Tatts Group Limited. Half-Year Report and Accounts 31 December 2013

Transcription

1 ABN and Accounts 31 ember

2 ABN ASX Half-Year information - 31 ember 20 February 2014 RESULTS FOR ANNOUNCEMENT TO THE MARKET TATTS GROUP LIMITED HALF-YEAR REPORT FOR HALF-YEAR ENDED 31 ember In accordance with the ASX Listing Rules, the documents which follow are for immediate release to the market. DIVIDEND 1. for the half-year ended 31 ember (Appendix 4D) 2. Directors' Report and Interim Financial Report for the half-year ended 31 ember The Directors have determined a fully franked interim dividend of 8.0 cents per share, to be paid on 4 April The record date for the purpose of determining entitlements is 4 March The Company's Dividend Reinvestment Plan (DRP) will operate for the interim dividend. To participate in the DRP for this interim dividend, those shareholders who have not already done so will need to lodge a DRP Notice of Election with Computershare Investor Services Pty Ltd by the end of the record date, 4 March The price at which shares are issued under the DRP is the daily volume weighted average market price of the Company's shares sold in the ordinary course of trading on the ASX during the ten trading days commencing on the second trading day after the dividend record date. Shares issued under the DRP will rank equally with existing ordinary shares from the date of issue. A 1.5% discount is applicable to shares acquired under the DRP for this dividend. Shares acquired by a participant under the DRP will be provided via a share issue. There is no foreign sourced income attributed to the dividend. Information about the DRP can be found on the Company's website at The information contained in this release should be read in conjunction with the Company's most recent Annual Financial Report. Anne Tucker General Counsel and Company Secretary

3 31 ember Appendix 4D information ABN Half-Year ended 31 ember (Previous corresponding period) Half-Year ended 31 ember 2012 Results for Announcement to the Market Period to 31 ember Period to 31 ember 2012 % change From ordinary activities Revenue from ordinary activities 1,491,275 1,707,543 (12.7)% Profit from ordinary activities for the period attributable to members 121, ,318 (5.0)% Net profit for the period attributable to members 121, ,318 (5.0)% From continuing activities Revenue from ordinary activities excluding discontinued operation 1,491,275 1,545,741 (3.5)% Net profit for the period attributable to members excluding discontinued operation 121, , % Distributions Amount per security Franked amount per security Amount Date Paid/Payable Dividend/distributions Current year to 31 ember Interim dividend (per share) 8.0 cents 8.0 cents 113,369 4 April 2014 Prior year to 30 June Final dividend (per share) 7.5 cents 7.5 cents 105,203 7 October Interim dividend (per share) 8.0 cents 8.0 cents 111,066 5 April Record date for determining entitlement to the interim dividend is 4 March Explanation of revenue Refer to Tatts Group Limited Directors' Report and Interim Financial Report. Explanation of profit from ordinary activities after tax Refer to Tatts Group Limited Directors' Report and Interim Financial Report. Explanation of dividends The interim dividend of 8.0 cents per share (: 8.0 cents per share) represents a payout ratio of 93.0% (: 86.4%) 31 ember 31 ember 2012 Net tangible asset backing (per share) ($1.23) ($1.31) The negative NTA backing reflects the composition of the companies that comprise Tatts Group Limited and its controlled entities (Group), being licensed networked gambling businesses which are typically characterised by signficant levels of intangible assets. 1

4 Additional dividend/distributions information Tatts Group Limited 31 ember Appendix 4D information The Directors have announced an interim dividend of 8.0 cents per share to be paid on 4 April Dividend Reinvestment Plan The Company's DRP will operate for the interim dividend. To participate in the DRP for this interim dividend, those shareholders who have not already done so will need to lodge a DRP Notice of Election with Computershare Investor Services Pty Ltd by the end of the record date, 4 March Information about the DRP can be found on the Company's website at Anne Tucker Company Secretary Brisbane 20 February

5 ABN Directors' Report and 31 ember Interim Financial Report Tatts Group Limited Period ended 31 ember Contents Page Directors' Report 4 Auditor's Independence laration 7 Interim Financial Report Consolidated income statement 8 Consolidated statement of comprehensive income 9 Consolidated balance sheet 10 Consolidated statement of changes in equity 11 Consolidated statement of cash flows 12 Notes to the Consolidated financial statements 13 Directors' laration 21 Independent Auditor's Review Report to the members 22 This Interim Financial Report does not include all the notes of the type normally included in an Annual Financial Report. Accordingly, this report is to be read in conjunction with the Annual Report for the year ended 30 June and any public announcements made by Tatts Group Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act

6 Directors' Report 31 ember Directors' Report Your Directors present their report on the consolidated entity (Group) consisting of Tatts Group Limited (Company) and the entities it controlled at the end of, or during, the half-year ended 31 ember. Directors The following persons were Directors of the Company during the whole of the half-year and up to the date of this report unless otherwise stated: Harry Boon Robbie Cooke Robert Bentley* Lyndsey Cattermole AM Brian Jamieson Julien Playoust Kevin Seymour AM * commenced temporary leave of absence effective 14 May. The Directors announced on 12 ember that they had invited Dr. David Watson to join the Board subject to the receipt of all necessary regulatory approvals. Review of operations Revenue from continuing activities was down 3.5% to $1,491.3 million, whilst net profit after tax from continuing activities was up 12.2% to $122.0 million. Earnings per share from continuing activities was 8.7 cents, up 10.1% on the previous corresponding period. Group revenue reduced by 12.7% to $1,491.3 million, with Group net profit after tax declining 5.0% to $122.0 million, reflecting the cessation of the Tatts Pokies business in the previous corresponding period. This resulted in Group earnings per share of 8.7 cents, down 6.5%. The Directors have again maintained a strong dividend payout ratio of 93.0%, declaring an interim dividend of 8.0 cents per share totalling $113.3 million payable on 4 April Further operational results and commentary are provided below. Tatts Lotteries Revenue was down 5.3% to $999.5 million. This included a full six month contribution from SA Lotteries (three weeks in the previous corresponding period). The comparative result was always going to be difficult to repeat mainly due to the sustained jackpot sequence achieved by Oz Lotto and Powerball during the six month period to 31 ember 2012, culminating in the Oz Lotto jackpot of $112 million on Melbourne Cup day Despite there being one less Saturday superdraw in the current period earnings before interest and tax (EBIT) was up 6.3% to $144.9 million. However, excluding SA Lotteries, revenue was down 9.1% but EBIT was only down 6.7%, which reflects cost efficiences achieved through the continued integration of the Lotteries operations, principally through SA Lotteries. TattsBet Revenue was down 2.0% to $337.9 million. EBIT for the period was $78.0 million, down 3.0%. The continued migration of win/place betting to TattsBet's fixed price service resulted in totalisator revenue contracting 5.8%, offset by TattsBet's fixed price betting business growing 8.5% for the period. TattsBet operates in a challenging environment due to sustained competition from corporate bookmakers and was also impacted by softer retail trading conditions. 4

7 Directors' Report 31 ember Review of operations (continued) TattsBet (continued) Following public commentary regarding the correct interpretation of the Product and Program Agreement entered into between TattsBet and the Queensland racing industry in June 1999, TattsBet commenced proceedings in the Supreme Court of Queensland on 16 ember seeking, amongst other things, a declaration that TattsBet is entitled to deduct race field fees paid to interstate racing control bodies from the product fee it pays to the Queensland racing industry pursuant to the Product and Program Agreement and/or entitled to repayment of race field fees received by the Queensland racing industry from other wagering operators. Since the introduction of race field fees in 2008 to 31 ember, TattsBet has made deductions totalling approximately $131 million while over a similar period and based on information published in Racing Queensland's annual reports, the Queensland racing industry has charged other wagering operators approximately $166 million in Queensland race field fees. At this stage it is not possible to say with any certainty when the final hearing in the proceeding will occur. Gaming Solutions - Maxgaming Revenue was up 1.8% to $58.1 million, benefiting from the introduction of new value-adding products and services. Margin improvement in the business has seen EBIT for the period reach $25.0 million, up 4.9%, which also benefited from a continued reduction in depreciation applicable to some in-venue equipment. Gaming Solutions - Bytecraft Bytecraft revenue declined by 10.9% to $53.7 million for the six months to 31 ember due to the loss of several contracts. EBIT declined by 15.1% to a loss of $1.2 million. This included management and staff restructure costs of $0.8 million. The business is currently focussed on reviewing contractual agreements and containing costs in order to return to profitability in the next financial year. Gaming Solutions - Talarius Talarius achieved revenue growth of 33.6%, reaching A$52.8 million for the six months to 31 ember which resulted from organic sales growth, contributions from acquisitions and favourable foreign exchange movements. EBIT for the period increased significantly reaching A$1.9 million, up 237.8%. This benefited from the aforementioned drivers of revenue growth. Economic forecasts and key economic indicators point towards the UK economy recovering from the turmoil experienced over the past five years. It is believed however that this recovery will be gradual. Discontinued Operation Tatts Pokies On 15 August 2012 the Gaming Operator Licence held by the Company expired. This Gaming Operator Licence enabled Tatts Pokies to own and operate gaming machines within the State of Victoria. On 16 August 2012, the Company commenced proceedings against the State of Victoria in the Supreme Court of Victoria for compensation payable on the expiry of the Gaming Operator Licence. The Company claims that under an agreement entered into on 17 November 1995, it is entitled, on expiry of its Gaming Operator Licence on 15 August 2012, to compensation in an amount equal to the lesser of the licence value and the premium payments made by the new licencees. The hearing of the matter commenced on 3 February On 6 May, the Victorian Treasurer determined the Company was required to pay a Health Benefit Levy of $42.6 million under the Gambling Regulation Act 2003 (Vic) in respect of Victorian gaming operations conducted by Tatts in the financial year. On 29 May the Company commenced proceedings against the Treasurer in the Supreme Court of Victoria challenging the Treasurer's determination. On 24 June the Supreme Court found in favour of the Company and set aside the Treasurer's determination and held that the Treasurer does have discretion to determine the amount of the levy, including by pro-rating the amount of the levy. On 4 July the Treasurer lodged an appeal in the Court of Appeal seeking, amongst other things, to have the decision of the Supreme Court set aside. This appeal has been scheduled for 27 March

8 Directors' Report 31 ember Review of operations (continued) Balance Sheet Net debt (excluding prize reserves) in the Group's Balance Sheet was $1,334.9 million at 31 ember, down from $1,538.7 million at 31 ember Financing costs for the six months to 31 ember reduced to $47.8 million from $49.0 million in the previous corresponding period, reflecting the decrease in the funding costs for the Group and the decreasing level of debt. Directors have again maintained a strong dividend payout ratio, supported through continued strong cash flow generation by the Group. Total capital expenditure for the period was $48.7 million, of which $36.0 million was underlying expenditure whilst the remaining $12.7 million related to the acquisition of our new Head Office site in Newstead and costs associated with the consolidation of existing Brisbane properties to accommodate all staff following completion of the Head Office move. The underlying capital expenditure of $36.0 million was below total depreciation and amortisation of $41.3 million which includes $11.0 million of amortisation of licences and rights to operate. Operational cash flow is supplemented by the cash retained through shareholder participation in the DRP. Auditor's Independence laration A copy of the Auditor's Independence laration as required under section 307C of the Corporations Act 2001 is set out on page 7 for the half-year ended 31 ember. Rounding of amounts to nearest thousand dollars The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to the 'rounding off' of amounts in the Directors' Report and Financial Report. Amounts in the Directors' Report and Financial Report have been rounded off in accordance with that Class Order to the nearest thousand dollars. This report is made in accordance with a resolution of Directors. Harry Boon Chairman Robbie Cooke Managing Director/Chief Executive Officer Brisbane 20 February

9 Auditor s Independence laration As lead auditor for the review of Tatts Group Limited for the half-year ended 31 ember, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and b) no contraventions of any applicable code of professional conduct in relation to the review. This declaration is in respect of Tatts Group Limited and the entities it controlled during the period. Anton Linschoten Partner PricewaterhouseCoopers Brisbane 20 February 2014 PricewaterhouseCoopers, ABN Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001 T: , F: , Liability limited by a scheme approved under Professional Standards Legislation. 7

10 Consolidated income statement Period ended 31 ember Notes 2012 Revenue from continuing operations 1,491,275 1,545,741 Statutory outgoings Government share (669,837) (738,044) Venue share/commission (216,903) (214,170) Product/program fees (99,549) (102,355) Other income 66 - Expenses Employee expenses (100,931) (99,763) Operating fees and direct costs (36,284) (36,365) Telecommunications and technology (20,778) (18,515) Marketing and promotions (21,013) (23,552) Information services (9,877) (9,404) Property expenses (28,386) (26,570) Restructuring expenses (936) (9,311) Other expenses (21,850) (19,348) Share of net profit of associates and joint ventures accounted for using the equity method - 80 Profit before interest, income tax, depreciation and amortisation 264, ,424 Depreciation and amortisation (41,302) (41,743) Interest income 1,208 2,105 Finance costs (49,008) (51,081) Profit before income tax 175, ,705 Income tax expense (53,929) (48,976) Profit from continuing operations 121, ,729 Profit from discontinued operation 6-19,589 Profit attributable to owners of Tatts Group Limited 121, ,318 Cents Cents Earnings per share for profit from continuing operations attributable to the ordinary equity holders of the Company: Basic earnings per share Diluted earnings per share Earnings per share for profit attributable to the ordinary equity holders of the Company: Basic earnings per share Diluted earnings per share The above Consolidated income statement should be read in conjunction with the accompanying notes. 8

11 Consolidated statement of comprehensive income Period ended 31 ember 2012 Profit for the Half-Year 121, ,318 Other comprehensive income Items that may be reclassified to profit or loss Changes in the fair value of available-for-sale financial assets (156) 848 Changes in the value of net investment hedges (8,848) (1,370) Changes in the value of cross currency interest rate swaps (1,688) (773) Changes in the value of interest rate swaps 5,941 6,473 Exchange differences on translation of foreign operations 3, Changes in the value of forward foreign exchange contracts (143) 54 Income tax relating to these items (766) (1,543) Other comprehensive income for the Half-Year, net of tax (1,785) 3,778 Total comprehensive income for the Half-Year 120, ,096 Total comprehensive income for the Half-Year attributable to owners of Tatts Group Limited arises from: Continuing operations 120, ,507 Discontinued operation - 19, , ,096 The above Consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 9

12 Consolidated balance sheet As at 31 ember Notes June ASSETS Current assets Cash and cash equivalents 457, ,669 Trade and other receivables 104, ,184 Inventories 10,488 14,110 Assets classified as held for sale 39,625 39,625 Other current assets 53,056 45,775 Total current assets 665, ,363 Non-current assets Trade and other receivables 226 8,684 Available-for-sale financial assets 18,594 18,306 Property, plant and equipment 207, ,171 Derivative financial instruments 25,394 24,592 Intangible assets 4,554,554 4,553,340 Deferred tax assets 42,372 40,201 Other non-current assets Total non-current assets 4,849,413 4,831,697 Total assets 5,515,182 5,445,060 LIABILITIES Current liabilities Trade and other payables 680, ,103 Interest bearing liabilities 7 347, ,387 Derivative financial instruments - 2,802 Tax liabilities 25,948 15,426 Provisions 19,525 19,409 Other current liabilities 53,056 45,775 Total current liabilities 1,126,729 1,059,902 Non-current liabilities Trade and other payables 75,047 74,279 Interest bearing liabilities 7 1,224,352 1,277,954 Derivative financial instruments 8,580 11,566 Deferred tax liabilities 246, ,896 Provisions 3,968 4,041 Retirement benefit obligations 12,006 12,001 Total non-current liabilities 1,570,129 1,624,737 Total liabilities 2,696,858 2,684,639 Net assets 2,818,324 2,760,421 EQUITY Contributed equity 8 2,698,161 2,654,852 Other reserves (9,779) (7,610) Retained earnings 129, ,179 Total equity 2,818,324 2,760,421 The above Consolidated balance sheet should be read in conjunction with the accompanying notes. 10

13 Consolidated statement of changes in equity Period ended 31 ember Notes Attributable to owners of Tatts Group Limited Contributed Other Retained equity reserves earnings Total equity Balance at 1 July ,542,875 (15,878) 136,644 2,663,641 Profit for the half-year , ,318 Other comprehensive income - 3,778-3,778 Total comprehensive income for the half-year - 3, , ,096 Transactions with owners in their capacity as owners: Dividend Reinvestment Plan issues 8 57, ,111 Dividends provided for or paid (163,579) (163,579) Employee performance rights - 1,689-1,689 Employee share options ,731 1,689 (163,579) (104,159) Balance at 31 ember ,600,606 (10,411) 101,383 2,691,578 Balance at 1 July 2,654,852 (7,610) 113,179 2,760,421 Profit for the half-year , ,966 Other comprehensive income - (1,785) - (1,785) Total comprehensive income for the Half-Year - (1,785) 121, ,181 Transactions with owners in their capacity as owners: Dividend Reinvestment Plan issues 8 41, ,699 Dividends provided for or paid (105,203) (105,203) Employee share options Employee performance rights 1,604 (384) - 1,220 43,309 (384) (105,203) (62,278) Balance at 31 ember 2,698,161 (9,779) 129,942 2,818,324 The above Consolidated statement of changes in equity notes. should be read in conjunction with the accompanying 11

14 Consolidated statement of cash flows Period ended 31 ember Notes 2012 Cash flows from operating activities Receipts from customers (inclusive of GST) net of prizes paid/cash returns to customers 1,610,362 1,804,747 Payments to suppliers and employees (inclusive of GST) (265,865) (249,673) Payments to Government (660,900) (864,821) Payments to venues/commission (216,903) (256,760) Payments for product and program fees (99,195) (100,549) 367, ,944 Other revenue Interest received 1,598 3,174 Interest paid (44,817) (45,015) Income taxes paid (43,379) (78,772) Net cash inflow from operating activities 280, ,633 Cash flows from investing activities Payments for acquisitions 5 - (428,377) Payments for interests in and loans to joint venture entities - (4,517) Payments for property, plant and equipment (39,193) (31,784) Payments for intangibles (5,709) (16,725) Proceeds from sale of property, plant and equipment and investment properties ,522 Proceeds from available-for-sale financial assets 14 - Net cash (outflow) from investing activities (44,622) (408,881) Cash flows from financing activities Proceeds from issues of shares Dividends paid net of Dividend Reinvestment Plan 4 (63,505) (106,468) Proceeds from borrowings 90, ,798 Repayment of borrowings (170,000) (45,000) Net cash (outflow)/ inflow from financing activities (143,500) 282,950 Net increase in cash and cash equivalents 92,808 86,702 Cash and cash equivalents at the beginning of the financial year 355, ,140 Effects of exchange rate changes on cash and cash equivalents 9,208 (2,712) Cash and cash equivalents at end of half-year 457, ,130 The above Consolidated statement of cash flows should be read in conjunction with the accompanying notes and includes the cash flows from the discontinued operation. 12

15 Notes to the Consolidated financial statements Period ended 31 ember 1 Summary of significant accounting policies (a) Basis of preparation This general purpose Interim Financial Report for the half-year reporting period ended 31 ember has been prepared in accordance with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act This Interim Financial Report does not include all the notes of the type normally included in an Annual Financial Report. Accordingly, this report is to be read in conjunction with the Annual Report for the year ended 30 June and any public announcements made by Tatts Group Limited during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act The accounting policies adopted are consistent with those of the previous financial year and prior corresponding interim reporting period, except as set out below. (b) New and amended standards adopted by the Group The Group has applied the following standards and amendments applicable for the first time for the ember half-year report: AASB 10 Consolidated Financial Statements and AASB 11 Joint Arrangements; Accounting for employee benefits - revised AASB 119 Employee Benefits AASB 13 Fair Value Measurement AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities, AASB 127 Separate Financial Statements AASB 10 was issued in August 2011 and replaces the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements. Under the new principles, the Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group has reviewed its investments in other entities to assess whether the consolidation conclusion in relation to these entities is different under AASB 10 than under AASB 127. No differences were found and therefore no adjustments to any of the carrying amounts in the financial statements are required as a result of the adoption of AASB 10. Under AASB 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has, rather than the legal structure of the joint arrangement. There is no change to the Group's accounting as a result of the adoption of AASB 11. AASB 119 Employee Benefits In September 2011, the AASB released a revised standard on accounting for employee benefits. It requires the recognition of all remeasurements of defined benefit liabilities/assets immediately in other comprehensive income (removal of the so called 'corridor' method) and the calculation of a net interest expense or income by applying the discount rate to the net defined benefit liability or asset. This replaces the expected return on plan assets that is currently included in profit or loss. The standard also introduces a number of additional disclosures for defined benefit liabilities/assets and could affect the timing of the recognition of termination benefits. The amendments are implemented retrospectively and have an immaterial impact. 13

16 Notes to the Consolidated financial statements Period ended 31 ember 1 Summary of significant accounting policies (continued) AASB 13 Fair Value Measurement AASB 13 was released in September It explains how to measure fair value and aims to enhance fair value disclosures. This standard has introduced new disclosures for the interim report but does not affect the Group's accounting policy. (Refer Note 2) There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. 2 Fair value measurements (a) Fair value of financial assets and liabilities Other than those classes of financial assets and liabilities denoted as 'listed', being equity securities, none of the classes of financial assets and liabilities are readily traded on organised markets in standardised form. The fair value of financial assets and liabilities is exclusive of costs which would be incurred on realisation of an asset, and inclusive of costs which would be incurred on settlement of a liability. The fair values of financial assets and liabilities of the Group are approximately the same as the carrying amount shown in the balance sheet. (i) On-Balance Sheet The fair value of cash and cash equivalents, and non-interest bearing monetary financial assets and financial liabilities of the Group approximates their carrying amounts. The fair value of other monetary financial assets and financial liabilities is based upon market prices where a market exists or by discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles. Equity investments traded in active markets have been valued by reference to market prices prevailing at balance sheet date. For non-traded equity investments, the fair value is an assessment by management based on the underlying net assets, future maintainable earnings and any special circumstances pertaining to a particular investment. (ii) Off-Balance Sheet The Company and certain controlled subsidiaries have potential financial liabilities which may arise from certain contingencies disclosed in Note 9. No material losses are anticipated in respect of any of those contingencies. (iii) Derivative financial instruments For forward foreign exchange contracts, the fair value is to be taken to the unrealised gain or loss at balance sheet date calculated by reference to the current forward exchange rates for contracts with similar remaining maturity profiles, adjusted for relevant credit risk. For interest rate swaps, the fair value is taken to be the unrealised gain or loss at balance sheet date calculated by reference to the current interest rate curve with similar remaining maturity profiles, adjusted for relevant credit risk. For cross-currency interest rate swaps, the fair value is taken to be the unrealised gain or loss at balance sheet date calculated by reference to the current forward exchange rates and interest rate curve with similar maturity profiles, adjusted for relevant credit risk. The Group measures and recognises the following assets and liabilities at fair value on a recurring basis: Derivative financial instruments Available-for-sale financial assets The Group has also measured assets and liabilities at fair value on a non-recurring basis as a result of the reclassification of assets as held for sale. 14

17 Notes to the Consolidated financial statements Period ended 31 ember 2 Fair value measurements (continued) (b) Fair value hierarchy AASB 13 requires disclosure of fair value measurements by level of the following fair value measurement hierarchy (consistent with the hierarchy applied to financial assets and financial liabilities): Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices), and Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs). (i) Recognised fair value measurements The following table presents the Group s assets and liabilities measured and recognised at fair value at 31 ember. Comparative information for non-financial assets has not been provided as permitted by the transitional provisions of the new rules. At 31 ember Level 1 Level 2 Level 3 Total Recurring fair value measurements Financial assets Financial assets at Fair Value To Profit and Loss Cross currency interest rate swaps - 25,394-25,394 Available-for-sale financial assets - 18,594-18,594 Total financial assets - 43,988-43,988 Financial liabilities Interest rate swap contracts - 8,580-8,580 Total financial liabilities - 8,580-8,580 Non-recurring fair value measurements There were no transfers between levels 1 and 2 for recurring fair value measurements during the half-year. The Group s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. 3 Segment information Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Managing Director/Chief Executive Officer. 15

18 Notes to the Consolidated financial statements Period ended 31 ember 3 Segment information (continued) Segment information provided to the Managing Director/Chief Executive Officer The segment information provided to the Managing Director/Chief Executive Officer for the reportable segments for the half-year 31 ember is as follows: Half-Year Tatts Lotteries TattsBet Maxgaming Bytecraft Systems Talarius Intersegment Unallocated eliminations Total Continuing Operations Discontinued Operation (Note 5) Consolidated Total segment revenue and other income 999, ,892 58,100 53,700 52,827 4,111 (14,763) 1,491,341-1,491,341 EBITDA 157,357 86,244 31,695 (125) 6,853 (17,027) - 264, ,997 Depreciation and amortisation (12,419) (8,242) (6,743) (1,042) (4,948) (7,908) - (41,302) - (41,302) EBIT 144,938 78,002 24,952 (1,167) 1,905 (24,935) - 223, ,695 Half-Year $1,144,412.-$415, $1,715, $83, $52, $54, $20, $14, $1,715, $ Total Discontinued Tatts Bytecraft Intersegment Continuing Operation Lotteries TattsBet Maxgaming Systems Talarius Unallocated eliminations Operations (Note 5) Consolidated Total segment revenue and other income 1,055, ,854 57,050 60,299 39,546 4,675 (15,812) 1,545, ,390 1,731,131 EBITDA 147,867 89,969 31,359 (1) 3,334 (24,104) - 248,424 51, ,630 Depreciation and amortisation (11,493) (9,550) (7,576) (1,013) (4,716) (7,395) - (41,743) (999) (42,742) Impairment (15,552) (15,552) EBIT 136,374 80,419 23,783 (1,014) (1,382) (31,499) - 206,681 34, ,336 -$1,191,503.-$425, $1,972, $80, $59, $38, $26, $15, $1,752, $220,

19 Notes to the Consolidated financial statements Period ended 31 ember 3 Segment information (continued) Segment information provided to the Managing Director/Chief Executive Officer (continued) Inter-segment eliminations against revenue in half-year FY2014 comprise of Bytecraft Systems revenue of $12,560,605. In half-year FY Inter-segment eliminations for continuing operations comprise of Bytecraft Systems revenue of $15,812,000. Other segment information Adjusted EBIT A reconciliation of adjusted EBIT to operating profit before income tax is provided as follows: Half-Year Half-Year 2012 Adjusted EBIT from continuing operations 223, ,681 Interest income 1,208 2,105 Finance costs (49,008) (51,081) Profit before income tax from continuing operations 175, ,705 17

20 Notes to the Consolidated financial statements Period ended 31 ember 4 Dividends (a) Ordinary shares 2012 Final dividend for the year ended 30 June of 7.5 cents per share paid on 7 October (2012: 12.0 cents paid on 3 October 2012) 105, ,578 Dividends not recognised at the end of the reporting period In addition to the above dividends, since the end of the half-year the Directors have determined an interim dividend of 8.0 cents per fully paid ordinary share ( cents), fully franked based on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 4 April 2014 out of the retained profits at 31 ember, but not recognised as a liability at the end of the half-year, is $113.4 million (: $111.1 million). 5 Business combination Prior period acquisitions On 10 ember 2012, the Group acquired the exclusive right, as Master Agent, to manage the lottery and wide area Keno service in South Australia for total consideration of $427 million. Details of the fair value of the assets and liabilities acquired, and the preliminary goodwill arising are disclosed in the 30 June Annual Report. There have been no changes to the preliminary fair values during the current period, and final goodwill of $314.7 million has been recognised on acquisition. 6 Discontinued Operation Tatts Pokies On 15 August 2012 the Gaming Operator Licence held by the Company expired. This Gaming Operator Licence enabled Tatts Pokies to own and operate gaming machines in venues within the State of Victoria. On 16 August 2012, the Company commenced proceedings against the State of Victoria in the Supreme Court of Victoria for compensation payable on the expiry of the Gaming Operator Licence. The Company claims that under an agreement entered into on 17 November 1995, it is entitled, on the expiry of its Gaming Operator Licence on 15 August 2012, to compensation in an amount equal to the lesser of the licence value and the premium payments made by the new licencees. The hearing of the matter commenced on 3 February On 6 May, The Victorian Treasurer determined the Company was required to pay a Health Benefit Levy of $42.6 million under the Gambling Regulation Act 2003 (Vic) in respect of Victorian gaming operations conducted by Tatts in the financial year. On 29 May the Company commenced proceedings against the Treasurer in the Supreme Court of Victoria challenging the Treasurer's determination. On 24 June the Supreme Court found in favour of the Company and set aside the Treasurer's determination and held that the Treasurer does have discretion to determine the amount of the levy, including by pro-rating the amount of the levy. On 4 July the Treasurer lodged an appeal in the Court of Appeal seeking, amongst other things, to have the decision of the Supreme Court set aside. This appeal has been scheduled for 27 March

21 Notes to the Consolidated financial statements Period ended 31 ember 7 Interest bearing liabilities June Current Unsecured Bank loans 347, ,387 Total current interest bearing liabilities 347, ,387 June Non-current Unsecured Bank loans 775, ,174 Tatts Bonds 191, ,541 Loan notes (US Private Placement) 257, ,239 Total unsecured non-current borrowings 1,224,352 1,277,954 All interest bearing liabilities are disclosed net of capitalised borrowing costs. Subsequent to the half-year the Group has successfully negotiated with, and received a commitment from, its banking partners to refinance the bank loan tranches classified as current. The revised facilities will comprise a $100 million bilateral facility and a $250 million syndicated facility, both with 5 year terms. Debt drawdowns against these tranches will be classified as non-current in the full year accounts. 8 Contributed equity issued Share capital Shares 2012 Shares 2012 Issue of Ordinary shares during the half-year Share options issues 2, , Performance rights issues 735,491 1,308,515 1, Dividend Reinvestment Plan issues 13,671,857 21,633,110 41,699 57,111 14,409,415 23,183,808 43,309 57,731 9 Contingent liabilities Contingent liabilities The Group had contingent liabilities at 31 ember in respect of: Bank Guarantees Guarantees in respect of bank facilities drawn down but not included in the accounts of the Group are $3.6 million (June : $3.7 million). 19

22 Notes to the Consolidated financial statements Period ended 31 ember 9 Contingent liabilities (continued) Contingent liabilities (continued) Health Benefit Levy On 6 May, the Victorian Treasurer determined the Company was required to pay a Health Benefit Levy of $42.6 million under the Gambling Regulation Act 2003 (Vic) in respect of Victorian gaming operations conducted by Tatts in the financial year. The Company included a provision for approximately $7.0 million for the levy, which has been calculated on a pro-rata basis referable to the 46 day period in which the Company conducted its Victorian gaming operations in the financial year. On 29 May, the Company commenced proceedings against the Treasurer in the Supreme Court of Victoria challenging the Treasurer's determination. On 24 June the Supreme Court found in favour of the Company and set aside the Treasurer's determination and held that the Treasurer does have discretion to determine the amount of the levy, including by pro-rating the amount of the levy. On 4 July the Treasurer lodged an appeal in the Court of Appeal seeking, amongst other things, to have the decision of the Supreme Court set aside. This appeal has been scheduled for 27 March The risk to the Company is that Treasurer may be successful on appeal and the Company may be required to pay a levy in the amount of $42.6 million or some other amount greater than the $7.0 million currently provided for in the accounts. If the Company is required to pay a Health Benefit Levy in the amount of $42.6 million, the estimated impact on the Group's results would be $24.8 million after tax. 10 Events occurring after the reporting period TattsBet's Queensland race wagering operations are conducted pursuant to a 99 year race wagering licence granted under the Wagering Act 1998 (Qld). This licence runs until 30 June 2098 and provides retail exclusivity in Queensland until 30 June The Company has been in discussions with Racing Queensland with respect to extending retail exclusivity in Queensland beyond 30 June On 20 January 2014, Racing Queensland issued an invitation to wagering operators to lodge Expressions of Interest (EOI) for the future commercial arrangements for race wagering in Queensland. Racing Queensland has indicated that consideration will be given to all options presented, including sole and multiple operator arrangements. Given TattsBet's current race wagering licence tenure until 2098, only TattsBet is able to operate under a sole operator licence. Submissions are due to be lodged by 28 February 2014 and the Company will be participating in the EOI process. At this point in time it is not possible to say with any certainty what the future arrangements for race wagering operations in Queensland beyond 30 June 2014 will look like. However, if exclusivity is not retained by TattsBet or if the terms of the licence and/or commercial arrangements are changed such that they are less favourable to TattsBet than the current terms: (i) there is a possibility that this could result in the Group being unable to guarantee revenues equal to those currently being generated; and (ii) there may be an impairment risk and the Company would be required to review the carrying values of goodwill associated with the TattsBet business. Other than the matter above, and the refinancing discussed in Note 7, in the opinion of the Directors, there have been no other material matters or circumstances which have arisen between 31 ember and the date of this report that have significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial periods. 20

23 Directors' laration 31 ember In the Directors' opinion: (a) the Interim Financial Report Act 2001, including: and notes set out on pages 8 to 20 are in accordance with the Corporations (b) (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and (ii) giving a true and fair view of the consolidated entity's financial position as at 31 ember and of its performance for the half-year on that date, and there are reasonable grounds to believe that Tatts Group Limited will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of Directors. Harry Boon Chairman Robbie Cooke Managing Director/Chief Executive Officer Brisbane 20 February

24 Independent auditor s review report to the members of Tatts Group Limited Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report of Tatts Group Limited (the company), which comprises the consolidated balance sheet as at 31 ember, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the half-year ended on that date, selected explanatory notes and the directors' declaration for Tatts Group (the consolidated entity). The consolidated entity comprises the company and the entities it controlled during that half-year. Directors' responsibility for the half-year financial report The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement whether due to fraud or error. Auditor s responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Australian Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at 31 ember and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations As the auditor of Tatts Group Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report 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 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. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act PricewaterhouseCoopers, ABN Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001 T: , F: , Liability limited by a scheme approved under Professional Standards Legislation. 22

25 Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Tatts Group Limited is not in accordance with the Corporations Act 2001 including: a) giving a true and fair view of the entity s financial position as at 31 ember and of its performance for the half-year ended on that date; b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations PricewaterhouseCoopers Anton Linschoten Brisbane Partner 20 February