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Annual Report
2003
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CONTENTS
The game plan 1
Financial highlights 6
Chairman’s message 7
Chief Executive Officer’s review 8
Management team 11
Business summary 12
Review of operations – WWTS 14
Review of operations – Sportsbet 18
Board of Directors 20
Financial information 21
Corporate directory 56
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The achievements of 2003 are evident in our strong financial results.
The foundations have now been laid to pursue our long term strategy
of increasing our global reach, delivering new games, and
streamlining our distribution channels.
The
game plan
BETCORP LIMITED ACN 081 765 531
Betcorp is an international leader in the provision of internet and telephone based
betting services, covering a range of international sports for customers in North
America, Asia and Australia.
The Company was transformed by the acquisition of the WWTS business in January
2003. WWTS is a major player in the North American market, with one of the
strongest brands and reputations for online sportsbetting. Since the acquisition,
we have implemented major change focused on strengthening our management
team and optimising IT systems and business processes.
1BETCORP LIMITED ANNUAL REPORT 2003
2
Our goal is to establish a global presence through a network of
regional hubs covering the major markets of Americas, Asia and
Europe. With the continuing trend to consolidation in the gaming
industry, the Company is well positioned to take advantage of
opportunities throughout the world.
Significant progress was made in 2003 in growing
the North American and Asian customer bases. The
Company will continue to invest in further growth
from its existing operations while actively searching
for complementary acquisitions.
globalreach
The game plan
Antigua
Betcorp Group officesKey markets
Darwin
Sydney
3BETCORP LIMITED ANNUAL REPORT 2003
WWTS is an industry leader, providing betting opportunities on the largest sportingevents in the US to a worldwide audience. In 2003, the Company achieved an excellentwin rate of 10% on Superbowl, with a record profit for the day. Other highlights includeda very successful “March Madness” College Basketball tournament and strongperformance in the Major League Baseball season.
With a focus on entertainment, the Company is investing in new
games and brands to enhance the customer experience. We are
broadening our coverage of domestic and international sporting
events and developing an appealing suite of betting and
entertainment options. Our online casino offering, BetCasino.com,
was launched in 2003 and a range of new games and services,
including BetHoldem.com, our multi-player poker product,
is due to be released.
new gamingexperiences
The game plan
Ice Hockey 2%
Other 4%
Baseball 39%
Basketball 31%
American Football 24%
WWTS 2003 GROSS TURNOVER BY SPORT
Baseball Basketball American Football Ice Hockey Other
4
The game plan
Delivering the game
The Company is committed to streamlining and expanding its
distribution channels to ensure our services are available at the
touch of a button. We also place the highest priority on customer
confidence in our service. Our secure transaction and payment
solutions ensure the experience is as enjoyable and simple as
possible whether connecting online, speaking to our customer
care team on the phone, or using a PDA to place a bet while
on the move.
security and
easy access
5BETCORP LIMITED ANNUAL REPORT 2003
The game plan
Advanced technology and service
Effective systems behind the scenes are central to delivering
reliable 24/7 service. We have made significant progress in
re-engineering our IT platforms and enhancing the user interface
to provide the stability and sustainability required to
serve our customers online.
Wide ranging improvements to the customer usability
of the websites have increased online activity. We
launched a new Sportsbet website during 2003 and an
e-commerce engine under development for WWTS will
add to the customer experience while providing more
effective knowledge management capabilities.
We have also improved service levels with specific
initiatives for key customers and we have developed
targeted marketing through media and promotional
channels that create awareness among customers
with specific interests.
making it
happen
Financial highlights
Betcorp delivered a strong performance in its first full
year of operation following the significant restructuring
of the Company in January 2003.
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$17.2 million EBITDA
12.2 cents Earnings per share
(pre-goodwill amortisation)
1.5 cents Dividend per share
$1,024 million Gross wagering turnover
$40.7 million Total operating revenue
$15.2 million Cash flow from operations
(excluding foreign currency movements)
$8.3 million Corporate cash at bank
(as at 31 December 2003)
“A global focus, extended product offerings and innovative
delivery form the framework for future growth in Betcorp”.
Chairman’s message
In our first year of operation, I am pleased to report a strong
result and to announce a dividend of 1.5 cents per share.
The strong performance was driven by growth from the
acquisition of WWTS, with its position in popular major
US sports, and improvement in the Sportsbet business.
As it moves forward, the Company is building on this platform
through a three-pronged strategy. Gaming will continue to
expand globally by providing services to customers around the
world in the three major markets of Americas, Asia and Europe.
In parallel, our product offerings are being extended to provide
a complete range of enhanced sporting and gaming products
to these three markets. Finally, innovative ways of delivering
product to our customers through telesales, web and mobile
channels are being developed.
In the first year of operation, the Betcorp Group established a firm foothold in the US sports market
through WWTS, which has substantial activity in the major popular sports.
The year also saw a successful major capital raising, in August 2003. The proceeds were used to
repay the founders and promoters of WWTS, including repayment of convertible notes owing to the
vendor of WWTS. This was a significant strategic development that has provided the Company with
greater independence from which to grow.
The Company’s management team has also been strengthened and is well placed to drive growth,
the roll-out of new services and an increase in the online recreational business. Experienced people
have been appointed to key positions, controlled risk management procedures applied to the
bookmaking processes and new business and IT systems have been put into effect to underpin the
next stage of growth. We remain committed to bringing in the best people and to continuously
upgrade our processes and systems.
Our product ranges were broadened throughout the year and we will continue to capture the
organic growth opportunities that exist in an expanding market for online gaming. Understanding
the needs of our new and existing customers is central to this and we have developed marketing
campaigns and new brands. This focus has generated an increase in the volume of bets, growth in
new customer registrations and a broader customer mix.
2003 was a very satisfying year in which we delivered significant revenue and profit growth while
putting in place firm foundations for our overall international strategy. Going forward, we will
continue to invest in people, brands and systems infrastructure. This investment in organic growth
along with complementary acquisitions will drive progress towards the achievement of our
overall global goals.
7BETCORP LIMITED ANNUAL REPORT 2003
John PriestCHAIRMAN
John Priest
Chief Executive Officer’s review
OVERVIEW
Betcorp’s first year following the acquisition of WWTS has been
one of significant achievement: the integration of the WWTS
business; the establishment of new management and Board; the
improvement at Sportsbet; new equity raisings; and the
repayment of the WWTS vendor’s convertible notes.
The foundations of professional management and improved risk
management systems have also now been laid.
FINANCIAL PERFORMANCE
Betcorp’s EBITDA of $17.2 million, on gross turnover of
$1,024 million, was an excellent performance, underpinned by
a strong WWTS result. Our overall strategy of focusing on
recreational customers helped increase the gross win rate for
the Group to 4.2% from 3.6% in the prior year.
Significant changes to the management team and systems of
both the WWTS and Sportsbet businesses were made during
2003, with a strong impact on the financial result.
A substantial proportion of the Company’s income is denominated in US dollars, which impacted
the result given the increase in value of the Australian dollar during the period. Betcorp was able
to minimise the impact by hedging its currency exposure which ensured that US earnings were
reported at an exchange rate below 70 cents. The Company has implemented a long-term hedging
strategy to protect future reported earnings from future currency fluctuations.
RISK MANAGEMENT
Effective bookmaking procedures and systems are central to risk management in a wagering
business. Experienced bookmakers have been appointed at both WWTS and Sportsbet during
the past 12 months, greatly enhancing the Company’s risk management profile. Betcorp has also
invested in a new betting software platform which will further strengthen our performance on the
bookmaking floor.
“Betcorp’s strategy of focusing on recreational customers
helped increase the gross win rate for the Group”.
8
Richard Barker
MARKETING
Turnover growth was particularly strong in the second half of 2003 due to a focused
marketing strategy and increased advertising expenditure. New funded customer
registrations at WWTS grew by 47% on 2002 levels. The establishment of a dedicated
VIP team at WWTS to service its best customers and the creation of a “valuable
affiliate” program have greatly improved the Company’s understanding of and
relationship with its customers and partners.
INFORMATION TECHNOLOGY
Reliable IT is essential to creating an enjoyable entertainment experience for the customer. The
Company has developed new products and solutions. The addition of casino software to the WWTS
platform was the first stage in the roll-out of new products, which will continue in 2004 with poker
and other supplementary offerings.
There have also been significant improvements to the processing of customer payments and
automation of back-office functions which have delivered substantial cost savings. In addition, the
WWTS site has been refreshed and translated into two dialects of the Chinese language, thereby
allowing us to more effectively address the growing Asian market.
REGULATORY ENVIRONMENT
The review of the US legal position in respect of online gaming is ongoing. Resolution is not
anticipated during the 2004 US election year. A recent World Trade Organization ruling has been
construed as positive but the position continues to unfold.
TALENT AND EXPERIENCE
During 2003, the Company put in place new executive
management to take the business to the next level. Structured
discipline has improved our risk management processes. In
addition, a focus on better understanding our customers has
provided us with an ability to deliver first-rate customer care.
These early achievements are evident in our strong trading
performance.
9BETCORP LIMITED ANNUAL REPORT 2003
2002 2003
CONSOLIDATED GROSS TURNOVER 2002 AND 2003 (A$M)
(Proforma) at consistent 2003 exchange rate
7.5%Growth
800
850
900
950
1000
1050
2002 2003
WWTS GROSS TURNOVER 2002 AND 2003 (US$M)
WWTS turnover grew by 14% in US dollar terms in 2003
14%Growth
520
540
560
580
600
620
640
660
2002 2003
WWTS NEW FUNDED CUSTOMER REGISTRATIONS 2002 AND 2003
Funded customer registrations increased by 47% in 2003
47%Growth
Chief Executive Officer’s review
Behind the scenes, the new finance and administration teams
have brought a professional rigour and structure to the
business and delivered cost savings in the first year of
combined operations.
Effective and simple payment solutions remain a vitally
important area for attracting new business to WWTS and
the appointment of a dedicated payment team has achieved
substantial improvements in this area.
Committed people drive our business and we are focused
on ensuring we have a talented pool, and creating the
opportunities for them to excel.
OUTLOOK
Betcorp anticipates further solid growth in its existing businesses in the year ahead. The investment
in people, systems and products will deliver organic growth in 2004 and beyond. At a Group level,
we also expect to achieve further cost savings through efficiencies of scale and IT improvements.
Increased marketing and advertising expenditure will also assist in customer acquisition and
retention through targeted campaigns and promotions. The Company will continue its product and
brand development in line with the overall marketing strategy. WWTS will seek opportunities to
expand its geographic reach through marketing initiatives in Asia and the launch of new products
and services. Betcorp will also actively pursue value enhancing acquisitions where they complement
the current portfolio of products.
Richard BarkerGROUP CHIEF EXECUTIVE OFFICER
10
11BETCORP LIMITED ANNUAL REPORT 2003
Management team
“It’s all about the people and their dedication
and commitment’’. Richard Barker GROUP CEO
Richard BarkerGROUP CHIEF EXECUTIVEOFFICER
Simon SmithGROUP CHIEF FINANCIALOFFICER AND COMPANY SECRETARY
Phil KightleyBUSINESS ANALYST, BETCORP
Carolyne AllanMARKETING MANAGER,BETCORP
Simon NobleCHIEF EXECUTIVE OFFICER,WWTS
Jessica Davis-DyettCHIEF OPERATIONS OFFICER,WWTS
Charlotte PayneCHIEF FINANCIAL OFFICER,WWTS
Pete RichardsCHIEF TECHNOLOGY OFFICER,WWTS
Ruby TangASIA OPERATIONS MANAGER, WWTS
John McDonaldGENERAL MANAGER, SPORTSBET
Keith LiuDIRECTOR OF MARKETING, WWTS
Clayton KirkpatrickDIRECTOR OF BOOKMAKING(SPORTS), SPORTSBET
Frank CalleyDIRECTOR OF BOOKMAKING(RACING), SPORTSBET
Business summary
BETWWTS.COM
Fully licensed and regulated by the Government
of Antigua and Barbuda, BetWWTS provides
both internet and telephone wagering to
customers around the world. Offering
hundreds of betting options daily, BetWWTS
accepts wagers on all major international
sporting events.
BETCASINO.COM
Launched in 2003, BetCasino is the latest
casino offering from WWTS using secure
encryption and firewall technologies to
ensure the gaming is as safe and
enjoyable as possible.
WISEGUYCASINO.COM
WWTS’ first casino remains a popular
choice and will be rebranded and upgraded
with new features and enhanced functionality
to improve the customer experience.
BETP2P.COM
The Betp2p betting exchange covers all
the major sports and racing – thoroughbred
and harness – and enables the player to
bet against other punters from around the
world with greater flexibility.
BETHOLDEM.COM
WWTS is set to release its multi-player poker
offering to complement the existing portfolio
of products.
WAGERONSPORTS.COM
Like BetWWTS, WagerOnSports is licensed in
Antigua and accepts bets on all the main
sports, as well as “off-the-wall’’ bets on The
Oscars, reality TV and other entertainment
features for low stake players.
BETAFFILIATE.COM
The BetAffiliate advanced software system
provides WWTS’ partners with a single point
of contact for all their information needs.
SPORTSBET.COM.AU
Sportsbet is licensed and regulated in the
Northern Territory and offers customers
internet and phone betting on a range of
Australian and international sports and
racing. Online since 2001, the site was
upgraded in 2003 with major improvements
to functionality.
12
Betcorp provides a range of games and betting options through
its portfolio of brands. The Company has identified specific target
segments of its database and devised unique betting propositions
for them, resulting in the creation of new brands within WWTS.
Brand management will continue to be a focus as the Company
rolls out new games and updates its existing portfolio.
RESPONSIBLE GAMING POLICY
Both WWTS and Sportsbet have been operating under responsible gaming charters for a
number of years as required under each licence. As the holding company of both WWTS and
Sportsbet, Betcorp subscribes to the highest international standards for responsible gaming.
These policies and the Betcorp charter seek to firmly filter and restrict access by minors while
also providing blocked access as appropriate.
13BETCORP LIMITED ANNUAL REPORT 2003
WWTS in 2003:
US$261 Average bet size in 2003
Bets placed on the internet accounted for 62.8% of gross wagering turnover
11,348 Active unique players
US$286,767 Gross revenue recorded on Superbowl XXXVII
2,482,533 Bets placed in 2003 equivalent to 5 betsplaced every minute
Asian turnover represented 30.6% of gross wagering turnover during the year
http://www.betwwts.com/
14
Review of operations: WWTS
WorldWide TeleSports (“WWTS”)
WWTS has been operating as a sports book in Antigua for over
10 years and has developed one of the strongest brands and
reputations in the North American market.
During 2003, WWTS focused on bookmaking margins and cost
efficiencies, which delivered increased operating margins to the
business. The strong financial performance during the year, with
EBITDA of US$12.5 million, represents an 87% increase over the
2002 performance.
Betting on major league sports accounts for the majority of WWTS’ turnover, although overall
profitability has been improved by offering the customer increased betting opportunities, through
new sports, betting events and innovative bet types, resulting in an increased volume of bets.
Growth in the online operations has continued as anticipated, following wide ranging improvements
to the customer usability of the website, and now accounts for over three quarters of bets placed.
A dedicated team serves WWTS’ VIP customers by telephone where required – a key part of the
strategy to offer targeted marketing and service initiatives to meet customer needs.
15BETCORP LIMITED ANNUAL REPORT 2003
2002 2003
WWTS EBITDA 2002 AND 2003 (US$M)
WWTS EBITDA increased by 87% in US dollar terms in 2003
87%Growth
5
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7
8
9
10
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Review of operations: WWTS
WAGERING
WWTS achieved a solid win rate of 4.2% for the year, an
increase from the 3.6% achieved in 2002. This was assisted by a
4.9% win rate for American Football and a 3.1% hold for Baseball
which is well above the theoretical rate of 2.4%. Superbowl
XXXVII was the most profitable in WWTS’ history, contributing
to a strong first quarter.
Major League Baseball was the highest ranking sport at a gross
win level, holding US$7.7 million for the year. This was followed
by Basketball with particularly good performance on teaser and
parlay bets in the NBA and on the “March Madness” College
Basketball tournament.
NEW BUSINESS
Significant increases in new customer registrations were attained through greater
marketing effectiveness and by promoting the differentiating features of the brand in
more targeted media and promotional channels. New customer registrations were up
by 81% in 2003, and new funded registrations increased by 47% against 2002.
WWTS has broadened its customer mix, which has further improved the win rate.
During 2003, WWTS also strongly expanded its Asian player base and turnover.
Although Asian business now accounts for approximately 30% of WWTS’ total
turnover, it was mainly wholesale business delivering volume at a lower win rate.
16
WWTS, TOP FIVE BY SPORT BY GROSS REVENUE
Major League Baseball NBA Basketball NBL Football College Football College Basketball
Major League Baseball was the top ranking sport in 2003
College Football 18%
College Basketball 2%
Major League Baseball 38%NBA Basketball 22%
NBL Football 20%
NEW PRODUCTS AND SERVICES
The launch of BetCasino.com was a key milestone for WWTS. The product was
successfully brought to market and is now fully integrated into the current betting
software system. The imminent delivery of BetHoldem.com, a multi-player poker
offering, will add considerable breadth to the WWTS suite of entertainment products.
WWTS is rebranding and upgrading the present WiseGuyCasino.com website with
new features and enhanced functionality to improve the customer experience. A
proprietary e-commerce engine (BetBanking) is also under development and will
offer customers the benefit of dealing with a single payment gateway before gaining
access to the full portfolio of WWTS brands.
OPERATIONS
WWTS achieved cost efficiencies during the year with a focus on IT, telecommunications and
payment solutions. The marketing and customer care functions were restructured, resulting in the
formation of a dedicated sales team dealing with payment processing issues and a targeted
approach to brand development and marketing campaigns. These initiatives put WWTS in a sound
position to execute the 2004 core strategies.
http://www.betwwts.com/
17BETCORP LIMITED ANNUAL REPORT 2003
http://www.sportsbet.com.au/
18
Review of operations: Sportsbet
Sportsbet
Sportsbet has been operating in the Northern Territory since 1983. With its predominantly Australian
customer base, the main focus is on Horse Racing followed by Australian Rules Football, Rugby
League, Rugby Union, Soccer and Cricket. The three football codes, AFL, NRL and Rugby Union,
contributed 16.3%, 10.5% and 11% of gross wagering turnover respectively in 2003.
Sportsbet’s financial result in 2003 was a significant improvement on the prior year. With the
installation of a new management team, Sportsbet has become more focused on systems and
efficiencies to create a foundation for future growth.
In September 2003, following two years of its online presence, Sportsbet launched a new website,
substantially improving the customer experience and creating a new position for the brand in the
marketplace. With a new management team in place in the third quarter of 2003, the immediate
focus was on enhanced risk management procedures for racing and sport.
The racing business contributed approximately 60% of turnover in 2003, predominantly from phone
betting customers. Sportsbet aims to increase the appeal of the internet to these customers by
offering premium products exclusively over the internet. Harness Racing and Greyhound Racing
were launched on the internet in the first quarter of 2004.
The new management team has focused on marketing strategies for the football codes, with a view
to increasing new customer registrations in the pre-season period. Sportsbet also expects that the
two major sporting events of 2004 – Soccer’s Euro 2004 and the Olympics – will complement the
traditional Australian football season and Australia’s biggest racing carnival, the Spring Carnival
commencing in October.
Marketing efforts for 2004 will be directed towards customer acquisition, retention and reactivation
of dormant accounts. By increasing conversion rates and the number of unique customers, offering
premium products, and maintaining a strong customer care focus, Sportsbet aims to increase brand
awareness and improve its position in the market.
19BETCORP LIMITED ANNUAL REPORT 2003
SPORTSBET 2003 TURNOVER BY SPORT
Racing AFL NRL Rugby Union Soccer Other
Racing was the top ranking sport in 2003
NRL 5%
Soccer 3%
Rugby Union 4%
Other 18%Racing 63%
AFL 7%
Board of Directors
20
Mr John PriestCHAIRMAN AND NON-EXECUTIVEDIRECTOR
Mr Priest was appointednon-executive Chairman on30 May 2003. He iscurrently Chairman ofMacquarie CorporateTelecommunications Ltd,Chairman of Apollo LifeSciences Ltd and a Non-Executive Director ofSydney Water. He is also a Council Member of theAustralian Graduate Schoolof Management and aFellow of the AustralianInstitute of Directors. Mr Priest formerly held the position of ExecutiveDirector of Coca-ColaAmatil Limited.
Mr Richard BarkerCHIEF EXECUTIVE OFFICER ANDEXECUTIVE DIRECTOR
Mr Barker was appointedan executive Director ofthe Company on21 January 2003. Beforejoining Betcorp Limited,Mr Barker was a Director of Investment Banking(Mergers and Acquisitions)with NM Rothschild & Sons(Australia) Ltd, where hespent over 10 years. He has more than 15 yearscorporate financeexperience gained ininvestment banking andstockbroking (both inAustralia and the UnitedKingdom). Prior to joiningRothschild, Mr Barkerworked in the corporatefinance divisions of MorganGrenfell, both in Sydneyand London, andPotter Warburg.
Mr Simon NobleEXECUTIVE DIRECTOR
Mr Noble was appointedan executive Director ofthe Company on21 January 2003. Mr Nobleis currently Chief ExecutiveOfficer of Tasman GamingInc, which operates WWTS,the business acquired bythe Company in January2003. Mr Noble has over 10 years experience in theonline gaming sector,including extensiveinternational operationaland regulatory experience.Before joining TasmanGaming, Mr Noble spentseven years as ManagingDirector at IntertopsSportwetten GmbH, aleading Europeanbookmaker licensed inAustria since 1982. In 1996,he established thatcompany’s online bettingpresence, eventuallyculminating in the spin-offof the internet division asIntertops.com. Mr Noble isa British citizen, resident in Antigua.
Mr William Graham NON-EXECUTIVE DIRECTOR
Mr Graham was appointedas a non-executive Directoron 21 January 2003. Hebrings to the Board over30 years experience as abookmaker, including 20 years as a railsbookmaker in Melbourne.He is currently one ofAustralia’s most recognisedbookmakers. With an initialbackground in accounting,Mr Graham has alsodemonstrated an ability inbuilding businesses, havingfounded, developed andsubsequently sold NJSTechnology, a largecomputer company.
Financial information
21BETCORP LIMITED ANNUAL REPORT 2003
CONTENTS
Corporate governance 22
Directors’ report 24
Statement of financial performance 28
Statement of financial position 29
Statement of cash flows 30
Notes to the financial statements 31
Directors’ declaration 51
Independent audit report 52
Shareholders information 53
Corporate governance
Set out below is a statement of themain corporate governance practiceswhich Betcorp Limited had in placeduring the financial year ended 31 December 2003.
THE BOARD OF DIRECTORSThe ultimate responsibility for corporategovernance resides with the Company’s Board ofDirectors which comprises four Directors, two ofwhom are non-executive Directors. The Chairmanof the Board is John Priest. Details of the Directorsin office as at the date of this statement appear inthe Directors’ Report.
It is the policy of the Board that its membershipshould reflect an appropriate balance betweenexecutives possessing extensive direct experienceand expertise in the core business activities of theBetcorp Group, and non-executive members whohave outstanding track records and reputationsattained at the highest levels of industry, and whoare able to bring to the Board a broad range ofgeneral commercial expertise and experience.
The membership of the Board is reviewed by thefull Board from time to time having regard to theongoing needs of the Group. Directors are initiallyappointed by the full Board. They are subject toelection by members at the Annual GeneralMeeting following their appointment and aresubject to re-election by members at annualintervals thereafter.
Full Board meetings are held at regular intervalsthroughout the year, with additional meetings beingheld if necessary. Directors are provided with Boardreports containing sufficient information to enableinformed discussions of all agenda items inadvance of Board meetings. Any non-executiveDirector may, if that Director deems it necessary,seek independent legal advice in any matterconnected with performance of their duties. In suchcases, the Company will reimburse the reasonablecost of such advice. Directors are asked to notifythe Company Secretary in advance of seeking such advice.
BOARD RESPONSIBILITIESThe Board is accountable to members and seeks toensure that the business objectives of the Groupare aligned with the expectations of members andthat the operations of the Group are beingeffectively managed in a manner that is properlyfocused on those business objectives as well asconforming to regulatory and ethical requirements.
The Board has established an Audit and ComplianceCommittee and a Remuneration Committee to assist it in discharging its responsibilities. Thesecommittees are described below.
Other committees of the Board may be establishedfrom time to time to deal with specific matters.
AUDIT AND COMPLIANCE COMMITTEEThe Audit and Compliance Committee comprisestwo non-executive Directors, namely:
J Priest (Chairman) Non-executive DirectorW Graham Non-executive Director.
The primary function of the Audit and ComplianceCommittee is to ensure that an effective internalcontrol framework exists within the Group, throughthe establishment and maintenance of adequateinternal controls to safeguard the assets of thebusiness and to ensure the integrity and reliabilityof financial and management reporting systems.The Audit and Compliance Committee:
• reviews and reports to the Board on the halfyear and annual reports and financial statementsof the Group;
• is responsible for nominating the Company’sexternal auditor and reviewing the adequacy,scope and quality of the annual statutory auditand half yearly audit review;
• reviews the effectiveness of the Group’s internalcontrol environment, including the effectivenessof internal control procedures;
• monitors and reviews the reliability of financialreporting;
• monitors and reviews the compliance of theGroup with applicable laws and regulations;
• determines the scope of the internal auditfunction to ensure its resources are adequateand effectively used, including the co-ordinationof the internal and external audit functions; and
• monitors the adequacy and effectiveness ofcompliance systems in relation to the legalexposures of the Group.
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23BETCORP LIMITED ANNUAL REPORT 2003
The Audit and Compliance Committee hasaccepted, as a matter of principle, the need for theGroup to have in place an adequate complianceand control framework based upon appropriatewritten procedures, policies and guidelines toenable areas of legal risk to the business to beidentified and appropriately reacted to, and toensure that members of staff are informed as tothose areas of material legal risk relevant to theoperational activities in which they are engaged.
The Audit and Compliance Committee meets withthe external auditor at least twice a year and morefrequently if required. The external auditor has adirect line of communication at any time to eitherthe Chairman of the Audit and ComplianceCommittee or the Chairman of the Board.
The Audit and Compliance Committee reports tothe full Board after each committee meeting.
REMUNERATION COMMITTEEThe Remuneration Committee comprises two non-executive Directors and an executive Director (or alternate), namely:
J Priest Non-executive DirectorW Graham Non-executive DirectorR Barker Executive DirectorS Noble (alternate) Executive Director.
The function of the Remuneration Committee is toreview the remuneration packages and other termsof employment for executive Directors and relevantsenior executives. Remuneration packages are setat levels designed to attract and retain high calibresenior executives capable of meeting the specificmanagement needs of the Group. Where theservice agreements of executive Directors providefor an annual salary review, that review isundertaken by the Remuneration Committee.
The Remuneration Committee also approves theshare awards to executives selected forparticipation in the Company’s share plans.
Fees paid to non-executive Directors aredetermined by the Board, with the currentmaximum aggregate limit set by members.Directors’ fees are reviewed annually by the Boardwithin that limit, taking into consideration the levelof fees paid to non-executive directors bycompanies of a similar size and stature.
RESPONSIBLE GAMING POLICY Both Tasman Gaming Inc (“WWTS”) and Sportsbethave been operating under responsible gamingcharters for a number of years as required undereach licence. As a combined entity, Betcorp willsubscribe to the highest international standards forresponsible gaming. These policies and the Betcorpcharter will seek to firmly filter and restrict accessby minors while also providing blocked access as appropriate.
Directors’ report
The Board of Directors of BetcorpLimited (“Company”) takes pleasure in submitting the financial report ofthe Company and its controlledentities (“Consolidated Entity”) for the year ended 31 December 2003.
DIRECTORSThe Directors during or since the end of thefinancial year have been:
Mr John Priest – CHAIRMAN AND NON-EXECUTIVEDIRECTOR
Mr Priest was appointed non-executive Chairmanon 30 May 2003. He is currently Chairman ofMacquarie Corporate Telecommunications Ltd,Chairman of Apollo Life Sciences Ltd and a CouncilMember of the Australian Graduate School ofManagement. He is also a Fellow of the AustralianInstitute of Company Directors, a Non-ExecutiveDirector of Sydney Water and Chair of SydneyWater’s Audit and Risk Management Committee. Mr Priest formerly held the position of ExecutiveDirector of Coca-Cola Amatil Limited.
Mr Richard Barker – CHIEF EXECUTIVE OFFICER ANDEXECUTIVE DIRECTOR
Mr Barker was appointed an executive Director ofthe Company on 21 January 2003. Before joiningBetcorp Limited, Mr Barker was a Director ofInvestment Banking (Mergers and Acquisitions)with NM Rothschild & Sons (Australia) Ltd, wherehe spent over 10 years. He has over 15 yearscorporate finance experience gained in investmentbanking and stockbroking (both in Australia andthe United Kingdom). Prior to joining Rothschild, Mr Barker worked in the corporate finance divisionsof Morgan Grenfell, both in Sydney and London,and Potter Warburg.
Mr Simon Noble – EXECUTIVE DIRECTOR
Mr Noble was appointed an executive Director ofthe Company on 21 January 2003. Mr Noble iscurrently Chief Executive Officer of Tasman GamingInc (which operates WWTS), the business acquiredby the Company in January 2003. Mr Noble hasover 10 years experience in the online gamingsector, including extensive international operationaland regulatory experience. Before joining Tasman
Gaming, Mr Noble spent seven years as ManagingDirector at Intertops Sportwetten GmbH, a leadingEuropean bookmaker licensed in Austria since 1982.In 1996, he established that company’s onlinebetting presence, eventually culminating in thespin-off of the internet division as Intertops.com. Mr Noble is a British citizen, resident in Antigua.
Mr William Graham – NON-EXECUTIVE DIRECTOR
Mr Graham was appointed as a non-executiveDirector on 21 January 2003. He brings to theBoard over 30 years experience as a bookmaker, 20 years of that as a rails bookmaker in Melbourne.He is currently one of Australia’s most recognisedbookmakers. With an initial background inaccounting, Mr Graham has also demonstrated anability in building businesses, having founded,developed and subsequently sold NJS Technology(a large computer company).
John Falconer – CHAIRMAN (RESIGNED)
Mr Falconer resigned from the Board of theCompany on 1 February 2003.
Andrew Sigalla – CHIEF EXECUTIVE OFFICER ANDEXECUTIVE DIRECTOR (RESIGNED)
Mr Sigalla resigned from the Board of the Companyon 1 February 2003.
Siimon Reynolds – NON-EXECUTIVE DIRECTOR(RESIGNED)
Mr Reynolds resigned from the Board of theCompany on 1 February 2003.
The Hon Peter Anderson – NON-EXECUTIVEDIRECTOR (RESIGNED)
Mr Anderson resigned from the Board of theCompany on 1 February 2003.
DIRECTORS’ MEETINGSThe following table sets out the number ofDirectors’ meetings (including meetings ofcommittees of Directors) held during the financialperiod and the number of meetings attended byeach Director (while they were a Director orcommittee member). During the financial period, 11 Board meetings were held.
24
NUMBER OF MEETINGS
Directors Maximum possible to attend Meetings attended
J Priest 6 6
R Barker 11 11
S Noble 11 11
W Graham 11 11
S Reynolds (resigned) 1 1
J Falconer (resigned) 1 1
A Sigalla (resigned) 1 1
P Anderson (resigned) 1 1
25BETCORP LIMITED ANNUAL REPORT 2003
PRINCIPAL ACTIVITYThe Consolidated Entity’s principal activity duringthe financial year was the operation of licensedsportsbetting operations. This business isconducted through the Company’s wholly ownedsubsidiaries, Sportsbet Pty Limited, based inDarwin, and Tasman Gaming Inc, based in Antigua,West Indies.
FINANCIAL RESULT AND DIVIDENDSThe results for the Consolidated Entity are set outon page 28 and show a profit before tax of$12,480,567 (loss of $14,068,898 in 2002).
The Directors have recommended that a maidendividend of 1.5 cents per share be paid. The recorddate to identify shareholders entitled to thedividend is set as 11 March 2004. The payment datefor the dividend is 25 March 2004.
REVIEW OF OPERATIONSThe Consolidated Entity’s results demonstrate theexcellent performance of Tasman Gaming Inc andcontinued restructuring efforts at Sportsbet. Theincrease in net profit from 2002 is particularlyimpressive.
The results have been partially protected from theongoing depreciation of the US dollar against theAustralian dollar through a series of long termforeign exchange hedging contracts.
Tasman Gaming
WWTS delivered a strong result for the full year with turnover increasing by 14.1% to US$651.6 million (US$571.3 million in 2002) andEBITDA increasing by 86.6% to US$12.5 million(US$6.7 million in 2002).
During the year, WWTS has worked on enhancingthe entertainment experience, by investing heavilyin understanding and responding to its customers’needs. As a result, the range of sports eventsoffered has been broadened and more innovativebet types introduced. WWTS has also identifiedspecific target segments of its customer databaseand devised unique betting propositions for them,resulting in the creation of new brands within theWWTS group. These changes have stimulatedfurther growth in betting activity, allowing WWTSto retain existing customers and providing growthin new customer recruitment, with a significantincrease in new customer registrations of 45.3%.
WWTS has also broadened its customer mix, whichhas contributed to an increase in WWTS’ win rate(gross margin) from 3.6% in 2002 to 4.2% in 2003.During 2003, WWTS also strongly expanded itsAsian player base and turnover. Although thesenow account for approximately 30% of WWTS’total turnover, it was wholesale business deliveringvolume at a lower win rate.
As a result of the improvements made to theoverall usability and attractiveness of the WWTSonline properties, the growth in online operationshas continued. During the period, online wagering
accounted for 75.7% of all bets placed (2002:69.5%) and 63.8% of the total sports and racingturnover (2002: 47.8%).
To continue margin growth, WWTS will need toinvest further in understanding and delivering tothe needs of a broader customer mix. This willrequire substantial ongoing investment in peopleand processes in the areas of bookmaking,marketing, and IT.
Sportsbet
Sportsbet showed an overall EBITDA loss of $1.4 million, which was a significant improvement onthe 2002 performance (EBITDA loss of $8.2 million).Following the prior year’s poor performance, theoriginal management team was replaced, resultingin immediate performance improvements. This trendis expected to continue, with the renewed focus onrisk management and effective processes.
Management expects to see Sportsbet continue theturnaround in 2004 by delivering a positive result.
Sportsbet is committed to offering a range of newbetting products to customers and the relaunch ofthe sportsbet.com.au website in September 2003has vastly improved the customer experience.
SIGNIFICANT EVENTS AFTER YEAR ENDOn 1 January 2004, the Company exercised anoption to acquire the online casino businesses ofWiseguy Casino and BetCasino. During 2003, theCompany managed the casino sites under amanaged services agreement. In the year ended 31 December 2003, the casino businesses turnoverwas US$165.4 million ($254.4 million). The casinoturnover will be included in the Company’s totalturnover from 1 January 2004.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRSAs noted elsewhere in the financial report, thesignificant change in the Company’s state of affairsduring 2003 has been the acquisition of TasmanGaming Inc in Antigua.
Shareholders’ equity increased from $22,147,468 to$82,272,826, an increase of $60,125,358. Themovement was largely due to two equity raisingsthe Company undertook in January and August2003. The equity raising in January was to enablethe acquisition of Tasman Gaming Inc and provideworking capital for the expanded group. The equityraising in August was to provide funds to repay theconvertible notes which were assumed by Betcorpas part of the Tasman Gaming acquisition.
LIKELY DEVELOPMENTS AND FUTURE RESULTSBetcorp anticipates further solid growth of theexisting WWTS and Sportsbet businesses in 2004as the market for online gaming continues toexpand. Betcorp is reviewing several strategic productopportunities which will enhance the portfolio ofproducts currently available to its customers.
Directors’ report
The Directors foresee that the 2004 financial yearwill be a period of consolidation and further growthin the existing businesses. The most significantareas of change are expected to be:
• the return to profitability of Sportsbet in Darwin;
• further increased profitability of the TasmanGaming operations in Antigua; and
• the addition of complementary gaming productsto the Company’s product portfolio.
ENVIRONMENTAL REGULATION ANDPERFORMANCEThe Company is not subject to significantenvironmental regulations.
OPTIONS AND SHARES OR OTHER INTERESTSUNDER OPTIONDetails of shares and interests under option, orissued during or since the end of the financial yeardue to the exercise of an option, are set out in Note 16 of the financial statements and form part ofthis report.
INDEMNIFICATION OF DIRECTORS, OFFICERSAND AUDITORSDuring or since the end of the financial year, theConsolidated Entity has not indemnified or made arelevant agreement to indemnify an officer orauditor of the Consolidated Entity or of any relatedbody corporate against a liability incurred as such.
In addition, the Consolidated Entity has not paid, oragreed to pay, a premium in respect of a contractinsuring against a liability incurred by an auditor.
DIRECTORS’ AND EXECUTIVE OFFICERS’EMOLUMENTS
Remuneration policy
The Remuneration Committee of the Board ofDirectors is responsible for determining andreviewing compensation arrangements for theDirectors, the Chief Executive Officer and theexecutive team. The Remuneration Committeeassesses the appropriateness of the nature and theamount of emoluments of such officers on aperiodic basis by reference to relevant employmentmarket conditions with the overall objective ofensuring maximum stakeholder benefit from theretention of a high quality Board and executiveteam. Such officers are given the opportunity toreceive their base emolument in a variety of formsincluding cash and fringe benefits such as motorvehicles and expense payment plans. It is intendedthat the manner of payment chosen will be optimalfor the recipient without creating undue costs forthe Company.
To assist in achieving these objectives, theRemuneration Committee links the nature andamount of executive Directors’ and officers’emoluments to the Company’s financial andoperational performance. All senior executives havethe opportunity to qualify for participation in theEmployee Share Incentive Plan which currentlyprovides incentives where specified criteria are met,including criteria relating to profitability and theachievement of Key Performance Indicators(“KPIs’’). Details regarding the issue of shares underthis plan are provided in Note 19 to the financialstatements.
26
Emoluments of Directors of Betcorp Limited
ANNUAL EMOLUMENT LONG TERM EMOLUMENTSShares issued during this financial period
Base fee Bonus Other No. % of Superannuation
Name $ $ $ granted $ Remuneration $
J Priest 70,000 – – – – – –
R Barker 342,659 250,000 – – – – 32,341
S Noble 346,154 307,692 8,308 405,000 202,500 23.4% –
W Graham 111,945 – – – – – –
Emoluments of the three most highly paid executive officers of the Company and the Consolidated Entity
ANNUAL EMOLUMENT LONG TERM EMOLUMENTSShares issued during this financial period
Base fee Bonus Other No. Superannuation
Name $ $ $ granted $ $
J Davis-Dyett 230,769 115,385 5,400 325,000 178,750 –
S Doyle 153,846 103,846 11,500 – – –
S Smith 132,349 60,000 – – – 12,651
All remuneration packages and adjustments are approved by the Board of Directors. The value of the sharesissued during the year is based upon the fair market value at the date of grant.
27BETCORP LIMITED ANNUAL REPORT 2003
Directors’ benefits
During or since the financial year, no Director of the Consolidated Entity has received or become entitled toreceive a benefit because of a contract that the Director or a firm of which the Director is a member or anentity in which the Director has a substantial financial interest made with the Consolidated Entity or an entitythat the Consolidated Entity controlled, or a body corporate that was related to the Consolidated Entity,when the contract was made or when the Director received, or became entitled to receive, the benefit other than:
• a benefit included in the aggregate amount of emoluments received or due and receivable by theDirectors shown in notes to the financial statements;
• the fixed salary of a full time employee of the parent entity or an entity that the parent entity controlled ora related body corporate; and
• related party transactions included in Note 21 to the financial statements.
DIRECTORS’ INTERESTSRelevant interests of the Directors in the shares, options or other instruments of the parent entity and relatedbodies corporate are:
Direct interest Indirect interest Indirect interest
Name in ordinary shares in ordinary shares in options
R Barker ** – 3,500,000 –
W Graham * – 500,000 –
S Noble 1,605,000 – –
J Priest – – –
1,605,000 4,000,000 –
Note:
* Mr Graham paid $250,000 for 500,000 shares under the placement to sophisticated and professional investors.
* * Mr Barker acquired a relevant interest in 3,465,578 shares (through Aleste Investments Pty Limited – a former Tasman shareholder)
under the Tasman Share Sale Agreement. During 2003, Aleste Investments purchased a further 34,422 shares on market.
ROUNDINGThe amounts contained in this report and in the financial report have been rounded to the nearest $1,000(where rounding is applicable) under the option available to the Company under ASIC Class Order 98/0100.The Company is an entity to which the Class Order applies.
Signed in accordance with a resolution of the Board of Directors.
On behalf of the Directors
R S Barker EXECUTIVE DIRECTOR
Sydney, 18 February 2004
Statement of financial performance for the year ended 31 December 2003
Consolidated Parent entity
2003 2002 2003 2002
Note $000’s $000’s $000’s $000’s
Revenues from ordinary activities 2 42,893 (1,927) 4,269 591
Costs associated with betting activity
Commissions (agents) (3,414) – – –
Transaction fees (2,863) – – –
Other (667) – – –
Operating expenses
Advertising and promotion expense (2,922) (70) (21) (22)
Borrowing costs expense 3 (1,726) (195) (10) –
Rental and occupancy expense (439) (159) (38) (36)
Salary and employee benefits expense (8,291) (830) (1,377) (53)
Administrative expense (6,909) (4,315) (983) (2,901)
Cost of investment sold expense – (582) – (582)
Depreciation expense (515) – (26) –
Amortisation expense (2,667) – – –
Project costs and deferred expenditure amortised and written off – (4,992) – (4,451)
Provision in diminution in value of assets – (1,000) – (3,167)
Profit/(loss) from ordinary activities before income tax 4 12,480 (14,069) 1,814 (10,621)
Income tax benefit/(expense) relating to ordinary activities 4 (592) – (592) –
Profit/(loss) from ordinary activities after income tax 11,888 (14,069) 1,222 (10,621)
Net profit/(loss) 11,888 (14,069) 1,222 (10,621)
Net profit/(loss) attributable to members of the parent entity 11,888 (14,069) 1,222 (10,621)
Net exchange difference on translation of financial statements of foreign controlled entity 18 (10,665) – – –
Total revenues, expenses and valuation adjustments attributable to members of the parent entity and recognised directly in equity (10,665) – – –
Total changes in equity other than those resulting from transactions with owners as owners 1,223 (14,069) 1,222 (10,621)
Basic earnings per share (cents per share) 27 10.0 (110.0)
Diluted earning per share (cents per share) 27 9.7 (110.0)
The accompanying notes form part of these financial statements.
28
Betcorp Limited and controlled entities
Statement of financial position as at 31 December 2003
29BETCORP LIMITED ANNUAL REPORT 2003
Consolidated Parent entity
2003 2002 2003 2002
Note $000’s $000’s $000’s $000’s
Current assets
Cash assets 20,217 223 954 218
Receivables 5 3,705 594 47 198
Other 6 2,069 5 17 5
Total current assets 25,991 822 1,018 421
Non-current assets
Receivables 7 – – 31,801 –
Plant and equipment 8 1,931 357 103 12
Intangible assets 9 45,322 – – –
Other financial assets 10 – – 28,960 –
Other 11 – 822 – 822
Total non-current assets 47,253 1,179 60,864 834
Total assets 73,244 2,001 61,882 1,255
Current liabilities
Payables 12 14,535 3,356 755 1,802
Interest bearing liabilities 13 975 2,531 – –
Provisions 14 609 22 609 4
Other 15 453 769 400 678
Total current liabilities 16,572 6,678 1,764 2,484
Total non-current liabilities – – – –
Total liabilities 16,572 6,678 1,764 2,484
Net assets/(liabilities) 56,672 (4,677) 60,118 (1,229)
Equity
Contributed equity 16 82,273 22,147 82,273 22,147
Accumulated losses 17 (14,936) (26,824) (22,155) (23,376)
Foreign currency translation reserve 18 (10,665) – – –
Total equity 56,672 (4,677) 60,118 (1,229)
The accompanying notes form part of these financial statements.
Betcorp Limited and controlled entities
Statement of cash flows for the year ended 31 December 2003
Consolidated Parent entity
2003 2002 2003 2002
Note $000’s $000’s $000’s $000’s
Cash flows from operating activities
Receipts from players 1,021,395 73,771 – –
Interest received 650 10 80 9
Payments to players (979,971) (78,911) – –
Payments to suppliers and employees (29,627) – (3,589) (1,177)
Borrowing costs paid (1,726) (195) (11) –
Income tax paid – – – –
Net cash provided by/(used) in operating activities 24(a) 10,721 (5,325) (3,520) (1,168)
Cash flows from investing activities
Purchase of plant and equipment (1,251) (45) (118) –
Proceeds on sale of investments – 582 – 582
Payments for capitalised projects, software and licence costs – (874) – (874)
Cash acquired in Tasman acquisition 24(d) 9,605 – – –
Repayment of loans from subsidiary – (200) 2,527 (200)
Loan provided to subsidiary – – (4,718) (1,670)
Loans provided to subsidiary to repay debt – – (26,101) –
Net cash provided by/(used in) investing activities 8,354 (537) (28,410) (2,162)
Cash flows from financing activities
Proceeds from issues of shares 34,957 2,600 34,957 2,600
Repayment of convertible notes (24,774) – – –
Proceeds from borrowings – 678 – 678
Payment of share issue costs (2,291) (340) (2,291) (340)
Net cash provided by financing activities 7,892 2,938 32,666 2,938
Net increase/(decrease) in cash held 26,967 (2,924) 736 (392)
Cash at beginning of year (2,309) 615 218 610
Effect of exchange rate changes on cash (4,441) – – –
Cash at end of year 24(b) 20,217 (2,309) 954 218
The accompanying notes form part of these financial statements.
30
Betcorp Limited and controlled entities
Notes to the financial statements for the year ended 31 December 2003
31BETCORP LIMITED ANNUAL REPORT 2003
Betcorp Limited and controlled entities
NOTE 1. STATEMENT OF SIGNIFICANTACCOUNTING POLICIES
a) Basis of accounting
The financial report has been prepared as ageneral purpose financial report which complieswith the Australian Accounting Standards, othermandatory professional reporting requirements(Urgent Issues Group Consensus Views), and theCorporations Act 2001. The financial statementshave also been prepared in accordance with thehistorical cost convention and do not take accountof changes in either the general purchasing powerof the dollar or in the prices of specific assets.
b) Changes in accounting policies
The accounting policies adopted are consistentwith those of the previous year.
c) Principles of consolidation
The consolidated financial report incorporates theassets and liabilities of the parent entity, BetcorpLimited (“parent entity”), and all entities controlledby Betcorp Limited as at 31 December 2003 andthe results of the parent entity and its controlledentities for the period then ended. BetcorpLimited and its controlled entities together arereferred to in these Company financial statementsas the “Consolidated Entity”.
All intercompany balances and transactions havebeen eliminated. Where an entity either began orceased to be controlled during the year, theresults are included only from the date controlcommenced or up to the date control ceased.
d) Foreign currenciesTranslation of foreign currency transactions
Transactions in foreign currencies of entities withinthe Consolidated Entity are converted to localcurrency at the rate of exchange ruling at the dateof the transaction.
Foreign currency monetary items that areoutstanding at the reporting date are translatedusing the spot rate at the end of the financial year.
All exchange differences arising on settlement orrestatement of hedging instruments arerecognised as revenues and expenses for thefinancial year. Any gains or costs on entering ahedge are deferred and amortised over the life ofthe contract.
Translation of financial reports of overseas operations
All overseas operations are deemed self-sustaining, as each is financially and operationallyindependent of Betcorp Limited. The financialreports of overseas operations are translated usingthe current rate method and any exchangedifferences are taken directly to the foreigncurrency translation reserve.
e) Cash
For purposes of the statement of cash flows, cash includes cash on hand and in banks, net ofoutstanding bank overdrafts.
f) Receivables and processor balances
Trade debtors are recorded at the amount thatplayers owe the Company based upon theirbetting activity.
Provision for doubtful debts is recognised to theextent that recovery of the outstanding receivablebalance is considered less than likely. Any provisionestablished is based on a review of all outstandingamounts at balance date. A specific provision ismaintained for identified doubtful debts, and ageneral provision is maintained in respect ofreceivables which are doubtful of recovery butwhich have not been specifically identified.
Processor balances represent balances owed tothe Company from financial intermediaries. Thesebalances settle into cash in a period of 3–5 daysafter settlement. Processor balances are notincluded in cash.
g) Recoverable amount of non-current assets
All non-current assets, measured using the costbasis, are reviewed at least annually to determinewhether their carrying amounts require write-down to recoverable amount.
The recoverable amount of an asset is the netamount expected to be recovered through the netcash inflows arising from its continued use andsubsequent disposal.
The expected net cash flows included indetermining recoverable amounts of non-currentassets have not been discounted to their presentvalues.
h) Property, plant and equipmentCost and valuation
All classes of property, plant and equipment aremeasured at cost.
Depreciation
Depreciation is provided on a straight line basis onall plant and equipment.
Major depreciation periods are:
2003 2002
Leasehold improvements Lease term Lease term
Computer equipment and software 2–3 years 2–3 years
Plant and equipment 5–10 years 5–10 years
Notes to the financial statements for the year ended 31 December 2003
NOTE 1. STATEMENT OF SIGNIFICANTACCOUNTING POLICIES continued
i) Intangible assets and expenditure carriedforward
Goodwill represents the excess of the purchaseconsideration over the fair value of identifiable netassets acquired at the time of acquisition of abusiness or shares of a controlled entity.
Goodwill is amortised on a straight line basis overthe period during which benefits are expected tobe received. This is taken to be 20 years.
j) Payables
These amounts represent unsecured liabilities forgoods and services provided to the ConsolidatedEntity prior to the end of the financial period andwhich are unpaid.
Customer account player balances
Customer account balances represent moniesdeposited on account from customers. Customeraccount balances are contained within payables.The balances are utilised by customers forongoing wagering activity.
k) Employee benefits
Provision is made for employee benefitsaccumulated as a result of employees renderingservices up to the reporting date. These benefitsinclude wages and salaries, annual leave, sick leaveand long service leave.
Liabilities arising in respect of wages and salaries,annual leave, sick leave and any other employeebenefits expected to be settled within 12 monthsof the reporting date are measured at theirnominal amounts based on remuneration rateswhich are expected to be paid when the liability issettled. All other employee benefits liabilities aremeasured at the present value of the estimatedfuture cash outflow to be made in respect ofservices provided by employees up to thereporting date. In determining the present value offuture cash outflows, the market yields as at thereporting date on national government bonds,which have terms to maturity approximating theterms of the related liability, are used.
Employee benefits expenses and revenues arisingin respect of the following categories:
• wages and salaries, non-monetary benefits,annual leave, long service leave, sick leave andother leave benefits; and
• other types of employee benefits,
are recognised against profits on a net basis intheir respective categories.
The fair value of the equity issued to Directors andexecutives in accordance with the equity basedcompensation scheme described in Note 19 hasbeen recognised as a salary and benefits expensein the statement of financial performance.
l) Interest bearing liabilities
Loans are recognised when issued at the amountof the net proceeds received. Interest, wherepayable, is recognised as an expense on anaccruals basis.
m)Contributed equity
Issued and paid up capital is recognised at the fair value of the consideration received by the Company.
Any transaction costs arising on the issue ofordinary shares are recognised directly in equityas a reduction of the share proceeds received.
n) Revenue recognitionWagering turnover
Wagering turnover represents the total amount ofbets placed by wagerers for the financial year.Turnover is recognised at the point when theevent on which the wagering investment is madeis officially completed.
Wagering revenue
Wagering revenue represents the net receipts ofwinning bets and losing bets placed with theConsolidated Entity. Bonus expense (net) isincluded in the wagering revenue amount.Cancelled bets and client adjustments areadjusted against wagering revenue.
Winning and losing bets are recognised at thepoint when the event on which the wageringinvestment is made is officially completed.
Interest income
Interest income is recognised on an accruals basis.
32
Betcorp Limited and controlled entities
33BETCORP LIMITED ANNUAL REPORT 2003
o) Income tax
The financial statements apply the principles oftax-effect accounting. The income tax expense inthe statement of financial performance representsthe tax on the pre-tax accounting profit adjustedfor permanent differences. A future tax benefitrelating to tax losses is not carried forward as anasset unless the benefit is virtually certain ofrealisation. Income tax on cumulative timingdifferences is set aside to the deferred income taxor future income tax benefit accounts at the rateswhich are expected to apply when those timingdifferences reverse. Such amounts are notrecognised as either an asset or a liability unlessrealisation is reasonably certain.
p) Goods and services tax (“GST”)
Revenues, expenses and assets are recognised netof the amount of GST except:
• where the GST incurred on a purchase ofgoods and services is not recoverable from thetaxation authority, in which case the GST isrecognised as part of the cost of acquisition ofthe asset or as part of the expense item asapplicable; and
• receivables and payables are stated with theamount of GST included.
The net amount of GST recoverable from, orpayable to, the taxation authority is included aspart of receivables or payables in the statement of financial position.
Cash flows are included in the statement of cashflows on a gross basis and the GST component ofcash flows arising from investing and financingactivities, which is recoverable from, or payable to,the taxation authority is classified as operatingcash flows.
Commitments and contingencies are disclosed netof the amount of GST recoverable from, orpayable to, the taxation authority.
q) Earnings per share (“EPS”)
Basic EPS is calculated as net profit attributable to members, adjusted to exclude cost of servicingequity (other than dividends) and preferenceshare dividends, divided by weighted averagenumber of ordinary shares, adjusted for any bonus element.
Diluted EPS is calculated as net profit attributableto members, adjusted for:
• costs of servicing equity (other than dividends)and preference share dividends;
• the after-tax effect of dividends and interestassociated with dilutive potential ordinaryshares that have been recognised as expenses;and
• other non-discretionary changes in revenues orexpenses during the period that would resultfrom the dilution of potential ordinary shares,divided by the weighted average number ofordinary shares and dilutive potential ordinaryshares, adjusted for any bonus element.
r) Comparatives
Where necessary, comparatives have beenreclassified and repositioned for consistency withcurrent year disclosures.
s) Leases Operating leases
The minimum lease payments of operating leases,where the lessor effectively retains substantially allof the risks and benefits of ownership of theleased item, are recognised as an expense on astraight line basis.
Contingent rentals are recognised as an expensein the financial year in which they are incurred.
Notes to the financial statements for the year ended 31 December 2003
NOTE 2. REVENUES FROM ORDINARY ACTIVITIES
Consolidated Parent entity
2003 2002 2003 2002
$000’s $000’s $000’s $000’s
Wagering turnover 1,024,011 73,703 – –
Revenues from operating activities
Wagering revenue 40,230 (2,518) – –
Less: related customer bonus expenses (2,616) – – –
Net wagering revenue 37,614 – – –
Revenue on termination of contract 3,082 – – –
Total operating revenue 40,696 (2,518) – –
Revenues from non-operating activities
Interest received – other persons 650 9 80 9
Dividend received from controlled entity – – 4,189 –
Proceeds on disposal of investments – 582 – 582
Foreign exchange gain – unrealised 913 – – –
Foreign exchange gain – realised 634 – – –
Total revenues from non-operating activities 2,197 591 4,269 591
Total revenues from ordinary activities 42,893 (1,927) 4,269 591
NOTE 3. EXPENSES AND LOSSES/(GAINS)
Profit/(loss) from ordinary activities before income tax has been determined after:
Expenses
Borrowing costs – interest expense to other persons 1,726 195 10 –
Depreciation expense – plant and equipment 196 184 12 8
Depreciation expense – computer equipment 319 12 14 5
Bad and doubtful debts 116 515 – 370
Provision for employee entitlements 17 (6) – 1
Operating lease rentals 439 159 38 36
Equity based compensation schemes 381 – – –
Amortisation and write-off of intangible assets – 2,542 – 2,001
Deferred expenditure (written off) – 2,450 – 2,450
Goodwill (amortised) 2,667 – – –
Diminution in value of licence – 1,000 – –
Diminution in value of intercompany loan receivable – – – 3,167
34
Betcorp Limited and controlled entities
35BETCORP LIMITED ANNUAL REPORT 2003
NOTE 4. INCOME TAX
Consolidated Parent entity
2003 2002 2003 2002
$000’s $000’s $000’s $000’s
The prima facie tax on profit/(loss) from ordinary activities before income tax is reconciled to the income taxas follows:
Profit/(loss) from ordinary activities before income tax 12,480 (14,069) 1,814 (10,621)
Prima facie tax on profit/(loss) from ordinary activities before income tax at 30% 3,744 (4,221) 544 (3,186)
Tax effect of permanent differencesNon-attributable foreign income i) (3,200) – – –
Future income tax benefit not brought to account in respect to tax losses incurred prior to entry into the tax consolidation regime a) 569 – 569 –
Other items 4 775 4 1,373
1,117 (3,445) 1,117 (1,814)
Future income tax not brought to account in respect to tax losses b) – 3,445 – 1,814
Income tax benefit of tax losses utilised in current year (525) – (525) –
Income tax attributable to ordinary activities 592 – 592 –
i) Non-attributable foreign income relates solely to the profits generated by Betcorp’s 100% owned subsidiary, Tasman Gaming Inc
in Antigua. The foreign income is net of amortisation expense, depreciation expense and other expenses.
a) Tax consolidation
Effective 1 December 2003 for the purposes of income taxation, Betcorp Limited and its 100% ownedsubsidiaries have formed a tax consolidated group. Members of the group have entered into a tax sharingarrangement in order to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis. Inaddition, the agreement provides for the allocation of income tax liabilities between the entities should thehead entity default on its tax payment obligations. At the balance date, the possibility of default is remote.
The head entity of the tax consolidated group is Betcorp Limited. A future income tax benefit/(tax loss) hasnot been recognised. Tax losses will be utilised as required to offset future taxable income. There has been nomaterial effect on the provision for deferred tax liabilities.
b) Benefit of income tax losses not brought to account
As at 31 December 2003, companies within the Consolidated Entity had income tax losses of approximately$17,740,000 (2002: $25,200,000) to offset against future years’ taxable income. The benefit of these losses ofapproximately $5,322,000 at 30% (2002: $7,568,000 at 30%) has not been brought to account in theconsolidated financial statements because the Directors believe it is not appropriate as realisation of thefuture income tax benefit is not virtually certain.
In addition, the Consolidated Entity has carry forward capital losses of approximately $1,300,000 (2002:$1,300,000). The benefit of these losses of approximately $390,000 at 30% (2002: $390,000) can only berecouped if companies within the Consolidated Entity derive future capital gains.
Notes to the financial statements for the year ended 31 December 2003
NOTE 5. RECEIVABLES (CURRENT ASSETS)
Consolidated Parent entity
2003 2002 2003 2002
$000’s $000’s $000’s $000’s
Trade debtors – customer accounts i) 249 245 – –
Provision for doubtful debts (29) (145) – –
Trade debtors, net 220 100 – –
Processor balances ii) 2,785 – – –
Processor balances – reserves ii) 497 – – –
Processor balances – net 3,282 – – –
Other debtors 25 207 – –
Provision for doubtful debts – (170) – –
Other debtors – net 25 37 – –
Security deposit 178 – 47 –
Loan receivable from other entities – 200 – 200
Provision for doubtful debts – (200) – (200)
GST receivable – 457 – 198
Total current receivables 3,705 594 47 198
Terms and conditionsi) Trade debtors are non-interest bearing and generally on 30 day terms.
ii) Processor balances are non-interest bearing and are generally received as cash within 3–5 days of settlement. Reserve balances are
held by processors for a period not exceeding six months.
NOTE 6. OTHER (CURRENT ASSETS)
Prepayments 860 5 17 5
Prepaid FX option premium 296 – – –
Deferred FX option gain receivable i) 913 – – –
Total other assets 2,069 5 17 5
i) The foreign currency receivable represents the net receivable arising from foreign exchange options contracts taken out to hedge
future expected US dollar receipts.
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37BETCORP LIMITED ANNUAL REPORT 2003
NOTE 7. RECEIVABLES (NON-CURRENT ASSETS)
Consolidated Parent entity
2003 2002 2003 2002
$000’s $000’s $000’s $000’s
Non-trade amounts owing by related parties:
– wholly owned subsidiaries – – 31,801 8,923
– provision for diminution – – – (8,923)
Total receivables (non-current assets) – – 31,801 –
NOTE 8. PLANT AND EQUIPMENT (NON-CURRENT ASSETS)
Plant and equipment – at cost
Cost
Opening balance 964 919 30 22
Assets acquired during acquisition 279 – – –
Additions 85 45 61 8
Closing balance 1,328 964 91 30
Accumulated depreciation
Opening balance 645 461 22 14
Depreciation for the year 196 184 12 8
Closing balance 841 645 34 22
Net book value 487 319 57 8
Computer equipment – at cost
Cost
Opening balance 83 38 14 8
Assets acquired during acquisition 559 – – –
Additions 1,166 45 56 6
Closing balance 1,808 83 70 14
Accumulated depreciation
Opening balance 45 33 10 5
Depreciation for the year 319 12 14 5
Closing balance 364 45 24 10
Net book value 1,444 38 46 4
Total book value 1,931 357 103 12
Notes to the financial statements for the year ended 31 December 2003
NOTE 9. INTANGIBLES (NON-CURRENT ASSETS)
Consolidated Parent entity
2003 2002 2003 2002
$000’s $000’s $000’s $000’s
Software acquisition and development – at cost – 2,614 – 2,614
Less: accumulated amortisation – (2,614) – (2,614)
Software acquisition and development – net – – – –
Sportsbetting licence – at cost – 1,682 – –
Less: accumulated amortisation – (1,682) – –
Sportsbetting licence – net – – – –
Goodwill
Opening balance – – – –
Goodwill on acquisition – at cost i) 56,800 – – –
Less: accumulated amortisation (2,667) – – –
Less: adjustment for foreign currency translation at year end (8,811) – – –
Goodwill – net 45,322 – – –
Total intangibles 45,322 – – –
i) Goodwill arising upon the acquisition of Tasman Gaming Inc in January 2003 is being amortised over 20 years in accordance with
AASB 1013. The Company intends to cease amortising goodwill from 1 January 2005 onwards, in accordance with International
Accounting Standards, provided annual impairment tests are met.
NOTE 10. OTHER FINANCIAL ASSETS
Investments in wholly owned subsidiaries:
Tasman Gaming Inc – – 28,958 –
Betcorp (UK) Ltd – – 2 –
– – 28,960 –
NOTE 11. OTHER (NON-CURRENT ASSETS)
Total deferred expenditure – net – 822 – 822
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39BETCORP LIMITED ANNUAL REPORT 2003
NOTE 12. PAYABLES (CURRENT LIABILITIES)
Consolidated Parent entity
2003 2002 2003 2002
$’000 $’000 $’000 $’000
Trade creditors – unsecured i) 721 1,957 215 989
Sundry creditors and accrued expenses – unsecured 1,711 1,399 329 813
Customer accounts ii) 11,892 – – –
GST payable 211 – 211 –
Total payables 14,535 3,356 755 1,802
Terms and conditionsi) Trade creditors are non-interest bearing and are normally settled on 30 day terms.
ii) Customer accounts represent funds on deposit made by customers for betting activity.
NOTE 13. INTEREST BEARING LIABILITIES (CURRENT LIABILITIES)
Convertible notes – secured i) 975 – – –
Bank overdraft – 2,531 – –
975 2,531 – –
i) If certain conditions are met, the outstanding convertible redeemable notes can be converted to 3,049,713 shares in the Company.
Refer Note 22.
NOTE 14. PROVISIONS (CURRENT LIABILITIES)
Income tax 592 – 592 –
Employee benefits 17 22 17 3
609 22 609 3
NOTE 15. OTHER (CURRENT LIABILITIES)
Unearned income – unsettled bets 53 91 – –
Loans payable to former Director (refer Note 21) 400 678 400 678
453 769 400 678
Notes to the financial statements for the year ended 31 December 2003
NOTE 16. CONTRIBUTED EQUITYConsolidated Parent entity
2003 2002 2003 2002
$ $ $ $
151,625,104 (2002: 19,431,458) fully paid ordinary shares 82,272,826 22,147,468 82,272,826 22,147,468
a) Movements in fully paid ordinary shares during the period were as follows:
Number Description Note $
12,341,547 Opening balance as at 1 January 2002 19,117,516
7,089,911 Shares issued during 2002 3,369,950
Less: transaction costs relating to shares (339,998)
19,431,458 Closing balance as at 31 December 2002 22,147,468
19,431,458 Opening balance as at 1 January 2003 22,147,468
61,548,698 Share issued for $0.44 i) 27,081,427
26,734,909 Share issued for $0.50 ii) 13,367,455
810,000 Share issued for $0.50 iii) 405,000
42,352,539 Share issued for $0.50 iv) 21,176,269
5,000 Share issued for $0.50 v) 2,500
730,000 Share issued for $0.50 vi) 381,250
12,500 Share issued for $0.50 vii) 6,250
Less: transaction costs relating to share issues (2,294,793)
151,625,104 Closing balance as at 31 December 2003 82,272,826
i) On 23 January 2003, a placement of 61,548,698 ordinary shares at $0.44 per share was made to the vendors of Tasman Gaming Inc
as part of the acquisition of Tasman Gaming Inc.
ii) On 23 January 2003, a placement of 26,734,909 ordinary shares at $0.50 per share was made to professional and sophisticated
shareholders.
iii) On 30 June 2003, a Director of Betcorp, Mr Simon Noble, subscribed for 810,000 shares at $0.50 per share in accordance with an
Annual General Meeting resolution.
iv) On 6 August 2003, a placement of 42,352,539 ordinary shares at $0.50 per share was made to professional and sophisticated
shareholders.
v) On 14 August 2003, an optionholder exercised their options and was issued 5,000 shares at $0.50 per share.
vi) On 31 December 2003, a Director of Betcorp, Mr Simon Noble and an employee of Tasman Gaming Inc, Ms Jessica Davis-Dyett, were
issued 405,000 shares and 325,000 shares respectively for $nil consideration as part of their remuneration packages (fair value of
$0.50 and $0.55 respectively).
vii) On 31 December 2003, an optionholder exercised their options and was issued 12,500 shares at $0.50 per share.
b) Terms and conditions of contributed equity Ordinary shares
Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company,to participate in the proceeds from the sale of all surplus assets in proportion to the number of, and amountspaid up on, shares held.
Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.
Options
At year end, there were 2,067,500 outstanding options over ordinary shares in the Company. The optionswere granted on a 1:4 basis to shareholders who subscribed for shares in 2002. No current employees orDirectors of the Company own options in the Company. The options are exercisable at $0.50 and expire on30 August 2004.
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41BETCORP LIMITED ANNUAL REPORT 2003
NOTE 17. ACCUMULATED LOSSES
Consolidated Parent entity
2003 2002 2003 2002
$000’s $000’s $000’s $000’s
(Accumulated losses)/retained profits at the beginning of the year (26,824) (12,755) (23,377) (12,755)
Net profit/(loss) attributable to the members of the parent entity 11,888 (14,069) 1,222 (10,621)
(Accumulated losses) at the end of the year (14,936) (26,842) (22,155) (23,376)
NOTE 18. RESERVES
Foreign currency translationReserve (10,665) – – –
i) Nature and purpose of reserve
The foreign currency translation reserve is used to record foreign exchange differences arising from thetranslation of the financial statements of self-sustaining foreign operations
ii) Movements in reserveBalance at beginning of year – – – –
Gain/(loss) on translation of overseas controlled entities (10,665) – – –
Balance at end of year (10,665) – – –
NOTE 19. EMPLOYEE BENEFITS
Consolidated Parent entity
2003 2002 2003 2002
No. No. No. No.
The number of full time equivalents employed at 31 December are: 175 18 5 1
Employee share incentive scheme
An employee share scheme has been established and approved by shareholders where Betcorp Limited may,at the discretion of the Board of Directors through the Remuneration Committee, grant shares in BetcorpLimited to Directors, executives and certain members of staff of the Consolidated Entity. The shares, issuedfor nil consideration, are granted in accordance with performance guidelines established by the Directors ofBetcorp Limited. All staff are eligible for this scheme.
Ordinary shares
2003 2002
Total number of shares issued to employees during the year 730,000 –
Total number of employees participating in this plan at balance date 172
Total number of employees eligible to participate in this plan at balance date 175 –
Notes to the financial statements for the year ended 31 December 2003
NOTE 20. AUDITOR’S REMUNERATION
Consolidated Parent entity
2003 2002 2003 2002
$000’s $000’s $000’s $000’s
Remuneration received, or due and receivable, by the auditor of the parent entity and its affiliates for:
– audit or review of the financial report 175 – 60 –
– other services 123 – 123 –
Amounts received or due and receivable by auditors other than Ernst & Young for:
Audit or review of the financial report – 38 – 38
Total 298 38 183 38
NOTE 21. RELATED PARTY DISCLOSURES
Directors
The names of parent entity Directors who have held office during the financial year are as follows: John PriestRichard BarkerSimon NobleWilliam Graham.
Other transactions with Directors and Director related entities
Current management has received a claim by a former Director of the Company. The amount owing is subjectto further investigation of the supporting documentation. As at 31 December 2003, the amount of $400,000has been recognised as a liability in the balance sheet. The Directors do not intend to pay any amount until afull investigation of the amount outstanding is conducted. This amount is non-interest bearing and unsecured.
Remuneration of Directors
Consolidated Parent entity
2003 2002 2003 2002
$ $ $ $
Directors’ remuneration
Income paid or payable, other otherwise made available, in respect of the financial year, to all Directors of each entity in the Consolidated Entity, directly or indirectly, by the entities of which they are Directors or any related party 1,671,599 481,281 806,945 481,281
The number of Directors of Betcorp Limited whose income (including superannuation contributions) falls intothe following bands is:
$ $ 2003 2002
0 – 9,999 – 1
70,000 – 79,999 1 –
110,000 – 119,999 1 –
230,000 – 239,999 – 1
240,000 – 249,999 – 1
620,000 – 629,999 1 –
860,000 – 869,999 1 –
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43BETCORP LIMITED ANNUAL REPORT 2003
Consolidated Parent entity
2003 2002 2003 2002
$ $ $ $
Remuneration of executivesRemuneration received or due and receivable by executive officers of the Consolidated Entity whose remuneration is $100,000 or more, from entities in the Consolidated Entity or related parties, in connection with the management of the affairs of the entities in the Consolidated Entity whether as an executive officer or otherwise. 1,013,996 – 205,500 –
The number of executives of the Consolidated Entity and the Company whose remuneration falls into thefollowing bands:
$ $ 2003 2002 2003 2002
200,000 – 209,999 1 – 1 –
270,000 – 279,999 1 – – –
530,000 – 539,999 1 – – –
Shares issued to Director related parties
Aggregate numbers of shares acquired or disposed of by Directors of the parent entity and ConsolidatedEntity or their Director related entities from the parent entity:
Consolidated
2003 2002
No. of shares No. of shares
Acquisitions – ordinary shares 1,249,422 –
Disposals – ordinary shares – 1,642,324
Aggregate number of shares of Betcorp Limited held directly, indirectly or beneficially by Directors of theparent entity and Consolidated Entity of their Director related entities at balance date:
Consolidated
2003 2002
No. of shares No. of shares
Ordinary shares (S Noble, R Barker and W Graham) 5,605,000 1,133,327
Wholly owned group
The wholly owned group consists of Betcorp Limited and its wholly owned controlled entities. Ownershipinterests in these controlled entities are set out in Note 25.
The parent entity entered into the following transactions during the year within the wholly owned group:
• loans were advanced and repayments received on intercompany accounts;
• certain foreign exchange instruments were purchased on behalf of controlled entities; and
• a dividend was paid between Tasman Gaming Inc and the parent entity.
Notes to the financial statements for the year ended 31 December 2003
NOTE 22. CONTINGENT LIABILITIES
Unsettled wagers
Due to the nature of sportsbetting activities, at the end of the financial year there are a number of wagers onevents that are undecided. The gain or loss resulting from these wagers is brought to account in the financialstatements when the outcome of the event is known. No provision has been made to recognise any potentiallosses as the Directors consider any such liability is unlikely to be material.
Litigation
As at 31 December 2003, Betcorp Limited has been included in the following litigation.
Proceedings have been issued against the Company by Holus Capital Pty Limited alleging, among otherthings, that it is entitled to convert and has converted the US$733,334 convertible redeemable notes issuedto it by Tasman Gaming Inc into 3,049,713 shares. At the date of this report, the Company is defending thisproceeding, asserting that the convertible redeemable notes have been redeemed.
As at 31 December 2003, US$16,467,667 of the US$17,200,000 convertible redeemable notes that were issuedas a result of the Tasman Gaming Inc acquisition have been redeemed.
Bank guarantees
As at 31 December 2003, Betcorp Limited has a bank guarantee of $55,000 for payroll processing.
Sportsbet has $200,000 on deposit as a guarantee requirement of its licence with the Northern TerritoryRacing Commission (“NTRC”).
NOTE 23. SEGMENT INFORMATION
The Company operates in two distinct geographical segments, Australia and Antigua. In the prior year, theConsolidated Entity operated in one geographical segment, Australia.
The Company operates predominately in the wagering industry.
Australia Antigua Eliminations Total
As at 31 December 2003 $’000’s $’000’s $000’s $000’s
Wagering turnover 28,585 995,426 1,024,011
Operating revenue 502 40,194 40,696
Depreciation expense (137) (380) (515)
Amortisation expense (2,082) (585) (2,667)
Other non-cash expenses (315) (538) (853)
Profit/(loss) after tax (296) 16,373 (4,189) 11,888
Total assets 31,014 69,850 (27,620) 73,244
Total liabilities 6,156 38,132 (27,716) 16,572
Customers who bet with Tasman Gaming Inc primarily reside in North America and Asia. Customers who betwith Sportsbet Pty Ltd primarily reside in Australia. The geographic split of customers (by turnover) is North America (67%), Asia (30%) and Australia (3%).
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45BETCORP LIMITED ANNUAL REPORT 2003
NOTE 24. CASH FLOW INFORMATION
Consolidated Parent entity
2003 2002 2003 2002
$000’s $000’s $000’s $000’s
a) Reconciliation of cash flow from operations with profit/(loss) from ordinary activities after income tax
Profit/(loss) from ordinary activities after income tax 11,888 (14,069) 1,222 (10,621)
Amortisation expense including deferred expenditure written off 2,667 4,992 – 4,451
Depreciation expense 515 184 26 8
Diminution in value of licence – 1,000 – –
Diminution in value of intercompany loan receivable – – – 3,167
Consulting fees paid via share issue – 100 – 100
Unrealised foreign currency gain (913) – – –
Intercompany dividend – – (4,189) –
Non-cash employee share expense 381
Loans advanced to other entities – 200 – 200
Changes in assets and liabilities:
Decrease/(increase) in receivables (87) 174 151 (77)
Decrease/(increase) in prepayments 130 39 (12) (5)
(Decrease)/increase in payables 310 1,810 (1,046) 1,388
(Decrease)/increase in provisions 587 (5) 606 –
(Decrease)/increase in unearned income – 30 – –
(Decrease)/increase in other liabilities (316) – (278) –
Effect of exchange rate on cash used in operating activities (4,441) – – –
Net cash used in operating activities 10,721 (5,325) (3,520) (1,168)
b) Reconciliation of cash
For the purposes of the statement of cash flows, cash includes cash on hand and in banks, net of outstandingbank overdrafts.
Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in thestatement of financial position as follows:
Bank overdraft – (2,531) – –
Cash at bank 9,280 1 754 2
Cash on hand 4 5 – –
Term deposits 10,932 216 200 216
20,217 (2,309) 954 218
Notes to the financial statements for the year ended 31 December 2003
NOTE 24. CASH FLOW INFORMATION continued
c) Financing facilities
As at 31 December 2003, Betcorp Limited had a bank facility for $55,000 ($55,000 unused) to cover itsmonthly payroll processing.
d) Acquisition of controlled entity
Effective from 1 January 2003, Betcorp Limited acquired 100% of the voting share capital of Tasman GamingInc (“Tasman”), a proprietary company incorporated in Antigua. Tasman operates as WorldWide TeleSports(“WWTS”). WWTS is one of the world’s premier sports books, offering online and telephone betting servicesto an extensive client base on a wide range of international sporting events. The consideration for theCompany’s purchase of all the issued shares in Tasman was US$32 million ($57.4 million at the then prevailingexchange rate), comprised as follows:
• the issue by Betcorp to Tasman shareholders of 61,548,698 fully paid ordinary shares at $0.44 each; and
• the assumption of Tasman’s debt relating to its acquisition of the WWTS business, totalling US$17.2 million($30.3 million at the then prevailing exchange rate) in convertible redeemable notes. The notes areredeemable at face value or, in certain circumstances, may be converted into fully paid ordinary shares inthe Company at a rate of 4.1587 shares in Betcorp for each US$1.00 note. As at 31 December 2003,US$16,467,000 of the convertible redeemable notes have been repaid.
Consolidated
2003 2002
$000’s $000’s
Consideration:
– convertible notes (US$17.2 million) 30,282 –
– shares in Betcorp Limited (61,548,698 @ $0.44) 27,081 –
Total 57,363 –
Assets acquired:
Assets
– purchased goodwill on acquisition 56,800 –
– cash 9,605 –
– receivables 3,024 –
– plant and equipment 838 –
– other assets 1,282 –
71,549 –
Liabilities
– player/agent balances 14,186 –
57,363 –
Net cash effect:
– cash consideration paid – –
– cash included in net assets acquired (9,605) –
Net cash acquired on acquisition (9,605) –
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47BETCORP LIMITED ANNUAL REPORT 2003
NOTE 25. CONTROLLED ENTITIES
The consolidated financial statements at 31 December 2003 include the following controlled entities. Thefinancial years of all controlled entities are the same as that of the parent entity.
Name of controlled entity Place of incorporation/formation % of shares held
Sportsbet Pty Limited Australia 100%
Race Lotto Pty Limited Australia 100%
Tasman Gaming Inc i) Antigua 100%
WWI AQ Limited i) Antigua 100%
Post Time Sports Book Limited i) Antigua 100%
Betcorp (UK) Limited ii) United Kingdom 100%
i) Entity acquired during the year.
ii) Entity established during the year.
NOTE 26. FINANCIAL INSTRUMENTS
Credit risk exposures
The credit risk on financial assets of the Consolidated Entity which have been recognised on the statement offinancial position, other than investments in shares, is generally the carrying amount, net of any provisions fordoubtful debts.
Hedging instrumentsGeneral hedges
The Company has entered into various forward foreign currency options designed to protect the US dollardenominated profit from Tasman Gaming Inc for the 2004 year.
At reporting date, in accordance with UIG 33 “Hedges of Anticipated Purchases and Sales”, this hedge is notconsidered to have the level of specificity to classify it as a specific hedge. As a result, the unrealised gain of$913,504 (2002: $Nil) has been included in the net profit for the year.
Interest rate risk exposures
The Consolidated Entity’s exposure to interest rate risk and the effective weighted average interest rate foreach class of financial assets and financial liabilities are set out below.
Exposure arises predominantly from assets and liabilities bearing variable interest rates as the ConsolidatedEntity intends to hold fixed rate assets and liabilities to maturity.
Notes to the financial statements for the year ended 31 December 2003
NOTE 25. CONTROLLED ENTITIES continued
Fixed interest maturing in:
Floating 1 year over 1 to more than Non-interest
interest rate or less 5 years 5 years bearing Total
Note $000’s $000’s $000’s $000’s $000’s $000’s
2003
Financial assets
Cash 24(b) 9,285 10,932 – – – 20,217
Receivables 5 – – – – 3,705 3,705
9,285 10,932 – – 3,705 23,922
Weighted average interest rate 1.15%
Financial liabilities
Payables 12 – – – – (14,535) (14,535)
Interest bearing liabilities 13 – (975) – – – (975)
Loan payable to former Director related entities 15 – – – – (400) (400)
– (975) – – (14,935) (15,910)
Weighted average interest rate 8.0%
Net financial assets 9,285 9,957 – – (11,230) 8,012
2002
Financial assets
Cash 24(b) 217 – – – 5 222
Receivables 5 – – – – 594 594
217 – – – 599 816
Weighted average interest rate 2.80%
Financial liabilities
Payables 12 – – – – (3,356) (3,356)
Interest bearing liabilities 13 (2,531) – – – – (2,531)
Loan payable to former Director 15 – – – – (678) (678)
(2,531) – – – (4,034) (6,565)
Weighted average interest rate 8.60%
Net financial assets (2,314) – – – (3,435) (5,749)
On-statement of financial position
The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets andfinancial liabilities of the Consolidated Entity approximates their carrying value.
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49BETCORP LIMITED ANNUAL REPORT 2003
NOTE 27. EARNINGS PER SHARE
Consolidated
2003 2002
$000’s $000’s
The following reflects the income and share data used in the calculations of basic and diluted earnings per share:
Net profit/(loss) 11,888 (14,069)
Number of Number of
shares shares
Weighted average number of ordinary shares used in the calculation of basic earnings per share 119,382,750 12,755,036
Effect of dilutive securities:Share options 219,155 –
Shares within convertible notes 3,049,713 2,850,000
Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share 122,651,618 15,605,036
Since the end of the financial year, no ordinary shares have been issued pursuant to the employee shareincentive scheme.
There have been no conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinaryshares since the reporting date and before the completion of this financial report.
NOTE 28. SIGNIFICANT EVENTS AFTER YEAR END
On 1 January 2004, the Company exercised an option to acquire the online casino businesses of WiseguyCasino and BetCasino. During 2003, the Company managed the casino sites under a managed servicesagreement. In the year ended 31 December 2003, the casino businesses turnover was US$165.4 million($254.4 million). The casino turnover will be included in the Company’s total turnover from 1 January 2004.
Northern Territory Racing Commission (“NTRC”) – Sportsbet Licence
As at the date of this report, Sportsbet’s licence with the Northern Territory Racing Commission has beentemporarily reinstated. A permanent reinstatement of Sportsbet’s licence is the subject of continueddiscussions between the Company and the NTRC. Issues surrounding the original suspension of Sportsbet’slicence have been resolved and the Company expects that the remaining issues will be resolved in the short term, leading to a permanent reinstatement of Sportsbet’s licence.
Notes to the financial statements for the year ended 31 December 2003
NOTE 29. EXPENDITURE COMMITMENTS
Consolidated Parent entity
2003 2002 2003 2002
$000’s $000’s $000’s $000’s
a) Capital expenditure commitments
Estimated capital expenditure contracted for at reporting date, but not provided as payable:
– not later than one year i) 1,271 – – –
– later than five years – – – –
1,271 – – –
i) Capital commitments relate solely to the deployment of a new betting software platform at Tasman Gaming Inc.
b) Lease expenditure commitmentsOperating leases (non-cancellable)
Minimum lease payments
– not later than one year 372 – 87 –
– later than one year and not later than five years 750 – 228 –
Aggregate lease expenditure contracted for at reporting date 1,122 – 315 –
50
Betcorp Limited and controlled entities
Directors’ declaration
In accordance with the resolution of the Directorsof Betcorp Limited, I state that:
In the opinion of the Directors:
a) the financial statements and notes of theCompany and of the Consolidated Entity are inaccordance with the Corporations Act 2001,including:
i) giving a true and fair view of the Company’s and Consolidated Entity’s financial position as at 31 December 2003 and of their performancefor the year ended on that date; and
ii) complying with Accounting Standards and theCorporations Regulations 2001; and
b) there are reasonable grounds to believe that theCompany will be able to pay its debts as andwhen they become due and payable.
On behalf of the Board
Richard BarkerCHIEF EXECUTIVE OFFICER
Sydney, 18 February 2004
51BETCORP LIMITED ANNUAL REPORT 2003
Independent audit report to members of Betcorp Limited
SCOPEThe financial report and directors’ responsibility
The financial report comprises the statement offinancial position, statement of financialperformance, statement of cash flows,accompanying notes to the financial statements,and the directors’ declaration for Betcorp Limited(the company) and the consolidated entity, for theyear ended 31 December 2003. The consolidatedentity comprises both the company and theentities it controlled during that year.
The directors of the company are responsible forpreparing a financial report that gives a true andfair view of the financial position and performanceof the company and the consolidated entity, andthat complies with Accounting Standards in Australia,in accordance with the Corporations Act 2001. Thisincludes responsibility for the maintenance ofadequate accounting records and internal controlsthat are designed to prevent and detect fraud anderror, and for the accounting policies and accountingestimates inherent in the financial report.
Audit approach
We conducted an independent audit of thefinancial report in order to express an opinion onit to the members of the company. Our audit was
conducted in accordance with Australian AuditingStandards in order to provide reasonableassurance as to whether the financial report is freeof material misstatement. The nature of an audit isinfluenced by factors such as the use ofprofessional judgement, selective testing, theinherent limitations of internal control, and theavailability of persuasive rather than conclusiveevidence. Therefore, an audit cannot guarantee thatall material misstatements have been detected.
We performed procedures to assess whether in allmaterial respects the financial report presentsfairly, in accordance with the Corporations Act2001, including compliance with AccountingStandards in Australia, and other mandatoryfinancial reporting requirements in Australia, aview which is consistent with our understandingof the company’s and the consolidated entity’sfinancial position, and of their performance asrepresented by the results of their operations andcash flows.
We formed our audit opinion on the basis of theseprocedures, which included:
• examining, on a test basis, information toprovide evidence supporting the amounts anddisclosures in the financial report; and
• assessing the appropriateness of theaccounting policies and disclosures used andthe reasonableness of significant accountingestimates made by the directors.
While we considered the effectiveness ofmanagement’s internal controls over financialreporting when determining the nature and extentof our procedures, our audit was not designed toprovide assurance on internal controls.
We performed procedures to assess whether thesubstance of business transactions was accuratelyreflected in the financial report. These and ourother procedures did not include consideration or judgement of the appropriateness orreasonableness of the business plans or strategiesadopted by the directors and management of the company.
Independence
We are independent of the company, and havemet the independence requirements of Australianprofessional ethical pronouncements and theCorporations Act 2001. In addition to our audit ofthe financial report, we were engaged toundertake the services disclosed in the notes tothe financial statements. The provision of theseservices has not impaired our independence.
AUDIT OPINIONIn our opinion, the financial report of BetcorpLimited is in accordance with:
a) the Corporations Act 2001, including:
i) giving a true and fair view of the financialposition of Betcorp Limited and theconsolidated entity at 31 December 2003 andof their performance for the year ended onthat date; and
ii) complying with Accounting Standards in Australia and the Corporations Regulations2001; and
b) other mandatory financial reportingrequirements in Australia.
Ernst & Young
Garry WaylingPARTNER
Sydney, 18 February 2004
Liability limited by the Accountants Scheme approved underthe Professional Standards Act 1994 (NSW).
52
Shareholders information
53BETCORP LIMITED ANNUAL REPORT 2003
Statement of quoted securities as at 30 March 2004
• There are 4,249 shareholders holding a total of 152,673,979 ordinary fully paid shares.
• The 20 largest shareholders between them hold 57.11% of the total issued capital of the Company.
• Voting rights are that on a show of hands each member present in person or by proxy or attorney orrepresentative shall have one vote and upon a poll every member so present shall have one vote for every share held.
Distribution of securities as at 30 March 2004Range Number of holders
1 – 1,000 602
1,001 – 5,000 1,243
5,001 – 10,000 1,168
10,001 – 100,000 1,135
100,001 and over 101
Total holders 4,249
There are 455 shareholders holding less than a marketable parcel.
Substantial shareholdings as at 30 March 2004
The following information is extracted from the Company’s register of substantial shareholders:
Substantial shareholder Total relevant interest notified % of total issued capital
Ms Melareen Christopher 13,585,073 8.90
Ms Sharilyn Cort 13,585,073 8.90
Ms Sharon Cort 13,585,073 8.90
Lasham Capital Ltd 12,862,322 8.42
Equity Trustees Ltd 10,014,220 6.56
Directors’ shareholdings
As at 30 March 2004, Directors of the Company hold a relevant interest in the following shares and options inthe Company:
Director Shares Options
J Priest – –
R Barker * 3,500,000 –
W Graham 500,000 –
S Noble ** 1,854,875 –
Note:
* Mr Barker acquired a relevant interest in 3,465,578 shares (through Aleste Investments Pty Limited – a former Tasman shareholder)
under the Tasman Share Sale Agreement. As at 31 December 2003, Mr Barker has 500,000 shares issued as part of his
remuneration package which will vest on 31 December 2004.
**As at 31 December 2003, Mr Noble has 405,000 shares issued as part of his remuneration package which will vest on
31 December 2004.
Service agreements
Except as disclosed in the accompanying financial statements there are no contingent liabilities relating totermination benefits payable to Directors and executives of the Company under service agreements existingat 31 December 2003.
Unquoted restricted securities
As at 30 March 2004, there are no unquoted ordinary fully paid shares on issue by the Company.
Shareholders information
Unquoted options
As at 30 March 2004, there are 1,272,500 unquoted options over unissued shares in the Company held by a total of 27 optionholders and they are noted below:
Name No. of options Exercise price Expiry date
Athlone Holdings Pty Ltd 62,500 $0.50 30/08/2004
Australian Options Trading (AOT) Pty Ltd 15,000 $0.50 30/08/2004
Mr Ian James Bardon 10,000 $0.50 30/08/2004
Cabe Investments Pty Ltd 12,500 $0.50 30/08/2004
Cognicorp Pty Ltd 12,500 $0.50 30/08/2004
Mr Brett Cooper 212,500 $0.50 30/08/2004
Exchange Finance Pty Ltd 125,000 $0.50 30/08/2004
Mr Dean Fehlberg 50,000 $0.50 30/08/2004
Mr Shane Fehlberg 75,000 $0.50 30/08/2004
Ferret Investments Pty Ltd 25,000 $0.50 30/08/2004
Financial Marketing Pty Ltd 10,000 $0.50 30/08/2004
GLF Martin (Services) Pty Ltd 25,000 $0.50 30/08/2004
Hollywood Marketing (WA) Pty Ltd 50,000 $0.50 30/08/2004
Mrs Sandra Limberg 5,000 $0.50 30/08/2004
Mrs Juliette Lipman 15,000 $0.50 30/08/2004
Michael Hook & Associates Pty Ltd 10,000 $0.50 30/08/2004
Mintoff & Young Holdings Pty Ltd 100,000 $0.50 30/08/2004
Mr Jeff O’Donnell 212,500 $0.50 30/08/2004
Phyro Holdings Pty Ltd 50,000 $0.50 30/08/2004
Polvran Investments Pty Ltd 5,000 $0.50 30/08/2004
Redeg Holdings Pty Ltd 2,500 $0.50 30/08/2004
Mr John Ribot-de-Bresac 35,000 $0.50 30/08/2004
The Trustees of the Russell Superannuation Fund 50,000 $0.50 30/08/2004
Mr Dean Shannon 25,000 $0.50 30/08/2004
Sherbert Holdings Pty Ltd 62,500 $0.50 30/08/2004
Mr Bernard Stang 10,000 $0.50 30/08/2004
Westglade Pty Ltd 5,000 $0.50 30/08/2004
1,272,500
The above optionholdings reflect the 1:10 consolidation approved by shareholders on 20 December 2002.
On-market buy-backsAt 30 March 2004, there is no on-market buy-back scheme in relation to the Company’s shares either currentor proposed.
54
55BETCORP LIMITED ANNUAL REPORT 2003
Top 20 shareholders as at 30 March 2004
Shareholder name and ranking Number of shares held % of total
1=. Ms Melareen Christopher as trustee for the Susan A Scott Family Trust 13,585,073 8.90
1=. Ms Sharilyn Cort as trustee for the Stacee Scott Family Trust 13,585,073 8.90
1=. Ms Sharon Cort as trustee for the Madeline Scott Family Trust 13,585,073 8.90
4. Lasham Capital Ltd 12,862,322 8.42
5. Equity Trustees Ltd 10,014,220 6.56
6. Invia Custodian Pty Ltd 4,950,000 3.24
7. Aleste Investments Pty Ltd 3,500,000 2.29
8. M F Custodians Ltd 2,395,775 1.57
9. Mr Simon Noble 1,854,875 1 .21
10. McNeil Nominees Pty Ltd 1,805,000 1.18
11. ANZ Nominees Ltd 1 ,617,100 1.06
12. Mr Jeff O'Donnell 1,366,957 0.90
13=. Rayloff Investments Pty Ltd 1,000,000 0.65
13=. Rivkin Investments Pty Ltd 1,000,000 0.65
15. Hintern Holdings Pty Ltd 800,000 0.52
16. ES Group Equities Pty Ltd 73 1 , 5 4 1 0.48
17. Mr Frank Hudson 664,556 0.44
18. Bond Street Custodians Ltd 629,900 0.41
19. Mrs Leanne Cooper 625,000 0.41
20. Mr Andrew Geoff Egan 620,000 0.41
Total held by top 20 shareholders 87,192,465 57.11
Corporate directory
Registered Office and Head OfficeBetcorp LimitedACN 081 765 537 Level 3, 88 Walker StreetNorth Sydney NSW 2060Telephone (02) 9954 6500Facsimile (02) 9954 7099E-mail [email protected]
Share RegistryComputershare Investor Services Pty LimitedLevel 3, 60 Carrington StreetSydney NSW 2000Telephone (02) 8234 5000Facsimile (02) 8234 5050
AuditorErnst & Young321 Kent StreetSydney NSW 2000
BankersNational Australia BankSt George BankANZ BankWestpac Banking
56
Visit Betcorp’s website, www.betcorp.com.au,for a range of shareholder information andcompany news, information about Betcorp’sgaming and betting products and services,general information, and as a convenient wayto request further information online.
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CONTENTS
The game plan 1
Financial highlights 6
Chairman’s message 7
Chief Executive Officer’s review 8
Management team 11
Business summary 12
Review of operations – WWTS 14
Review of operations – Sportsbet 18
Board of Directors 20
Financial information 21
Corporate directory 56
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