Winners are · 2017. 2. 6. · $5 Jackpot Lottery $5.9m 13 x 1st Prize winners 12,880 Prizes in $200,000 won as –140,000 tickets There were no $5 every $5 Jackpot first prize in

Winners are...Annual Report 2004

www.nswlotteries.com.au

...madeevery day

Annual Report 2004 NSW Lotteries 01

But what goes into making awinner is more than just luck.It’s about having a winningcombination.

Our PlayersObjective 1Product development_19

Objective 2Responsibility _24

Our BusinessObjective 3Player services_27

Objective 4Retailer performance_28

Our ShareholdersObjective 5Shareholder Value_33

Our StaffObjective 6Working Environment_37

ContentsLetter to Shareholder Ministers_02Statement of Corporate Intent_03Overview by Chairman and Chief Executive Officer_04Key Facts 2003/2004_05History_05The Year in Brief_06What We Do_08Corporate Governance_10Board of Directors_14Management Structure_1601 Our Players

Product Development_19Responsibility_24

02 Our BusinessPlayer Services_27Retailer Performance_28

03 Our ShareholdersShareholder Value_33

04 Our StaffWorking Environment_37

Financial Statements_40Statutory Reporting Appendix_57Index_63

01 02

03 04

Communication ObjectiveThis document provides an account of the operations of NSW Lotteries Corporation during the 2003-04 financial year and flags the Corporation’s plans for the future. The report provides an analysis of achievements against key performance measures and targets contained in its Business Plan and annual Statement of Corporate Intentnegotiated with its Shareholder Ministers.

The report details the Corporation’s operational framework and is a key accountabilitydocument in reporting on the management of its activities. It provides all key stakeholders,including the Shareholder Ministers, the Portfolio Minister, the NSW Treasury, our players and agents, as well as the general community, with timely access to relevant informationconcerning the financial and business performance of the Corporation in carrying out itsdesignated role.

This Annual Report complies with all relevant statutory requirements and guidelines. It aims to communicate to its users in an open and easily understood fashion. The format andpresentation of the content takes account of best practice in annual reporting and relevantdisclosure guidelines.

Annual Report 2004 NSW Lotteries

Letter to Shareholder Ministers

The Hon Michael Egan, MLCTreasurer

Dear Gentlemen

Re: Report of Performance for the Year Ended 30 June 2004

It is our pleasure to submit the Annual Report for NSW Lotteries Corporation coveringour activities for the year ended 30 June 2004, for presentation to Parliament.

The Annual Report has been prepared in accordance with the State OwnedCorporations Act 1989 and the Annual Reports (Statutory Bodies) Act 1984.

The Corporation’s Financial Statements, which form part of the Annual Report, have been certified by the Auditor-General of New South Wales without qualification.

John Bagshaw Michael HowellChairman Chief Executive Officer

02 Annual Report 2004 NSW Lotteries

The Hon John Della Bosca, MLCSpecial Minister of State andMinister for Industrial Relations


As a State Owned Corporation, NSW Lotteries is accountable to itsShareholder Ministers, the Hon MichaelEgan MLC, Treasurer, and the Hon JohnDella Bosca MLC, Special Minister ofState, for its commercial performance.A Statement of Corporate Intent isnegotiated annually between NSWLotteries and the Shareholder Ministersand sets out the key performancemeasures and targets to be achievedby the Corporation each financial year.Key financial results for 2003/2004 are as follows:

Results for Fiscal 2004

Performance Measure Target Result

Sales $1,103.00m $1,108.91m

Profit from Ordinary Activities Before Significant Items and Government Tax Equivalent $43.14m $47.24m

Government Duty $279.49m $279.55mDividends and Tax Equivalent Payments $43.14m $47.24m

Total $322.63m $326.79m

03

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

* Exculdes GST.By agreement between the Commonwealth and State Governments, with the introduction of the GST, the rate at which NSW Lotteries pays duty to the NSW Government was reduced to compensate for the GST payable to the Commonwealth Government.

† Included a Special Dividend of $10m

Total Revenue to NSW Government ($M)

300.

6

306.

5

308.

0

*291

.8

*302

.4

*† 329

.3

*326

.8

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

* Includes GST.

Product Sales ($M)

939.

3

963.

2

946.

0

*1,0

10.7

*1,0

20.8

*1,0

92.9

*1,1

08.9

Results for 7 years at a glance

Category 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04

Sales ($M)** 939.3 963.2 946.0 1,010.7** 1,020.8** 1,092.9** 1,108.9**

Total Government Revenue ($M)1 300.6 308.0 306.5 332.4** 343.6** 373.6** 371.8**

Return on Average Shareholder Equity (%) 67 64 50 55 64 90 95

Return on Corporate Assets (%) 38 36 31 32 35 44 47

Selling System Up-time (%) 99.99 99.99 100.00 99.96 99.99 99.99 99.99

Average Staff Number 222 209 203 205 201 195 183

Sales per Employee ($M) 4.2 4.6 4.7 4.9 5.1 5.6 6.1

** Includes GST1 Total Government Revenue includes Duty, Dividends and Tax Equivalent payments, and excludes payments to the Australian Capital Territory Government

Statement of Corporate Intent


A Year of AchievementFiscal 2004 represented yet anotheryear of significant achievement for NSW Lotteries. In its seventy-third yearof trading, the Corporation achievedrecord sales of $1,108.9 million. Thismeans that sales records have beenbroken in thirteen out of the lastfourteen financial years and ensuresthat NSW Lotteries continues to be the largest lottery operator in Australia.

Continued FiscalResponsibilityThe Corporation was able to achieve an increase in underlying profit in achallenging marketplace. Profit, beforeSignificant Items and Government TaxEquivalent, increased by 10% to $47.2 million compared with a 1.5% rate of sales growth.

The improvement in profit demonstratesthe strength of the business, as well asthe Corporation’s disciplined approachto cost control and sound financialmanagement. As a result, theCorporation’s overall contribution to itsShareholders totalled $326.8 millionwhich represented an increase of 2.3%,after adjustment for a $10 millionSpecial Dividend paid last year.

Popular Games and TimelyEnhancementsOne of the main factors contributing to this year’s successful results was the sustained growth in popularity ofSaturday Lotto, with sales of more than23% above the previous year. Thissignificant growth boosted prize levelsfor the major draws and enabled thefunding of an additional Super Saturdaydrawing this year.

Further good news came from therestructuring of the Monday/WednesdayLotto game which has been well receivedby players. Early indications are that thechanges have met their intended objectiveof reversing the trend of declining sales.In addition, the introduction of anadditional Saturday Lotto Strike Drawhas provided some new revenues.

Another major factor contributing to thesuccessful result this year was the solidperformance of the $2 Jackpot Lottery.The restructure of the lottery in 2002has borne fruit this year. Three significantjackpot runs contributed to salesreaching $121.9 million, a 16% increaseon the previous year. Unfortunately on thedown side, Powerball could not repeat itsabnormally good jackpot runs of theprevious year and OZ Lotto alsostruggled to remain competitive.

High Levels of Service and EfficiencyThe Corporation has continued to makegood progress with its focus on thecontinuous improvement of its businessprocesses. Aside from providing costand efficiency benefits, in many casesthese have delivered significantimprovements in the quality of service toour customers and retailers. The successof this strategy was clearly reflected incustomer satisfaction surveys where96% of players were satisfied toextremely satisfied with the quality ofservice delivered by the Corporationand the retail network. In addition 88%of retailers were satisfied to extremelysatisfied with the sales support servicesprovided by NSW Lotteries.

For their dedicated efforts in supportingour games, over 1,600 small businessesthroughout New South Wales and theAustralian Capital Territory earned $74.1 million in handling fees.

Focus on Our StaffThe past year has seen an increasedconcentration on sharpening thecommercial focus of our staff by givingthem a clear understanding on how eachjob contributes to the commercialsuccess of the Corporation. We alsodeveloped and implemented a formalworkforce planning process which willhelp shape the workforce required tomeet the future challenges of ourbusiness. NSW Lotteries has manytalented and committed individuals and we recognise the need to identify,develop and effectively utilise the skills wehave within the organisation. We extendour thanks to all employees for theirdedicated efforts during the past year.

Outlook The lottery industry worldwide is facing a number of major challenges. It will be increasingly difficult to maintain thegrowth rates of former years. This is onlyto be expected of a mature businessfacing new and increasing forms ofcompetition. Nonetheless, NSW Lotteriesis well positioned to drive further profitgrowth through a continued focus onimproving customer service, encouraginginnovation and striving for excellence inproduct delivery.

We remain positive that our vision will be achieved.

John BagshawChairman

Michael HowellChief Executive Officer

04

John Bagshaw, Chairman and Michael Howell, Chief Executive Officer

OverviewBy the Chairman and Chief Executive Officer


Sales Game Matrix Prizes Won No. of Millionaires Total No. Largest First/in NSW & 1st Prize Winners of Winners Jackpot Prize

Lotto $231.4m 6 from 45 $141.2m 21 millionaires 4,363,533 $3m(See Note 1 below) 131 Division One winners

Lotto Strike $13.3m First 4 Lotto $9.1m 2 millionaires 1,163,785 $2mnumbers 4 Strike 4 winners

Saturday Lotto $224.0m 6 from 45 $141.7m 16 NSW millionaires 2,379,242 $30m66 NSW Division One winners

OZ Lotto $103.6m 6 from 45 $62.2m 9 NSW millionaires 488,376 $10m14 NSW Division One winners

Powerball $241.8m 5 from 45 & 1 $146.8m 4 NSW millionaires 4,019,208 $30mfrom 45 drawn by 4 NSW Division One winnersa 2nd machine

Instant $166.2m Game Pricepoints: $105.4m Number of Game 23,583,029 (approx) Scratchies Top Prizes: total prizes paid

$1 36 $50 k$2 29 $100 k$2.50 7 $300 k$3 20 $50 k$4 4 $1m$5 11 $250 k$10 4 $500 k

Lucky $121.9m $2 Jackpot Lottery $105.6m 282 x 1st Prize winners 10,147 Prizes in $13.7m JackpotLotteries – 200,000 tickets. 3 x $2 Jackpot Lottery every $2 Jackpot won in July 2003.

millionaires Lottery draw

$5 Jackpot Lottery $5.9m 13 x 1st Prize winners 12,880 Prizes in $200,000 won as–140,000 tickets There were no $5 every $5 Jackpot first prize in each

Jackpot Lottery Lottery draw of the 13 drawsmillionaires over the year

6 From 38 Pools $6.7m 6 from 38 $2.6m 10 Division One winners 90,276 $995,000

Total $1,108.9m $720.5m

Note 1 – Lotto operated as a 6 from 44 game until 14 April 2004. Game changes introduced from 15 April 2004 altered the game matrix to 6 from 45.

05

Key Facts 2003/2004

HistoryNSW Lotteries has provided players with entertaining games and the chance to make their dreams become reality for 73 years.

1931 ■ 22 June – The Lotteries Act was proclaimed■ 10 August – The first State Lottery went on sale■ 20 August – The first State Lottery was drawn with

a first prize of £5,0001947 ■ A Special Lottery was commenced with the first prize of £12,0001954 ■ Mammoth Lotteries were introduced with a first prize of £30,0001956 ■ A Jackpot prize was added to the Mammoth Lottery1957 ■ Opera House Lottery tickets went on sale for a first prize

of £100,0001963 ■ The New Jackpot Lotteries commenced1974 ■ The first $10 Lottery went on sale offering a first prize of $250,0001975 ■ The Half-Million Dollar Lottery was introduced1979 ■ Lotto introduced – Monday only – 6 from 40 game matrix1982 ■ Instant Scratchies commenced selling1984 ■ Wednesday Lotto introduced1986 ■ Million Dollar lottery introduced

■ $20 Peace Lottery introduced1987 ■ New computer gaming system introduced

■ Lotto commenced selling online1989 ■ Lotto changed from 40 to 44 numbers and the Wednesday

draw changed to Thursday. Players were able to enterMonday and Midweek games separately

■ Licence to conduct 6 from 38 Pools (the 1st national game)granted to NSW Lotteries

1993 ■ $20 Olympic Bid Lottery launched1994 ■ OZ Lotto introduced (the 2nd national game)1995 ■ Lotto Strike (Monday and Wednesday) introduced1996 ■ Midweek Lotto game changed back to Wednesday night

■ Powerball introduced on Thursday night (the 3rd national game)■ Last Million Dollar Lottery drawn and replaced by a new

Lucky 7 lottery game1997 ■ NSW Lotteries incorporated as a State Owned Corporation2000 ■ Implementation of new state-of-the-art Gaming System

■ Saturday Lotto introduced (the 4th national game)■ Lucky 7 discontinued

2001 ■ June – NSW Lotteries is the first Australian lottery organisationto achieve $1 Billion dollars in sales during a financial year

■ August – NSW Lotteries celebrates 70 years of operation2003 ■ The biggest prize ever won in an Australian Draw Lottery was

$13.7 million in the $2 Jackpot Lottery■ A $30 million Powerball jackpot – the biggest single prize ever

won in NSW 2004 ■ Lotto – Monday and Wednesday – is changed to a 6 from

45 game matrix■ Lotto Strike extended to a Saturday draw ■ NSW Lotteries continues to be the largest lottery operator

in Australia

The Year in Brief

Responsibility2. To be recognised as

a Responsible Gamingoperator

For full details, refer pages 24 and 25

Compliance with theCorporation’s ResponsibleGaming Package

100% 100%

Player Services3. To provide an expanded

range of services to ourplayers

For full details, refer pages 27 and 28

Satisfaction of Players

No. of Player Complaints

Customer Hotline callsanswered within 30 seconds

98%

<240

90%

96% (3% undecided)

139

93%

Retailer Performance4. To improve our competitive

position and businessefficiency

For full details, refer pages28-31

Satisfaction of Agents

Agent Hotline calls answeredwithin 30 seconds

Gaming System Uptime

89%

80%

99.95%

88%

89%

99.99%

Shareholder Value5. To satisfy Shareholder

expectations throughimproved businessperformance

For full details, refer pages3 and 33-35

Duties paid to Governments ($m)

Profit from Ordinary Activitiesbefore Significant Items andGovernment Tax Equivalent ($m)

Return on AverageShareholder Equity

$284.66m

$43.14m

84.8%

$285.39m

$47.24m

94.7%

Working Environment6. To increase the

commercial focus

For full details, refer pages 37- 39

Staff Turnover

Days sick per employee

<10%

5

14.02%

4.9

06

Our Players

Our Business

01

02

Our Shareholders03Our Staff04

Objective Performance Measure Target 2003/04 Result 2003/04

Product development 1. To grow sales and returns

to Shareholders

For full details, refer pages 19-24

Meet or exceed sales target $1,103m $1,108.9m


07

■ Sales totalled $1,108.9 million (GST inclusive) – $16 million (or 1.5%) above the previous year ■ Prizes won in NSW totalled $720.5 million ■ Combined turnover for Lotto style games was $814 million – $6 million (or 0.7%) above the previous year■ Instant Scratchie sales were $166.2 million – $6.1 million (or 3.5%) below the previous year■ Lucky Lotteries sales were $121.9 million – $16.8 million (or 16%) above the previous year■ 6 from 38 Pools sales were $6.7 million – $0.8 million (or 10.7%) below the previous year

■ The Corporation remains committed to ensuring that action is taken to minimise any negative impacts from the sale and promotion of its range of products

■ NSW Lotteries’ comprehensive Responsible Gaming policies continue to meet and exceed all legislative requirements■ NSW Lotteries made representations to the IPART review of Gambling Harm Minimisation Measures■ Responsible Gaming continues to be part of formal Agent Training sessions conducted by the Corporation■ An on-going compliance monitoring program is undertaken by the Corporation’s Territory Managers

■ More than 394,000 calls were received through the Call Centre■ www.nswlotteries.com.au attracted 3,247,025 user sessions during the year – over 31% up on the previous year■ Nearly 1 million players continue to maintain their Players Club membership

■ By the end of fiscal 2004 there were 1,458 Online and 145 Instant Scratchies retail outlets ■ Total commission on product sales paid to agents was $74.1 million – $3 million (or 4.2%) above the previous year■ At the end of fiscal 2004, 1,242 agents were operating on formal business plans which are designed to support agency performance■ Over 10,000 visits to agencies were conducted by Territory Managers■ 812 agents (or 50% of the total network) participated in the TOP SHOP program during fiscal 2004■ 196 Retail Image completions were achieved against a target of 170■ Over 875 promotions were conducted at key retail outlets ■ Over 1,200 people attended Agent Training courses covering all aspects of operating a NSW Lotteries agency

■ Total revenues of $371.8 million was paid to Government in the form of duties, tax equivalents, dividends and GST ■ Employee efficiency, as measured by total sales per employee, increased by 9% over the year from $5.6 million to $6.1 million■ This continues the long-term trend of improvement where sales per employee have increased 45% over the last seven years

■ A new Commercial Focus training course was attended by all NSW Lotteries staff■ An automated computer-based Employee Self Service Kiosk was introduced to allow staff to access personnel and payroll information on-line■ Occupational Health and Safety (OH&S) training was conducted for managers, supervisors and staff■ A range of health programs continued throughout the year including influenza inoculations, skin cancer awareness and a violence prevention program■ Work injuries were down 48% on the previous year, whilst Workers Compensation Claims fell by 17%. In addition, the number of employees

participating in rehabilitation programs fell by 67% during the year

Other achievements


What We Do

Our charterNSW Lotteries has operated for 73years and is the only Government-owned gaming and wagering operatorin New South Wales. A significantmilestone in our history was thecorporatisation of the organisation on 1 January 1997. Revenue raised by theCorporation is paid into theConsolidated Revenue Fund forallocation to a broad range ofcommunity services for the benefit of the people of the State.

In accordance with the provisions of the NSW Lotteries Corporatisation Act,1996, NSW Lotteries has the followingcharter:

■ To successfully develop, promote,conduct and otherwise participate in any lawful forms of gambling andgambling-related activities;

■ To be a successful business and, to this end:

– to operate at least as efficientlyas any comparable businesses;

– to maximise the net worth of theState’s investment in theCorporation;

– to be a successful participant(whether directly or indirectly) in any other business or activitythat the Corporation determinesis, or may be, of soundcommercial benefit to theCorporation;

■ to exhibit a sense of socialresponsibility by having regard to theinterests of the community in whichit operates and by endeavouring toaccommodate these interests if it ispossible to do so;

■ To exhibit a sense of responsibilitytowards regional development anddecentralisation in the way in whichthe Corporation operates.

Our gamesThe Corporation is licensed to conductthe following games in New South Walesand the Australian Capital Territory:

■ Lotto (drawn Monday, Wednesdayand Saturday)

■ Lotto Strike (drawn Monday,Wednesday and Saturday)

■ Powerball (drawn Thursday)

■ OZ Lotto (drawn Tuesday)

■ Instant Scratchies

■ Lucky Lotteries (drawn mostweekdays)

■ 6 From 38 Pools (drawn Saturdays)

The games of Saturday Lotto,Powerball, OZ Lotto and 6 From 38Pools are national games operated inconjunction with other Australian lotteryoperators. A network of over 1,600small businesses spread throughoutNSW and the Australian Capital Territoryensures that products are easilyaccessible to over 2 million customerseach week.

Vision, Mission and ValuesThe Vision, Mission and Values Statementsdefine the broad parameters for theCorporation’s business activities and thecharacteristics of our operating environment.

The Vision Statement defines how wewant the Corporation to be viewed byour Stakeholders in the long term. TheMission Statement identifies the reasonfor our existence and the nature of our business.

The Corporate Values are designed to emphasise our ethics andprofessionalism as an organisation and reflect our attitudes towards theimportant contributions of players,retailers and staff in achieving ourcommercial objectives.

Vision We will continue to be the leadinglottery operator in Australia.

Mission We contribute to the community ofNSW by maximising the return toGovernment through providing qualitylottery products and services.

ValuesIn all our activities we will:

■ Operate with integrity

■ Provide excellent service to players

■ Value the relationship with our retailers

■ Recognise the contributions of our staff

■ Continuously improve the way we operate

■ Maintain a commercial focus

Business planningSince the late 1980’s the Corporationhas adopted a formal BusinessPlanning process that has evolved inconcert with our changingcircumstances. The process ensuresthat NSW Lotteries remains focussedon achieving commercial success andrecognises the particular businessenvironment in which we operate. Eachyear, we review our Vision, Mission andValues and identify the key issues facingthe business. A plan is then developedthat will address these issues to ensurethe Corporation achieves its objectivesand targets. 08 Annual Report 2004 NSW Lotteries

★


Objective Measure Target Result

Our Players

1. To grow sales andreturns to Shareholders Sales $1,103m $1,109m

2. To be recognised as aResponsible Gaming operator Compliance with the Corporation’s Responsible Gaming package 100% 100%

Our Business

3. To provide an expanded Customer Satisfaction Survey 98% 96%range of services to our players No. of complaints from players <240 139

Customer Hotline calls answered within 30 seconds 90% 93%

4. To improve our Agent Satisfaction Survey 89% 88%competitive position Agent Hotline calls answered within 30 seconds 80% 89%and business efficiency Gaming System Uptime 99.95% 99.99%

Our Shareholders

5. To satisfy Shareholder Duties paid to Governments $284.66m $285.39mexpectations through improved Profit from ordinary activities before significant items business performance and Government Tax Equivalents $43.14m $47.24m

Return on Net Assets 84.8% 94.7%Operating Expenses as % of sales 6.25% 6.09%Operating Profit as % of sales 3.91% 4.26%

Our Staff

6. To increase the Staff turnover <10% 14.02%commercial focus Days sick per employee 5 4.90

The Business Plan is developed usingthe ‘Balanced Scorecard’ methodologyfor Performance Management. Itassumes that in order for the Corporationto achieve its financial objectives, wemust identify what our players need. In order to satisfy our players’ needs,we must focus on achieving the level ofexcellence in our business processesthat will make the most difference. Toexcel in our business processes, wemust consider what capabilities andinfrastructure need to be developed inorder to sustain business improvement.

Strategic Imperatives for fiscal 2004For fiscal 2004, we identified fouraspects of the business that wereimperative to the achievement of

our goals. These four areas were:

■ Our Players

■ Our Business

■ Our Shareholders

■ Our Staff

Corporate Objectives

Our PlayersProduct Development Objective 1: To grow sales and returns to Shareholders.

ResponsibilityObjective 2: To be recognised as a Responsible Gaming operator.

Our BusinessPlayer ServicesObjective 3: To provide an

expanded range of services to our players.

Retailer PerformanceObjective 4: To improve ourcompetitive position and businessefficiency.

Our ShareholdersShareholder ValueObjective 5: To satisfy Shareholderexpectations through improvedbusiness performance.

Our StaffWorking EnvironmentObjective 6: To increase the commercial focus.

09

Balanced Scorecard for Fiscal 2004The Business Plan provides an integrated set of measures against which, the performance of the Corporation can be assessed. The clear identification of issues, objectives, strategies, actions, targets and desired outcomes allows management to easilymonitor the performance of the business. As necessary, strategies, actions and outcomes are reviewed and refined to ensure we are continually monitoring the critical aspects of business performance. Our performance on each of the corporate objectives is detailed later in this report. However, a snapshot of results appears below:

Corporate Governance

NSW Lotteries is a State OwnedCorporation, established under theprovisions of the NSW LotteriesCorporatisation Act 1996. TheCorporation conducts its lottery gamesin accordance with the requirements of the Public Lotteries Act, 1996, and is licensed by the State Government to sell these games until 1 July 2007when the licences fall due for renewal.

The Corporation strives to maintain bestpractice in all of its operations and, inparticular, in its governance practices.

For Corporate Governance purposes,the Corporation’s key stakeholders are:

■ Two Shareholder Ministers: The HonMichael Egan MLC, Treasurer, andthe Hon John Della Bosca MLC,Special Minister of State. TheseMinisters represent the NSWGovernment and are responsible for protecting the interests of theGovernment;

■ The Portfolio Minister: The HonGrant McBride MP, Minister forGaming and Racing, who isresponsible for establishing andmanaging the regulatory frameworkgoverning the Corporation’s lotteryactivities; and

■ The NSW Treasury, which reviewscorporate performance on behalf of the Shareholder Ministers.

The separation of the ShareholderMinisters’ role from that of the Regulatoris a key pillar of the Corporatisationmodel adopted in New South Wales. It is intended to provide clear lines ofaccountability for the Corporation’scommercial performance.

Representatives of the NSW LotteriesBoard meet periodically with theShareholder and Portfolio Ministers todiscuss the Corporation’s performanceand any other significant businessissues which may arise during thecourse of the year.

Role of the NSW Lotteries BoardThe NSW Lotteries Board isaccountable to the ShareholderMinisters and has been established to provide effective leadership, directionand oversight to the Corporation. There are six non-executive Directors on the Board who are appointed by the Shareholder Ministers. The ChiefExecutive Officer, is an ex-officio memberof the Board, and is appointed by thenon-executive Directors after consultationwith the Shareholder Ministers.

The Board’s Corporate Governancefunctions include, but are not limited to:

■ Providing strategic direction;

■ Validating, approving and monitoringstrategic issues;

■ Determining key policies whichimpact on the Corporation’sactivities;

■ Approving strategic alliances;

■ Monitoring organisationalperformance against targets;

■ Liaising with the ShareholderMinisters and the Portfolio Minister;

■ Ensuring compliance with statutory,financial and social responsibilities;and

■ Ensuring business risks areappropriately identified and managed.

Composition of the BoardAs at 30 June 2004, the Boardmembers were:

John Bagshaw (Chairman)

Bonita Boezeman (Deputy Chairman)

Michael Howell (Chief Executive Officer)

John Johnson

Denis McCormack

Alison Payne

Suzanne Walsh

The enabling legislation provides thatthe Board shall consist of:

■ The Chief Executive Officer;

■ One Director to be appointed by the Shareholder Ministers on therecommendation of a selectioncommittee comprising:

i. Two persons nominated by thePortfolio Minister; and

ii. Two persons nominated by theLabor Council of NSW.

This Director is selected by the committee from three persons nominated by the Labor Council; and

■ At least two and not more than five other Directors to be appointedby the Voting Shareholders at their discretion.

Each Director, with the exception of the Chief Executive Officer, may beappointed to hold office for a period not exceeding five years, renewable atthe sole discretion of the Shareholders.Their level of remuneration is determinedby the Shareholders. The Chief ExecutiveOfficer does not receive any additionalremuneration for his role as anExecutive Director.

NSW Lotteries maintains Directors’ and Officers’ liability insurance whichextends to cover current Directors andOfficers of NSW Lotteries. Thiscoverage does not extend to deliberateacts of fraud or dishonesty. EachDirector is enabled to seek independentprofessional advice if they so desire.

Board responsibilitiesThe Board is accountable for the overall direction and performance of the Corporation. The Chief ExecutiveOfficer is responsible for the day-to-daymanagement of the business inaccordance with the directions andpolicies of the Board.


2

Board members have significantresponsibilities and duties imposed onthem by the legal framework governingthe Corporation. These includeobligations to:

■ Act in good faith and in the bestinterests of the Corporation;

■ Exercise reasonable skill, care anddiligence in fulfilling the functions ofoffice and exercising the powers ofa Director;

■ Exercise the powers of the positionso as not to gain personaladvantage or cause detriment to theCorporation; and

■ Avoid, or otherwise appropriatelydeal with, actual or perceivedconflicts of interest.

Further responsibilities set down by theState Owned Corporations Act, 1989,require Directors to:

■ Act honestly in exercising power;

■ Exercise a reasonable degree ofcare and diligence in the dischargeof duties;

■ Not make improper use ofinformation gained as a Director;

■ Not make improper use of theposition as a Director to gain,directly or indirectly, an advantagefor themselves or another person,

or cause detriment to NSWLotteries; and

■ Disclose any direct or indirectinterest, and the nature of thatinterest, in a matter being, or aboutto be, considered by the Board.

A Code of Conduct for the Board hasbeen developed and distributed to allmembers to ensure that their duties andresponsibilities are known and understood.

Board’s operating frameworkThe Board has established a basicframework to ensure the efficient andeffective management of theCorporation’s commercial activities. Key features of the framework are:

■ Active involvement in strategicplanning for the Corporation;

■ Regular monitoring and reviewing ofall major areas of the Corporation’sperformance; and

■ Sharing the individual skills of Directorsin important areas of the businessby participating in Board Committees.

The Board approves all tenders anditems of capital expenditure exceeding$100,000 as well as Annual Budgets,overseas travel, new products,Business Plans and the Annual Report(including Financial Statements).

11

1

1 The NSW Lotteries Retail Image ensures that agencies maintain theirprominence in the highly competitive retail environment.


Corporate Governancecontinued

Board MeetingsNormal meetings of the Board are held at monthly intervals but additionalmeetings may be held to discussmatters of an urgent or significantnature. During the year 11 monthlyBoard meetings were held, with thefollowing attendance:

John Bagshaw 11

Bonita Boezeman 11

Michael Howell 9

John Johnson 11

Denis McCormack 11

Alison Payne 11

Suzanne Walsh 8

Board committeesThe Board has established fourstanding Committees – each with itsown documented charter – to assist in the overall good governance of theCorporation and enable in-depthconsideration of the more complex and significant issues. The Committeesprovide an effective mechanism forexamining major issues in more detailthan would be possible within the timeconstraints of normal monthly Boardmeetings. The role and composition ofthe Committees are examined regularly,as part of the annual review of Boardperformance, and varied to meet thechanging needs of the Corporation. The four committees are:

Marketing CommitteeThe Marketing Committee’s primary roleis to monitor progress on the executionof the Corporation’s Marketing Plan,after it has been approved by theBoard. The Committee provides aforum for senior marketing managers to utilise the experience and seek theviews of Committee members on majormarketing issues.

The Committee also:

■ Discusses marketing and salesrelated matters;

■ Discusses Responsible Gaming and Corporate Image matters;

■ Provides a forum for discussion on future product, advertising andtechnological and distributionopportunities; and

■ Examines any marketing relatedmatters which may be referred by the Board.

During the year, the Committee alsoconsidered a range of enhancements to the existing product range, playercommunication, website improvementsand a review of advertising serviceproviders.

The Committee is comprised of:

Denis McCormack (Chair);

John Bagshaw;

Bonita Boezeman;

Michael Howell;

John Johnson;

Alison Payne; and

Suzanne Walsh.

Audit and Governance CommitteeThe Audit and Governance Committeeassists the Board in discharging itsresponsibilities with regard to riskmanagement, statutory financialreporting and corporate governance.The Committee is required to:

■ Review the proposed annual internalaudit plan and makerecommendations to the Boardconcerning its adoption;

■ Review management’s responses to actions arising from internal andexternal audit reports;

■ Annually consider the adequacy of the Corporation’s BusinessContinuity Plan, assessments of business risks and insurancecoverage;

■ Review statutory Financial Reportsand make recommendations to theBoard regarding the accounts; and

■ Consider any significant corporategovernance issues.

During the year the Committee,amongst other matters, monitoredprogress against the internal audit plan,examined reports received from theauditors and evaluated management’sresponses to items raised therein andreviewed the Corporation’s riskmanagement program.


Bonita Boezeman (Chair);

John Johnson;

Alison Payne; and

Suzanne Walsh.



The Chief Executive Officer, whilst not a member of the Committee, attendsmeetings when invited to do so by the Committee.

Information TechnologyCommitteeThe Information Technology Committeeis responsible for assisting the Board in ensuring the appropriate use ofInformation Technology within theCorporation. The Committee isrequired to:

■ Monitor both the development andimplementation of the Corporation’sInformation Technology Strategic Plan;

■ Review and monitor theappropriateness of computersystems to ensure that revenues toGovernment are maintained, servicedelivery is enhanced, and newtechnology and associateddistribution channels are utilised; and

■ Oversee the implementation ofstrategies and policies to minimiseinterruption to on-line selling activities.

The Committee focussed mainly on theGaming System where attention waspaid to on-going softwareenhancements, business continuity and maximising the potential of the IT infrastructure. IT strategy receivedregular reviews and there was increasedfocus on overall system security,particularly for corporate systems.


John Bagshaw (Chair);

Michael Howell;

Denis McCormack; and

Alison Payne.

Human Resources andRemuneration CommitteeThe Human Resources andRemuneration Committee providesadvice to the Board on remunerationand human resources issues affectingthe Corporation. The Committee isrequired to:

■ Advise and assist in the selection of senior executives;

■ Advise on remuneration issues forthe Corporation;

■ Review the effectiveness of HumanResources policies; and

■ Monitor the organisation’scompliance with relevant statutoryrequirements.

During the year the Committee revieweda range of issues including Executivecontracts and Workforce Planning.


John Bagshaw (Chair);

Bonita Boezeman; and

Michael Howell.

Monitoring performanceNSW Lotteries has a series ofoperational performance indicatorswhich are subject to monitoring andreport at each Board meeting. These include:

■ Progress on strategic action plans

■ Sales

■ Staffing levels

■ Operating revenue, costs and profit

■ Duty to Government

■ On-line Gaming System reliability.

Each quarter the Board also receivesdetailed reports on progress towardsmeeting the business targets specifiedin the Corporate Business Plan,strategies and associated action plans, and product profitability.

Annual review of BoardperformanceAs part of its continuous improvementphilosophy, the Board conducts anannual review of its performance toassess the extent to which it is meetingits various responsibilities. The purposeof the review is to identify areas ofpossible improvement or where extraattention is required to ensure that theBoard accomplishes its role in the mostefficient and effective manner possible.During the process, each Boardmember and executive manager of the Corporation is provided with anopportunity to contribute suggestionswhich might improve the way that the Board carries out its role andresponsibilities.

13


John BagshawChairmanBSc, FAICD

John is the inaugural Chairman

of the corporatised Board of

NSW Lotteries and a founding

member of the first Board

established in 1991. He was

formerly Chairman and Chief

Executive of Bell and Howell

Australia Group Limited and

has 33 years Board experience

primarily in gaming, computer

technology and technology

related fields. John operates his

own corporate consultancy and

is also a commercial breeder

of standardbred horses. He

previously served as a Director

of NSW Harness Racing Club Ltd.

Bonita Boezeman AODeputy ChairmanPMD Harvard, FAMI, FAICD

Appointed March 1994.

Currently Managing Director of

Business Benefits International,

Bonita was formerly an

international executive with

Time Warner Inc for 23 years

and was Chairperson and

Chief Executive Officer of

Time Life (Australia) Pty Ltd for

13 years. A graduate of the

Harvard Business School

Executive Program in 1987,

Bonita has an extensive

background in marketing and

financial management. She is

currently a Board Director of the

Defence Housing Authority, and

public companies such as

Perpetual Trustees as well as

the Catholic Development Fund,

the Corporate Olympic

Committee and Chair of the

East West Foundation. Bonita

was awarded the Order of

Australia and the Centenary

Medal for significant contributions

to business and philanthropy.

Michael Howell Chief Executive OfficerDip Tech (Comm), CPA, MAICD

Appointed Chief Executive

Officer of NSW Lotteries

Corporation in 1997 after seven

years as General Manager of

NSW Lotteries, Michael was

a founding member of the

Board and has over 30 years

experience in commerce and

public sector finance. He has

worked in the lottery industry

for many years and has acted

as an adviser to a number of

overseas Governments on the

introduction of various lottery

games. He is Chairman of the

National Lotto Bloc and a

member of CPA Australia and

the Australian Institute of

Company Directors.

John Johnson

Appointed April 2002. John hasa background in retail, which ledto an extensive involvement inthe union movement where heheld numerous official positions.He served as a member of theParliament of NSW for 26 yearsand was President of theLegislative Council for 13 years.During his time in ParliamentJohn sat on a range ofParliamentary Committees andretired from Parliament in 2001.John is a former director ofPrince Henry and Prince ofWales Hospital Group and was former Guildmaster of theCatholic Evidence Guild. He is aBoard member of the RandwickLabor Club and was appointedin 2003 as Chairman of theBoard of The Catholic PressNewspaper Company Pty. Ltd.

Board of Directors



Denis McCormackFAMI, FAIA, AIFS

Appointed January 1997.

Denis is Managing Director

of Southside Six Pty Ltd.

His marketing career spans

almost 40 years. A former

Advertising Agency Director and

Chief General Manager

(Marketing) of St.George Bank

Ltd, Denis is also a former

member of the NSW Lotto

Board of Control and

a former Director of the Sydney

Festival and IOOF Building

Society (Victoria). His current

directorships include Fantastic

Holdings Ltd, the Lansdowne

Club (Ireland-Australia Business

Group) and Sutherland Credit

Union Ltd. Denis is also a

member of various charity

committees.

Alison PayneMAppFin (Macq), BCom (Melb),FAICD, FAIBF, FFTP, ASIA

Appointed April 2002. Alison has

20 years experience in banking,

finance and risk management,

primarily in the areas of credit,

capital and financial markets.

She has previously held roles

with Westpac Banking

Corporation, State Bank

of New South Wales and

Schroders Australia. Alison

is also a member of the Board

of the Territory Insurance Office

where she chairs the Investment

Committee and is a Visiting

Fellow with Macquarie University,

specialising in Financial Risk

Management in the Masters of

Applied Finance program.

Suzanne Walsh

Appointed July 2000. Sue

is the NSW Labor Council

representative on the Board.

She is President of the Public

Service Association of NSW, the

union representing State Public

Sector employees with 45,000

members, operating a wide

range of Government departments,

corporations and trading

enterprises. Sue was elected

as Director of SGE Credit Union

in November 2000 and recently

was elected to the Executive

of the Labor Council. Sue is

committed to supporting

community organisations and

is a Director of the Bowlers’

Club of New South Wales.

In addition, Sue is a Federal

Councillor on the State Public

Service Federation, which is part

of the Community and Public

Sector Union with 180,000

members nationwide. She also

represents NSW on a Federal

Education Industry Committee.

15

Front: John Bagshaw and Michael Howell.

Back: John Johnson, Alison Payne,Suzanne Walsh, Dennis McCormack,Bonita Boezeman.


Management Structure

Corporate Services Division

Susan Browne Director Corporate ServicesB. Comm, CA

■ Business Planning■ Human Resources■ Property Management■ Support Services■ Executive Support

Customer and Agency Services Division

Chris PattersonDirector Customer and Agency ServicesDip Tech (Comm) PNA

■ Customer Service■ Agency Appointment and Review■ Prize Payments■ Player Registration■ Call Centre ■ Lotto/Lottery Draws■ Warehousing and Distribution■ Corporate Retail Sales

Finance Division

Brian McIntyreDirector FinanceMComm, FCA, MAICD

■ Company Secretary■ Financial Planning & Budgeting■ Funds Management■ Financial Reporting■ Retailer Accounting■ Audit and Risk Management


Board

■ Audit and Governance Committee

■ Human Resources & Remuneration Committee

■ Information Technology Committee

■ Marketing Committee

■ Corporate Services

■ Customer & Agency Services

■ Finance

■ Information Technology Services

■ Marketing and Sales

Chief Executive Officer

BoardCommittees

OperationalDivisions

Information TechnologyServices Division

Martin CassidyDirector Information Technology ServicesBSc (Hons), MBA

■ IT Strategic Planning■ Gaming Systems ■ Corporate Systems■ Operations & Support■ Telecommunications

Marketing and Sales Division

Andrew EverettDirector Marketing and Sales

■ Product Management■ Communications and Public Relations■ Sales■ Business Development■ Retail Network Training

17

From left: Susan Browne, Andrew Everett, Martin Cassidy, Chris Patterson and Brian McIntyre


Our Players

Record sales of$1,108.9 million means

that sales records havebeen broken in thirteenout of the last fourteen

financial years $1,108.9m

18Gai Swords (Product Manager, Lotto) and

Mark Carter (Group Product Manager)

Our Players

PRODUCT DEVELOPMENTObjective 1: To grow sales andreturns to our Shareholders

NSW Lotteries’ product portfolioconsists of a range of Lotto-stylegames, namely, Lotto and Lotto Strike(Monday/ Wednesday/Saturday),Powerball and OZ Lotto.

In addition, the Corporation conductsInstant Scratchies, Lucky Lotteries and6 From 38 Pools. All products are soldthroughout New South Wales and theAustralian Capital Territory. The gamesof Saturday Lotto, Powerball, OZ Lottoand 6 From 38 Pools are nationalgames operated in conjunction withother Australian lottery operators.

As highlighted in previous AnnualReports, lottery industry sales inAustralia have been relatively flat inrecent years, basically reflecting thematurity of most of the existingproducts available. In addition, therange and variety of products, whichare competing for the leisure dollar inthe NSW gaming and wagering market,has continued to increase, largely drivenby the attractive commercial returnsthat can be achieved by successfuloperators. This situation contributes toa challenging and complex operatingenvironment for the Corporation.

Notwithstanding these hurdles, NSWLotteries is once again able to reportanother year of record sales. For fiscal2004, the Corporation’s full year salestarget was $1,103.00 million. Aided bysustained growth in Saturday Lotto, anumber of extremely favourable jackpotruns in the $2 Jackpot Lottery, andenhancements to the Monday andWednesday Lotto game late in the year,total sales reached $1,108.9 million. Thiswas up 0.5% on budget and 1.5% on theprevious year’s figure of $1,092.9 million.

Portfolio of Lotto gamesThe combined turnover for all types of Lotto related games reached $814.1 million, which was 0.7% above the previous year.

Lotto – The Big One – Monday/Wednesday/Saturday Lotto is the game that ‘Makes DreamsCome True’. It was our first Lotto stylegame and has attracted a loyal base ofplayers since its launch in 1979. Withthe addition of the Saturday game,Lotto has strengthened its competitiveposition and is the largest selling gamein the NSW Lotteries portfolio.

Total Lotto sales (Monday, Wednesday,and Saturday) reached $455.4 million,lead by growth in Saturday Lottothroughout the year and aided by animprovement in Monday andWednesday Lotto sales, following gamechanges in April 2004. Players sharedover $282.9 million in prizes, with 197First Division winners and 37 newmillionaires – reinforcing the propositionthat Lotto makes more millionaires thanany other game.

01

19Annual Report 2004 NSW Lotteries

■ Lotto (M/W) 231.4■ Lotto Strike 13.3■ Saturday Lotto 224.0■ OZ Lotto 103.6■ Powerball 241.8■ Instant Scratchies 166.2■ Lucky Lotteries 121.9■ Pools 6.7

Total 1,108.9

Turnover by Product($M)

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

Sales of the Lotto Portfolio ($M)

626.

6

638.

8

634.

7 731.

7

740.

0 808.

0

814.

1

21

Our Playerscontinued

Saturday LottoSaturday Lotto continued the stronggrowth pattern of recent years. The December 2002 price increaseprovided funding for larger prizes bothfor regular weekly draws as well asSuper Saturdays. The weekly $3 millionguarantee has become well establishedwith both weekly sales and ourcontribution to the national poolcontinuing to grow.

This year an additional ‘Super Saturday’prize was offered making a total ofseven offerings with a total value of$145 million in ‘Super Saturday’ prizes.The culmination of these major offerswas the December 2003 SuperSaturday, which featured a record $30 million First Division prize pool and generated more than $21 million in sales from over two million entries.

Monday & Wednesday LottoRegular players continued to be themainstay of Monday and WednesdayLotto during the year. In recent years,player loyalty has been tested by thelarger competitive prize offers of thevarious national games. In order toarrest the resultant sales decline, and to make Monday and Wednesday Lottomore appealing to regular players, anumber of significant changes weremade to the fundamental structure ofthe game. After extensive research anddevelopment, a restructured Mondayand Wednesday Lotto was launched on 15 April 2004 with a major mediacampaign and agent support program.The changes were based on what Lottoplayers had asked for, with a focus on‘sharing the money around’ andrewarding regular players by significant

increases in the most frequently wonprizes – Divisions 4 and 5.

The changes to Monday andWednesday Lotto were encapsulated in the advertising line “It costs a bitmore, but you get a whole lot more”. An extra ball (Number 45) was added to the draw, giving Monday andWednesday Lotto the same gamematrix and odds as Saturday Lotto, andproviding for entry to all three games ona single entry form. In addition, the priceof Monday and Wednesday Lottoincreased by 5 cents per game, the firstprice increase since 1979.

The price increase and change in oddsmeant that a package of player benefitscould be introduced, primarily aimed atrewarding regular players. Guaranteedprizes of $10 and $20 respectively wereintroduced for Divisions 4 and 5 andjackpots were replaced with a ‘CashRolldown’ feature, which doubles prizesin Divisions 2 to 5 in situations wherethere is no Division 1 winner.

The commission structure for Lottoagents was also revised, bringing thehandling fees paid to agents moreclosely into alignment with the morecontemporary high earning games.

During March 2004, a series of agentforums was held across the State tolaunch the game changes and toupdate the retail network on a numberof major business issues. A total of 83sessions was held in a range of venuesacross the State. The sessions werevery successful with more than 2,000agents and their staff attending. Thepositive nature of the forums is reflectedin the smooth introduction of the

changes and their broad acceptance by our players.

A major feature of this year’s marketingplan was the tactical use of on-linepromotional rewards for players whichencouraged cross-play between theMonday, Wednesday and Saturdaygames and provided rewards to playersin the form of bonus entries.

Lotto StrikeLotto Strike had a somewhatdisappointing year, with sales of $13.3 million compared to $15.7 millionin the previous comparable period.

The weakness of Lotto Strike’s saleswas largely due to a poor run ofjackpots during the year. Lotto Strikesales are closely linked to theperformance of Monday andWednesday Lotto, and declining salesin these games in the first threequarters of the year exacerbated the negative trends. The maximum $2 million jackpot prize was only offered for 8 weeks of the yearcompared to 45 weeks last year.

As part of the changes to Lotto in April2004, a new Saturday Lotto Strike playoption was introduced. As well asenabling players to enter Lotto Strikethree times a week, the additional drawshould see the jackpot grow to moreattractive levels and at a faster rate.

PowerballPowerball has grown steadily since itsintroduction in 1996. However, sales forthis year were $241.8 million, or 4.5%below the previous year. This reductionwas largely due to the higher than


expected sales in 2002/03 fuelled by a series of jackpot runs well abovestatistical probabilities.

A total of $378 million was offered in FirstDivision prizes during the year comparedto last year’s $389 million. The number of jackpots experienced this year wasmore in keeping with normalexpectations. In addition, three majorjackpot runs in the $2 Jackpot Lotterycaused further competitive pressures.

The game remains very healthy and is supported by a solid weekly playerbase. However, due to the nature of thegame, achievement of sales targets isextremely dependent upon the regularoffering of large jackpot prizes.

The highlight of the year’s sales activitiesoccurred on 11 December 2003, whenPowerball had a jackpot draw offering a massive $30 million First Division prize.This event attracted more than 1.6 millionentries and reinforced Powerball as the game that could enable you to“Spend the Rest of Your Life”. The solewinning entry for the $30 million drawwas sold at the North Coast town ofYamba and media attention focussed on this seaside location.

Powerball sales were boosted byregular tactical retail promotions during the year. These promotionsoffered players free games of Powerball or $2 Jackpot Lottery tickets as a reward for playing the popular 24 game Mega Powerpick entry.

OZ LottoOZ Lotto is a national Lotto-type gameintroduced in 1994 and conductedjointly with all other Australian lotteryjurisdictions. With the subsequentintroduction of Powerball and SaturdayLotto, OZ Lotto has faced increasingcompetition from the newer gameswhich regularly feature higher top prize-offers and a lower cost of entry.

This year, sales totalled $103.6 millionand this represented a 5.2% fall on the previous year. This outcome can be directly attributed to the growingattraction of Powerball and SaturdayLotto, and to a lesser extent, tocompetition from the $2 JackpotLottery during the year. OZ Lotto’sability to compete with these big prizeswas not aided by the fact that the gameperformed below statistical probability in terms of the number of major jackpotoccurrences, with only one $10 millionjackpot offered this year compared tothree for the previous year.

OZ Lotto continues to attract a weeklyaverage of around 270,000 players inNSW. One of the major strengths of the game is that it offers comparativelylarger lower division prizes than othergames, averaging almost $80 forDivision 4 and $40 for Division 5 prizes.

Media activity continued to utilise thesuccessful “Truckloads of Cash” themefeaturing the ‘Aussie truckie’ and atruck filled with cash to illustrate thelarge First Division prizes on offer. Thismarketing theme also incorporates theAustralian green and gold colours topromote the product’s national flavour.

01

21

3

1-2 Scenes from Lotto’s advertisingcampaign prior to the Lotto game changes.

3 Staff from the Yamba Shopping Fair Newsagency celebrated the $30 million Powerball prize sold atthe agency – equal to the largestlottery prize ever won in Australia. Photo courtesy of The Daily Examiner (Grafton)



To further increase retail awareness of the brand and reward loyal players, a total of 14 OZ Lotto promotions wereconducted during the year. On theseoccasions, players purchasing 12 ormore games of OZ Lotto generallyreceived other lottery products(including OZ Lotto entries) free. As a result of this extensive promotionalactivity, players received $3 millionworth of bonus tickets.

OZ Lotto is in the mature stage of itsproduct life cycle and will continue toface competition from the largerjackpotting brands. A priority for theCorporation, together with its interstatepartners, will be to review the game andenhance its competitive position relativeto other Lotto games.

Other lottery games

Instant ScratchiesDuring this year, Instant Scratchiesexperienced its strongest competitionfor the impulse lottery dollar since it waslaunched in 1982. The repeated longjackpot runs of the $2 Jackpot Lottery,combined with the regular strong offersfrom Powerball and Saturday Lotto andnumerous short-term retail promotionsfor other products, added to thepressure placed on Instant Scratchiesthroughout the year. As a result, saleswere down 3.5% on the previous year,reaching $166.2 million.

As in previous years, the marketingeffort to maintain Instant Scratchiessales included a strong retail program ofgame and promotional activity. Over 40new games were launched, supportedby promotions aimed at adding value

for players via the chance to winadditional prizes.

To broaden the overall appeal of Instant Scratchies, games arelaunched in a variety of categories,each offering features which appeal to different player segments. The mostpopular are the standard games at the $1 and $2 pricepoints, which areconstantly refreshed to provide a range of different designs.

Some of the unique $1 and $2 gamesissued this year included:

■ ‘Lord of the Rings’ – to coincidewith the launch of this major movie release;

■ ‘Allsorts of Cash’ – a ‘Scratch‘nSniff’ game with a licorice scent;

■ ‘Lucky Monkeys’ – to celebrate the Chinese & Vietnamese LunarNew Year; and

■ ‘Pink Panther’ – to celebrate the40th Anniversary of this popularmovie icon.

Standard games at the $5 and $10pricepoints are a popular choice for giftpurchases because of their premiumappearance, large size and numerousplay panels.

$3 ‘game play’ Scratchies are designedto appeal to those players who enjoy an increased involvement in playing a game to establish whether they have won a prize. Bingo style gamescontinued to be popular during the yearwith variations to the original Bingoconcept like ‘Space Bingo’ and ‘WizardBingo’ creating interest. Bingo gameswere supported by other populargames such as ‘Snakes & Ladders’ and‘Ancient Worlds Monopoly’, to providevariation for ‘game play’ fans.

The ‘Win for Life’ games at the $2.50and $4 pricepoints are different to otherScratchies games as the top prizes arepaid in instalments, a feature whichappeals to a particular market segment.The amount and frequency ofinstalments is varied from game togame to help maintain player interest.

Promotions continued to play animportant part of the Instant Scratchiesmarketing program and during the yeara number of proven promotions wereconducted in addition to some new concepts.

Bonus Offers conducted over theMother’s Day, Father’s Day andChristmas periods continued togenerate combined sales in excess of $30 million by offering players free Scratchies with all $5 and $10 purchases.


97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

Instant Scratchies Sales ($M)

171.

3

169.

2

181.

6

164.

7

176.

1

172.

3

166.

2

Other successful promotions included‘Scratch Match ‘n Drive’ with 20 ToyotaEcho cars on offer, and the ‘ScratchSnack ‘n Relax’ promotion with everyplayer receiving a free Cadbury DairyMilk chocolate bar plus the chance to win one of 15 Plasma televisions.

New promotions included ‘New ZealandAdventure’, with 20 trips to New Zealandand ‘Mobile Madness’, with 100 NokiaMobile phones plus a Vodafone red SIMpack with $400 credit.

Lucky LotteriesDraw lotteries have a 73-year heritagein New South Wales. The saying: “youought to buy yourself a lottery ticket” isoften heard when someone experiencesgood luck or has a narrow escape – it encapsulates the attitude of LuckyLottery players. The advertisingpositioning for many years has utilisedthis well accepted and recognisedadage as a slogan for the brand.

The Lucky Lotteries portfolio consists ofthe $2 and $5 Jackpot Lottery gamesand offers players an opportunity to wina range of prizes from jackpots to freetickets almost every weekday.

Despite the fact that these traditionalstyle games have all but disappeared in other lottery jurisdictions around the world, Lucky Lotteries continues tosurvive and grow in NSW. This successhas come from careful management of the product including the regular re-vamping of the games to facilitatecompetition with the newer style oflottery games.

The most recent restructure of the $2Jackpot Lottery, in 2002, was designedso that the game could offer biggerjackpots, more frequently. This year, thebenefits of this strategy, aided by theuncertainty of probability, bore fruit.

Sales for the year reached $121.9 million,a 16% increase on the previous year.Whilst the $2 Jackpot Lottery is thecentrepiece of the Lucky Lotteriesportfolio, the $5 Jackpot Lotterycontributed $9.1 million to total Lucky Lotteries sales – a very significant amount.

01

23

1 3

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

Lucky Lotteries Sales ($M)

134.

3 147.

7

121.

4

106.

0

97.4

105.

1 121.

9

1 Past Lotto winners crewed Lotto’s entryin the 2004 Australia Day Ferrython raceon Sydney Harbour.



The year began on a solid footing with a record prize offering in the $2 JackpotLottery. On 15 July 2003 a ticketpurchased at Ryde in Sydney’s north-west yielded its lucky owner a massive$13.7million. This record win wasfollowed by another jackpot run whichculminated in November 2003 with a$7.5 million jackpot win by a pensionerwho purchased the winning ticket atGoonellabah on the NSW North Coast.

Against the odds, a third major jackpotrun occurred in the first half of calendar2004, this time reaching $10.55 million.This resulted in another win to a NorthCoast resident – a farmer purchased hiswinning ticket in Maclean, which savedhim from serious financial problems.

6 From 38 Pools“6 From 38 Pools” is a game where theoutcome is based on Soccer matches in the United Kingdom or Australia. Thegame has a small but loyal player baseof some 43,000 players weekly that areattracted to the game through its soccerconnection or the favourable odds ofselecting six numbers from a matrix of38 numbers, compared with six from 45 of the other Lotto-style games.

Pools sales this year were $6.7 million,a decline of 10.7% on the previous year.The major contributing factor in thisperformance was the lack of significantjackpot activity. The highest prizeoffered this year was $995,000,whereas in the previous year a $1 million prize was offered on fiveoccasions. Overall, a total of $13.8 millionwas offered in First Division prizesduring the year, compared with $21.8 million last year – representing a reduction of around 36%.

The strong growth of Saturday Lotto in NSW throughout the year also had a major impact on the performance of Pools, with its main selling days of Friday and Saturday coinciding withthe major selling days for Pools.

Because of the relatively small size of 6 From 38 Pools, it does not receiveregular media advertising support. The game is supported at point of salewhen jackpots reach amounts largeenough to attract infrequent players and during promotions.

RESPONSIBILITYObjective 2: To be recognised as a Responsible Gaming operator

Responsible gaming

For many years NSW Lotteries hasrecognised its obligations to operatewith absolute integrity and in a sociallyresponsible way.

This obligation was formalised whenNSW Lotteries was corporatised. One of NSW Lotteries’ statutoryobjectives under the NSW LotteriesCorporatisation Act, 1996 is:

“ to exhibit a sense of socialresponsibility by having regard to theinterests of the community in which it operates and by endeavouring toaccommodate these interests if it is possible to do so”.

The Corporation has introduced a range of measures to meet its statutoryobligations. These include activitiessuch as the communication of gameodds, the display of responsible gamingsignage in all retail outlets and theinclusion of contact details for G-lineproblem gambling counselling servicesin printed advertising.

The Corporation recognises that itsresponsibilities go way beyond simplycomplying with the various statutoryrequirements. NSW Lotteries hasadopted a number of additionalmeasures to protect the interests of its customers. These range from theprovision of information to majorprizewinners regarding publicity and the wisdom of seeking financial advice,to ensuring that all advertising andpromotional material provides detailedand accurate consumer information.The Corporation formally reviews therelevance of its Responsible GamingProgram to ensure it reflects the current needs of players.


97/9

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6 From 38 Pools Sales ($M)

7.1 7.

6 8.3

8.3

7.3 7.5

6.7

1

Compliance programWith the Corporation’s games beingsold and promoted through manyhundreds of retail outlets throughoutNSW and the ACT, it is important tohave a program in place which ensuresthat our retailers continue to complywith all the key elements of ourresponsible gaming policy.

The Corporation’s in-field TerritoryManagers encourage compliance withresponsible gaming practices duringeach of the 10,000 individual visitsmade to retail outlets each year. Any failure on the part of a retailer tocomply with any responsible gamingrequirement is rectified on-the-spot andthis has proven to be the most practicaland effective way to achieve ourcollective corporate ‘responsible play’ objectives.

During the year, the ACT Gambling and Racing Commission undertook anindependent audit of the Corporation’sretail outlets for compliance with therequirements of the Commission’smandatory Code of Practice. The auditshowed that the Corporation’s retailersfully complied with the Code’srequirements.

Review of gambling harmminimisation measuresDuring the year the Independent Pricingand Regulatory Tribunal (IPART)undertook a review of the effectivenessof existing gambling harm minimisationmeasures in NSW. The review alsoconsidered further harm minimisationmeasures that have been previouslyidentified or considered for adoption.

The main focus of the review was onexisting measures aimed at minimisingthe harm associated with gamingmachine play. However, lottery relatedissues which received considerationincluded the effectiveness of the displayof information on lottery stationery,continuation of the existing prohibitionof the use of credit for lottery play andthe need for advertising controls.

The Corporation’s submission to thereview, once again, pointed to theindependent evidence which hasestablished the benign nature oflotteries compared to harder forms ofgambling. These views were supportedby earlier studies conducted by boththe IPART and the ProductivityCommission. The Tribunal’s attentionwas also drawn to the unintendedconsequences that may arise if auniform industry-wide approach is takento gambling regulation which does notrecognise the nature of the differentgambling modes and their individualpropensities to cause harm.

01

25

1 An overseas holiday, mortgagerepayments and a new horse truck –ideas for Jane and Ray Walker on how to spend their $100,000 win in the $2 Jackpot Lottery.Photo courtesy of Temora Independent

2 These lucky smash repairers fromGranville won $500,000 in Lotto.Photo courtesy of The Parramatta and Holroyd Sun

3 Freelance photographer Bob King from Baulkham Hills had good reason to smile after collecting first prize in the $2 Jackpot Lottery winning the$100,000 on offer.Photo courtesy of Hills Shire Times

2 3


Our Business

26

Sally Huang (agent from Mitchums Cabramatta),discusses changes to the Lotto game with

Tim Lonergan (NSW Lotteries’ Sales Manager)

96% of customers were extremelysatisfied or satisfied with the services

they receive when purchasing NSW Lotteries products 96%

Our BusinessA key factor in the Corporation’s success over many years hasbeen the development of a strong relationship with our players.

PLAYER SERVICESObjective 3: To provide anexpanded range of services to our players.

In an extremely competitive marketplaceand with a mature range of products,there is a constant need to maintainand enhance the existing relationshipwith our players in order to maintaintheir loyalty. To meet future objectives,the Corporation also needs to attractnew players to grow the player base. Toretain and increase this customer base,the Corporation must offer a range ofattractive products whilst encouragingthe responsible play of lottery games.We also need to ensure that the servicewe provide meets and exceeds theneeds of our players. Our success inthese areas will ultimately be reflected in our sales performance. It is importantthat all staff are aware of and share theCorporation’s commitment to deliveringquality services to all our customers.

Call centreOur Call Centre continues to provide a range of important services to ourretailers and customers. This rangesfrom providing technical advice toagents concerning terminal andtelecommunication problems, to providinginformation on products, jackpots, prizesand promotions to our players.

In order to ensure that the Call Centre is able to continue to offer its excellentlevels of service to customers, a major review of available Call Centretechnologies was undertaken. Thisresulted in the selection and installationof the CCX Omnitouch telephonesystem, including new computerhardware, telephone handsets andmodern wireless headsets. The projectwas completed on time and withinbudget. Benefits to customers included

improved speed at which their calls areanswered – over the course of the year,91% of calls were answered within 30seconds compared to 86% during theprevious year. These benefits have beenachieved without increasing the cost of providing the services.

Over the course of the year some152,000 calls were received fromretailers and customers. This was some 25% below the previous year. In addition, over 242,000 calls werereceived via the Interactive ResultsService, with nearly 33,000 requiringoperator assistance or advice.

Players ClubThe Players Club maintained its ongoingpopularity with players, with over 774,000renewing their registration during the yearand over 203,000 new players joining. Atthe end of the year, there were more than977,000 members. The NSW LotteriesPlayers Club enjoys one of the highestparticipation rates in the industry with more than 51% of all customertransactions being undertaken byregistered players.

Members use an individual ‘plastic’ playercard to record their lottery transactions.Benefits to members include:

■ Immediate notification of major prize wins;

■ Automatic payment by mail of any prize not claimed at NSW Lotteries’ agencies withinspecified claim periods;

■ Protection for lost tickets, asregistered players who promptlynotify NSW Lotteries that their tickethas been lost or misplaced, caninitiate a “hold” on the ticket andany prizes won;

■ Players can easily play their“Favourite Picks” by storing thoseentries with their player details on the central system;

02


1

Our Businesscontinued

■ Players are able to change address details using theCorporation’s Internet site atwww.nswlotteries.com.au; and

■ Players have the added security of being able to register theirpurchases in an on-line Syndicate.

Privacy policyNSW Lotteries respects the privacy of its customers and is committed toensuring that the collection, accuracy,use, disclosure and destruction ofinformation is compliant with the PrivacyAct 1988 (incorporating the PrivacyAmendment (Private Sector) 2000, bestpractice and the National Principles forthe Fair Handling of Personal Information.

Access to information held by theCorporation is limited to authorised staffon a strictly ‘need-to-know’ basisrelevant to their roles and responsibility.

A copy of an information sheet onprivacy, or a copy of the Corporation’sPrivacy Policy can be obtained by contacting (02) 9752 5572 or by visiting our website atwww.nswlotteries.com.au.

Customer satisfaction surveyClearly the expectations and opinionsof our customers are key elements in the process of setting the futuredirection of the Corporation.Accordingly, we place great emphasison obtaining regular and structuredfeedback from players. In March 2004the biennial Customer SatisfactionSurvey was undertaken to assess thelevel of player satisfaction with servicesreceived when purchasing our products.

More than 600 face-to-face interviewswere conducted with customers in both metropolitan and regionallocations throughout the State. The results were extremely positive with 96% of customers extremelysatisfied or satisfied with the servicesthey receive when purchasing NSW Lotteries products.

This rating compares very favourablywith those customer’s rating of otherindustries provided during the samesurvey:

■ Local Post Office 83%

■ Local Supermarket 84%

■ Local Bank 69%

One of the most pleasing aspects wasthat customers rated the “friendly andknowledgeable agency staff” as the mainreason in arriving at their satisfactionlevel. The positive results also recognisethe effectiveness of the Corporation’semphasis on agency training and simpleand clear-cut point of sale, includingplayer education material.

Customer service training

During the year, all Customer & AgencyServices Division staff who deal directlywith customers or retailers attendedSignature Service Training. This coursewas specifically tailored to help staffgain knowledge and develop skills thathelp increase personal, customer andorganisational satisfaction. TheCorporation’s goal is to consistentlydeliver higher levels of customersatisfaction and to expand the skillsstaff need to interact successfully withdifferent kinds of customers in a varietyof situations.

RETAILER PERFORMANCEObjective 4: To improve our competitive position and business efficiency.

At the end of the financial year, ourlottery retail network consisted of 1,458on-line full service outlets and 145Instant Scratchies only outlets locatedthroughout New South Wales and theAustralian Capital Territory. Lotteryproducts are sold through a diverserange of small businesses includingnewsagencies, pharmacies, servicestations, convenience stores,supermarkets and railway bookstalls.

The importance of a positive andeffective distribution network in a retailenvironment is self-evident. Besidesbeing the major contact point with more than 2 million customers who buy lottery products each week,retailers have a large bearing on theCorporation’s customer relationshipsthrough the front-line services theyprovide to players. To assist retailers to improve their performance in themarketplace and achieve sales targets,NSW Lotteries strives to improve itssupport functions to ensure retailersreceive every possible assistance toeffectively sell and service our products.

Total handling fees earned this year byagents from the sale of lottery products,reached $74.1 million and this was some$3 million above the previous year. This represented an increase in agentrevenues of 4.2% compared to ouroverall sales growth of 1.5%. Thisreflects the deliberate strategy in recentyears to provide higher fees formegapick type entries. In addition, theopportunity was taken to restructure


agent handling fees in conjunction with the changes to the Lotto game in April 2004.

Agency developmentA major priority for NSW Lotteries is to ensure that our distribution networkcontinues to meet the current andfuture demands of our players.Consequently, during the year theCorporation continued to appointAgencies in new areas as a result ofpopulation growth, and shopping centredevelopment. This included the upgradeof 15 Instant Scratchie Agencies to fullon-line agency status, whilst anadditional 23 on-line Agencies wereestablished in new locations throughoutthe State. The trend, in recent years, for a high rate of changeovers inbusinesses operating as our agents,continued this year. The number ofagencies changing hands during theyear climbed to 266 outlets (or 16.6%of the total network). This representedan increase of 14% on last year, and34% on the year before.

As well as increasing the administrativeburden on corporate resources,changes in the ownership of agenciesalso places extra pressures on agent

training, Retail Image and associatedareas. Most importantly, it alsoincreases potential for lowering serviceand information levels to customersduring the initial changeover periods for these businesses. However, despitehaving to contend with this industrysituation, our retail network and theCorporation have been able to keepplayers very happy, as evidenced by the excellent results in the biennialCustomer Satisfaction Survey.

Agency peformancemanagementThe Corporation’s retail network issupported in the field by a team ofTerritory Managers who made morethan 10,000 visits to agents during theyear. These visits provide an opportunityfor our retailers to provide directfeedback concerning any problems withNSW Lotteries’ services and resolve anyface-to-face operational issues.

The main role of Territory Managers is to assist agents to maximise salesand provide quality service to lotterypurchasers. The performance of theretail network is managed through theAgency Business Plan process.Business Plans are negotiated annuallybetween individual retailers and theirTerritory Manager. A sales target is setand agreed, as well as a range ofinitiatives aimed at enhancing customerservice, staff knowledge of lotteryproducts, promotions and NSWLotteries’ Retail Image requirements. By the end of the financial year 1,242retailers (or 77% of the network) hadentered into formal Business Plans withthe Corporation.

02

29

1 The Big Red Ball fell on this happysyndicate of workmates at Blacktown– they won $500,000 in Lotto.Photo courtesy of Blacktown Advocate

2 After battling the effects of the drought in recent years, farmers Jeff and Lynne Crawford’s $100,000lottery win allowed them to lavishsome much needed attention on themselves. Photo courtesy of Temora Independent

3 Geoff Eggins and his staff celebrate at Laurieton Newsagency after selling the winning ticket that won a happy customer over $830,000 in Saturday Lotto. Photo courtesy of The Port Macquarie News

2 3

97/9

8

98/9

9

99/0

0

00/0

1

01/0

2

02/0

3

03/0

4

Commission paid to agents ($M)

56.3

57.6

56.0 59

.8 62.5

71.1 74

.1


31

Our Businesscontinued

Territory Managers monitor agents’performance during the year andprogressively identify and rectify anysignificant performance shortcomings.Agents have gradually come to acceptthe benefits and retail advantages of a formal performance managementprocess and have responded positivelyto this approach.

TOP SHOPThe TOP SHOP program has completedits seventh year of operation and is animportant element of our strategy toincentivate the retail network. In a highlycompetitive business environment, thisprogram continued to be a strongmotivator for agents to increase theirlottery sales and to gain peer recognitionof their success. Participation in TOPSHOP is voluntary and 812 agentsparticipated in this year’s program,competing for $130,000 in cash andprizes, as well as the prestigious title of TOP SHOP of the year.

The program recognised and rewardedretailer performance based on a rangeof criteria including:

■ Sales growth;

■ Customer service standards andprofessional selling skills;

■ Product support throughmerchandising and in-storepromotional activities;

■ Product knowledge;

■ Retail Image maintenance andpresentation; and

■ General agency managementperformance and compliance to NSW Lotteries requirements and procedures.

Individual prizes ranging from overseasholidays to low value cash prizes wereawarded at regular intervals throughoutthe year for achieving various standardsin each category.

In addition, points were awarded to eachparticipant for performance against setobjectives throughout the year. Pointswere regularly tallied and participantsadvised of each TOP SHOP’s rankingon the points table. This culminated inthe agent with the highest aggregatepoint score being judged as the TOPSHOP for 2004. A gala awardspresentation evening was held at theprestigious Four Seasons Hotel in Sydney.

The major award winners this year were:

TOP SHOP for 2003/04– Greenhills Newsagency, East Maitland

TOP SHOP Finalists – QBN Paper Shop, Queanbeyan– Banora Point Newsagency,

Banora Point– Plumpton Marketplace Newsagency,

Plumpton

Chairman’s Award – Gunnedah Newsagency, Gunnedah

Merchandising Award – Singleton Pharmacy, Singleton

TOP SHOP Agent with Highest Dollar Growth– Canley Heights Newsagency,

Canley Heights

TOP SHOP Agent with HighestPercentage Growth – Lisarow Newsagency, Lisarow

Agency Co-ordinator Recognition Award– Stacey Franks

Thornton Post and News, Thornton

The TOP SHOP program has growneach year and has introducedcompetitive spirit amongst the retailnetwork – the benefits are clearlyreflected in enhanced sales results. The program continues to be a veryeffective way of motivating, educatingand rewarding agents and their staff.The evidence of the success of thescheme is readily available. Agenciesparticipating in the TOP SHOP programachieved an average sales growth rateof more than 14% compared with anoverall average growth rate of 1.5%.

Agency satisfaction surveyIn order to succeed in its businessobjectives the Corporation strives to maintain an effective workingrelationship with retailers, whichencourages the increased sale of lotteryproducts and the provision of excellentservice to lottery buyers. Regularfeedback from agents about theCorporation’s operations and playerbehaviour plays a crucial role indetermining whether our games andservices continue to meet theexpectations of customers and agents.

In November 2003, an independentagent survey was conducted to assessretailer satisfaction levels with servicesprovided by the Call Centre, WarehouseDistribution Centre and our in-fieldTerritory Managers. The overall resultswere again extremely high, with 88% ofagents indicating they were extremelysatisfied or satisfied with our services.The results of this survey demonstratethe tangible benefits accruing from thesignificant ongoing focus on stafftraining and streamlining businessprocesses each year.

30

2



Retail ImageThe Retail Image Program commencedin 1992 and was implemented toimprove the presentation and layout ofindividual lottery agencies. In keepingwith changing retail trends, theCorporation continually reviews theprogram to ensure our agenciesmaintain their prominence in the highlycompetitive retail environment. As ourretail network operates in a range ofsmall businesses, NSW Lotteries aimsto differentiate the lottery selling areafrom the remainder of the business. Our latest retail standards promote theuse of the lottery “shop within a shop”concept which readily identifies thelottery selling area and invites ourplayers to try their luck. The areashowcases the Corporation’s gameswith signage creating a visual link to our mainstream advertising.

By the end of the year, over 830 agentshad installed the latest image to ensurethat those outlets maintained theirprominence in the market place.

Retail TrainingWith a continuing emphasis on flexibilityin training delivery, the Corporation’sRetail Training program provides acomprehensive service to our agents.This service ranges from our basic setof regular training courses, which arecontinually on offer, to customisedtraining to assist agents either in theirown agency or in central regionallocations. Our training program hasbeen gradually expanded in regionalareas to ensure that all agents, whethermetropolitan or country based, have a reasonable opportunity to participatein sales development programs.

More than 1,200 lottery retailers andtheir staff attended 136 courses offeredduring the year. Our principal trainingprogram, the four day LotteryManagement Course for new agents,and the Terminal Operations Course foragency staff, make up over 50% of thetraining commitment. In addition, othercourses offered to agents included:

■ Instant Lottery Management;

■ Customer Service and EffectiveSelling Skills;

■ Product Knowledge – includeseffective product promotion andselling strategies;

■ Agency Balancing and Reporting;and

■ On-line Instant Lottery Management.

An important addition to our trainingresources this year, has been thecompletion of a selling skills video titled‘How to Boost Your Lottery Sales –Through Effective Upselling’. This videoprovides tips on various selling skillswhich help sell lottery products. At thecentre of the video were a number ofour most successful selling agents whowillingly shared the secrets of theirsuccess. Each lottery retailer received a copy of the video, which is now usedas a major training tool in all of ourcustomer service and sales training.

A continuing focus of our training has been the development andenhancement of the skills of our agentsfrom a non-english speakingbackground. A series of bi-lingualtraining manuals in Chinese, Koreanand Vietnamese have proven to be verysuccessful in training. In addition, wherenew agents have required more intensetraining, we have continued to utilise

our Pitt Street store to provide acomprehensive training environment,which includes practical experience in alive environment under the supervisionof experienced NSW Lotteries staff.

Lidcombe Distribution Centre All consumables used in the sale ofNSW Lotteries’ products are suppliedthrough our Distribution Centre. Duringthe year distribution activities wereimproved through upgrading “pick andpack” equipment, and upgradinghardware and software, whilst reducingwarehouse space by 30%.

Over the course of the year, more than87 million Instant Scratchie tickets, 18million entry forms and 106,000 paperrolls (or 21,200 kilometres) of bet receiptstationery were issued to agents.

02

31

1 The TOP SHOP for 2004 – GreenhillsNewsagency, East Maitland. AgentsAllen and Brenda Kavanagh celebratewith family and staff.

2 A happy staff member from MacleanNewsagency after hearing the news that one of their customers, a grandfather of 16, won over $10.5 million in the $2 Jackpot Lottery.Photo courtesy of Daily Telegraph

3 Promotions at agencies play animportant part in the success of NSW Lotteries’ games.

4 Our Retail Image.

5 Tom has been buying lottery tickets for over 20 years and purchased hiswinning ticket at Nyngan Newsagency– a $100,000 first prize in the $2 Jackpot Lottery Photo courtesy of Nyngan Observer

6 Almost $50,000 was won by Roslyn,Dee, Evelyn and Sue. Here they giveJasmine from Toyworld, where theybought the winning ticket, a big thank you.Photo courtesy of Mudgee Guardian &Gulgong Advertiser

54 6

Our Shareholders

32John Reynolds (Manager Retail Accounting)

and Christine Evers (Treasury Manager)

Profit, before Significant Items and Government Tax

Equivalent, increased by 10%to $47.2 million $47.2m

Our ShareholdersNSW Lotteries is proud of its reputation for honesty and integritybuilt up over the last 73 years and its continuing position as thelargest lottery operator in Australia.

SHAREHOLDER VALUEObjective 5: To satisfyShareholder expectations throughimproved business performance

In the most recent Business ReviewWeekly’s Top 1000 Australiancompanies list, the Corporation ranked169th among the country’s largestpublic and private sector enterprises.

As a State-Owned Corporation, NSWLotteries is required to operate at leastas efficiently as any comparablebusiness. Once again, this year theCorporation exceeded all the keytargets contained in its negotiatedStatement of Corporate Intent. Asummary of the outcomes compared totarget appears in the table on page 3 ofthis report. Sales grew to a new recordof $1,108.9 million and this representedan increase of 1.5% over the previousyear. Consequently, our total return to Shareholders reached more than$371 million arising from the payment of lottery duty, tax equivalent, GST and dividends.

Risk management andbusiness continuityThe Corporation has adopted anintegrated approach to its riskmanagement activities. This endeavoursto identify, assess and manage all keyrisks impacting or likely to impact ourbusiness. Our risk managementsystems are based on AustralianStandard No. 4360:1999 and focus on minimisation strategies as well as the reduction and transfer of risk. TheProgram covers all key areas of theCorporation’s activities including:

■ Risk Management;

■ Audit Activities;

■ Fraud Prevention;

■ Anti-Corruption Activities;

■ Business Continuity;

■ Insurance;

■ Compliance;

■ Investigations;

■ Asset Management and Security;

■ Information and Intellectual PropertySecurity; and

■ Privacy, Information Disclosure and Freedom of Information.

InsuranceNSW Lotteries has insurance for all key areas of business risk. Thisincludes comprehensive insurancecoverage for risk areas such as:Worker’s Compensation, Property and Consequential Loss, Motor Vehicle, Public Liability and Directors’and Officers’ Liability. Insurance is one of a number of tools used by theCorporation to manage and mitigateareas of assessed risk. As a matter of corporate governance practice,regular reviews of the type and extent of insurance held are undertaken. These insurance assessments received oversight by the Board.

Information TechnologyGiven the importance of InformationTechnology (IT) to the Corporation,NSW Lotteries has a number ofprocesses in place to ensure maximumvalue is attained in the use oftechnology. The IT Committee providesadvice to the Board on IT matters andmonitors all IT-related issues andperformance within the Corporation. In addition, the annually updated ITStrategic Plan provides a three-yearplanning outlook and includes thestrategies, actions and goals to support our business objectives.

03


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Operating Costs % of Sales

7.0

7.1

7.0

7.0

6.9

6.3

6.1

Our Shareholderscontinued

One of our most important ongoingsupport functions is the maintenanceand enhancement of the gamingsystem and the associatedcommunications infrastructure thatprovides the interface to our retailnetwork across the State. During fiscal2004, the Corporation upgraded thetelecommunications facilities at its off-site contingency processing facility. This helps to ensure that there wouldbe a minimal impact on customers andretailers in the unlikely event of a majordisaster impacting our primary system.These changes further build on thesignificant enhancements made to the back-up arrangements in theprevious year.

Over the course of the year, the gamingsystem continued to provide servicelevels which are at the forefront of industrystandards. Central system availability was99.99% and telecommunications networkavailability was 99.97%. In excess of343 million individual transactions wereprocessed by the gaming system duringthe year, with a peak of over 3 milliontransactions occurring on 24 December2003 during selling for the end-of-yearSuper Saturday Lotto draw.

A number of system enhancementsintroduced in April 2004 delivered a rangeof new game features and improvedservices to players and retailers.Enhancements to the Monday/Wednesday Lotto game included:

■ An extra number was added to thegame matrix making it a 6 from 45style game;

■ A new feature called ‘Cash Rolldown’,which doubles the prize amounts inDivisions 2 to 5 when there are noprize-winners in Division 1;

■ Guaranteed prize amounts forDivisions 4 and 5; and

■ A corresponding price increase (the first since 1979).

Also, to assist players, a single Lottoentry form was introduced and multi-week options were enhanced to enableplayers to play 2-week multi-weekentries. The new single form alsoincludes the option to play Lotto Strikeon a Saturday as well as Monday and Wednesday.

In association with the enhancementsintroduced to the gaming system, the1,800 point-of-sale selling terminalslocated throughout the State received asignificant upgrade of terminal memoryand the replacement of several hardwarecomponents. In addition, there werenumerous software enhancements toselling terminal functionality during theyear including major enhancements toSyndicate selling and Favourite Picks.Improvements in screen layouts andpresentation make it easier, safer andmore efficient for Agents to manage thestatus of network and agent-createdsyndicates. The changes also providedbetter service to customers with Agentsbeing able to provide timely and detailedinformation on the type, cost andavailability of syndicate shares, andimproved administration of customers’Favourite Picks.

While the on-line gaming system is the prime focus of attention, othercorporate technology systems alsosupport our activities. A number ofimprovements were made to systems

and processes throughout the year,reflecting the high priority attached to this area. Enhancements affectingHuman Resource Management, the Call Centre, Records Management andvarious other internal corporate systemsimproved the security, quality and use ofinformation throughout the Corporation.

Electronic service deliveryIn an environment of rapidly changingtechnology, in order to remaincompetitive any competent organisationmust continually review its businesspractices. It must identify ways in whichit can use technology to deliver smarter,more efficient and customer friendlyservices. During the year, our electronicservice delivery was enhanced in thefollowing areas:

www.nswlotteries.com.auThe NSW Lotteries website was updatedin December 2003 with a new, moremodern appearance designed to aidnavigation and make checking resultseasier. In response to feedback,numerous suggestions from customerswere incorporated into the design. Thepositive response from users is reflectedin the increased traffic volume generated,which increased to more than 3 millionuser sessions for the year – an increaseof over 31% on the previous year.Significant increases in peak-time trafficwere addressed in April 2004 with serverupgrades, which effectively doubled thecapacity of the site.

Results EmailAn enhanced HTML-based results emailwebsite was launched in February2004. The graphics capability of thenew format allowed the format of theemail to more closely reflect both thewebsite and the normal agency retailenvironment, such as jackpot postersfor major prize offers. Players have the option of signing up for either thetext-based or HTML version and eachresults message offers them a link tothe web site if they wish to change their subscription arrangements.


97/9

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4Selling System Up-time (%)

99.9

9

99.9

6

100.

00

99.9

6

99.9

9

99.9

9

99.9

9

NSW Government EnergyManagement PolicyNSW Lotteries follows the principles of the NSW Government’s EnergyManagement Policy, which is designedto reduce energy use and greenhouseemissions. The Corporation’s EnergyManagement Plan includes keyinitiatives such as purchasing energyefficient equipment and ongoingmonitoring of usage levels to ensurethey are contained.

Waste Reduction andPurchasing Policy (WRAPP)The Corporation implements the NSWGovernment’s Waste Reduction andPurchasing Policy through a range of strategies and initiatives aimed atreducing the generation of waste (wasteavoidance and minimisation) including:

■ Expanding the use of electronicmedia such as email for internal and external communications;

■ Reducing the usage of paper in the Corporation;

■ Creating electronic templates forforms and making them availableelectronically rather than by hardcopy; and

■ Printing double-sided documents.

The recent introduction of a newrecords management system alsoassists in reducing paper wastage asmore records are managed and filedelectronically. The new system allowsthe user to register various types ofrecords including mail, faxes, electronicdocuments and messages and attachthem to files electronically.

This significantly reduces the priornecessity to print documents andmanually attach them to a hard copyfile. Over time these initiatives will further reduce paper and toner cartridge usage.

Resource recovery (waste reuse andrecycling) is practised. The Corporationhas a recycling plan in place for paper,cardboard and toner cartridges and has recently made arrangements withPlanet Ark to collect all toner cartridgesfor recycling.

The purchase of recycled-contentmaterial, where cost-effective, isencouraged through the Corporation’spurchasing policy and practices and isachieved by:

■ Purchasing goods and servicesunder government contract;

■ Encouraging the purchase of multifunctional office equipment; and

■ Purchasing stationery items such as envelopes with recycled content.

Waste vegetation generated from the maintenance of the Corporation’spremises at Homebush Bay is removed, mulched, and reused by the landscaping contractor.

03

35

1 2

■ NSW Government 287.2■ ACT Government 5.7■ Gross Income 102.5■ GST on Gross Product Sales 47.6■ Prizes 692.0

Total 1,135.0

Projected Sales Distribution 2004/2005 ($M)

1-2 Our redesigned Internet site provides a variety of information about the Corporation and its products and services.


Our Staff

36

Belinda Richardson (Retail Trainer) instructs NSW Lotteries staff on changes made to

the selling terminal information screens.

The past year has seen anincreased concentration onsharpening the commercial

focus of our 183 staff 183

Our StaffA major objective identified in internal planning is the need for the Corporation to encourage a more commercial cultureacross the organisation.

WORKING ENVIRONMENTObjective 6: To increase the commercial focus

A strategy was formulated to sharpenthe commercial focus of the staff bydeveloping and conducting a corporatetraining program for all staff. The aim of the program was to give all staff aclear understanding of how each job isimportant and contributes to the overallcommercial success of the organisation.It provided employees with a greaterawareness of our business strategies,our operating environment, the relativecontribution of existing stakeholders and any constraints that impact ourbusiness. It also provided an opportunityfor staff to suggest ways in whichimprovements in the way they do theirjobs could contribute to improvementsin corporate performance.

The implementation of restructurescontinued during the year across theorganisation. Restructuring is part of our process to periodically review and

redefine the nature of work to be doneand to better use our staffing resourcesto achieve planned outcomes. Changeand renewal was a key focus withregard to the:

■ Finalisation of a new structure forthe IT Services Division;

■ Implementation of new structures inthe Customer and Agency ServicesDivision for Retail Operations andthe Lidcombe Distribution Centre;

■ Restructuring in the Sales &Marketing Division’s Retail Imageand Product Management areas; and

■ Continuation of restructuring in the Corporate Services Division’sProperty & Administration Branch.

The need for a skilled, knowledgeableand flexible workforce was a continuingtheme in workplace discussions andbusiness planning exercises throughoutthe year. This will continue to bereflected in key people managementplans and strategies. Whilst further workis needed to refine our strategies for

04


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Sales per Employee ($M)

4.2 4.

6 4.7 4.

9 5.1 5.

6 6.1

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Staff Numbers

222

209

203

205

201

195

183

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4

NSW GovernmentRevenue per Employee ($M)

1.40 1.47 1.51 1.

62 1.71

1.92 2.

03

In a challenging environment, NSW Lotteries is proud of its continuous improvement.

Our Staffcontinued

the attraction and retention of staff, one inroad made this year was theintroduction of salary packaging foraward staff. This has proven to be of real benefit to staff and supportsNSW Lotteries’ intention to remain anattractive and desirable employer, whichis competitive with other employers andthe general labour market.

Another highlight for the year was the introduction of an Employee Self Service Kiosk – a new HumanResources and Payroll InformationSystem. The Kiosk, when fullyimplemented, will significantly reducethe overheads associated with theadministration of Human Resourcematters by allowing staff to directlyperform a number of personnelfunctions on-line. This facility offers thebenefits of automation and streamliningwith quicker and more accurateinformation for staff and the potential toreduce costs and increase productivity.

Workforce planningAlong with most similar sizedorganisations, NSW Lotteries facesgrowing challenges in managing aworkforce typified by ageingdemographics. To address this issue,action was taken to develop andimplement a formal corporate workforceplanning process. When themethodology is fully implemented duringthe coming year, it will help to determinewhat changes in the Corporation’sworkforce profile will be needed toachieve the right mix of knowledge,skills and expertise for its futurebusiness needs. It will also enable NSWLotteries to identify strategies to helpshape the workforce required to meetthe future challenges of a rapidlychanging business environment.

Performance Development ProgramThe objective of the Staff PerformanceDevelopment Program is to focus on thepersonal development of each individualemployee whilst ensuring that their on-the-job performance is appropriatelymanaged within a consistent andcoordinated program. The frameworkprovides scope for work planning andperformance review and identification ofappropriate development activities to bepursued during the ensuing 12 months.

Each year, Performance andDevelopment Plans for individual staffare developed bearing in mind theoverall objectives derived from thebusiness needs outlined in thecorporate Business Plan.

Occupational Health & Safety (OH&S)Like any good employer, NSW Lotteriestakes all reasonable measures to ensurethe safety and well-being of its employees.We encourage the active participationof staff in workplace safety issues andthis is reflected in the operation of theCorporation’s OH&S Committee.

The OH&S Committee comprisesmanagement and staff representativesand meets regularly to address issuesas they arise and plan future activity. TheCommittee also investigates mattersbrought to its attention and makesrecommendations to managementregarding health and safety issues.During the year major activitiesundertaken included an ergonomicassessment of key work processes atthe Lidcombe Distribution Centre and a Noise and Fume assessment of the in-house printing facility.

Evidence of the success of theCorporation’s strategies is reflected in the total number of work injuriesreported being down 48% on the previous year and WorkersCompensation Claims down 17%. In addition, the number of employeesneeding to participate in rehabilitationprograms dropped by 67% on theprevious year.

Key OH&S performance statistics are as follows:

The participative approach to health, safety and well-being is alsodemonstrated by a commitment tosponsor health and lifestyle activities.Employees are encouraged toparticipate in a range of activitiesdesigned to increase awareness ofpreventable health issues and promotequality of life. These include:

■ A violence prevention program toassist participants to recognisewarnings of danger, manage crisesand diffuse threatening situations;

■ On-site influenza vaccinations;

■ Dissemination of Skin Cancerawareness information brochures;and

■ Provision of monthly Health and Well Being publications.


Human resources statistical reportJune June June June June2000 2001 2002 2003 2004

Executive 6* 6* 6* 6* 6*

Senior Specialist Manager 7 8 7 7 7

Administrative Staff 168 174 172 168 156

Distribution Officer 17 17 15 14 11

*Includes one female

OH&S statistical report2002/ 2003/2003 2004

Average number of employees 195 183

Total number of work injuries 29 15

Actual expenditure on OH&S programs ($) 21,907 13,523

Total number of Workers Compensation Claims 12 10

Total number of employees who participated in a rehabilitation program 3 1

Number of hours in training in OH&S 280 150

Number of OH&S representatives 8 8

Number of OH&S committees 2 2


Employee Assistance ProgramThe Employee Assistance Program hasbeen operating very successfully forfour years with many staff accessing theservice. The program offers a voluntary,confidential and free counselling andadvisory service for employees seekingprofessional assistance for any personalor work related problem.

Training and developmentNSW Lotteries supports the philosophy ofthe continuous learning of all staff. Trainingand development activities continued toreceive a strong focus with more than100 external and internal courses beingoffered to staff during the year.

External training mostly centred aroundindustry conferences, seminars,technical skill acquisition, managementand leadership programs and IT training.

Internal training was principally aimed at developing staff competency in a number of areas including:

■ Technical competency – with a range of personal computersoftware applications;

■ Effective business writing – to improve written and electronic communication;

■ Time management – to focus on achieving high priority tasks and raising productivity; and

■ Commercial focus awareness – to enhance customer serviceorientation, motivation andproductivity.

External study assistanceUnder this scheme, employeesundertaking eligible courses of study areprovided with financial assistance andleave to attend classes, examinationsand complete course assignments.During the year, eleven staff membersreceived support under the terms of the scheme. Studies currently beingundertaken include tertiary qualificationsat various levels in specialities such as Business Marketing, Accountancy,Network Administration, Commerce and Business Technology.

Employee reward and recognitionOur recognition program has been in place since September 2000. Theprogram provides a formal frameworkfor recognition and acknowledgementof special contributions made by staffmembers towards the achievement of corporate goals and objectives.Awards are made in four categories –Achievement, Innovation, Quality and Customer Service.

Throughout the year, many nominationswere received to recognise excellenceby various individuals or groups ofemployees. In total 50 employees were recognised for achievements inexcellence or for providing suggestionswhich potentially lead to better serviceor more efficient operations.

Employee of the yearThe most prestigious award under theEmployee Reward and RecognitionProgram is for Employee of the Year.This award is based on outstandingindividual performance or majorcontribution to corporate performanceduring the year.

This year, Jacinta Tempest fromCustomer & Agency Services was theproud recipient of the award. The awardwas presented by Mr John Bagshaw,Chairman of the NSW Lotteries Board,at a ceremony in November 2003 whichwas attended by many of Jacinta’swork colleagues.

She was recognised for her excellenceof service to our retailers over manyyears. In the conduct of her dutiesJacinta has developed an affinity andrapport with agents and the manybusiness people she deals with on aday-to-day basis. She actively pursuesissues on behalf of her clients to ensurethe satisfaction of their needs. She hasbeen a willing contributor to a numberof major corporate projects includingthe Altura Pilot Program, Altura terminalroll out, product launches and otherspecial activities.

Jacinta is an employee who hasconsistently displayed co-operation,dedication and the ability to establishproductive working relationships. Thesepersonal attributes, together with hertechnical expertise, provide excellentservice to both internal and externalcustomers and promote a positiveimage for the Corporation.

04

39

1 Jacinta Tempest – ‘Employee of the Year’1


ContentsStatement by Board of Directors_41Independent Audit Report_41Statement of Financial Performance_42Statement of Financial Position_43Statement of Cash Flows_44Notes to the Financial Statements_45Note

1 Statement of Significant Accounting Policies_452 Revenues from ordinary activities_473 Profit from ordinary activities before income tax

equivalent expense_474 Taxation_485 Cash Assets_48 6 Other Financial Assets_48 7 Disclosure of Financial Instruments_498 Property, Plant and Equipment_509 Other_52

10 Payables_5311 Provisions_5312 Contributed Equity_5313 Reserves_5414 Retained Profits_5415 NSW Government Dividends_5516 Employee Benefits_5517 Related Parties – Directors_5518 Auditors’ remuneration_5519 Commitments not provided for in the Financial Statements_5520 Contingent Liabilities_5621 Contingent Assets_5622 Segment Reporting_5623 Impact of adopting Australian Standards equivalent to the

International Financial Reporting Standards_56

Financial StatementsFinancial Report for the year ended 30 June 2004


Statement by Board of DirectorsIn accordance with a resolution of the Directors of New South WalesLotteries Corporation and pursuant to Section 41C (1B) and (1C) of thePublic Finance and Audit Act 1983, we state that:

1 The attached is a general purpose Financial Report and presentsa true and fair view of the financial position of NSW LotteriesCorporation at 30 June 2004 and the results of its financialperformance and transactions for the year then ended;

2 The Financial Report has been prepared in accordance with theprovisions of the Public Finance and Audit Act 1983 and thePublic Finance and Audit Act Regulation 2000;

3 The Financial Report has been prepared in accordance withAustralian Accounting Standards, Urgent Issues Group ConsensusViews and authoritative pronouncements of the AustralianAccounting Standards Board;

4 We are not aware of any circumstances which would render anyparticulars included in the Financial Report to be misleading orinaccurate; and

5 There are reasonable grounds to believe that NSW LotteriesCorporation will be able to pay its debts as and when they fall due.

Signed in accordance with a resolution of the Board of Directors.

Dated at Sydney this Thirteenth day of October 2004.

J R Bagshaw M A HowellChair Director and Chief Executive Officer

INDEPENDENT AUDIT REPORT NEW SOUTH WALES LOTTERIES CORPORATION

To Members of the New South Wales Parliament

Audit OpinionIn my opinion, the financial report of the New South Wales Lotteries Corporation:

(a) presents fairly the Corporation’s financial position as at 30 June 2004 and its financialperformance and cash flows for the year ended on that date, in accordance withapplicable Accounting Standards and other mandatory professional reporting requirements in Australia, and

(b) complies with section 41B of the Public Finance and Audit Act 1983 (the Act).

My opinion should be read in conjunction with the rest of this report.

The Board’s RoleThe financial report is the responsibility of the members of the Board of the New South WalesLotteries Corporation. It consists of the statement of financial position, the statement of financial performance, the statement of cash flows and the accompanying notes.

The Auditor’s Role and the Audit ScopeAs required by the Act, I carried out an independent audit to enable me to express an opinionon the financial report. My audit provides reasonable assurance to members of the New SouthWales Parliament that the financial report is free of material misstatement.

My audit accorded with Australian Auditing and Assurance Standards and statutoryrequirements, and I:

• evaluated the accounting policies and significant accounting estimates used by the Board in preparing the financial report, and

• examined a sample of the evidence that supports the amounts and other disclosures in the financial report

An audit does not guarantee that every amount and disclosure in the financial report is error free. The terms ‘reasonable assurance’ and ‘material’ recognise that an audit does not examineall evidence and transactions. However, the audit procedures used should identify errors oromissions significant enough to adversely affect decisions made by users of the financial report or indicate that Board members had not fulfilled their reporting obligations.

My opinion does not provide assurance:

• about the future viability of the New South Wales Lotteries Corporation,

• that the Corporation has carried out its activities effectively, efficiently and economically, or

• about the effectiveness of its internal controls.

Audit IndependenceThe Audit Office complies with all applicable independence requirements of Australianprofessional ethical pronouncements. The Act further promotes independence by:

• providing that only Parliament, and not the executive government, can remove an Auditor-General, and

• mandating the Auditor-General as auditor of public sector agencies but precluding theprovision of non-audit services, thus ensuring the Auditor-General and the Audit Office are not compromised in their role by the possibility of losing clients or income.

A Oyetunji CPAAssistant Director of Audit

SYDNEY14 October 2004

Independent Audit Report

GPO BOX 12SYDNEY NSW 2001

Statement of Financial PerformanceFor the year ended 30 June 2004

2004 2003Notes $’000 $’000

Revenues from ordinary activities

Product Sales 1(b) 1,137,042 1,118,798

Cost of Sales 3(b) (1,036,656) (1,019,516)

Gross Profit 100,386 99,282

Other Revenues from ordinary activities 2,3(a) 21,960 18,398

Total Revenues from ordinary activities 122,346 117,680

Expenses from ordinary activities

Retail Network (35,081) (36,924)

Printing & Distribution (6,690) (6,688)

Administration (30,696) (31,051)

Other 3(a) – (3,294)

Total Expenses from ordinary activities 3(b) (72,467) (77,957)

Profit from ordinary activities before related income tax equivalent expense 49,879 39,723

Less Income tax equivalent expense relating to ordinary activities 4(a) (14,401) (13,141)

Net profit 35,478 26,582

Increase in asset revaluation reserve 13(d) – 4,121

Total valuation adjustments recognised directly in equity – 4,121

Total changes in equity other than those resulting from transactions with owners as owners 35,478 30,703

The Statement of Financial Performance should be read in conjunction with the Notes to the Financial Statements.



Statement of Financial PositionAs at 30 June 2004

2004 2003Notes $’000 $’000

Current Assets

Cash Assets 5 164,422 167,357

Receivables 3,372 13,517

Other Financial Assets 6 2,321 1,826

Other 414 516

Total Current assets 170,529 183,216

Non-Current Assets

Receivables 2,073 2,073

Other Financial Assets 6 26,960 22,090

Property, Plant and Equipment 8 37,160 37,609

Tax Assets 4(d) 7,336 11,624

Other 9 5,493 3,243

Total Non-Current Assets 79,022 76,639

Total Assets 249,551 259,855

Current Liabilities

Payables 10 140,932 158,504

Tax Liabilities 4(b) 623 6,786

Provisions 11 38,866 26,024

Total Current Liabilities 180,421 191,314

Non-Current Liabilities

Payables 10 16,386 13,994

Tax Liabilities 4(c) 124 43

Provisions 11 3,619 3,777

Total Non-Current Liabilities 20,129 17,814

Total Liabilities 200,550 209,128

Net Assets 49,001 50,727

Equity

Contributed Equity 12 – –

Reserves 13 4,121 4,121

Retained Profits 14 44,880 46,606

Total Equity 49,001 50,727

The Statement of Financial Position should be read in conjunction with the Notes to the Financial Statements.

Statement of Cash FlowsFor the year ended 30 June 2004

2004 2003Notes $’000 $’000

Cash Flows from Operating Activities

Cash receipts from customers 1,187,095 1,172,924

Cash payments to suppliers and employees (137,127) (134,175)

Prizes paid to customers (683,508) (649,238)

Duty payments to Governments (283,833) (282,345)

Goods & Services tax paid (45,109) (46,079)

Income tax equivalent paid (16,195) (18,635)

Investment revenue received 8,226 8,329

Investment revenue credited to prize funds (4,921) (5,399)

Other income received 10,534 9,676

Net cash provided by Operating Activities (a) 35,162 55,058

Cash Flows from Investing Activities

Proceeds from sale of plant and equipment 558 393

Payment for investments (5,365) (11,515)

Payment for property, plant and equipment (5,393) (2,134)

Payments of deferred expenditure (522) (322)

Net cash used in Investing Activities (10,722) (13,578)

Cash Flows from Financing Activities

Dividends paid (24,504) (29,641)

Net cash used in Financing Activities (24,504) (29,641)

Net (Decrease)/Increase in cash held (64) 11,839

Cash at the beginning of the financial period 159,247 147,408

Cash at the end of the financial period (b) 159,183 159,247

Notes to the Statement of Cash Flows

(a) Reconciliation of net cash provided by operating activities to profit from ordinary activities

Net profit 35,478 26,582

Adjustments for non-cash items:

Depreciation 5,229 5,124

Amortisation of deferred expenditure 299 303

(Decrease) in income tax provided (6,163) (122)

Decrease/(Increase) in deferred taxes payable 4,369 (5,372)

Loss on sale of plant and equipment 55 53

Changes in Assets and Liabilities:

Decrease in receivables 10,145 3,967

(Increase)/Decrease in other assets (1,925) 3,640

(Decrease)/Increase in payables (12,309) 20,360

(Decrease)/Increase in provisions (16) 523

Net cash provided by Operating Activities 35,162 55,058

(b) Reconciliation of cash at the end of the financial period with related items in the Statement of Financial Position.

Cash comprises:

Cash Assets 164,422 167,357

Cash Book (5,239) (8,110)

Cash at the end of the financial period 159,183 159,247



Notes to the Financial StatementsFor the year ended 30 June 2004

New South Wales Lotteries Corporation is a Statutory State Owned Corporation established on 1st January 1997 under the provisions of the NewSouth Wales Lotteries Corporatisation Act, 1996.

Note 1 Statement of Significant Accounting Policies(a) Basis of Accounting

The Financial Report is a general purpose financial report which hasbeen prepared on an accrual basis and in accordance with the NewSouth Wales Lotteries Corporatisation Act, 1996, Public Financeand Audit Act, 1983, regulations issued thereunder, AustralianAccounting Standards, Urgent Issues Group Consensus Views andother authoritative pronouncements of the Australian AccountingStandards Board.

The Financial Report has been prepared on the basis of historicalcost and has not been adjusted to take account of changing moneyvalues or valuations of non-current assets, except where stated.

(b) Revenue recognition

Revenues are recognised at fair value of the consideration receivednet of the amount of Goods and Services Tax (GST).

Product Sales (Subscriptions)

Revenue from product sales is recognised exclusive of GST, whichis charged on the basis of operator margin. Revenue from InstantScratchies is recognised when tickets are sold. For all otherproducts, revenue is recognised when each game is drawn.

Investment Revenue

Investment revenue is recognised as it accrues, taking into accountthe effective yield on the financial asset.

Sale of non-current assets

The gross proceeds of non-current asset sales are included asrevenue at the date control of the asset passes to the buyer, usuallywhen an unconditional contract of sale is signed. The gain or losson disposal is calculated as the difference between the carryingamount of the asset at the time of disposal and the net proceedson disposal.

(c) Receivables

All Receivables are carried at cost. Revenue from product sales isdue for collection from retailers each week. Collectibility ofreceivables is regularly reviewed and debts which are known to beuncollectible are written off.

(d) Income Tax Equivalent

NSW Lotteries Corporation is exempt from CommonwealthTaxation, however, pursuant to the State Owned Corporations Act, 1989, the Corporation is subject to the National Tax Equivalent Regime.

NSW Lotteries Corporation adopts the liability method of tax effect accounting.

Income tax equivalent expense, as shown in Note 4, is calculatedon profit from ordinary activities adjusted for permanent differencesbetween taxable income and accounting profit. The effect of timingdifferences, which arise from items being brought to account indifferent years for income tax equivalent and accounting purposes,is carried forward in the Statement of Financial Position as a futureincome tax benefit or a deferred income tax provision. Futureincome tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt.

(e) Investments

(i) Current

Investments, comprising negotiable securities expected to berealised within a year are cash-equivalent assets carried at marketvalue. Investments comprising fixed interest deposits expected tomature within one year are not cash-equivalent assets and arecarried at cost.

(ii) Non-Current

Investments, comprising fixed interest deposits expected to mature after one year are not cash-equivalent assets and arecarried at cost.

(f) Property, Plant and Equipment

Revaluations of Physical Non-Current Assets

Property, plant and equipment is measured at fair value inaccordance with AASB 1041 and TPP 03-02. At each reportingdate the value of each class of physical non-current assets isreviewed to ensure that its carrying amount does not materiallydiffer from fair value at that date. Revaluation increments arerecognised in the asset revaluation reserve; decrements exceedingprevious revaluation increments are recognised as expenses.

Depreciation

Depreciation is applied on the straight line basis over the estimateduseful life of the asset to the Corporation.

The useful lives of each class of assets are:

Buildings 30 to 40 years

Leasehold improvements the leased term

Computer equipment (including software) 4 to 10 years

Other equipment 3 to 7 years


(g) Deferred Expenditure

Expenditures associated with significant product and technologicaldevelopments are deferred to the extent that they are recoverableout of future sales and other revenues; do not relate solely to saleswhich have been already brought to account; and contribute to thefuture earning capacity of the Corporation.

Deferred expenditure is amortised over the period in which thebenefits are expected to be realised or three years, whichever is the shorter.

(h) Payables

All payables are carried at cost which is the fair value of theconsideration to be paid in the future for goods and servicesrendered, whether or not yet billed to the Corporation.

(i) Prize Funds

For all products, the prescribed percentage of subscriptions payableas prizes is transferred to the respective prize account from whichpayment to prize winners is made. Revenue generated through theinvestment of prize funds balances is credited to the respective prizefund and may only be utilised for the payment of prizes.

(j) Employee Benefits

Salaries and annual leave

Salaries and annual leave (including any associated on-costs)represent present obligations resulting from employees’ servicesprovided up to the reporting date calculated at remuneration ratesthat the Corporation expects to pay when the liability is settled.

Long Service Leave

Long service leave is provided for all employees with five or moreyears of service with the Corporation or the former entity. The liabilityis measured (including on-costs) as the amount unpaid at thereporting date calculated at remuneration rates that the Corporationexpects to pay when the liability is settled. This method ofmeasuring the liability is not materially different from the amountdetermined by using the present value basis of measurement.

Superannuation

The Corporation contributes to various employee superannuationfunds and charges are expensed as incurred. Contributions are heldby the Pillar Administration in Investment Reserve Accounts.

(k) Financial Instruments

Financial Instruments give rise to financial assets of the Corporationand financial liabilities owing to other parties and account for themajority of the Corporation’s current assets and current liabilities. Inaccordance with AAS 33 "Presentation and Disclosure of FinancialInstruments", information is disclosed in Note 7 in respect of thecredit risk and interest rate risk. All such amounts are carried in theFinancial Report at the values disclosed in the Statement ofFinancial Position and applicable Notes to the Financial Statements.

(l) Goods & Services TaxReceivables and payables are stated with the amount of the Goodsand Services Tax (GST) included.

Revenues, expenses and all other assets and liabilities arerecognised net of the amount of GST except where the amount ofGST incurred is not recoverable from the Australian Tax Office (ATO).In these circumstances the GST is recognised as part of the cost ofacquisition of the asset or as part of the item of expense.

The net amount of GST recoverable from, or payable to, the ATO is included as a receivable, or payable, in the Statement ofFinancial Position.

Cash flows are included in the Statement of Cash Flows on a grossbasis. The GST components of cash flows arising from investingand financing activities which are recoverable from, or payable, tothe ATO are classified as operating cash flows.

(m) Provision for Dividends

Dividends declared, determined or publicly recommended on orbefore the reporting date are recognised as a liability for the entireamount that remains undistributed at that date.

(n) Comparatives

Comparatives have been reclassified and repositioned forconsistency with current year disclosures.

(o) Roundings of Amounts

Where appropriate, all amounts shown in this Financial Report havebeen rounded to the nearest thousand dollars.

Note 1 Statement of Significant Accounting Policies continued

Notes to the Financial Statements continuedFor the year ended 30 June 2004



2004 2003$’000 $’000

Note 2 Revenues from ordinary activitiesOther Revenues, amongst other items, include:

From operating activities:

Investment revenue – other parties 8,226 8,329

From outside operating activities:

Gross proceeds from the sale of plant and equipment 558 393

Note 3 Profit from ordinary activities before income tax equivalent expense

(a) Individually significant revenue/(expense) included in profit from ordinary activities before income tax equivalent expense

Increase/(Decrease) in Prepaid superannuation (Income tax effect – nil) (refer also to Note 9(b)) 2,642 (3,294)

(b) Profit from ordinary activities before income tax equivalent expense has been arrived at after charging, amongst other items:

Cost of Sales:

Retailer Commission (74,109) (71,086)

Prizes (677,159) (666,781)

Government Duties (285,388) (281,649)

(1,036,656) (1,019,516)

Employee Benefits 1,266 1,290

Superannuation 1,084 1,042

Depreciation – property, plant and equipment (refer Note 8) 5,229 5,124

Amortisation – deferred expenditure (refer Note 9(a)) 299 303

Loss on sale of plant and equipment 55 53

Lease rental expenses – operating leases 606 633

Consultancies 12 26

Bad debts 11 19




2004 2003$’000 $’000

Note 4 Taxation(a) Income tax equivalent expense

Prima facie income tax equivalent expense calculated at 30% (2003 – 30%) on the profit from ordinary activities 14,964 11,917

Increase in income tax equivalent expense due to permanent differences (non-tax deductible or assessable items):

Decrease in prepaid superannuation (608) 1,176

Non-deductible depreciation 12 12

Other 33 36

14,401 13,141

Income tax equivalent expense attributable to profit from ordinary activities is made up of:

Current income tax equivalent provision 10,032 18,513

Future income tax benefit 4,288 (5,305)

Deferred income tax provision 81 (67)

14,401 13,141

(b) Current Tax Liabilities

Provision for current income tax

Movements during the year:

Balance at the beginning of the year 6,786 6,908

Less instalments of income tax paid (16,195) (18,635)

Current year’s income tax provision on profit from ordinary activities 10,032 18,513

623 6,786

(c) Deferred Tax Liabilities

Provision for deferred income tax

Provision for deferred income tax comprises the estimated liability at the applicable rate of 30% (2003 – 30%) on the following item:

Income currently non-assessable for tax but booked as revenue for accounting purposes 124 43

(d) Deferred Tax Assets

Future income tax benefit

Future income tax benefit comprises the estimated future benefit at the applicable rate of 30% 2003 – 30%) on the following items:

Provisions and accrued employee benefits not currently deductible 1,639 1,822

Jackpotting unpaid prizes not currently deductible 2,035 4,617

Prize Funds components not currently deductible 3,535 5,057

Difference in depreciation of property, plant and equipment and amortisation of deferred expenditure for accounting and income tax purposes 127 128

7,336 11,624

Note 5 Cash AssetsCash at bank and on hand 134 217

Investments (refer Note 1(e)(i)) 164,288 167,140

164,422 167,357

Note 6 Other Financial AssetsCurrent Assets

Investments (refer Note 1(e)(i)) 2,321 1,826

Non-Current Assets

Investments (refer Note 1(e)(ii)) 26,960 22,090


Note 7 Disclosure of Financial Instruments

(a) Interest rate risk

Interest rate risk is the risk that the value of the financial instruments will fluctuate due to changes in market interest rates. The Corporation’sexposure to interest rate risks and the effective interest rates of financial assets and liabilities at reporting date are as follows:

Carryingamount as per

Floating Fixed Over More Statement of Interest 1 Year 1 to 5 than Non Interest Financial

Rate or Less Years 5 Years Bearing Position Financial Instrument Note $’000 $’000 $’000 $’000 $’000 $’000

30 June 2004

Financial Assets

Cash Assets 5 8,175 156,113 – – 134 164,422

Other Financial assets 6 – 2,321 16,609 10,351 – 29,281

Receivables – – – – 5,445 5,445

Total Financial Assets 8,175 158,434 16,609 10,351 5,579 199,148

Weighted Effective Interest rate 5.25% 5.65% 5.70% 5.70%

Financial Liabilities

Payables 10 157,318 157,318

Tax Liabilities 4(b) 623 623

Provision for Dividends 15 37,204 37,204

Total Financial Liabilities 195,145 195,145

30 June 2003

Financial Assets

Cash Assets 5 11,560 155,580 – – 217 167,357

Other Financial Assets 6 – 1,826 14,596 7,494 – 23,916

Receivables – – – – 15,590 15,590

Total Financial Assets 11,560 157,406 14,596 7,494 15,807 206,863

Weighted Effective Interest rate 4.75% 4.80% 5.72% 5.61%

Financial Liabilities

Payables 10 172,498 172,498

Tax Liabilities 4(b) 6,786 6,786

Provision for Dividends 15 24,504 24,504

Total Financial Liabilities 203,788 203,788

(b) Credit Risk

The Corporation’s maximum exposure to credit risk is represented by the carrying amounts of the financial assets included in the Statement ofFinancial Position. Credit risk represents the loss that would be recognised if parties holding financial assets of NSW Lotteries at reporting date failto honour their obligations under contract.

NSW Lotteries minimises its credit risk on receivables by undertaking its sales transactions with a large number of retailers and requiring thoseretailers to remit outstandings on a weekly basis. The Corporation’s investments included in cash assets and other financial assets are held in A grade securities and deposits, and will mature or be sold generally within twelve months. Investments to be retained for longer than twelvemonths are held in A grade deposits and earn a fixed rate of interest. The Corporation is therefore not materially exposed to credit risk.

(c) Net Fair Values of Financial Assets and Liabilities

Net fair values of financial assets and liabilities are determined by the Corporation on the following bases:Investments included in Cash Assets are traded in an organised financial market and are carried at market value. Investments in fixed interestdeposits are shown as Other Financial Assets and are carried at cost.Cash at Bank and on Hand, Receivables, Cash Book, Trade Creditors and Accruals, Government Duties, Sales in Advance, Unpaid Prizes, Prize Funds, Other Payables, Provision for Current Income Tax and Provision for Dividends are carried at historical cost.



2004 2003$’000 $’000

Note 8 Property, Plant and EquipmentLand & Buildings

Leasehold land – at fair value 4,600 4,600

Buildings – at fair value 11,243 11,243

Less accumulated depreciation (3,920) (3,531)

7,323 7,712

Leasehold improvements – at fair value 101 71

Less accumulated amortisation (66) (46)

35 25

Total Land & Buildings 11,958 12,337

Plant and Equipment

Computer equipment (including software) – at fair value 35,230 31,285


22,460 22,376

Other plant and equipment – at fair value 6,890 6,662


2,742 2,896

Total Plant and Equipment 25,202 25,272

Total Property, Plant and Equipment Net Book Value 37,160 37,609

Valuations of Land & Buildings

Leasehold land and buildings are measured on a fair value basis, being the amount for which the assets could be exchanged betweenknowledgeable and willing parties in an arm’s-length transaction, having regard to the highest and best use of the asset for which other partieswould be willing to pay. The current year’s valuation was determined by the directors, taking into account the prior year independent valuation,depreciation of buildings during the year and any significant market movements. The valuation in the prior year was determined by an independentvaluer on the basis of open market values for existing use.

Leasehold Improvements

Estimated fair value of leasehold improvements at directors’ valuation is $35,000 (2003 – $25,000)

Plant and Equipment

Estimated fair value of plant and equipment at directors’ valuation is $25,202,000 (2003 – $25,272,000).


2004 2003$’000 $’000

Note 8 Property, Plant and Equipment continued

Reconciliations:

Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:

Leasehold land – at fair value

Carrying amount at the beginning of the year 4,600 1,838

Revaluation increment – 2,762

Carrying amount at the end of the year 4,600 4,600

Buildings – at fair value


Revaluation increment – 1,359

Depreciation (389) (588)


Leasehold improvements – at fair value

Carrying amount at the beginning of the year 25 40

Additions 30 –

Amortisation (20) (15)

Carrying amount at the end of the year 35 25

Computer equipment (including software) – at fair value


Additions 4,013 917

Disposals – (28)

Depreciation (3,929) (3,582)


Other plant and equipment – at fair value


Additions 1,350 1,217

Disposals (613) (418)

Depreciation (891) (939)




2004 2003$’000 $’000

Note 9 OtherDeferred expenditure (refer Note 9(a)) 565 342

Prepaid superannuation (refer Note 9(b)) 4,928 2,901

5,493 3,243

(a) Deferred Expenditure

Deferred expenditure 1,283 1,197

Less accumulated amortisation 718 855

565 342

Reconciliation:

Reconciliation of the carrying amount for each class of deferred expenditure is set out below:

Carrying amount at the beginning of the year 342 323

Additions 522 322

Amortisation (299) (303)

Carrying amount at the end of the year 565 342

(b) Prepaid superannuation

Superannuation contributions are made by NSW Lotteries Corporation to the appropriate employee superannuation funds and are charged as anexpense when incurred. The contributions are held by Pillar Administration in Investment Reserve Accounts.

The actuarial firm Mercer Human Resources Consulting Pty Ltd, has completed an assessment of the gross superannuation liabilities for the definedbenefit schemes administered by Pillar Administration for the year ended 30 June 2004. The key assumptions underlying this assessment were:

2003/2004 Thereafter% %

Investment Growth 7.0 7.0

Salary Growth 4.0 4.0

Consumer Price Index 2.5 2.5

The Corporation fully funds the employer’s liability for superannuation. Based on the actuarial assessment by Mercer Human Resources ConsultingPty Ltd, the Corporation has prepaid contributions totalling $4,928,368 in the Reserve Accounts. The breakdown between the funds is:

2004 2004 2004 2003$’000 $’000 $’000 $’000

Employer Gross PastReserve Service Prepaid PrepaidAccount Liability Contributions Contributions

State Superannuation Fund 28,772 24,005 4,767 2,653

State Authorities Superannuation Scheme 3,356 3,356 – 18

State Authorities Non-Contributory Superannuation Scheme 1,845 1,684 161 230

33,973 29,045 4,928 2,901

Amounts representing prepaid superannuation contributions are recognised as an asset.

The individually significant revenue item of $2,641,932 (2003 – expense $3,294,196) referred to in Note 3 (a) is made up of $614,287 (2003 – $625,981) representing contributions which otherwise would have been paid together with the increase of $2,027,645 (2003 – decrease $3,920,177) in prepaid contributions.


2004 2003$’000 $’000

Note 10 PayablesCurrent

Cash Book 5,239 8,110

Trade Creditors and Accruals 9,611 10,442

Government Duties 24,976 23,421

Sales in Advance 10,641 16,711

Unpaid Prizes 45,951 50,234

Prize Funds 44,370 48,828

Other Payables 144 758

140,932 158,504

Non-Current

Unpaid Prizes 16,386 13,994

Note 11 ProvisionsCurrent

Employee Benefits (refer Note 16(a)) 1,662 1,520

Provision for Dividends (refer Note 15) 37,204 24,504

38,866 26,024

Non-Current

Employee Benefits (refer Note 16(b)) 3,619 3,777

Reconciliations:

Reconciliations of the carrying amounts for each class of provisions except for employee provisions are set out below:

Provision for Dividends (refer Note 15)

Balance at the beginning of the year 24,504 29,641

Provisions made during the year 37,204 24,504

Payments made during the year (24,504) (29,641)

Balance at the end of the year 37,204 24,504

Note 12 Contributed EquityAuthorised Capital

100 Ordinary Shares of $1.00 each – $100 (2003 – $100)

Issued and Paid-up Capital

2 Ordinary Shares of $1 each fully paid – $2 (2003 – $2)

New South Wales Lotteries Corporation was corporatised on 1 January 1997 with authorised capital of 100 ordinary shares at $1 each. The issued capital of two (2) $1 shares are issued to the Treasurer and the Special Minister of State on behalf of the NSW Government. The $2 share capital has been rounded to zero in the Statement of Financial Position.



2004 2003$’000 $’000

Note 13 ReservesAsset Revaluation Reserve (refer note 13(d) below) 4,121 4,121

Movements during the year

(a) Capital Reserve

Balance at the beginning of the year – 11,980

Transfer to retained profits – 11,980

Balance at the end of the year – –

(b) Development Reserve




(c) Operations Reserve




(d) Asset Revaluation Reserve

Balance at the beginning of the year 4,121 –

Increment on initial adoption of AASB 1041 and TPP 03-02 – 4,121

Balance at the end of the year 4,121 4,121

(e) Nature and Purpose of Reserves

Asset Revaluation Reserve

The purpose of the asset revaluation reserve is to record increments and decrements as a result of the revaluation of physical non-current assets measured at fair value in accordance with AASB 1041 and TPP 03-02.

Note 14 Retained ProfitsRetained Profits at the beginning of the year 46,606 24,190

Net profit 35,478 26,582

Add amounts transferred from Reserves

Capital Reserve (refer Note 13(a)) – 11,980

Development Reserve (refer Note 13(b)) – 4,996

Operations Reserve (refer Note 13(c)) – 3,362

– 20,338

Total available for distribution 82,084 71,110

NSW Government – Dividends Provided (37,204) (24,504)

Retained Profits at the end of the year 44,880 46,606


2004 2003$’000 $’000

Note 15 NSW Government DividendsDividends provided in respect of the year ended 30 June 2004 37,204 24,504

Note 16 Employee Benefits(a) Current

Provision for Annual Leave 1,190 1,125

Provision for Long Service Leave 472 395

1,662 1,520

(b) Non-Current

Provision for Long Service Leave 3,619 3,777

Note 17 Related Parties – DirectorsThe names of each person holding the position of director of the Corporation during the financial year are:

Messrs J. Bagshaw, M Howell, J Johnson, D McCormack and Ms B Boezeman, A Payne, and S Walsh.

The total emoluments paid or payable, directly or indirectly, by the Corporation to directors excluding the salary of the full time director was $379,368 (2003 – $349,693 ).

Note 18 Auditors’ remunerationAudit fees: Auditors of the Corporation 120 116

Other services: Auditors of the Corporation (Supervision of draws ) 127 122

247 238

Note 19 Commitments not provided for in the Financial StatementsCommitments under operating leases for motor vehicles, plant, office and warehouse accommodation at 30 June 2004:

Payable within 1 year 590 531

Payable 1 to 5 years 1,499 266

2,089 797

Commitments for the purchase of non-current assets at 30 June 2004:

Payable within 1 year – 484



Note 20 Contingent LiabilitiesThe directors are not aware of any contingent liabilities.

Note 21 Contingent AssetsThe total commitments under operating leases of $2,089,000 (2003 – $797,000) shown in Note 19 include $189,909 (2003 – $72,454) in input taxcredits that are expected to be recoverable from the Australian Taxation Office under the Goods and Services Tax legislation.

At the date of this report there were no commitments for the purchase of non-current assets (2003 – $484,000) and no input tax credits (2003 – $44,000 ) are expected to be recoverable from the Australian Taxation Office under the Goods and Services Tax legislation.

Note 22 Segment ReportingNSW Lotteries Corporation operates solely in the business of selling Lottery tickets; its customers are located in the state of New South Wales and the Australian Capital Territory.

Note 23 Impact of adopting Australian Standards equivalent to the InternationalFinancial Reporting Standards

The Corporation will apply the Australian equivalents to the International Financial Reporting Standards (AIFRS) from the reporting period beginning1 July 2005.

The Corporation is managing the transition to the new standards by allocating internal resources and engaging consultants to analyse the pendingstandards and Urgent Issues Group Abstracts to identify key areas regarding policies, procedures, systems and financial impacts affected by thetransition.

The key differences in accounting policies that are expected to arise from adopting AIFRS occur because of different requirements compared to theexisting Australian Accounting Standards. Based on current information the following key differences in accounting policies are expected to arise:

(a) AASB 1, First-time Adoption of Australian equivalents to International Financial Reporting Standards, requires retrospective application of thenew AIFRS from 1 July 2004.

(b) AASB 108, Accounting Policies, Changes in Accounting Estimates and Errors, requires that changes in accounting policies will be recognisedby restating comparatives rather than making current year adjustments with note disclosure of prior year effects.

(c) AASB 110, Events after balance date, states that only dividends "declared" or appropriately " authorised" before the reporting date can berecognised. This is more restrictive than the current approach which is based on "valid expectations". However this change is not expected toimpact on dividend recognition as the signing of the Statement of Corporate Intent before the reporting date to which it relates, "authorises" thedividend and any change in the amount of the dividend after the reporting date constitutes an "adjusting event after the reporting date".

(d) AASB 112, Income Taxes, calculates income tax equivalent assets and liabilities by resorting to the differences in the tax and accounting valuesof assets and liabilities recognised in the Statement of Financial Position rather than focusing on amounts recognised in net profit. Thisapproach may alter the current values of tax assets and liabilities.

NSW Treasury is providing assistance to manage the transition by developing policies, including mandates of options; presenting training seminars;providing a website with up-to-date information to inform about any new developments; and establishing an International Accounting StandardsReference Panel to facilitate a collaborative approach to manage the change.

End of Audited Financial Report


Statutory Reporting Appendix

Accounts Payable PerformanceThe following information is a snapshot of accounts payable by the Corporation at the end of each quarter and the indicative payment timeframe. Itis NSW Lotteries’ policy that all accounts are to be paid within the suppliers’ terms of trade. The following indicators summarise the Corporation’sperformance over the course of the year:

September December March June Ageing of Creditors at the end of each quarter 2003 2003 2004 2004

Current (within due date) $7,897,445 $10,804,233 $8,474,356 $9,611,401

< 30 days overdue Nil Nil Nil Nil

30-60 days overdue Nil Nil Nil Nil

60-90 days overdue Nil Nil Nil Nil

> 90 days overdue Nil Nil Nil Nil

September December March June Accounts paid on time during each quarter 2003 2003 2004 2004

Target % for Accounts paid within 30 days 100% 100% 100% 100%

Actual % of Accounts paid within 30 days 100% 100% 100% 100%

Total dollars paid within 30 days $7,897,445 $10,804,233 $8,474,356 $9,611,401

Total dollars paid $7,897,445 $10,804,233 $8,474,356 $9,611,401

Results Results Results Standard 2001/2002 2002/2003 2003/2004

Number of complaints for late or non-payment Less than 0.1% Nil complaints Nil complaints Nil complaintsof all accounts

During 2003-2004 there were no instances where interest was paid or payable as a result of late payment of accounts.

Code of ConductThe NSW Lotteries Code of Conduct aims to clearly outline the standards of behaviour and conduct expected of everyone working for theCorporation, whether they are employed full-time, part-time, or on a temporary or casual basis. It is our policy to continuously review our code tomake sure it incorporates current standards and issues. The Code of Conduct remained unchanged during the year.

ConsultanciesConsultants costing $30,000 or more

There were no consultancies costing $30,000 or more.

Consultants costing less than $30,000

During the year, 5 other consultancies were engaged in the following areas:

Finance & Accounting/Tax $1,950

Information Technology $1,500

Management Services $8,730

Total Consultancies less than $30,000 $12,180

Total Consultancies $12,180

Credit Card UseDuring the year, Credit Card use within the Corporation was in accordance with the Premier’s Memoranda and Treasurer’s Directions.

Equal Employment Opportunity (EEO)Outcomes for 2003/2004

Negotiations commenced during the year for a new Salaries, Allowances and Conditions of Employment Award. The Award underpins workingconditions and staffing practices and supports the equitable treatment of staff. The proposed changes take account of workplace needs andprovide for staff with caring/personal responsibilities.

Our Personal Development Plan received endorsement by the union of coverage. The program provides scope to value the contribution ofindividuals from different backgrounds and perspectives in the achievement of business goals and objectives. It is also a means of expandingopportunities and ensures access to appropriate learning and development activities for all staff.

Restructuring across all Divisions necessitated the implementation of the Voluntary Redundancy Program. During the year assistance was providedto staff from different cultural and linguistic backgrounds who elected to take up an offer of voluntary redundancy, to assist them to understand theprocess, policies and entitlements.

Strategies for 2004/2005

The following strategies have been identified for the 2004/2005 financial year:• Review of grievance mechanisms;• Develop a Workforce Plan that is non-discriminatory in the recognition of staffing mix and implications for people management practices; and• Develop a recruitment strategy aligned to the Workforce Plan which recognises diversity.

EEO Statistical Report

Table A. Trends in the Representation of EEO Groups 1

% of Total Staff2

Benchmark EEO Group or target 2001 2002 2003 2004

Women 50% 50% 50% 51% 47%

Aboriginal people and Torres Strait Islanders 2% 0% 0% 0% 0%

People whose first language was not English 20% 32% 31% 29% 33%

People with a Disability 12% 12% 11% 7% 10%

People with a Disability Requiring Work-Related Adjustment 7% 3.7% 3.2% 2.7% 3%

Table B. Trends in the Distribution of EEO Groups1

Distribution Index3

BenchmarkEEO Group or target 2001 2002 2003 2004

Women 100 83 82 82 82

Aboriginal people and Torres Strait Islanders 100 nc 4 nc 4 nc 4 nc 4

People whose first language was not English 100 87 88 85 89

People with a Disability 100 91 91 nc 4 nc 4

People with a Disability Requiring Work-Related Adjustment 100 nc 4 nc 4 nc 4 nc 4

Notes:1. Staff numbers are at 30 June 20042. Excludes casual staff3. A Distribution Index of 100 indicates that the centre of the distribution of the EEO group across salary levels is equivalent to that of other staff. Values less than 100

mean that the EEO group tends to be more concentrated at lower salary levels than is the case for other staff. The more pronounced this tendency is, the lower theindex will be. In some cases the Index may be more than 100, indicating that the EEO group is less concentrated at lower salary levels

4. nc = Not Calculated. The Distribution Index is not calculated where the estimated number of staff in an EEO group is less than 20

Exemptions from the Reporting ProvisionsIn accordance with section 7 (2) of the Annual Reports (Statutory Bodies) Act 1984, the Treasurer has exempted NSW Lotteries from disclosing inits Annual Report a detailed budget and an outline budget.


Statutory Reporting Appendix continued


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Freedom of Information (FOI)Under Section 14 of the Freedom of Information Act 1989, NSW Lotteries is required to publish an annual Statement of Affairs describing thestructure and functions of the Corporation and how these functions affect the public. Additionally, the Statement of Affairs requires the inclusion ofPolicy documents held by the Corporation and how these can be accessed by members of the public.

Statement of Affairs

Structure and Functions

NSW Lotteries Corporation is the only Government-owned gaming and wagering operator in New South Wales and is licensed to develop, promoteand conduct lotteries in New South Wales and the Australian Capital Territory. The structure of NSW Lotteries is outlined in this report underManagement Structure. The day-to-day functions of the Corporation are reported under the section titled: What We Do, in addition to the foursections that cover our day-to-day operations and titled: Our Players, Our Business, Our Shareholders and Our Staff. Information on the functionsof NSW Lotteries is also publicly available by visiting the Corporation’s website www.nswlotteries.com.au

Effects of Functions on Members of the Public

Members of the public are invited to participate in the drawing of lotteries at the organisation’s Corporate Headquarters, 2 Figtree Drive, HomebushBay, NSW 2127, and should contact the Draw Administrator on telephone (02) 9752 5548. Lotto draws (Monday, Wednesday and Saturday) aretelevised from the studios of Channel 9, Sydney, and attendance can be arranged by contacting the Manager, Player Services on telephone (02) 9752 5541.

Policy Documents

NSW Lotteries Corporation holds the following documents, which are available for public viewing:• Rules for all products (Lotto, Lotto Strike, OZ Lotto, Powerball, Lucky Lotteries, Instant Scratchies and 6 From 38 Pools);• ‘How to Play’ pamphlets for all games;• ‘It’s now even easier to claim your prizes’ brochure;• ‘Join the Players Club’ brochure;• Brochures relating to the NSW Lotteries’ Policy for Appointing Agencies;• Australian Lotteries Industry Code of Practice;• Advertising Code of Practice;• NSW Lotteries Code of Conduct; and• Annual Reports.

The following legislation relates to the conduct of our games and the operation of NSW Lotteries:• NSW Lotteries Corporatisation Act, 1996• Public Lotteries Act, 1996• State Owned Corporations Act,1989.

Documents relating to internal administration, including Board minutes, recruitment, personnel files, accommodation, staff and establishment,financial matters and internal audit are also held by NSW Lotteries.

Members of the public may contact the Freedom of Information Officer to ascertain which of these documents may be available under FOIlegislation. In these cases application and processing fees may apply.

Formal requests made under the Freedom of Information Act for access to documents held by the Corporation should be accompanied by a $30application fee and directed to:

The FOI Co-ordinatorNSW Lotteries Corporation2 Figtree DriveHOMEBUSH BAY NSW 2127.

A 50% reduction in fees and charges is available in the following circumstances:• where the applicant is a pensioner or under 18 years of age;• where the applicant, as a non-profit organisation, demonstrates financial hardship;• where the applicant seeks information which does not concern his or her personal affairs, and which the applicant demonstrates is in the public

interest to be made available.

The telephone number for all Freedom of Information inquiries is 9752 5783. Arrangements can also be made to view the documents listed abovebetween the hours of 9am and 5pm Monday to Friday by contacting the FOI Co-ordinator at the above address.


Publications

In addition to the Policy Documents listed above, NSW Lotteries prepares other publications relating to its products and operations which assist inkeeping our customers and retailers informed. These publications include:• Network News – product and event information for retailers;• Promotional material for special product events; and• Results of games in the Daily Telegraph.

The Corporation’s Annual Report is available (free of charge) and can be obtained by contacting the FOI Co-ordinator. The Annual Report is alsoavailable by visiting the Corporation’s website www.nswlotteries.com.au

Statistical Report for fiscal 2004

As with the period ending 30 June 2003, there were no requests for information under the Freedom of Information Act during the 2004 financialyear and an assessment of FOI requirements on NSW Lotteries’ activities found no major impact during the year. There were no major issues thatarose with regard to the Corporation’s annual reporting compliance on FOI issues. There was no involvement by the Ombudsman or courts inrelation to any inquiries or appeals under the FOI Act.

Funds Granted to Non-Government Community OrganisationsNo funds were granted to non-Government community organisations.

Investment Management PerformanceAt the end of the financial year investment funds were apportioned between two fund managers:

Treasury Corporation 35.75%

Citigroup Asset Management 64.25%

Gross returns on investments were:

Actual % per annum Benchmark % per annumfor year ended for year ended

June 2003 June 2004 June 2003 June 2004

Treasury Corporation 4.96 5.20 4.98 5.28

Citigroup Asset Management 5.12 5.47 4.98 5.28

Legislative ChangesThere were no significant legislative changes or judicial decisions which affected the Corporation’s operations during the year.

Liability ManagementNSW Lotteries has no borrowings, debt or unfunded liabilities.

Overseas TravelThere was no overseas travel undertaken during the reporting year.

Property DisposalNo land was disposed of by the Corporation during the reporting year.



Statement of Performance for Chief Executive Officer Name: Michael HowellPosition: Chief Executive OfficerPeriod in Position: Full YearTotal Remuneration Package: $320,000Performance Payment: $30,683

Results

• Lottery sales increased by $16 million to a record $1,108.9 million (including GST).• Continued emphasis on business process improvements and structural efficiency across the Corporation, resulted in Profit from ordinary

activities (before income tax equivalent and significant items) increasing by 10% to $47.2 million. • Total Government Revenue (comprising duty, dividends and tax equivalents) reached $371.8 million which represented an increase of 2.3%,

after adjustment for a $10 million Special Dividend paid last year.• Organisational efficiency, as measured by sales per employee, increased 9% to $6.1 million per employee.• Monday/Wednesday Lotto game enhancements were implemented smoothly and those changes, in addition to the introduction of a new

Saturday Lotto Strike draw, have provided incremental revenues.• 96% of NSW Lotteries’ surveyed customers indicated that they were satisfied to extremely satisfied with the quality of service provided by the

Corporation and the retail network. In addition, 88% of NSW Lotteries’ retail agents indicated they were satisfied to extremely satisfied with thesupport services provided by the Corporation.

• The on-line gaming selling system delivered 99.99% uptime against a benchmark of 99.95% and several enhancements were introduced toprovide new player facilities and streamline agent processing at point-of-sale.

• An effective working relationship was maintained with all relevant stakeholder groups.• All statutory responsibilities were completed on time and no major shortcomings in internal controls were identified in audit reports during

the year.

Performance Payment Criteria:

Entitlement to payment depends on meeting or exceeding predetermined sales, profit and key accountability targets contained in the Corporation’sBusiness Plan, Statement of Corporate Intent and the Chief Executive Officer’s Performance Agreement.

The level of incentive payment and associated performance hurdles are negotiated annually with the Board and are independently assessed andmeasured against actual results.

Annual Report ProductionFormats available

This report is available in bound hard copies and on the Corporation’s website at www.nswlotteries.com.au.

Hard copies of the report are available by contacting the Corporation’s headquarters – see Postal or Email addresses at the rear of this report.

Total external costs incurred in the production of the report

Design, Production & Photography $25,431

Print Management $17,620

Total external costs (ex GST) $43,051


Index

AAccess to Services [ARSBR Schedule 1]_IBCAccounts Payable Performance [ARSBR Schedule 1, TC 01/12]_57 Agency Business Plans_29Aims and Objectives [ARSBR Schedule 1]_08-09Annual Report • submission to Parliament [ARSBA s9A]_02• cost [ARSBR c8, TC 03/11]_62Audit• Audit Committee of Board_12• internal audit arrangements, program and results_12

BBalanced Scorecard_09Board [ARSBR Schedule 1]_10-15Board Committees [ARSBR Schedule 1]_12-13Board Attendance [ARSBR Schedule 1]_12Business Continuity Plan_12, 33

CCall Centre_07, 27Charter [ARSBR Schedule 1]_08Chief and Senior Executive Officers• name, position, level and performance of officer

[ARSBR c11, c14]_14, 16, 17, 62• number of executive positions [ARSBR c14]_38• number of female executive officers [ARSBR c14]_38Code of Conduct [ARSBR c8]_57Consultancies_57• costing greater than $30,000 [ARSBR Schedule 1, PM 02/07] • costing less than $30,000 [ARSBR Schedule 1, PM 02/07] Consumer response – services improved or changed [ARSBR Schedule 1]_20, 34Corporate Governance_10 Credit Card Usage [TC 99/6]_57Customers_08Customer Surveys_28, 30

EEconomic and Other Factors Affecting Achievement of OperationalObjectives [ARSBR Schedule 1]_04, 19-24Electronic Service Delivery [PM 00/12]_34Equal Employment Opportunity_58• achievements and strategies [ARSBR Schedule 1, TC 02/17]• statistical information [ARSBR Schedule 1, TC 02/17] Ethnic Affairs Priorities Statement [ARSBR Schedule 1]_59Exemptions from Reporting Provisions [ARSBR c19(4)]_58

FFinancial Statements • Audit Opinion [ARSBA s7(1)(a)(ii)]_41• audited financial statements [ARSBA s7(1)(a)(i)]_40-56• statement by members of Board_41FOI_60-61• contact officer • Statement of Affairs • FOI Report [FOIA s68, FOIR s9, FOIM App. B, ARSBA s5A (2)] Funds granted to non-Government community organisations [ARSBR Schedule 1]_61

GGames – Key Facts_05Gaming System_06, 13, 34Government Energy Management Policy [PM 98-35]_35Guarantee of Service – standards and provision of service_09 [ARSBR Schedule 1]_09, 27-28

HHighlights – The Year In Brief_06-07History_05Human Resources • industrial relations policies and practices [ARSBR Schedule 1]_37-39• number of employees by category [ARSBR Schedule 1]_38• overseas travel [ARSBR Schedule 1]_61• personnel policies and practices [ARSBR Schedule 1]_37-39

IInformation Technology Services_33Instant Scratchies_22Investment Management Performance [ARSBR c12, TC 03/09]_61

LLegal change – changes in Acts or significant legislation [ARSBAs9(1)(f), ARSBR Schedule 1]_61Letter to Shareholder Ministers [ARSBA s9A, SOCA s24A(5)]_02Liability management performance [ARSBR c13, TC 03/09]_61Lotto_19Lotto Strike_20Lucky Lotteries_23


Index continued

MManagement and Activities• benefits from management and strategy reviews

[ARSBR Schedule 1]_08-09, 13• major problems and issues [ARSBR Schedule 1]_19• measures of performance

[[ARSBR Schedule 1, SOCA s24A(3)]_03, 05-07, 09, 19-39• nature and range of activities [ARSBR Schedule 1]_04, 08-09• performance reviews [ARSBR Schedule 1]_03, 13, 28, 30Management and Structure• method and term of appointment of Board members, frequency of

meetings and members’ attendance, Board committees [ARSBRSchedule 1]_10-13

• names and qualifications of Board members [ARSBR Schedule 1]_14-15

• names, offices and qualifications of senior officers [ARSBR Schedule 1]_16-17

• organisation chart [ARSBR Schedule 1]_16-17

OObjectives_09Occupational Health and Safety [ARSBR Schedule 1]_38Organisation Chart [ARSBR Schedule 1]_16-17Overseas travel [ARSBR Schedule 1]_61OZ Lotto_21

PPayment of accounts [ARSBR Schedule 1, TC 01/12]_57Performance of Executive Officers [ARSBR c11, 14; TC 00/24]_62Performance Measures_03, 05-07, 09, 19-39Players Club_27Pools (6 From 38 Pools)_24Powerball_20Promotions_19-24Publications – summary list of promotional material[ARSBR Schedule 1]_60-61

RResearch and Development• new product development [ARSBR Schedule 1]_20-34• new technology [ARSBR Schedule 1]_34Retail Image Program_31Retail Network_28Retail Training_31Responsible Gaming_24Risk Management and Insurance Activities [ARSBR Schedule 1]_33

SSaturday Lotto_20Service Standards_06, 09Shareholders_02, 03, 10, 33Staff Training_39Statement of Corporate Intent_03Summary Review of Operations• narrative summary of significant operations [ARSBR Schedule 1]_04• operational information [ARSBR Schedule 1]_06-07

TTerritory Managers_29The Year in Brief_06-07Top Shop Program_30

WWaste Reduction and Purchasing Policy [ARSBR Schedule 1]_35

AbbreviationsARSBA Annual Report (Statutory Bodies) Act 1984ARSBR Annual Report (Statutory Bodies) Regulation 2000FOIA Freedom of Information Act 1989IBC Inside Back CoverIFC Inside Front CoverPF&AA Public Finance and Audit Act 1983PM Premier’s MemorandumSOCA State Owned Corporations Act 1989TC Treasury Circular

Access to ServicesRetail Sales

A total of 1,458 agencies throughout New South Wales and theAustralian Capital Territory sell all seven Lotteries products and provide results services to customers; 145 agencies retail InstantScratchies only.

On-Line Selling Hours:

Monday to Wednesday 5:00 am to 8:00 pmThursday & Friday 5:00 am to 9:00 pmSaturday 5:00 am to 7:30 pmSunday 5:00 am to 6:00 pm

Branch Sales

Sydney City

Pitt Street StoreCity Tattersalls Building, 200 Pitt Street, Sydney

Open (Public Holidays excepted):Monday to Friday 8:00 am to 5:30 pmThursday evenings until 7:30 pmSaturday 9:00 am to 1:00 pm

Homebush Bay

Level 22 Figtree Drive, Homebush Bay NSW 2127

Open (Public Holidays excepted):Monday to Friday 9:00 am to 5:00 pm

Mail Sales

Mail sales are available by writing to:Customer Sales UnitPO Box 6687, Silverwater NSW 2128

Results Service

Full Official Results for all products are published daily in the Daily Telegraph.

Telephone results can be obtained by contacting the following numbers:Lotto (Monday, Wednesday and Saturday) 1900 967 042Lotto Strike (Monday, Wednesday and Saturday) 1900 967 066OZ Lotto 1900 967 046Powerball 1900 967 068Lucky Lotteries (major winners only) 1900 967 041

(all ticket numbers) 1900 957 1006 From 38 Pools Results 1900 967 043Hearing Impaired Results Service (02) 9752 5560

Customer Inquiries

The Customer Services Unit provides a telephone inquiry servicebetween the hours of 8.00 am and 5.00 pm, Monday to Friday (Public Holidays excepted).

Inquiries may be directed to 1300 363 444.

Corporate Headquarters

2 Figtree Drive Homebush Bay NSW 2127Australia

Telephone (+61 2) 9752 5500 Fax (+61 2) 9752 5511

Hours of business: 8:00 am to 5:00 pm Monday to Friday.

Website address

www.nswlotteries.com.au

Email address

[email protected]

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7 Games183 Staff1,603 Agents

+2,000,000 Customers each week+41,000,000 Prizes in 2004+$1,108,900,000 Sales in 2004

2 Figtree DriveHomebush Bay NSW 2127

PO Box 6687Silverwater NSW 2128 Australia

Telephone (+61 2) 9752 5500Facsimile (+61 2) 9752 5511

Hours of Business8:00am to 5:00pm Monday to Friday

Internetwww.nswlotteries.com.au

[email protected]

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