2003 annual report › asxdata › 20040423 › pdf › 00430919.p… · 1 financial highlights 6...

Annual Report

2003

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CONTENTS

The game plan 1

Financial highlights 6

Chairman’s message 7

Chief Executive Officer’s review 8

Management team 11

Business summary 12

Review of operations – WWTS 14

Review of operations – Sportsbet 18

Board of Directors 20

Financial information 21

Corporate directory 56

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The achievements of 2003 are evident in our strong financial results.

The foundations have now been laid to pursue our long term strategy

of increasing our global reach, delivering new games, and

streamlining our distribution channels.

The

game plan

BETCORP LIMITED ACN 081 765 531

Betcorp is an international leader in the provision of internet and telephone based

betting services, covering a range of international sports for customers in North

America, Asia and Australia.

The Company was transformed by the acquisition of the WWTS business in January

2003. WWTS is a major player in the North American market, with one of the

strongest brands and reputations for online sportsbetting. Since the acquisition,

we have implemented major change focused on strengthening our management

team and optimising IT systems and business processes.

1BETCORP LIMITED ANNUAL REPORT 2003

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Our goal is to establish a global presence through a network of

regional hubs covering the major markets of Americas, Asia and

Europe. With the continuing trend to consolidation in the gaming

industry, the Company is well positioned to take advantage of

opportunities throughout the world.

Significant progress was made in 2003 in growing

the North American and Asian customer bases. The

Company will continue to invest in further growth

from its existing operations while actively searching

for complementary acquisitions.

globalreach

The game plan

Antigua

Betcorp Group officesKey markets

Darwin

Sydney


WWTS is an industry leader, providing betting opportunities on the largest sportingevents in the US to a worldwide audience. In 2003, the Company achieved an excellentwin rate of 10% on Superbowl, with a record profit for the day. Other highlights includeda very successful “March Madness” College Basketball tournament and strongperformance in the Major League Baseball season.

With a focus on entertainment, the Company is investing in new

games and brands to enhance the customer experience. We are

broadening our coverage of domestic and international sporting

events and developing an appealing suite of betting and

entertainment options. Our online casino offering, BetCasino.com,

was launched in 2003 and a range of new games and services,

including BetHoldem.com, our multi-player poker product,

is due to be released.

new gamingexperiences

The game plan

Ice Hockey 2%

Other 4%

Baseball 39%

Basketball 31%

American Football 24%

WWTS 2003 GROSS TURNOVER BY SPORT

Baseball Basketball American Football Ice Hockey Other

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The game plan

Delivering the game

The Company is committed to streamlining and expanding its

distribution channels to ensure our services are available at the

touch of a button. We also place the highest priority on customer

confidence in our service. Our secure transaction and payment

solutions ensure the experience is as enjoyable and simple as

possible whether connecting online, speaking to our customer

care team on the phone, or using a PDA to place a bet while

on the move.

security and

easy access


The game plan

Advanced technology and service

Effective systems behind the scenes are central to delivering

reliable 24/7 service. We have made significant progress in

re-engineering our IT platforms and enhancing the user interface

to provide the stability and sustainability required to

serve our customers online.

Wide ranging improvements to the customer usability

of the websites have increased online activity. We

launched a new Sportsbet website during 2003 and an

e-commerce engine under development for WWTS will

add to the customer experience while providing more

effective knowledge management capabilities.

We have also improved service levels with specific

initiatives for key customers and we have developed

targeted marketing through media and promotional

channels that create awareness among customers

with specific interests.

making it

happen

Financial highlights

Betcorp delivered a strong performance in its first full

year of operation following the significant restructuring

of the Company in January 2003.

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$17.2 million EBITDA

12.2 cents Earnings per share

(pre-goodwill amortisation)

1.5 cents Dividend per share

$1,024 million Gross wagering turnover

$40.7 million Total operating revenue

$15.2 million Cash flow from operations

(excluding foreign currency movements)

$8.3 million Corporate cash at bank

(as at 31 December 2003)

“A global focus, extended product offerings and innovative

delivery form the framework for future growth in Betcorp”.

Chairman’s message

In our first year of operation, I am pleased to report a strong

result and to announce a dividend of 1.5 cents per share.

The strong performance was driven by growth from the

acquisition of WWTS, with its position in popular major

US sports, and improvement in the Sportsbet business.

As it moves forward, the Company is building on this platform

through a three-pronged strategy. Gaming will continue to

expand globally by providing services to customers around the

world in the three major markets of Americas, Asia and Europe.

In parallel, our product offerings are being extended to provide

a complete range of enhanced sporting and gaming products

to these three markets. Finally, innovative ways of delivering

product to our customers through telesales, web and mobile

channels are being developed.

In the first year of operation, the Betcorp Group established a firm foothold in the US sports market

through WWTS, which has substantial activity in the major popular sports.

The year also saw a successful major capital raising, in August 2003. The proceeds were used to

repay the founders and promoters of WWTS, including repayment of convertible notes owing to the

vendor of WWTS. This was a significant strategic development that has provided the Company with

greater independence from which to grow.

The Company’s management team has also been strengthened and is well placed to drive growth,

the roll-out of new services and an increase in the online recreational business. Experienced people

have been appointed to key positions, controlled risk management procedures applied to the

bookmaking processes and new business and IT systems have been put into effect to underpin the

next stage of growth. We remain committed to bringing in the best people and to continuously

upgrade our processes and systems.

Our product ranges were broadened throughout the year and we will continue to capture the

organic growth opportunities that exist in an expanding market for online gaming. Understanding

the needs of our new and existing customers is central to this and we have developed marketing

campaigns and new brands. This focus has generated an increase in the volume of bets, growth in

new customer registrations and a broader customer mix.

2003 was a very satisfying year in which we delivered significant revenue and profit growth while

putting in place firm foundations for our overall international strategy. Going forward, we will

continue to invest in people, brands and systems infrastructure. This investment in organic growth

along with complementary acquisitions will drive progress towards the achievement of our

overall global goals.


John PriestCHAIRMAN

John Priest

Chief Executive Officer’s review

OVERVIEW

Betcorp’s first year following the acquisition of WWTS has been

one of significant achievement: the integration of the WWTS

business; the establishment of new management and Board; the

improvement at Sportsbet; new equity raisings; and the

repayment of the WWTS vendor’s convertible notes.

The foundations of professional management and improved risk

management systems have also now been laid.

FINANCIAL PERFORMANCE

Betcorp’s EBITDA of $17.2 million, on gross turnover of

$1,024 million, was an excellent performance, underpinned by

a strong WWTS result. Our overall strategy of focusing on

recreational customers helped increase the gross win rate for

the Group to 4.2% from 3.6% in the prior year.

Significant changes to the management team and systems of

both the WWTS and Sportsbet businesses were made during

2003, with a strong impact on the financial result.

A substantial proportion of the Company’s income is denominated in US dollars, which impacted

the result given the increase in value of the Australian dollar during the period. Betcorp was able

to minimise the impact by hedging its currency exposure which ensured that US earnings were

reported at an exchange rate below 70 cents. The Company has implemented a long-term hedging

strategy to protect future reported earnings from future currency fluctuations.

RISK MANAGEMENT

Effective bookmaking procedures and systems are central to risk management in a wagering

business. Experienced bookmakers have been appointed at both WWTS and Sportsbet during

the past 12 months, greatly enhancing the Company’s risk management profile. Betcorp has also

invested in a new betting software platform which will further strengthen our performance on the

bookmaking floor.

“Betcorp’s strategy of focusing on recreational customers

helped increase the gross win rate for the Group”.

8

Richard Barker

MARKETING

Turnover growth was particularly strong in the second half of 2003 due to a focused

marketing strategy and increased advertising expenditure. New funded customer

registrations at WWTS grew by 47% on 2002 levels. The establishment of a dedicated

VIP team at WWTS to service its best customers and the creation of a “valuable

affiliate” program have greatly improved the Company’s understanding of and

relationship with its customers and partners.

INFORMATION TECHNOLOGY

Reliable IT is essential to creating an enjoyable entertainment experience for the customer. The

Company has developed new products and solutions. The addition of casino software to the WWTS

platform was the first stage in the roll-out of new products, which will continue in 2004 with poker

and other supplementary offerings.

There have also been significant improvements to the processing of customer payments and

automation of back-office functions which have delivered substantial cost savings. In addition, the

WWTS site has been refreshed and translated into two dialects of the Chinese language, thereby

allowing us to more effectively address the growing Asian market.

REGULATORY ENVIRONMENT

The review of the US legal position in respect of online gaming is ongoing. Resolution is not

anticipated during the 2004 US election year. A recent World Trade Organization ruling has been

construed as positive but the position continues to unfold.

TALENT AND EXPERIENCE

During 2003, the Company put in place new executive

management to take the business to the next level. Structured

discipline has improved our risk management processes. In

addition, a focus on better understanding our customers has

provided us with an ability to deliver first-rate customer care.

These early achievements are evident in our strong trading

performance.


2002 2003

CONSOLIDATED GROSS TURNOVER 2002 AND 2003 (A$M)

(Proforma) at consistent 2003 exchange rate

7.5%Growth

800

850

900

950

1000

1050

2002 2003

WWTS GROSS TURNOVER 2002 AND 2003 (US$M)

WWTS turnover grew by 14% in US dollar terms in 2003

14%Growth

520

540

560

580

600

620

640

660

2002 2003

WWTS NEW FUNDED CUSTOMER REGISTRATIONS 2002 AND 2003

Funded customer registrations increased by 47% in 2003

47%Growth

Chief Executive Officer’s review

Behind the scenes, the new finance and administration teams

have brought a professional rigour and structure to the

business and delivered cost savings in the first year of

combined operations.

Effective and simple payment solutions remain a vitally

important area for attracting new business to WWTS and

the appointment of a dedicated payment team has achieved

substantial improvements in this area.

Committed people drive our business and we are focused

on ensuring we have a talented pool, and creating the

opportunities for them to excel.

OUTLOOK

Betcorp anticipates further solid growth in its existing businesses in the year ahead. The investment

in people, systems and products will deliver organic growth in 2004 and beyond. At a Group level,

we also expect to achieve further cost savings through efficiencies of scale and IT improvements.

Increased marketing and advertising expenditure will also assist in customer acquisition and

retention through targeted campaigns and promotions. The Company will continue its product and

brand development in line with the overall marketing strategy. WWTS will seek opportunities to

expand its geographic reach through marketing initiatives in Asia and the launch of new products

and services. Betcorp will also actively pursue value enhancing acquisitions where they complement

the current portfolio of products.

Richard BarkerGROUP CHIEF EXECUTIVE OFFICER

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Management team

“It’s all about the people and their dedication

and commitment’’. Richard Barker GROUP CEO

Richard BarkerGROUP CHIEF EXECUTIVEOFFICER

Simon SmithGROUP CHIEF FINANCIALOFFICER AND COMPANY SECRETARY

Phil KightleyBUSINESS ANALYST, BETCORP

Carolyne AllanMARKETING MANAGER,BETCORP

Simon NobleCHIEF EXECUTIVE OFFICER,WWTS

Jessica Davis-DyettCHIEF OPERATIONS OFFICER,WWTS

Charlotte PayneCHIEF FINANCIAL OFFICER,WWTS

Pete RichardsCHIEF TECHNOLOGY OFFICER,WWTS

Ruby TangASIA OPERATIONS MANAGER, WWTS

John McDonaldGENERAL MANAGER, SPORTSBET

Keith LiuDIRECTOR OF MARKETING, WWTS

Clayton KirkpatrickDIRECTOR OF BOOKMAKING(SPORTS), SPORTSBET

Frank CalleyDIRECTOR OF BOOKMAKING(RACING), SPORTSBET

Business summary

BETWWTS.COM

Fully licensed and regulated by the Government

of Antigua and Barbuda, BetWWTS provides

both internet and telephone wagering to

customers around the world. Offering

hundreds of betting options daily, BetWWTS

accepts wagers on all major international

sporting events.

BETCASINO.COM

Launched in 2003, BetCasino is the latest

casino offering from WWTS using secure

encryption and firewall technologies to

ensure the gaming is as safe and

enjoyable as possible.

WISEGUYCASINO.COM

WWTS’ first casino remains a popular

choice and will be rebranded and upgraded

with new features and enhanced functionality

to improve the customer experience.

BETP2P.COM

The Betp2p betting exchange covers all

the major sports and racing – thoroughbred

and harness – and enables the player to

bet against other punters from around the

world with greater flexibility.

BETHOLDEM.COM

WWTS is set to release its multi-player poker

offering to complement the existing portfolio

of products.

WAGERONSPORTS.COM

Like BetWWTS, WagerOnSports is licensed in

Antigua and accepts bets on all the main

sports, as well as “off-the-wall’’ bets on The

Oscars, reality TV and other entertainment

features for low stake players.

BETAFFILIATE.COM

The BetAffiliate advanced software system

provides WWTS’ partners with a single point

of contact for all their information needs.

SPORTSBET.COM.AU

Sportsbet is licensed and regulated in the

Northern Territory and offers customers

internet and phone betting on a range of

Australian and international sports and

racing. Online since 2001, the site was

upgraded in 2003 with major improvements

to functionality.

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Betcorp provides a range of games and betting options through

its portfolio of brands. The Company has identified specific target

segments of its database and devised unique betting propositions

for them, resulting in the creation of new brands within WWTS.

Brand management will continue to be a focus as the Company

rolls out new games and updates its existing portfolio.

RESPONSIBLE GAMING POLICY

Both WWTS and Sportsbet have been operating under responsible gaming charters for a

number of years as required under each licence. As the holding company of both WWTS and

Sportsbet, Betcorp subscribes to the highest international standards for responsible gaming.

These policies and the Betcorp charter seek to firmly filter and restrict access by minors while

also providing blocked access as appropriate.


WWTS in 2003:

US$261 Average bet size in 2003

Bets placed on the internet accounted for 62.8% of gross wagering turnover

11,348 Active unique players

US$286,767 Gross revenue recorded on Superbowl XXXVII

2,482,533 Bets placed in 2003 equivalent to 5 betsplaced every minute

Asian turnover represented 30.6% of gross wagering turnover during the year

http://www.betwwts.com/

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Review of operations: WWTS

WorldWide TeleSports (“WWTS”)

WWTS has been operating as a sports book in Antigua for over

10 years and has developed one of the strongest brands and

reputations in the North American market.

During 2003, WWTS focused on bookmaking margins and cost

efficiencies, which delivered increased operating margins to the

business. The strong financial performance during the year, with

EBITDA of US$12.5 million, represents an 87% increase over the

2002 performance.

Betting on major league sports accounts for the majority of WWTS’ turnover, although overall

profitability has been improved by offering the customer increased betting opportunities, through

new sports, betting events and innovative bet types, resulting in an increased volume of bets.

Growth in the online operations has continued as anticipated, following wide ranging improvements

to the customer usability of the website, and now accounts for over three quarters of bets placed.

A dedicated team serves WWTS’ VIP customers by telephone where required – a key part of the

strategy to offer targeted marketing and service initiatives to meet customer needs.


2002 2003

WWTS EBITDA 2002 AND 2003 (US$M)

WWTS EBITDA increased by 87% in US dollar terms in 2003

87%Growth

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Review of operations: WWTS

WAGERING

WWTS achieved a solid win rate of 4.2% for the year, an

increase from the 3.6% achieved in 2002. This was assisted by a

4.9% win rate for American Football and a 3.1% hold for Baseball

which is well above the theoretical rate of 2.4%. Superbowl

XXXVII was the most profitable in WWTS’ history, contributing

to a strong first quarter.

Major League Baseball was the highest ranking sport at a gross

win level, holding US$7.7 million for the year. This was followed

by Basketball with particularly good performance on teaser and

parlay bets in the NBA and on the “March Madness” College

Basketball tournament.

NEW BUSINESS

Significant increases in new customer registrations were attained through greater

marketing effectiveness and by promoting the differentiating features of the brand in

more targeted media and promotional channels. New customer registrations were up

by 81% in 2003, and new funded registrations increased by 47% against 2002.

WWTS has broadened its customer mix, which has further improved the win rate.

During 2003, WWTS also strongly expanded its Asian player base and turnover.

Although Asian business now accounts for approximately 30% of WWTS’ total

turnover, it was mainly wholesale business delivering volume at a lower win rate.

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WWTS, TOP FIVE BY SPORT BY GROSS REVENUE

Major League Baseball NBA Basketball NBL Football College Football College Basketball

Major League Baseball was the top ranking sport in 2003

College Football 18%

College Basketball 2%

Major League Baseball 38%NBA Basketball 22%

NBL Football 20%

NEW PRODUCTS AND SERVICES

The launch of BetCasino.com was a key milestone for WWTS. The product was

successfully brought to market and is now fully integrated into the current betting

software system. The imminent delivery of BetHoldem.com, a multi-player poker

offering, will add considerable breadth to the WWTS suite of entertainment products.

WWTS is rebranding and upgrading the present WiseGuyCasino.com website with

new features and enhanced functionality to improve the customer experience. A

proprietary e-commerce engine (BetBanking) is also under development and will

offer customers the benefit of dealing with a single payment gateway before gaining

access to the full portfolio of WWTS brands.

OPERATIONS

WWTS achieved cost efficiencies during the year with a focus on IT, telecommunications and

payment solutions. The marketing and customer care functions were restructured, resulting in the

formation of a dedicated sales team dealing with payment processing issues and a targeted

approach to brand development and marketing campaigns. These initiatives put WWTS in a sound

position to execute the 2004 core strategies.

http://www.betwwts.com/


http://www.sportsbet.com.au/

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Review of operations: Sportsbet

Sportsbet

Sportsbet has been operating in the Northern Territory since 1983. With its predominantly Australian

customer base, the main focus is on Horse Racing followed by Australian Rules Football, Rugby

League, Rugby Union, Soccer and Cricket. The three football codes, AFL, NRL and Rugby Union,

contributed 16.3%, 10.5% and 11% of gross wagering turnover respectively in 2003.

Sportsbet’s financial result in 2003 was a significant improvement on the prior year. With the

installation of a new management team, Sportsbet has become more focused on systems and

efficiencies to create a foundation for future growth.

In September 2003, following two years of its online presence, Sportsbet launched a new website,

substantially improving the customer experience and creating a new position for the brand in the

marketplace. With a new management team in place in the third quarter of 2003, the immediate

focus was on enhanced risk management procedures for racing and sport.

The racing business contributed approximately 60% of turnover in 2003, predominantly from phone

betting customers. Sportsbet aims to increase the appeal of the internet to these customers by

offering premium products exclusively over the internet. Harness Racing and Greyhound Racing

were launched on the internet in the first quarter of 2004.

The new management team has focused on marketing strategies for the football codes, with a view

to increasing new customer registrations in the pre-season period. Sportsbet also expects that the

two major sporting events of 2004 – Soccer’s Euro 2004 and the Olympics – will complement the

traditional Australian football season and Australia’s biggest racing carnival, the Spring Carnival

commencing in October.

Marketing efforts for 2004 will be directed towards customer acquisition, retention and reactivation

of dormant accounts. By increasing conversion rates and the number of unique customers, offering

premium products, and maintaining a strong customer care focus, Sportsbet aims to increase brand

awareness and improve its position in the market.


SPORTSBET 2003 TURNOVER BY SPORT

Racing AFL NRL Rugby Union Soccer Other

Racing was the top ranking sport in 2003

NRL 5%

Soccer 3%

Rugby Union 4%

Other 18%Racing 63%

AFL 7%

Board of Directors

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Mr John PriestCHAIRMAN AND NON-EXECUTIVEDIRECTOR

Mr Priest was appointednon-executive Chairman on30 May 2003. He iscurrently Chairman ofMacquarie CorporateTelecommunications Ltd,Chairman of Apollo LifeSciences Ltd and a Non-Executive Director ofSydney Water. He is also a Council Member of theAustralian Graduate Schoolof Management and aFellow of the AustralianInstitute of Directors. Mr Priest formerly held the position of ExecutiveDirector of Coca-ColaAmatil Limited.

Mr Richard BarkerCHIEF EXECUTIVE OFFICER ANDEXECUTIVE DIRECTOR

Mr Barker was appointedan executive Director ofthe Company on21 January 2003. Beforejoining Betcorp Limited,Mr Barker was a Director of Investment Banking(Mergers and Acquisitions)with NM Rothschild & Sons(Australia) Ltd, where hespent over 10 years. He has more than 15 yearscorporate financeexperience gained ininvestment banking andstockbroking (both inAustralia and the UnitedKingdom). Prior to joiningRothschild, Mr Barkerworked in the corporatefinance divisions of MorganGrenfell, both in Sydneyand London, andPotter Warburg.

Mr Simon NobleEXECUTIVE DIRECTOR

Mr Noble was appointedan executive Director ofthe Company on21 January 2003. Mr Nobleis currently Chief ExecutiveOfficer of Tasman GamingInc, which operates WWTS,the business acquired bythe Company in January2003. Mr Noble has over 10 years experience in theonline gaming sector,including extensiveinternational operationaland regulatory experience.Before joining TasmanGaming, Mr Noble spentseven years as ManagingDirector at IntertopsSportwetten GmbH, aleading Europeanbookmaker licensed inAustria since 1982. In 1996,he established thatcompany’s online bettingpresence, eventuallyculminating in the spin-offof the internet division asIntertops.com. Mr Noble isa British citizen, resident in Antigua.

Mr William Graham NON-EXECUTIVE DIRECTOR

Mr Graham was appointedas a non-executive Directoron 21 January 2003. Hebrings to the Board over30 years experience as abookmaker, including 20 years as a railsbookmaker in Melbourne.He is currently one ofAustralia’s most recognisedbookmakers. With an initialbackground in accounting,Mr Graham has alsodemonstrated an ability inbuilding businesses, havingfounded, developed andsubsequently sold NJSTechnology, a largecomputer company.

Financial information


CONTENTS

Corporate governance 22

Directors’ report 24

Statement of financial performance 28

Statement of financial position 29

Statement of cash flows 30

Notes to the financial statements 31

Directors’ declaration 51

Independent audit report 52

Shareholders information 53

Corporate governance

Set out below is a statement of themain corporate governance practiceswhich Betcorp Limited had in placeduring the financial year ended 31 December 2003.

THE BOARD OF DIRECTORSThe ultimate responsibility for corporategovernance resides with the Company’s Board ofDirectors which comprises four Directors, two ofwhom are non-executive Directors. The Chairmanof the Board is John Priest. Details of the Directorsin office as at the date of this statement appear inthe Directors’ Report.

It is the policy of the Board that its membershipshould reflect an appropriate balance betweenexecutives possessing extensive direct experienceand expertise in the core business activities of theBetcorp Group, and non-executive members whohave outstanding track records and reputationsattained at the highest levels of industry, and whoare able to bring to the Board a broad range ofgeneral commercial expertise and experience.

The membership of the Board is reviewed by thefull Board from time to time having regard to theongoing needs of the Group. Directors are initiallyappointed by the full Board. They are subject toelection by members at the Annual GeneralMeeting following their appointment and aresubject to re-election by members at annualintervals thereafter.

Full Board meetings are held at regular intervalsthroughout the year, with additional meetings beingheld if necessary. Directors are provided with Boardreports containing sufficient information to enableinformed discussions of all agenda items inadvance of Board meetings. Any non-executiveDirector may, if that Director deems it necessary,seek independent legal advice in any matterconnected with performance of their duties. In suchcases, the Company will reimburse the reasonablecost of such advice. Directors are asked to notifythe Company Secretary in advance of seeking such advice.

BOARD RESPONSIBILITIESThe Board is accountable to members and seeks toensure that the business objectives of the Groupare aligned with the expectations of members andthat the operations of the Group are beingeffectively managed in a manner that is properlyfocused on those business objectives as well asconforming to regulatory and ethical requirements.

The Board has established an Audit and ComplianceCommittee and a Remuneration Committee to assist it in discharging its responsibilities. Thesecommittees are described below.

Other committees of the Board may be establishedfrom time to time to deal with specific matters.

AUDIT AND COMPLIANCE COMMITTEEThe Audit and Compliance Committee comprisestwo non-executive Directors, namely:

J Priest (Chairman) Non-executive DirectorW Graham Non-executive Director.

The primary function of the Audit and ComplianceCommittee is to ensure that an effective internalcontrol framework exists within the Group, throughthe establishment and maintenance of adequateinternal controls to safeguard the assets of thebusiness and to ensure the integrity and reliabilityof financial and management reporting systems.The Audit and Compliance Committee:

• reviews and reports to the Board on the halfyear and annual reports and financial statementsof the Group;

• is responsible for nominating the Company’sexternal auditor and reviewing the adequacy,scope and quality of the annual statutory auditand half yearly audit review;

• reviews the effectiveness of the Group’s internalcontrol environment, including the effectivenessof internal control procedures;

• monitors and reviews the reliability of financialreporting;

• monitors and reviews the compliance of theGroup with applicable laws and regulations;

• determines the scope of the internal auditfunction to ensure its resources are adequateand effectively used, including the co-ordinationof the internal and external audit functions; and

• monitors the adequacy and effectiveness ofcompliance systems in relation to the legalexposures of the Group.

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The Audit and Compliance Committee hasaccepted, as a matter of principle, the need for theGroup to have in place an adequate complianceand control framework based upon appropriatewritten procedures, policies and guidelines toenable areas of legal risk to the business to beidentified and appropriately reacted to, and toensure that members of staff are informed as tothose areas of material legal risk relevant to theoperational activities in which they are engaged.

The Audit and Compliance Committee meets withthe external auditor at least twice a year and morefrequently if required. The external auditor has adirect line of communication at any time to eitherthe Chairman of the Audit and ComplianceCommittee or the Chairman of the Board.

The Audit and Compliance Committee reports tothe full Board after each committee meeting.

REMUNERATION COMMITTEEThe Remuneration Committee comprises two non-executive Directors and an executive Director (or alternate), namely:

J Priest Non-executive DirectorW Graham Non-executive DirectorR Barker Executive DirectorS Noble (alternate) Executive Director.

The function of the Remuneration Committee is toreview the remuneration packages and other termsof employment for executive Directors and relevantsenior executives. Remuneration packages are setat levels designed to attract and retain high calibresenior executives capable of meeting the specificmanagement needs of the Group. Where theservice agreements of executive Directors providefor an annual salary review, that review isundertaken by the Remuneration Committee.

The Remuneration Committee also approves theshare awards to executives selected forparticipation in the Company’s share plans.

Fees paid to non-executive Directors aredetermined by the Board, with the currentmaximum aggregate limit set by members.Directors’ fees are reviewed annually by the Boardwithin that limit, taking into consideration the levelof fees paid to non-executive directors bycompanies of a similar size and stature.

RESPONSIBLE GAMING POLICY Both Tasman Gaming Inc (“WWTS”) and Sportsbethave been operating under responsible gamingcharters for a number of years as required undereach licence. As a combined entity, Betcorp willsubscribe to the highest international standards forresponsible gaming. These policies and the Betcorpcharter will seek to firmly filter and restrict accessby minors while also providing blocked access as appropriate.

Directors’ report

The Board of Directors of BetcorpLimited (“Company”) takes pleasure in submitting the financial report ofthe Company and its controlledentities (“Consolidated Entity”) for the year ended 31 December 2003.

DIRECTORSThe Directors during or since the end of thefinancial year have been:

Mr John Priest – CHAIRMAN AND NON-EXECUTIVEDIRECTOR

Mr Priest was appointed non-executive Chairmanon 30 May 2003. He is currently Chairman ofMacquarie Corporate Telecommunications Ltd,Chairman of Apollo Life Sciences Ltd and a CouncilMember of the Australian Graduate School ofManagement. He is also a Fellow of the AustralianInstitute of Company Directors, a Non-ExecutiveDirector of Sydney Water and Chair of SydneyWater’s Audit and Risk Management Committee. Mr Priest formerly held the position of ExecutiveDirector of Coca-Cola Amatil Limited.

Mr Richard Barker – CHIEF EXECUTIVE OFFICER ANDEXECUTIVE DIRECTOR

Mr Barker was appointed an executive Director ofthe Company on 21 January 2003. Before joiningBetcorp Limited, Mr Barker was a Director ofInvestment Banking (Mergers and Acquisitions)with NM Rothschild & Sons (Australia) Ltd, wherehe spent over 10 years. He has over 15 yearscorporate finance experience gained in investmentbanking and stockbroking (both in Australia andthe United Kingdom). Prior to joining Rothschild, Mr Barker worked in the corporate finance divisionsof Morgan Grenfell, both in Sydney and London,and Potter Warburg.

Mr Simon Noble – EXECUTIVE DIRECTOR

Mr Noble was appointed an executive Director ofthe Company on 21 January 2003. Mr Noble iscurrently Chief Executive Officer of Tasman GamingInc (which operates WWTS), the business acquiredby the Company in January 2003. Mr Noble hasover 10 years experience in the online gamingsector, including extensive international operationaland regulatory experience. Before joining Tasman

Gaming, Mr Noble spent seven years as ManagingDirector at Intertops Sportwetten GmbH, a leadingEuropean bookmaker licensed in Austria since 1982.In 1996, he established that company’s onlinebetting presence, eventually culminating in thespin-off of the internet division as Intertops.com. Mr Noble is a British citizen, resident in Antigua.

Mr William Graham – NON-EXECUTIVE DIRECTOR

Mr Graham was appointed as a non-executiveDirector on 21 January 2003. He brings to theBoard over 30 years experience as a bookmaker, 20 years of that as a rails bookmaker in Melbourne.He is currently one of Australia’s most recognisedbookmakers. With an initial background inaccounting, Mr Graham has also demonstrated anability in building businesses, having founded,developed and subsequently sold NJS Technology(a large computer company).

John Falconer – CHAIRMAN (RESIGNED)

Mr Falconer resigned from the Board of theCompany on 1 February 2003.

Andrew Sigalla – CHIEF EXECUTIVE OFFICER ANDEXECUTIVE DIRECTOR (RESIGNED)

Mr Sigalla resigned from the Board of the Companyon 1 February 2003.

Siimon Reynolds – NON-EXECUTIVE DIRECTOR(RESIGNED)

Mr Reynolds resigned from the Board of theCompany on 1 February 2003.

The Hon Peter Anderson – NON-EXECUTIVEDIRECTOR (RESIGNED)

Mr Anderson resigned from the Board of theCompany on 1 February 2003.

DIRECTORS’ MEETINGSThe following table sets out the number ofDirectors’ meetings (including meetings ofcommittees of Directors) held during the financialperiod and the number of meetings attended byeach Director (while they were a Director orcommittee member). During the financial period, 11 Board meetings were held.

24

NUMBER OF MEETINGS

Directors Maximum possible to attend Meetings attended

J Priest 6 6

R Barker 11 11

S Noble 11 11

W Graham 11 11

S Reynolds (resigned) 1 1

J Falconer (resigned) 1 1

A Sigalla (resigned) 1 1

P Anderson (resigned) 1 1


PRINCIPAL ACTIVITYThe Consolidated Entity’s principal activity duringthe financial year was the operation of licensedsportsbetting operations. This business isconducted through the Company’s wholly ownedsubsidiaries, Sportsbet Pty Limited, based inDarwin, and Tasman Gaming Inc, based in Antigua,West Indies.

FINANCIAL RESULT AND DIVIDENDSThe results for the Consolidated Entity are set outon page 28 and show a profit before tax of$12,480,567 (loss of $14,068,898 in 2002).

The Directors have recommended that a maidendividend of 1.5 cents per share be paid. The recorddate to identify shareholders entitled to thedividend is set as 11 March 2004. The payment datefor the dividend is 25 March 2004.

REVIEW OF OPERATIONSThe Consolidated Entity’s results demonstrate theexcellent performance of Tasman Gaming Inc andcontinued restructuring efforts at Sportsbet. Theincrease in net profit from 2002 is particularlyimpressive.

The results have been partially protected from theongoing depreciation of the US dollar against theAustralian dollar through a series of long termforeign exchange hedging contracts.

Tasman Gaming

WWTS delivered a strong result for the full year with turnover increasing by 14.1% to US$651.6 million (US$571.3 million in 2002) andEBITDA increasing by 86.6% to US$12.5 million(US$6.7 million in 2002).

During the year, WWTS has worked on enhancingthe entertainment experience, by investing heavilyin understanding and responding to its customers’needs. As a result, the range of sports eventsoffered has been broadened and more innovativebet types introduced. WWTS has also identifiedspecific target segments of its customer databaseand devised unique betting propositions for them,resulting in the creation of new brands within theWWTS group. These changes have stimulatedfurther growth in betting activity, allowing WWTSto retain existing customers and providing growthin new customer recruitment, with a significantincrease in new customer registrations of 45.3%.

WWTS has also broadened its customer mix, whichhas contributed to an increase in WWTS’ win rate(gross margin) from 3.6% in 2002 to 4.2% in 2003.During 2003, WWTS also strongly expanded itsAsian player base and turnover. Although thesenow account for approximately 30% of WWTS’total turnover, it was wholesale business deliveringvolume at a lower win rate.

As a result of the improvements made to theoverall usability and attractiveness of the WWTSonline properties, the growth in online operationshas continued. During the period, online wagering

accounted for 75.7% of all bets placed (2002:69.5%) and 63.8% of the total sports and racingturnover (2002: 47.8%).

To continue margin growth, WWTS will need toinvest further in understanding and delivering tothe needs of a broader customer mix. This willrequire substantial ongoing investment in peopleand processes in the areas of bookmaking,marketing, and IT.

Sportsbet

Sportsbet showed an overall EBITDA loss of $1.4 million, which was a significant improvement onthe 2002 performance (EBITDA loss of $8.2 million).Following the prior year’s poor performance, theoriginal management team was replaced, resultingin immediate performance improvements. This trendis expected to continue, with the renewed focus onrisk management and effective processes.

Management expects to see Sportsbet continue theturnaround in 2004 by delivering a positive result.

Sportsbet is committed to offering a range of newbetting products to customers and the relaunch ofthe sportsbet.com.au website in September 2003has vastly improved the customer experience.

SIGNIFICANT EVENTS AFTER YEAR ENDOn 1 January 2004, the Company exercised anoption to acquire the online casino businesses ofWiseguy Casino and BetCasino. During 2003, theCompany managed the casino sites under amanaged services agreement. In the year ended 31 December 2003, the casino businesses turnoverwas US$165.4 million ($254.4 million). The casinoturnover will be included in the Company’s totalturnover from 1 January 2004.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRSAs noted elsewhere in the financial report, thesignificant change in the Company’s state of affairsduring 2003 has been the acquisition of TasmanGaming Inc in Antigua.

Shareholders’ equity increased from $22,147,468 to$82,272,826, an increase of $60,125,358. Themovement was largely due to two equity raisingsthe Company undertook in January and August2003. The equity raising in January was to enablethe acquisition of Tasman Gaming Inc and provideworking capital for the expanded group. The equityraising in August was to provide funds to repay theconvertible notes which were assumed by Betcorpas part of the Tasman Gaming acquisition.

LIKELY DEVELOPMENTS AND FUTURE RESULTSBetcorp anticipates further solid growth of theexisting WWTS and Sportsbet businesses in 2004as the market for online gaming continues toexpand. Betcorp is reviewing several strategic productopportunities which will enhance the portfolio ofproducts currently available to its customers.

Directors’ report

The Directors foresee that the 2004 financial yearwill be a period of consolidation and further growthin the existing businesses. The most significantareas of change are expected to be:

• the return to profitability of Sportsbet in Darwin;

• further increased profitability of the TasmanGaming operations in Antigua; and

• the addition of complementary gaming productsto the Company’s product portfolio.

ENVIRONMENTAL REGULATION ANDPERFORMANCEThe Company is not subject to significantenvironmental regulations.

OPTIONS AND SHARES OR OTHER INTERESTSUNDER OPTIONDetails of shares and interests under option, orissued during or since the end of the financial yeardue to the exercise of an option, are set out in Note 16 of the financial statements and form part ofthis report.

INDEMNIFICATION OF DIRECTORS, OFFICERSAND AUDITORSDuring or since the end of the financial year, theConsolidated Entity has not indemnified or made arelevant agreement to indemnify an officer orauditor of the Consolidated Entity or of any relatedbody corporate against a liability incurred as such.

In addition, the Consolidated Entity has not paid, oragreed to pay, a premium in respect of a contractinsuring against a liability incurred by an auditor.

DIRECTORS’ AND EXECUTIVE OFFICERS’EMOLUMENTS

Remuneration policy

The Remuneration Committee of the Board ofDirectors is responsible for determining andreviewing compensation arrangements for theDirectors, the Chief Executive Officer and theexecutive team. The Remuneration Committeeassesses the appropriateness of the nature and theamount of emoluments of such officers on aperiodic basis by reference to relevant employmentmarket conditions with the overall objective ofensuring maximum stakeholder benefit from theretention of a high quality Board and executiveteam. Such officers are given the opportunity toreceive their base emolument in a variety of formsincluding cash and fringe benefits such as motorvehicles and expense payment plans. It is intendedthat the manner of payment chosen will be optimalfor the recipient without creating undue costs forthe Company.

To assist in achieving these objectives, theRemuneration Committee links the nature andamount of executive Directors’ and officers’emoluments to the Company’s financial andoperational performance. All senior executives havethe opportunity to qualify for participation in theEmployee Share Incentive Plan which currentlyprovides incentives where specified criteria are met,including criteria relating to profitability and theachievement of Key Performance Indicators(“KPIs’’). Details regarding the issue of shares underthis plan are provided in Note 19 to the financialstatements.

26

Emoluments of Directors of Betcorp Limited

ANNUAL EMOLUMENT LONG TERM EMOLUMENTSShares issued during this financial period

Base fee Bonus Other No. % of Superannuation

Name $ $ $ granted $ Remuneration $

J Priest 70,000 – – – – – –

R Barker 342,659 250,000 – – – – 32,341

S Noble 346,154 307,692 8,308 405,000 202,500 23.4% –

W Graham 111,945 – – – – – –

Emoluments of the three most highly paid executive officers of the Company and the Consolidated Entity

ANNUAL EMOLUMENT LONG TERM EMOLUMENTSShares issued during this financial period

Base fee Bonus Other No. Superannuation

Name $ $ $ granted $ $

J Davis-Dyett 230,769 115,385 5,400 325,000 178,750 –

S Doyle 153,846 103,846 11,500 – – –

S Smith 132,349 60,000 – – – 12,651

All remuneration packages and adjustments are approved by the Board of Directors. The value of the sharesissued during the year is based upon the fair market value at the date of grant.


Directors’ benefits

During or since the financial year, no Director of the Consolidated Entity has received or become entitled toreceive a benefit because of a contract that the Director or a firm of which the Director is a member or anentity in which the Director has a substantial financial interest made with the Consolidated Entity or an entitythat the Consolidated Entity controlled, or a body corporate that was related to the Consolidated Entity,when the contract was made or when the Director received, or became entitled to receive, the benefit other than:

• a benefit included in the aggregate amount of emoluments received or due and receivable by theDirectors shown in notes to the financial statements;

• the fixed salary of a full time employee of the parent entity or an entity that the parent entity controlled ora related body corporate; and

• related party transactions included in Note 21 to the financial statements.

DIRECTORS’ INTERESTSRelevant interests of the Directors in the shares, options or other instruments of the parent entity and relatedbodies corporate are:

Direct interest Indirect interest Indirect interest

Name in ordinary shares in ordinary shares in options

R Barker ** – 3,500,000 –

W Graham * – 500,000 –

S Noble 1,605,000 – –

J Priest – – –

1,605,000 4,000,000 –

Note:

* Mr Graham paid $250,000 for 500,000 shares under the placement to sophisticated and professional investors.

* * Mr Barker acquired a relevant interest in 3,465,578 shares (through Aleste Investments Pty Limited – a former Tasman shareholder)

under the Tasman Share Sale Agreement. During 2003, Aleste Investments purchased a further 34,422 shares on market.

ROUNDINGThe amounts contained in this report and in the financial report have been rounded to the nearest $1,000(where rounding is applicable) under the option available to the Company under ASIC Class Order 98/0100.The Company is an entity to which the Class Order applies.

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

On behalf of the Directors

R S Barker EXECUTIVE DIRECTOR

Sydney, 18 February 2004

Statement of financial performance for the year ended 31 December 2003

Consolidated Parent entity

2003 2002 2003 2002

Note $000’s $000’s $000’s $000’s

Revenues from ordinary activities 2 42,893 (1,927) 4,269 591

Costs associated with betting activity

Commissions (agents) (3,414) – – –

Transaction fees (2,863) – – –

Other (667) – – –

Operating expenses

Advertising and promotion expense (2,922) (70) (21) (22)

Borrowing costs expense 3 (1,726) (195) (10) –

Rental and occupancy expense (439) (159) (38) (36)

Salary and employee benefits expense (8,291) (830) (1,377) (53)

Administrative expense (6,909) (4,315) (983) (2,901)

Cost of investment sold expense – (582) – (582)

Depreciation expense (515) – (26) –

Amortisation expense (2,667) – – –

Project costs and deferred expenditure amortised and written off – (4,992) – (4,451)

Provision in diminution in value of assets – (1,000) – (3,167)

Profit/(loss) from ordinary activities before income tax 4 12,480 (14,069) 1,814 (10,621)

Income tax benefit/(expense) relating to ordinary activities 4 (592) – (592) –

Profit/(loss) from ordinary activities after income tax 11,888 (14,069) 1,222 (10,621)

Net profit/(loss) 11,888 (14,069) 1,222 (10,621)

Net profit/(loss) attributable to members of the parent entity 11,888 (14,069) 1,222 (10,621)

Net exchange difference on translation of financial statements of foreign controlled entity 18 (10,665) – – –

Total revenues, expenses and valuation adjustments attributable to members of the parent entity and recognised directly in equity (10,665) – – –

Total changes in equity other than those resulting from transactions with owners as owners 1,223 (14,069) 1,222 (10,621)

Basic earnings per share (cents per share) 27 10.0 (110.0)

Diluted earning per share (cents per share) 27 9.7 (110.0)

The accompanying notes form part of these financial statements.

28

Betcorp Limited and controlled entities

Statement of financial position as at 31 December 2003



2003 2002 2003 2002

Note $000’s $000’s $000’s $000’s

Current assets

Cash assets 20,217 223 954 218

Receivables 5 3,705 594 47 198

Other 6 2,069 5 17 5

Total current assets 25,991 822 1,018 421

Non-current assets

Receivables 7 – – 31,801 –

Plant and equipment 8 1,931 357 103 12

Intangible assets 9 45,322 – – –

Other financial assets 10 – – 28,960 –

Other 11 – 822 – 822

Total non-current assets 47,253 1,179 60,864 834

Total assets 73,244 2,001 61,882 1,255

Current liabilities

Payables 12 14,535 3,356 755 1,802

Interest bearing liabilities 13 975 2,531 – –

Provisions 14 609 22 609 4

Other 15 453 769 400 678

Total current liabilities 16,572 6,678 1,764 2,484

Total non-current liabilities – – – –

Total liabilities 16,572 6,678 1,764 2,484

Net assets/(liabilities) 56,672 (4,677) 60,118 (1,229)

Equity

Contributed equity 16 82,273 22,147 82,273 22,147

Accumulated losses 17 (14,936) (26,824) (22,155) (23,376)

Foreign currency translation reserve 18 (10,665) – – –

Total equity 56,672 (4,677) 60,118 (1,229)



Statement of cash flows for the year ended 31 December 2003


2003 2002 2003 2002

Note $000’s $000’s $000’s $000’s

Cash flows from operating activities

Receipts from players 1,021,395 73,771 – –

Interest received 650 10 80 9

Payments to players (979,971) (78,911) – –

Payments to suppliers and employees (29,627) – (3,589) (1,177)

Borrowing costs paid (1,726) (195) (11) –

Income tax paid – – – –

Net cash provided by/(used) in operating activities 24(a) 10,721 (5,325) (3,520) (1,168)

Cash flows from investing activities

Purchase of plant and equipment (1,251) (45) (118) –

Proceeds on sale of investments – 582 – 582

Payments for capitalised projects, software and licence costs – (874) – (874)

Cash acquired in Tasman acquisition 24(d) 9,605 – – –

Repayment of loans from subsidiary – (200) 2,527 (200)

Loan provided to subsidiary – – (4,718) (1,670)

Loans provided to subsidiary to repay debt – – (26,101) –

Net cash provided by/(used in) investing activities 8,354 (537) (28,410) (2,162)

Cash flows from financing activities

Proceeds from issues of shares 34,957 2,600 34,957 2,600

Repayment of convertible notes (24,774) – – –

Proceeds from borrowings – 678 – 678

Payment of share issue costs (2,291) (340) (2,291) (340)

Net cash provided by financing activities 7,892 2,938 32,666 2,938

Net increase/(decrease) in cash held 26,967 (2,924) 736 (392)

Cash at beginning of year (2,309) 615 218 610

Effect of exchange rate changes on cash (4,441) – – –

Cash at end of year 24(b) 20,217 (2,309) 954 218


30


Notes to the financial statements for the year ended 31 December 2003



NOTE 1. STATEMENT OF SIGNIFICANTACCOUNTING POLICIES

a) Basis of accounting

The financial report has been prepared as ageneral purpose financial report which complieswith the Australian Accounting Standards, othermandatory professional reporting requirements(Urgent Issues Group Consensus Views), and theCorporations Act 2001. The financial statementshave also been prepared in accordance with thehistorical cost convention and do not take accountof changes in either the general purchasing powerof the dollar or in the prices of specific assets.

b) Changes in accounting policies

The accounting policies adopted are consistentwith those of the previous year.

c) Principles of consolidation

The consolidated financial report incorporates theassets and liabilities of the parent entity, BetcorpLimited (“parent entity”), and all entities controlledby Betcorp Limited as at 31 December 2003 andthe results of the parent entity and its controlledentities for the period then ended. BetcorpLimited and its controlled entities together arereferred to in these Company financial statementsas the “Consolidated Entity”.

All intercompany balances and transactions havebeen eliminated. Where an entity either began orceased to be controlled during the year, theresults are included only from the date controlcommenced or up to the date control ceased.

d) Foreign currenciesTranslation of foreign currency transactions

Transactions in foreign currencies of entities withinthe Consolidated Entity are converted to localcurrency at the rate of exchange ruling at the dateof the transaction.

Foreign currency monetary items that areoutstanding at the reporting date are translatedusing the spot rate at the end of the financial year.

All exchange differences arising on settlement orrestatement of hedging instruments arerecognised as revenues and expenses for thefinancial year. Any gains or costs on entering ahedge are deferred and amortised over the life ofthe contract.

Translation of financial reports of overseas operations

All overseas operations are deemed self-sustaining, as each is financially and operationallyindependent of Betcorp Limited. The financialreports of overseas operations are translated usingthe current rate method and any exchangedifferences are taken directly to the foreigncurrency translation reserve.

e) Cash

For purposes of the statement of cash flows, cash includes cash on hand and in banks, net ofoutstanding bank overdrafts.

f) Receivables and processor balances

Trade debtors are recorded at the amount thatplayers owe the Company based upon theirbetting activity.

Provision for doubtful debts is recognised to theextent that recovery of the outstanding receivablebalance is considered less than likely. Any provisionestablished is based on a review of all outstandingamounts at balance date. A specific provision ismaintained for identified doubtful debts, and ageneral provision is maintained in respect ofreceivables which are doubtful of recovery butwhich have not been specifically identified.

Processor balances represent balances owed tothe Company from financial intermediaries. Thesebalances settle into cash in a period of 3–5 daysafter settlement. Processor balances are notincluded in cash.

g) Recoverable amount of non-current assets

All non-current assets, measured using the costbasis, are reviewed at least annually to determinewhether their carrying amounts require write-down to recoverable amount.

The recoverable amount of an asset is the netamount expected to be recovered through the netcash inflows arising from its continued use andsubsequent disposal.

The expected net cash flows included indetermining recoverable amounts of non-currentassets have not been discounted to their presentvalues.

h) Property, plant and equipmentCost and valuation

All classes of property, plant and equipment aremeasured at cost.

Depreciation

Depreciation is provided on a straight line basis onall plant and equipment.

Major depreciation periods are:

2003 2002

Leasehold improvements Lease term Lease term

Computer equipment and software 2–3 years 2–3 years

Plant and equipment 5–10 years 5–10 years


NOTE 1. STATEMENT OF SIGNIFICANTACCOUNTING POLICIES continued

i) Intangible assets and expenditure carriedforward

Goodwill represents the excess of the purchaseconsideration over the fair value of identifiable netassets acquired at the time of acquisition of abusiness or shares of a controlled entity.

Goodwill is amortised on a straight line basis overthe period during which benefits are expected tobe received. This is taken to be 20 years.

j) Payables

These amounts represent unsecured liabilities forgoods and services provided to the ConsolidatedEntity prior to the end of the financial period andwhich are unpaid.

Customer account player balances

Customer account balances represent moniesdeposited on account from customers. Customeraccount balances are contained within payables.The balances are utilised by customers forongoing wagering activity.

k) Employee benefits

Provision is made for employee benefitsaccumulated as a result of employees renderingservices up to the reporting date. These benefitsinclude wages and salaries, annual leave, sick leaveand long service leave.

Liabilities arising in respect of wages and salaries,annual leave, sick leave and any other employeebenefits expected to be settled within 12 monthsof the reporting date are measured at theirnominal amounts based on remuneration rateswhich are expected to be paid when the liability issettled. All other employee benefits liabilities aremeasured at the present value of the estimatedfuture cash outflow to be made in respect ofservices provided by employees up to thereporting date. In determining the present value offuture cash outflows, the market yields as at thereporting date on national government bonds,which have terms to maturity approximating theterms of the related liability, are used.

Employee benefits expenses and revenues arisingin respect of the following categories:

• wages and salaries, non-monetary benefits,annual leave, long service leave, sick leave andother leave benefits; and

• other types of employee benefits,

are recognised against profits on a net basis intheir respective categories.

The fair value of the equity issued to Directors andexecutives in accordance with the equity basedcompensation scheme described in Note 19 hasbeen recognised as a salary and benefits expensein the statement of financial performance.

l) Interest bearing liabilities

Loans are recognised when issued at the amountof the net proceeds received. Interest, wherepayable, is recognised as an expense on anaccruals basis.

m)Contributed equity

Issued and paid up capital is recognised at the fair value of the consideration received by the Company.

Any transaction costs arising on the issue ofordinary shares are recognised directly in equityas a reduction of the share proceeds received.

n) Revenue recognitionWagering turnover

Wagering turnover represents the total amount ofbets placed by wagerers for the financial year.Turnover is recognised at the point when theevent on which the wagering investment is madeis officially completed.

Wagering revenue

Wagering revenue represents the net receipts ofwinning bets and losing bets placed with theConsolidated Entity. Bonus expense (net) isincluded in the wagering revenue amount.Cancelled bets and client adjustments areadjusted against wagering revenue.

Winning and losing bets are recognised at thepoint when the event on which the wageringinvestment is made is officially completed.

Interest income

Interest income is recognised on an accruals basis.

32



o) Income tax

The financial statements apply the principles oftax-effect accounting. The income tax expense inthe statement of financial performance representsthe tax on the pre-tax accounting profit adjustedfor permanent differences. A future tax benefitrelating to tax losses is not carried forward as anasset unless the benefit is virtually certain ofrealisation. Income tax on cumulative timingdifferences is set aside to the deferred income taxor future income tax benefit accounts at the rateswhich are expected to apply when those timingdifferences reverse. Such amounts are notrecognised as either an asset or a liability unlessrealisation is reasonably certain.

p) Goods and services tax (“GST”)

Revenues, expenses and assets are recognised netof the amount of GST except:

• where the GST incurred on a purchase ofgoods and services is not recoverable from thetaxation authority, in which case the GST isrecognised as part of the cost of acquisition ofthe asset or as part of the expense item asapplicable; and

• receivables and payables are stated with theamount of GST included.

The net amount of GST recoverable from, orpayable to, the taxation authority is included aspart of receivables or payables in the statement of financial position.

Cash flows are included in the statement of cashflows on a gross basis and the GST component ofcash flows arising from investing and financingactivities, which is recoverable from, or payable to,the taxation authority is classified as operatingcash flows.

Commitments and contingencies are disclosed netof the amount of GST recoverable from, orpayable to, the taxation authority.

q) Earnings per share (“EPS”)

Basic EPS is calculated as net profit attributable to members, adjusted to exclude cost of servicingequity (other than dividends) and preferenceshare dividends, divided by weighted averagenumber of ordinary shares, adjusted for any bonus element.

Diluted EPS is calculated as net profit attributableto members, adjusted for:

• costs of servicing equity (other than dividends)and preference share dividends;

• the after-tax effect of dividends and interestassociated with dilutive potential ordinaryshares that have been recognised as expenses;and

• other non-discretionary changes in revenues orexpenses during the period that would resultfrom the dilution of potential ordinary shares,divided by the weighted average number ofordinary shares and dilutive potential ordinaryshares, adjusted for any bonus element.

r) Comparatives

Where necessary, comparatives have beenreclassified and repositioned for consistency withcurrent year disclosures.

s) Leases Operating leases

The minimum lease payments of operating leases,where the lessor effectively retains substantially allof the risks and benefits of ownership of theleased item, are recognised as an expense on astraight line basis.

Contingent rentals are recognised as an expensein the financial year in which they are incurred.


NOTE 2. REVENUES FROM ORDINARY ACTIVITIES


2003 2002 2003 2002

$000’s $000’s $000’s $000’s

Wagering turnover 1,024,011 73,703 – –

Revenues from operating activities

Wagering revenue 40,230 (2,518) – –

Less: related customer bonus expenses (2,616) – – –

Net wagering revenue 37,614 – – –

Revenue on termination of contract 3,082 – – –

Total operating revenue 40,696 (2,518) – –

Revenues from non-operating activities

Interest received – other persons 650 9 80 9

Dividend received from controlled entity – – 4,189 –

Proceeds on disposal of investments – 582 – 582

Foreign exchange gain – unrealised 913 – – –

Foreign exchange gain – realised 634 – – –

Total revenues from non-operating activities 2,197 591 4,269 591

Total revenues from ordinary activities 42,893 (1,927) 4,269 591

NOTE 3. EXPENSES AND LOSSES/(GAINS)

Profit/(loss) from ordinary activities before income tax has been determined after:

Expenses

Borrowing costs – interest expense to other persons 1,726 195 10 –

Depreciation expense – plant and equipment 196 184 12 8

Depreciation expense – computer equipment 319 12 14 5

Bad and doubtful debts 116 515 – 370

Provision for employee entitlements 17 (6) – 1

Operating lease rentals 439 159 38 36

Equity based compensation schemes 381 – – –

Amortisation and write-off of intangible assets – 2,542 – 2,001

Deferred expenditure (written off) – 2,450 – 2,450

Goodwill (amortised) 2,667 – – –

Diminution in value of licence – 1,000 – –

Diminution in value of intercompany loan receivable – – – 3,167

34



NOTE 4. INCOME TAX


2003 2002 2003 2002

$000’s $000’s $000’s $000’s

The prima facie tax on profit/(loss) from ordinary activities before income tax is reconciled to the income taxas follows:

Profit/(loss) from ordinary activities before income tax 12,480 (14,069) 1,814 (10,621)

Prima facie tax on profit/(loss) from ordinary activities before income tax at 30% 3,744 (4,221) 544 (3,186)

Tax effect of permanent differencesNon-attributable foreign income i) (3,200) – – –

Future income tax benefit not brought to account in respect to tax losses incurred prior to entry into the tax consolidation regime a) 569 – 569 –

Other items 4 775 4 1,373

1,117 (3,445) 1,117 (1,814)

Future income tax not brought to account in respect to tax losses b) – 3,445 – 1,814

Income tax benefit of tax losses utilised in current year (525) – (525) –

Income tax attributable to ordinary activities 592 – 592 –

i) Non-attributable foreign income relates solely to the profits generated by Betcorp’s 100% owned subsidiary, Tasman Gaming Inc

in Antigua. The foreign income is net of amortisation expense, depreciation expense and other expenses.

a) Tax consolidation

Effective 1 December 2003 for the purposes of income taxation, Betcorp Limited and its 100% ownedsubsidiaries have formed a tax consolidated group. Members of the group have entered into a tax sharingarrangement in order to allocate income tax expense to the wholly owned subsidiaries on a pro-rata basis. Inaddition, the agreement provides for the allocation of income tax liabilities between the entities should thehead entity default on its tax payment obligations. At the balance date, the possibility of default is remote.

The head entity of the tax consolidated group is Betcorp Limited. A future income tax benefit/(tax loss) hasnot been recognised. Tax losses will be utilised as required to offset future taxable income. There has been nomaterial effect on the provision for deferred tax liabilities.

b) Benefit of income tax losses not brought to account

As at 31 December 2003, companies within the Consolidated Entity had income tax losses of approximately$17,740,000 (2002: $25,200,000) to offset against future years’ taxable income. The benefit of these losses ofapproximately $5,322,000 at 30% (2002: $7,568,000 at 30%) has not been brought to account in theconsolidated financial statements because the Directors believe it is not appropriate as realisation of thefuture income tax benefit is not virtually certain.

In addition, the Consolidated Entity has carry forward capital losses of approximately $1,300,000 (2002:$1,300,000). The benefit of these losses of approximately $390,000 at 30% (2002: $390,000) can only berecouped if companies within the Consolidated Entity derive future capital gains.


NOTE 5. RECEIVABLES (CURRENT ASSETS)


2003 2002 2003 2002

$000’s $000’s $000’s $000’s

Trade debtors – customer accounts i) 249 245 – –

Provision for doubtful debts (29) (145) – –

Trade debtors, net 220 100 – –

Processor balances ii) 2,785 – – –

Processor balances – reserves ii) 497 – – –

Processor balances – net 3,282 – – –

Other debtors 25 207 – –

Provision for doubtful debts – (170) – –

Other debtors – net 25 37 – –

Security deposit 178 – 47 –

Loan receivable from other entities – 200 – 200

Provision for doubtful debts – (200) – (200)

GST receivable – 457 – 198

Total current receivables 3,705 594 47 198

Terms and conditionsi) Trade debtors are non-interest bearing and generally on 30 day terms.

ii) Processor balances are non-interest bearing and are generally received as cash within 3–5 days of settlement. Reserve balances are

held by processors for a period not exceeding six months.

NOTE 6. OTHER (CURRENT ASSETS)

Prepayments 860 5 17 5

Prepaid FX option premium 296 – – –

Deferred FX option gain receivable i) 913 – – –

Total other assets 2,069 5 17 5

i) The foreign currency receivable represents the net receivable arising from foreign exchange options contracts taken out to hedge

future expected US dollar receipts.

36



NOTE 7. RECEIVABLES (NON-CURRENT ASSETS)


2003 2002 2003 2002

$000’s $000’s $000’s $000’s

Non-trade amounts owing by related parties:

– wholly owned subsidiaries – – 31,801 8,923

– provision for diminution – – – (8,923)

Total receivables (non-current assets) – – 31,801 –

NOTE 8. PLANT AND EQUIPMENT (NON-CURRENT ASSETS)

Plant and equipment – at cost

Cost

Opening balance 964 919 30 22

Assets acquired during acquisition 279 – – –

Additions 85 45 61 8

Closing balance 1,328 964 91 30

Accumulated depreciation


Depreciation for the year 196 184 12 8

Closing balance 841 645 34 22

Net book value 487 319 57 8

Computer equipment – at cost

Cost


Assets acquired during acquisition 559 – – –

Additions 1,166 45 56 6

Closing balance 1,808 83 70 14

Accumulated depreciation


Depreciation for the year 319 12 14 5

Closing balance 364 45 24 10

Net book value 1,444 38 46 4

Total book value 1,931 357 103 12


NOTE 9. INTANGIBLES (NON-CURRENT ASSETS)


2003 2002 2003 2002

$000’s $000’s $000’s $000’s

Software acquisition and development – at cost – 2,614 – 2,614

Less: accumulated amortisation – (2,614) – (2,614)

Software acquisition and development – net – – – –

Sportsbetting licence – at cost – 1,682 – –

Less: accumulated amortisation – (1,682) – –

Sportsbetting licence – net – – – –

Goodwill

Opening balance – – – –

Goodwill on acquisition – at cost i) 56,800 – – –

Less: accumulated amortisation (2,667) – – –

Less: adjustment for foreign currency translation at year end (8,811) – – –

Goodwill – net 45,322 – – –

Total intangibles 45,322 – – –

i) Goodwill arising upon the acquisition of Tasman Gaming Inc in January 2003 is being amortised over 20 years in accordance with

AASB 1013. The Company intends to cease amortising goodwill from 1 January 2005 onwards, in accordance with International

Accounting Standards, provided annual impairment tests are met.

NOTE 10. OTHER FINANCIAL ASSETS

Investments in wholly owned subsidiaries:

Tasman Gaming Inc – – 28,958 –

Betcorp (UK) Ltd – – 2 –

– – 28,960 –

NOTE 11. OTHER (NON-CURRENT ASSETS)

Total deferred expenditure – net – 822 – 822

38



NOTE 12. PAYABLES (CURRENT LIABILITIES)


2003 2002 2003 2002

$’000 $’000 $’000 $’000

Trade creditors – unsecured i) 721 1,957 215 989

Sundry creditors and accrued expenses – unsecured 1,711 1,399 329 813

Customer accounts ii) 11,892 – – –

GST payable 211 – 211 –

Total payables 14,535 3,356 755 1,802

Terms and conditionsi) Trade creditors are non-interest bearing and are normally settled on 30 day terms.

ii) Customer accounts represent funds on deposit made by customers for betting activity.

NOTE 13. INTEREST BEARING LIABILITIES (CURRENT LIABILITIES)

Convertible notes – secured i) 975 – – –

Bank overdraft – 2,531 – –

975 2,531 – –

i) If certain conditions are met, the outstanding convertible redeemable notes can be converted to 3,049,713 shares in the Company.

Refer Note 22.

NOTE 14. PROVISIONS (CURRENT LIABILITIES)

Income tax 592 – 592 –

Employee benefits 17 22 17 3

609 22 609 3

NOTE 15. OTHER (CURRENT LIABILITIES)

Unearned income – unsettled bets 53 91 – –

Loans payable to former Director (refer Note 21) 400 678 400 678

453 769 400 678


NOTE 16. CONTRIBUTED EQUITYConsolidated Parent entity

2003 2002 2003 2002

$ $ $ $

151,625,104 (2002: 19,431,458) fully paid ordinary shares 82,272,826 22,147,468 82,272,826 22,147,468

a) Movements in fully paid ordinary shares during the period were as follows:

Number Description Note $

12,341,547 Opening balance as at 1 January 2002 19,117,516

7,089,911 Shares issued during 2002 3,369,950

Less: transaction costs relating to shares (339,998)

19,431,458 Closing balance as at 31 December 2002 22,147,468

19,431,458 Opening balance as at 1 January 2003 22,147,468

61,548,698 Share issued for $0.44 i) 27,081,427

26,734,909 Share issued for $0.50 ii) 13,367,455

810,000 Share issued for $0.50 iii) 405,000

42,352,539 Share issued for $0.50 iv) 21,176,269

5,000 Share issued for $0.50 v) 2,500

730,000 Share issued for $0.50 vi) 381,250

12,500 Share issued for $0.50 vii) 6,250

Less: transaction costs relating to share issues (2,294,793)

151,625,104 Closing balance as at 31 December 2003 82,272,826

i) On 23 January 2003, a placement of 61,548,698 ordinary shares at $0.44 per share was made to the vendors of Tasman Gaming Inc

as part of the acquisition of Tasman Gaming Inc.

ii) On 23 January 2003, a placement of 26,734,909 ordinary shares at $0.50 per share was made to professional and sophisticated

shareholders.

iii) On 30 June 2003, a Director of Betcorp, Mr Simon Noble, subscribed for 810,000 shares at $0.50 per share in accordance with an

Annual General Meeting resolution.

iv) On 6 August 2003, a placement of 42,352,539 ordinary shares at $0.50 per share was made to professional and sophisticated

shareholders.

v) On 14 August 2003, an optionholder exercised their options and was issued 5,000 shares at $0.50 per share.

vi) On 31 December 2003, a Director of Betcorp, Mr Simon Noble and an employee of Tasman Gaming Inc, Ms Jessica Davis-Dyett, were

issued 405,000 shares and 325,000 shares respectively for $nil consideration as part of their remuneration packages (fair value of

$0.50 and $0.55 respectively).

vii) On 31 December 2003, an optionholder exercised their options and was issued 12,500 shares at $0.50 per share.

b) Terms and conditions of contributed equity Ordinary shares

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company,to participate in the proceeds from the sale of all surplus assets in proportion to the number of, and amountspaid up on, shares held.

Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

Options

At year end, there were 2,067,500 outstanding options over ordinary shares in the Company. The optionswere granted on a 1:4 basis to shareholders who subscribed for shares in 2002. No current employees orDirectors of the Company own options in the Company. The options are exercisable at $0.50 and expire on30 August 2004.

40



NOTE 17. ACCUMULATED LOSSES


2003 2002 2003 2002

$000’s $000’s $000’s $000’s

(Accumulated losses)/retained profits at the beginning of the year (26,824) (12,755) (23,377) (12,755)

Net profit/(loss) attributable to the members of the parent entity 11,888 (14,069) 1,222 (10,621)

(Accumulated losses) at the end of the year (14,936) (26,842) (22,155) (23,376)

NOTE 18. RESERVES

Foreign currency translationReserve (10,665) – – –

i) Nature and purpose of reserve

The foreign currency translation reserve is used to record foreign exchange differences arising from thetranslation of the financial statements of self-sustaining foreign operations

ii) Movements in reserveBalance at beginning of year – – – –

Gain/(loss) on translation of overseas controlled entities (10,665) – – –

Balance at end of year (10,665) – – –

NOTE 19. EMPLOYEE BENEFITS


2003 2002 2003 2002

No. No. No. No.

The number of full time equivalents employed at 31 December are: 175 18 5 1

Employee share incentive scheme

An employee share scheme has been established and approved by shareholders where Betcorp Limited may,at the discretion of the Board of Directors through the Remuneration Committee, grant shares in BetcorpLimited to Directors, executives and certain members of staff of the Consolidated Entity. The shares, issuedfor nil consideration, are granted in accordance with performance guidelines established by the Directors ofBetcorp Limited. All staff are eligible for this scheme.

Ordinary shares

2003 2002

Total number of shares issued to employees during the year 730,000 –

Total number of employees participating in this plan at balance date 172

Total number of employees eligible to participate in this plan at balance date 175 –


NOTE 20. AUDITOR’S REMUNERATION


2003 2002 2003 2002

$000’s $000’s $000’s $000’s

Remuneration received, or due and receivable, by the auditor of the parent entity and its affiliates for:

– audit or review of the financial report 175 – 60 –

– other services 123 – 123 –

Amounts received or due and receivable by auditors other than Ernst & Young for:

Audit or review of the financial report – 38 – 38

Total 298 38 183 38

NOTE 21. RELATED PARTY DISCLOSURES

Directors

The names of parent entity Directors who have held office during the financial year are as follows: John PriestRichard BarkerSimon NobleWilliam Graham.

Other transactions with Directors and Director related entities

Current management has received a claim by a former Director of the Company. The amount owing is subjectto further investigation of the supporting documentation. As at 31 December 2003, the amount of $400,000has been recognised as a liability in the balance sheet. The Directors do not intend to pay any amount until afull investigation of the amount outstanding is conducted. This amount is non-interest bearing and unsecured.

Remuneration of Directors


2003 2002 2003 2002

$ $ $ $

Directors’ remuneration

Income paid or payable, other otherwise made available, in respect of the financial year, to all Directors of each entity in the Consolidated Entity, directly or indirectly, by the entities of which they are Directors or any related party 1,671,599 481,281 806,945 481,281

The number of Directors of Betcorp Limited whose income (including superannuation contributions) falls intothe following bands is:

$ $ 2003 2002

0 – 9,999 – 1

70,000 – 79,999 1 –

110,000 – 119,999 1 –

230,000 – 239,999 – 1

240,000 – 249,999 – 1

620,000 – 629,999 1 –

860,000 – 869,999 1 –

42




2003 2002 2003 2002

$ $ $ $

Remuneration of executivesRemuneration received or due and receivable by executive officers of the Consolidated Entity whose remuneration is $100,000 or more, from entities in the Consolidated Entity or related parties, in connection with the management of the affairs of the entities in the Consolidated Entity whether as an executive officer or otherwise. 1,013,996 – 205,500 –

The number of executives of the Consolidated Entity and the Company whose remuneration falls into thefollowing bands:

$ $ 2003 2002 2003 2002

200,000 – 209,999 1 – 1 –

270,000 – 279,999 1 – – –

530,000 – 539,999 1 – – –

Shares issued to Director related parties

Aggregate numbers of shares acquired or disposed of by Directors of the parent entity and ConsolidatedEntity or their Director related entities from the parent entity:

Consolidated

2003 2002

No. of shares No. of shares

Acquisitions – ordinary shares 1,249,422 –

Disposals – ordinary shares – 1,642,324

Aggregate number of shares of Betcorp Limited held directly, indirectly or beneficially by Directors of theparent entity and Consolidated Entity of their Director related entities at balance date:

Consolidated

2003 2002

No. of shares No. of shares

Ordinary shares (S Noble, R Barker and W Graham) 5,605,000 1,133,327

Wholly owned group

The wholly owned group consists of Betcorp Limited and its wholly owned controlled entities. Ownershipinterests in these controlled entities are set out in Note 25.

The parent entity entered into the following transactions during the year within the wholly owned group:

• loans were advanced and repayments received on intercompany accounts;

• certain foreign exchange instruments were purchased on behalf of controlled entities; and

• a dividend was paid between Tasman Gaming Inc and the parent entity.


NOTE 22. CONTINGENT LIABILITIES

Unsettled wagers

Due to the nature of sportsbetting activities, at the end of the financial year there are a number of wagers onevents that are undecided. The gain or loss resulting from these wagers is brought to account in the financialstatements when the outcome of the event is known. No provision has been made to recognise any potentiallosses as the Directors consider any such liability is unlikely to be material.

Litigation

As at 31 December 2003, Betcorp Limited has been included in the following litigation.

Proceedings have been issued against the Company by Holus Capital Pty Limited alleging, among otherthings, that it is entitled to convert and has converted the US$733,334 convertible redeemable notes issuedto it by Tasman Gaming Inc into 3,049,713 shares. At the date of this report, the Company is defending thisproceeding, asserting that the convertible redeemable notes have been redeemed.

As at 31 December 2003, US$16,467,667 of the US$17,200,000 convertible redeemable notes that were issuedas a result of the Tasman Gaming Inc acquisition have been redeemed.

Bank guarantees

As at 31 December 2003, Betcorp Limited has a bank guarantee of $55,000 for payroll processing.

Sportsbet has $200,000 on deposit as a guarantee requirement of its licence with the Northern TerritoryRacing Commission (“NTRC”).

NOTE 23. SEGMENT INFORMATION

The Company operates in two distinct geographical segments, Australia and Antigua. In the prior year, theConsolidated Entity operated in one geographical segment, Australia.

The Company operates predominately in the wagering industry.

Australia Antigua Eliminations Total

As at 31 December 2003 $’000’s $’000’s $000’s $000’s

Wagering turnover 28,585 995,426 1,024,011

Operating revenue 502 40,194 40,696

Depreciation expense (137) (380) (515)

Amortisation expense (2,082) (585) (2,667)

Other non-cash expenses (315) (538) (853)

Profit/(loss) after tax (296) 16,373 (4,189) 11,888

Total assets 31,014 69,850 (27,620) 73,244

Total liabilities 6,156 38,132 (27,716) 16,572

Customers who bet with Tasman Gaming Inc primarily reside in North America and Asia. Customers who betwith Sportsbet Pty Ltd primarily reside in Australia. The geographic split of customers (by turnover) is North America (67%), Asia (30%) and Australia (3%).

44



NOTE 24. CASH FLOW INFORMATION


2003 2002 2003 2002

$000’s $000’s $000’s $000’s

a) Reconciliation of cash flow from operations with profit/(loss) from ordinary activities after income tax

Profit/(loss) from ordinary activities after income tax 11,888 (14,069) 1,222 (10,621)

Amortisation expense including deferred expenditure written off 2,667 4,992 – 4,451

Depreciation expense 515 184 26 8

Diminution in value of licence – 1,000 – –

Diminution in value of intercompany loan receivable – – – 3,167

Consulting fees paid via share issue – 100 – 100

Unrealised foreign currency gain (913) – – –

Intercompany dividend – – (4,189) –

Non-cash employee share expense 381

Loans advanced to other entities – 200 – 200

Changes in assets and liabilities:

Decrease/(increase) in receivables (87) 174 151 (77)

Decrease/(increase) in prepayments 130 39 (12) (5)

(Decrease)/increase in payables 310 1,810 (1,046) 1,388

(Decrease)/increase in provisions 587 (5) 606 –

(Decrease)/increase in unearned income – 30 – –

(Decrease)/increase in other liabilities (316) – (278) –

Effect of exchange rate on cash used in operating activities (4,441) – – –

Net cash used in operating activities 10,721 (5,325) (3,520) (1,168)

b) Reconciliation of cash

For the purposes of the statement of cash flows, cash includes cash on hand and in banks, net of outstandingbank overdrafts.

Cash at the end of the financial year as shown in the statement of cash flows is reconciled to items in thestatement of financial position as follows:

Bank overdraft – (2,531) – –

Cash at bank 9,280 1 754 2

Cash on hand 4 5 – –

Term deposits 10,932 216 200 216

20,217 (2,309) 954 218


NOTE 24. CASH FLOW INFORMATION continued

c) Financing facilities

As at 31 December 2003, Betcorp Limited had a bank facility for $55,000 ($55,000 unused) to cover itsmonthly payroll processing.

d) Acquisition of controlled entity

Effective from 1 January 2003, Betcorp Limited acquired 100% of the voting share capital of Tasman GamingInc (“Tasman”), a proprietary company incorporated in Antigua. Tasman operates as WorldWide TeleSports(“WWTS”). WWTS is one of the world’s premier sports books, offering online and telephone betting servicesto an extensive client base on a wide range of international sporting events. The consideration for theCompany’s purchase of all the issued shares in Tasman was US$32 million ($57.4 million at the then prevailingexchange rate), comprised as follows:

• the issue by Betcorp to Tasman shareholders of 61,548,698 fully paid ordinary shares at $0.44 each; and

• the assumption of Tasman’s debt relating to its acquisition of the WWTS business, totalling US$17.2 million($30.3 million at the then prevailing exchange rate) in convertible redeemable notes. The notes areredeemable at face value or, in certain circumstances, may be converted into fully paid ordinary shares inthe Company at a rate of 4.1587 shares in Betcorp for each US$1.00 note. As at 31 December 2003,US$16,467,000 of the convertible redeemable notes have been repaid.

Consolidated

2003 2002

$000’s $000’s

Consideration:

– convertible notes (US$17.2 million) 30,282 –

– shares in Betcorp Limited (61,548,698 @ $0.44) 27,081 –

Total 57,363 –

Assets acquired:

Assets

– purchased goodwill on acquisition 56,800 –

– cash 9,605 –

– receivables 3,024 –

– plant and equipment 838 –

– other assets 1,282 –

71,549 –

Liabilities

– player/agent balances 14,186 –

57,363 –

Net cash effect:

– cash consideration paid – –

– cash included in net assets acquired (9,605) –

Net cash acquired on acquisition (9,605) –

46



NOTE 25. CONTROLLED ENTITIES

The consolidated financial statements at 31 December 2003 include the following controlled entities. Thefinancial years of all controlled entities are the same as that of the parent entity.

Name of controlled entity Place of incorporation/formation % of shares held

Sportsbet Pty Limited Australia 100%

Race Lotto Pty Limited Australia 100%

Tasman Gaming Inc i) Antigua 100%

WWI AQ Limited i) Antigua 100%

Post Time Sports Book Limited i) Antigua 100%

Betcorp (UK) Limited ii) United Kingdom 100%

i) Entity acquired during the year.

ii) Entity established during the year.

NOTE 26. FINANCIAL INSTRUMENTS

Credit risk exposures

The credit risk on financial assets of the Consolidated Entity which have been recognised on the statement offinancial position, other than investments in shares, is generally the carrying amount, net of any provisions fordoubtful debts.

Hedging instrumentsGeneral hedges

The Company has entered into various forward foreign currency options designed to protect the US dollardenominated profit from Tasman Gaming Inc for the 2004 year.

At reporting date, in accordance with UIG 33 “Hedges of Anticipated Purchases and Sales”, this hedge is notconsidered to have the level of specificity to classify it as a specific hedge. As a result, the unrealised gain of$913,504 (2002: $Nil) has been included in the net profit for the year.

Interest rate risk exposures

The Consolidated Entity’s exposure to interest rate risk and the effective weighted average interest rate foreach class of financial assets and financial liabilities are set out below.

Exposure arises predominantly from assets and liabilities bearing variable interest rates as the ConsolidatedEntity intends to hold fixed rate assets and liabilities to maturity.


NOTE 25. CONTROLLED ENTITIES continued

Fixed interest maturing in:

Floating 1 year over 1 to more than Non-interest

interest rate or less 5 years 5 years bearing Total

Note $000’s $000’s $000’s $000’s $000’s $000’s

2003

Financial assets

Cash 24(b) 9,285 10,932 – – – 20,217

Receivables 5 – – – – 3,705 3,705

9,285 10,932 – – 3,705 23,922

Weighted average interest rate 1.15%

Financial liabilities

Payables 12 – – – – (14,535) (14,535)

Interest bearing liabilities 13 – (975) – – – (975)

Loan payable to former Director related entities 15 – – – – (400) (400)

– (975) – – (14,935) (15,910)


Net financial assets 9,285 9,957 – – (11,230) 8,012

2002

Financial assets

Cash 24(b) 217 – – – 5 222

Receivables 5 – – – – 594 594

217 – – – 599 816


Financial liabilities

Payables 12 – – – – (3,356) (3,356)

Interest bearing liabilities 13 (2,531) – – – – (2,531)

Loan payable to former Director 15 – – – – (678) (678)

(2,531) – – – (4,034) (6,565)


Net financial assets (2,314) – – – (3,435) (5,749)

On-statement of financial position

The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets andfinancial liabilities of the Consolidated Entity approximates their carrying value.

48



NOTE 27. EARNINGS PER SHARE

Consolidated

2003 2002

$000’s $000’s

The following reflects the income and share data used in the calculations of basic and diluted earnings per share:

Net profit/(loss) 11,888 (14,069)

Number of Number of

shares shares

Weighted average number of ordinary shares used in the calculation of basic earnings per share 119,382,750 12,755,036

Effect of dilutive securities:Share options 219,155 –

Shares within convertible notes 3,049,713 2,850,000

Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share 122,651,618 15,605,036

Since the end of the financial year, no ordinary shares have been issued pursuant to the employee shareincentive scheme.

There have been no conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinaryshares since the reporting date and before the completion of this financial report.

NOTE 28. SIGNIFICANT EVENTS AFTER YEAR END

On 1 January 2004, the Company exercised an option to acquire the online casino businesses of WiseguyCasino and BetCasino. During 2003, the Company managed the casino sites under a managed servicesagreement. In the year ended 31 December 2003, the casino businesses turnover was US$165.4 million($254.4 million). The casino turnover will be included in the Company’s total turnover from 1 January 2004.

Northern Territory Racing Commission (“NTRC”) – Sportsbet Licence

As at the date of this report, Sportsbet’s licence with the Northern Territory Racing Commission has beentemporarily reinstated. A permanent reinstatement of Sportsbet’s licence is the subject of continueddiscussions between the Company and the NTRC. Issues surrounding the original suspension of Sportsbet’slicence have been resolved and the Company expects that the remaining issues will be resolved in the short term, leading to a permanent reinstatement of Sportsbet’s licence.


NOTE 29. EXPENDITURE COMMITMENTS


2003 2002 2003 2002

$000’s $000’s $000’s $000’s

a) Capital expenditure commitments

Estimated capital expenditure contracted for at reporting date, but not provided as payable:

– not later than one year i) 1,271 – – –

– later than five years – – – –

1,271 – – –

i) Capital commitments relate solely to the deployment of a new betting software platform at Tasman Gaming Inc.

b) Lease expenditure commitmentsOperating leases (non-cancellable)

Minimum lease payments

– not later than one year 372 – 87 –

– later than one year and not later than five years 750 – 228 –

Aggregate lease expenditure contracted for at reporting date 1,122 – 315 –

50


Directors’ declaration

In accordance with the resolution of the Directorsof Betcorp Limited, I state that:

In the opinion of the Directors:

a) the financial statements and notes of theCompany and of the Consolidated Entity are inaccordance with the Corporations Act 2001,including:

i) giving a true and fair view of the Company’s and Consolidated Entity’s financial position as at 31 December 2003 and of their performancefor the year ended on that date; and

ii) complying with Accounting Standards and theCorporations Regulations 2001; and

b) there are reasonable grounds to believe that theCompany will be able to pay its debts as andwhen they become due and payable.

On behalf of the Board

Richard BarkerCHIEF EXECUTIVE OFFICER



Independent audit report to members of Betcorp Limited

SCOPEThe financial report and directors’ responsibility

The financial report comprises the statement offinancial position, statement of financialperformance, statement of cash flows,accompanying notes to the financial statements,and the directors’ declaration for Betcorp Limited(the company) and the consolidated entity, for theyear ended 31 December 2003. The consolidatedentity comprises both the company and theentities it controlled during that year.

The directors of the company are responsible forpreparing a financial report that gives a true andfair view of the financial position and performanceof the company and the consolidated entity, andthat complies with Accounting Standards in Australia,in accordance with the Corporations Act 2001. Thisincludes responsibility for the maintenance ofadequate accounting records and internal controlsthat are designed to prevent and detect fraud anderror, and for the accounting policies and accountingestimates inherent in the financial report.

Audit approach

We conducted an independent audit of thefinancial report in order to express an opinion onit to the members of the company. Our audit was

conducted in accordance with Australian AuditingStandards in order to provide reasonableassurance as to whether the financial report is freeof material misstatement. The nature of an audit isinfluenced by factors such as the use ofprofessional judgement, selective testing, theinherent limitations of internal control, and theavailability of persuasive rather than conclusiveevidence. Therefore, an audit cannot guarantee thatall material misstatements have been detected.

We performed procedures to assess whether in allmaterial respects the financial report presentsfairly, in accordance with the Corporations Act2001, including compliance with AccountingStandards in Australia, and other mandatoryfinancial reporting requirements in Australia, aview which is consistent with our understandingof the company’s and the consolidated entity’sfinancial position, and of their performance asrepresented by the results of their operations andcash flows.

We formed our audit opinion on the basis of theseprocedures, which included:

• examining, on a test basis, information toprovide evidence supporting the amounts anddisclosures in the financial report; and

• assessing the appropriateness of theaccounting policies and disclosures used andthe reasonableness of significant accountingestimates made by the directors.

While we considered the effectiveness ofmanagement’s internal controls over financialreporting when determining the nature and extentof our procedures, our audit was not designed toprovide assurance on internal controls.

We performed procedures to assess whether thesubstance of business transactions was accuratelyreflected in the financial report. These and ourother procedures did not include consideration or judgement of the appropriateness orreasonableness of the business plans or strategiesadopted by the directors and management of the company.

Independence

We are independent of the company, and havemet the independence requirements of Australianprofessional ethical pronouncements and theCorporations Act 2001. In addition to our audit ofthe financial report, we were engaged toundertake the services disclosed in the notes tothe financial statements. The provision of theseservices has not impaired our independence.

AUDIT OPINIONIn our opinion, the financial report of BetcorpLimited is in accordance with:

a) the Corporations Act 2001, including:

i) giving a true and fair view of the financialposition of Betcorp Limited and theconsolidated entity at 31 December 2003 andof their performance for the year ended onthat date; and

ii) complying with Accounting Standards in Australia and the Corporations Regulations2001; and

b) other mandatory financial reportingrequirements in Australia.

Ernst & Young

Garry WaylingPARTNER


Liability limited by the Accountants Scheme approved underthe Professional Standards Act 1994 (NSW).

52

Shareholders information


Statement of quoted securities as at 30 March 2004

• There are 4,249 shareholders holding a total of 152,673,979 ordinary fully paid shares.

• The 20 largest shareholders between them hold 57.11% of the total issued capital of the Company.

• Voting rights are that on a show of hands each member present in person or by proxy or attorney orrepresentative shall have one vote and upon a poll every member so present shall have one vote for every share held.

Distribution of securities as at 30 March 2004Range Number of holders

1 – 1,000 602

1,001 – 5,000 1,243

5,001 – 10,000 1,168

10,001 – 100,000 1,135

100,001 and over 101

Total holders 4,249

There are 455 shareholders holding less than a marketable parcel.

Substantial shareholdings as at 30 March 2004

The following information is extracted from the Company’s register of substantial shareholders:

Substantial shareholder Total relevant interest notified % of total issued capital

Ms Melareen Christopher 13,585,073 8.90

Ms Sharilyn Cort 13,585,073 8.90

Ms Sharon Cort 13,585,073 8.90

Lasham Capital Ltd 12,862,322 8.42

Equity Trustees Ltd 10,014,220 6.56

Directors’ shareholdings

As at 30 March 2004, Directors of the Company hold a relevant interest in the following shares and options inthe Company:

Director Shares Options

J Priest – –

R Barker * 3,500,000 –

W Graham 500,000 –

S Noble ** 1,854,875 –

Note:

* Mr Barker acquired a relevant interest in 3,465,578 shares (through Aleste Investments Pty Limited – a former Tasman shareholder)

under the Tasman Share Sale Agreement. As at 31 December 2003, Mr Barker has 500,000 shares issued as part of his

remuneration package which will vest on 31 December 2004.

**As at 31 December 2003, Mr Noble has 405,000 shares issued as part of his remuneration package which will vest on

31 December 2004.

Service agreements

Except as disclosed in the accompanying financial statements there are no contingent liabilities relating totermination benefits payable to Directors and executives of the Company under service agreements existingat 31 December 2003.

Unquoted restricted securities

As at 30 March 2004, there are no unquoted ordinary fully paid shares on issue by the Company.

Shareholders information

Unquoted options

As at 30 March 2004, there are 1,272,500 unquoted options over unissued shares in the Company held by a total of 27 optionholders and they are noted below:

Name No. of options Exercise price Expiry date

Athlone Holdings Pty Ltd 62,500 $0.50 30/08/2004

Australian Options Trading (AOT) Pty Ltd 15,000 $0.50 30/08/2004

Mr Ian James Bardon 10,000 $0.50 30/08/2004

Cabe Investments Pty Ltd 12,500 $0.50 30/08/2004

Cognicorp Pty Ltd 12,500 $0.50 30/08/2004

Mr Brett Cooper 212,500 $0.50 30/08/2004

Exchange Finance Pty Ltd 125,000 $0.50 30/08/2004

Mr Dean Fehlberg 50,000 $0.50 30/08/2004

Mr Shane Fehlberg 75,000 $0.50 30/08/2004

Ferret Investments Pty Ltd 25,000 $0.50 30/08/2004

Financial Marketing Pty Ltd 10,000 $0.50 30/08/2004

GLF Martin (Services) Pty Ltd 25,000 $0.50 30/08/2004

Hollywood Marketing (WA) Pty Ltd 50,000 $0.50 30/08/2004

Mrs Sandra Limberg 5,000 $0.50 30/08/2004

Mrs Juliette Lipman 15,000 $0.50 30/08/2004

Michael Hook & Associates Pty Ltd 10,000 $0.50 30/08/2004

Mintoff & Young Holdings Pty Ltd 100,000 $0.50 30/08/2004

Mr Jeff O’Donnell 212,500 $0.50 30/08/2004

Phyro Holdings Pty Ltd 50,000 $0.50 30/08/2004

Polvran Investments Pty Ltd 5,000 $0.50 30/08/2004

Redeg Holdings Pty Ltd 2,500 $0.50 30/08/2004

Mr John Ribot-de-Bresac 35,000 $0.50 30/08/2004

The Trustees of the Russell Superannuation Fund 50,000 $0.50 30/08/2004

Mr Dean Shannon 25,000 $0.50 30/08/2004

Sherbert Holdings Pty Ltd 62,500 $0.50 30/08/2004

Mr Bernard Stang 10,000 $0.50 30/08/2004

Westglade Pty Ltd 5,000 $0.50 30/08/2004

1,272,500

The above optionholdings reflect the 1:10 consolidation approved by shareholders on 20 December 2002.

On-market buy-backsAt 30 March 2004, there is no on-market buy-back scheme in relation to the Company’s shares either currentor proposed.

54


Top 20 shareholders as at 30 March 2004

Shareholder name and ranking Number of shares held % of total

1=. Ms Melareen Christopher as trustee for the Susan A Scott Family Trust 13,585,073 8.90

1=. Ms Sharilyn Cort as trustee for the Stacee Scott Family Trust 13,585,073 8.90

1=. Ms Sharon Cort as trustee for the Madeline Scott Family Trust 13,585,073 8.90

4. Lasham Capital Ltd 12,862,322 8.42

5. Equity Trustees Ltd 10,014,220 6.56

6. Invia Custodian Pty Ltd 4,950,000 3.24

7. Aleste Investments Pty Ltd 3,500,000 2.29

8. M F Custodians Ltd 2,395,775 1.57

9. Mr Simon Noble 1,854,875 1 .21

10. McNeil Nominees Pty Ltd 1,805,000 1.18

11. ANZ Nominees Ltd 1 ,617,100 1.06

12. Mr Jeff O'Donnell 1,366,957 0.90

13=. Rayloff Investments Pty Ltd 1,000,000 0.65

13=. Rivkin Investments Pty Ltd 1,000,000 0.65

15. Hintern Holdings Pty Ltd 800,000 0.52

16. ES Group Equities Pty Ltd 73 1 , 5 4 1 0.48

17. Mr Frank Hudson 664,556 0.44

18. Bond Street Custodians Ltd 629,900 0.41

19. Mrs Leanne Cooper 625,000 0.41

20. Mr Andrew Geoff Egan 620,000 0.41

Total held by top 20 shareholders 87,192,465 57.11

Corporate directory

Registered Office and Head OfficeBetcorp LimitedACN 081 765 537 Level 3, 88 Walker StreetNorth Sydney NSW 2060Telephone (02) 9954 6500Facsimile (02) 9954 7099E-mail [email protected]

Share RegistryComputershare Investor Services Pty LimitedLevel 3, 60 Carrington StreetSydney NSW 2000Telephone (02) 8234 5000Facsimile (02) 8234 5050

AuditorErnst & Young321 Kent StreetSydney NSW 2000

BankersNational Australia BankSt George BankANZ BankWestpac Banking

56

Visit Betcorp’s website, www.betcorp.com.au,for a range of shareholder information andcompany news, information about Betcorp’sgaming and betting products and services,general information, and as a convenient wayto request further information online.

www.betcorp.com.au

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www.betholdem.com

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CONTENTS

The game plan 1

Financial highlights 6

Chairman’s message 7

Chief Executive Officer’s review 8

Management team 11

Business summary 12

Review of operations – WWTS 14

Review of operations – Sportsbet 18

Board of Directors 20

Financial information 21

Corporate directory 56

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2003 annual report › asxdata › 20040423 › pdf › 00430919.p… · 1 financial highlights 6...

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