pro forma historical EBITDA multiple of 12.5 times. Tabcorp expected ACTTAB to generate EBITDA of $14 million in the year following completion of the integration, implying annual cost savings of around $5.5 million. After taking these cost savings into account, the EBITDA multiple implied by the transaction declines to 7.5 times. Tote Tasmania Pty Limited / Tatts Group Limited On 1 December 2011, Tatts announced that it had agreed to acquire Tote Tasmania Pty Limited ( Tote Tasmania ) from the Tasmanian Government for $103 million (after adjustment the final price paid was $108 million). Tote Tasmania provides racing and sport wagering through 26 TABs and 110 outlets in hotels and clubs across Tasmania. It holds a 50 year wagering licence (15 years exclusivity) with an option for an additional 49 years at no additional cost. At the time of the acquisition, Tasmania was the most favourable totalisator wagering licensing regime in Australia. Tote Tasmania subsequently formed part of the pooling and fixed price wagering systems that Tatts already operated in Queensland, Northern Territory and South Australia. The transaction implied an historical EBITDA multiple of 12.3 times. Tatts expected Tote Tasmania to contribute in excess of $13 million in EBITDA in the year following acquisition, implying annual cost savings of around $5 million. After taking these cost savings into account, the EBITDA multiple implied by the transaction declines to 7.4 times. UNiTAB Limited / Tattersall s Limited On 27 March 2006, UNiTAB and Tattersall s announced a proposed nil premium merger of equals to create a leading Australian gaming, wagering and lotteries company with over $3.0 billion of revenue and diversified products and services operating in every State and Territory in Australia. Under the proposal, UNiTAB shareholders were offered 4.33 new Tattersall s shares for each UNiTAB share held and would, in aggregate, own approximately 45% of the merged group. Based on the last Tattersall s share price prior to announcement, the proposal implied a value of $14.25 per UNiTAB share. Tattersall s also provided a $522 million capped cash alternative to purchase UNiTAB shares at a price of $14.00 per share. The merged company was expected to have pro forma EBITDA of >$400 million, approximately 1,150 wagering outlets across Queensland, South Australia and the Northern Territory, licences to operate 13,750 gaming machines across Victoria, a monitoring business for more than 130,000 gaming machines across NSW, Queensland and the Northern Territory and over 900 lottery outlets across Victoria, Tasmania, the ACT and the Northern Territory. It also had gaming operations in South Africa and the United Kingdom. Cost savings of $20 million per annum were expected on implementation of the merger. On 1 June 2006, Tabcorp announced a takeover offer for UNiTAB with an implied value of $14.25 per share (assuming a Tabcorp share price between $ ). Tabcorp offered a choice of two consideration alternatives, all shares or cash and shares. While the emergence of this offer resulted in delays to the UNiTAB shareholders meeting, the UNiTAB directors maintained the view that the Tabcorp offer was inferior to the merger proposal. Nevertheless, on 20 August 2006 UNiTAB and Tattersall s announced changes to terms of the merger although the merger exchange ratio was not changed. Historical multiples implied by the transaction have been calculated by reference to earnings for the year ended 30 June 2006 as the merger was announced late in the financial year (March 2006) and was not implemented until the following financial year. Furthermore, earnings for the year ended 30 June 2005 only reflect only a six month contribution from gaming services businesses that UNiTAB had acquired from Tabcorp in that year. On this basis, the merger implied EBITDA multiples of 12.7 times (historical) and 11.4 times (forecast). After taking cost savings into account, the EBITDA multiples decline to 11.3 and 10.3 times respectively. It should also be noted that the merger terms do not reflect a premium for control. 5 ANNEXURE A - INDEPENDENT EXPERT S REPORT 317

320 TAB Limited / Tabcorp Holdings Limited On 5 November 2003, following the 16 October 2003 announcement by UNiTAB and TAB to merge, Tabcorp announced a proposal to merge with TAB. Under the terms of the proposal TAB shareholders would receive 2.3 Tabcorp shares and $1.62 cash for each TAB share held, implying a value of $4.28 per TAB share (based on the last Tabcorp share price prior to announcement) and a 28% premium to the TAB share price prior to the announcement of the merger with UNiTAB. TAB was a leading Australian gambling company with almost 2,000 retail outlets in NSW as well as telephone and internet platforms. In addition, it operated the Sky Channel satellite television service (telecasting sporting events and race meeting both in Australia and internationally), held the sole licence for NSW Statewide Linked Jackpots for clubs and hotels and sole licence to monitor more than 100,000 gaming machines in NSW. On 19 December 2003, UNiTAB terminated its merger agreement with TAB and announced an intention to make an off-market takeover offer which valued TAB at $4.50 per TAB share, including cash of $1.45 per share. On 23 February 2004, Tabcorp announced a competing takeover offer valued at $4.50 per TAB share. Over the next few months the parties competed to acquire TAB including negotiations with the NSW Government and racing industry. UNiTAB s offer expired on 23 April 2004 and on 27 May 2004 Tabcorp made a final offer with an implied value of $4.77 per share. Tabcorp estimated cost savings of $30 million per annum would be achieved following the acquisition. Historical multiples implied by the transaction have been calculated by reference to earnings for the year ending 30 June 2003, the last full year before the bidding process for TAB commenced. The forecast multiples are based on pro forma forecasts released by TAB for the year ending 30 June On this basis, the transaction implied EBITDA multiples of 12.3 times (historical) and 10.3 times (forecast). TAB also released pro forma forecasts for the year ending 30 June 2005 and, on this basis, the transaction implied a forecast EBITDA multiple of 9.4 times. After taking cost savings into account, the EBITDA multiples decline to 10.7, 9.1 and 8.4 times respectively. Betchoice Corporation Pty Ltd / Unibet Group plc On 7 May 2012, Unibet, a Swedish listed online gambling company, announced the acquisition of Betchoice. Betchoice was a corporate bookmaker offering racing and sports betting products online in Australia with more than 8,000 active customer accounts. This was a strategic acquisition for Unibet, providing immediate access to the fast growing Australian online market and introducing horse racing capability to Unibet. Consideration included an initial payment $20 million to all shareholders, an earnout based on 5.5 times 2014 EBITDA (less the initial payment) for the founder and 38% shareholder (who remained with the business) and for certain other shareholders a payment of $2.4 million (in aggregate) if 2014 EBITDA exceeded $4.4 million. The initial payment represented an historical EBITDA multiple of 6.1 times (FY11) and the earnout arrangements imply that Unibet was prepared to pay a multiple of 5.5 times EBITDA for forecast earnings three years after acquisition (FY14). Centrebet International Limited / Sportingbet plc On 26 May 2011, ASX listed Centrebet announced that it had entered into a scheme implementation agreement with Sportingbet whereby Sportingbet would acquire Centrebet for $185 million in cash. Centrebet provided online wagering and gaming services to an active customer base of over 90,000 people. It primarily operated in Australia, with smaller operations in Norway, Denmark and Greece. As at the date of the acquisition, Centrebet was estimated to have a 25% market share in sports betting, a 6% market share in racing and an 11% total market share. Sportingbet s rationale for the acquisition was to increase its revenue from regulated markets and further diversify revenue sources. Sportingbet announced that it would derive cost savings of approximately $17.0 million per annum through the centralisation of operating functions and infrastructure and reduced information technology development projects. Historical multiples implied by the transaction have been calculated by reference to earnings for the year ending 30 June 2011 as the transaction was announced late in the financial year (May 2011) and would not be implemented until the following financial year. After taking into account cost savings, the EBITDA multiples implied by the transaction decline to 5.2 times (historical) and 4.1 times (forecast) Tatts Group Limited Scheme Booklet

321 Sportsbet Pty Limited (39.2%) / Paddy Power plc On 23 December 2010, Paddy Power, an Irish listed company, announced that it had acquired the remaining 39.2% of Sportsbet that it did not already own for cash and equity consideration totalling $132.6 million (cash component of $110.1 million, $18.5 million of new Paddy Power shares and the assumption of $4 million in obligations to certain Sportsbet employees). A special dividend of $8.5 million was also paid to all shareholders. Additional consideration of up to a maximum of $25 million was payable if Sportsbet s EBITDA in 2013 exceeded $80 million. This additional consideration was ultimately not paid as the relevant profitability target was not achieved (Sportsbet s actual EBITDA in 2013 was $57 million). Sportsbet is one of Australia s largest corporate bookmakers and licensed to undertake bookmaking activities on racing and sports throughout Australia by the Northern Territory Racing Commission. Paddy Power completed the acquisition of an initial 51% interest in Sportsbet in July 2009 (see below) and increased its interest to 60.8% in February 2010 after Sportsbet had completed its acquisition of ASX listed International All Sports Limited ( IAS ) (see below). Under the terms of the original agreement Paddy Power held a call option to increase its interest to 100% (exercisable either in 2012 or 2013) based on a multiple of up to 7 times EBITDA for the financial year ending 30 June 2012 or 30 June 2013, respectively (see below). The performance of Sportsbet had far exceeded Paddy Power s expectations and it decided to acquire the remaining 39.2% stake early. No details regarding potential cost savings were disclosed. The consideration range for the transaction represents the initial consideration paid on the low end and on the high end the maximum consideration payable. The forecast multiples are based on annualised expected EBITDA for the six months ending 31 December As the remaining shareholders included key Sportsbet executives, the minorities were in a strong position to negotiate with Paddy Power. Sportsbet Pty Limited (9.8%) / Paddy Power plc On 12 February 2010, Paddy Power announced that it had increased its interest in Sportsbet from 51% to 60.8% by acquiring a 9.8% interest from a shareholder with no executive role in the business for $13 million. This transaction implied a multiple of 8 times the historical pro forma combined earnings of Sportsbet and IAS. International All Sports Limited / Sportsbet Pty Limited On 3 June 2009, IAS announced that it entered into a scheme implementation agreement with Sportsbet whereby Sportsbet would acquire the 80% of shares in IAS that it did not already own for $0.60 cash per share (valuing IAS at around $40 million). IAS provided online corporate bookmaking and information technology services to the wagering industry in Australia. Sportsbet acquired its initial 20% interest in IAS during FY09 and in May 2009, Paddy Power acquired a 51% interest in Sportsbet (see below). No details regarding potential cost savings were disclosed. Historical multiples implied by the transaction have been calculated by reference to pro forma earnings for the year ending 30 June Sportsbet Pty Limited (51%) / Paddy Power plc On 14 May 2009, Paddy Power announced it had acquired 51% of Sportsbet for cash and equity consideration of $48.5 million (cash of $45.8 million and 100,000 Paddy Power shares). Sportsbet is one of Australia s largest corporate bookmakers. Under the terms of the acquisition: additional cash consideration of $10 million was payable in early 2010 if Sportsbet EBITDA in 2009 exceeded $16.5 million. This additional consideration was paid in August 2010; Paddy Power had the right to claw back equity from shareholders on a proportionate basis if EBITDA for the years ended 30 June 2010, 2011 or 2012 was less than $11 million; and Paddy Power had a call option, exercisable in either 2012 or 2013, to acquire the outstanding shares in Sportsbet, with the exercise price to be determined based on an EBITDA multiple of 5-7 times, depending on the level of EBITDA, subject to a maximum payment of $196 million. No details regarding potential cost savings were disclosed, but were unlikely to be material as it was Paddy Power s first investment in Australia. The low EBITDA multiple (5.3 times) represents the initial payment and the high EBITDA multiple (6.6 times) includes the additional cash payment. It is noted that this multiple range 7 ANNEXURE A - INDEPENDENT EXPERT S REPORT 319

322 is similar to the EBITDA multiples agreed for the purposes of the call option over the remaining shares (5-7 times). Following completion of Sportsbet s acquisition of IAS (see above) on 1 October 2009, Paddy Power agreed changes to the financial performance thresholds above having regard to the merged earnings of IAS and Sportsbet. Of note is that the call option multiple range was adjusted to 4-7 times EBITDA. Coral Group / Ladbrokes plc On 24 July 2015, Ladbrokes and Gala Coral Group Limited ( Gala Coral ) announced that Ladbrokes and Coral Group, a subset of Gala Coral s business, would merge to create Ladbrokes Coral Group plc ( Ladbrokes Coral ). Under the terms of the agreement, in return for acquiring Coral Group, Ladbrokes would issue new shares to Gala Coral equating to 48.25% of Ladbrokes Coral. The transaction attributed a value of approximately 1.1 billion for Coral Group based on Ladbroke s closing share price the day prior to announcement. Coral Group s activities to be acquired by Ladbrokes comprised: Coral Retail: the third largest operator of licenced betting offices in the United Kingdom with 1,849 shops directly owned and operated under the Coral brand. Its multi-channel offering, Coral Connect, allows customers to access their online wallet in-shop using the Connect card; Eurobet Retail: which operates licenced betting offices in Italy under the Eurobet brand using a franchise model (871 licences). It also has an established multi-channel offering; and Online: The Coral Group operates online in the United Kingdom through three brands Coral, Gala Bingo and Gala Casino and in Italy where it is the number two online sports operator under the Eurobet brand. Historical multiples implied by the transaction have been calculated by reference to earnings for the year ending 27 September 2015 as the merger was announced late in the financial year (July 2015) and was not implemented until the following financial year. Ladbrokes is a retail and online bookmaker that primarily operates in the United Kingdom, Australia, Belgium, Ireland and Spain. The parties identified 65 million of cost savings and the potential for efficient cross-brand marketing across a larger customer base. After taking identified cost savings into account, the EBITDA multiples implied by the transaction decline to 7.3 times (historical) and 6.9 times (forecast). It should also be noted that the merger terms do not reflect a premium for control. bwin.party digital entertainment plc / GVC Holdings plc On 4 September 2015, GVC announced it had reached agreement on the terms of a recommended offer to acquire bwin. Under the terms of the agreement, bwin shareholders received 0.25 in cash and new GVC shares for each bwin share, representing a value of around 1.30 per share based on the GVC s share price the day prior to announcement. Following implementation of the transaction, bwin shareholders owned around 67% of the enlarged group. bwin was a global online gaming company with leading market positions in online sports betting, casinos and games, poker and bingo. The strategy for the acquisition was to integrate GVC s sportsbook with the bwin platform and improve bwin s poker and bingo business while leveraging its business to business capabilities. GVC identified 125 million of synergies (most of which appear to be cost savings) to be achieved over two years. The multiples implied by the transaction are high (12-13 times EBITDA) reflecting both the competitive tension associated with bwin s ongoing discussions with 888 Holdings plc and the extent of identified cost savings. After taking identified cost savings into account, the EBITDA multiples implied by the transaction decline to around 5.8 times. Betfair Group plc / Paddy Power plc On 26 August 2015, Paddy Power and Betfair announced they had reached in principle agreement on the key terms of a merger. The final terms of the transaction were announced on 8 September 2015 with the merged company to be called Paddy Power Betfair plc ( Paddy Power Betfair ). Under the terms of the agreement, Betfair shareholders received new Paddy Power shares for each Betfair share, valuing Betfair at around per share based on Paddy Power s share price the day before the initial announcement. Betfair pioneered the betting exchange concept allowing customers to bet against each other at odds set by themselves or by other customers. At the time of the transaction, Betfair had more than 1.7 million online active customers and derived 86% of revenue from regulated markets. Paddy Power is a sports betting and online led multi-channel operator Tatts Group Limited Scheme Booklet

323 with more than 2.4 million online active customers. At the time of the transaction, almost all revenue was derived from regulated markets and it operated 584 betting shops in Ireland and the United Kingdom. The merger created one of the world s largest online betting and gaming companies with revenue over 1.1 billion, around 80% of which would be generated from online channels and around 95% from regulated markets. Following implementation of the merger Paddy Power shareholders owned, in aggregate, 52% of the merged group and Betfair shareholders owned the remaining 48%. Cost savings of 50 million were identified to be realised over three years. The multiples implied by the transaction are relatively high reflecting the growth profile of Betfair. After taking identified cost savings into account, the EBITDA multiples implied by the transaction decline to 12.5 times (historical) and 11.3 times (forecast). It also should be noted that the merger terms do not reflect a premium for control. 80% of Sky Betting and Gaming / CVC Capital Partners On 4 December 2014, Sky plc announced that it had sold 80% of Sky Betting and Gaming ( Sky Bet ) to private equity firm CVC Capital Partners ( CVC ) for 600 million cash plus further deferred and contingent consideration of up to 120 million. Sky Bet offered a range of online betting and gaming services under the Sky Bet, Sky Poker, Sky Vegas and Sky Bingo brands. Sky plc stated that the transaction valued Sky Bet at 800 million and represented an historical EBITDA multiple of 15.0 times. Sky Bet had grown strongly, with revenue growth of 18% and growth in mobile users of 29% in the year ended 30 June 2014 but the price was widely considered high because Sky Bet utilised a third-party platform. The sale allowed Sky plc to de-lever and focus on its core content business, while also allowing some upside by retaining a 20% stake. Sportingbet plc / William Hill plc and GVC Holdings plc On 1 October 2012, William Hill and GVC made an offer to acquire Sportingbet for 486 million (including convertible securities). Under the terms of the offer, William Hill offered 418 million in cash for Sportingbet s Australian and Spanish operations and GVC offered new GVC shares for each Sportingbet share in exchange for the rest of the business (implied value of 67.8 million). Sportingbet is an online sports betting and gaming group focused on the European and Australian markets operating websites in 23 languages and targeting 26 countries under key brands including Sportingbet.com and ParadisePoker. William Hill s rationale for the acquisition was to further develop its online and multi-channel operations and increase its exposure to licenced jurisdictions while GVC aimed to grow its sportsbook into a number of new jurisdictions and leverage underutilised Sportingbet web domains. No cost synergies were identified by either party. Gaming Services Intecq Limited / Tabcorp Holdings Limited On 1 August 2016, Intecq Limited ( Intecq ) announced it had entered into a scheme implementation agreement with Tabcorp under which Tabcorp would acquire 100% of Intecq s share capital for $7.15 cash per share, valuing Intecq s fully diluted equity at around $128 million. Intecq (formerly known as ebet Limited) delivers technology solutions to the gaming industry and provided a complementary fit to Tabcorp s operations. Intecq has two business divisions, ebet and Odyssey Gaming and operates across Australia and the Asia-Pacific region, holding commercial agreements with over 1,200 customers operating over 73,000 electronic gaming machines. No details regarding potential cost savings were disclosed. Odyssey Gaming Limited / ebet Limited On 7 March 2011, ebet Limited ( ebet ) made a cash offer of $0.07 per share for the ordinary shares of Odyssey Gaming Limited ( Odyssey Gaming ). Odyssey Gaming was an ASX listed licensed monitoring operator in Queensland providing services to gaming machine owners. ebet was an ASX listed gaming systems company that developed and marketed solutions for electronic gaming machines and had over 800 customers, with approximately 55,000 gaming machines connected. Odyssey Gaming directors recommended that shareholders reject the offer and on 10 May 2010, ebet increased its offer to $0.08 per share plus one fully paid ordinary share in ebet for every three Odyssey Gaming shares held, with a total implied value of $0.10 per share. Odyssey Gaming s two largest shareholders represented approximately 68% of the outstanding shares and indicated their intention to accept the revised offer. These shareholders were in receivership which may explain a willingness to accept a price that implies a relatively low EBITDA multiple of 4.2 times (historical). No details regarding potential cost savings were disclosed. 9 ANNEXURE A - INDEPENDENT EXPERT S REPORT 321

324 Other Gaming Sisal Group S.p.A. / CVC Capital Partners On 30 May 2016, CVC announced that it had agreed to acquire Sisal Group S.p.A. ( Sisal Group ) from its private equity owners Apax Partners, Permira and Clessidra for 1 billion, including 932 million in borrowings, implying an equity value of 68 million. Sisal Group was the second largest gaming company and the largest convenience payment services provider in Italy based on turnover. It offered slot machines and video lottery terminals, betting and lottery games. Its distribution network included around 45,000 points of sale, nearly all of which also offered convenience payment services. Sisal Group derived around 22% of revenue and 32% of EBITDA from payment services activities in the year ended 31 December The multiples implied by the transaction are relatively low, probably reflecting Sisal Group s business mix. International Game Technology / GTECH S.p.A. On 16 July 2014, GTECH S.p.A. ( GTECH ) announced the acquisition of International Game Technology ( IGT ) for consideration of US$18.25 per share (75% cash and 25% scrip), valuing IGT at US$4.6 billion. The combined group was organised under a newly formed holding company ( newco ) registered in the United Kingdom and listed on the New York Stock Exchange as International Game Technology plc ( IGT plc ). GTECH shareholders exchanged their GTECH shares into newco shares on a 1:1 basis and held, in aggregate, around 80% of newco. IGT was the world s leading end-to-end gaming company, operating and providing an integrated portfolio of technology products and services across all gaming markets, including electronic gaming machines, sports betting, interactive gaming and commercial services. IGT also provided business to consumer and business to business products and services in approximately 100 countries. GTECH is a leading operator and provider of technology in regulated gaming markets worldwide, including instant and traditional lotteries, traditional and online wagering, interactive gaming and central control systems. It generates revenue from long term contracts and at the time of the transaction was the preferred lottery and gaming partner in over 60 countries. GTECH was formed in 2006 through the acquisition of GTECH Holdings Corporation (a United States based global gaming and betting company) by Lottomatica S.p.A., one of the leading operators in the lotteries and gaming sector in Italy. GTECH is controlled by the De Agostini Group (59%). Following the transaction, the combined group was one of the largest global lotteries and gaming companies. The transaction was expected to generate cost savings of around US$230 million per annum and revenue synergies of US$50 million per annum. After taking cost savings (only) into account, the EBITDA multiples implied by the transaction decline to 6.2 times (historical) and 6.8 times (forecast). Oldford Group Limited / Amaya Gaming Group Inc. On 12 June 2014, Amaya (now known as Stars Group) announced the acquisition of privately owned Oldford Group Limited, the owner of Rational Group, for US$4.9 billion. Rational Group operated gaming and related businesses and its brands included PokerStars, Full Tilt Poker, PokerStars Caribbean Adventure, American Poker Tour and Asian Pacific Poker Tour. These brands collectively formed the largest poker business in the world comprising online poker games and tournaments, live poker competitions and poker programming for television and online audiences. Amaya provides a full suite of gaming products and services including casino, poker, sportsbook, platform, lotteries and electronic gaming machines and game systems. Amaya s rationale for the transaction included the complementary nature of the businesses and the potential for Amaya s extensive licensing in North America to allow PokerStars to re-enter the market. No cost synergies were identified by Amaya Tatts Group Limited Scheme Booklet

325 2 Valuation Evidence from Sharemarket Prices Set out below is the sharemarket rating of listed gambling (non casino) companies that Grant Samuel considers relevant to the valuation of Tatts and Tabcorp: Company Sharemarket Ratings of Selected Listed Gambling (non Casino) Companies Market Capitalisation (million) EBITDA Multiple 12 (times) EBITA Multiple 13 (times) EBIT Multiple 14 (times) Historical Forecast Year 1 Forecast Year 2 Historical Forecast Year 1 Forecast Year 2 Historical Forecast Year 1 Forecast Year 2 Lotteries OPAP 3, Wagering (primarily retail) Ladbrokes Coral 2, William Hill 2, Wagering (primarily or exclusively online) Paddy Power Betfair 6, GVC 2, Kindred 1, Betsson SEK10, Stars Group C$4, Gaming (monitoring and services) Intralot IGT plc US$4, Source: Grant Samuel analysis 15 The multiples shown above are based on share market prices as at 1 September 2017 and do not reflect a premium for control. The companies selected have a variety of year ends and therefore the data presented for each company is the most recent annual historical result plus the subsequent two forecast years. A brief description of each company is set out below: Greek Organisation of Football Prognostics S.A. OPAP is listed on the Athens Stock Exchange and is the leading gaming company in Greece, with a significant presence in Cyprus (5% of turnover). Investment fund Emma Delta holds a 33% interest. OPAP is the exclusive licensed operator of all numerical lotteries and sports betting in Greece under a 20 year licence which was due to expire in 2020 but was extended in 2011 to Originally land based, in 2013 the licence was extended to encompass any technological means (except for online sports betting in the period). It is also the exclusive licensed operator of horse racing under a 20 year licence (expires in 2036), 35,000 video lottery games under a 10 year licence (2027) and passive and instant (scratch) lotteries under a licence that expires in 2026 via its 67% controlling shareholding in Hellenic Lotteries S.A. OPAP is estimated to hold around 73% of the Greek gaming market. Its games are distributed through a network of over 4,000 retail outlets (dedicated and branded agencies) as well as online. Passive and instant lotteries are also distributed via an additional 3,800 points of sale (e.g. kiosks, street vendors). In 2016, OPAP generated 60% of revenue and 61% of EBITDA from lotteries, 29% and 22% (respectively) from sports betting, 11% and 12% (respectively) from passive and instant lotteries and 5% of EBITDA from payment and other services. Brokers are projecting growth in EBITDA of around 13% per annum for OPAP through to 12 Represents gross capitalisation (that is, the sum of the market capitalisation adjusted for minorities, plus borrowings less cash as at the latest balance date) divided by EBITDA. 13 Represents gross capitalisation divided by EBITA. 14 Represents gross capitalisation divided by EBIT. 15 Grant Samuel analysis based on data obtained from IRESS, Capital IQ, company announcements and, in the absence of company published financial forecasts, brokers reports. Where company financial forecasts are not available, the median of the financial forecasts prepared by a range of brokers has generally been used to derive relevant forecast value parameters. The source, date and number of broker reports utilised for each company depends on analyst coverage, availability and recent corporate activity. 11 ANNEXURE A - INDEPENDENT EXPERT S REPORT 323

326 December This growth reflects the rollout of video lottery terminals and virtual games from 2017 (partly cannibalising some lottery business revenue) and an increasing contribution from horse racing. William Hill plc William Hill provides sports betting and gaming services in the United Kingdom, Australia, the United States, Italy and Spain. It operates retail wagering and gaming businesses (in the United Kingdom and the United States) and online wagering and gaming businesses (principally in the United Kingdom and Australia) and derives 18% of its revenue from international markets (Australia, the United States, Italy and Spain, which are all regulated wagering markets). William Hill is the United Kingdom s largest bookmaker with a network of 2,375 Licensed Betting Offices offering both betting and gaming. It is also the largest operator of sports books in Nevada with 56% market share by number of outlets. William Hill s digital divisions are Online and William Hill Australia. The retail businesses generate around 60% of William Hill s revenue, although this includes over the counter betting and gaming machines (around 50% each). The Online business is one of the leading providers of online betting and gaming (including in-play and pre-match betting and gaming on desktop and mobile devices) to United Kingdom customers by revenues, with 2.2 million active customers and a 15% market share. In Australia, William Hill is one of the top three providers of online betting, with around 284,000 active customers. Approximately 40% of revenue is generated from its online businesses, although the United Kingdom online business is around 50% sports betting and 50% gaming. In the year ended 31 December 2016, William Hill generated revenue of 1.6 billion and EBITDA of 340 million. Earnings declined in 2016, possibly reflecting the impact of the departure of the CEO in July 2016 as well as a poorly performing online wagering business in the United Kingdom. William Hill is in the process of a turnaround of this business (in particular improvements to products, technology and the customer experience). Ladbrokes Coral Group plc Ladbrokes Coral is a leading European and international betting and gaming group, formed from the merger of Ladbrokes and Coral Group, completed in November It is the leading bookmaker in the United Kingdom, with over 3,500 licensed betting offices (more than 40% market share). Retail wagering represents 75% of revenue and ~85% of EBITA. Ladbrokes Coral also has an extensive international portfolio of regulated businesses, with retail and online operations in Italy, where it is the second largest online operator, the number one in retail in Ireland, Spain and Belgium, and an online operation in Australia, where it is the third most recognised corporate bookmaking brand. Its online presence includes digital sports betting and gaming offerings across its brands. One of the key benefits from the merger is expected to be the potential for faster online growth from a dual-brand strategy and cross-brand marketing. Online wagering is expected to represent more than 40% of EBITDA by the end of The historical trading multiples have been calculated on a pro forma basis, assuming that the merger between Ladbrokes and Gala Coral was effective from 1 January On this basis, Ladbrokes Coral generated 2016 pro forma revenue of 2.4 billion and pro forma EBITDA of 380 million. Paddy Power Betfair plc Paddy Power Betfair is one of the world s leading sports betting and gaming operators, formed by the merger of Paddy Power and Betfair completed in February Although Paddy Power Betfair does have a retail presence through its 600 Paddy Power licensed betting offices across the United Kingdom and Ireland (making it the largest retail operator in Ireland and fifth largest retail operator in the United Kingdom), it is predominantly an online sports betting and gaming business. Paddy Power Betfair s Online division is the leading online sports betting operator in the United Kingdom and Ireland, with a growing presence throughout Europe, operating under two brands, Betfair and Paddy Power. In Australia, Sportsbet is the market leader in the Australian online betting market. These online businesses contribute approximately 80% of revenue and 87% of EBITA. Paddy Power Betfair also has a United States division, TVG, which is a horseracing television channel and pari-mutuel online betting network active in 35 states and an online casino and horse-racing Exchange in New Jersey. Paddy Power Betfair s historical trading multiples have been calculated on a pro forma basis, assuming the merger of Paddy Power and Betfair was effective on 1 January On this basis, Paddy Power Betfair generated 2016 pro forma revenue of 1.6 billion and pro forma EBITDA of 400 million. Its high trading multiples reflect the benefits of scale, including the expected synergies from the merger (not expected to be achieved in full until the third year following completion) and the medium term revenue growth prospects for the merged group Tatts Group Limited Scheme Booklet

327 GVC Holdings plc GVC is an international sports betting and gaming group. It operates some of the leading brands in the online sports betting sector (bwin, Sportingbet, Betboo and Gamebookers) and the online gaming sector (partypoker, partycasino, Casino Club, Gioco Digitale and Foxy Bingo. In addition, GVC provides online gaming services on a business-to-business basis to a number of third party operators. GVC is exclusively online sports betting and gaming businesses (with no retail operations). GVC s historical trading multiples have been calculated on a pro forma basis, assuming that the acquisition of bwin (one of Europe s leading online betting businesses, completed in February 2016) was effective from 1 January On this basis, GVC generated 2016 pro forma revenue of 873 billion and pro forma EBITDA of 206 million. Kindred Group plc Kindred (formerly Unibet) is one of Europe s leading online gambling companies and operates in 20 different languages across 100 markets (with around 89% of revenue from the Nordics and Western Europe regions). It offers online pre-game and live sports betting, racing, poker, casino and games and bingo under brands such as Unibet, Maria Casino, Stan James.com, igame and Bingo.com. In 2016 Kindred derived 50% of revenue from casinos and games and 45% of revenue from sports betting. At 30 June 2017, it had 20.2 million registered customers with 1.17 million active customers (i.e. a customer that has placed a bet in the three months ended 30 June 2017). Kindred was founded in 1997, listed on Nasdaq Stockholm in 2004, is headquartered in Malta and has a relatively open register (the founder only holds a 4.5% interest). It has grown in recent years by acquisition and on 23 February 2017 announced a recommended 176 million cash offer for 32Red plc (a Gibraltar based online gaming company operating online casino, online poker, online bingo and online sports betting brands). This acquisition completed on 6 June 2017 and therefore the historical and forecast year 1 earnings multiples for Kindred are not meaningful. Forecast year 2 will be the first year reflecting a full contribution from 32Red plc and the earnings multiples are relatively high reflecting the expectation of synergies from the acquisition that will emerge over time. Betsson AB Betsson AB ( Betsson ) offers internet gaming to end customers as well as systems solutions for other operators. It offers casino, sportsbook, poker, scratchcards, bingo and other games with over 70% of revenue generated by casino games in Customers are mainly located in the Nordic countries and Western Europe, with these regions accounting for around 73% of revenue in At 30 June 2017, Betsson had 12.4 million registered customers with 0.6 million active customers. It is listed Nasdaq Stockholm (Large Cap List) and is headquartered in Malta. It has a limited free float with the top five shareholders (including company founders) holding 58% at 30 June Betsson has grown in recent years by acquisition. It closed the 34 million acquisition of RaceBets (an online horse racing bookmaker in Germany which also offers coverage of the United Kingdom and Irish horse racing markets) on 31 December On 2 February 2017, Betsson announced a recommended 26 million cash offer for NetPlay TV plc (an interactive gambling company that provides casino, bingo and sportsbook services to consumers in the United Kingdom under the Supercasino, Jackpot247 and Vernons brands and operates a specialist online digital marketing. Product development and technology business) and the acquisition completed in March Brokers are projecting growth in revenue but lower earnings due to an expected increase in operating costs following recent acquisitions. Benefits from the acquisitions are expected to emerge beyond Betsson is said to be rated lower than Kindred due to its lesser market share in regulated markets and lower organic growth outlook. The Stars Group Inc. Stars Group (formerly Amaya Inc.) is a leading provider of technology based products and services in the global gaming and interactive entertainment industries. Following the acquisition of Oldford Group Limited in 2014 (transaction described above), Stars Group owns gaming and related consumer businesses and brands including PokerStars, PokerStars Casino, BetStars, Full Tilt, StarsDraft and the PokerStars Championship and PokerStars Festival live poker tour brands. These brands have more than 108 million registered customers globally and form the largest poker business in the world. Stars Group also offers non poker gaming products including casino, sportsbook and fantasy sports. It sold its previous gaming solutions business during At 30 June 2017, it had two major lines of business providing services to consumers, online poker (73% of revenue) and online casino and sportsbook (23%). Stars Group is listed on the Toronto Stock Exchange and NASDAQ and is headquartered in Quebec, Canada. 13 ANNEXURE A - INDEPENDENT EXPERT S REPORT 325

328 Intralot S.A. Intralot is listed on the Athens Stock Exchange. It is a global business that offers a portfolio of gaming systems and product solutions and services across all gaming activities (lottery, wagering, interactive, video lottery terminals). Intralot has a leading market position as a supplier of integrated gaming systems and services, a broad geographic presence, a diversified portfolio of long term contracts and a track record of contract renewal and winning new contracts. The executive chairman, Socrates Kokkalis, is Intralot s largest shareholder with a % interest. Intralot s very low trading multiples of around 3 times EBITDA and 4 times EBITA probably reflects market conditions in Greece generally (although most of its operations are outside Greece) and its: complicated operating structure: around 60% of EBITDA in 2016 was generated by joint ventures which are consolidated for accounting purposes (i.e. 100% of earnings are reflected in Intralot s income statement) 16 ; and it owns interests in a number of joint ventures of material size which are equity accounted (a number of which have been recently established); presence in a number of emerging markets; high leverage (book gearing of 72% as at 30 June 2017); the process that is currently underway to shift to an asset-light business model to improve margins and reduce debt (following poor historical performance); the implications of OPAP s recent announcement of new technology partners which will end a longstanding partnership with Intralot during 2018 (this business accounted for around 2% of Intralot s revenue in 2016); and low free float with five shareholders holding around 51% of issued. International Game Technology plc IGT plc is a United States listed end to end global gambling company. It was formed in 2014 following GTECH S.p.A s acquisition of International Game Technology (transaction described above). IGT plc operates and provides technology products and services across all gaming markets to business and retail customers in more than 100 countries. The De Agostini family holds a 51% interest in IGT. IGT plc main operations are in the gaming and lottery sectors. Gaming accounts for around 50% of revenue and includes the design and manufacture of technology products (including games, EGMs and casino management systems) and the provision of services to land-based casinos, interactive gaming, sports betting and EGMs. Lotteries accounts for around 40% of total revenue includes the operation and management of lotteries, the provision of lottery and gaming systems, software and machines, lottery facility and management services and lottery research and development. Around 50% of revenue is generated in North America, 35% in Italy (IGT plc is estimated to have a 32% share of the Italian gaming market) and the balance internationally. IGT plc s Italian lottery business ( Lottomatica ) accounts for around 15% of total revenue and is estimated to hold a 94% share of the Italian lotteries market. Lottomatica was the sole concessionaire for the Italian Lotto game from 1993 to In mid 2016, a consortium led by Lottomatica (61.5% interest) was awarded a nine year concession (to 2025) for Lotto in return for upfront payments totalling 770 million and a 130 million investment in new lottery technology infrastructure (systems, terminals). IGT plc provides services to 40 of the 45 United States lotteries including management services in three jurisdictions (Illinois, Indiana and New Jersey) where it manages the day to day operation of each lottery (on a fee for service basis) subject to oversight by the jurisdiction Brokers are projecting lower revenue and earnings in 2017 (forecast year one) based on IGT plc s guidance of lower jackpot and recent performance as well as the impact of IGT plc s decreased interest (from 100% to 61.5%) in the Lotto concession in Italy. Although cost savings of around US$230 million per annum and revenue synergies of US$50 million per annum from the 2014 merger are expected to emerge over the period to 2019, IGT plc s earnings growth profile has been tempered by the new Lotto concession arrangements. 16 Adjusting EBITDA for outside equity interests in the consolidated joint ventures, increases historical EBITDA multiple to 4.7 times Tatts Group Limited Scheme Booklet

329 Appendix 5 Selection of Discount Rates 1 Overview Grant Samuel has selected the following discount rates to apply to forecast nominal ungeared after tax cash flows for the business operations of Tatts Group Limited ( Tatts ) and Tabcorp Holdings Limited ( Tabcorp ): Discount Rates Business Discount Rate Lotteries % Keno % Wagering % Gaming Services % While both companies operate in the broader gambling entertainment industry markets, the individual segments such as lotteries and wagering display different risk profiles. Lotteries is a relatively stable platform for revenue generation due to its moderately insensitive demand, limited competition and absence of principal risk. In contrast, wagering is highly competitive with numerous participants in the growing online sector, shifting industry dynamics (including consumer preferences) and rapid technological changes. In addition, the higher level of individual customer expenditure makes it more susceptible to macroeconomic factors. The valuation of an asset or business involves estimating the discount rates that may be utilised by potential acquirers of that asset in assessing the net present value of expected future cash flows. There is a body of theory from which models that generate a cost capital have been developed but the selection of a discount rate is still fundamentally a matter of judgement. Despite the widespread acceptance and application of various theoretical models, it is Grant Samuel s experience that many companies rely on less sophisticated approaches. Many businesses and investors use relatively arbitrary hurdle rates which do not vary significantly from investment to investment or change significantly over time despite movements in interest rates. Valuation is an estimate of what real world buyers and sellers of assets would pay and must therefore reflect parameters that will be applied in practice even if they are not theoretically correct. In other words, the objective is to estimate a discount rate that generates a value for the asset that is, as far as practically possible, consistent with market prices, whether that rate fits a particular theory or not. Grant Samuel considers the rates selected to be discount rates that acquirers would use in practice. The discount rate selected represents an estimate of the weighted average cost of capital ( WACC ) appropriate for these businesses based on a weighted average of the cost of the two primary funding sources, equity and debt. This is the relevant rate to apply to ungeared cash flows. There are three main elements to the determination of an appropriate WACC: cost of equity; cost of debt; and debt/equity mix. The cost of equity has initially been derived from application of the capital asset pricing model ( CAPM ) methodology. The CAPM is probably the most widely accepted and used methodology for determining the cost of equity capital. There are more sophisticated multivariate models which utilise additional risk factors but these models have not achieved any significant degree of usage or acceptance in practice. However, the cost of equity is not an observable number that can ever be discovered or proved (no matter how many studies are conducted). Estimates are derived from models or theories but these do no more than infer a rate from other data using one particular theory about the way in which security prices behave. The usefulness of any estimate therefore depends on the efficacy of the theory and the robustness of the data. While the theory underlying the CAPM is rigorous the practical application is subject to shortcomings and limitations and the results of applying the CAPM model should 1 ANNEXURE A - INDEPENDENT EXPERT S REPORT 327

330 only be regarded as providing a general guide. There is a tendency to regard the rates calculated using CAPM as inviolate. To do so is to misunderstand the limitations of the model. The CAPM involves: a model that has questionable empirical validity; simplifying assumptions and approximations; the use of historical data as a proxy for estimates of forward looking parameters; data of dubious statistical reliability; and unresolved issues (such as the impact of dividend imputation). The cost of debt represents an estimate of the expected future returns required by debt providers to each business over the period of the cash flows but, even for something as relatively straightforward as interest rates, there are measurement issues and judgements to be made. The debt/equity mix represents an appropriate level of gearing, stated in market value terms, for the business over the forecast period. However, it should be recognised that selection of the ratio involves a significant degree of simplification and a substantial level of judgement. In summary, it is important not to over-engineer the process or to credit the output of models with a precision it does not warrant. It is easy to be captured by the accumulation of data and its apparent sophistication. A mechanistic application of formulae derived from theory can obscure the reality that any output from cost of capital models should be treated as a broad guide rather than an absolute truth. The following sections set out the basis for Grant Samuel s determination of the discount rates for the various businesses of Tatts and Tabcorp together with a discussion of the factors that limit the accuracy and reliability of the estimates. Grant Samuel s approach involves: derivation of a calculated WACC by applying the CAPM/WACC methodology using existing market data points; consideration of other methodologies, data and factors (e.g. the Gordon Growth Model); and forming a judgement as to a commercially sensible discount rate. 2 Definition and Limitations of the CAPM and WACC The CAPM provides a theoretical basis for determining a discount rate that reflects the returns required by diversified investors in the equity of the company (which is one component of the total capital funding structure). CAPM is based on the assumption that investors require a premium for investing in equities rather than in risk free investments (such as Australian government bonds). The premium is commonly known as the market risk premium and notionally represents the premium required to compensate for investment in the equity market in general. The risks relating to a company or business may be divided into specific risks and systematic risks. Specific risks are risks that are specific to a particular company or business and are unrelated to movements in equity markets generally. While specific risks will result in actual returns varying from expected returns, it is assumed that diversified investors require no additional returns to compensate for specific risk, because the net effect of specific risks across a diversified portfolio will, on average, be zero. Portfolio investors can diversify away all specific risk. However, investors cannot diversify away the systematic risk of a particular investment or business operation. Systematic risk is the risk that the return from an investment or business operation will vary with the market return in general. If the return on an investment was expected to be completely correlated with the return from the market, then the return required on the investment would be equal to the return required from the market (i.e. the risk free rate plus the market risk premium). Systematic risk is affected by the following factors: financial leverage: additional debt will increase the impact of changes in returns on underlying assets and therefore increase systematic risk; cyclicality of revenue: projects and companies with cyclical revenues will generally be subject to greater systematic risk than those with non-cyclical revenues; and Tatts Group Limited Scheme Booklet

331 operating leverage: projects and companies with greater proportions of fixed costs in their cost structure will generally be subject to more systematic risk than those with lesser proportions of fixed costs. CAPM postulates that the return required on an investment or asset can be estimated by applying to the market risk premium a measure of systematic risk described as the beta factor. The beta for an investment reflects the covariance of the return from that investment with the return from the market as a whole. Covariance is a measure of relative volatility and correlation. The beta of an investment represents its systematic risk only. It is not a measure of the total risk of a particular investment. An investment with a beta of more than one is riskier than the market as a whole and an investment with a beta of less than one is less risky. The discount rate appropriate for an investment which involves zero systematic risk would be equal to the risk free rate. The formula for deriving the cost of equity using CAPM is as follows: Re = Rf + Beta (Rm Rf) Where: Re = the cost of equity capital; Rf = the risk free rate; Beta = the beta factor; Rm = the expected market return; and Rm - Rf = the market risk premium. The beta for a company or business operation is normally estimated by observing the historical relationship between returns from the company or comparable companies and returns from the market in general. The market risk premium is estimated by reference to the actual long run premium earned on equity investments by comparison with the return on risk free investments. The formula conventionally used to calculate a WACC under a classical tax system 1 is as follows: WACC = (Re x E/V) + (Rd x (1-t) x D/V) Where: E/V = the proportion of equity to total value (where V = D + E); D/V = the proportion of debt to total value; Re = the cost of equity capital; Rd = the cost of debt capital; and t = the corporate tax rate The models, while simple, are based on a sophisticated and rigorous theoretical analysis. Nevertheless, application of the theory is not straightforward and the discount rate calculated should be treated as no more than a general guide. The reliability of any estimate derived from the model is limited. Some of the issues are discussed below: Overall Validity of the Model The CAPM has been subject to intense criticism over many years with numerous empirical studies demonstrating that it does not accurately portray movements in individual share prices and has limited explanatory power. There are also competing formulations (such as the Sharpe-Lintner, Black, Brennan-Lally, Officer or Monkhouse) which can give different results. In addition: the CAPM is a single period model rather than one developed specifically for valuing long term cash flows. It has been adapted to a multi-period model (usually annually) to calculate the value of long term cash flows. Theoretically, the analysis should use a forecast of the 1 A tax system not featuring dividend imputation or other variants such as advance corporation tax (i.e. dividends are paid out of after tax income and are subject to full tax in the hands of investors). 3 ANNEXURE A - INDEPENDENT EXPERT S REPORT 329

332 parameters for each period in question (annual is no more correct than any other period) but, typically, a long term average rate is assumed for the sake of practicality; the CAPM assumes investors are diversified and therefore are not (and should not be) concerned with the specific risk of a particular investment. Behavioural economics suggests while this may be theoretically sensible, it doesn t actually reflect how investors behave or how they price risk; and it ignores all investor taxes, which may or may not have an impact in the real world. Even where models do attempt to reflect taxation effects, adjustments are usually based on assumed averages which may not be accurate or appropriate given the diversity of individual tax positions. Risk Free Rate Theoretically, the risk free rate used should be an estimate of the risk free rate in each future period (i.e. the one year spot rate in that year if annual cash flows are used). There is no official risk free rate but, in developed economies such as Australia, rates on government securities are typically used as an acceptable substitute. In practice, the long term government bond rate is used as the most practical estimate (even though rates for individual years could be interpolated). However, it should be recognised that the yield to maturity of a long term bond is only an average rate and where the yield curve is strongly positive (i.e. longer term rates are significantly above short term rates) the adoption of a single long term bond rate has the effect of reducing the net present value where the major positive cash flows are in the initial years. The long term bond rate is therefore only an approximation. The ten year bond rate is a widely used and accepted benchmark for the risk free rate. Where the forecast period exceeds ten years, an issue arises as to the appropriate bond to use. While longer term bond rates are available, the ten year bond market is the deepest long term bond market in Australia and is a widely used and recognised benchmark. There is a limited market for bonds of more than ten years although the Australian government has recently issued 30 year bonds in volume. In the United States, there are deeper markets for longer term bonds. The 30 year bond rate would be a better benchmark for long term cash flows. However, long term rates accentuate the distortions of the yield curve on cash flows in early years. In any event, a single long term bond rate matching the term of the cash flows is no more theoretically correct than using a ten year rate. More importantly, the ten year rate is the standard benchmark used in practice. Market Risk Premium The market risk premium (Rm - Rf) represents the extra return that investors require to invest in equity securities as a whole over risk free investments. This is an ex-ante concept. It is the expected premium and, as such, it is not an observable phenomenon. There is no generally accepted approach to estimating a forward looking market risk premium and attempts to develop one (e.g. through surveys) have yielded unreliable and highly variable results. Accordingly, the historical premium is used as the best available proxy measure. The premium earned historically by equity investments is usually calculated over a time period of many years, typically at least 30 years. This long time frame is used on the basis that short term rates of return are highly volatile and that a long term average return would be a fair indication of what most rational investors would expect to earn in the future from an investment in equities with a five to ten year time frame. In the absence of controls over capital flows, differences in taxation and other regulatory and institutional differences, it is reasonable to assume that the market risk premium should be approximately equal across markets which exhibit similar risk characteristics after adjusting for the effects of expected inflation differentials. Accordingly, it is reasonable to assume similar market risk premiums for first world countries enjoying political economic stability, such as Australia, New Zealand, the United States, Japan, the United Kingdom and various western European countries. In the United States, it is generally postulated that the historical premium is in the range of 4-6% but there are widely varying assessments (from 3% to 9%). Australian studies have been more limited Tatts Group Limited Scheme Booklet

333 and mainly derive from the Officer Study 2 which was based on data for the period 1883 to 1987 (prior to the introduction of dividend imputation in Australia) and indicated that the long run average premium was in the order of 8% using an arithmetic average but subject to significant statistical error. More recently, the Officer Study data has been updated to with the long term average declining to around 6%. Due to concerns about the earlier market data, emphasis is now placed on the average risk premium since 1958, which is estimated to be 5.8% ignoring the impact of imputation (where imputation credits are valued at 100% the market risk premium over the same period is 6.6%). However, even the measurement or use of long term historical returns is subject to considerable debate: there are multiple different outcomes for the historical market risk premium depending on time period, basis (over long term bonds or shorter term bills), method (arithmetic or geometric averages) and estimation approach 4 ; the measures of historical returns typically have extremely high statistical error measures. For a, say, 6% average measured premium the true figure will typically lie in a range of 2-10% at a 95% confidence level; the methodology is inflexible and tends to fail when market conditions change materially. Market volatility is the reality of financial markets. Clearly, in the immediate aftermath of the global financial crisis (which commenced in late 2007), investors perceptions of risk and the pricing of that risk rose significantly and rapidly. This can be demonstrated by the observable data from the pricing of lowly rated corporate bonds (which sit on the risk spectrum between risk free assets and equities) over this period. Yields to maturity rose dramatically in 2008 and However, long term average historical data will not flex to reflect these changes an average of, say, 50 years of data will not move much even with 2-3 years of new data; the longer the period of measurement (and therefore the greater the robustness of the average) the more likely it is to reflect economic and market circumstances that have little resemblance to the present (is it really likely that investor returns prior to World War II are relevant to the kinds of returns investors expect today?); and the historical data also contains a logical contradiction when the equity return required by investors is lower than the returns implied by market prices, investors respond by bidding the price of equities higher. A rising market translates to a higher measured historical risk premium, contrary to the lower return expectations driving the upwards movement in prices. Beta Factor The beta factor is a measure of the expected covariance (i.e. volatility and correlation of returns) between the return on an investment and the return from the market as a whole. The expected beta factor cannot be observed. The conventional practice is to calculate an historical beta from past share price data and use it as a proxy for the future but it must be recognised that: the expected beta is not necessarily the same as the historical beta. A company s relative risk does change over time and measured historical betas can often reflect structural changes in an industry over the time period rather than its inherent correlation to the market; the starting point is normally to measure the historical correlation of a company s share price against its local market index. However: - the composition of indices varies substantially between markets. For example, the Australian index is dominated by resources and banks; and - where a company is extensively traded by global investors it can be argued that the regression against an index such as the Morgan Stanley Capital International Developed 2 R.R. Officer in Ball, R., Brown, P., Finn, F. J. & Officer, R. R., Share Market and Portfolio Theory: Readings and Australian Evidence (second edition), University of Queensland Press, 1989 ( Officer Study ). 3 J.C. Handley, An Estimate of the Historical Risk Premium for the period 1883 to 2011, April 2012 (prepared for the Australian Energy Regulator). This paper is based on earlier work by T. Brailsford, J.C. Handley and K. Maheswaran in 2008 and Market risk premiums estimated by the Ibbotson and Wright approaches are considered to lie at opposite ends of the spectrum. The Ibbotson approach assumes that the market risk premium is constant while the Wright approach assumes the real expected return on the market to be constant and therefore the market risk premium varies inversely to changes in the risk free rate. 5 ANNEXURE A - INDEPENDENT EXPERT S REPORT 331

334 World Index ( MSCI ), an international equities market index that is widely used as a proxy for the global stockmarket as a whole, is more relevant but it: - depends on who the price setting investors are; - can give materially different results to measures based on the local index; and - raises a related issue as to whether a global risk premium is also appropriate and, if so, what that global premium is; the appropriate beta is the beta of the company being valued rather than the beta of the acquirer (which may be in a different business with different risks). Betas for the particular subject company may be utilised but these are seldom regarded as reliable enough (and may not be available if the company is not listed). Accordingly, it is common practice to utilise betas for comparable companies and sector averages (particularly as those may be more reliable). However, none of these other companies is likely to be exactly comparable to the subject entity (e.g. it may operate in other jurisdictions with different economic drivers, regulatory regimes and benchmark index composition). In any event, the comparable company data seldom yields a tight and consistent range from which a precise estimate can be derived; there are very significant measurement issues with betas which mean that only limited reliance should be placed on such statistics. There is no correct beta. For example, even for a relatively stable business such as Tatts: - over the last four years Tatts beta as measured by the Securities Industry Research Centre of Asia-Pacific ( SIRCA ) has varied between 0.74 and 1.15; - SIRCA s latest estimate of 0.94 compares to 0.46 measured by MSCI Barra Inc. ( Barra ) and around 0.96 measured by Bloomberg; and estimates of predicted betas made by providers such as Barra can be significantly different to the historically calculated beta. In the case of Tatts, its predicted beta is around compared to its historical beta (as measured by Barra) of Debt/Equity Mix The relevant measure of the debt/equity mix is based on market values (not book values). As beta is normally considered in the context of comparable companies as well as the subject company, the debt/equity mix should involve similar analysis. Accordingly, the relevant proportions of debt and equity are usually determined having regard to the financial gearing of the subject company, comparable companies and the industry in general as well as assessments of the appropriate level of gearing taking into account the nature and quality of the cash flow stream. However: a simple debt/equity mix is usually used for practicality but it represents a simplification of what are usually much more complex financial structures (e.g. hybrids, convertibles); a constant degree of leverage is typically assumed but this is seldom the case; the debt/equity mix (measured over the same period as the historical beta is measured) can be volatile over time at an individual company level. Averages across time may give a more meaningful guide but in some circumstances this may not be appropriate; there is often a wide diversity of debt/equity ratios across companies in an industry. Moreover, there is often inconsistency between gearing and beta ratios (e.g. those with higher gearing may exhibit lower betas than their peers); and the measured beta factors for listed companies are equity betas and reflect the financial leverage of the individual companies. It is possible to unleverage beta factors to derive asset betas and releverage betas to reflect a more appropriate or comparable financial structure. In Grant Samuel s view, this technique is subject to considerable estimation error. Deleveraging and releveraging betas exacerbates the estimation errors in the original beta calculation and gives a misleading impression as to the precision of the methodology. Indeed, there are competing deleveraging formulae which give different results. Deleveraging and releveraging is also commonly calculated based on debt levels at a single point in time. This is incorrect as it is leverage over the same period in which the beta was measured that is relevant (although this can be difficult to estimate accurately given that data points may be at best quarterly) Tatts Group Limited Scheme Booklet

335 Corporate Tax The WACC calculation generally assumes a constant rate of corporate tax, typically the standard corporate rate. However, the tax position of many corporates, particularly multinationals, is usually much more complex and can change significantly over time. Dividend Imputation The conventional WACC formula set out above was formulated under a classical tax system. The CAPM model is constructed to derive returns to investors after corporate taxes but before personal taxes. Under a classical tax system, interest expense is deductible to a company but dividends are not. Investors are also taxed on dividends received. Under Australia s dividend imputation system, domestic equity investors receive a taxation credit (franking credit) for any tax paid by a company. The franking credit attaches to any dividends paid out by a company and the franking credit offsets personal tax. To the extent the investor can utilise the franking credit to offset personal tax, then the corporate tax is not a real impost. It is best considered as a withholding tax for personal taxes. It can therefore be argued that the benefit of dividend imputation should be incorporated into any analysis of value. There is no generally accepted method of allowing for dividend imputation. In fact, there is considerable debate within the academic and financial communities as to the appropriate adjustment or even whether any adjustment is required at all. Some suggest that it is appropriate to discount pre-tax cash flows, with an increase in the discount rate to gross up the market risk premium for the benefit of imputation credits that are on average received by shareholders. On this basis, the discount rate might increase by approximately 2% but it would be applied to pre-tax cash flows. However, not all of the necessary conditions for this approach exist in practice: not all shareholders can use franking credits. In particular, foreign investors gain no benefit from franking credits (except in relation to withholding taxes in some cases 5 ). If foreign investors are the marginal price setters in the Australian market there should be no adjustment for dividend imputation; not all franking credits are distributed to shareholders; and capital gains tax operates on a different basis to income tax. Investors with high marginal personal tax rates will prefer cash to be retained and returns to be generated by way of a capital gain. Others have proposed a different approach involving an adjustment to the cost of equity by a factor reflecting the effective use or value of franking credits (i.e. allowing for the proportion of taxed income paid out as dividends and the utilisation by investors). The proponents of this approach have in the past suggested a factor in the range 40-65% as representing the appropriate adjustment (gamma) 6 although more recent commentary suggest a lower level (circa 25%). The gamma can be applied to the cost of capital or, alternatively, the tax charge in the forecast cash flows can be decreased to incorporate the expected value of franking credits distributed (the usual approach by regulators). In Grant Samuel s opinion, it is not appropriate to allow for dividend imputation for business valuation purposes: the underlying concept of gamma is flawed. The gamma is meant to represent some kind of complex market weighted average but the value of franking credits is essentially binary. They have 100% value to some (or many) domestic investors and 0% to foreign investors. There is nobody to whom franking credits have a value equal to, say, 50% of their face value (i.e. there is no spectrum of outcomes to determine a meaningful weighted average ); there is no direct evidence that imputation credits are factored into market prices of listed companies or the prices paid in acquisitions. The primary proof appears to be based on 5 Withholding tax on unfranked distributions will typically apply to portfolio investors in listed Australian entities but foreign companies (depending on their jurisdiction) are generally not subject to withholding tax on unfranked dividends of wholly owned Australian subsidiaries. 6 Under this construct the cost of equity is scaled by gamma ( ) (i.e. Adjusted Re = Re x l-t/(1-t(1- ))). Assuming the standard Australian corporate tax rate of 30% and = 0.5, Re is multiplied by 0.82 (i.e divided by 0.85). 7 ANNEXURE A - INDEPENDENT EXPERT S REPORT 333

336 dividend drop off studies but these face serious questions as to reliability of data and the interpretation of the outcome never mind that it does not address risk and other issues associated with the ability to use them over the longer term; and it is not consistent with what is happening in real world markets. The adoption of a gamma factor (of, say, 0.5) must, by definition, mean that companies in the Australian market are valued such that: - domestic investors (who can use 100% of imputation credits) earn a higher return than their cost of capital; and - offshore investors earn less than their required return. As such there should be no offshore investors in Australian (unless they have a lower cost of capital than domestic investors through some other means). It would also suggest that overseas acquirers of businesses in Australia would not be able to compete effectively with local acquirers. Rather, the evidence demonstrates that: - marginal sharemarket prices are not set using any value for gamma; but that - domestic investors enjoy a higher after tax return than comparably taxed offshore investors. In summary, it is clear that dividend imputation affects returns to investors. However, the evidence gathered to date does not demonstrate or prove that franking credits are factored into the market price of listed companies or the prices paid in acquisitions. While acquirers are undoubtedly attracted by franking credits there is no clear evidence that they will actually pay extra for them or build it into values based on long term cash flows. Specific Risk The WACC is designed to be applied to expected cash flows which are effectively a weighted average of the likely scenarios. To the extent that a business is perceived as being particularly risky, this specific risk should be dealt with by adjusting the cash flow scenarios. This avoids the need to make arbitrary adjustments to the discount rate which can dramatically affect estimated values, particularly when the cash flows are of extended duration or much of the business value reflects future growth in cash flows. In addition, risk adjusting the cash flows requires a more disciplined analysis of the risks that the valuer is trying to reflect in the valuation. However, it is also common in practice to allow for certain classes of specific risk (particularly sovereign and other country specific risks) in a different way by adjusting the discount rate applied to forecast cash flows. 3 Calculated WACC 3.1 Cost of Equity Capital Risk Free Rate Grant Samuel has adopted a risk free rate of 2.6%. The risk free rate approximates the yield to maturity on ten year Australian Government bonds. Market Risk Premium Grant Samuel has consistently adopted a market risk premium of 6% and believes that this continues to be a reasonable estimate. It: is not statistically significantly different to the premium suggested by long term historical data; is similar to that used by a wide variety of analysts and practitioners as well as regulators (typically in the range 5-7%); and makes no explicit allowance for the impact of Australia s dividend imputation system. Beta Factor For the purpose of valuing Tatts and Tabcorp s business divisions, Grant Samuel has adopted the following beta factors: Tatts Group Limited Scheme Booklet

337 Business Equity Beta Factors Beta Wagering Lotteries Gaming Services The beta factors for a wide range of gaming companies (including lotteries, wagering and gaming services) have been considered in determining an appropriate beta for the businesses of Tatts and Tabcorp. They have been calculated on two bases relative to each company s home exchange index and relative to the MSCI. A summary of betas for selected comparable listed gaming companies is set out in the table below: Company Equity Beta Factors for Selected Listed Gaming Companies Market Capitalisation 7 (millions) Monthly Observations over 5 years Barra 8 Monthly Observations over 4 years SIRCA 9 Bloomberg 10 Local Index MSCI 11 Weekly Observations over 2 years Local Index Bloomberg Tatts A$5, Tabcorp A$4, Lotteries OPAP 12 3, Wagering MSCI Ladbrokes Coral 2, William Hill 2, Paddy Power Betfair 6, (0.11) GVC 2, Kindred 1, Betsson SEK10, Stars Group C$4,407 nmf 13 nmf nmf Gaming Services Intralot IGT plc US$4,158 na 14 na na Minimum (0.11) Maximum Median Source: SIRCA, Barra, Bloomberg 7 Based on share prices as at 1 September 2017, except for Tatts and Tabcorp which are based on share prices as at 17 October 2016 (being the last trading day prior to announcement of the combination of Tatts and Tabcorp). 8 Beta factors calculated by Barra as at 31 July 2017 over a period of 60 months using ordinary least squares regression or the Scholes- Williams technique (including lag) where the stock is thinly traded. 9 The Australian beta factors calculated by SIRCA as at 30 June 2017 over a period of 48 months using ordinary least squares regression or the Scholes-Williams technique where the stock is thinly traded. 10 Bloomberg betas have been calculated up to 18 August Grant Samuel understands that betas estimated by Bloomberg are not calculated strictly in conformity with accepted theoretical approaches to the estimation of betas (i.e. they are based on regressing total returns rather than the excess return over the risk free rate). However, in Grant Samuel s view the Bloomberg beta estimates can still provide a useful insight into the systematic risks associated with companies and industries. The figures used are the Bloomberg adjusted betas. 11 MSCI is calculated using local currency so that there is no impact of currency changes in the performance of the index. 12 The Athens Stock Exchange was closed for five weeks in June/July 2015 and therefore the betas for OPAP and Intralot based on monthly observations shown in the table are calculated based on 47 monthly datapoints rather than 48 datapoints. 13 nmf = not meaningful. Stars Group acquired Oldford Group Limited, the owner of the world s leading online poker business Rational Group, for US$4.9 billion in cash in June This materially changed Stars Group s business profile and size. As a consequence, the four and five year betas (0.26, 2.38 and 1.83 respectively) are not considered to be a reliable indicator of the current business. 14 na = not available. International Game Technology plc ( IGT plc ) was established and publicly listed on 7 April 2015 (following acquisition of United States company International Game Technology by GTECH SpA) and therefore there are insufficient datapoints to calculate betas and gearing data is not available prior to ANNEXURE A - INDEPENDENT EXPERT S REPORT 335

338 The table shows outcomes that suggest it is extremely difficult to determine a reliable beta for any of these businesses: betas vary significantly depending on the measurement source (Barra, SIRCA, Bloomberg etc.) and, as discussed earlier, have varied significantly over time; individual company betas (for the same source/period) fall in a very wide range. For example, Bloomberg Four Year MSCI betas range from 0.45 (GVC) to 1.04 (Kindred) and down to (Paddy Power Betfair) although this should be treated as an outlier; and some individual company betas vary significantly depending on which market index is utilised (Local or MSCI). It should also be noted that a number of these companies (Ladbrokes Coral, Paddy Power Betfair, IGT plc, GVC, Stars Group) were formed by acquisition or merger transactions in the last four years. This may impact the observed betas and gearing levels for these companies (see Section 3.3 below). Wagering The median beta for wagering companies (excluding Tabcorp and Stars Group) is 0.53 as measured by Barra over five years, 0.89 as measured against their respective local share markets by Bloomberg over four years and 0.79 as measured against the MSCI by Bloomberg over four years. Apart from Tabcorp itself and, to a lesser extent Tatts, Grant Samuel considers those wagering companies with significant operations in the Australian market to be other useful indicators (i.e. William Hill, Ladbrokes Coral and Paddy Power Betfair). Unfortunately, the betas for these companies fall in a wide range ((0.11)-0.97) depending on the source, timeframe and/or index benchmark. However, most observations fall between 0.7 and 1.0. The historical beta of each comparable company is also inextricably linked to the gearing level of that company. William Hill and Ladbrokes Coral have comparatively similar levels of gearing to Tatts and Tabcorp, generally in the range of 15%-25%, while Paddy Power Betfair is more lowly geared. Taking all of these factors into account as well as the nature of the business and its exposure to macroeconomic factors, Grant Samuel believes that a beta in the range is a reasonable estimate of the appropriate beta for Tatts and Tabcorp s wagering businesses. Lotteries The available evidence for lotteries businesses is extremely limited. There are only two significant listed entities worldwide primarily engaged in running lotteries, Tatts (63% of reported EBITDA in FY17) and OPAP (the leading lottery operator in Greece) 15. Again, observed betas vary widely depending on the source. Tatts beta is 0.9 from SIRCA and Bloomberg (using four years data and the local index) and is 0.5 from Barra. OPAP is 1.2 against the MSCI but is around 0.8 against the local index. Some of these measurements do not appear consistent with the business risk profile. Intuitively, it would be expected that the beta for a lotteries business would be lower than that of a wagering business given the inherent characteristics: monopolistic operating environment due to long term lottery concessions granted by governments; stable cash flows due to low sensitivity to economic growth (low level of expenditure per participant); low ongoing capital requirements; and strong economies of scale. 15 While IGT plc is also a major provider of lotteries (particularly in Italy), over 50% of revenue is derived from other services provided to gaming and lottery businesses Tatts Group Limited Scheme Booklet

339 These characteristics differ from a wagering business, which faces intense competition, changing market dynamics, rapid technological development and higher levels of individual participation. In this context, Tatts beta is approximately lower than Tabcorp across most sources (and Tatts also has a significant wagering business). Grant Samuel s judgement is that a beta factor in the range is appropriate for a large scale lotteries business. Gaming Services The listed gaming services entities are not directly comparable to the gaming services businesses of either Tatts or Tabcorp (although Intralot does have monitoring businesses). In the absence of definitive data, Grant Samuel considers it appropriate to adopt the same betas as for wagering ( ). Calculations Using the estimates set out above, the cost of equity capital for the businesses can be calculated as follows: Cost of Equity Capital Business Low High Formula Re = Rf + Beta (Rm Rf) Wagering = 2.6% + (0.9 x 6%) = 8.0% Lotteries = 2.6% + (0.7 x 6%) = 6.8% Gaming Services = 2.6% + (0.9 x 6%) = 8.0% = 2.6% + (1.0 x 6%) = 8.6% = 2.6% + (0.8 x 6%) = 7.4% = 2.6% + (1.0 x 6%) = 8.6% 3.2 Cost of Debt A cost of debt of 5.0% has been adopted based on a margin of 2.4% over the risk free rate. This figure represents the expected future cost of borrowing over the duration of the cash flow model. Grant Samuel believes that this would be a reasonable estimate of an average interest rate, including a margin that would match the duration of the cash flows assuming that the operations were funded with a mixture of short term and long term debt. This margin: reflects margins currently paid by Tatts and Tabcorp on their existing facilities (albeit that these are generally of a maturity less than ten years); reflects Grant Samuel s understanding of current market margins for companies of a comparable credit standing to Tatts; and allows for margin between government bonds (i.e. the risk free rate and lending benchmarks (i.e. interbank lending/swap rates). 3.3 Debt/Equity Mix In determining an appropriate debt/equity mix, regard was had to gearing levels of the gaming companies used in the beta analysis. Gearing levels for these companies for the past five years are set out below: 11 ANNEXURE A - INDEPENDENT EXPERT S REPORT 337

340 Gearing Levels for Selected Listed Gaming Companies Net Debt/(Net Debt + Market Capitalisation) Year ended 30 June Historical 5 Historical 4 Historical 3 Historical 2 Historical 1 Current 16 4 Year Average 5 Year Average Tatts 22.4% 12.5% 8.5% 14.3% 13.2% 15.5% 12.1% 14.2% Tabcorp 34.7% 28.8% 22.0% 21.3% 30.4% 22.3% 25.6% 27.4% Lotteries OPAP (14.4%) (3.7%) (4.7%) 2.7% 2.6% 2.7% (0.8%) (3.5%) Wagering Ladbrokes Coral 17.0% 24.8% 25.9% 16.8% 33.3% 32.5% 25.2% 23.6% William Hill 16.0% 17.7% 11.0% 17.7% 18.4% 19.1% 16.2% 16.2% Paddy Power Betfair (5.3%) (10.1%) 2.4% - (1.1%) (1.4%) (2.2%) (2.8%) GVC (13.3%) (2.4%) (5.2%) 6.0% 2.1% 1.6% 0.1% (2.5%) Kindred (5.0%) (5.4%) (3.8%) (1.1%) 7.2% 7.2% (0.8%) (1.6%) Betsson 0.4% 2.6% 2.0% 6.9% 12.9% 12.6% 6.1% 5.0% Stars Group 15.6% 6.1% 38.9% 51.1% 46.6% 39.4% na na Gaming Services Intralot 58.1% 55.5% 60.7% 78.2% 72.9% 72.4% 66.8% 65.1% IGT plc na 14 na 70.4% 67.5% 65.4% 62.7% na na Minimum (14.4%) (10.1%) (5.2%) (1.1%) (1.1%) (1.4%) (2.2%) (3.5%) Maximum 58.1% 55.5% 70.4% 78.2% 72.9% 72.4% 66.8% 65.1% Median 0.4% 2.6% 6.7% 11.9% 15.7% 15.9% 3.1% 1.7% Source: Company Reports, IRESS, S&P Capital IQ, Bloomberg, Grant Samuel analysis The table shows a very wide range of gearing levels. The debt levels should actually be the weighted average measured over the same period as the beta factor rather than just at the current point in time. Moreover, these do not always bear any relationship to the betas of the individual companies. In some cases, lowly geared companies have equity betas towards the higher end of the range (e.g. OPAP or Betsson). Having regard to the above, the debt/equity mix has been estimated as 70-80% equity and 20-30% debt. This is regarded as being broadly consistent with the beta factors of the major entities (Tatts, Tabcorp, William Hill and Ladbrokes Coral). Arguably, a lottery business could sustain a significantly higher level of gearing given its low volatility, annuity style income stream. However, that would represent a higher level than observed in Tatts or the other listed lottery company (OPAP) and would require careful consideration of the impact on the beta (i.e. the observed betas reflect low financial gearing). Limited regard was had to the gearing of the gaming services companies. 3.4 WACC On the basis of the parameters outlined and assuming a corporate tax rate of 30%, the nominal WACCs are calculated to be as follows: Calculated WACCs Business Low High Formula = (Re x E/V) + (Rd x (1-t) x D/V) Wagering = (8.0% x 70%) + (5.0% x 0.7 x 30%) = 6.7% Lotteries = (6.8% x 70%) + (5.0% x 0.7 x 30%) = 5.8% Gaming Services = (8.0% x 70%) + (5.0% x 0.7 x 30%) = 6.7% = (8.6% x 80%) + (5.0% x 0.7 x 20%) = 7.6% = (7.4% x 80%) + (5.0% x 0.7 x 20%) = 6.6% = (8.6% x 80%) + (5.0% x 0.7 x 20%) = 7.6% 16 Current gearing levels are based on the most recent balance sheet information and sharemarket prices on 1 September 2017, except for Tatts and Tabcorp which are based on prices on 17 October 2016 (being the last trading day prior to announcement of the Scheme) Tatts Group Limited Scheme Booklet

341 4 Selection of Discount Rate Grant Samuel s view is that the selected weighted average cost of capital should incorporate a margin over the calculated WACC range to reflect a broader range of evidence: global interest rates, including long term bond rates, are at low levels by comparison with historical norms reflecting the very substantial amounts of liquidity being pumped into many advanced economies (particularly Western Europe and the United States) to stimulate economic activity. Effective real interest rates are now low and, in some cases are negative. There is an argument that these conditions have now been present for some years and are therefore the new normal. While there is some merit in this argument, we do not believe the current position is sustainable over the long term and, in our view, the risk is clearly towards a rise in bond yields. Indeed, the Federal Reserve in the United States has signalled that official interest rates are likely to rise in the near future. Conceptually, the interest rates used to calculate the discount rate should recognise this expectation (i.e. they should be forecast for each future period) but for practical ease market practice is that a single average rate based on the current long term bond rate is generally adopted for valuation purposes. Some academics/valuation practitioners consider it to be inappropriate to add a normal market risk premium (e.g. 6%) to a temporarily depressed bond yield and argue that a normalised risk free rate should be used. This practice has become increasingly common among broker analysts. On this basis, an increase in the risk free rate to, say, 4% (still relatively low by historical standards) would, for example: increase the wagering WACC range to %%; and increase the lottery WACC range to %; the 30 year bonds issued by the Australian government are trading at yields of % higher than equivalent 10 year bonds (the term premium for United States bonds is slightly lower); the Gordon Growth Model ( GGM ) is an alternative methodology for measuring the cost of equity capital and can provide some useful insights, particularly for mature businesses with consistent dividend policies. Under the GGM, the implied cost of equity is calculated as the current forecast (dividend) yield plus the expected long term growth rate for the dividend (Re = Dividend/Price + g). Prior to announcement of the Scheme on 19 October 2017, both Tatts and Tabcorp were trading at FY17 dividend yields of around 5%. There are no long term forecasts of dividend growth but medium term broker forecasts indicate earnings per share growth rates (FY18-20) of around 5% for Tatts and 7% for Tabcorp (excluding the impact of Sun Bets). On this basis the implied costs of equity capital are 11% for Tatts and 12% for Tabcorp. These compare to the CAPM based rates of % for wagering and % for lotteries (Tatts would represent a blending of these two); and analysis of research reports on Tabcorp indicates that brokers are currently adopting a WACC in the range of 8-9% while for Tatts it is generally around 7.5-8% (being a blended rate for lotteries and wagering). Having regard to these matters and the calculations set out above, the following discount rates (WACC) have been selected for application in the discounted cash flow analysis: Discount Rates Business Discount Rate Lotteries % Keno % Wagering % Gaming Services % 17 Keno has some similar characteristics to lotteries but has a narrower base of operations and largely takes place in gaming venues. Accordingly, a discount rate between lotteries and wagering was considered appropriate. 13 ANNEXURE A - INDEPENDENT EXPERT S REPORT 339

342 This page has been left blank intentionally. 340 Tatts Group Limited Scheme Booklet

343 Annexure B Investigating Accountant s Report 341

344 The Directors Tatts Group Limited 87 Ipswich Road Woolloongabba QLD 4102 The Directors Tabcorp Holdings Limited Level 21, Tower Collins Street Melbourne VIC September 2017 Dear Directors Investigating Accountant s Report Independent Limited Assurance Report on pro forma historical financial information and Financial Services Guide We have been engaged by Tatts Group Limited (Tatts) and Tabcorp Holdings Limited (Tabcorp) to report to the directors of Tatts and Tabcorp on the pro forma historical financial information for inclusion in the Scheme Booklet dated on or about 8 September The Scheme Booklet is to be issued by Tatts in relation to the proposed merger with Tabcorp in accordance with the Merger Implementation Deed dated 18 October 2016, whereby ordinary shares in Tabcorp will be issued to eligible Tatts shareholders in exchange for their existing shares in Tatts. Expressions and terms defined in the Scheme Booklet have the same meaning in this report. The nature of this report is such that it can only be issued by an entity which holds an Australian financial services licence under the Corporations Act PricewaterhouseCoopers Securities Ltd, which is wholly owned by PricewaterhouseCoopers holds the appropriate Australian financial services licence under the Corporations Act This report is both an Investigating Accountant s Report, the scope of which is set out below, and a Financial Services Guide, as attached at Appendix A. Scope Pro forma historical financial information You have requested PricewaterhouseCoopers Securities Ltd to review the following Combined Group Pro-Forma Financial Information included in section 12.5 of the Scheme Booklet: the combined financial performance of Tabcorp and Tatts for the year ended 30 June 2017 as if the Scheme had been Implemented on 1 July 2016 (Combined Group pro-forma income statement); PricewaterhouseCoopers Securities Ltd, ACN , ABN , Holder of Australian Financial Services Licence No Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001 T: , F: , Tatts Group Limited Scheme Booklet

345 the combined financial position of Tabcorp and Tatts as at 30 June 2017 as if the Scheme had been Implemented on 30 June 2017 (Combined Group pro-forma statement of financial position); and the combined operating cash flows after capital expenditure of Tabcorp and Tatts for the year ended 30 June 2017 as if the Scheme had been Implemented on 1 July 2016 (Combined Group pro-forma cash flows). The pro forma historical financial information has been derived from the Historical Financial Information for each of Tabcorp and Tatts (presented in sections 11.4 and 10.6 of the Scheme Booklet respectively), after adjusting for the effects of pro forma adjustments (Pro-Forma Adjustments) described in sections 12.5(d), 12.5(g) and 12.5(j) of the Scheme Booklet. The stated basis of preparation is the recognition and measurement principles contained in Australian Accounting Standards and the accounting policies set out in section 12.5(b) of the Scheme Booklet and the events or transactions to which the Pro-Forma Adjustments relate, as described in section 12.5 of the Scheme Booklet, as if those events or transactions had occurred as at the date of the historical financial information. Due to its nature, the pro forma historical financial information does not represent the Combined Group s actual or prospective financial position, financial performance, and/or cash flows. Tabcorp Historical Financial Information has been extracted from the financial reports of Tabcorp for the years ended 30 June 2015, 30 June 2016 and 30 June 2017, which were audited by Ernst & Young. Ernst & Young issued unmodified opinions on all of the financial reports referred to above. Tatts Historical Financial Information has been extracted from the financial reports of Tatts for the years ended 30 June 2015, 30 June 2016 and 30 June 2017, which were audited by PricewaterhouseCoopers. PricewaterhouseCoopers issued unmodified opinions on all of the financial reports referred to above. The Historical Financial Information for Tabcorp and Tatts is presented in the Scheme Booklet in an abbreviated form, insofar as it does not include all of the presentation and disclosures required by Australian Accounting Standards and other mandatory professional reporting requirements applicable to general purpose financial reports prepared in accordance with the Corporations Act Directors responsibility The directors of Tabcorp are responsible for the preparation of the Combined Group Pro-Forma Financial Information with the exception of any information regarding Tatts that Tabcorp used in preparing the Combined Group Pro-Forma Financial Information, which is the responsibility of the directors of Tatts. This includes responsibility for its compliance with applicable laws and regulations and for such internal controls as the directors determine are necessary to enable the preparation of the Combined Group Pro-Forma Financial Information that are free from material misstatement. Our responsibility Our responsibility is to express a limited assurance conclusion on the financial information based on the procedures performed and the evidence we have obtained. We have conducted our engagement in accordance with the Standard on Assurance Engagement ASAE 3450 Assurance Engagements involving Corporate Fundraisings and/or Prospective Financial Information. 2 ANNEXURE B - INVESTIGATING ACCOUNTANT S REPORT 343

346 A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain reasonable assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Our engagement did not involve updating or re-issuing any previously issued audit or review report on any financial information used as a source of the financial information. Conclusions Pro forma historical financial information Based on our review, which is not an audit, nothing has come to our attention that causes us to believe that the Combined Group Pro-Forma Financial Information included in section 12.5 of the Scheme Booklet, and comprising: the combined financial performance of Tabcorp and Tatts for the year ended 30 June 2017 as if the Scheme had been Implemented on 1 July 2016 (Combined Group pro-forma income statement); the combined financial position of Tabcorp and Tatts as at 30 June 2017 as if the Scheme had been Implemented on 30 June 2017 (Combined Group pro-forma statement of financial position); and the combined operating cash flows after capital expenditure of Tabcorp and Tatts for the year ended 30 June 2017 as if the Scheme had been Implemented on 1 July 2016 (Combined Group pro-forma cash flows); is not presented fairly, in all material respects, in accordance with the stated basis of preparation, as described in section 12.5(b) of the Scheme Booklet being the recognition and measurement principles contained in Australian Accounting Standards and the accounting policies set out in section 12.5(b) of the Scheme Booklet and the events or transactions to which the Pro-Forma Adjustments relate, as described in sections 12.5(d), 12.5(g) and 12.5(j) of the Scheme Booklet, as if those events or transactions had occurred as at the date of the historical financial information. Notice to investors outside Australia Under the terms of our engagement this report has been prepared solely to comply with Australian Auditing Standards applicable to review engagements. This report does not constitute an offer to sell, or a solicitation of an offer to buy, any securities. We do not hold any financial services licence or other licence outside Australia. We are not recommending or making any representation as to suitability of any investment to any person. Restriction on Use Without modifying our conclusions, we draw attention to section 12.5(a) of the Scheme Booklet, which describes the purpose of the financial information, being for inclusion in the Scheme Booklet. As a result, the financial information may not be suitable for use for another purpose Tatts Group Limited Scheme Booklet

347 Consent PricewaterhouseCoopers Securities Ltd has consented to the inclusion of this assurance report in the public document in the form and context in which it is included. Liability The liability of PricewaterhouseCoopers Securities Ltd is limited to the inclusion of this report in the Scheme Booklet. PricewaterhouseCoopers Securities Ltd makes no representation regarding, and has no liability for, any other statements or other material in, or omissions from the Scheme Booklet. Independence or Disclosure of Interest PricewaterhouseCoopers Securities Ltd does not have any interest in the outcome of this Scheme other than the preparation of this report and participation in due diligence procedures for which normal professional fees will be received. Financial Services Guide We have included our Financial Services Guide as Appendix A to our report. The Financial Services Guide is designed to assist retail clients in their use of any general financial product advice in our report. Yours faithfully Paul Lindstrom Authorised Representative of PricewaterhouseCoopers Securities Ltd 4 ANNEXURE B - INVESTIGATING ACCOUNTANT S REPORT 345

348 Appendix A PRICEWATERHOUSECOOPERS SECURITIES LTD FINANCIAL SERVICES GUIDE This Financial Services Guide is dated 7 September About us PricewaterhouseCoopers Securities Ltd (ABN , Australian Financial Services Licence no ) (PwC Securities Ltd) has been engaged by Tatts Group Limited (Tatts) and Tabcorp Holdings Limited (Tabcorp) to provide a report in the form of an Investigating Accountant s Report in relation to the Combined Group Pro-Forma Financial Information (the Report) for inclusion in the Scheme Booklet dated on or around 8 September You have not engaged us directly but have been provided with a copy of the Report as a retail client because of your connection to the matters set out in the Report. 2. This Financial Services Guide This Financial Services Guide ("FSG") is designed to assist retail clients in their use of any general financial product advice contained in the Report. This FSG contains information about PwC Securities Ltd generally, the financial services we are licensed to provide, the remuneration we may receive in connection with the preparation of the Report, and how complaints against us will be dealt with. 3. Financial services we are licensed to provide Our Australian financial services licence allows us to provide a broad range of services, including providing financial product advice in relation to various financial products such as securities, interests in managed investment schemes, derivatives, superannuation products, foreign exchange contracts, insurance products, life products, managed investment schemes, government debentures, stocks or bonds, and deposit products. 4. General financial product advice The Report contains only general financial product advice. It was prepared without taking into account your personal objectives, financial situation or needs. You should consider your own objectives, financial situation and needs when assessing the suitability of the Report to your situation. You may wish to obtain personal financial product advice from the holder of an Australian Financial Services Licence to assist you in this assessment. PricewaterhouseCoopers Securities Ltd, ACN , ABN , Holder of Australian Financial Services Licence No Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD Tatts Group Limited Scheme Booklet