TABCORP HOLDINGS LIMITED ABN ANNUAL GENERAL MEETING 29 NOVEMBER 2004 CHAIRMAN S AND MANAGING DIRECTOR S ADDRESSES

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1 TABCORP HOLDINGS LIMITED ABN ANNUAL GENERAL MEETING 29 NOVEMBER 2004 CHAIRMAN S AND MANAGING DIRECTOR S ADDRESSES CHAIRMAN S ADDRESS Introduction This year was an exceptionally busy year for Tabcorp. We continued to deliver strong performances from our existing businesses which have produced record revenues and profits. This was achieved at the same time as completing the merger with Jupiters Limited and the takeover of Tab Limited. The Managing Director will say a few more words about the company s performance shortly. Ten years of growth 2004 also marks the tenth anniversary of Tabcorp s listing on the Australian Stock Exchange, and I would like to take a few moments to reflect on the company s progress during that time. As you can see from this chart, Tabcorp has consistently provided strong returns to shareholders. The share price has increased over 642% from its original listing price of $2.25 per share to close at $16.69 on Friday. You will observe that Tabcorp has out performed the All Ordinaries Index by a factor of seven times. This understates the full return to shareholders as throughout the ten year period Tabcorp has paid a high level of dividends. Since its shares were listed Tabcorp has paid $4.935 per share to shareholders in the form of fully franked dividends and a return of capital in In terms of total shareholder return, an initial investment of $1,000 in Tabcorp at the time of its float would have grown to over $14,500, representing a compound growth rate of 29.7% per annum over a ten year period. In comparison, the ASX All Ordinaries Accumulation Index only grew by 10.7% per annum over the same period. Greater size and diversity The company has not only delivered strong financial results and exceptional shareholder value, it has also achieved significant business growth and diversity. The significant increase in the company s size may be illustrated by the change in enterprise value, which is a combination of market capitalisation plus debt. Over the last ten years Tabcorp s enterprise value has risen from $590 million at the time of the float to a current value of almost $11.5 billion. The addition of Star City in 1999 and the recent merger with Jupiters and the Tab Limited takeover have transformed the company into a diversified and successful top 25 Australian listed company and Australia s premier gambling and entertainment group. Page 1

2 Through these acquisitions and organic growth within our existing businesses the company has diversified its operations. We now have operations that are geographically spread across eastern Australia and have a better mix of businesses across our core gambling and entertainment interests. You will have seen from our annual report that we now have four operating divisions, being: Casinos which comprise four of Australia s premier hotel and casino properties, which also include some of the best theatres, bars and restaurants in Australia; Gaming and Network Games most notably operating and owning electronic gaming machines under the Tabaret brand as well as Club Keno in Victoria; Wagering predominantly under the Tab brands in Victoria and New South Wales as well as fixed odds betting; and Media which include the Sky Channel and 2KY broadcasting networks and other associated services acquired from Tab Limited. Since the annual report was published, Network Games, which includes Keno and Trackside, has moved from the Wagering division into the Gaming division. Matthew Slatter will give you more detail about these businesses in his presentation shortly. The company s vision Despite the significant changes which have occurred during the last year, our goals remain the same. We continue to focus on being Australia s premier gambling and entertainment group, and we do this by: Providing superior returns to shareholders; Being a great place to work; Being recognised by our customers as offering the best gambling and entertainment experience; and Being respected as a responsible and valued member of the communities in which we operate. Responsible gambling and community involvement Tabcorp is Australia s leader in the responsible service of gambling. The company has been implementing changes to improve its compliance with the Tabcorp Responsible Gambling Code, which resulted from an independent review conducted by KPMG. Also, we have examined best practice in Australia and around the world, and have adopted a framework upon which we will focus our efforts that will assist us to continue to provide the highest standards of responsible service of gambling. The company continues to work closely with the governments and other key stakeholders in each jurisdiction in which it operates to ensure that gambling is provided in a responsible manner and continues to be a great entertainment option. Tabcorp is proud of its continuing contributions to the Australian community. The company continues to provide essential support to numerous charities, community groups and not-forprofit organisations across Australia. Our businesses make substantial contributions to the local economies and communities where we operate with our business partners in hotels and clubs. These vital contributions are in addition to the $261.4 million paid to the racing industry and the $833.6 million Tabcorp paid in gambling taxes during the year. Page 2

3 Specific shareholder matters Turning to matters that may be of specific interest to many of you here today. The board introduced a Shareholder Benefits Scheme which enables eligible shareholders to enjoy special shareholder rates and discounts at the company s four casino and hotel complexes. A benefits card is issued once a year with the interim dividend in April to shareholders holding at least 200 Tabcorp shares. This scheme has been very popular with shareholders and has provided them with a lower cost opportunity to see their investments at work. Also in April, Tabcorp introduced a new Dividend Reinvestment Plan, which gives shareholders the option of reinvesting dividends to purchase additional shares in the company without paying any brokerage or stamp duty. Half of the company s shares currently participate in the Dividend Reinvestment Plan. A Share sale facility has been operating for the past six weeks, which gave shareholders with up to 200 Tabcorp shares the opportunity to sell their shares free of brokerage. This facility is similar to that which was offered to Tab Limited shareholders as part of the takeover offer, which was very popular and proved very successful. This facility also assists the remaining shareholders by reducing the costs associated with maintaining small holdings. The company always looks at opportunities to communicate more efficiently with shareholders. The company s website is being redeveloped as a state of the art website to provide shareholders, potential investors and interested parties with insightful information on the company and its businesses. The website will continue to provide shareholders with access to their shareholding details through a secure login, where shareholders can conduct standard transactions and enquiries. Outlook In the last 13 months the company has more than doubled in size. We are confident that with our acquired excellent business mix and geographic diversity we can continue to grow our returns to shareholders at a satisfactory rate. So far this year the results across our business units have been pleasing solid revenue growth, cost control and extraction of the optimum synergies have been met and in some cases exceeded our expectations. Further work still remains to be done to ensure that we extract the maximum benefits from our strong suite of assets. The board looks to the future with high expectations. The Victorian Government has announced that a review of gaming and wagering licences will commence in late 2005 with consultations to take place throughout An announcement of the post 2012 structure will be made in 2007 with the licences awarding process to follow. Tabcorp has successfully managed and grown the gaming and wagering operations and we believe that our leadership in the industry will enable the company to be well placed to retain these licences. Page 3

4 Conclusion In summary, the company continues to achieve strong results and, at the same time, remains focussed on making the Jupiters merger and the Tab Limited acquisition a success. I would like to thank the Board, all executives and employees for their contributions in helping us deliver the superior returns sought by our shareholders. It really has been an extraordinary year for Tabcorp. MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER S ADDRESS Introduction Thank you Michael, good morning ladies and gentlemen. Welcome to the company s 10 th Annual General Meeting and my third as your Managing Director and Chief Executive Officer. I am delighted to inform shareholders that Tabcorp is well underway on an exciting journey to create Australia s premier gambling and entertainment group. After a remarkable year of expansion following the merger with Jupiters Limited and the Tab Limited acquisition, Tabcorp has grown into a dynamic and energetic company and the fourth largest gambling, entertainment and leisure company in the world. There is currently no other gambling and entertainment group like Tabcorp which has the size and offers such a diverse range of gambling, entertainment, first-class facilities and leading products. We ve got a new and expanded team, new spirit and new focus this is about delivering the bigger better game for our customers, our people, our shareholders and the community. Let me provide you with a brief overview of the company: Tabcorp is now a very different company compared to a year ago. We now manage leading customer brands such as the Star City and Jupiters casinos, TAB, Tabaret, Keno and TAB Sportsbet. We ve grown to become one of Australia s top 30 listed companies with almost 12,000 people, offering an array of gambling and entertainment products and a commitment to the very best levels of service to our millions of customers every day. The company has performed strongly during the year - a result attributable to the efforts of our enthusiastic people and the most important and challenging business developments during the year have been the successful merger with Jupiters and the acquisition of Tab. We have now developed excellent capacity and expertise in all areas of integration and this will be valuable to the group in the future. As the leader in the gambling, entertainment and hospitality markets in Australia, we are proud of our customers, our strong brands, our people and our commitment to social leadership in responsible gambling. Page 4

5 I ll now outline the headline numbers from the company s financial performance for the 2004 financial year The company s financial position is sound and we are well positioned to grow by consolidating our already strong domestic market position and harnessing our capabilities to selectively exploit other growth opportunities. Our profit before goodwill and non-recurring items increased by 29.8% to $364.8 million and earnings per share before goodwill and non-recurring items increased 19.2% to 91.1 cents. Earnings growth across all divisions and a strong part-year contribution from the Queensland casino properties boosted the result. Tabcorp s net revenue increased 29.2% to $2.46 billion for the year ended 30 June 2004, including the contribution from Jupiters for eight months. Earnings before interest, taxation and goodwill amortisation for the Tabcorp group were $629.7 million, up 43.5% on the prior corresponding period. The annualised return on average shareholders equity (before goodwill) of 21.5% was achieved through solid revenue growth, continued tight control on expenses and efficient capital management and is up from 20.1% last year. Tabcorp s net debt to equity ratio increased to 84.8%. This reflects some of our acquisition activity and is a sound financial position backed by Standard & Poor s confirmation of the company s BBB+ credit rating. Tabcorp businesses contributed $833.6 million in taxes, which go towards providing essential services in local communities, as well as contributing significant economic benefits and business opportunities. The Tabcorp group also contributed $78.4 million to state community benefit funds in Australia. I ll now provide a review of our operational businesses, starting with the Casinos Division The division achieved earnings before interest, taxation and goodwill amortisation (excluding non-recurring items) of $332.1 million. This was 81.4% above the previous financial year and reflecting the Jupiters acquisition. The division s net operating revenue increased by 68.7% to $1.07 billion. The work done across the division to improve operating efficiencies resulted in the overall pro forma normalised EBITA margin (excluding non recurring items) increasing from 26.3% to 28.7% on a pro-forma basis. The normalisation adjustment relates to the above and below theoretical win rates achieved in the international commission play business. The Casino division benefited by $33.9 million at EBITA level in 2004 from above theoretical win, against a loss of $2.7 million in the prior year. Every day, more than 50,000 people visit Star City in Sydney, Conrad Jupiters on the Gold Coast, Conrad Treasury in Brisbane and the Townsville casino, seeking a range of entertainment experiences from gambling to enjoying a meal or taking in a show. At Star City, net operating revenue increased by 1.3% during the year, helped by the investment in new products such as rapid Sic Bo and the expansion of the rapid Roulette product. However, a very competitive gaming market and the lack of a major show in the Lyric Theatre for most of the year resulted in below target revenue performance. A continued focus on operating efficiencies however, delivered an increase in the EBITA margin and double digit EBITA growth at Star City. Page 5

6 The three Queensland casinos delivered strong net operating revenues for the eight months to 30 June On a comparative 12-month pro forma normalised basis, net operating revenue from the three Jupiters casinos was up 5.5%, relative to the prior corresponding period. Net operating revenue from the international rebate play business was $41.0 million above theoretical for the 12 months ended 30 June Conrad Jupiters achieved 16.5% revenue growth, with table games revenue particularly strong benefiting from the above theoretical win rates. At Conrad Treasury, revenue grew 10.1%, with both table games and gaming machines achieving solid growth. At Jupiters Townsville, a strong 24.9% increase in gaming machine revenue contributed to the solid overall revenue result, 14% up on the previous year. All our hotels performed well in both revenues and occupancy rates. Occupancy at Star City averaged 85.5% (up from 79.9% in the previous corresponding period), and this was helped by the Rugby World Cup, on increased average room rates. Similar positive results were achieved at the other properties. A major refurbishment program was undertaken during the year, with 305 standard rooms at Star City being upgraded. The stage show Mamma Mia completed its run at Star City after achieving outstanding sales of 664,000 tickets and Saturday Night Fever began its run late in the 2004 year. At Brisbane Treasury, the Marco Polo Dining Cellar and Martini Bar received extensive refurbishment and this signature restaurant now boasts a decor that is elegant and stylish. All Treasury hotel rooms were installed with broadband internet access and remote check-in became possible at the hotel after the installation of wireless remote check-in. At Conrad Jupiters, 101 executive level rooms and a lounge were refurbished, the Prince Albert pub was renovated and a high-tech cook-chill kitchen was installed to cater for the casino and the Gold Coast Convention and Exhibition Centre. At Townsville, Touchbet roulette has been introduced and is a great success and the casino remains the market leader in product and technology with continual improvements to gaming products. In June, Queensland Premier Peter Beattie officially opened the new Gold Coast Convention and Exhibition Centre, which is owned by the State Government and managed by our Casinos division. More than 1,100 people attended a gala dinner as part of the opening celebrations. This vital piece of business tourism infrastructure has already hosted some significant events, including the Independent Grocers of Australia conference, the Australian Cotton Growers Research Association conference and the Investment Financial Services Association conference. At least 20,000 hotel rooms have been booked at Conrad Jupiters for the 2005 year as a result of strong forward bookings for the convention and exhibition centre. Gaming The Gaming Division achieved EBITA (excluding non-recurring items) of $220.0 million, which was 3.3% above the previous financial year. Total operating revenue increased by 1.4% to $859.8 million and market share in Victoria has climbed to 49.6% for June On a comparative 12-month pro forma basis net operating revenue was in line with the previous year, with gaming machine monitoring in Queensland up 6.5%. Revenue from Victorian gaming was down 0.2% on the previous year, but the continuous improvement of the overall amenity at venues for all customers has reduced the impact of the smoking bans. Revenue for the second half was 5.6% above the prior corresponding period. Tight expense control contributed to the improvement in the EBITA margin (excluding non recurring items) from 24.8% to 25.5% on a pro-forma basis. Page 6

7 The Gaming Division delivers fun and entertaining products to the 770,000 people who enjoy playing gaming machines every week across our Victorian venues. With some creative promotions and leading initiatives, the division achieved a significant improvement in market share and further recovery from the impact of smoking bans in gaming venues. Terrific campaigns such as the 40 Years of Rock CD promotion and the Wildcash and Cash Express promotions provided an exciting boost. To meet the ever-changing needs of our customers, the division works closely with our venue partners. We continue to provide the latest games and worked with 46 venues that were refurbished and one new venue that was opened. During the year, 3,727 new machines and games were introduced to the Victorian gaming network and customers responded enthusiastically to the introduction of the 798 Cash Express hyperlink jackpot machines in 110 venues. At the end of June 2004, 13,618 electronic gaming machines were in operation across 270 venues. And now for the Wagering and Network Games Division. This Division achieved EBITA (excluding non-recurring items) of $94.0 million, which was 37.3% above the previous financial year. The division s total net operating revenue increased by 21.8% to $519.9 million and it continued to achieve valuable improvements in overall operational efficiency, with the EBITA margin (excluding non-recurring items) increasing from 16.6% to 18.3% on a pro-forma basis. About one million customers currently enjoy our wagering products every week, with an exciting trend towards self-service betting and sportsbetting, which has contributed to a strong performance from the Wagering and Network Games division. Revenue from wagering on racing increased by 4.2%, with thoroughbred revenue growing 2.9%, supported by a record 2003 Flemington Spring Racing Carnival and strong wagering growth on interstate racing products, especially from Queensland and Western Australia. Harness racing and greyhound racing both enjoyed growth from Victorian and interstate meetings, achieving 6.3% and 8.1% revenue increases respectively. One of the standout success stories of the division has been sportsbetting with revenue growth of 31.0%, assisted by strong customer interest in the Rugby World Cup tournament in November 2003 and the Euro Soccer tournament in June Since 2000, Sportsbet has achieved compound annual growth in revenue of 22%. Our customers are embracing self-service betting, with increasing use of the 700 EasyBet terminals in our retail network, the internet, touchtone and speech recognition facilities. For example, over the year 16.6% of account sales transactions occurred via the internet, compared with 9.6% in the previous year. In June 2004, internet transactions accounted for 22% of account sales, and the upward trend continues. Ten Victorian TAB outlets were refurbished, bringing to 60% the proportion of the agency network which has been modernised since the new concept stores were developed. The first stage of the rollout of the new Retail Wagering Terminal project, at a cost of $21 million, offering faster service and new bet types to customers was completed prior to the 2004 Spring Racing Carnival. For the eight months since their integration in November 2003, Keno in Queensland and New South Wales and Jupiters Technology sales together contributed revenues of $71.4 million, with all products showing solid growth over the prior comparable period. Page 7

8 Jupiters Technology, which includes the international sales and support of Trackside, recorded $12.6 million in revenue on a 12-month pro forma basis, up from $3.9 million in the prior corresponding period. We took control of Tab Limited on 6 July 2004, so Tab s results are not included in our 30 June 2004 results. However, I will give you a snapshot of Tab s 2004 financial year performance. Tab Limited achieved profit before interest, taxation and amortisation of goodwill of $162.8 million in the 12 months to 30 June 2004, an increase of 9.1% on the previous financial year. Total net operating revenue increased by 5.6% to a record $980.2 million, reflecting solid growth in wagering and a significant improvement by their gaming division. Net profit after tax and before goodwill and non-recurring items increased 11.0% to $96.7 million. The Media Division incorporates Sky Channel, Sky Racing, Sky International, Sky Racing Productions and the Sky Radio Network with an audience of some 3.3 million people each week. During the year, greater revenues were achieved on the strength of increased international programming sales and increased commercial site numbers and Sky and 2KY covered some 5,700 race meetings during the year. Tabcorp was pleased to help facilitate the return of the Sydney metropolitan thoroughbred races to Sky Channel following an agreement with thoroughbred racing media company TVN and this was warmly welcomed by punters. The agreement with TVN includes investigation of production of a new thoroughbred racing and sportsbetting channel, plus enhancing Australian thoroughbred racing s media rights domestically and internationally. As part of these arrangements Sky will enter into long term contracts for thoroughbred media rights. Turning to our Integration Projects Tabcorp is continuing to deliver results ahead of target in the Jupiters integration, and we have started to bring Tabcorp and Tab Limited together to achieve maximum benefit for the business and shareholders. The Jupiters integration is ahead of schedule and forecasts and annual synergies are now anticipated to be $27.9 million, $3.3 million above the synergies estimated at the end of the first half of The Tab integration is also on schedule and our current estimate of net synergies to Tabcorp of $44 million is consistent with our Bidder s Statement. We are targeting to achieve 40% of those full year synergies in the first year of integration. Jupiters has negotiated new arrangements with the BI Gaming Corporation for the management agreements of the Conrad Treasury and Conrad Jupiters casino properties in Queensland. The new arrangements, which started on 17 November, allow Tabcorp to appoint its own senior casino executives to run the businesses while allowing the flexibility to call on BI Gaming management in the future. We have appointed our own management and I can report that work is underway to fully align the two properties into the Casinos Division under the guidance of our Casinos Chief Executive David Banks. The sale of the New South Wales and Queensland gaming machine monitoring businesses for $235 million to UNiTAB following the acquisition of Tab Limited is progressing and we are currently expecting to complete this divestment by 31 December Page 8

9 The acquisition of Tab Limited has provided a platform for growth for wagering and the racing industry in Australia. We look forward to building on our sound working relationships with the racing industries in Victoria and New South Wales and offering new bet types and larger betting pools for customers. We believe that the Jupiters and Tab integrations provide the opportunity for creation of further significant value for shareholders. Responsible Gambling Our leadership in responsible gambling is an important area in which we demonstrate the integrity of our business approach and our focus on our customers. We will continue to invest in implementing responsible gambling initiatives across the group. A number of these initiatives were identified as a result of the KPMG audit undertaken last year and represent international best practice. A further independent audit of compliance with the Tabcorp responsible gambling code has been undertaken in the current financial year and we anticipate that further initiatives will be implemented as a result of this audit. Our responsible gambling model is based on a strategic approach to informed choice and customer education and effective customer care through responsible service of gambling training and stronger linkages with external agencies that either provide problem gambling counselling or facilitate research 2012 Licence Review Tabcorp remains confident of a positive outcome of the Victorian Government s scheduled review of the Victorian wagering and gaming licences. The Victorian Government has announced that it will conduct a review of gambling with a view to allocating licences from The review will commence in 2005 and will examine the overall structure of the industry but we understand will not look at reducing the total number of gaming machines in Victoria. We believe that Tabcorp has demonstrated to the Victorian Government and the community that it can hold both licences and run the businesses with the highest levels of performance and integrity. And finally, The new financial year has started well and we expect that the company s strong performance in 2004 will continue in the 2005 financial year. In the first four months of this year overall revenue is up 6.7% on a normalised basis on the prior corresponding period. On an actual basis, revenue is up 5.4% after taking into account the $14.7 million impact of below theoretical win rates in the Casinos international commission play business. I m pleased to report that Casinos revenue is up 6.6% on a normalised basis and 2.7% on an actual basis. Gaming revenue is up 7.0%, while Wagering revenue is up 6.9%, which is impacted by the inclusion of Derby Day in the 2005 revenue figures. Normalising for the inclusion of Derby Day, it is estimated that Wagering revenue is up about 5%. Media revenue is up 2.3%. I m delighted to report that Tabcorp enjoyed record turnover during the recent Spring Racing Carnival of $705.9 million, up 5.5 per cent, despite the fact that we had some slightly inclement weather in Melbourne on some of the days. Our operational focus this year is to complete the Jupiters integration and implement year one of the planned two-year integration of Tab Limited. At the same time, we will continue to Page 9

10 focus on managing all businesses in the group with the same financial rigour and operational effectiveness that we have demonstrated over many years. We will look for opportunities to enhance our media business and continue to invest in our people, our brands and maintaining our position as the industry leader in the responsible service of gambling. We are focussed on creating the bigger better game for our customers, our people, our shareholders and the community and our aspiration for Tabcorp continues for us to be Australia s premier gambling and entertainment group. I would like to thank you for joining us today. Let me wish you and your families a safe and enjoyable festive season. I look forward to seeing you next year and I will now hand you back to our chairman. Mr Robinson s and Mr Slatter s speeches were webcast live on Tabcorp s website at and will be archived on the website for viewing later today. ENDS Page 10