Tatts : Annual Results Media Release

This result while down 5.7% on last year was strong - absorbing significant merger costs ($23.4 million net of tax), carrying a $137.8 million revenue 'hit' from a markedly lower jackpot run (with only 31 major jackpots compared to 45 last year), and, bearing the brunt of poor weather on the racing calendar. On a continuing operations basis (before merger costs) the Group reported an equally robust result - booking an after-tax profit of $244.6 million.

On announcing the result, Tatts noted its powerful start to the 2018 financial year - benefiting from a Oz Lotto jackpot run leading into the new year underwriting a 25% lift in after-tax profits for the month of July.

The profit performance coupled with strong operational cashflows and confidence in its business outlook, saw the Tatts' board determine a final fully franked dividend of 8.0 cents per share - taking the total dividend paid in respect of FY17 to 17.5 cents, maintaining the dividend paid in the prior year.

In discussing other highlights of the year, the Group noted it had built on the digital traction created over the past 4 years, both in its lotteries and betting operations. Tatts' lotteries online initiatives delivered world class results, with lotteries digital sales increasing to 14.5%1of sales (up from 13.5% a year ago). A significant

achievement given the lower jackpot run and the fact that a greater proportion of digital lottery sales are typically achieved during periods of stronger jackpot activity. Similarly, UBET's digital performance continued to build with 31.7% of its betting turnover sourced digitally up from 30.2% in FY16.

Tatts' gaming operation, MAX had an excellent year. The 'break and fix' MAXtech business is now showing the benefit of the turnaround strategy implemented some 3 years ago which involved refocusing on its core expertise in gaming and network infrastructure. This business lifted its EBITDA 125.6% to $7.7 million (FY16:

$3.4 million). MAXtech's performance was complemented by the strong and predictable revenues generated by the Group's gaming machine monitoring operation (MAX) which converted a 2.0% revenue uplift to a 4.6% increase in EBITDA (at $67.7 million) and a 5.0% lift in EBIT (at $55.0 million).

The impact of both cycling over last year's record lottery jackpot run, and poor weather on the racing calendar, was reflected in Group revenues which declined by 5.1% to $2.78 billion. In this environment Tatts' team did a great job in controlling expenses, with expenses before merger costs reducing 4.9% (or $118.4 million lower than last year). In line with these outcomes, EBITDA from continuing operations (before merger costs) was down 6.3% to $465.7 million.

Beyond the financial outcomes, the Group achieved a significant win in its lotteries unit with the grant of an exclusive licence to conduct public lotteries in Victoria for a further 10-year term - with this new licence commencing on 1 July 2018. Tatts will make a single premium payment to the State of Victoria of $120 million (payable on 1 July 2018) as consideration for the licence grant.

• NPAT $220.5m carrying merger costs, impact of softer jackpot run + brunt of weather on racing
• Merger, assuming regulatory, shareholder + other approvals, anticipated to close Q4 2017
• 31.7% of all wagering turnover online (FY16: 30.2%)
• 14.5%1of all lotteries sales online (FY16: 13.5%1)
• 31 jackpots at $15m or more - 1stdivision jackpot pool $750m (FY16: 45 with pool of $1,295m)
• 268 UBET cash handling self-service terminals rolled-out
• 483 UBET outlets now open under retail renewal program
• New monitoring platform roll-out underway to +90,000 gaming machines in NSW
• Exclusive licence to operate lotteries in Victoria secured for a further 10 years from 1 July 2018

*Percentages based on full reported numbers (i.e. non-rounded source data).

1 Consistent with prior years this excludes South Australia, if South Australia is included, online sales represent 13.7% vs 12.7% in FY16

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Tatts this morning reported a statutory after-tax profit of $220.5 million (down 5.7%) which absorbed significant merger costs ($23.4 million net of tax), carried a $137.8 million revenue 'hit' from the lower jackpot outcomes for Oz Lotto and Powerball, and bore the brunt of bad weather on the racing calendar which hurt race wagering performance around the country for all betting operators.

In announcing the result Robbie Cooke, Tatts' Managing Director and CEO, said

"To say it has been an eventful year at Tatts would be an understatement.

The combination of winning our bid for the Victorian lotteries licence for a further 10 years, successfully commencing the roll out of our new monitoring platform for the +90,000 slot machines in New South Wales, doing all things possible to beat FY16's record lottery result, opening more than 320 refurbished UBET outlets under our retail renewal program, installing about 2,200 new wagering point of sale terminals, commissioning almost 270 UBET cash handling self-service terminals, launching our new charitable games operating unit to further lift our contribution to good causes, and a host of other business initiatives, all made for an extremely busy and exciting year.

Add to that mix the proposed merger with Tabcorp - an activity which of itself was all consuming - and I can say with no hesitation the team at Tatts has been operating at maximum capacity. We have absolutely not allowed the uncertainty that transformational M&A inevitably brings disturb our momentum."

In commenting on the merger with Tabcorp, Cooke said:

"The proposed merger with Tabcorp was a key focus in the year and will continue to be for the balance of 2017. On current timelines, and assuming regulatory, shareholder and other approvals are secured, it is anticipated that the transaction will close in the last quarter of 2017.

At a senior team level, we have established a strong working relationship with Tabcorp's management team. We are looking to ensure that the merged companies are best positioned for success in undertaking the business integration as rapidly as possible once the merger is completed -so as to extract all available synergies and business operational improvements.

An important element of this activity has been providing Tabcorp with a clear line of sight over the management and operational talent within Tatts - the ambition being to assist Tabcorp in achieving a best of breed operational team for the merged group and a seamless transition process. This is clearly an important undertaking and of prime importance for Tatts' shareholders who will, post-merger, own 58% of the combined group."

In discussing the Group's lotteries performance he said:

"Our Lotteries operation exited FY16 with the strongest jackpot run in our history - with 45 jackpots at or above the key $15 million mark. Matching, let alone beating, this record and the revenue it generated in FY17 was always going to be against the odds. Ultimately the jackpot roll did not play our way - we reached 31 equivalent jackpots from our Powerball and Oz Lotto games. This saw our first division jackpot pool (at or above $15 million) for Oz Lotto and Powerball in FY17 significantly down at $750 million compared with $1,295 million in FY16 and resulted in revenue from these games dropping 15.3% from $898.4 million back to $760.6 million."

However Cooke did indicate that the remainder of the lotteries portfolio of games performed well:

"Pleasingly, the performance of our non-jackpot games including our largest game - Saturday Lotto, stepped up as expected in softer jackpot periods. These games performed well achieving 1.2% revenue growth -with Saturday Lotto achieving 2.3% revenue growth -however this was not enough to balance the ledger."

On UBET's performance Cooke continued:

"UBET's heightened focus in the year on risk management of customers in retail and the refinement of our promotional offers, successfully lifted win-rates. These initiatives did however come at the expense of UBET's turnover growth which was also subdued by the loss of an additional 347 races across all three racing codes due to bad weather which unhelpfully impacted thoroughbred field sizes -down on average ~2%. These factors in combination saw UBET's turnover decline 6.9%. Our improved blended win-rate at 15.3% up from 14.8% in FY16 -a significant improvement on the 14.3% win-rate delivered in the second half of FY16 when UBET was particularly focused on new customer acquisition -saw UBET's revenue down a less pronounced 3.7% at $587.5 million".

In relation to the Group's gaming operations now known as MAX, he said:

"Our gaming operation had an excellent year, lifting its combined EBITDA 10.7% to $75.4 million (FY16:

$68.1 million. Our 'break and fix' (MAXtech) business is now showing the benefit of the turnaround strategy implemented over the last 3 years which involved refocusing on our core expertise in gaming and network infrastructure."

Finally, discussing the Group's outlook Cooke said:

"As in past years we are not providing specific profit guidance for FY18. However, in terms of how trading performance year-to-date is concerned I can say we have started the year extremely well with our continuing operations net profit after tax for July - based on unaudited management accounts - up 25% on last year. This performance has benefited from the Oz Lotto jackpot sequence in July which

culminated in a $50 million jackpot on the 18thof the month. Clearly how the balance of the year plays out will very much depend on the jackpot roll and it is too early to make a definitive call."

Dividend

With the profit performance, strong operational cashflow and confidence in the business outlook the Tatts Board determined a final fully franked dividend of 8.0 cents per share - taking the total dividend paid in respect of the 2017 financial year to 17.5 cents. Under the terms of the Merger Implementation Deed with Tabcorp, and consistent with a mutual obligation, the Tatts' dividend reinvestment plan continues to be suspended.

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