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1 27 October, 2011 TATTS GROUP LIMITED S 2011 ANNUAL GENERAL MEETING Chairman s and Chief Executive s Presentations Attached are copies of the Chairman s and Managing Director and Chief Executive s Addresses to be presented at the Tatts Group Limited s Annual General Meeting, commencing at 2.00pm (Sydney time), Thursday 27 October, A copy of the slide presentation which accompanies these Addresses will follow. Contact: Michael Mangos General Manager, External Communications Gary Woodford General Manager, Investor Relations Tatts Group Limited ABN St Kilda Road, Melbourne, Victoria, 3004, Australia Locked Bag 888, St Kilda Road Central, Melbourne, Victoria, 8008, Australia Tel: Fax:

2 TATTS GROUP LIMITED ABN ANNUAL GENERAL MEETING 27 OCTOBER 2011 CHAIRMAN S ADDRESS AND MANAGING DIRECTOR AND CHIEF EXECUTIVE S ADDRESS CHAIRMAN S ADDRESS Good afternoon Ladies and Gentlemen. My name is Harry Boon, and I am Chairman of your Company, Tatts Group Limited. On behalf of my fellow Directors, I am pleased to welcome you to the 2011 Annual General Meeting our first in Sydney. A warm welcome also to everyone watching or listening on-line. As it is past the appointed time and a quorum is present, I now declare open this meeting of members of Tatts Group Limited. Before we proceed, could I ask everyone in the room to please turn off or silence your mobile phones. Thank you. The Notice of Meeting and the Annual Report were sent to shareholders and the ASX on 26 September and, I will take the Notice as being read. I would like to start by introducing the members of the Board and some of the executive managers of Tatts Group. From the far left of the stage are: - Mr Kevin Seymour - Ms Lyndsey Cattermole - Chief Financial Officer, Mr Ray Gunston - Managing Director and Chief Executive, Mr Dick McIlwain - General Counsel and Company Secretary, Ms Penny Grau - Mr Brian Jamieson - Mr Robert Bentley - Mr Julien Playoust Also present today we have Anton Linschoten and Michael Crowe representing our auditors PricewaterhouseCoopers, and Bill Thorburn and Sue van der Merwe of our Tatts Lotteries Division who will be available to chat with shareholders after the meeting. Agenda - Year in Review Before our Managing Director and Chief Executive, Mr Dick McIlwain provides an update on the Group s performance, I would like to discuss the group financial results, returns to shareholders, progress with our strategic direction, and overall capital position. 1

3 Financial Results Our 2011 results included a full 12 months contribution from NSW Lotteries, compared with only 3 months in After adjusting for one off items in 2010, Tatts has delivered: Group revenue of $3.7 billion, up 11.3%; Earnings Before Interest, Tax, Depreciation and Amortisation of $616.3 million, up 9.4%; Underlying Net Profit After Tax of $279.5 million, down 1.0%; Earnings per Share of 21.2 cents per share, down 4.1%; and Dividend per Share of 21.5 cents, up 2.4% Importantly for shareholders, your Board has maintained its consistent commitment to a high and sustainable dividend payout ratio. This is the fifth consecutive year Tatts has rewarded shareholders through paying above 95% of profits as a dividend. This compares most favourably with the average dividend payout ratio across all companies in the ASX200 of only 63% over the same five year period. Tatts is currently the fifth highest dividend yielding company in the ASX200, with a very healthy dividend yield of 9.9%. Even after the cessation of Tatts Pokies next year, Tatts dividend yield is expected to continue to exceed the average yield across the ASX200 index. Of course, to focus on one measure alone whether it be dividend or share price - is only painting part of the picture. Total Shareholder Returns, or TSR, measures the combined return to shareholders from share price movement and dividends over any given period. The graph on the screen demonstrates that Tatts has performed well on a TSR basis over the past 12 months and indeed over the last three years. As can be seen from these graphs, where Tatts is represented by the red line, Tabcorp the green line and the ASX200 the blue line, Tatts TSR of 10.7% over the last year and 40.1% over the last three years exceeds both Tabcorp and the ASX200 index. Reflecting this strong performance, an independent international research house, Morningstar, rated Tatts in the top 25 least volatile stocks in the ASX200. Regulated licences At last year s AGM, I made reference to two potential licence opportunities pending decision by the Victoria Government. Those licences were the Wagering Licence currently held by Tabcorp, and the new Gaming Machine Monitoring Licence. Unfortunately Tatts has not been successful in obtaining either licence. Whilst the Victorian Wagering licence decision was disappointing, it was not unexpected. Given the complexities of implementing any licence change across so many retail outlets, Tabcorp had a considerable and obvious advantage and was also prepared to pay a high up-front price to retain the licence. 2

4 However, the decision on the Victorian Gaming Machine Monitoring licence in favour of the Greek company Intralot was a surprise to most industry observers. Tatts is a disciplined bidder, and we will not submit or enter into arrangements where the complexity and execution risks are not adequately recognised in the returns available. These recent Victorian licensing decisions, added to the earlier Victoria decisions to award the Scratchies Lottery licence to Intralot and not to renew the Gaming Machine licencing arrangements, will result in Tatts business base changing from almost 100% of activities and profits coming from Victoria in 2006, to only some 5% of profits coming from Victoria by That having been said, it is important to also recognise that the majority of ongoing businesses within Tatts operate under secure long-term licences. Our NSW Lotteries licence is for 40 years. Golden Casket Lotteries licence in Queensland is for 65 years. Our Wagering licences in Queensland and South Australia run until the turn of the next century. These four licences alone will represent an estimated twothirds of our 2014 revenue. The benefit of maintaining a diversified portfolio of businesses could not be more evident, and Tatts has now been significantly derisked. Beyond these larger operations, recent UK government decisions will enable Talarius to compete more strongly by installing higher performing gaming machines in our 170 UK venues. Bytecraft has continued its strong growth, not only by servicing equipment used in the regulated gambling market, but also by continuing to win new business such as maintenance of the hardware used in the Myki Victorian public transport ticketing system, and the provision of equipment support services to the Victorian Department of Education. Strategic Direction Your Board and management have been consistent and persistent in our pursuit of opportunities to strengthen the Tatts business. The dramatic and successful evolution of the Tatts Lotteries operations is clearly a stand out. The acquisition of Golden Casket in Queensland in 2007 and NSW Lotteries in 2010, has taken Tatts Lotteries from $23 million EBITDA in 2006, to an anticipated 10 times that number, or around $240 million EBITDA in 2013, operating in many jurisdictions around Australia. This projected tenfold increase effectively replaces the lost profits from the upcoming change in Gaming Machine licensing in Victoria, and provides a far more secure long term base, with fewer operational and regulatory headwinds. Further opportunities may be on the horizon for Tatts Lotteries. The South Australian Government has recently indicated its intention to licence SA Lotteries to a private operator. Progress will be closely monitored. 3

5 Turning now to our wagering business, recently renamed TattsBet, which is operating in an exciting and rapidly evolving market. The regulatory landscape is currently being tested by others in the Courts. A decision is pending in NSW in relation to the right of the racing industry to charge wagering providers race field fees based on their turnover. Whilst the courts final decision will not directly impact Tatts, the decision is critical in the future funding of the entire Australian racing industry. Meanwhile, we have introduced a number of innovative and exciting new products and services to the TattsBet stable. Our fixed price betting service on racing, including at retail, has grown by over 130% in the past 12 months. Sales through the internet grew 23% over the year, and are set to continue with the upcoming launch of an iphone app, to be followed shortly by an Android phone app. A selfservice betting terminal has also been developed and is ready to roll out to venues as circumstances unfold. Meanwhile, the recent launch of the new Tatts.com web site brings together a number of Tatts products and services under the one internet umbrella. Finally, beyond the existing business, we continue to explore opportunities outside the regulated gambling sphere that draw on our core technical and transaction processing competencies. Our interest in such growth opportunities has not waned, and we will continue to carefully and prudently assess opportunities as appropriate. Business Environment Tatts is a diversified business with operations in multiple jurisdictions transacting high volumes with small average transaction value. It is this model that provides protective operating conditions to cushion Tatts from any one economic or environmental headwind. As a result of this, Tatts has been able to absorb the impacts from the prevailing global economic uncertainty, the serious cyclones and floods in Queensland, the floods in Victoria in early 2011, and the riots affecting Talarius in the UK without major business disruption. This is further evidenced by the solid start to the current financial year, which our Managing Director will elaborate on shortly. Financial Management We have a strong balance sheet which we have used prudently since the UNiTAB merger in 2006 to complete acquisitions that are positive for our earnings. At the same time, the strong cash flow from the business, along with the support of over 30% of shareholders who participated in our dividend reinvestment plan has enabled Tatts to maintain a high dividend payout ratio whilst reducing net debt on the balance sheet by $138 million by year end. Our debt to EBITDA ratio at 30 June was a low 2 times. Strong cash flows from the business will be further supplemented in August 2012 by the sale proceeds from our 13,750 gaming machines. In fact, after the cessation of Tatts Pokies, we expect our debt to EBITDA ratio to return to around where it was at 30 June 2010, providing further capacity for business growth in the following years. 4

6 Succession Planning It has been flagged previously that our Managing Director and Chief Executive Mr Dick McIlwain intends to retire at the end of his current term in October Whilst still a year away, I would like to thank Dick for his enormous contribution to the Tatts Group over a long period, starting with UNiTAB in The Board will commence a process early in the new year to assess internal and external candidates to ensure we appoint a high calibre individual capable of leading Tatts into the future as the next Managing Director of this wonderful and successful Company. The process will be designed to allow ample handover time to gain the maximum benefit from Dick s wealth of knowledge and experience. Corporate Social Responsibility and Diversity As a company involved in the gambling business, Tatts has assisted in the development of and complies with Responsible Gambling Codes of Conduct in each of our trading jurisdictions. Tatts works collaboratively with community groups, counselling and welfare agencies, regulators and various government representatives to promote the responsible use of our products. With the end of our involvement in gaming machines in Victoria in sight, Tatts is not weighing into the political debate surrounding mandatory pre-commitment or other restrictions on gaming machines we leave this to politicians and future industry participants to sort out. Tatts diverse array of job types and flexible working arrangements have proven attractive to women, who comprise 40% of our total Australian workforce and 25% of our permanent workforce. This representation is consistent throughout the organisation structure, with administrative and customer support roles at 27% female, and strategic management and senior professional levels at 23% female. Women make up 16% of the executive team at Tatts. The Board and management are also working on strategies to ensure gender diversity remains strong and that suitably talented women, as well as men, are attracted to employment at Tatts and are provided with development opportunities to progress to senior levels. Questions on Notice The Notice of Meeting sent to all shareholders included an invitation to send questions in advance of the meeting. I thank those who took the time to respond. Many questions received concerned share price performance, which I have already discussed in the context of Total Shareholder Returns. There were also many questions regarding the remuneration of executives and Directors Fees. Each of these will be dealt with shortly as we discuss each item of business. 5

7 The other prominent question from shareholders concerned compensation from the Victoria Government for the non-renewal of the Gaming Machine licence beyond As previously stated, we will pursue all our rights and take all appropriate action in respect of this compensation claim which could amount to nearly $600 million. It should be remembered that our Victorian Gaming Machine licence does not end until August next year. Meanwhile, we are taking all steps necessary to be in a position to vigorously pursue our claim at the appropriate time. Acknowledgements Finally, I would like to thank my fellow directors and Tatts management and staff who have again worked tirelessly in pursuit of improved outcomes for shareholders. I would also like to specifically thank those staff who went above and beyond the call of duty during the devastating floods and cyclones in Queensland. It is now my pleasure to hand over to our Managing Director and Chief Executive Mr Dick McIlwain, who will discuss progress so far this financial year and the outlook in more detail. Thank you ladies and gentlemen. MANAGING DIRECTOR AND CHIEF EXECUTIVE S ADDRESS The media release used to announce the FY2011 results talked about a year in transition. Put simply, what we did in FY2011 created a new base for measuring the performance of Tatts businesses. From what we have seen so far in FY2012, we will be happy to be measured on the basis of the FY2011 results. The financial year to date figures have been very much in line with the statements we made when last year s full year results were announced in August. There have been no surprises and nothing has emerged that will create an unexpected and insurmountable hurdle for future financial years. Therefore, let me take this opportunity to add a few comments on the performance of the business so far this financial year for each of Tatts business combinations: Tatts Lotteries Tatts Lotteries sales are up by more than 6% so far this financial year. Revenue growth is a fraction lower as a result of stronger growth in the lower margin Victorian jurisdiction. Saturday lotto is leading this growth. The big jackpot games of Powerball and Ozlotto have struggled with just one jackpot run building beyond $15M since July 1. Sales growth rate is expected to slow in the absence of any additional large jackpots from these two important games. 6

8 Profit margins are just slightly behind last year as a result of stronger growth in lower revenue jurisdictions. Nevertheless EBITDA was 4% ahead for the first quarter. The company s lottery operating system will replace the current third party system at NSW Lotteries before the current contract expires on June 30 next year. This is the last step of the integration of NSW Lotteries into the Tatts Lotteries portfolio. Tatts Lotteries is now expected to deliver the $240M EBITDA target we set when we announced the NSW Lotteries acquisition one year early. That is in FY2013! TattsBet First quarter sales grew by 1%. Revenue fell 1% behind the first quarter last year largely as a result of poorer win rates on football in the first quarter. Win rates in sports betting have since recovered. Meanwhile, the weaker revenue margins that have accompanied the strong migration from totalisator to fixed odds win and place race wagering over the last two years are stabilising and the competitive environment has become more manageable as the irrational and aggressive customer acquisition strategies of competitors wane. TattsBet s cost structure is being managed around new product distribution systems. An overhaul of its account betting infrastructure, the accelerating migration from operator to internet and mobile phone App distribution channels will reduce product distribution costs well into the future. Tatts Pokies This is the final full year for the Victorian Tatts Pokies business. Consistent low level growth has emerged as venues begin replacing the gaming machines they have agreed to buy from Tatts. This follows an investment drought created by the Victorian Government s decision to transfer the right to own and operate machines to the venues. Turnover has grown by more than 1% so far this financial year. First quarter EBIT is up 12% partly as result of lower depreciation on the gaming machines that have been contracted for sale. Maxgaming/Bytecraft Maxgaming continues to be very resilient. EBITDA is 1% ahead of last year on lower revenue. It is proving difficult to grow revenue as gaming venues shy away from value adding services at a time of significant uncertainty about the future of gaming machine play in Australia. The pipeline of new products, including new jackpot systems, will help Maxgaming rebuild momentum once the debate surrounding pre-commitment fades. Meanwhile, Bytecraft continues to expand. Sales are up by more than 10%. EBITDA grew faster in the first quarter at 14%. 7

9 Talarius Actual year on year turnover has continued to grow throughout the first five four week periods of the current financial year. This is the first period of sustained growth in more than three years. Revenue margins are not following the same growth path as turnover. Changes to VAT and the performance of the online business, quicksilvergames.uk.co, have left operating revenue 1% below the levels recorded last financial year. The estimated impact from the UK riots in September is 160,000. The business continues to deliver operating profits. Technology The company has continued to invest in more efficient systems. A major software development entered production in early October. It has drawn together a number of different operating systems and introduces a common customer account which will enable wagering and lottery account holders to gain access to any of the company s services. The significance of this development will emerge over time. It will support the Apps which are seen as vitally important to the way punters and lottery players will use Tatts services in the future. It also introduces a temporary account for users of the company s new self-service wagering terminals, and paves the way toward betting through wireless enabled personal hand held devices in TABs, ClubTABs and PubTABs. Tatts The company uses a strong and developing set of new technologies and an extensive retail presence to distribute a wide array of networked recreational wagering and lottery services in all states and territories except WA. The good start to the current financial year is a reminder of the strength and reach of Tatts. We are where our customers are, and cover many Australian geographies, and subeconomies. The one shadow hanging over Tatts is the known known. The end of the Tatts Pokies business in August 2012 has been known since It is being managed out of the Tatts business portfolio efficiently and without any material exposure to restructuring costs or any significant new additional balance sheet adjustments. The only consolation we can take from this forced retreat from gaming machine operations in Victoria is that we are leaving a business which is mired in controversy. As a final comment, the company s dividend policy rewards shareholders who stay the distance. This policy has a long history and precedes the current business. The original TAB Queensland shareholders have now received dividends of $3.175 plus franking credits. Not bad for an investment which cost the equivalent of 46 cents in November