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1 Tatts Group Limited (TTS) - FY2012 RESULTS SETTING NEW BENCHMARKS FY2012 produced a rewarding and satisfying result which captured the benefits from a three year strategy to realign and expand the company s major service delivery businesses. growth of 6.3% delivered a 15.9% increase in profit after tax. This is a significant and notable achievement for a business which is often characterised as offering only steady growth regardless of the economic cycles. It would be disingenuous not to observe that the year suited us. It had an extra day courtesy of the leap year, and a 53 rd Saturday. Saturday is an important contributor to the company s lottery, wagering and gaming machine businesses. However, there is nothing else in the year which cannot be delivered again and again. The prospects for FY2013 are addressed later in this release. It is important to note that Tatts Lotteries will benefit from the completion of the NSW Lotteries integration and is in a strong position to bid for SA Lotteries. TattsBet also enjoys the prospect of a full year of a fully integrated Tote Tasmania operation without the ongoing fear that current revenue quality is not sustainable. There are other reasons to be confident about FY2013. Some are explained below. REVENUE EBITDA EBIT NPAT Earnings per Share Dividend per Share NPAT for the current year includes non-recurring integration, relocation and restructuring costs associated with the TOTE Tasmania acquisition of $12.6 million, further technology rationalisation costs for NSW Lotteries following the lottery system replacement in May and other technology restructuring of $3.5 million, and other one-off restructuring expenses of $2.8 million. 1

2 Tatts Pokies REVENUE Expenses EBITDA Depreciation & Amortisation 9.5 (66.3) EBIT This result illustrates how well Frank Makryllos and his team have been able to manage the company s exit from this business. The 2.3% revenue growth has been achieved against a backdrop of uncertainty about the future, and the early action by venues to shift machines around in advance of the expiry of the Tatts Pokies licence on 15 August. EBIT has benefitted from the successful sale of gaming machines to venues. The depreciation schedules were reset to achieve close to a zero outcome at the end of the Pokies business on 15 August. Tatts Pokies will contribute to revenue and profit for just over six weeks in FY2013. Tatts Pokies systems will continue to operate until February 2013 under an arrangement struck with the incoming monitoring operator. This arrangement also provides for the sale of invenue infrastructure. There will be some redundancy costs as the last of the operational and technical staff employed by Tatts Pokies leave the company in FY2013. All in all, EBIT in FY2013 for this business is expected to be in the vicinity of $28 million. Tatts Lotteries REVENUE Expenses EBITDA Depreciation & Amortisation 21.2 (0.9) EBIT A favourable calendar and the final stages of the integration of NSW Lotteries have resulted in a strong result for Tatts Lotteries. growth of 10% is above trend. The improved margins are the result of extra sales and NSW Lotteries performance. Tatts lottery operating system and tatts.com were commissioned in NSW in May to complete the integration of NSW Lotteries. Redundancy and other restructuring costs in the year were approximately $2.9 million. FY2013 will get the benefit of a fully restructured business and the end of the third party system costs in NSW. 2

3 The prospects for Tatts Lotteries are encouraging. The NT Government has converted their lottery permit to a 20 year agreement with margins for domestic sales increasing from below 4% to around 10%. FY2013 will also deliver the full year benefits available from the system and internet changes in NSW. Additionally, SA Lotteries is moving through a sale process and Tatts will bid for this business. TattsBet REVENUE Expenses EBITDA Depreciation & Amortisation EBIT Add back: Tote Tasmania Restructure Costs Underlying EBIT The TattsBet wagering business has begun to show the potential promised by a new relationship between totalisator and fixed price betting. This realignment has driven a significant body of totalisator win and place betting on racing from totalisator to fixed price. Concerns about lower quality revenue from this shift are proving to be unfounded. More importantly this shift is manageable. The removal of the 16% cap on totalisator deductions to reflect the greater contribution of the higher revenue bet types, and the impact of turnover based race field fees on competitors, has seen revenues increase at a faster rate than turnover. The recent stability in revenue margins has also resulted in a resumption of margin growth. EBIT to revenue margins in this business have increased over the year from 20.8% to 21.9% on underlying FY2012 EBIT. The addition of Tote Tasmania into the TattsBet portfolio has also begun to deliver significant benefits. The contribution from Tote Tasmania over the quiet months of its financial year has come with integration expenses of $12.6M, of which $12.2 million were incurred within TattsBet. These expenses will not recur in FY2013 and revenue quality from Tasmania is improving each week. TattsBet s acquisition of Tote Tasmania has also triggered a shift in the overly aggressive rebating which was used by some of the participating TABs in the SuperTAB pool to gain an advantage. This rebating has rapidly declined and created a more even and fairer pooling environment for everyday recreational punters. It is an investment in the long term health of totalisator betting in Australia. TattsBet has successfully extended its Queensland sports betting licence for 25 years. 3

4 Maxgaming/Bytecraft Maxgaming REVENUE (1.7) Expenses 48.9 (4.2) EBITDA Depreciation & Amortisation 21.3 (18.3) EBIT Marginally lower revenues have not stopped Maxgaming producing a remarkable outcome in which both EBITDA and EBIT have increased. This well managed and innovative venue support business continues to find ways to protect itself despite intermittent bouts of political and commercial uncertainty surrounding the operation of gaming machines in NSW, Queensland and NT. The most notable shifts in the operating environment for gaming machines have been the steady decline in machine numbers, reduced enthusiasm for wide area jackpots, and a thirst for new value adding products which provide venues with the machine and player performance data needed to make better business decisions and support player care programs. The trophy value add in FY2012 was Maxreports. It generates $40,000 monthly from being able to compile and publish information on more than 40,000 machines in NSW to subscribers. Its subscriber base includes venues and machine manufacturers. FY2013 promises more new products. In-venue jackpots have become an essential replacement product for wide area jackpots. Automated and paperless value adds in the form of Max e-draw and Max e-pay are among the next generation of value adds. Bytecraft REVENUE Expenses EBITDA Depreciation & Amortisation EBIT The revenue growth at Bytecraft is a step up in size for this electronic installation and repair business. New contracts have significantly shifted the external and internal business mix that will see in excess of 70% of FY2013 revenue come from external contracts, and have set Bytecraft on the path toward $115 million in annual revenues in FY2013. This step up in size has come at a cost in FY2012. Establishing the infrastructure and acquiring new staff has added to expenses in FY2012. The consequent decline in profit margins is temporary. They are expected to rebound and rise in FY

5 Talarius REVENUE 69.2 (4.4) Expenses 62.2 (1.5) EBITDA 7.0 (24.3) Depreciation & Amortisation EBIT (2.7) n/a Signs of sales growth after three years of decline! The additional machine turnover didn t translate to revenue growth because of an increase in VAT and foreign exchange translation. However, the VAT is out of the way and the UK Government move to a gross profits tax will provide some relief for the majority of the machines operated by Talarius. Talarius has also uncovered new avenues for growth. Motorway service station complexes offer gaming facilities in the UK and Talarius has taken over the rights to operate seven new motorway sites. The first three sites were commissioned in May and are performing in line with expectations. A further four sites begin operating in September. The motorway sites are expected to produce EBITDA of 0.9 million over a full year. Talarius will also acquire a further three high street venues in Cornwall for 0.8 million. They are expected to add 0.4 million to EBITDA over a full year. The prospects for Talarius have improved over the last 18 months. It has grown faster than the UK economy. Tatts Online Tatts Online provides cross business support for the company s two mainstream service delivery businesses. It has responsibility for the development of online and mobile applications (Apps). The release of both the Android and iphone TattsBet Apps and the introduction of a single customer account for Tatts services have been the major online achievements in FY2012. The single account allows wagering punters and lottery players to buy fixed price, totalisator, racing, sports betting and lottery tickets in a single session from a single online purse. It is a major infrastructure improvement which is designed to support the various telephone, internet and App selling channels offered to account holders. Already, more than 230,000 accountholders have opted for a single customer account. Tatts Online s charter also involves customer acquisition. It uses sophisticated search engine marketing techniques and engages in social media to service and communicate with current and potential online users. This role will become more active now that the single account technology and other services have proven themselves to be relatively robust and reliable. The introduction of a tatts.com App toward the end of the 2012 calendar year is the next natural extension of Tatts Online s success. The tatts.com App will sell both wagering and lottery services. 5

6 The commitment to Tatts Online s day to day activities will increase from near $4M to around $10M in FY2013. This cost is included in the expenses reported for TattsBet and Tatts Lotteries. Corporate Tatts received $194.7 million from the Tatts Bond issue on 29 June 2012 with the Bonds trading normally on the ASX from 4 July 2012 (ASX code TTSHA). This was a great outcome when some others were unable to complete transactions domestically. The seven year maturity of these bonds provides diversification, duration and flexibility to Tatts debt maturity profile as illustrated in the following chart: 600 Debt Maturity Profile FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 Syndicated Debt Available () Tatts Bond Debt () Syndicated Debt Drawn () USPP Debt () The extent and/or need and timing for refinancing of maturing syndicated bank debt in the second half of FY2013 will be determined by requirements such as potential funding for a possible acquisition of SA Lotteries and the Irish Lottery. At 30 June 2012, the Group s Net Debt level was $1,167.0 million, reflecting a slightly lower level to that in place at 30 June 2011, despite investing over $100 million on TOTE Tasmania. This generated a Net Debt to EBITDA ratio of 1.8 times at year end, ensuring that, despite the cessation of Tatts Pokies, this credit metric will remain well within investment grade levels through FY2013. This is supported by the strong operational cash flows, the $66.3 million received from the sale of gaming machines, and the cash retention under the Dividend Reinvestment Plan. Capital expenditure for FY2012 totalled $75.2 million, including $8.6 million in committed but unpaid orders for lottery terminals to be rolled out in FY2013. When added to the expected capital expenditure for FY2013 of around $67 million, this gives a cash capital spend in FY2013 of around $76 million. 6

7 Depreciation for FY2012 came in around $100 million, and is expected to be under $90 million in FY2013 with Tatts Pokies ceasing and some Maxgaming software and venue assets fully depreciated. Interest expense for FY2013 is expected to be around the same level as FY2012, given similar average debt levels throughout both years and lower average interest rates offset by anticipated higher margins from increased gearing and refinancing. Corporate expenses, excluding technology, as a percentage of revenue continued to be well managed to a level of 1.1%. These costs are not allocated to the business units. Dividend A final dividend of 12.0 cents per share has been determined, resulting in a total dividend in respect of FY2012 of 23.0 cents per share. This represents a payout ratio of 97.5% of reported profits, maintaining the high dividend ratio practice of the Board, and providing a 10.4% increase in total dividends paid on the previous year s total dividend payments. The DRP is again operating on this final dividend, with a 1.5% discount applied. The dividend will be fully franked and is payable on 3 October 2012, with an ex-dividend date of 30 August 2012 and a Record Date of 5 September, Outlook Improved margins from the continuing businesses in FY2013 will be driven by the inclusion on a full year basis of Tote Tasmania in TattsBet, a fully integrated full year NSW Lotteries without restructuring costs, Bytecraft s move beyond the setup phase for its new external contracts, new venues and a continuing real growth without new tax imposts at Talarius, and a solid response to new value adding services and natural increases in monitoring fees within Maxgaming. Importantly, Tatts Pokies will exit the company with a small contribution and not drag on profits generated elsewhere as a result of redundancy costs. This high quality operating outlook matches the company s balance sheet management. Depreciation continues to respond to a natural decline in capital expenditure following the company s exit from gaming machines and the end of the hotel development projects. Interest costs will respond to a build-up of free cash and sound interest rate management. Put simply, the company is in good shape with the potential to produce an EBITDA in FY2013 which will be well in advance of reported EBITDA for the financial year prior to the April 2008 announcement that the Tatts Pokies licence in Victoria wouldn t be renewed in Further Information: Ray Gunston, Chief Financial Officer Gary Woodford, GM Investor Relations / Michael Mangos, GM External Communications

8 KEY BUSINESS MEASURES Major Product net of prizes ($million) - Saturday lotto - Midweek Lotto (Mon/Wed) - Oz Lotto and Powerball - Instant Lotteries (NSW, QLD, TAS, NT, ACT) Jackpots (Oz Lotto / Powerball) - Number of jackpots at and above $15 m - Total value of jackpots at and above $15 m FY 2012 FY 2011 Change $708.6m $151.8m $608.2m $157.5m $632.3m $147.6m $558.4m $154.0m 12.1% 2.9% 8.9% 2.3% 22 $505m 27 $485m (18.5%) 4.1% Number of Outlets 3,693 3,781 (2.3%) Active Player Card Members 2.126m 2.202m (3.47%) % Change Fees and Taxes Totalisator (Tote) (1.6%) Racing Industry Fees Fixed Price Racing % Government Taxes Tote and FP Racing % Fixed Price Sport % Total Other % Total % Sales by Channel Sales Sales % Change Totalisator Product Share % of Sales % of Sales Retail , % Internet % Win/Place Call Centre (7.5%) Exotics On-course % Total Total Sales 3, , % Fixed Price Product Share % of % of Racing Sport Total TATTS ONLINE FY 2012 FY 2011 % Change Internet/Mobile Apps Sales Tatts Lotteries TattsBet $238.8m $591.6m $186.0m $543.6m 28.4% 8.8% Online Sales as % of Total Sales FY % 17.0% Online Sales as % of Total Sales FY % 15.9% ACTIVE ONLINE ACCOUNTS NSW VIC QLD SA TAS NT/ACT OTHER TOTAL Single Purse 17,774 99,343 84,661 3,620 8,209 5,793 11, ,971 Lotteries only 0 91,071 59, ,866 5,513 7, ,571 TattsBet only ,604 7,288 3, ,464 52,091 8

9 FY 2012 FY 2011 Change Number of Venues % Number of gaming machines at 30 June 12,940 13, % Net Machine (NMR) per gaming machine per day (average) $259 $ % % of gaming machines linked 44.5% 47.1% -2.6% Queensland New South Wales Northern Territory Machine Numbers Monitoring 34,275 33,975 96,324 96,935 1,083 1,181 MIS 33,954 33, ,000 1,000 Jackpot Linked 13,754 14,311 2,665 3, Loyalty Linked 18,406 18, , - % FY 2012 FY 2011 Change Tatts Group Customers (%) 38.6% 42.7% -4.1% External Customers (%) 61.4% 57.3% +4.1% Total $103.8m $91.4m +13.6% FY 2012 FY 2011 Change Number of AGC Venues Number of gaming machines in operation 7,389 7, % NMR per gaming machine per day (average) * % * Gross revenue per day after Return To Player. 9