Tabcorp Holdings Limited (TAH) Earnings Call Transcript & Summary

Good morning, everyone. My name is Paula Dwyer, and I'm the Chairman of Tabcorp Holdings Limited. On behalf of the Board of Directors, I welcome you to Tabcorp's 2020 Annual General Meeting. The Board and I value the opportunity to meet with shareholders at our AGMs. However, due to the ongoing COVID-19 pandemic and with the health and safety of our shareholders, employees and the community being a priority, we are holding this year's AGM virtually. On behalf of the company, I acknowledge the Wurundjeri People of the Kulin Nation, the traditional custodians of the land on which our Melbourne office is situated, and I pay my respects to their elders past and present. Given the format for today's meeting, I also acknowledge the traditional custodians of the land on which each attendee is situated and pay my respects to the elders past, present and emerging. I have been informed that a quorum of shareholders is present, and so I declare the 2020 AGM open. I would like to begin by introducing our Board of Directors. Joining us today are our independent nonexecutive directors: Bruce Akhurst; Harry Boon; Anne Brennan; David Gallop; Steven Gregg; Vickki McFadden; Justin Milne; and our Managing Director and Chief Executive Officer, David Attenborough. I would also like to welcome to her first Tabcorp AGM, Janette Kendall. Janette was appointed as an observer to the Board last month and will commence as a Tabcorp Director once she receives the necessary approvals. Also attending today's meeting is the Company Secretary, Chris Murphy; members of our executive leadership team; and David Shewring, who is the lead audit partner at our external audit firm, Ernst & Young. Before we move to the formal business of the meeting, I'd like to outline procedural and technical matters for the conduct of today's virtual meeting. We're using an online meeting platform operated by our share registry, Link Market Services, which allows shareholders an opportunity to watch our presentations, ask questions and vote during the meeting. A webcast recording of this meeting will be available on Tabcorp's website after the meeting. If we experience any technical issues today that result in a large number of shareholders being unable to reasonably participate in the meeting, then it may be necessary to adjourn the meeting. And we will reconvene at a time later today. If this occurs, we will lodge an ASX announcement that sets out the details and the next steps. We have published on our website and the ASX the Notice of Meeting and a virtual meeting online guide as well as the formal speeches and presentations to be delivered today. These documents include details to help shareholders access the online meeting platform and instructions on how to log in, ask questions and vote. Only eligible shareholders and proxy holders can ask questions and vote at the AGM. [Operator Instructions] Questions can be submitted now, and you don't need to wait until a particular agenda item to ask your question. So that all shareholders have a reasonable opportunity to ask questions, please ask more -- no more than one question at a time and try to keep questions as brief and to the point as possible. Questions received during the meeting will be reviewed by a moderator and read out by the company secretary. I will endeavor to address as many questions received as possible and will start by addressing those questions received prior to the meeting, many of which are covered in the upcoming speeches. I will now summarize the voting procedures that apply to today's meeting. Voting on all resolutions will be conducted via a poll. I appoint Daniel Reid of Tabcorp's share registry, Link Market Services, as the returning officer for the conduct of the poll. The online meeting platform enables shareholders and proxy holders to vote during the meeting. To vote, just click on the Get A Voting Card button and follow the instructions. You will be able to cast to your vote by selecting for, against or abstain in respect of each resolution. You may change your votes using your voting card at any time until the poll is closed. Votes on any item of business may be cast at any time during the meeting. I intend to close the poll approximately 5 minutes after the conclusion of the meeting. Details of the proxies received prior to the meeting on each resolution will be shown in the presentation slides after the discussion of that item. I am holding open proxies in my capacity as Chair of the meeting, and I intend to vote all available proxies in favor of all resolutions. I declare the poll now open, so you may commence voting by using the Get A Voting Card button. There may be a short time lag as the AGM is streamed over the Internet, so we encourage you to submit any questions now and cast your votes before the conclusion of the meeting. [Voting]

The final results of the poll will be lodged with the ASX as soon as possible after the meeting. A copy of the voting results will also be published on our website. For any technical assistance during the meeting, please refer to the virtual meeting online guide or phone the share registry on the number shown at the top of the screen. I would now like to formally address the meeting. The onset of COVID-19 during 2020 has impacted the way we live and work. Our first-ever virtual AGM is evidence of that. In Melbourne, where I live, the community is still dealing with the lockdown, which commenced in July 2020. The impact of this lockdown on families, the community and commerce is profound. In other parts of Australia, people are adjusting to a new COVID-safe way of living. From the outset, Tabcorp's priority has been to ensure our people's safety and well-being and to support our business partners. The organization mobilized quickly around these priorities. Investments over the last few years to transition us to a more flexible workplace have meant the company had the resources and culture in place to enable us to adapt quickly and our people to continue to work productively away from the office. In these difficult times, Tabcorp's role of providing gambling entertainment and the excitement of sport to millions of Australians has been crucial. Our business continuity plans were successfully enacted so Australians could continue to play the lottery or have a bet on racing or sport. We have worked closely with the federal and state governments, the racing industry and our venue partners who have done an excellent job to operate within the restrictions. News agents have largely traded throughout the pandemic, and most licensed venues and TAB agencies across the country have resumed trading under strict and effective COVID-safe protocols. However, in Victoria, many of our venue partners have not been permitted to trade, with TAB agencies and licensed venues closed for the most part of 8 months. This is still continuing in Melbourne. As has been demonstrated in states outside Victoria, Tabcorp has developed with our partners COVID-safe ways of continuing business. We stand with our venue partners ready to safely restart operations in Melbourne when current restrictions are relaxed. Our racing and sporting partners have also done an extraordinary job to continue to operate under strict biosecurity controls. It is sobering to remember that the onset of COVID-19 followed the devastation of the national bushfires. In response, the company offered its support to the relief effort through a number of actions, most notably donating the proceeds of a one-off Saturday lottery -- Lotto Bushfire Benefit Draw, which exceeded $1.9 million. On behalf of the leadership team, I would like to thank our people and our industry partners for their resilience, dedication and creativity in the way they've stepped up to meet the significant challenges and respond to the rolling disruptions and uncertainty. Moving now to our financial performance for FY '20. Tabcorp delivered a net profit after tax and before significant items of $271 million. After significant items, which included a $1.09 billion noncash goodwill impairment charge relating to the Wagering & Media and Gaming Services businesses, Tabcorp recorded a statutory net loss after tax of $870 million. The impairment charge reflected a reassessment of the value of our wagering and gaming businesses in light of the potential impact of the pandemic, the level of competitive intensity and structural changes, including the possible acceleration of retail contraction in a digital-centric market. Our Lotteries & Keno business, which accounted for more than half of the group's revenue and almost 75% of EBIT, delivered another strong result. David will cover the FY '20 results in more detail later in the meeting. In response to the pandemic and the consequent closure of licensed venues and sporting events, the group moved quickly to mitigate the immediate fiscal impacts and strengthen our position. Actions included securing our financial liquidity facilities, reducing nonessential operating and capital expenditure and negotiating amendments to some of our commercial arrangements. Other early actions were the temporary standing down of employees, where shutdowns meant no work, and a reduction in CEO remuneration and Chairman and nonexecutive director fees from April to June 2020. Importantly, we secured agreement from lenders under our syndicated facility agreement as well as U.S. private placement noteholders to waive or adjust leverage and interest cover covenants for the June and December 2020 testing dates. At year-end, the group announced revised capital management targets. The target gearing range for gross debt to EBITDA has been reduced to 2.5 to 3x, while the target dividend payout ratio is now 70% to 80% of NPAT before significant items. These targets improve the company's credit metrics and preserve more capital over time. The Board took these decisions in light of the uncertainties associated with the pandemic and the potential consequences for the company. Following the release of our year-end results, we undertook an equity capital raising with gross proceeds of approximately $600 million. The offer structure was chosen for its fairness to all our shareholders, allowing both retail and institutional investors to participate proportionately. The funds have been used to pay down existing debt facilities and strengthen the balance sheet. The balance sheet is now conservatively structured with greater potential to weather the impacts of COVID-19. I would now like to turn to dividends. An interim dividend in respect of the first half of FY '20 of $0.11 per share, fully franked, was paid to shareholders in March this year. As part of securing covenant testing relief, the Board resolved not to pay a final dividend for FY '20. This decision was made to preserve the group's liquidity in this exceptional and uncertain period. The Board is aware of the importance of dividend and the distribution of franking credits to our shareholders and recognizes regular distributions are a meaningful part of the Tabcorp investment proposition. As the environment stabilizes, we envisage resuming distributions, subject to satisfactory commercial performance during FY '21. I'd now like to turn to the transitions on our Board of Directors. In FY '20, Tabcorp announced the appointment of 2 new directors, Anne Brennan and David Gallop. After initially serving as observers, Anne and David were formally appointed to the Board in July 2020 and are seeking election later this morning. Last month, we announced the appointment of Janette Kendall as an observer to the Board. Janette is a proven nonexecutive director and brings deep experience in the gambling entertainment industry, digital innovation and marketing. Her formal appointment will -- her appointment will be formalized upon completion of the necessary ministerial and regulatory approval processes. As announced at last year's AGM, in February, Ziggy Switkowski retired as a director. Vickki McFadden will retire from the Tabcorp Board at today's Annual General Meeting. Since joining the Board in 2017, Vickki has been Chairman of the Audit Committee, and it is planned she will be succeeded in that role by Anne Brennan, subject to Anne's election today. On behalf of my fellow directors, I would like to thank Vickki for her contribution to Tabcorp and wish her well in future endeavors. Last year, I advised shareholders of my intention to step down as Chairman and retire from the Board prior to the 2021 Annual General Meeting. With the integration of Tatts now largely complete, I will retire from the Board at the end of this calendar year. Steven Gregg, who will succeed me as Chairman, has served as a director of Tabcorp since 2012. He has deep commercial experience across a range of industries, including racing, and knows Tabcorp well. He is currently Chairman of the People and Remuneration Committee, and his appointment ensures an orderly transition. It is intended that David Gallop will succeed Steven as Chairman of the People and Remuneration Committee. Our Managing Director and CEO, David Attenborough, has also announced his intention to retire in the first half of calendar year 2021. The company is well advanced in a global search for his replacement. David has been an inspiring CEO of Tabcorp, having led through the enormous complexity that goes with our licensed gambling operations and the significant events that have shaped the company. On behalf of the Board, I would like to thank him for his hard work and professionalism over many years. While strong commercial performance is important, it is not enough in the gambling sector. To sustain the company and the industry for the long term, we must have a reputation for and commitment to operating our licenses with the highest level of integrity and responsibly manage the social impact of gambling. Our purpose of excitement with integrity underpins everything we do at Tabcorp and drives our culture. This purpose has informed decision-making and investment across the enterprise. We have invested in enhanced risk and compliance systems, capability and training for our people and partners. And we continue to invest in and develop further our responsible gambling initiatives. In October, we launched our enhanced customer care mission and principles for responsible gambling. We're also using our voice to play a more active role in working with our racing partners to prioritize animal welfare. I believe these capabilities are essential if gambling companies are to secure their long-term sustainability and that of the industry. As a result of this focus, Tabcorp is well on the way to setting the standard for responsibility in the gambling sector and remaining the trusted choice for customers, industry partners and government. The Tabcorp and Tatts combination in 2017 redefined our company. Today, with the integration of the business as largely complete, Tabcorp holds a market-leading portfolio of diversified gambling entertainment assets across multiple jurisdictions and categories. There is no doubt that we have been able to better navigate the challenges of COVID-19 because of the strength of our portfolio and the resilient performance of the lotteries business. Tabcorp is well placed to leverage its competitive advantages, and I can report the group is well positioned for the future both to manage through the pandemic, to grow the Australian businesses and to pursue broader growth opportunities. In conclusion, I would like to thank my Board colleagues, our executive leadership team and our people for their commitment and support over my time as Chairman of Tabcorp. We have built Tabcorp into a great company with a resilient financial position, market-leading brands, strong governance, culture and risk management and with significant potential to grow from its Australian base. Finally, I would like to thank our shareholders for your interest and support over the years. I will now invite our Managing Director and CEO, David Attenborough, to address the meeting.

Thank you, Chairman. The COVID-19 pandemic certainly presented one of the toughest challenges many of us have faced in our careers. Tabcorp's diversification and our investments in digital transformation helped us manage these challenges with a strong performance from our lotteries business and good digital growth in wagering and Keno. However, the pandemic materially impacted our results. Group revenue was down 4.8% to $5.2 billion, and EBITDA before significant items was down 11.5%. The biggest impact came from the retail closures across our Wagering & Media, Keno and Gaming Service operations. And despite implementing a range of initiatives to cut costs, protect earnings and conserve cash, group EBITDA was down $142 million in the second half. And while managing the financial impact has been central to our COVID-19 response, we've also aimed to ensure that our actions do not erode our culture and the trust in our brands. And part of our philosophy has been to apply the look-back test. That is when we look back at this time in the company's history, are we satisfied that we did the right thing by our people, shareholders and business partners? And many of the venues who distribute our products are family-run hotels, TAB agencies or small clubs, and temporary closures and restrictions on patrons when open have had a devastating on their cash flows. We've waived more than $130 million in contracted fees to these venues so far for things like equipment charges and Sky Racing subscriptions. We need our venue partners to be successful and sustainable, and these actions have been about coming through this stronger together. Maintaining the employment and engagement of our people has also been key. The majority of our employees have adapt well to working from home, although at various times, we have had to stand down employees where there was little or no work for them. As well as navigating COVID-19, we also substantially completed the integration of Tabcorp and Tatts. The migration of ex UBET account customers to the TAB platform was executed seamlessly post-year-end, and this was the most important integration milestone and means ex UBET customers now receive the TAB customer offer. The integration is on track to deliver on our final target of $95 million in total cost synergies by the end of this financial year, with $86 million delivered to the end of FY '20. COVID-19's impact on our revenue base means the measurement and reporting of revenue synergies at this time is not considered meaningful. One-off pretax costs incurred in delivering the integration were $103 million to the end of FY '20, with a further $32 million expected as we move to full completion. And with the integration program substantially complete, we are shifting the group into an optimization phase. We've commenced an enterprise-wide 3-year program that is targeting substantial cost savings as well as enhancing operational capability, process improvement and overall efficiency. Initiatives underway include marketing efficiencies and agency rationalization in the Wagering & Media business and the operational review of Gaming Services, which includes some restructuring. We will be reporting progress on the savings as part of our reporting of group results. Turning now to the performance of our 3 businesses, starting with Lotteries & Keno, which makes up more than half of our earnings. Lotteries & Keno delivered another excellent performance, really demonstrating its resilience and substantial value to the group and to our shareholders. This is a great business and home to games Australians love such as TattsLotto, Powerball, Oz Lotto and Instant Scratch-Its. Revenues were $2.9 billion, up 1.8%. And EBITDA was $542 million, up 5.7%, a pleasing result given the number of large jackpots of $15 million-plus in the prior year. We added 400,000 active registered customers and ended the year with 3.7 million customers. Turnover through digital channels accounted for 28% of all lotteries turnover, up from 23.5% in the prior year. And retail continued to hold its own, remaining the dominant distribution channel for lottery games. Keno revenue was tracking at record levels prior to COVID-19. However, the closure of licensed venues impacted second half revenues. Digital growth remained strong, and digital share of turnover grew to 11.9%. We're always looking to maximize the performance of the game portfolio. So we have given Saturday Lotto, an important foundation game, a refresh this month. And this popular game now delivers bigger Division 1 prizes and more winners. And this follows the refresh of Set for Life in March 2020, which has resulted in increased player engagement and sales to date. Wagering & Media revenues were $2.1 billion, down 10.1%. And EBITDA was $371 million, down 19.5%. We've been seeing a progressive migration from retail to digital wagering over the past decade, in line with changing consumer habits. However, COVID-19-enforced venue closures have accelerated this shift. Retail remains an important part of our strategy. The convergence of our retail business with the fast-growing digital channels gives us a unique competitive advantage. However, we were more exposed to COVID-19's disruptions than the digital-only operators, with our entire retail network closed at various times. Pleasingly, turnover through wagering's digital channels grew 44% in the final quarter of FY '20 compared to the pcp. A similar rate of growth was achieved in the first quarter of FY '21. We are very focused on strengthening our unique customer experience with investment in brand, personalization, marketing offers and the digital venue experience. Media too is an important differentiator. Signing deals with major American sports leagues strengthens our position in this fast-growing market. And we were also pleased recently to secure Queensland Racing's media rights for the next decade, underpinning Sky as racing's long-term preeminent broadcaster. The wagering sector continues to be incredibly competitive. But with the integration of TAB and UBET largely behind us, we are now in a much stronger position to unlock the value from a more competitive TAB. Gaming Services revenues were $221 million, down 27.3%, and EBITDA was $84 million, down 42.5%. As a pure business-to-business operation with no digital earnings, Gaming Services relies on venues being open and gaming machines operating. So with the gaming venues closed from March to June 2020 and our decision to suspend fees, revenue essentially reduced to 0 during that period. Contract expirations, extensions at lower daily rates, reduced project work and nonrenewal of a Telstra service contract also impacted FY '20 revenues. At our half year results, we flagged the business was under operational review, and that is now being implemented. The strategic review announced at the same time has understandably been paused due to COVID-19. I would now like to provide a trading update for the first quarter of FY '21. This information is unaudited. And given the uncertainty around COVID-19, it shouldn't be extrapolated beyond this period or considered indicative of future performance. At a group level, revenues were down 5.7% on the prior corresponding period. In terms of the 3 business units, Lotteries & Keno revenues were down 6.9% on the pcp, which had a strong jackpot sequence. On a like-for-like jackpot basis, sales across the portfolio of games were up circa 15% to 30% on pre-COVID-19 levels. Wagering & Media revenues were up 2.9% on the pcp, despite the decline in retail and reduced net yields, and wagering account revenues were up 47%. And Gaming Services revenues were down 55.2% on the pcp, impacted by the closure of licensed venues, particularly in Victoria. The duration and severity of COVID-19 is unclear. However, Tabcorp remains well placed with our resilient, diversified earnings base and strengthened balance sheet. Into FY '21, our priorities have included driving the digital opportunity across Lotteries & Keno, Wagering & Media. And we are focused also on improving performance in Wagering & Media, delivering the Gaming Services turnaround and the business-wide optimization program. And we'll continue to invest in initiatives that support our purpose of excitement with integrity such as our risk and compliance systems and customer care technology. In conclusion, this is my last Tabcorp Annual General Meeting. It has been a privilege to be the CEO of such an extraordinary Australian company, and I remain committed to ensuring a smooth transition to the next CEO in 2021. I'm proud to leave behind a company that has been substantially transformed into a diversified, resilient, purpose-led organization. We've done a lot of work to integrate leading inclusion and diversity practices into our operations to ensure diversity of thought and drive commercial success. Attracting, engaging and retaining great talent is critical to achieving our strategic objectives. And I'm proud of them and would like to thank our talented and committed Tabcorp team for their support over the years. And I'd like to acknowledge our many venue partners, the racing and sporting industry, governments, regulators and the community partners for their collaboration. I would like to think we share a commitment to ensuring Tabcorp's products give customers great experiences while being delivered in line with community expectations. I would also like to congratulate our Chairman, Paula Dwyer, for her many achievements as Chair and for her commitment to making Tabcorp the trusted gambling entertainment company. And I acknowledge the Chairman and the Board's unrelenting focus on putting integrity at the heart of how we deal with our people, our partners and our customers. Finally, thank you to our shareholders and our millions of customers. And I'll now hand back to the Chairman. Thank you.

Thank you, David. We now come to the formal business of today's meeting. The Notice of Meeting has been published and made available to shareholders, and I will take it as read. Each of the resolutions to be put to the meeting will be moved in the order set out in the Notice of Meeting. At the end of each item of business, I will respond to questions already received relevant to that item. Shareholders and proxy holders will also be provided an opportunity to submit questions via the online meeting platform. I encourage you to now submit any questions you may have for any item of business. May I please ask that you keep your questions relevant to the agenda items. The first item on the agenda is to receive and consider the financial report and the reports of the directors and the auditor in respect to the year ended 30 June 2020. These reports were approved by the Board and were included as part of the annual report released on the 19th of August 2020. They were also published on our website and the ASX. While this item is not subject to a vote, in a moment, I will respond to questions from shareholders regarding the financial report, the reports of the directors and auditor and the performance of the company in general over the past year. David Shewring, the partner of Ernst & Young responsible for the audit and who signed the audit report, is available to answer questions in respect of audit matters. If you have any questions about these reports, the conduct of the audit or the company's performance, then please submit them now if you haven't already done so. I will now deal with shareholder questions received prior to the meeting.

We have received a question from Mike Muntisov, a representative of the Australian Shareholders' Association, asking for comment on the retirement of Vickki McFadden after only one term and the announcement of -- in July of David Attenborough's retirement as Managing Director. Ms. McFadden advised the company of her intention to retire at this year's AGM due to her work and personal commitments. We have appointed Anne Brennan to succeed Vickki as the Chairman of the Audit Committee. David Attenborough has been our Managing Director and CEO since 2011 and has successfully led the company through this time, culminating in the company transforming Tabcorp-Tatts combination. With the integration now largely complete, David has decided that it is the right time to hand over to a new CEO to work with the Board and the management team to take the company forward. Until a new CEO is appointed, David remains committed to leading the company through the challenges of COVID-19 and positioning our business for future success. Prior to the meeting, we also received questions from a small number of shareholders in relation to the retail component of our recent entitlement offer. We are aware of some isolated issues experienced with the delays in delivery of the mail packs containing offer documentation to a small number of retail shareholders. This appears to be the result of a broader issue experienced with mail delivery times due to COVID-19. Tabcorp proactively took steps to ensure that all shareholders were provided a reasonable opportunity to participate in the offer, including that we elected to raise capital using the PAITREO structure, recognized as the fairest method for retail shareholders. We also wrote to our retail shareholders alerting them to the offer in advance of offer documentation being dispatched, and we adopted an offer timetable in excess of the ASX listing rule requirements to allow additional days for retail shareholders to participate. For those retail shareholders who did not participate in the offer, we're pleased that they were able to realize value from the sale of their entitlements under the retail bookbuild process. I will now ask our company secretary to read out any other questions received in relation to this item.

Chairman, prior to the meeting, we received a question from shareholders [ Robert and Kay Merlo ], who ask, "Why aren't you keeping up with technology and better odds and offers like other online betting firms?"

Thanks, Chris, and thank you for the question. Over the past few years and especially during the integration, we invested significantly in people and technology to enable us to deliver a better customer experience with a strong focus on customer care and regulatory compliance. Our digital Wagering & Media business is better competing than ever, and TAB's pricing and offers are very competitive in the marketplace. We couldn't have said that 2 years ago. Given our unique business model, comprising both retail venues and digital platforms, the focus is on strengthening TAB's customer experience with investment directed across brand, personalization, marketing offers and the digital and venue experience. Are there any more questions on this item of business?

Chairman, we have received a question from [ Heinrich Milford Kay ], who asks, "You own TattsLotto as well as TAB. Why are winnings from TattsLotto not able to be collected from TAB outlets?"

That's a very good question. I think the answer is that the different licenses do not permit us to cross-sell and cross-fertilize. So you can't buy TattsLotto tickets in TAB outlets, and you can't collect winnings. But you can go to your local news agents and collect the winnings, or you can open an account on The Lott.

Chairman, we have received a question from [ Darius Patchak ], who asks, "I understand there are about 5,000 people working for Tabcorp. How big was the reduction in employment this year?"

Well, unfortunately, we've had to stand down employees who are working at racetracks and venues and clubs. For Tabcorp, in particular, I think there's around 5,000 employees affected by this. And we're doing our best to ensure that they can get back to work as soon as possible.

Chairman, we've received a question from [ Natasha Michelle Lee ], who asks, "What proactive steps are taken to identify problem gamblers? Do digital platforms make this more difficult?"

Tabcorp is very conscious of its responsibilities in terms of delivering our products responsibly. And pleasingly, with the investment that we've made in digital and data and its customers' transition to our digital platforms, we do collect the data and we do analyze the betting patterns of our customers. And where needed, we provide support and responsible gambling guidance for our customers. So it is very important. It goes to the core of our purpose and our culture, and we will continue to invest in ensuring that we've got market-leading insights into our customers, both to permit us to offer a great gambling experience for our customers, but also to identify where there are potential problems. Are there any more questions, Chris?

Chairman, we have received a question from [ Heinrich Milford Kay ], who asks, "What is Tabcorp going to do to help those with disabilities and over 55s to obtain employment in Tabcorp?"

Tabcorp has got very strong diversity policies. We are an inclusive organization and take pride in that. And under David's leadership, we have really invested in having a diverse work and inclusive workplace. And including across our venues and across racetracks, we really do seek to support those on the diversity spectrum. So we'll continue to invest. We'll continue to think about the composition of our workforce because we all benefit when diverse skills and experience and capabilities are brought to bear on our industry. Chris, any further questions?

Chairman, I can confirm there are no further questions on this item.

Thank you. Well, if there are no more questions, that concludes this item of business, and we will move to the next item of business. The next items of business relate to the reelection and election of 3 directors. Firstly, item 2(a) on the agenda is the reelection of Bruce Akhurst as a director of the company. Bruce has been a nonexecutive director of Tabcorp since 2017. He retires in accordance with the constitution. And being eligible, he has offered himself for reelection. Bruce is Chairman of Tabcorp's Risk and Compliance Committee and is a member of the People and Remuneration Committee and the Nomination Committee. He is considered by the Board to be independent. Bruce is an active contributor to Board discussions and decision-making. He brings extensive commercial experience in legal and regulatory compliance, governance and risk management, marketing and digital innovation, information technology, strategy, finance and capital management. The Board, with Bruce abstaining, unanimously supports the reelection of Bruce Akhurst as a director of the company and recommends that shareholders vote in favor of this resolution. I would now like to invite Bruce to address the meeting. Bruce, you've been a director since 2017 and Chairman of the Risk and Compliance Committee since 2018. Perhaps you can share with us your reflections on the changes you've observed in relation to risk and compliance at Tabcorp during this time.

Yes. Thank you, Chairman, and good morning, everyone. Risk management and compliance is a top priority for Tabcorp. And when I say Tabcorp, it's not only the Board, senior management, our team of subject matter experts, but it's a top priority for all our people. And beyond that, considering there are over 50,000 people selling our products in all sorts of venues, such as the more than 9,000 pubs, clubs, TAB agencies and news agencies, this is a very substantial and constant area of attention. The regulatory environment is extremely complex. And for someone who's operated in a very complex legal and regulatory environment for the best part of 35-plus years, I can assure you that our industry is right up there in terms of complexity. There are a multitude of regulators, regulations, statutory requirements and license conditions with which Tabcorp is obliged to understand and comply. This compliance requires ongoing close attention, testing, learning, training and, of course, investment. Over the past 3 years, we've continued to invest in our risk and compliance systems, our tools, our training, our processes, our warning systems, always looking to uplift our skills and enhance our people's risk awareness, good behavior and good risk management practices and outcomes. We must do all this to retain our licenses, our goodwill, our reputation and, importantly, to achieve our vision of being the trusted gambling entertainment company. For the next 3 years, the Risk and Compliance Committee I chair will continue to pay very close attention to these matters so we can learn and improve continuously and help the Board oversee the company's management of risk and compliance. Let me finish by saying that I'd be honored to serve you for a further term as a director. There is so much opportunity and potential for the company. The future can be very bright, and I'll dedicate myself to assisting the company's transformation, acceleration and achievement of success. Thank you.

Thank you, Bruce. If you have any questions about this resolution, please submit them now if you haven't already done so. I will now ask the company secretary to please read out any questions received.

Chairman, there are no questions on this item.

Thank you, Chris. As there are no questions, we have now finalized discussion on this item. The proxy votes received prior to the meeting in relation to this resolution are shown on the slide presentation. I now move that Bruce Akhurst be reelected as a director of the company. If you haven't already done so, please submit your voting cards using the voting card button available through the online meeting platform. [Voting]

We will now move to the next item of business. The next item on the agenda is the election of Anne Brennan as a director of the company. Anne commenced as a nonexecutive director of the company in July this year. She retires in accordance with the company's constitution. And being eligible, she has offered herself for election. The directors consider Anne to be independent. Anne is a member of Tabcorp's Audit Committee, Risk and Compliance Committee and Nomination Committee. And following the retirement of Vickki McFadden at today's AGM, she -- it is proposed she will commence as the Chairman of the Audit Committee. Anne has extensive experience in finance, capital management, risk and compliance, the gambling industry and in retail and regulated industries more broadly. The Board, with Anne abstaining, unanimously supports the election of Anne Brennan as a director of the company and recommends that shareholders vote in favor of this resolution. I would now like to invite Anne to address the meeting. Anne, as the incoming Chair of Tabcorp's Audit Committee, could you perhaps share with us your thoughts on the important role of that committee?

Thank you, Paula, and good morning, ladies and gentlemen. It's difficult to cover the full role of the Board Audit Committee in a couple of minutes, so I'll just focus on the key aspects of the role and a couple of important matters that we'd considered in 2020. One of the key roles of the Board Audit Committee is ensuring that the financial reports of the group reflect the true and fair view of the financial position and performance of the group. In this regard, it's important that the Audit Committee considers the key judgments and estimates formed by management and ensuring that they are reasonably based. To undertake the role fully, the Board Audit Committee also oversees and monitors the group's financial systems and internal controls. The Audit Committee is supported by the finance team, external auditors and internal audit. And it's a responsibility of the Audit Committee to appoint the external auditor and to ensure that they're independent. The committee also looks to ensure that the finance and internal audit teams are properly resourced to undertake their role for the group. A specific example of the role of the Audit Committee during FY '20 was considering the impact of COVID on the business and more specifically, business performance, the carrying value of the group's assets and the group's financial position. This involved the management and finance teams planning for various scenarios and making judgments on the potential long-term impact of COVID on the business. The BAC carefully considered all of the analysis presented by management and finally recommended a write-down of some of the group's assets to the Board. The market was advised of the write-down as soon as it was approved by the Board. A second significant matter considered by the BAC members was the recent capital raising. While not specifically a matter for the Board Audit Committee, most members were involved in subcommittees established by the Board to consider this matter. The role of the committee is as well to consider the requirement to raise capital, the quantum required, the structure of the offer and appropriate disclosures in relation to that offer. During the 9 months, I've worked with the Audit Committee in relation to the half year and full year reporting, the impairment outcomes as a result of COVID and market changes and the capital raising a few months ago. This has provided me with valuable experience on the role of the Board Audit Committee at Tabcorp. If elected today, I look forward to being appointed to the Chair of the Board Audit Committee. Thank you.

Thank you, Anne. If you have any questions about this resolution, please submit them now if you haven't already done so. I will now ask the company secretary to please read out any questions received.

Thank you, Chairman. Prior to the meeting, a question was received from the Australian Shareholders' Association, who ask, "The ASA note that Ms. Brennan currently has a significant workload, which exceeds ASA guidelines for nonexecutive directors. Can Ms. Brennan confirm that she is planning to reduce her director roles by at least 2 positions over the next 12 months?"

Thank you, Chris. I will invite Anne to respond to the ASA's question. Anne?

And thank you for your question. Before I fully respond, though, I'd like to assure our shareholders that I've been fully committed to Tabcorp since being appointed, and I've had no issues with my time commitments on Tabcorp or any of my other boards. But I can confirm that since I joined the Board of Tabcorp, I've retired from the Board of Nufarm, and that will be effective at the AGM in December. I also retired from the Board of Rabobank Australia in September, and it's my intention to retire from one of my other boards within the next 6 to 9 months. Thank you.

Thank you, Anne. And I'd just like to confirm that Anne's dedication to Tabcorp since joining the Board as an observer and then more recently as a director has been first class. So she has made the time available required in a very complex year. So were there any other questions on this resolution?

Chairman, we've received a question from [ Jeffrey Netty ], who asks, "Could you please elaborate on the goodwill impairment. Thank you. A summary of its source and is it tax deductible?"

Well, thank you for that question, Mr. [ Netty ]. As Anne covered just then and as I covered in my address, the impairment was a consequence of a reassessment of the value of our wagering and gaming licenses. And that, in large part, reflected the environment that we're currently facing, which is obviously affected by the pandemic. But also more broadly, a reassessment of perhaps the future revenue from those businesses as a consequence of a transition from a retail environment to a more digital and online environment. And so the Board, in evaluating the various factors, decided that an impairment was appropriate to be taken. And this was reviewed by the auditors and disclosed at the time, as Anne said, that the Board came to that conclusion. The impairment is not tax deductible because the licenses represent sort of capital assets. Are there any more questions on this item of business?

Chairman, there are no further questions at this item.

Thank you, Chris. So as there are no more questions, we've now finalized discussion of this item. The proxy votes received before the meeting in relation to this resolution are shown on the slide presentation. I now move that Anne Brennan be elected as a director of the company. If you haven't done so already, please submit your votes using the voting card button available through the online meeting platform. [Voting]

We will now move on to the next item of business. The next item on the agenda is the election of David Gallop as a director of the company. David commenced as a nonexecutive director of the company in July this year. He retires in accordance with the company's constitution. And being eligible, he has offered himself for reelection. David is a member of Tabcorp's Audit Committee, Risk and Compliance Committee and Nomination Committee. And subject to his election today, David will take over as Chairman of the People and Remuneration Committee from Steven Gregg from the 1st of January 2021. The directors consider David to be independent. David has extensive experience in sports administration, media rights and digital broadcasting, customer experience, organizational culture, public policy and navigating complex stakeholder relationships at a domestic and international level. The Board, with David abstaining, unanimously supports the election of David Gallop as a director of the company and recommends that shareholders vote in favor of this resolution. I would like to invite David to now address the meeting. And David, with your background in sports administration and negotiating major media rights deals, including as the former CEO of the FFA and the NRL, what are your thoughts on Tabcorp's role in sport and entertainment more broadly?

Thanks very much, Paula, and good morning to everyone. It's a privilege to be here to seek the support of our shareholders today. Tabcorp was, of course, well known to me prior to joining the Board. It's an organization with deep connection to the Australian racing and sporting industries and a successful commercial operator. In racing and sport, the company plays a significant role in delivering gambling and entertainment to Australians and does so with the commitment to the highest levels of integrity. Sky is the premier Australian broadcaster of racing and has recently added American sports to its portfolio, NFL, MLB and NBA, which are all popular with Australian punters. Tabcorp's operations also play a critical role in providing revenues to its business partners. In racing, the $1 billion Tabcorp's operations return to the industry each year enables Australian racing to truly be a global leader. Tabcorp's products, such as Keno, TAB, Sky and MAX Gaming, are also a vital part of the entertainment experience in venues in Australia. They support sports and entertainment in pubs and clubs and help bring people together in this social setting. Finally, I should talk about entertainment more broadly and the role of lotteries. Lotteries is now Tabcorp's largest business, and its growth in the past few years has been remarkable, driven by digital and product investments. Having 3.7 million registered customers is something not many Australian businesses can boast. My view of Tabcorp as a vital part of modern Australian entertainment and a commercially successful operator has only strengthened since joining the Board. I can vouch for the Board and management's commitment to the responsible vision and use of our products. This is something important to all of us and will be a key enabler of success in the future. Thank you.

Thank you, David, for those comments. If you have any questions about this resolution, please submit them now if you haven't already done so. I would now ask the company secretary to please read out any questions received.

Chairman, there are no questions at this time.

Thank you, Chris. As there are no questions, we have now finalized discussion of this item. The proxy votes received prior to the meeting in relation to this resolution are shown on the slide. I now move that David Gallop be elected as a director of the company. If you haven't already done so, please submit your votes using the voting card button available through the online meeting platform. [Voting]

We will now move on to the next item of business. Item 3 of the agenda is the adoption of the company's remuneration report in respect of the financial year ended 30 June 2020. The remuneration report is set out in Tabcorp's 2020 annual report. Tabcorp's remuneration philosophy is to attract, motivate and retain high-caliber individuals through a market-competitive framework and appropriately award our executives for achieving stretched performance outcomes and creating long-term shareholder value. The Board regularly reviews remuneration arrangements to ensure they continue to be fair, competitive, encourage strong business performance and shareholder value creation and align with the group's values and approach to risk management and compliance. As outlined earlier, Tabcorp's performance in FY '20 was materially impacted by COVID-19. While the management team made good progress across several business priorities and managed an effective response to COVID-19, the Board determined not to award any short-term incentives for FY '20. In making this decision, the Board took into consideration overall group financial and nonfinancial performance, management's response to the pandemic and the impact of COVID-19 on employees, communities, shareholders and other stakeholders. In addition, in response to the impact of COVID-19 on the business, the CEO's fixed remuneration was reduced by 20%, and all Board fees were reduced by 10% between the 1st of April and the 30th of June 2020. This followed a 10% reduction to Board fees, which took effect from September 1, 2019, following a reset of the remuneration benchmark peer group. It is intended that Board fees and executive KMP remuneration will not be increased in the 2021 financial year. Further details of remuneration outcomes for FY '20 are set out in the remuneration report. The Board unanimously recommends that shareholders vote in favor of this resolution. The vote on this resolution is advisory only and does not bind to the directors or the company. However, the directors will take the outcome of the vote and shareholder feedback into consideration when setting remuneration practices for future years. If you have any questions about this resolution, please submit them now. Prior to the meeting, we received a question on this item from the Australian Shareholders' Association. As that question relates to the 2020 grant of long-term incentives to the CEO, I will respond to it later in the meeting at that agenda item. We will now respond to questions received on this item.

Chairman, we received a question from shareholder [ Brian Foxwell ], who asks, "Why is management being paid high salaries and bonuses when profits are dropping even before COVID-19 hit?"

Thank you, Mr. [ Foxwell ], for the question. Our approach to remuneration is to attract and retain high-caliber individuals through a market-competitive, performance-linked remuneration framework, which is aligned with shareholder value creation. The Board regularly reviews executive remuneration to ensure it remains fair, competitive and encourages strong business performance. As mentioned already, no short-term incentive bonuses were awarded in respect of FY '20, recognizing that group financial targets were not met. Directors' and the CEO's remuneration was also reduced during the year, and it's intended that fixed remuneration will remain unchanged in FY '21 for both the executive team and the directors. Are there any more questions on this agenda item?

Chairman, there are no further questions at this time.

Thank you, Chris. The proxy votes for this have now been received and are shown on this slide. I now move that the remuneration report of the company for the year ended 30 June '20 be adopted. I'd like to remind shareholders that if you haven't done so already, please submit your votes using the voting card button available through the online meeting platform. [Voting]

We will now move to the final item of business. Item 4 is the proposed grant of performance rights to the MD and CEO, David Attenborough, under Tabcorp's long-term incentive plan. Shareholder approval is being sought to grant performance rights to David as the long-term incentive component of his annual remuneration package for FY '21. The purpose of David's long-term incentive is to ensure that while he remains CEO, his interests continue to be aligned with those of shareholders, and his decisions continue to have regard for the long-term sustainability and profitability of Tabcorp. In accordance with the formula set out in the Notice of Meeting, it is proposed to grant 874,635 performance rights to David. If shareholder approval is obtained, 75% of the performance rights will be subject to a performance measure based on relative total shareholder return measured over a 3-year performance period. The remaining 25% of the performance rights will be subject to achieving specified return on invested capital targets, or ROIC, over 3 financial years. The ROIC performance condition replaces the previous Combination Synergy Condition, which was an interim measure and is now no longer appropriate since the integration is substantially complete. It's expected that David will continue to lead to Tabcorp through most of FY '21, while Tabcorp onboards his successor. David will only retain a pro rata portion of the performance rights for the period in which he is employed, and he will only receive value from those rights if the performance targets are met over the 3-year performance period. The Board, with David abstaining, recommends that shareholders vote in favor of this resolution. I'll now respond to questions received on this resolution.

Chairman, prior to the meeting, we received 2 questions from the Australian Shareholders' Association in relation to this item. The first question reads, "The ASA supports using at least 2 performance measures for the long-term incentive plan. This year, you have introduced return on invested capital as the second measure. Can you please elaborate on how you set both the threshold and target values for this measure, given the uncertainty that still lies ahead?"

Thank you for the question. ROIC was chosen as the most appropriate second performance measure because it focuses management on achieving targeted returns on Tabcorp's invested capital, which is appropriate now the combination has been completed and the capital-based reset. Targets have been set by the Board based on past, current and expected performance and in line with targeted longer-term investment returns. Targets have also been set having regard to investment market consensus. The Board considers the ROIC threshold of 7.1% to be appropriate in these circumstances. And if that's achieved, 10% of the performance rights subject to the ROIC measure will vest. The at-target ROIC level is set at 7.6%, which is above market consensus, and if achieved, would be expected to result in meaningful returns for shareholders. If 7.6% is met, 50% of the performance rights will vest. Finally, the stretch target set is set at 8.4% and will incentivize executives to deliver significant additional financial returns that the Board considers to be appropriately challenging to achieve. If this stretch target is achieved, all performance rights subject to the ROIC measure will vest.

Chairman, the ASA's second question on this item reads, "Please explain why the Board believes it is appropriate to grant long-term equity rights to a CEO who will be shortly departing."

Thank you for this question. In view of David's retirement and the ongoing uncertainty of COVID-19, the Board considers it is appropriate at this time to maintain David's existing remuneration arrangements and to proceed with seeking shareholder approval for the grant of long-term incentives to him. Our aim is to ensure that David continues to focus on the long-term sustainability and success of the group. As noted earlier, David will work out a substantial part of FY '21 until his successor is appointed and he transitions out of his role. He will only retain a pro rata portion of these performance rights for the period during which he is employed. The grant will be tested in 3 years' time, and David will only receive value from the rights on foot if vesting hurdles have been met at that time. We will now respond to any other questions received on this item through the online platform.

Chairman, there are no further questions on this item.

Thank you, Chris. As there are no further questions on this item, we've now finalized the discussion. The proxy votes received prior to the meeting in relation to this resolution are shown on the slide. I now move that approval be given for all purposes to grant Mr. Attenborough 874,634 -- 874,635 performance rights under the Tabcorp long-term performance plan and on the terms summarized in the explanatory notes. Please cast your votes on this resolution and all other resolutions by using the voting card button. [Voting]

That now concludes the formal business of this meeting. If you haven't already done so, please submit your votes in respect of all resolutions now by using the voting card feature on the online meeting platform. We will leave the poll open for a further 5 minutes after the close of the meeting to enable shareholders to cast their votes. A countdown timer will be visible on screen to indicate when the poll closes. The results of the poll will be advised to the ASX as soon as possible after the meeting. So it's been a racing and sporting year like no other, with the AFL and NRL grand finals pushed back to the end of October. And I'd like to wish the best of luck to the respective grand finalists this weekend. Last Saturday, we were once again proud to be associated with the TAB Everest. And on Tuesday week, the Melbourne Cup will be run. It's going to be a very different Melbourne Cup week without the thousands of spectators on course. Tabcorp is very conscious of the tough times that our customers, partners and the community in general are experiencing. We hope shareholders and customers can enjoy the great spring racing and wish them happy punting if they're having a bit. We also wish the Victoria Racing Club Chairman, Amanda Elliott, a successful Melbourne Cup Carnival in her final year as Chairman. At last year's AGM, Sky Racing's Ron Dufficy told us that he liked Vow and Declare to win the 2019 Melbourne Cup, and Ron proved to be right. This year, Ron says the best international is Tiger Moth, and the best local chance is Surprise Baby. Meanwhile, his Sky colleague, Lizzie Jelfs, says her early Cup tip is Prince of Arran. Our lotteries business made 246 millionaires in FY '20. So if lotteries are your game, there's a $2 million Oz Lotto draw tonight. I'd like to thank you for attending Tabcorp's first virtual AGM and for those who contributed questions and helped make this an engaging meeting. I would also like to thank the Tabcorp team who has organized this meeting in very difficult circumstances. Thank you again for your time today and for your continued support of Tabcorp. And I now declare the meeting closed.