Tabcorp Holdings Limited (TAH) Earnings Call Transcript & Summary

Good morning, everyone. My name is Steven Gregg, and I'm the Chairman of Tabcorp Holdings Limited. On behalf of the Board of Directors, I welcome you to Tabcorp's 2021 Virtual Annual General Meeting. On behalf of the company, I acknowledge the Gadigal people of the Eora Nation, the traditional custodians of the land on which our Sydney office is situated. And I pay my respects to their elders past and present. I also acknowledge the traditional custodians of the land on which each attendee of today's meeting is situated and pay my respects to their elders past and present. I've been informed that a quorum of shareholders is present, and I so declare the 2021 AGM open. I'd 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, Janette Kendall and Justin Milne; and our Managing Director and CEO, David Attenborough. Also attending today's meeting is the company secretary, Chris Murphy; members of our executive leadership team; and David Shewring, the former lead audit partner at our external audit firm, Ernst & Young; and Michael Collins, the incoming lead audit partner. Before we move to the formal business of the meeting, I'd like to outline some procedural and technical matters for the conduct of today's virtual meeting. We are using an online meeting platform, which allows shareholders to watch our presentations, ask questions and vote during the meeting. In the unlikely event we experience any significant 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 next steps. We have published on our website and the ASX the Notice of Meeting and an online meeting guide. We have also published the formal speeches and presentations to be delivered today. And a recording of this meeting will be available on Tabcorp's website after the meeting. Only eligible shareholders and proxyholders 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. We also have a telephone facility for shareholders and proxyholders to ask questions over the phone. [Operator Instructions] I will endeavor to address as many questions as possible. Voting on all resolutions will be conducted via a poll, and I appoint Daniel Reid of Tabcorp's share registry, Link Market Services, as a returning officer for conducting the poll. I declare the poll now open, so you may commence voting by using the Get a Voting Card button on the online meeting platform and follow the instructions. You may change your votes using the 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, and details of the proxies received prior to the meeting on each resolution will be shown in the presentation slides after a discussion of that item. I'm holding open proxies in my capacity as Chair of the meeting, and I intend to vote all available proxies in favor of the resolutions. 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. The final results of the poll will be lodged with the ASX as soon as possible after the meeting. And for any technical assistance during the meeting, please refer to the online meeting guide or phone the share registry on the number shown at the top of the screen. I'd like to formally address the meeting now, if I may. I'm pleased to present my account of the 2020/'21 financial year. We look back at financial year '21 as a year in which Tabcorp managed the ongoing disruption and challenges of COVID-19, prioritizing the safety and well-being of our people, customers and partners. At the same time, it was a year in which we comprehensively reviewed the future strategic course of the company, culminating in the decision to pursue a demerger of our Lotteries & Keno business. The effects of the pandemic were not only financial and operational, but significant for our people and business partners. The various lockdowns and other restrictions meant our venue partners weren't trading for many parts of the year. When the doors were open, they were operating within COVID-safe settings, often at reduced capacity and, therefore, reduced revenue. Despite the significant disruption, our businesses were resilient, and the group delivered a strong operational result. EBITDA was $1.1 billion, up 11% on the prior corresponding period, and net profit after tax was $269 million. This improved earnings performance meant eligible shareholders received full year dividends of $0.145 per share fully franked. We were pleased to resume dividends after not paying a final dividend in the financial year '20 as part of a suite of actions taken to preserve liquidity and manage the financial impacts of COVID-19. In terms of our 3 businesses, Lotteries & Keno produced a record profit in '21, continuing its strong growth trajectory since the Tabcorp-Tatts combination in 2017. Pleasingly, we saw improved performance from Wagering & Media, while Gaming Services were severely impacted by the trading restrictions on hotels and clubs. Maintaining a resilient balance sheet in these uncertain times has been a priority. In August '20, we executed a successful equity raising, giving both institutional and retail shareholders the chance to participate. The proceeds of approximately $600 million was used to pay down existing debt facilities. We also sold our holding in the lottery reseller, Jumbo Interactive Limited, generating gross proceeds of $98 million. The transaction followed the extension of our long-standing distribution partnership with Jumbo. Our gearing ratio based on gross debt to EBITDA now sits at 2.4x, slightly below our target range of 2.5 to 3x. A strategic review was untaken by the Board, management and our advisers in the second half of '21. It was a natural progression of an ongoing evaluation by the Board on how to best extract value from the market-leading assets brought together through the 2017 Tabcorp-Tatts combination. As announced in July this year, the Board resolved to pursue a demerger to create 2 market-leading ASX-listed entities, Lotteries & KenoCo and Wagering & GamingCo. The demerged companies will have distinct operating profiles, strategies and growth opportunities and will continue to create great experiences for millions of our customers. The Tabcorp-Tatts combination effectively combined 6 complementary businesses into 3 larger and stronger operating divisions. The transaction we will put to shareholders next year proposes to demerge 1 of those 3 divisions, the Lotteries & Keno businesses. As part of the strategic review, meaningful engagement was conducted with several parties that submitted nonbinding and indicative proposals to acquire the Wagering & Media business. The Board carefully considered these proposals and concluded that a demerger of Lotteries & Keno is in the best interest of shareholders and expected to realize a significant value for less conditionality and execution risk. The demerger is proposed to be implemented by a court-approved scheme of arrangement. It is intended that shareholders will receive the demerger scheme booklet in April next year and that you will have the chance to vote on it at a demerger scheme meeting in May. If the demerger is implemented, shareholders will receive Lotteries & KenoCo shares in proportion to their existing shareholding in Tabcorp while also retaining their existing Tabcorp shares. We aim to complete the demerger by June 2022, subject to all regulatory approvals. One-off cash costs are expected to be between $225 million and $270 million, and the majority of these relate to technology separation costs. We have undertaken a comprehensive process in estimating these costs, including independent third-party reviews, external benchmarking and detailed due diligence. These estimates are in line with market precedents for a transaction of this nature and scale. Ongoing incremental costs are estimated to be between $40 million and $45 million per annum pre any mitigation. Importantly, we expect that the likely increase in value gained from the demerger will materially exceed the impact of the separation and ongoing incremental costs. Subject to my reelection to the Board of Directors later in today's meeting, it is envisaged that I will Chair the Lotteries & KenoCo. And my fellow directors Harry Boon and Anne Brennan will also join this Board on demerger. Sue van der Merwe, who is the current Managing Director of this business, will be the CEO. And today, I can announce that Adam Newman will be the company's Chief Financial Officer, and Patrick McGlinchey is Chief Legal and Risk Officer and company secretary. Adam and Patrick are current members of Tabcorp's executive leadership team. My fellow director, Bruce Akhurst, is designated to chair Wagering & GamingCo. He'll be joined on that Board by David Gallop, Janette Kendall and Justin Milne as nonexecutive directors. Adam Rytenskild, who is our Managing Director of Wagering & Media, is the designated CEO of Wagering & Gaming. And I can also announce today that Dan Renshaw will be the Wagering & GamingCo's Chief Financial Officer upon demerger. Dan has deep experience in wagering, finance and commercial roles and has been with Tabcorp since 2012. These appointments are naturally subject to be -- to the demerger being successful and executed properly and all relevant regulatory approvals. A selection process to appoint further directors and executive team members has commenced for both companies. Further announcements will be made in due course. As part of an orderly Board succession process, there were some changes to the Tabcorp Board during '21. Paula Dwyer retired as the Chairman and from the Board at the end of 2020. Paula very ably led the company through the Tabcorp-Tatts combination and the subsequent integration. The directors would like to thank Paula for her leadership and for her commitment to making Tabcorp the trusted gaming and gambling company in the country. Anne Brennan, who formally joined the Board in July last year, became Chair of the Audit Committee after Vickki McFadden retired from the Board at last year's AGM. In September '20, we welcomed Janette Kendall to the Tabcorp Board initially as an observer. She was formally appointed in August '21 after receiving the necessary regulatory approvals. Janette is a highly experienced director with deep experience in gambling and entertainment. She is seeking election today, and you will hear from her shortly. The current Board and I will oversee the successful implementation of the demerger. And our CEO, David Attenborough, will continue to lead Tabcorp through to the transaction's completion. I would like to turn to an important matters relating to gambling regulation, if I may. Tabcorp is very mindful of its role as the custodian and operator of gambling licenses on behalf of governments. We operate these licenses for the benefit of our millions of customers, newsagents, licensed venues, the racing industry and the community broadly. In financial year '21, our operations generated over $4.2 billion in taxes, levies and payments to state and federal governments, the Australian racing industry and, importantly, our venue partners. That's the equivalent of almost 70% of the company's revenues last year. Tabcorp operates an efficient, government-licensed, community-focused model that ensures the proceeds of our operations are redistributed widely. It's in significant contrast to the model that online bookmakers operate under their Northern Territory licenses. It is unsustainable for our wagering business to return 40% of its revenues to the racing industry, while online bookmakers return roughly half of that and are subject to far less regulation. The current regime benefits these online bookmakers who channel their margin advantage into further advertising and aggressive customer acquisition. We need regulatory reform in the wagering market and a more equitable racing industry funding and taxation model, where all operators have a level playing field. These reforms are needed to ensure a healthy and sustainable racing and wagering industry across Australia. Delivering superb entertainment experiences ethically, responsibly and sustainably is core to Tabcorp's purpose of delivering excitement with integrity. For financial year '21, we launched several new initiatives that support our customer care principles for responsible gambling. These included improved notifications for customers when changing deposit limits, an enhanced early intervention model for Keno digital customers and better governance and reporting. We are always seeking to improve our range of responses to support responsible gambling. Our aim is to give customers the information and tools to help them make informed decisions about how they gamble to minimize potential harm. During the year, we published our first Modern Slavery Statement and launched a human rights policy, formalizing our commitment to upholding human rights and treating all people with dignity and respect. Another matter that we know is important for many shareholders is the environment and climate change, and I'm pleased to report that Tabcorp has adopted a new position statement on this matter and set medium-term and long-term emission reduction targets aligned with the Paris agreement goals. While Tabcorp's environmental footprint is relatively small when compared with other Australian companies and industries, the position statement and targets underpin our commitment to minimizing our impact on the environment. Tabcorp's ethos has been to build a sustainable future for gambling entertainment while making a positive impact for our stakeholders. This ethos will move forward with the proposed demerged companies. In conclusion, the Board of Directors would like to thank our 4,000-plus employees and business partners for the extraordinary job they've done in managing and navigating through the challenges of this pandemic. We'd also like to thank our shareholders for your continued support of Tabcorp. As we look towards 2022, the Board is enthusiastic about pursuing the demerger to create 2 market-leading, cash-generative businesses with exciting futures. We are very focused on ensuring a smooth separation process and setting each entity up for a long-term success. Thank you. I'll hand you over to our Managing Director and CEO, David Attenborough.

Thank you, Chairman. Our businesses proved resilient in FY '21, and that was despite the significant challenges and ongoing disruptions from COVID-19. Our people adapted well to the rapidly changing restrictions and new ways of working, managing through 14 separate lockdowns. Our teams worked with our partners to mitigate the impacts of these disruptions on our operations whilst tightly managing our costs and CapEx. Their efforts ensured our customers continued to enjoy safe and exciting gambling entertainment experiences and delivered a strong group result. Revenues were up almost 9% on the pcp, and we achieved 11% growth in EBITDA before significant items. A record Lotteries & Keno result and the improvement in Wagering & Media were the biggest contributor to the result, partially offset by Gaming Services, which was heavily impacted by COVID-19. The work we have done on our balance sheet and strong operational cash flows improved our gearing and return on invested capital. Our full year dividend of $0.145 per share was up 32% on the prior corresponding period. I will now take you through the performance of each of our 3 businesses in FY '21, commencing with Lotteries & Keno. Revenues were up $3.2 billion -- were up 10% at $3.2 billion, and EBIT was $516 million, up 17%. And this was a record profit result driven by well-executed game changes, effective marketing and continued focus on the customer experience and digital innovation. And as you can imagine, light entertainment has become even more important for many Australians, and we saw this in our customer numbers with active registered customers rising to 3.8 million players. More than 187 million prizes were won by customers in the year. And since Tabcorp took ownership of lotteries in 2017, its digital growth has accelerated as part of a successful omnichannel strategy. Having a range of touch points with customers, both physical and digital, ensures lottery products are front of mind and that spend per customer grows. Digital accounted for 33% of all lotteries turnover in FY '21, up from 28% in the prior year. And retail turnover also grew on the prior year, and that was a pleasing result as a strong and sustainable retail network across newsagents and fuel/convenience is vital. Recent changes to Powerball, Set for Life and Saturday Lotto have been made with retail front of mind. Larger jackpots and more chances to win drive foot traffic. Keno also performed well, rebounding from the COVID-19 venue closures in FY '20 and also supported by a strong digital performance. And I will now turn to Wagering & Media. Revenues were $2.3 billion, up 10%. And EBIT was $216 million, up 23%. And this represents good improvement in underlying performance despite the significant disruption that impacted the Wagering & Media business throughout the year. And it's important to call out that as an operator of both venue and digital channels, Tabcorp was uniquely impacted by COVID-19 disruptions in the wagering market. Unlike newsagents and fuel/convenience, which could trade in times of COVID-19 restrictions, hotels, clubs and TAB agencies had to shut their doors for extended periods. Nonetheless, it was pleasing to see strong revenue growth across each of the 3 lines of business: wagering, media and international. Wagering turnover grew 17%. However, lower yields and higher generosities did reduce the revenue conversion. Generosities are an important part of our customer proposition in a competitive wagering market. Media performed well, driven by growth in digital distribution. And international revenues also increased, partly because of our acquisition of the remaining 50% of global tote pooling hub, PGI, on the Isle of Man. Last month, TAB was able to use the strength of its iconic brand and temporarily rebranded as JAB as part of a campaign to promote vaccination. JAB encouraged Australian punters to get vaccinated and back to what they love, the racetrack, the local and their mates. The financial impact of COVID-19 restrictions on Gaming Services was significant in FY '21. This was to be expected as a business-to-business operator that services hotels and clubs that were heavily disrupted by COVID-19. There were only 27 days in the year that Gaming Services was able to bill its services at 100%. Victorian contracts represent around 35% of Gaming Services revenues in a normal year, and it was Victoria that experienced the most lockdowns and restrictions in FY '21. And this was reflected in the financial performance with revenues down 17% to $183 million and an EBIT loss of $10 million. The monitoring arm of the business, Regulatory Services, was resilient with second half revenues getting back to more normal levels. And we also continued to make good progress in streamlining the business. Naturally, COVID has created a lot of uncertainty. And this was the main driver of $122 million impairment charge, which reflected reduced expectations for new business opportunities and contract extensions. We have a symbiotic relationship with our 9,000-plus venue partners. Many of them are family-owned hotels, newsagents or community clubs, and we want them to emerge from the pandemic stronger. In FY '21, we waived approximately $95 million in contracted fees to venues when their trade was impacted by COVID-19 restrictions. Since the pandemic's onset in March 2020, we have waived more than $200 million in fees with the majority relating to Gaming Services. This is income Tabcorp is contractually entitled to, but we don't expect to be repaid given the circumstances. We've also tried to minimize the COVID-19 impact on our teams. For example, more than 150 employees have been unable to work since July 2021, following the most recent New South Wales and Victorian trading restrictions. An additional 120 have been temporarily redeployed to other business units. However, rather than enforce stand-downs, our approach has been to continue to pay employees regardless of their reduced workload. And this has come at a cost of around $300,000 per week. Across FY '20 and FY '21, Tabcorp's Gaming Services business was eligible for JobKeeper and accessed $12 million in payments over the 2 financial years. These JobKeeper payments were used as intended and passed on to more than 500 stood-down employees across Australia. It is important to remember that Gaming Services recorded EBIT losses in both years it received JobKeeper payments and incurred impairments of $307 million. For several years, Tabcorp has had a goal to be the inclusion and diversity leader in our industry and an employer of choice. While this is always an important aspiration given the link between diversity and better business outcomes, it's even more important in the current environment given the global talent shortage. In FY '21, we complemented existing gender diversity targets by being one of the first HESTA 40:40 Vision signatories. It's an investor-led initiative that aims to ensure diversity in executive leadership in the ASX 200. And Tabcorp was also named an Employer of Choice for Gender Equality by the Workplace Gender Equality Agency for the sixth straight year. To make a difference is one of our company values. In FY '21, Tabcorp contributed $9.1 million to charities and community organizations in donations, unclaimed prize money and in-kind support. Our Charitable Games Division drove fundraising for more than 500 charities and sporting clubs around Australia through its Play for Purpose and the 50-50 Charity Raffles. I would now like to provide an update on trading for the 3 months to September -- 30th of September 2021. This information is unaudited and provided for information purposes only. Particularly given the extraordinarily fluid situation pertaining to COVID-19, it should not be considered a forecast or market guidance. Extensive COVID-19 restrictions had a significant impact in the quarter with group revenue down 7.3% on the pcp. Lotteries & Keno revenue was down 0.2%. Lotteries revenue was up 1.4% due to growth in Powerball and Saturday Lotto, and the lotteries retail network was not materially impacted. Keno revenue was down 19.3% due to the adverse impacts of venue closures. Wagering & Media revenue, which was down 17.2%, was adversely impacted by venue closures, partly offset by some transfer to digital. There was a significant increase in wagering generosities and advertising in a highly competitive and largely digital market. The increased generosity spend also had a negative impact on variable contribution margin in Wagering & Media. Operating expense growth was also impacted by increased technology investment, including improved disaster recovery capability. Gaming Services revenue was down 14.6%. Venue closures continued to adversely impact revenues, and the business continued to provide fee relief to closed venues. Gaming Services had significant operating expense growth given COVID-19 cost mitigations in the pcp. We previously observed that demand for entertainment has been strong when lockdown restrictions have been lifted, and we know our customers value the social connection. With New South Wales now emerging from over 3 months of lockdown, it was great to see people back at the track, pubs, clubs and TAB agencies on Saturday for the TAB Everest, celebrating and enjoying the very best of thoroughbred racing. The Board and I had planned that I would retire as CEO during the first half of 2021. However, given the decision to demerge the Lotteries & Keno business, we agreed it was prudent to maintain continuity of leadership through the demerger process. And this decision to set up 2 market-leading businesses will deliver a range of operational and strategic benefits. Through the Tabcorp-Tatts combination, the foundations were laid for both Lotteries & KenoCo and Wagering & GamingCo to deliver long-term growth. Lotteries & KenoCo is expected to be a significant business in the lottery category. Its infrastructure-like qualities, low capital intensity and upside from continuing digital growth make it an attractive business. Similarly, Wagering & GamingCo will operate some of Australia's best-known wagering and gaming brands, TAB, Sky Racing and MAX. It has national scale and reach, a unique omnichannel offering, organic growth options and potential upside from future domestic structural reform and further international expansion. Our priorities are on the execution of the proposed demerger by June 2022 whilst managing through the phased reopening of retail operations in each state. We're focused on ensuring the proposed stand-alone businesses have the best platform for continued success upon demerger next year. And that means not only successfully managing the operational and financial impacts on our businesses, but focusing on our people and supporting the recovery of our business partners. Thank you. It is a privilege leading this company, and I'll now hand you back to the Chairman.

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, we 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 proxyholders will also be provided an opportunity to submit questions via the online meeting platform and via telephone. I encourage you to now submit online any questions you may have for any item of business. May I please ask that you keep your questions relevant to the agenda item. 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 of the year ended 30th of June 2021. These reports were approved by the Board and were included as part of the annual report released on the 18th of August 2021. 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 report, the reports of the directors and auditor and the performance of the company over the past year. Ernst & Young is the company's external auditor. David Shewring, the partner of Ernst & Young, who signed the audit report in the 2021 annual report, is present today and available to answer questions, which should be restricted to audit matters. In accordance with the Corporation's Act requirements regarding lead audit partner rotation, this is David's last engagement as a lead audit partner. On behalf of the Board, I thank David for his professionalism and diligence throughout his time as a lead audit partner. 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 ask the company secretary to read out any questions received prior to the meeting in relation to this item.

Chairman, prior to the meeting, we received the following question from Australian Shareholders' Association. The ASA believes the proposed demerger provides the opportunity and sufficient time for the Board to identify and appoint appropriately experienced and diverse boards to the demerged companies. What is Tabcorp's plan for appointing diverse boards to the demerged companies?

Thank you, Chris, and thank you to the ASA for the question. Absolutely, the demerger of our Lotteries & Keno business will mean significant change, and it is a catalyst for renewal of both the Tabcorp Board and the Board of the new Lotteries & Keno company. Achieving the right mix of skills, experience and diversity on both boards is a key focus for us right now. A process to identify additional directors for both organizations is underway. And we'll have more to say on that in the scheme booklet, which we will be released early next year. The Tabcorp Board has a target of at least 40% female nonexec directors and also a similar level for the target of senior management roles. It is expected that the Board of the new Lotteries & Keno business will adopt similar targets.

Chairman, we received another question from the ASA on this item, which reads, "How is management held accountable for the November 2020 systems failure? What changes did Tabcorp make after the failure?"

Thank you, Chris, and thank you to the ASA. Good question. Any disruption to our customer is taken very seriously by the Board. The outage that occurred last year was the result of an air conditioning unit failure that ultimately led to a series of issues at a third-party managed data center in Sydney. It resulted in unprecedented damage to Tabcorp's servers and other infrastructure and led to technical and system outages. Following the outage, the Board commissioned and oversaw an independent review of the incident. We have a comprehensive plan underway to further strengthen the group's resilience and disaster recovery processes and capability, and we've already made significant enhancements for the Spring Racing Carnival. We've also established a new Board Technology Committee to oversee the group's technology strategy and investments, including further technology resilience uplifts. The Board took the data center outage into account when determining the financial year '21 STI outcomes for management. Taking a balanced view of the group's performance, including the outage, the Board exercised its discretion to reduce the STI pool to 100% of target. Under the STI plan rules, the STI pool would have had the equivalency of 125% of target given the group's above-target financial results.

Chairman, we have another question on this item from shareholder, [ Wayman Barry ], who asks, "When are you going to merge the 3 totes for Queensland, New South Wales and Victoria into one national tote pool?"

Thank you for your question, Mr. [ Barry ]. The tote is an important differentiator for us, and we're doing a number of things to drive that as part of our overall business strategy, including increased use of generosities and product innovations like The Lock. We'd love to see the rationalization and nationalization of the tote pool. Greater liquidity would strengthen the competitiveness of the tote, which in turn would enhance the long-term sustainability of the racing industry funding pool. National pooling is not easy to achieve, however. Dozens of racing industry and other stakeholders need to align for it to occur. However, we are making progress and -- on a solution for the tote sustainability and liquidity that may be pooling or another solution. The need for improved liquidity is increasingly acknowledged by those stakeholders.

Chairman, prior to the meeting, we received a question from a shareholder, [ Warren Davey ], who asks, "Does the Tabcorp Board propose to make it mandatory for all employees, permanent and subcontracted, to have a COVID-19 vaccination as part of their employment? Will the Board consider any exemptions to this policy in the instance of medically approved exemptions?"

Thank you, Chris, and thank you, Mr. [ Davey ], for the question. Our approach to vaccinations is guided by the health orders issued for each state and territory, which does vary. For instance, in Victoria, under the applicable government health orders, anyone attending workplaces must be vaccinated. Our primary focus, as always, is to keep our people and our customers safe, maintain our business operations and support our industry and venue partners. The focus is guiding our approach as we navigate the myriad of different health orders here. I'll now ask the company secretary. Any more questions online that we need to address, please?

Chairman, we have a number of questions received online, which I'll read out. The first question comes from shareholder, Stephen Mayne. "Is it correct that we have lost most of the RSL Victoria pokies management contract, which was generating around $28 million of revenue each year? Why did one of our biggest pokies management clients choose to take their business in-house? Was there something wrong with our service? And when do the changes take effect? And does this make the Gaming Services business harder to sell?"

Stephen, thank you for your question. I might hand it over to David to have a go, if you don't mind. Thank you.

Thank you, Chairman. So the contract with the RSL Victoria is for a 10-year period. So that's the first thing. And that concludes in August 2022. And post that expiration date, venues can essentially choose to recontract with Tabcorp or not on an individual basis. So COVID has impacted the industry in Victoria pretty heavily. And we're certainly seeing a lot of delay in the decision-making, which we expected. And a number of venues are going through that decision-making right now. And some will obviously take through -- right through to the August '22 period. And we have received notification from some that they will not be renewing the contract. But it's certainly not the majority of the contracts. We continue to support and work with these venues, and we will work with them through to making sure they open in the coming weeks, hopefully, as strongly as possible.

Thank you, David. Chris, any more questions, please?

Chairman, we have another question on a similar topic from shareholder, Stephen Mayne. "Since Tabcorp signed up to manage RSL Victoria's pokie fleet in 2012, 20 of the 70 RSL Victoria pokies venues have gone broke, the latest being Cranbourne in recent weeks. Tabcorp has been paid more than $200 million in management fees for largely unprofitable Victorian RSLs since 2012. Is the Board concerned about brand damage with some veterans saying that Tabcorp made profits from the deals as veterans were forced to sell off buildings gifted to them from ANZAC to pay debt to Tabcorp under a deal that has not been renewed? Will Tabcorp apologize to veterans for these poor business outcomes resulting in mass RSL closures and property sales?"

Thank you for the question, Stephen. I want to ask David to have another go at that given he's closer to it than I am. Thank you.

Sure. I want to make a few points here. The first point is, obviously, we hate to see any business fail and any of our partners. And that's one of the reasons we've been so -- working so closely with them through this COVID disruption period and waiving such a substantial number of our fees. It is incorrect to say we manage any venue. We provide equipment to the venues, and then we service that equipment. And the fee is ultimately built around the cost of that equipment depreciated over the term of the agreement. Essentially, it's paying for the equipment. It's a rental of equipment, and it's paying for the servicing of that equipment. It in no way is paying for the management of those venues. And we have no direct control over how those venues manage their business, what food they provide, what they provide their members in way of other support. So certainly, we are disappointed that some venues failed, and we continue to support RSLs and all our venue partners through this difficult period.

Thanks, David. Chris, any more questions, please?

Chairman, another question from shareholder, Stephen Mayne. "Tabcorp and Aristocrat both floated in the mid-1990s. After -- our opening market capitalization in August '94 was $675 million based on a $2.25 float price, while Aristocrat was valued at $303 million after its '96 IPO at $2.90 a share. Today, Tabcorp shares are trading at $5.20, giving us a market capitalization of $11.6 billion after multiple share issues. Aristocrat shares last traded at $45, giving it a market capitalization of $29.2 billion. What is the Chair and CEO's explanation as to how 2 gambling industry companies can have such starkly different performance? Which of our past takeovers do the Chair and CEO believe added long-term value to the company? And which do they regret?"

Thank you for the question, Stephen. I'll have a go at this, and I'll ask David to also chip in and have a go as well. Firstly, I'd like to congratulate Aristocrat on their performance. They're a fine company, and they've had a great run. And the latest acquisition they announced today with Playtech makes a lot of sense for them, I believe. But I would like to make a few points here. One is that we are very, very different companies, and Tabcorp has a very different business model to Aristocrat. Tabcorp's almost entire model is around government licenses and venue licenses, and we operate our business in a very, very different manner. Aristocrat does not have that not so much constrained but business model. But I think our company has done well, and I think there have been a number of deals done that have, I think, added immense value. The only one that I think probably hasn't added value is the Sun Bets start-up in the U.K., which we recognize wasn't great. And we closed it down very quickly. But David, have you got any other comments there?

I think you've summed it up well, Chairman. Certainly, we -- we're particularly pleased with the bringing together of the Tatts and Tabcorp businesses and think that's been incredibly important as we've worked through this COVID disruption period. And we've strengthened those businesses. Very disappointed with Sun Bets. When I reflect back, really pleased with the work done in starting that hub on the Isle of Man way back in 2010. That is the largest global comingling hub in the world for pari-mutuel and now extending into multiple countries and really pleased with the way that the guys have continued to develop. And they did a small acquisition some years ago in the United States to set up Sky Racing World, and that's also proved a great platform for us. So there are some good and bad ones. But Chairman, that's it.

Thank you, David, and thank you, Stephen, for those questions. Chris, any further questions, please?

Chairman, we have a question from shareholder, [ Peter Callero ], who asks, "What name do you intend to call the new demerged Lotteries & Keno business? May I suggest Tatts?"

Thank you for your question. It is still being worked on, and we have a few great ideas that we are going to put into the mix. Tatts has been suggested, and it has The Lott and a few others. But we'll be coming back to the market shortly with our views on that. But thanks for your question, and thank you for your thoughts.

Chairman, we have another question from shareholder, Stephen Mayne. "The ABC recently reported that the gambling industry had made Australian political contributions totaling $81 million since 1999. How many millions of Tabcorp shareholders contributed to registered political parties over the years? And why don't we follow Aristocrat's lead and have a policy of 0 political donations? Also, what disclosures do we make about shareholder funds going to entertaining politicians such as at the Melbourne Cup?"

I might hand that to you, David. I have a view on that, but I think you're probably better placed. Thank you.

Yes. So thank you for that question. So we have a political contributions policy, and it complies with, obviously, all the laws on donations and discloses all payments to political parties, even those that are below the threshold for disclosures. So we take a completely transparent approach, as you would expect. And as per this policy, we do not make cash donations to any political party or affiliate. And we really just participate in what we call networking events. And that is that these contributions are part of paying to be members of the different forums across the political spectrum. And it's really important as a major ASX company in our particular industry that we do engage on public policy at both the Commonwealth and state territory level. And we participate actively in the process in these forums. And that's our approach to these contributions. Regarding the Melbourne Cup, what we do there is we have -- our business is built around, a large part of it, around funding the racing industry, that's what Tabcorp was set up to do, and to support hundreds of thousands of jobs both within the racing industry directly and the indirect jobs. And the Melbourne Cup is a celebration of all that is best about racing, as is the Everest that just went last Saturday. And certainly, a lot of politicians choose to celebrate what is probably one of the best setup racing industries globally because of the way Australians continue to engage with it and support it across even all these regional communities. So we feel it's -- we do open up invites to politicians but also all our partners to join the VRC and join our friends at Racing New South Wales to celebrate the best of racing when those big events are run, and we feel that's appropriate.

Thank you, David. Chris, any further questions, please?

Chairman, there are no further online questions on this item.

Thank you. And any further questions on the telephone that we need to respond to there, Chris?

Chairman, I confirm there are no questions on the telephone for this item.

Thank you very much. As there are no further questions, that concludes this item of business, and we will now move to the next item. The next item of business relates to the reelection and election of directors. Firstly, item 2a on the agenda is the reelection of Mr. Harry Boon as a director of the company. Harry has been a nonexecutive director of Tabcorp since December 2017. He retires in accordance with the constitution and, being eligible, has offered himself for reelection. Harry is a member of Tabcorp's Audit Committee, People and Remuneration Committee, Technology Committee and the Nominations Committee. He is considered by the Board to be independent. As announced earlier, it is proposed that Harry will join the Board of the demerged Lotteries & Keno company upon completion of the demerger and, therefore, will retire from the Tabcorp Board at that time. The Board, with Harry abstaining, unanimously supports the reelection of Harry Boon as a director of the company and recommends that shareholders vote in favor of this resolution. On this basis, I would like to invite Harry to address the meeting, please. Harry?

Thank you, Chairman, and good morning, ladies and gentlemen. In seeking reelection today, it's timely to reflect on some of the key developments, I joined the Board following the merger of Tabcorp and Tatts in 2017, as well as to respond to shareholder questions that have been submitted that's directed to me. Firstly, the combination of Tatts and Tabcorp, I was and remain a strong supporter of the decision to combine the businesses of Tatts and Tabcorp. The Chairman has already reminded us of the business consolidation opportunities presented by the merger. The combination, in my view, was also essential to ensure the long-term viability and success of both companies' wagering businesses. The merger also gave the combined business the potential to become a near national tote wagering platform with exclusive in-venue offerings and national and international media opportunities that cannot be matched by our online competitors. This advantage is critical while we operate in a world of competition from online bookmakers who are not subject to the same strict license regulation, government taxation and racing industry contributions as Tabcorp. As the Chairman has indicated, the Board and management are now working to reshape the future wagering licensing framework, and I'm confident that the Tabcorp Wagering & Media business will grow and prosper in the years ahead. Next, turning to Lotteries & Keno. Now that the integration of the Wagering & Media businesses has been completed, it's the right time to crystallize the opportunities available to our strong national Lotteries & Keno business. Having assessed alternative options, I believe that the Board was right in concluding that the best way to achieve the greatest long-term benefit for all our shareholders is through the proposed demerger of Lotteries & Keno into a separate ASX-listed company. In my previous role as Chairman of Tatts Group before the merger with Tabcorp, I built up an extensive knowledge of the lotteries business, its key management team and the factors critical to its success. I'm looking forward to the opportunity to bring that experience to the business through, again, serving on the Board of Tabcorp and subsequently on the Board of the Lottery & Keno company. I thank all our loyal shareholders for your ongoing support and trust, and I now hand back to the Chairman.

Thank you, Harry. Nicely spoken. If you have any questions about this resolution, please submit them now, if you haven't already done so. I will ask the company secretary if there are any questions online. Chris?

Chairman, we have a question on this item from shareholder, Stephen Mayne, and it's a question for Harry. "As the former Chairman of Tattersall's, could Harry please explain why he's seeking another term when he served on the Board since before the 2005 Tatts Group IPO? Also, what was the point of the merger with Tabcorp if the lotteries business might now be demerged?"

Harry, would you like to have a go at that? Or should I go first?

Your call, Chairman.

Why don't you go first and I'll follow up with my views? Yes.

Thank you. In responding to Stephen's question, which we've dealt with in the past, but let's do it again, I felt I covered that in my comments. However, just to restate, I think it is, at a time of demerger, critical that the future Board of Lottery & KenoCo, by whatever name we finally adopt, has the benefit of the experience which I have built up over more than 10 years pre the merger with that business, which was heavily, at the time, Tatts, lottery-driven with wagering, of course, in some of the lesser states in terms of size. So to throw that experience out at the time of demerger seems to me to be inappropriate. And hence, why I stated, I'm looking forward to the opportunity to continue. The second part of the question from Stephen about what was the point, I think, has been adequately covered in the Chairman's address today and also comments from our CEO. But clearly, bringing the wagering businesses together has given them opportunities for the future, particularly once we reshape the landscape for licensing in Australia, to be a strong and growing competitor as well as having exclusive access to venues. And I believe that could not have been achieved without the merger. It's also allowed the lotteries business to benefit from the focus of Tabcorp management, and you can see in the results of lotteries since the merger some pretty spectacular uplift in performance. And that is through the encouragement and development that's been offered through the Tabcorp Group. So I feel on both scores, the merger has made a lot of sense.

Thank you, Harry. And I'd just like to reiterate a few of the points that Harry has made. Harry is one of our long-standing but one of our most experienced directors, who adds a tremendous amount around the boardroom table. In addition, his experience with lotteries is going to be invaluable as that company floats as a new entity. To Harry's point on lotteries, when it came into the fold in the 2017 merger, it was a well-performing company. But under David's oversight and the company's capabilities, it has blossomed and is now a much different, a much higher-performing company, which gives us a lot more comfort that it's now the right time for that company to demerge. I'm actually delighted Harry's joining the lotteries Board. He'll make a big contribution, as he always does. But thank you for the question. Chris, any more questions online or on the phone, please?

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

And none by telephone, either.

Chairman, I can confirm there are no questions on the telephone for this item.

Thank you very much. As there are no further questions, we have now finalized the discussion on this item. The proxy votes received prior to the meeting in relation to this resolution are shown on the slide presentation. I will now move that Harry Boon be reelected 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. It seems from the proxies received that this resolution will pass comfortably. And on this basis, I would like to give my big congratulations to Harry. Well done. We'll now move to the next item of business, please. And item 2b on the agenda is my reelection as a director of the company. I will, therefore, ask and hand over to Anne Brennan to chair this part of the meeting.

Thank you, Steven. This item of business is the reelection of Steven Gregg as a director of the company. Steven has been Tabcorp's Chairman since January this year and a nonexecutive director of the company since 2012. He retires in accordance with the constitution. And being eligible, he has offered himself for reelection as a director. Steven is a member of Tabcorp's Nomination Committee and attends all other committee meetings. Stephen is considered by the directors to be independent. As announced previously, Stephen is the Chairman Designate of the proposed demerged Lotteries & Keno company, and he will transition to that company and retire from the Tabcorp Board upon completion of the demerger. The Board, with Steven abstaining, unanimously supports Steven's reelection as a director of the company and recommends that shareholders vote in favor of this resolution. I now invite Steven Gregg to address the meeting.

Thank you, Anne. Good morning, ladies and gentlemen. It is an honor to be put forward for reelection as a director of your company today. It has been a very interesting and involving time over the last few years at Tabcorp. We've had a number of issues and challenges to be met, and I believe that the Board has handled all these situations very well. I'd also like to hope that my contribution as a director in managing through these challenges has been helpful and very constructive. I'm currently very involved, as you can imagine, in ensuring that the stated strategy of demerging the Lotteries & Keno business out of Tabcorp happens in the most efficient, constructive and timely manner. Upon the demerger, it will be my intention to go with the L&K business and oversee its new listing. Given all of this, it would be a privilege to continue in my role as a Tabcorp director and Chairman, and I thank you very much for all your support.

Thank you, Steven. 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 if there are any questions online. Chris?

There are no questions received online for this item.

Thank you, Chris. Are there any questions on the telephone?

I can confirm there are no questions on the telephone for this item.

Thank you. As there are no more 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 Steven Gregg be reelected 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. It seems from the proxies received that this resolution will pass comfortably. Congratulations, Steven. We will now move on to the next item of business, and I'll hand you back to Steven.

Thank you, Anne, and thank you, shareholders, for your support, your continued support. It's very important to me. The next item on the agenda is the election of Janette Kendall as a director of the company. Janette commenced as a nonexec director of the company in August this year, having served as an observer to the Board since September 2020. She retires in accordance with the company's constitution. And being eligible, she has offered herself for election. The directors consider Janette to be independent. Janette is a member of Tabcorp's Audit Committee, People and Remuneration Committee, Technology Committee and Nominations Committee. The Board, with Janette abstaining, unanimously supports the election of Janette Kendall as a director of the company and recommends that shareholders vote in favor of this resolution. I would like to invite Janette, please, to address the meeting.

Thank you, Chairman. Good morning, everyone. My name is Janette Kendall, and I'm honored to stand for election today as a nonexecutive director of Tabcorp. I'm an experienced company director, having served on a number of public, private and not-for-profit boards for over 20 years. I'm also a fellow of the Australian Institute of Company Directors. I bring to the Tabcorp Board a depth of experience in governance, strategy, marketing, operations and digital transformation. My past executive experience is in the gambling, retail and hospitality industries, working both in Australia and overseas. As a result, I bring to the Board deep industry experience and understanding, together with a rich customer perspective. I also have a deep understanding and firsthand experience of digital transformation, having worked with a number of organizations facing digital disruption since the mid-1990s. As an experienced company director, I understand the importance of building a strong culture with good governance. I'm committed to working hard and in the best interest of shareholders as we embark on the next phase of growth and transformation at Tabcorp. Thank you in advance for your support.

Thank you, Janette. If you have any questions about this resolution, please submit them now if you haven't already done so. I'll now ask the company secretary if there are any questions online. Chris?

Chairman, there are no questions online for this item.

Thank you. And I'll ask also, are there any questions on the telephone for Janette?

Chairman, I can confirm there are no questions on the telephone for this item.

Very good. Thank you. As there are no more questions -- or any questions, we have finalized the decision 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 Janette Kendall 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. It seems from the proxies received that the resolution will pass comfortably today. Many congratulations, Janette. You make a great contribution, and we look forward to that continuing. We'll 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 to the financial year ended 30th of June '21. The remuneration report contains details of Tabcorp's approach to remuneration, including the enhancements made to the rem framework and the outcomes for the most recent financial year. Despite significant ongoing disruptions from COVID-19 and some operational challenges, Tabcorp delivered a strong operational performance and earnings growth in '21. Under the STI plan, these above-target results would ordinarily have resulted in an STI pool equivalent to 125% of target. However, the Board exercised its discretion to reduce this pool to 100%. In doing so, we took a balanced view of group and business unit performance over the year, including the November data center outage referred to earlier. The Board determined to provide the MD and CEO with 100% of his target STI opportunity, while other execs and KMPs received on average 105% of their target STI opportunity. Considering shareholder feedback, the MD and CEO's rem structure and level has not been adjusted since 2017 and will not be changed this coming year. For other executive KMP, fixed remuneration levels were not adjusted in '21 and for this financial year have increased by approximately 1.8% on average, with the exception of the Managing Director of Lotteries & Keno. Sue van der Merwe's fixed remuneration was increased by 14% this year to align with the market and her internal peers and to recognize her performance since the combination with Tatts. Nonexec director fees also remain unchanged in '21 and will not be adjusted this financial year. The Board also elected to absorb the recent superannuation guarantee contribution rate increase into current fees, resulting in a reduction in a take-home cash pay. In September, performance conditions for the 2018 LTI offer were tested. 37.5% of performance awards granted to the CEO and certain KMPs vested, and the remaining awards lapsed. Merger completion awards granted to the CEO and certain KMPs in 2018 were also tested at this time, resulting in a 0 vesting outcome. A new STI structure has been implemented in '22. It has been designed considering market practice, Tabcorp's 3-year strategy, the need to balance financial and nonfinancial priorities and feedback from shareholders. The new design ensures that participants are awarded for strong group performance, incentivized to deliver sustainable business unit strategic and operational objectives and are recognized for their individual contributions. Importantly, we have incorporate shareholder feedback into the planned design. And for the financial year '22, the executive STI scorecards will be weighted by category, ensuring STI priorities and outcomes are transparent. Details will be included in the next year's rem 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 the directors or the company. However, importantly, 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. I will now ask the company secretary to read out any questions that has been received in relation to this item.

Chairman, prior to the meeting, we received the following question from the ASA. The ASA acknowledges the improvements made by Tabcorp to its remuneration framework and reporting over the last few years. Looking ahead, the ASA would like to see the 2 demerged companies build on the improvements made rather than reinvent the wheel. What commitments can Tabcorp make in this regard?

Thanks to the ASA for that and for the feedback. We do appreciate your comments. It is important for us to understand on not only what we can improve on but also what we are doing well so that we can continue the momentum for both companies. It is our intention that following the demerger and for the first year at least, both entities will adopt similar remuneration frameworks and remuneration report disclosures as a starting point. As we do every year, the Boards of both organizations will review their respective frameworks and remuneration disclosures for each organization to ensure these are fit for purpose and align with market practice and shareholder expectations. Chris, are there any further questions online, please?

Chairman, there are no further questions online for this item.

Thank you, Chris. And may I ask, are there any questions on the telephone that we need to address?

Chairman, I can confirm there are no questions on the telephone for this item.

Thank you very much. As there are no more questions, we've 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 the rem report of the company for the year ended 30th of June '21 be adopted. I would like to remind shareholders, if you haven't done so already, please submit your votes using the voting card button available through the online meeting platform. 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 David's long-term incentive plan. Shareholders are asked to approve the grant of the performance rights to David as a long-term incentive component of his remuneration package for '22. David will continue to act as Tabcorp's CEO until the proposed demerger of the Lotteries & Keno business is completed, which will be expected to be before June of next year. If the proposed demerger is completed and David ceases as CEO, he will only retain a portion of performance rights granted under the offer pro rata for the period that he's actually employed. In accordance with the formula set out in the Notice of Meeting, it is proposed to grant 576,923 performance rights to David. If shareholder approval is obtained, 75% of the performance rights granted will be subject to a performance measure based on relative TSR and 3-year performance -- over a 3-year performance period. The remaining 25% of performing rights will be subject to achieving specific return on invested capital, as we do call it ROIC, targets over a 3-year period. The Board, with David abstaining, recommends that shareholders vote in favor of this resolution. However, if you have any questions about this resolution, then please submit them now if you haven't already done so. And I'll ask Chris if there are any questions online that we need to address, please.

Chairman, we have received no questions online in relation to this item.

Thank you, Chris. And I just may ask the operator, were there are any questions on the phone that we need to address, please?

Chairman, I can confirm there are no questions on the telephone for this item.

Thank you very much. As there are no more 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 presentation. I now move that approval be given for the purposes to grant Mr. Attenborough 576,923 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 by using the voting card button. I'll do one last check to see if there are any late questions on this or other items of business. Chris, are there any final questions that we need to address?

Chairman, I can confirm there are no further questions on any of the items received.

Thank you very much. And if I may ask the operator, were there any final questions that we need to address on the telephone?

Chairman, I can confirm there are no final questions on the telephone.

Thank you very much. That concludes the formal business of the meeting. And 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. The results of the poll will be advised to the ASX as soon as possible after the meeting. It's been a big week for our jackpots in our lottery games. Tonight, Oz Lotto has a $20 million jackpot, and our Thursday Powerball has jackpotted to $60 million. Good luck to the many Australians who will be playing and always play responsibly. It was great to see the race goes back at Royal Randwick on Saturday and well done to the connections of Nature Strip, who won the $15 million TAB Everest. We also wish to -- our partners in the Victorian racing industry well as they welcome back crowds in the coming weeks for the 161st edition of the Melbourne Cup. And we'd like to thank you for attending Tabcorp's AGM and for those who contributed questions and who've been making this an engaging meeting. Some people have asked me today what I think of the Melbourne Cup and who's likely to win it. And of course, I have no real idea. However, people have suggested to me that you could look no further than the current favorite, Incentivise. And as ever, gamble responsibly, please. I'd like to thank David and the team for their work and their fine efforts over the last 12 months. It's been a very tough time in the Australian industry, and I must say I'm incredibly proud of the Tabcorp team. And I'd also like to thank you again for your time today and your continued support for Tabcorp. I now declare the meeting closed. Thank you.