ANNUAL REPORT a ticket for change 2006 · $5 $4 Win for Life - 1 $3 - $150 k $10 $4 - 0 $4 WFL - $1 m $5 - 9 $4 - $200 k $10 - 1 $5 - $250 k $10 - $500 k Lucky Lotteries $120.70 m

7575 years1931~2006

a ticket for change

2006ANNUAL REPORT

A State lottery was introduced in 1931 to help raise funds for

NSW hospitals during the Great Depression. Tickets were five

shillings and threepence (about 52c) and represented

nearly half a day’s wages.

1931

About this report

This report provides an account of the operations of NSW Lotteries Corporation for the fi nancial year ended 30 June 2006.

The report analyses our achievements against the performance measures and targets in the NSW Lotteries Business Plan and the annual Statement of Corporate Intent negotiated with the Corporation’s Shareholder Ministers.

This annual report was produced in accordance with the requirements of the Annual Reports (Statutory Bodies) Act 1984 and complies with all relevant annual reporting statutory requirements and disclosure guidelines.

This report is designed to give a better understanding of the operations of NSW Lotteries Corporation and make it easy to assess our performance as we strive to maintain our status as the leading lottery operator in Australia.

a ticket for change

Letter to Shareholder Ministers

The Hon. John Della Bosca, MLC

Minister for Commerce, Minister for Finance, Minister

for Industrial Relations, Minister for Ageing, Minister for

Disability Services

The Hon. Michael Costa, MLC

Treasurer, Minister for Infrastructure, and Minister for

the Hunter

Dear Gentlemen

Report of Performance for the Year Ended

30 June 2006

We submit the NSW Lotteries Corporation’s Annual Report for the year ended 30 June 2006 for presentation to Parliament.

The Annual Report has been prepared in accordance with the relevant provisions of the State Owned Corporations Act 1989 and the Annual Reports (Statutory Bodies) Act 1984.

We are pleased to advise that the Auditor-General of NSW has certifi ed the Corporation’s Financial Report that forms part of the Annual Report, without qualifi cation.

John Bagshaw Michael HowellChairman Chief Executive Offi cer

01

Contents

About This Report IFC

Letter to Shareholder Ministers IFC

Results 02

Key Facts 2005/2006 03

A Message from the Chairman and 04Chief Executive Offi cer

The Year in Brief 06

History 08

Who We Are and What We Do 10Who We Are

What We Do – Our Charter

Our Games

Our Vision, Mission & Values

Business Planning

Balanced Scorecard for Fiscal 2006

Our Players 12The Games

Player Services

Responsible Gaming

Our Retailers 22The Retail Network

Agency Services

Our Business 26The Gaming System

Other Business Systems

Business Continuity

Our Staff 28Working Environment

Our Shareholders 32Management Structure

Corporate Governance

The Board of Directors

The Executive Management Team

Risk Management

Insurance

Reviews

Managing Resources

Financial Report 42

Statutory Reporting Appendix 63

Index 71

Access to Services IBC

757575 years75751931~200675

Results

02

As a State Owned Corporation, NSW Lotteries is accountable to its Shareholder Ministers for its commercial performance. A Statement of Corporate Intent is negotiated annually between NSW Lotteries and the Shareholder Ministers and sets the key performance measures and targets to be achieved by the Corporation each fi nancial year. Key fi nancial results for 2005/2006 were:

Category 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06

Sales ($M)** 946.0 1,010.7** 1,020.8** 1,092.9** 1,108.9** 1,116.0** $1,133.2**

Total NSW Government 306.5 332.4** 343.6** 373.6** 371.8** 375.8** $381.6**Revenue ($M)1

Return on Average 50 55 64 90 95 105 104Shareholder Equity (%)

Return on Corporate 31 32 35 44 47 48 47Assets (%)

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

Average Staff Number 203 205 201 195 183 176 172

Sales per Employee ($M) 4.7 4.9 5.1 5.6 6.1 6.3 6.6

** Includes GST1 Total NSW Government Revenue includes Duty, Dividends and Income Tax Equivalent payments, and excludes payments to the ACT Government

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Performance Measure Target Result

Sales (including GST, excluding agent commission) $1,155.00 m $1,133.18 m

Profi t from Continuing Operations Before Signifi cant Item and $49.01 m $49.06 mIncome Tax Equivalent

NSW Government Duty $292.96 m $285.67 m

Dividends and Income Tax Equivalent $49.01 m $49.06 m

Total $341.97 m $334.73 m

Return on Average Shareholder Equity 105.24% 104.33%

Return on Corporate Assets 48.44% 46.54%

Results for Fiscal 2006

Snapshot of Key Performance Indicators for the last 7 years

Sales Game Matrix No. of Millionaires Prizes won Total No. Largest First

& 1st Prize Winners in NSW Winners /Jackpot Prize

Lotto $199.68 m 6 from 45 12 millionaires $122.36 m 3,115,971 $3.5 m

80 Division One winners

Lotto Strike $12.33 m First 4 1 millionaire $8.07 m 1,066,298 $1.83 m

Lotto numbers 3 Strike 4 winners

Saturday Lotto $271.09 m 6 from 45 18 NSW millionaires $160.30 m 2,776,730 $32 m

85 NSW Division One winners

OZ Lotto $113.40 m 7 from 45 6 NSW millionaires $55.08 m 1,821,296 $20 m

(See note below) 6 NSW Division One winners

Powerball $259.02 m 5 from 45 7 NSW millionaires $142.80 m 3,910,438 $22 m

& 1 from 45 7 NSW Division One winners

drawn by a

2nd machine

Instant $150.98 m Game Pricepoints: Number of Game Top Prizes: $95.72 m 19,543,758 $1 - $50 k

Scratchies $1 $1 - 30 $2 - $100 k

$2 $2 - 23 $2.50 MFL - $500 k

$2.50 $2.50 Made For Life - 3 $2.50 – BMW

$3 $2.50 - 6 Mini Cooper &

$4 $3 - 13 Mazda RX8

$5 $4 Win for Life - 1 $3 - $150 k

$10 $4 - 0 $4 WFL - $1 m

$5 - 9 $4 - $200 k

$10 - 1 $5 - $250 k

$10 - $500 k

Lucky Lotteries $120.70 m $2 Jackpot Lottery 282 x 1st Prize winners $75.95 m 10,147 Prizes $12,275,000

- 200,000 tickets 2 x $2 Jackpot in every $2 Jackpot won

Lottery millionaires Jackpot in August 2005

Lottery draw

$5 Jackpot Lottery 10 x 1st Prize winners 12,880 Prizes The 1st prize of

- 160,000 tickets There were no $5 Jackpot in every $5 $200,000 was

Lottery millionaires Jackpot won in each of

Lottery draw the 10 draws.

The jackpot was

not won in 2005/6

6 From 38 Pools $5.98 m 6 from 38 2 Division One winners $1.83 m 77,772 $741,000

Total $1,133.18 m $662.11 m

Note: OZ Lotto operated as a 6 from 45 game until 11 October 2005. Changes introduced from 12 October 2005 altered the game matrix to 7 from 45.

Key Facts 2005/2006

The only thing real estate agent Rob Marcus had ever won

was a chook raffl e - before he picked up the $10,000 second

prize in the $2 Jackpot Lottery in March 2006, with a ticket

purchased from the Griffi th Newsagency. (Courtesy of the

Area News).

03

75th year marks another year of records

As NSW Lotteries enters its 75th year of operation there is much for us to celebrate.

We reached a new sales record of $1,133 million for the fi scal year 2005/2006, exceeding the previous record of last year by $17 million (or 1.5%).

This effectively means that NSW Lotteries has achieved sales records in 18 out of the last 20 fi nancial years, and posted sales of more than one billion dollars in each of the past six years.

Given the challenges confronting the Australian lottery industry as a whole, this is a considerable achievement, and a tribute to the talent and hard work of the NSW Lotteries team and our retail network.

Our agents were rewarded with record commissions of $84.7 million. This represents an extra $5.5 million, which is up 6.9% on last year. Once again retailer revenues have risen at a higher rate than sales, demonstrating the success of our deliberate strategy of seeking to increase the real value of the lottery franchise.

Despite our record sales, the Corporation fell just short of target, at $22 million (or 1.9%) below our budget for the year. Due to tight fi scal control and several effi ciency improvements, the Corporation was still able to exceed its profi t target for the year. Operating Profi t of $49.1 million was another record.

Sales performance

The increasing value of jackpot offers has led to a high level of volatility in the top prizes on offer each week.

OZ Lotto was changed in October 2005 to deliver higher jackpots. As luck would have it, despite having longer odds the game was actually won more often than expected – a statistical aberration which resulted in a lower than expected number of jackpots. The true potential of the game was demonstrated towards the end of the fi nancial year, when the incidence of jackpots conformed more to statistical probability - a welcome trend that is expected to continue.

Lucky Lotteries had a great year driven by a long jackpot run and exceeded its sales target by 20%.

Saturday, Monday and Wednesday Lotto also exceeded their sales targets, while Powerball and Pools fi nished the year generally in line with expectations.

However, Instant Scratchies being the most “retail” oriented game suffered the direct consequences of negative consumer sentiment arising from increasing petrol prices and interest rates.

These trends had not been prominent issues at the beginning of the year, but became very signifi cant negative infl uences as more of the year went by. They are expected to have a dampening effect on general retail conditions for the foreseeable future.

Game improvements

In addition to revamping OZ Lotto, we extended the NSW Monday and Wednesday Lotto draws to players from Western Australia and South Australia for the fi rst time. These changes brought bigger prize pools for all players, as well as a range of game enhancements, including rolling jackpots and a higher guaranteed minimum fi rst division prize of $750,000 on Wednesday nights, up from $500,000 before the changes.

Satisfi ed Customers

Our independent survey of customer attitudes found that 93% of NSW Lotteries’ customers were satisfi ed with the service they received when buying and checking entries.

We were pleased to pay out more than $662 million in prizes to lucky winners including a network wide syndicate win of $22 million in Powerball on 11 May 2006, shared by 55 lucky players.

All up, 46 new millionaires were created over the year, including three winners who each received prizes with a value over $10 million.

Smart players ensured that they received their prizes automatically, by using the NSW Lotteries Players Club Registration service. Players Club now has 919,000 active members and more than 70% of all entries last year were registered using the service.

During the year we implemented new procedures to protect players when claiming major prizes, and made it easier for them to check results.

Full Lucky Lotteries results are now available on the NSW Lotteries website within an hour of the draw, along with enhanced information on claiming lost prizes. All draw lottery results dating back to the very fi rst draw in 1931 have been transferred from print archives to electronic storage media to facilitate checking of very old tickets.

Entering our games also became easier following a reduction in the number of entry forms for all on-line games.

A Message from the Chairman and Chief Executive Offi cer

04

Dependable Service

Our customers also received an excellent service from the NSW Lotteries gaming system, with 99.99% selling system uptime, and 99.96% availability of the telecommunications network linking our 1,600 retailers to lottery headquarters.

Our retailers were also clearly happy with the service provided by the Corporation, giving the Corporation a 95% satisfaction rating in the annual survey.

A strong team

These strong service ratings would not have been possible without the combined efforts of the dedicated team at NSW Lotteries as every single staff member plays a vital role. We are deeply grateful for their efforts.

A Message from the Chairman and Chief Executive Offi cer

Building on achievement

Over the past 75 years, NSW Lotteries has forged a reputation for reliability and integrity.

We have paid more than $13 billion dollars in prizes to lucky winners and contributed almost $7 billion for investment in community services and infrastructure for the people of NSW.

Our mission today is just as important as it was back in 1931 and over the coming year we will be drawing on our depth of experience to meet the market challenges created by the current economic climate.

John Bagshaw Michael HowellChairman Chief Executive Offi cer

The staff at Toukley Newsagency celebrate selling the $10.7 million jackpot prize in the $2 Jackpot Lottery in February 2006 - the third highest

jackpot in 75 years. The unnamed local winner said: “I suppose people always hope this sort of money goes to someone who’s deserving. I don’t

know if you can say you’re ever deserving of $10.7 million but I’m not going to send it back.” (Courtesy of the Central Coast Express Advocate).

05

The Year in Brief

06

Objective Performance Measure Target Result Highlights and issues Oulook

Our Players

The GamesTo increase Sales Sales $1,155 m $1,133.18 m • Record sales totalled $1,133.2 million (GST inclusive) - $17 million (or 1.5%) up on • Another year of record sales and record prizes, previous year with strong sales for Lotto-style games • Prizes totalled $662.1 million • Game changes will enhance Monday and • Combined turnover for Lotto style games of $855.5 million - $19 million (or 2.3%) up on Wednesday Lotto previous year • OZ Lotto jackpots anticipated to better • Lucky Lotteries sales of $120.7 million - $15.3 million (or 14.5%) up on previous year refl ect probability • Instant Scratchie sales of $151 million - $16.4 million (or 9.8%) down on previous year • 6 From 38 Pools sales of $6 million – $0.7 million (or 10.7%) down on previous year Player ServicesTo ensure our products and services Customer Satisfaction Survey 95% 93% • More than 436,000 calls were received through the Call Centre • Focusing on enhancing current games meet players’ expectations No. of Player Complaints <220 89 • www.nswlotteries.com.au attracted 7,364,200 user sessions during the year – over 50% • Seeking to continually improve service delivery Customer Hotline - Average time taken to answer calls <15 secs 9.5 secs up on the previous year • Retaining existing customer base while attracting • 919,000 players benefi ted from the protection and additional services provided by their new players Players Club membership • Improving access to on-line agencies for players

Responsible Gaming To be recognised as a responsible Compliance with the Corporation’s Responsible 100% 100% • The Corporation worked to ensure that there were no negative impacts from the sale and • We will continue to refi ne our Responsiblegaming operator Gaming Package promotion of its range of products Gaming Program to ensure it meets • NSW Lotteries’ comprehensive Responsible Gaming policies were reviewed and amended regulatory requirements and encourages and met all legislative requirements the responsible promotion and play of NSW • NSW Lotteries contributed to a review of the Australian Lotteries Industry Code of Practice Lotteries’ products. • The NSW Lotteries Advertising Code of Practice was updated to refl ect current regulations • Responsible Gaming training sessions were conducted for all new agents • Territory Managers visited all agencies in NSW and the ACT to ensure that retailers understood, and complied with, various responsible gaming obligations

Our Retai lers

Retail NetworkTo have a retail network that operates Financial* <320 247 • 1,503 on-line and 112 Instant Scratchies retail outlets • Aiming to deliver another year of record effectively and effi ciently and provides Operational* <100 30 • Record commission on product sales paid to agents of $84.7 million - $5.5 million commissionsquality service to our players Public Lotteries Act** 0 0 (or 6.9%) up on previous year • Building on our well-established retail network Agent Satisfaction Survey 95% 95% • Over three-quarters of the agency network covered by Business Plans designed to by identifying new retail outlets in high Agent Hotline – average time taken to answer calls <15 secs 4.4 secs improve performance traffi c areas • Over 10,000 visits to agencies by Territory Managers • Nearly 60% of the total network in the agent reward and recognition program ‘Top Shop’ • Over 1,100 agencies showcase the Corporation’s latest retail image * Breach of terms of Agency Agreement • Over 1,000 promotions at key retail outlets ** Breach of Act by NSW Lotteries Agents • Over 1,030 agents and staff trained in business management and customer service skills

Our Business

To ensure the continuity of core Gaming System Uptime 99.99% 99.99% • Processed over 307 million transactions through the on-line gaming system - peak day • Continuing improvement in our business activities Terminal Availability: was 23 December 2005 when over 2.1 million transactions were processed core activities - Mean Tickets Printed Between failure 280,000 282,895 • Implemented a new Financial Management Information System on 1 July 2006 - Average elapsed time to restore terminal operations <240 mins 194 mins • Successfully tested the Corporation’s Business Continuity Plan in November 2005.

Our Staff

To ensure our workforce is able to Staff Turnover <10% 9.38% • A new Workforce Plan was implemented • We will continue to develop the skills necessary respond to future business needs Sick Leave (days) 5 5.97 • Occupational Health and Safety (OH&S) training was conducted for managers, to meet the future needs of both the Training Expenditure per employee $1,500 pa $830 supervisors and staff Corporation and its employees Training Hours per employee 20 10.6 • Workforce planning will continue to be a key element of our corporate strategic management framework

Our Shareholders

To increase long-term Shareholder Value Duties paid to Governments ($m) $298.91 m $292.10 m • Total revenues exceeding $381 million were paid/payable to the NSW Government in • Aiming for another year of record sales andby improved business performance Profi t from Continuing Operations before Signifi cant the form of duties, tax equivalents, dividends and GST record return to Government Item and Income Tax Equivalent ($m) $49.01 m $49.06 m • Employee effi ciency, as measured by total sales per employee - increased by 5%, up • In a diffi cult economic environment, the Return on Corporate Assets 48.44% 46.54% from $6.3 million to $6.6 million occurrence of jackpots in the various games Return on Average Shareholder Equity 105.24% 104.33% • Sales per employee up 40.4% over the last seven years will be crucial to growth Shareholder Value Added $31.88 m $31.88 m • Changes to our games will enhance their Operating Expenses to Sales 6.02% 5.91% competitive positions and build on their Profi t to Sales 4.24% 4.33% unique strengths • We will continue to focus on our profi tability and costs

07

Objective Performance Measure Target Result Highlights and issues Oulook

Our Players

The GamesTo increase Sales Sales $1,155 m $1,133.18 m • Record sales totalled $1,133.2 million (GST inclusive) - $17 million (or 1.5%) up on • Another year of record sales and record prizes, previous year with strong sales for Lotto-style games • Prizes totalled $662.1 million • Game changes will enhance Monday and • Combined turnover for Lotto style games of $855.5 million - $19 million (or 2.3%) up on Wednesday Lotto previous year • OZ Lotto jackpots anticipated to better • Lucky Lotteries sales of $120.7 million - $15.3 million (or 14.5%) up on previous year refl ect probability • Instant Scratchie sales of $151 million - $16.4 million (or 9.8%) down on previous year • 6 From 38 Pools sales of $6 million – $0.7 million (or 10.7%) down on previous year Player ServicesTo ensure our products and services Customer Satisfaction Survey 95% 93% • More than 436,000 calls were received through the Call Centre • Focusing on enhancing current games meet players’ expectations No. of Player Complaints <220 89 • www.nswlotteries.com.au attracted 7,364,200 user sessions during the year – over 50% • Seeking to continually improve service delivery Customer Hotline - Average time taken to answer calls <15 secs 9.5 secs up on the previous year • Retaining existing customer base while attracting • 919,000 players benefi ted from the protection and additional services provided by their new players Players Club membership • Improving access to on-line agencies for players

Responsible Gaming To be recognised as a responsible Compliance with the Corporation’s Responsible 100% 100% • The Corporation worked to ensure that there were no negative impacts from the sale and • We will continue to refi ne our Responsiblegaming operator Gaming Package promotion of its range of products Gaming Program to ensure it meets • NSW Lotteries’ comprehensive Responsible Gaming policies were reviewed and amended regulatory requirements and encourages and met all legislative requirements the responsible promotion and play of NSW • NSW Lotteries contributed to a review of the Australian Lotteries Industry Code of Practice Lotteries’ products. • The NSW Lotteries Advertising Code of Practice was updated to refl ect current regulations • Responsible Gaming training sessions were conducted for all new agents • Territory Managers visited all agencies in NSW and the ACT to ensure that retailers understood, and complied with, various responsible gaming obligations

Our Retai lers

Retail NetworkTo have a retail network that operates Financial* <320 247 • 1,503 on-line and 112 Instant Scratchies retail outlets • Aiming to deliver another year of record effectively and effi ciently and provides Operational* <100 30 • Record commission on product sales paid to agents of $84.7 million - $5.5 million commissionsquality service to our players Public Lotteries Act** 0 0 (or 6.9%) up on previous year • Building on our well-established retail network Agent Satisfaction Survey 95% 95% • Over three-quarters of the agency network covered by Business Plans designed to by identifying new retail outlets in high Agent Hotline – average time taken to answer calls <15 secs 4.4 secs improve performance traffi c areas • Over 10,000 visits to agencies by Territory Managers • Nearly 60% of the total network in the agent reward and recognition program ‘Top Shop’ • Over 1,100 agencies showcase the Corporation’s latest retail image * Breach of terms of Agency Agreement • Over 1,000 promotions at key retail outlets ** Breach of Act by NSW Lotteries Agents • Over 1,030 agents and staff trained in business management and customer service skills

Our Business

To ensure the continuity of core Gaming System Uptime 99.99% 99.99% • Processed over 307 million transactions through the on-line gaming system - peak day • Continuing improvement in our business activities Terminal Availability: was 23 December 2005 when over 2.1 million transactions were processed core activities - Mean Tickets Printed Between failure 280,000 282,895 • Implemented a new Financial Management Information System on 1 July 2006 - Average elapsed time to restore terminal operations <240 mins 194 mins • Successfully tested the Corporation’s Business Continuity Plan in November 2005.

Our Staff

To ensure our workforce is able to Staff Turnover <10% 9.38% • A new Workforce Plan was implemented • We will continue to develop the skills necessary respond to future business needs Sick Leave (days) 5 5.97 • Occupational Health and Safety (OH&S) training was conducted for managers, to meet the future needs of both the Training Expenditure per employee $1,500 pa $830 supervisors and staff Corporation and its employees Training Hours per employee 20 10.6 • Workforce planning will continue to be a key element of our corporate strategic management framework

Our Shareholders

To increase long-term Shareholder Value Duties paid to Governments ($m) $298.91 m $292.10 m • Total revenues exceeding $381 million were paid/payable to the NSW Government in • Aiming for another year of record sales andby improved business performance Profi t from Continuing Operations before Signifi cant the form of duties, tax equivalents, dividends and GST record return to Government Item and Income Tax Equivalent ($m) $49.01 m $49.06 m • Employee effi ciency, as measured by total sales per employee - increased by 5%, up • In a diffi cult economic environment, the Return on Corporate Assets 48.44% 46.54% from $6.3 million to $6.6 million occurrence of jackpots in the various games Return on Average Shareholder Equity 105.24% 104.33% • Sales per employee up 40.4% over the last seven years will be crucial to growth Shareholder Value Added $31.88 m $31.88 m • Changes to our games will enhance their Operating Expenses to Sales 6.02% 5.91% competitive positions and build on their Profi t to Sales 4.24% 4.33% unique strengths • We will continue to focus on our profi tability and costs

History

Over the past 75 years, NSW Lotteries has earned an enviable reputation as a responsible provider of lottery games. Lotteries are warmly accepted as part of the history of the State of New South Wales (NSW) and the dream of winning a big prize is part of the national culture.

However, the initial reaction to a Government sponsored lottery to help raise funds for NSW hospitals during the Great Depression was quite different.

After the State Lottery Bill was introduced to Parliament in 1930 it created a storm and was denounced by the Churches and political opponents of the Government. This was despite the fact that hospitals had been running various Art Unions, and illegal betting was widespread throughout the community.

In view of the resistance to the introduction of a lottery, the then Premier, Jack Lang, put a proposition to the opponents – he gave them six months to raise the money needed by the hospitals. If they were successful there would be no State lottery.

During the next six months the Government assisted the campaign with funds, staff and room in the Premier’s offi ce where they could meet. However, despite signifi cant effort, the funds just didn’t roll in and the opposition to the State Lottery Bill was withdrawn.

The Lotteries Act was proclaimed on 22 June 1931. The fi rst lottery went on sale on Monday 10 August 1931 and was drawn on 20 August 1931 in Her Majesty’s Theatre, Pitt Street, Sydney.

The lottery comprised 100,000 tickets with a ticket price of fi ve shillings and threepence (52c). This represented nearly half a day’s wages, a huge sum when you consider that the current amount spent on an average lottery purchase is just $5.

The fi rst prize of £5,000 ($10,000) was also enormous in relative terms. In the current era of sky high property prices it is sobering to consider that the fi rst winner, Mrs Eileen Morton, was able to build a house on Sydney’s exclusive North Shore, take a cruise to Fiji and put a little in the bank. And she split the prize with her grandmother!

Over the past 75 years NSW Lotteries has paid more than $13 billion in prizes to hundreds of thousands of lucky winners, and raised close to $7 billion to assist the NSW Government in funding important community infrastructure, such as schools, hospitals and roads.

Lottery funds have helped to literally change the face of Sydney, with both the Opera House and Harbour Bridge funded from the proceeds of lottery sales.

Over the years, other types of lottery games such as Lotto and Powerball have been added to our portfolio of games. In 2005/06, our fi nancial contribution to the Government’s revenues has grown to a record $381.6 million, which helps to fund various programs for the benefi t of the people of NSW.

Crowds waiting to purchase tickets in the fi rst NSW State Lottery in August 1931.

08

Some of the milestones in our history:

1931 The Lotteries Act was proclaimed - 22 June.The fi rst State Lottery went on sale - 10 August.The fi rst State Lottery was drawn with a fi rst prize of £5,000 - 20 August .

1947 A Special Lottery commenced with a fi rst prize of £12,000.

1954 Mammoth Lotteries were introduced with a fi rst prize of £30,000.

1956 A Jackpot prize was added to the Mammoth Lottery.

1957 Opera House Lottery tickets went on sale for a fi rst prize of £100,000.

1963 The new Jackpot Lotteries commenced.

1974 The fi rst $10 Lottery went on sale offering a fi rst prize of $250,000.

1975 The Half-Million Dollar Lottery was introduced.

1979 Monday Lotto was introduced with a 6 from 40 game matrix.

1982 Instant Scratchies launched.

1984 Lotto was available twice a week – Monday and Wednesday.

1986 The Million Dollar Lottery and a $20 Peace Lottery were introduced.

1987 A new computer gaming system was introduced, which allowed all agencies to sell Lotto on-line.

1989 Lotto was changed to a 6 from 44 game matrix and the Wednesday draw was moved to Thursday. Players were able to play the Monday and Midweek games separately. NSW Lotteries was granted a licence to sell 6 From 38 Pools – the fi rst national game.

1993 The $20 Olympic Bid Lottery was launched.

1994 OZ Lotto was introduced - the second national game.

1995 Lotto Strike was introduced - Monday and Thursday.

1996 The Midweek Lotto game changed back to Wednesday night and Powerball was introduced on Thursday night - the third national game.The last Million Dollar Lottery was drawn and replaced by a new Lucky 7 lottery game.

1997 NSW Lotteries was incorporated as a State Owned Corporation.

2000 A new state-of-the-art Gaming System was implemented.Saturday Lotto, the fourth national game, was introduced.Lucky 7 was discontinued.

2001 As at 30 June, NSW Lotteries becomes the fi rst Australian lottery operator to achieve $1 Billion in sales during a fi nancial year. In August, NSW Lotteries celebrated 70 years of operation.

2003 A single prize of $13.7 million was won in the $2 Jackpot Lottery - the biggest prize ever won in an Australian Draw Lottery. A $30 million Powerball jackpot was won - the biggest single prize ever in NSW.

2004 Lotto - Monday and Wednesday - was changed to a 6 from 45 game matrix. Lotto Strike was extended to include a Saturday draw as well as Monday and Wednesday.

2006 The sale of Lotto – Monday and Wednesday – is extended to South Australia and Western Australia. A new sales record is set and NSW Lotteries celebrates 75 years of serving the community of NSW.

09

Who We Are and What We Do

Who We Are

Following the passage of the State Lotteries Act, lottery sales were legalised in NSW in 1931, when The State Lotteries Offi ce was formed and commenced operations. Since 1 January 1997, the organisation has operated as a State Owned Corporation established under the provisions of the NSW Lotteries Corporatisation Act 1996.

NSW Lotteries Corporation is licensed by the Minister for Gaming and Racing to sell lottery games in NSW pursuant to the provisions of the Public Lotteries Act 1996. The Corporation is also licensed to conduct lottery games in the Australian Capital Territory (ACT).

What We Do - Our Charter

As the leading Government-owned lottery operator in Australia, NSW Lotteries has a charter to:

• Successfully develop, promote, conduct and otherwise participate in any lawful forms of gambling and gambling-related activities;

• Be a successful business and, to this end:- to operate at least as effi ciently as any comparable

businesses;- to maximise the net worth of the State’s investment in

the Corporation;- to be a successful participant (whether directly or

indirectly) in any other business or activity that the Corporation determines is, or may be, of sound commercial benefi t to the Corporation;

• Exhibit a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate these interests if it is possible to do so; and

• Exhibit a sense of responsibility towards regional development and decentralisation in the way in which the Corporation operates.

Our Games

The Corporation is licensed to conduct these games in NSW and the ACT:

• Lotto (drawn Monday, Wednesday and Saturday)• Lotto Strike (drawn Monday, Wednesday and Saturday)• Powerball (drawn Thursday)• OZ Lotto (drawn Tuesday)• Instant Scratchies• Lucky Lotteries (drawn most weekdays)• 6 From 38 Pools (drawn Saturdays)

Saturday Lotto, Powerball, OZ Lotto and 6 From 38 Pools are national games operated in conjunction with other Australian lottery operators. The Monday and Wednesday Lotto game is operated in conjunction with the lottery operators in South Australia and Western Australia.

Our Vision

We will continue to be the leading lottery operator in Australia.

Our Mission

We contribute to the community of NSW by maximising the return to Government through providing quality lottery products and services.

Our Values

In all our activities we will:

• Operate with integrity• Seek to provide excellent service to our customers • Value the relationship with our retailers • Acknowledge the contributions of our staff• Be successful and continuously improve our business

processes• Be socially responsible

Business Planning

NSW Lotteries focusses on achieving its key business objectives using an integrated business planning process. Each year, the Board, Executive and key staff members identify the major strategic issues that are likely to impact the business. A comprehensive Business Plan is developed which outlines the specifi c objectives, strategies and actions to be undertaken to achieve our targets.

Corporate Objectives

Our PlayersObjective: To increase sales.Objective: To ensure our products and services meet

players’ expectations.Objective: To be recognised as a Responsible Gaming

operator.

Our RetailersObjective: To have a retail network that operates

effectively and effi ciently and provides quality service to our players.

Our BusinessObjective: To ensure the continuity of our core business

activities.

Our StaffObjective: To ensure our workforce is able to respond to

future business needs.

Our ShareholdersObjective: To increase long-term Shareholder Value by

improved business performance.

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Objective Measure Target Result Indicator

Our Players

To increase sales Sales1 $1,155 m $1,133.18 m ✘

To ensure our products Customer Satisfaction Survey2 95% 93% ✘

and services meet players’ No. of complaints from players <220 89 ✔

expectations Customer Hotline – average time taken <15 seconds 9.5 seconds ✔

to answer calls

To be recognised as a Compliance with the Corporation’s 100% 100% ✔

Responsible Gaming operator Responsible Gaming package

Our Retailers

To have a retail network that Defaults under Agency Agreement:

operates effectively and • Financial <320 247 ✔

effi ciently and provides quality • Operational <100 30 ✔

service to our players • Public Lotteries Act Nil Nil ✔

Agent Satisfaction Survey 95% 95% ✔

Agent Hotline – average time taken <15 seconds 4.4 seconds ✔

to answer calls

Our Business

To ensure the continuity of Gaming System Uptime 99.99% 99.99% ✔

core business activities Terminal Availability:

• MTPBF 280,000 282,895 ✔

• Average elapsed time to restore <240 mins 194 mins ✔

terminal operations

Our Staff

To ensure our workforce is Staff turnover <10% 9.38% ✔

able to respond to future Sick Leave4 5 days 5.97 days ✘

business needs Training Expenditure per employee5 $1,500 pa $830 ✘

Training Hours per employee5 20 hours 10.6 hours ✘

Our Shareholders

To increase long-term Duties paid to Governments3 $298.91 m $292.10 m ✘

Shareholder Value by Profi t from Continuing Operations before $49.01 m $49.06 m ✔

improved business Signifi cant Item and Income Tax Equivalent

performance Return on Corporate Assets 48.44% 46.54% ✘

Return on Average Shareholders’ Equity 105.24% 104.33% ✘

Shareholder Value Added $31.88 m $31.88 m ✔

Operating Expenses to Sales 6.02% 5.91% ✔

Profi t to Sales 4.24% 4.33% ✔

Note 1: Total sales were $21.82 million (or 1.9%) below target, mainly due to OZ Lotto not performing to probability in the fi rst six months after the game

changes (see page 15).Note 2: Although the overall result for the Customer Satisfaction Survey was slightly below target we are still pleased with this very high rating. Note 3: Duty paid was below target in proportion with the sales fi gure (see Note 1).Note 4: The result exceeded target due to major health issues in a small number of staff.Note 5: Training expenditure and hours did not meet target due to the rescheduling of the Management Development Program.

Key Areas for SuccessThere are fi ve main aspects of our business that are imperative to the achievement of our goals:

• Our Players• Our Retailers • Our Business• Our Staff • Our Shareholders.

Balanced Scorecard for Fiscal 2006

The Business Plan incorporates an integrated set of measures, with strategies, actions and targeted outcomes that are continually reviewed and refi ned to ensure all critical aspects of business performance are monitored.

Our performance on each of the corporate objectives is detailed later in this report, with a snapshot of results below:

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Objective: To increase sales.

The NSW Lotteries’ product portfolio consists of a number of Lotto-style games - Lotto (Monday, Wednesday and Saturday and the add-on game of Lotto Strike), Powerball and OZ Lotto as well as Instant Scratchies, Lucky Lotteries and 6 From 38 Pools.

Our products are sold through a network of retailers in NSW and the ACT. Lotto, Powerball, OZ Lotto and 6 From 38 Pools are operated in conjunction with other Australian lottery operators while the remaining games are offered to NSW and ACT residents only.

Our products have wide player appeal with close to two million regular purchasers drawn from all walks of life.

12

Did you know...From 1931 to May 1982, all lotteries were drawn by a guest drawer who extracted wooden marbles from a large wooden barrel. Since 20 May 1982, lotteries have been drawn by a Random Number Generator computer.

Our Players

Players spend an average of $5 on each purchase, with almost 307 million tickets sold or validated by the NSW Lotteries on-line gaming system each year.

While a core group of players follow one game loyally each week, particularly Monday and Wednesday Lotto and the $2 Jackpot Lottery, others seek the best value on offer each week.

This means that the games are effectively competing against each other, and the success of one brand in the portfolio may well have a detrimental impact on another.

Most importantly, in the last fi scal year, rising petrol prices and interest rates served to dampen consumer spending in an already weak retail environment.

Despite these challenges, sales were the highest ever, at $1,133 million which was up $17 million (or 1.5%) on the previous year’s sales record of $1,116 million but still below our target of $1,155 million.

Total turnover for all Lotto-style games reached $855.5 million, which was 2.3% above the previous year.

Instant Scratchies felt the negative retail conditions most sharply, with sales dropping $16 million (or 9.8% on last year) to $151 million. Lucky Lotteries continued to benefi t from long jackpot runs in the $2 Jackpot Lottery, achieving $120.7 million, which was up 14.5%.

The sales and performance of each game, along with highlights for the year and other points of interest, are summarised in Games at a glance on pages 14-17.

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Our Players

Slogan

Launched

Highlights

Performance

Sales

Variance on previous year

Share of NSWL total portfolio of games

Division One winners

Largest prize offered

Prizemoney paid

Outlook

Sales for seven years

14

GAMES AT A GLANCE

Makes Dreams Come True

1979 (Monday) 1984 (Wednesday) 1995 (Lotto Strike) 2000 (Saturday)

• Record $32 million prize offer for December 2005 Saturday

Superdraw.

• Seven Saturday Superdraws a year offering the highest

amounts ever.

• Changes to the Saturday Lotto game in March 2006 – including a

new $4 million weekly guarantee.

• Changes to the Monday and Wednesday Lotto game in April 2006

– including expansion to a multi-state game, new Wednesday

$750,000 guarantee, and return to jackpots.

• Lotto remains the number one game in the NSW Lotteries portfolio.

• Lotto felt the pressure of other game competition and tougher

economic conditions throughout the year, which saw sales meet

budget but fall below prior year.

• While Monday and Wednesday Lotto is still the traditional game

of choice for a large and loyal player base, the weekly prize

guarantees are struggling to maintain their appeal, with little

attraction for new players.

• Saturday Lotto, with higher prize offers delivered by a national prize

pool, now dominates the Lotto brand.

• The changes to the Saturday Lotto and Monday and Wednesday

Lotto games increased sales momentum.

$483.1 million

Down 2.5%

42.6%

168 (31 millionaires) As at 30 June 2006, 734 Lotto millionaires had

been created since the launch of the game in 1979.

$32 m (Saturday Lotto)

$290.7 m

• Lotto faces an increasingly challenging environment, with player

behaviour changing in response to economic conditions and larger

competitive prize offers from other games.

• The changes made to Saturday Lotto are expected to maintain its

dominant position in the Lotto portfolio.

• Further changes are planned for Monday and Wednesday Lotto to

maintain its competitiveness.

Lotto (Mon, Wed, Sat & Strike)

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Our Players

Spend the rest of your life

1996

• Another year of record sales, up from previous record of $253.1

million set in 2002/03.

• A record $415 million worth of Division One prizes were on offer

in 2005/06.

• There were four $22 million jackpots, attracting sales of $48 million.

• 2005/06 was the fi rst full fi scal year of the Powerball game

changes that made possible an increase in the weekly fi rst

division prize pools offered to players. The average fi rst division

prize was $8 million compared to $6.4 million last year.

• One network syndicate shared in a $22 million prize win, with 55

players each receiving more than $400,000.

• Powerball’s jackpot performance was in line with probability and

delivered a record sales result.

• Powerball record jackpot offerings were well supported by

agents and this created increased awareness of the game at

the retail level.

$259 million

Up 8.7%

22.9%

7 (7 Millionaires)

$22 million

$142.8 million

• Powerball’s player base is expected to continue to grow in line

with the expected growth of jackpots offered.

Powerball

A truckload of cash

1994

• The game was revamped in October 2005 to increase both the size

and number of jackpots and to offer a greater number of prizes to

players in lower divisions.

• There was a record $250 million worth of Division One prizes on

offer in 2005/06 compared to $151 million last year.

• The average fi rst division prize was $4.8 million compared to $2.9

million last year.

• With more prizes on offer, there were 1.8 million prize winners during

the year compared to 486,443 last year.

• The expected number of jackpots both before and after the game

changes were below probability and retarded sales growth.

• In the fi rst six months of the fi nancial year weekly OZ Lotto sales

averaged $1.5 million. In the second half of the year, this increased

to $2.9 million.

• In June 2006, OZ Lotto jackpotted to a record $20 million.

$113.4 million

Up 10.1%

10.0%

6 (6 millionaires)

$20 million

$55.1 million

• The game changes are yet to show their true potential - as the

number of jackpots approaches statistical probability, player

interest will pick up.

OZ Lotto

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16

GAMES AT A GLANCE

Scratch Me Happy

1982

• Players had a choice of more games than ever before with 50 new

games issued this year.

• In addition, a range of promotions were launched offering players

extra chances to win. Promotional prizes included cars and

entertainment systems, as well as free chocolate treats.

• Instant Scratchies continued to offer games that were fun and

entertaining, with a number of high profi le licensed games including

$2 King Kong and $3 Da Vinci Code Bingo.

• NSW Lotteries was also the fi rst lottery operator in Australia to

launch a World Poker Tour Instant Scratchie to capitalise on the

enormous interest in poker.

• In addition to major cash prizes, players also had the chance to

instantly win cars with the Minis & Money and My RX8 Instant

Scratchies.

• As the game most likely to be an “impulse” purchase, sales of

Instant Scratchies were signifi cantly affected by pressure on

consumer spending, including rising petrol prices and interest rates.

This trend was experienced in other lottery jurisdictions across the

country as consumer spending tightened.

• A comprehensive strategy of major changes to Instant Lotteries in

2006/07 was endorsed by the Board.

$151.0 million

Down 9.8%

13.3%

1 x $4 Win For Life prize - equivalent to $1 million

$4 Win For Life prize - equivalent to $1 million

$95.7 million

• Following a fundamental review of all aspects of Instant Lotteries, a

number of signifi cant changes will be made to the product over the

next two years. The key focus will be on increasing value to players

by offering more prizes.

Slogan

Launched

Highlights

Performance

Sales

Variance on previous year

Share of NSWL total portfolio of games

Division One winners /First Prize and Jackpot winners

Largest prize offered

Prizemoney paid

Outlook

Sales for seven years

Instant Scratchies

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Our Players

You ought to buy yourself a lottery ticket

1931

• Strong $2 Jackpot Lottery sales were driven by long jackpot

runs that exceeded probability. The second-highest ever

jackpot prize of $12.3 million was won in August 2005, followed

by a $10.7 million jackpot won in February 2006.

• Promotional offers were successfully used to reward regular

players, and to encourage new players to sample the game.

The highlight was the Friday 13th promotion in January 2006,

which generated $2 Jackpot Lottery sales of over $1.3 million.

• The level of sales generated by high jackpot offers compared

favourably with the previous year’s sales at equivalent jackpot levels.

• The calendar of promotional offers at lower jackpot levels maintained

sales momentum, which in turn accelerated the growth of the jackpot.

• Cessation of paid publication of lottery results is expected to

save close to $1 million annually. Enhancements to the results

on the website, along with other alternatives for checking results,

meant a high level of service was maintained.

$120.7 million

Up 14.5%

10.7%

282 x First Prize winners - $2 Jackpot Lottery

2 x $2 Jackpot Lottery millionaires

10 x First Prize winners - $5 Jackpot Lottery

$12.3 million jackpot won in $2 Jackpot Lottery in August 2005

$76.0 million

• Whilst it cannot be expected that the favourable run of jackpots

experienced last year will be repeated in 2006/07, the overall sales

outlook is positive.

Lucky Lotteries

Pools the smart choice

Conducted by NSW Lotteries since 1989

• Pools offered a total of $14.6 million worth of Division One prizes

during the year.

• A Pools promotion was held during the Soccer World Cup and

boosted weekly sales by 22%.

• Jackpots averaging $292,000 were well below other game offers

and appealed to less players.

• An initiative by NSW Lotteries to source alternative means for

obtaining Pools results saved $280,000 annually in NSW alone.

National savings were around $700,000.

$6.0 million

Down 10.8%

0.5%

2

$741,000

$1.8 million

• While sales are expected to decline as a result of larger prize offers

from the other games in the portfolio, the game continues to make a

small but useful contribution to profi t.

• Jackpots of over $1 million are needed to improve the game’s

recent performance.

6 From 38 Pools

★

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18

Looking ahead

The increasing size of jackpots in the Lotto-style games makes sales performance more volatile and harder to predict each year.

However, the outlook for the overall portfolio is positive, but with a necessary degree of caution due to the prevailing economic and retail environment.

Further strong growth for Saturday Lotto is expected. Interest in the new multi-State prize pools for Monday and Wednesday Lotto will help to lift the profi le of the game over the coming year. Further enhancements are planned to maintain Lotto’s competitiveness in the longer term.

Powerball is expected to maintain steady growth based on the game’s ability to deliver sizeable jackpots.

OZ Lotto is expected to conform more closely to probability and will consequently deliver the jackpots promised by the game’s new 7 from 45 matrix. This represents a major revamp to a key game, and places OZ Lotto at the start of a new product life cycle, in a portfolio of more mature products.

The prospects for our most mature offering, Draw Lotteries, are also positive, with a statistical probability of high jackpots for both games next year. The $2 Jackpot Lottery prize kicked off the new fi nancial year standing at more than $6 million, while the $5 Jackpot Lottery jackpot is expected to refl ect the bigger jackpots introduced to the game by its restructure in July 2005.

For 6 From 38 Pools and Instant Scratchies the outlook is static.

Pools sales will continue to make a small but useful contribution to profi t, but will need higher jackpots than have been achieved in recent years for any signifi cant growth to occur.

Instant Scratchies are a special challenge, and the focus will be on reinvigorating the brand, with prize structures redesigned to improve the value of wins to players. This is a long-term strategy for improvement and results should be evident over the next two years.

In addition to these strategies with the various lottery games, we will also be seeking the best possible means of distributing and promoting our products to our players.

While many service industries have reduced their customer service points over the last decade, NSW Lotteries plans to continue to expand its retail presence and channels of distribution to ensure we are meeting the demands of our customers.

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Hopeful punters queue at Shellharbour Square Newsagency to buy a ticket in the $19 million Lotto Superdraw held on 17 September 2005.

Superdraws are a popular feature of Saturday Lotto, offering players the chance to win up to $30 million in six special draws over the year.

(Courtesy of the Illawarra Mercury).

Our Players

PLAYER SERVICES

Objective: To ensure our products and services meet players’ expectations.

Of an adult population of more than fi ve million people in NSW:

• 72% play at least one NSW Lotteries game each year• 43% play at least every month• 27% play every week

Market research shows that these players have a high level of confi dence in our brands and trust NSW Lotteries to deliver quality products and services. This has been achieved through a responsible approach over many years, backed by a strong regulatory framework.

To further guarantee the integrity of our operations, protect players and safeguard their interests, the Corporation introduced a number of enhancements during the year.

Players Club

The Players Club currently has more than 919,000 active members.

During the past year, more than 70% of all entries were made by Players Club members.

A range of benefi ts are offered to players using this service including:

• Immediate notifi cation of major prize wins;• Automatic payment by mail of any prizes not claimed;• Protection for lost tickets, as registered players can have

a “hold” put on the ticket and any prizes won;• “Favourite Picks” option, allowing players to store

favourite numbers on the card;• Ability to change address details using the Corporation’s

Internet site at www.nswlotteries.com.au; and• The added security of being able to register their

purchases in on-line syndicates.

Call Centre

Our telephone Call Centre offers a range of services to retailers and players. These services range from providing technical support to agents on the operation of their selling terminals, telecommunications and product promotions, through to responding to customer enquires about games, winning numbers, promotions and prizes.

During the year, more than 116,000 calls were received from retailers and customers which was 7% below the previous year. The reduced number of calls refl ects a number of improvements in our maintenance and operating procedures such as the introduction of a new

preventative maintenance program for selling terminals, aimed at reducing the number of service calls to agents; and game results being more widely available.

Nearly 95% of all calls to the Call Centre were answered within 30 seconds, exceeding the target of 90% and improving on the 92% achieved in the previous year. In addition, more than 320,000 calls were received via the Interactive Results Service, with fewer than 30,000 calls requiring assistance from Call Centre staff.

Network Syndicates

During this year the Corporation continued to offer “syndicate” entries into large jackpots and Superdraws allowing customers to purchase a share in a high value entry for a small outlay at any agency. This popular service also allows agents to offer shares in large syndicates without having to bear the risk of selling all shares locally.

Network Syndicate entries won in excess of $27.53 million throughout the year. This included 55 lucky players who shared over $22 million in Powerball, and 15 players who shared $1.4 million in Saturday Lotto.

Increased Security for Major Prize Winners

Following an earlier fundamental review of the prize payment system, this year we continued to strengthen controls and reduce business risks associated with the processing of prize claims.

New prize claim procedures have been designed and implemented across the agency network. A number of changes to the Altura selling terminal functionality, which will increase security for major prizewinners and provide better facilities for agents, will be introduced in the fi rst quarter of next fi nancial year.

Customer Privacy

NSW Lotteries recognises that privacy is a paramount concern for its customers, especially major prizewinners. We also recognise that our customer database needs to be protected from any possibility of unauthorised scrutiny and misuse.

Accordingly, we take all possible measures to ensure we protect the private information of our customers and to comply with the Privacy Act 1988. Further information on our Privacy Policy can be obtained by contacting NSW Lotteries or by visiting our website at www.nswlotteries.com.au.

19

20

Customer Satisfaction Survey

Since 1931, the ever changing expectations and opinions of our customers have been the key focus of our business. Player’s needs are the imperatives which establish the future business direction of the Corporation.

In November 2005, our biennial survey of customers was conducted to assess their level of satisfaction with the services provided by our retailers. The survey covered a range of service criteria including store presentation, opening hours, point of sale, results availability and customer service.

Our customers gave the NSW Lotteries agency network an overall satisfaction rating of 93% and this rating was consistent across all demographic categories. Customers specifi cally mentioned attributes such as customer focussed and knowledgeable agency staff, highly visible signage, and reliable equipment and software. In the competitive retail environment, this is an outstanding result which would be envied by many other retail organisations.

ELECTRONIC SERVICE DELIVERY

Website EnhancementsNSW Lotteries continually reviews its website - www.nswlotteries.com.au - to identify better and smarter ways to deliver services to players using the latest technology.

During the year, a range of enhancements were implemented, including:

Results Checking

The huge volume of traffi c to the website means that many players are now using the internet service as their preferred choice for checking their entries. A new page was developed giving the full results of Lucky Lotteries draws on a single page in PDF format within an hour of the draw. This assists players who want to check results this way rather than through the interactive results look-up feature.

The popularity of the website option for checking results, combined with other alternatives, has allowed NSW Lotteries to cease paid publication of results, generating savings of close to $1 million annually while continuing to maintain a high level of service to customers.

In addition, the unclaimed prizes page was revamped to alert players to the time limit on claiming prizes and to assist in navigating the results checking feature.

Player Information

Translations of how to play information in Chinese, Vietnamese and Arabic were provided on the website for the fi rst time to assist players in these language groups.

Odds information for all products was updated to refl ect odds for single games, as well as for the most common entries. This was designed to assist players in making an informed choice when playing.

Following reports of local and overseas players being targeted by international lottery scams – in some cases purporting to be from NSW Lotteries – a prominent warning was placed on the website, with a link to more detailed information available from the NSW Offi ce of Fair Trading.

Website Traffi c increase

The NSW Lotteries website – www.nswlotteries.com.au - is one of the top 10 gaming sites in Australia in terms of the number of user visits.

The website recorded more than 7 million user sessions* during the year, and this represented an increase of just over 50% on the previous year.

As the following table shows, the website has sustained a trend of ever increasing growth rates over the last six years. In later years, the regular addition of new features has had a pronounced impact on the number of user visits.

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Our Players

RESPONSIBLE GAMING

Objective: To be recognised as a Responsible Gaming operator.

One of the Corporation’s key business objectives is to exhibit a sense of social responsibility in the way it offers its games and services to the public. In order to achieve this goal a comprehensive package of responsible gaming measures has been developed and implemented. This covers all key functions associated with how we market, manage and conduct our games.

The NSW Lotteries Responsible Gaming Program comprises a statement of responsible gaming principles, codes of self-regulation, player awareness activity, and a strategy to ensure compliance with responsible gaming regulations in NSW and the ACT.

During the year the Responsible Gaming Program and associated policies were reviewed and updated to ensure the Corporation continues to meet community expectations and regulatory requirements.

Responsible Gaming Principles

As part of the review, the statement of responsible gaming principles was simplifi ed to state clearly that:

• NSW Lotteries recognises the need to address problem gambling and promotes high standards of responsible gaming; and

• Lottery products tend not to be associated with problem behaviour and provide a net social benefi t.

Codes of Self-Regulation

The two self-regulatory codes - the corporate NSW Lotteries Advertising Code of Practice and the national Australian Lotteries Industry Code of Practice were reviewed against the codes of other Australian and international lottery operators, gaming providers, and peak bodies such as the World Lottery Association. While both codes met national and international best practice benchmarks, minor changes were made during the year.

21

Did you know...Lottery proceeds do not go exclusively to hospitals but are used by the NSW Government to meet a wide range of community services.

The ‘NSW Lotteries Advertising Code of Practice’ was redesigned and updated to refl ect the current relevant NSW and ACT regulations, and incorporate enhanced processes for briefi ng relevant external suppliers such as advertising agencies. The ‘Australian Lotteries Industry Code of Practice’ was also updated in consultation with the other Australian lottery jurisdictions to make it more relevant to the current industry environment. Both codes are available in electronic format on the NSW Lotteries website at www.nswlotteries.com.au allowing easy access for players, NSW Lotteries agents, advertising agencies and other relevant suppliers.

Player Awareness Activity and Compliance

The player awareness activity element of the Program gives players information about the odds of winning our various games and outlines how any players experiencing diffi culties can obtain assistance. The Program also seeks to ensure that NSW Lotteries complies with all regulatory requirements in NSW and the ACT.

The review examined all current NSW Lotteries advertising and customer information and found it to comply with the relevant responsible gaming and harm minimisation regulation.

In addition to regular fi eld-based checks, agents are frequently reminded of the important obligation we have to our customers and the need for constant awareness of this important business issue.

Playsmart Brochure

On behalf of the NSW Offi ce of Liquor, Gaming and Racing, NSW Lotteries distributes a Playsmart brochure called ‘…know the odds of your numbers coming up’, which outlines the chances of winning public lotteries. The brochure is made available at NSW Lotteries agencies to assist players to make an informed choice when playing lottery games and was updated in April 2006 to refl ect the Lotto game changes. In addition the brochure was made available on the Corporation’s website – www.nswlotteries.com.au - in 12 different languages.

22

THE RETAIL NETWORK

Objective: To have a retail network that operates effectively and effi ciently and provides quality service to our players.

The Corporation’s products are sold throughout NSW and the ACT through a network of 1,615 agencies, of which 112 sell Instant Scratchies only. The agencies encompass a diverse range of small businesses including newsagencies, pharmacies, service stations, convenience stores, supermarkets, bookstores and video stores.

This year, retailers received $84.7 million from the sale of lottery products, some $5.5 million (or 6.9%) more than the previous year. The commission increases in recent years are even more welcome against the background of the current economic climate, and consequent pressures being experienced by the small business sector.

Developing the Network

During the year, 40 new on-line agencies were appointed in NSW and the ACT, refl ecting the Corporation’s objective of being represented in new retail developments and areas of high population growth.

Agency turnover slowed signifi cantly, with 180 existing agencies changing hands compared to 211 last year.

All new agents receive comprehensive training, not only in the operation of their agency but also to ensure there is a full understanding of their responsibilities under the Public Lotteries Act, the various game rules, and the agency agreement.

This year we commenced using the internet for agent communications, through use of our website for information purposes and increased use of e-mail for electronic newsletters. This allowed for greater business effi ciencies for all parties, as information could be delivered more quickly and cheaply.

Managing Agency Performance

Our network of retailers is supported in the fi eld by a team of 11 Territory Managers who made more than 10,000 visits to agencies during the year.

Territory Managers assist agents to maximise sales and provide quality service to players through negotiated Agency Business Plans. A total of 1,241 agencies (or 77% of the network) were operating on the basis of agreed Business Plans by the end of the year.

Retail Promotional Activity

Promotional activity at the point of sale is a valuable reinforcement of mainstream media advertising. It continues to be an effective way of generating store traffi c, creating excitement for players and increasing sales for the agency network.

During the year, over 1,000 promotions supported major events such as Mother’s Day, Father’s Day, Christmas, Friday 13th, the seven Saturday Lotto Superdraws, and big jackpots in Powerball, OZ Lotto and Lucky Lotteries. These also included internal agency-run promotions, such as second-chance draws.

Our Retailers

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Top Shop Awards

Our Agent Reward and Recognition Program is known as ‘Top Shop’. Now in its ninth year of operation, the program is a key element in our strategy to motivate agent performance and reward excellence in our retail network.

Participation in the scheme is not compulsory. This year, more than 900 agents (or 56% of our total network) voluntarily took up the opportunity to take part in the scheme. It’s easy to see why. Top Shop participants account for 66 cents in every dollar of sales generated by agents, and participants experienced sales growth three times higher than the overall network.

The annual presentation dinner was held at Sydney’s Star City Casino with the theme highlighting NSW Lotteries 75th Anniversary.

The Top Shop program rewards retailers for success. The major award winners this year were:

• Top Shop for 2005/06Walgett Newsagency

• Top Shop Finalists Greenhills Newsagency, East MaitlandNarellan NewsagencyKenthurst Village News

• NSW Lotteries Chairman’s Award Rouse Hill Newsagency

• Merchandising Award Chatham Newsagency

• Top Shop Agency with Highest Percentage Growth ET Petroleum, Liverpool

• Top Shop Agency with Highest Dollar GrowthMitchum Newsagency, Cabramatta

• Top Selling Agency in the NSW Lotteries Retail Network Eastgardens Newsagency

• Top Shop Agency Co-ordinatorMaria Colla, Centretown Newsagency, Wollongong

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Our Retailers

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Our Retailers

AGENCY SERVICES

Retail Training

Like other modern forms of entertainment, the gaming and wagering industry continues to experience rapid technological change, which has resulted in better-informed and more demanding customers. To meet the challenges of this competitive environment, effective training and development of retailers and their staff is critical to their sales success.

A major initiative this year was the introduction of a new Dedicated Training System at our Head Offi ce Training Centre. This is an enhanced platform for agent training which ensures training software is continually updated to refl ect the most current live system software.

The new system has been extremely well received by training participants as it allows them to encounter real-life agency system issues in a safe training environment.

As part of the training offered by the Corporation, over 1,036 people from 587 agencies were trained during the year. The courses are designed to give retailers all the knowledge they need to operate a successful lottery outlet and include:

• A comprehensive four-day Lottery Management Course for new agents;

• A half-day Instant Lottery Management Course for Instant Scratchie agents; and

• A Terminal Operations Course for agency staff.

Other training courses available to agents include:

• Agency business administration;• Instant Scratchie administration and reconciliation;• Product knowledge; and • Responsible Gambling education (including specialised

training for our ACT agents and staff in the separate regulations in force in that jurisdiction).

We also continued to offer “High Performance Selling” seminars that provide agents and staff with a multitude of practical tips to help build their sales.

Retail Image

It goes without saying that the way products are presented at point of purchase has a signifi cant infl uence on the level of sales. In keeping with current retail trends, NSW Lotteries encourages agents to provide an easily identifi able dedicated area that differentiates the lottery selling area from the remainder of the business. This image promotes the concept of a “shop within a shop” which is well organised and invites players to try their luck.

By the end of the year, over 1,100 agencies had installed the latest retail image, showcasing the Corporation’s games and creating a visual link to our product advertising.

Lidcombe Distribution Centre

Our Distribution Centre plays a major role in ensuring a high level of support is provided to retailers. The Centre supplies all the consumables necessary to support the sale of our products at point of sale. These include items such as entry forms, bet receipts, promotional stationery and Instant Scratchie tickets. Other activity includes the distribution of prize cheques and free tickets to customers.

Following on from last year’s major review of warehousing and distribution systems, a major logistical and equipment upgrade was put into effect this year. A range of benefi ts fl owed from the changes including improved stock control, reduced order fulfi lment times and manual-handling activities. Stock overheads were also reduced, and improved Occupational Health and Safety practices resulted in a 100% reduction in injuries and Workers’ Compensation claims compared to the previous year.

Consumable items distributed during the year included:

• 34.5 million entry forms. This was double the amount distributed in the previous year due to the replacement of all entry form stock in September 2005;

• 20,000 kilometres of roll stock, which is used in the agency selling terminals;

• 1.08 million books of Instant Scratchie tickets; and• 650,000 Players Club applications.

Proprietors of Walgett Newsagency, Linda and Gavin Schmetzer,

celebrate their success as the Top Shop for 2005/06.

Agency Satisfaction Survey

In order to succeed in our business, we must have an effective working relationship with our retailers, that encourages them to promote sales and provide excellent service to players.

In May this year, our annual survey of Agents was undertaken to assess the level of retailer satisfaction with the services provided by NSW Lotteries. Once again this year we were able to attain a satisfaction rating of 95%. The survey covered services offered by our Call Centre, Distribution Centre, Retail Trainers, Territory Managers, couriers and terminal maintenance engineers.

These extremely positive results refl ect the signifi cant investment in staff training and ongoing improvements to our business processes over past years. As always, the survey also identifi ed some areas of opportunity for us to further improve our service levels.

25

OZ Lotto hit the streets to promote the massive $20 million jackpot in

June 2006.

Postcode 2166 - Lansvale, Cabramatta and Canley Heights in Sydney - proved to be the luckiest across the State for the fi nancial year. Prizes included

a single win of $12.275 million in the $2 Jackpot Lottery on 31 August 2005, sold by Canley Vale Newsagency. (Courtesy of the Fairfi eld Advance).

26

Objective: To ensure the continuity of core business activities.

Given the Corporation’s reliance on technology for its business success, it goes without saying that we must keep abreast of new technology and how it can be used to deliver smarter and more effi cient outcomes for customers.

Each year the Corporation develops an Information Technology Strategic Plan that provides strategies, actions and goals to achieve our primary aim of ensuring the continuity of our core business activities and maintaining service to customers.

THE GAMING SYSTEM

Performance

NSW Lotteries’ on-line gaming system continued to provide high levels of service, with 99.99% selling system uptime during selling hours against a target of 99.99%. The telecommunications network that links the on-line agencies also achieved target, with 99.96% availability.

We processed more than 307 million transactions through the on-line gaming system during the year, with a peak of 2,113,903 transactions processed during the day of 23 December 2005.

Enhancements

Throughout the year incremental improvements to our systems were made through a series of regular software releases designed to improve business performance and service to players and agents. Seventeen software releases provided a range of system and game improvements for both agents and players. Improvements were made to Saturday Lotto, OZ Lotto and the $5 Jackpot Lottery.

In addition, in April 2006, the Monday/Wednesday Lotto game was modifi ed to become a multi-State game (extending availability of the NSW game to include South Australia and Western Australia) increasing the prize pool and presenting a more attractive prize structure.

Staffi ng Resources

In order to ensure that NSW Lotteries has the right mix of skills to meet the challenges of the next three to fi ve years a structural review of the Information Technology Services Division was conducted.

This has resulted in the acquisition of greater expertise in data management and on-line technology, further facilitating our capacity for automated information exchange with staff, agents and customers.

Our Business

75

OTHER BUSINESS SYSTEMS

New Financial Management Information System

On 1 July 2006 a new Financial Management Information System was cutover into live production using the ACCPAC Advantage suite of accounting modules with no impact on production of year-end accounts.

Implementation was achieved transparently through extensive confi guration and testing of the software package from March 2006, followed by parallel running of the existing and replacement systems from May.

The new Windows–based system is designed to reduce input time and provide fl exible reporting options for both internal and external reporting needs. The product is well supported internationally and has the capacity to grow in line with the changing structure and business needs of NSW Lotteries well into the future.

BUSINESS CONTINUITY

The NSW Lotteries Business Continuity Plan focuses on ensuring the Corporation is as prepared as possible and can restore operations with a minimum of downtime in the event of an unforeseen problem, whether a major disaster or minor outage. The Information Technology component of the overall plan provides procedures to manage a serious, unplanned disruption to information technology processing at the corporate data centre, including restoration of the gaming system operations at the Corporation’s off-site backup data centre, if required.

The contingency processing capability was successfully tested in November 2005 when a major test was carried out involving switching our information technology processing from the primary computer site to our back-up site.

In addition, a review of Business Continuity arrangements for all Corporate Information Technology systems was completed during the year and the existing arrangements were judged to be appropriate to the Corporation’s business needs.

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Our Business

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Objective: To ensure our workforce is able to respond to future business needs.

WORKING ENVIRONMENT

Workforce Planning

Last year saw the introduction of our newly developed Workforce Plan. The plan aims to address the problems associated with retaining and developing talent in the face of rapid technological change and an ageing workforce. It covers a rolling three-year period and identifi es and addresses a number of strategic staffi ng issues, which face NSW Lotteries now and in the future.

One such issue is the potential loss of specialist and technical knowledge due to retirement and attrition. In response we have continued the refi nement of our succession planning for key positions within the organisation. Our broad approach has been to identify those positions, which are critical to our business operations. Each of those positions was then analysed to determine whether potential internal candidates currently exist or whether potential staff, with appropriate development, could match the individual job requirement.

The identifi cation of potential replacements in advance allows time to develop an individual’s readiness for a new role. It also provides a sound basis for the allocation of training and development expenditure according to defi ned and measurable criteria.

Our Staff

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75

OH&S Statistical Report 2001/02 2002/03 2003/04 2004/05 2005/06

Average number of employees 201 195 183 176 172

Total number of work injuries 23 29 15 28 22

Actual expenditure on OH&S programs ($) 31,085 21,907 13,523 25,567 15,926

Total number of Workers’ Compensation Claims 7 12 10 14 7

Total number of employees who participated in - 3 1 1 2a rehabilitation program

Number of hours in training in OH&S 541 280 150 203 91

Number of OH&S representatives - 8 8 7 6

Number of OH&S committees 2 2 2 2 1

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Our Staff

WorkChoices

Under the WorkChoices industrial relations changes, NSW Lotteries, as a State Owned Corporation, has been moved under the umbrella of the Australian Federal Industrial Relations System. This change would have a number of consequences for the Corporation’s industrial relations environment. The permanency of this arrangement is dependent on the outcome of the challenge to WorkChoices by unions and State and Territory Governments in the High Court of Australia. No matter what the outcome, NSW Lotteries is committed to ensuring our employees are treated fairly and that the organisation remains competitive in the employment market place.

Occupational Health And Safety

The health and welfare of our staff is an important consideration for NSW Lotteries. The Occupational Health and Safety Committee meets quarterly with both staff and management representatives working together to identify and eliminate any issues which could jeopardise the well being of employees.

A number of initiatives such as infl uenza vaccinations, “Healthy Heart” screens, “Quit for Life” smoking programs and ergonomic workplace assessments have been implemented to help improve the health of our staff.

Key OH&S performance statistics are as follows:

Leadership Development

NSW Lotteries continued its program of developing line managers and supervisors with a series of Managers Forums. These sessions provide an opportunity for attendees to learn about contemporary management practices and their application to their own workplaces. Based on feedback from attendees, the sessions were well received and topics covered this year included:

• Coaching for Performance;• Emotional Intelligence;• Performance Management and Administration of

Sick Leave;• Managing Creativity and Innovation; and• Giving and Receiving Feedback.

Training and Development

As part of the development of each of our employees, a co-ordinated Staff Performance Development Program identifi es individual training needs and delivers programs to meet particular development requirements. During the year, 84 employees were involved in training programs involving internal or external courses, seminars and on-the-job training. The aim of these activities was to provide staff with the skills and focus to seek to improve services and products for our customers

30

Human Resources Statistical Report

June June June June June 2002 2003 2004 2005 2006

Executive1 6* 6* 6* 6* 6*

Senior Specialist 7 7 7 7 5Managers

Administrative Staff 172 168 156 149 148

Distribution Offi cers 15 14 11 11 11

1 Number of executive offi cers paid the equivalent of SES Level 1 or above*Includes one female

Did you know...Almost the entire cost of constructing the Sydney Opera House (approximately $105 million) was raised from the proceeds of special Opera House Lotteries.

External Study Assistance

The Corporation provides fi nancial support to assist staff to obtain academic qualifi cations in disciplines which are relevant to the Corporation’s business needs. This year, eight staff members took advantage of the package of support available under the External Study Assistance Program.

Under the Scheme, the employees were provided with fi nancial assistance and study leave to undertake eligible courses relevant to the Corporation’s needs. Employees from the areas of Finance, Marketing, Information Technology and Corporate Services were given an opportunity to enhance their skills and knowledge through the program.

Employee Reward and Recognition

NSW Lotteries recognises outstanding service and initiatives of individuals through its Employee Reward and Recognition Program, which provides a formal framework for recognition of employees at all levels.

Many nominations were received throughout the year with seven employees receiving Awards in either one of the four categories, Achievement, Innovation, Quality and Customer Service. Awards range from Certifi cates of Merit to cash prizes and each recipient is publicly acclaimed at an awards ceremony.

The Employee Reward and Recognition Program culminates in the Employee of the Year Award. The Award is based on recognising outstanding individual performance or major contribution to the Corporation’s performance during the year. By publicly acknowledging and generously rewarding exceptional work, we aim to reinforce the value of good performance to the organisation.

Our Staff

31

Our longest serving employee, Viv Brownlie

(far right) celebrates 50 years of service with

NSW Lotteries.

Staff who received Long Service Awards this year were (from left to right):

Christopher Patterson, John Reynolds, Richard Porteous, Jacinta

Tempest and Doreen O’Grady. Unfortunately, Beth Sponberg is missing

from the photo.

The 2005 Employee of the Year Award was presented to Gai Swords, Lotto Product Manager, at a ceremony held in December 2005. Gai (see photo on page 28) was recognised for consistently exceeding expectations in terms of the quality of her work, her commitment to the organisation and for consistently looking for a “better way” to achieve goals.

These behaviours and attitudes are highly valued by the organisation and Gai is a good role model for her co-workers.

Long Service Awards

In December 2005, six long serving employees were recognised and presented with a gift in appreciation for their contributions and service to NSW Lotteries. Doreen O’Grady reached 40 years service, whilst Jacinta Tempest, Chris Patterson, Beth Sponberg, Richard Porteous and John Reynolds all celebrated 25 years of dedicated service.

It is also appropriate to record the wonderful achievement of one very special member of our staff, Viv Brownlie, who began work with NSW Lotteries in April 1956 and passed a momentous milestone in April this year. She has provided 50 years of loyal service to her many customers and the Corporation. Her conscientious and loyal service provide a wonderful example for all of her work colleagues.

University Scholarship Program

In early 2005, NSW Lotteries joined the University of NSW Co-Op Program. This is a scholarship program that provides industry training to exceptional undergraduate students. Scholars undertake structured industrial training placements each year, of approximately six months duration. We now have our second student undertaking industrial training within the Corporation’s Marketing and Sales Division. A scholarship will be provided for the duration of the four-year program.

32

Objective: To increase long-term Shareholder Value by improved business performance.

NSW Lotteries is a major commercial enterprise and as a State Owned Corporation contributes to the community by maximising the return to our owner - the NSW Government. Since its inception in 1931, almost $7 billion in revenue has been raised to assist the Government of the day provide a wide range of facilities and services to the community.

Record sales again this year of $1,133 million allowed NSW Lotteries to distribute more than $381 million in revenue from lottery duty, income tax equivalent, GST and dividends for the benefi t of NSW residents.

As well as generating sales, the Corporation continues to focus on identifying potential areas where business effi ciencies can be made to reduce costs without impacting sales or customer service levels. As a result of this strategy, the Corporation was able to achieve a record profi t of $49.1 million (from continuing operations before signifi cant item and income tax equivalent expense). This resulted in returns on average shareholders’ equity and corporate assets, of 104.3% and 46.5% respectively.

A summary of the outcomes achieved this year against the annual targets negotiated with our Shareholder Ministers is shown on page 2 of this report.

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$49.1 mA record profit of

Our Shareholders

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MANAGEMENT STRUCTURE

• Business Planning

• Human Resources

• Property Management

• Support Services

• Executive Support

• Customer Service

• Agency Appointment

and Review

• Prize Payments

• Player Registration

• Call Centre

• Lotto/Lottery Draws

• Warehousing and

Distribution

• Corporate Retail Sales

• Company Secretary

• Financial Planning

& Budgeting

• Funds Management

• Financial Reporting

• Retailer Accounting

• Audit and Risk

Management

• IT Strategic Planning

• Gaming Systems

• Corporate Systems

• Operations & Support

• Telecommunications

• Product Management

• Communications

and Public Relations

• Sales

• Business

Development

• Retail Network

Training

Board

Chief Executive Offi cer Board Committees

Operational Divisions

CorporateServices

Customer & Agency Services

FinanceInformation Technology

Services

Marketing & Sales

Audit and Governance Committee

Human Resources & Remuneration Committee

Information Technology Committee

33

Our Shareholders

34

Our Shareholders

CORPORATE GOVERNANCE

Earning the trust of players is a fundamental necessity for any successful lottery. NSW Lotteries operates within a strict framework of regulation and corporate governance processes to ensure that its reputation for honesty and integrity is maintained at all costs.

Corporate governance embodies the policies and procedures by which a business is directed and controlled. Our corporate governance structure specifi es the distribution of rights and responsibilities among our different stakeholders, including the Shareholders and the Regulator, Board, Executive Management and employees within the Corporation. It also clearly documents the framework for decision-making.

NSW Lotteries is a State Owned Corporation, established under the provisions of the NSW Lotteries Corporatisation Act 1996. The Corporation is licensed by the NSW Government to sell lottery games under the Public Lotteries Act 1996. The licences are due for renewal on 1 July 2007.

The Corporation’s key stakeholders are:

• Two Shareholder Ministers, The Hon. John Della Bosca, MLC, Minister for Commerce, Minister for Finance, Minister for Industrial Relations, Minister for Ageing and Minister for Disability Services and The Hon. Michael Costa, MLC, Treasurer, Minister for Infrastructure, and Minister for the Hunter. These Ministers represent the NSW Government and are responsible for protecting the interests of the Government;

• The Portfolio Minister, The Hon. Grant McBride, MP, Minister for Gaming and Racing, who is responsible for establishing and managing the regulatory framework governing the Corporation’s lottery activities; and

• The NSW Treasury, which reviews corporate performance on behalf of the Shareholder Ministers.

The separation of the Shareholder Ministers’ role from that of the Regulator is a key pillar of the Corporatisation model adopted in NSW. It is intended to provide clear lines of accountability for the Corporation’s commercial performance. Representatives of the NSW Lotteries Board meet regularly with the Shareholder and Portfolio Ministers to discuss the Corporation’s performance and any other signifi cant business issues which may arise during the course of the year.

Role Of The NSW Lotteries Board

The NSW Lotteries Board is accountable to the Shareholder Ministers and has been established to provide leadership, direction and oversight to the Corporation. There are six non-executive Directors on the Board who are appointed by the Shareholder Ministers. The non-executive Directors appoint the Chief Executive Offi cer, also a member of the Board, after consultation with the Shareholder Ministers.

The Board’s corporate governance functions include:

• Providing strategic direction;

• Validating, approving and monitoring strategic issues;

• Determining key policies which impact on the Corporation’s activities;

• Approving strategic alliances;

• Approving major capital expenditure;

• Monitoring organisational performance against targets;

• Liaising with the Shareholder Ministers and the Portfolio Minister;

• Ensuring compliance with statutory, fi nancial and social responsibilities;

• Ensuring compliance with relevant Government policies; and

• Ensuring business risks are appropriately identifi ed and managed.

Composition Of The Board

The enabling legislation provides that the Board of NSW Lotteries shall consist of:

• The Chief Executive Offi cer;

• One Director to be appointed by the Shareholder Ministers on the recommendation of a selection committee comprising:

i. Two persons nominated by the Portfolio Minister; and

ii. Two persons nominated by Unions NSW.

This Director is selected by the committee from three persons nominated by Unions NSW; and

• At least two and not more than fi ve other Directors to be appointed by the Shareholder Ministers at their discretion.

Each Director, with the exception of the Chief Executive Offi cer, may be appointed to hold offi ce for a period not exceeding fi ve years, renewable at the sole discretion of the Shareholder Ministers. Their level of remuneration

is determined by these Ministers. The Chief Executive Offi cer does not receive any additional remuneration for his role as a Director.

NSW Lotteries maintains Directors’ and Offi cers’ liability insurance which extends to cover Directors and offi cers of NSW Lotteries. This coverage does not extend to deliberate acts of fraud or dishonesty.

NSW Lotteries is fortunate to be able to draw on a wide range of skills and depth of experience in its current Board, with members from diverse industries, including lotteries, wagering, media, publishing, fi nance and politics.

As at 30 June 2006, the Board members were: John Bagshaw (Chairman); Bonita Boezeman (Deputy Chairman); Milton Cockburn; Michael Howell (Chief Executive Offi cer); John Johnson; Denis McCormack; and Suzanne Walsh. The Board members are profi led on pages 37 and 38.

Board Responsibilities

The Board is accountable for the overall direction and performance of the Corporation. The Chief Executive Offi cer is responsible for the day-to-day management of the business in accordance with the directions and policies of the Board.

Board members have signifi cant responsibilities and duties as Directors, with further obligations imposed on them by the State Owned Corporations Act 1989.

A Code of Conduct for the Board has been developed and distributed to all members to ensure that their duties and responsibilities are known and understood.

Board’s Operating Framework

The Board has established a basic framework to ensure the effi cient and effective management of the Corporation’s commercial activities. Key features of the framework are:

• Active involvement in strategic planning for the Corporation;

• Regular monitoring and reviewing of all major areas of the Corporation’s performance; and

• Sharing the individual skills of Directors in important areas of the business by participation in Board Committees.

The Board approves all tenders and items of capital expenditure exceeding $150,000 as well as annual budgets, overseas travel, new products, Business Plans and the Annual Report (including Financial Report).

Board Meetings

Normal meetings of the Board are held at monthly intervals but additional meetings may be held to discuss matters of an urgent or signifi cant nature. During the year 11 monthly Board meetings were held, with the following attendance:

John Bagshaw 11

Bonita Boezeman 11

Milton Cockburn 11

Michael Howell 11

John Johnson 9

Denis McCormack 11

Suzanne Walsh 10

Board Committees

The Board has established three standing Committees, each with its own documented charter, to assist in the good governance of the Corporation and to facilitate detailed consideration of major issues and provide advice on sensitive matters. These Committees allow for more detailed consideration of issues than would be possible within the time constraints of normal monthly Board meetings. The role and composition of the Committees are examined regularly, as part of the annual review of Board performance, and varied to meet the changing needs of the Corporation. The three Committees are:

Audit and Governance Committee

The Audit and Governance Committee assists the Board in discharging its responsibilities with regard to risk management, statutory fi nancial reporting and corporate governance. The Committee:

• Considers the draft internal audit plan and makes appropriate recommendations to the Board;

• Reviews the adequacy of management’s responses and actions to matters raised in internal and external audit reports;

• Evaluates the process in place for assessing the effectiveness of internal controls;

• Annually considers the adequacy of the Corporation’s Business Continuity Plan, assessments of business risks and insurance coverage and advises the Board;

• Reviews statutory fi nancial information proposed by management for submission through the Board to the Shareholder Ministers; and

• Alerts the Board to any signifi cant corporate governance issues.

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36

Our Shareholders

During the year the Committee, amongst other matters, reviewed the Corporation’s risk management program, considered a number of operational policies referred by the Board, monitored progress against the internal audit plan, examined reports received from the internal and external auditors and evaluated management’s responses to, and actions upon, the matters raised.

The Committee comprises:

Bonita Boezeman (Chairman);

Milton Cockburn;

John Johnson; and

Suzanne Walsh.

The Chief Executive Offi cer, while not a member of the Committee, attends meetings when invited to do so by the Committee.

Information Technology Committee

The Information Technology Committee is responsible for assisting the Board to oversee the use of information technology within the Corporation. The Committee:

• Monitors the development and implementation of the Corporation’s Information Technology Strategic Plan;

• Provides advice to the Board on all matters associated with the current use of information technology by NSW Lotteries;

• Evaluates risk management strategies designed to minimise interruption to on-line selling activities; and

• Monitors new and emerging information technology opportunities and risks.

During the year the Committee focussed mainly on the performance of the Gaming System and on-going software enhancements. The Information Technology Strategic Plan was reviewed regularly against milestones and there was a continued focus on emerging technologies.


Denis McCormack (Chairman);

John Bagshaw;

Michael Howell; and

Suzanne Walsh.

Human Resources and Remuneration Committee

The Human Resources and Remuneration Committee assists the Board in dealing with major human resource and remuneration matters affecting the Corporation. The Committee:

• Provides advice to the Board regarding the selection and terms and conditions of employment of the Chief Executive Offi cer;

• Annually reviews the remuneration of the Chief Executive Offi cer and makes recommendations to the Board;

• Provides advice to the Board on a framework or broad policy for the remuneration and employment conditions of senior executives; and

• Considers any succession planning issues relating to the Chief Executive Offi cer and reports to the Board.

During the year the Committee reviewed a range of matters including executive contracts, succession planning and workforce planning.


John Bagshaw (Chairman);

Bonita Boezeman;

Milton Cockburn; and

Michael Howell.

Marketing Committee

During the year, following a review of Board governance arrangements, the Board’s Marketing Committee was abolished.

Monitoring Performance

NSW Lotteries has a series of operational performance indicators which are subject to monitoring and report at each Board meeting. These include:

• Progress on strategic action plans;• Sales; • Operating revenue, expenses and profi t;• Duty to Government; and • Selling system uptime.

Each quarter the Board also receives detailed reports on progress towards the achievement of Business Plan targets, strategies, Divisional action plans, and product profi tability.

Annual Review Of Board Performance

As part of a philosophy of continuous improvement, an evaluation of the performance of the Board, its committees and the individual members is undertaken each year. The purpose of the review is to identify any areas where improvement can be made. During the process, direct feedback is obtained from each Board member and executive manager by way of questionnaire.

John Bagshaw BSc, FAICDChairman

John is the inaugural Chairman of the corporatised Board of NSW Lotteries and a founding member of the fi rst Board established in 1991. He was formerly Chairman and Chief Executive of Bell and Howell Australia Group Limited and has 33 years Board experience primarily in gaming, computer technology and technology related fi elds. John is a commercial breeder of standardbred horses and is currently Chairman of the Australian Harness Racing Council. He previously served as a Director of NSW Harness Racing Club Ltd.

Bonita Boezeman AO PMD Harvard, FAMI, FAICDDeputy Chairman

Appointed March 1994. Currently Managing Director of Business Benefi ts International, Bonita was formerly an international executive with Time Warner Inc. for 23 years and was Chairperson and Chief Executive Offi cer of Time Life (Australia) Pty. Ltd. for 13 years. A graduate of the Harvard Business School Executive Program in 1987, Bonita has an extensive background in marketing and fi nancial management. She is currently a Director of the Sydney Harbour Foreshore Authority, Chairman of PayPal, a subsidiary of eBay, Chairman of the Catholic Development Fund, member of The Order of Australia Foundation Board, member of the Corporate Olympic Committee and Chair of the East West Foundation. Bonita has been awarded the Order of Australia and the Centenary Medal for signifi cant contributions to business and philanthropy.

Michael Howell Dip Tech (Comm), CPA, MAICDChief Executive Offi cer

Appointed Chief Executive Offi cer of the Corporation in 1997 after seven years as General Manager of NSW Lotteries. Michael was a founding member of the Board and has over 30 years experience in commerce and public sector fi nance. He has worked in the lottery industry for many years and has acted as an adviser to a number of overseas Governments on the introduction of various lottery games. He is Chairman of the National Lotto Bloc and a member of CPA Australia and the Australian Institute of Company Directors.

Milton Cockburn B.Com (Hons)

Appointed February 2005. Milton has been Executive Director of the Shopping Centre Council of Australia since April 2001. He was a journalist for 16 years with The Sydney Morning Herald, in Sydney and in Canberra, and is a former Editor of that newspaper. He was also General Manager Media of the Sydney Organising Committee for the Olympic Games (SOCOG) and, subsequently, an adviser to the Beijing 2008 Olympic Games Bid. Milton is also a former director of the University of NSW Press and a former member of the Australia Abroad Council.

THE BOARD OF DIRECTORS

37

38

Our Shareholders

John Johnson K.C.S.G.

Appointed April 2002. John has a background in retail, which led to an extensive involvement in the union movement where he held numerous offi cial positions. He served as a member of the Parliament of NSW for 26 years and was President of the Legislative Council for 13 years. During his time in Parliament John sat on a range of Parliamentary Committees and retired from Parliament in 2001. John is a former director of Prince Henry and Prince of Wales Hospital Group and was former Guildmaster of the Catholic Evidence Guild. He is Treasurer and a Board member of the Randwick Labor Club and was appointed in 2003 and re-appointed in June 2005 as Chairman of the Board of The Catholic Press Newspaper Company Pty. Ltd.

Denis McCormack FAMI, FAIA, AIFS, MACUI

Appointed January 1997. Denis is Managing Director of Southside Six Pty. Ltd. which is a marketing consultancy servicing various fi nancial institutions, retailers and manufacturers. His career in marketing and related fi elds spans 40 years. A former advertising agency director, he joined St.George Building Society in 1973 and as Chief General Manager – Marketing and played an important role in that organisation’s successful conversion to St.George Bank Ltd. in 1992. Denis was appointed Deputy Chairman of the Lotto Board of Control in the 1980s and he is also a former Director of the Sydney Festival and IOOF Building Society (Victoria).

Suzanne Walsh

Appointed July 2000. Sue is the Unions NSW representative on the Board. She is President of the Public Service Association of NSW, the union representing State Public Sector employees with 47,000 members, covering a wide range of Government departments, corporations and trading enterprises. Sue was elected as Director of SGE Credit Union in November 2000 and is on the Executive of Unions NSW. Sue is committed to supporting community organisations and is a Director of the Bowlers’ Club of NSW. In addition, Sue is a Federal Councillor on the State Public Service Federation, which is part of the Community and Public Sector Union with 180,000 members nationwide. She also represents NSW on a Federal Education Industry Committee.

THE BOARD OF DIRECTORS

His current directorships include Fantastic Holdings Ltd., the Lansdowne Club (Ireland-Australia Business Network) and Sutherland Credit Union Ltd. Denis is also a member of various community and charity committees.

THE EXECUTIVE MANAGEMENT TEAM The Corporation’s Chief Executive Offi cer, Michael Howell (see profi le at page 37) heads the executive management team and is supported by the following executive directors:

Susan Browne B. Comm, CA.Director Corporate Services

Appointed to position December 2000

Martin Cassidy BSc (Hons), MBADirector Information Technology Services

Appointed to position January 2002

Brian McIntyre MComm, FCA, MAICDDirector Finance

Appointed to position November 1994

Nick Nichles B. Bus, Grad.Dip.Mktg.Director Marketing and Sales

Appointed to position June 2005

Chris Patterson Dip Tech (Comm)Director Customer and Agency Services

Appointed to position May 2000

39

40

RISK MANAGEMENT

Although NSW Lotteries is in the business of chance, every effort is made to identify and manage risk so as to ensure the continued success and integrity of its business activities.

A signifi cant element in the effective management of the Corporation’s resources is regular scanning of the operating environment to identify major risks. Each area of risk is then assessed and prioritised according to its likelihood of occurrence and the signifi cance of its impact. In turn, risk management procedures are reviewed and relevant strategies implemented to manage each area of risk.

Our Risk Management Program is based on AS/NZS 4360:2004 and focuses on mitigation strategies as well as the transfer of risk. The Program covers all key areas of the Corporation’s activities including:

• Internal Audit Activities;

• Fraud Prevention;

• Anti-Corruption Activities;

• Governance;

• Business Continuity;

• Insurance;

• Legislative Compliance;

• Investigations;

• Asset Management and Security;

• Information and Intellectual Property Security; and

• Privacy, Information Disclosure and Freedom of Information.

INSURANCE

Insurance is one of the tools used by the Corporation to manage and mitigate areas of assessed risk. As part of its overall approach to manage and mitigate risk, the Corporation regularly reviews the type and extent of its insurance coverage.

All key insurance risks, including Worker’s Compensation, Property and Consequential Loss, Motor Vehicle, Public Liability and Directors’ and Offi cers’ Liability are reviewed at least annually.

REVIEWS

Review Of Income Tax Obligations

As a State Owned Corporation, NSW Lotteries is subject to the National Tax Equivalent Regime which is administered by the Australian Taxation Offi ce (ATO). During the year the ATO conducted and completed a review of the Corporation’s 2002 to 2004 tax returns to ensure that NSW Lotteries had complied with appropriate income tax legislation.

The review concluded that the Corporation had complied with ATO requirements in all aspects of the applicable legislation and would receive a positive report. This is the second successful review outcome received by the Corporation from the ATO, the fi rst relating to an audit of the Corporation’s collection and payment of the Goods & Services Tax during 2004.

MANAGING RESOURCES

Energy Management Policy

The Corporation aims to reduce energy use and greenhouse emissions through its Energy Management Policy, which is based on the NSW Government’s policy and world’s best benchmarks.

We continued to purchase an energy mix containing 6% Greenpower, which is a practical initiative to reduce greenhouse emissions by using energy generated through alternative power sources such as solar and wind power.

Energy consumption is monitored on an ongoing basis and initiatives to reduce consumption levels include modifi cations to the general lighting circuits at the Homebush Bay premises. This initiative is expected to achieve up to a 25% reduction in energy consumption for general lighting as well as a reduction in CO2 emissions.

Energy effi cient products and equipment are purchased and installed with power save modes enabled where applicable.

In addition, the motor vehicle pool fl eet has been reduced and smaller and more economical vehicles are being purchased as part of the Corporation’s plan to provide a cleaner vehicle fl eet.

Waste Reduction And Purchasing Policy

During the year, the Corporation continued to implement strategies and initiatives aimed at reducing waste in line with the NSW Government’s Waste Reduction and Purchasing Policy (WRAPP).

Our Shareholders

This included:

• Expanding the use of e-mail for internal and external communication;

• Creating electronic templates for forms and making them available electronically rather than in hard copy format; and

• Printing double-sided documents.

Waste is reused and recycled wherever possible, including an extensive recycling plan for paper and cardboard, and collection by Planet Ark of all toner cartridges. Arrangements are also in place for the recycling of unserviceable offi ce equipment and furniture. The

purchase of cost effective recycled content material is encouraged through the Corporation’s purchasing policy by:

• Purchasing goods and services, which favour environmentally friendly standards;

• Encouraging the purchase of multi-functional offi ce equipment; and

• Purchasing stationery items, such as copy paper and envelopes, with recycled content.

Excess vegetation generated from the maintenance of the Homebush Bay site is removed, mulched, and reused by the landscaping contractor.

41

Syndicates were hugely successful over the year. In May 2006, Moss Vale Newsagency celebrated selling a share in a

network wide Powerball syndicate which won $22 million, netting a local player $404,583.48. He was one of 55 lucky

syndicate members. (Courtesy of the Southern Highlands News).

Financial Report

For the year ended 30 June 2006

Contents Page Statement by Board of Directors 43

Independent Audit Report 43

Income Statement 44

Balance Sheet 45

Cash Flow Statement 46

Statement of Changes in Equity 47

Notes to the Financial Statements 48

Note

1 Statement of Significant Accounting Policies 48

2 Other Revenues 53

3 Profit from Continuing Operations 53

4 Taxation 53

5 Cash and Cash Equivalent Assets 54

6 Other Financial Assets 54

7 Financial Instruments 55

8 Property, Plant and Equipment 56

9 Intangible Assets 57

10 Other Non-Current Asset 57

11 Payables 60

12 Provisions 60

13 Contributed Equity 60

14 Reserve 61

15 Retained Profits 61

16 NSW Government Dividends 61

17 Employee Benefits 61

18 Related Parties 61

19 Auditors’ remuneration 62

20 Commitments not provided for in the Financial Statements 62

21 Contingent Liabilities 62

22 Contingent Assets 62

23 Segment Reporting 62

42

43

In accordance with a resolution of the Directors of New South Wales Lotteries

Corporation and pursuant to Section 41C (1B) and (1C) of the Public Finance and

Audit Act 1983, we state that:

1 The attached is a general purpose Financial Report and presents a true and

fair view of the financial position of NSW Lotteries Corporation at 30 June

2006 and the results of its financial performance and transactions for the year

then ended;

2 The Financial Report has been prepared in accordance with the provisions of

the Public Finance and Audit Act 1983 and the Public Finance and Audit Act

Regulation 2005;

3 The Financial Report has been prepared in accordance with Australian

Accounting Standards, Urgent Issues Group Interpretations and authoritative

pronouncements of the Australian Accounting Standards Board;

4 We are not aware of any circumstances which would render any particulars

included in the Financial Report to be misleading or inaccurate; and

5 There are reasonable grounds to believe that NSW Lotteries Corporation will

be able to pay its debts as and when they fall due.

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

Dated at Sydney this Twenty First day of September 2006.

J R Bagshaw M A HowellChair Director and Chief Executive Officer

Statement by Board of Directors

Independent Audit Report

44

Income Statement


2006 2005 Notes $’000 $’000

Continuing Operations

Revenues Product Sales 1(b) 1,169,949 1,148,361

Cost of Sales 3(b) (1,068,046) (1,047,561)

Gross Profit 101,903 100,800

Other Revenues 2, 3(a) 26,572 23,733

Total Revenues from continuing operations 128,475 124,533

Expenses Retail Network (34,781) (34,142)

Printing & Distribution (6,287) (5,745)

Administration (32,150) (32,016)

Total Expenses from continuing operations 3(b) (73,218) (71,903)

Profit from continuing operations before income tax equivalent expense 55,257 52,630

Less Income tax equivalent expense 4(a) (16,688) (14,524)

Profit attributable to equity holders 38,569 38,106

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

45

Balance Sheet

As at 30 June 2006

2006 2005 Notes $’000 $’000

Current Assets Cash and Cash Equivalent Assets 5 187,285 171,385

Other Financial Assets 6 2,846 2,567

Trade Receivables 12,276 6,380

Other Current Assets 239 329

Total Current Assets 202,646 180,661

Non - Current Assets Other Receivables 2,073 2,073 Other Financial Assets 6 17,681 17,896

Property, Plant and Equipment 8 27,654 28,280

Intangible Assets 9 8,170 9,343

Deferred Tax Assets 4(d) 11,317 7,566

Other Non - Current Asset 10 5,126 -

Total Non - Current Assets 72,021 65,158

Total Assets 274,667 245,819

Current Liabilities Trade and Other Payables 11 107,928 93,850 Current Tax Liability 4(b) 9,260 4,519

Provisions 12 81,441 80,512

Total Current Liabilities 198,629 178,881

Non - Current Liabilities Other Liabilities 11 17,681 17,896 Deferred Tax Liabilities 4(c) 3,910 2,402

Provisions 12,10 940 1,569

Total Non - Current Liabilities 22,531 21,867

Total Liabilities 221,160 200,748

Net Assets 53,507 45,071

Equity Contributed Equity 13 - -

Reserve 14 5,695 5,695

Retained Profits 15 47,812 39,376

Total Equity 53,507 45,071

The Balance Sheet should be read in conjunction with the Notes to the Financial Statements .

46

Cash Flow Statement


2006 2005 Notes $’000 $’000

Cash Flows from Operating Activities Receipts from customers 1,214,657 1,188,433

Payments to suppliers and employees (145,200) (139,453)

Prizes paid to customers (677,654) (681,281)

Duty payments to Governments (289,541) (287,128)

Goods & Services tax paid (47,293) (47,098)

Income tax equivalent paid (14,190) (10,418)

Investment revenue received 9,544 8,925

Investment revenue credited to prize funds (5,533) (5,178)

Other revenue received 10,264 9,761

Net cash from Operating Activities (a) 55,054 36,563

Cash Flows from Investing Activities Proceeds from sale of plant and equipment 446 431

Payments for cash equivalent assets (64) (1,756)

Payments for property, plant and equipment (3,480) (1,818)

Payments for intangible assets (781) (383)

Net cash from Investing Activities (3,879) (3,526)

Cash Flows from Financing Activities Dividends paid (33,946) (37,204)

Net cash from Financing Activities (33,946) (37,204)

Increase/ (Decrease) in cash and cash equivalents 17,229 (4,167)

Cash and cash equivalents at the beginning of the financial year 165,590 169,757

Cash and cash equivalents at the end of the financial year (b) 182,819 165,590

Notes to the Cash Flow Statement (a) Reconciliation of cash flows from operating activities Profit for the year 38,569 38,106

Adjustments for non - cash items: Depreciation 3,521 5,659

Amortisation 1,954 348

Increase in income tax provided 4,741 3,896

(Increase)/Decrease in deferred taxes payable (2,243) 210

Loss on sale of plant and equipment 139 47

Changes in Assets and Liabilities (Increase) in receivables (5,896) (3,008)

(Increase) in other assets (5,636) (4,285)

Increase/(Decrease) in payables 19,644 (5,141)

Increase in provisions 261 731

Net cash from Operating Activities 55,054 36,563

(b) Reconciliation of cash at the end of the financial year with related items in the Balance Sheet. Cash comprises:

Cash and Cash Equivalent Assets 187,285 171,385

Cash Book (4,466) (5,795)

Cash at the end of the financial year 182,819 165,590

47

Statement of Changes in Equity


Asset Contributed Revaluation Retained Total Equity Reserve Profits Equity $’000 $’000 $’000 $’000

Balance at 1 July 2004 - 4,121 44,880 49,001

Profit from continuing operations after income tax equivalent - - 38,106 38,106

NSW Government Dividends - - (33,946) (33,946)

Write back of employee entitlements per AASB 119 - - (9,898) (9,898)

Tax effect of revaluations - (2,179) - (2,179)

Tax effect of leased assets make good per AASB 112 - - (107) (107)

Depreciation on make good of leases - - 161 161

Tax effect of superannuation liability per AASB 112 - - 180 180

Revaluation of Property - 3,753 - 3,753

Balance at 30 June 2005 - 5,695 39,376 45,071

Profit from continuing operations after income tax equivalent - - 38,569 38,569

NSW Government Dividends - - (30,133) (30,133)

-

Balance at 30 June 2006 - 5,695 47,812 53,507

48

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

NSW Lotteries holds licences to conduct public lotteries that have been issued under the provisions of the Public Lotteries Act 1996. These licences expire on 1 July 2007.

Note 1 Statement of Significant Accounting Policies(a) Basis of AccountingGeneral purpose financial reportThe Financial Report is a general purpose financial report which has been prepared on an accrual basis and in accordance with the New South Wales Lotteries Corporatisation Act, 1996, Public Finance and Audit Act, 1983, regulations issued thereunder, Australian Accounting Standards, Urgent Issues Group Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board.

Complies with all Australian equivalents to International Financial Reporting Standards (AIFRS)The Financial Report comprising the financial statements and notes thereto complies with all Australian equivalents to International Financial Reporting Standards (AIFRS). This is the first Financial Report prepared in accordance with AIFRS and comparatives for the year ended 30 June 2005 have been restated accordingly. Reconciliations of AIFRS equity and profit for the year to 30 June 2005 to the balances reported in the 30 June 2005 Financial Report prepared under the previous Australian Generally Accepted Accounting Principles (AGAAP) are detailed in Note 1(q) below.

Historical costThe Financial Report has been prepared on the basis of historical cost except for property, plant and equipment and financial instruments which have been measured at fair value.

Going concernThe Financial Report has been prepared on a going concern basis.

(b) Revenue recognitionRevenues are recognised at the fair value of the consideration received, net of the amount of Goods and Services Tax (GST).

Product Sales (Subscriptions)Revenue from product sales is recognised exclusive of GST, which is charged on the basis of operator margin. Revenue from Instant Scratchies is recognised when tickets are sold. For all other products, revenue is recognised when each game is drawn.

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

Sale of Non-current AssetsThe gross proceeds of non-current asset sales are included as income at the date control of the asset passes to the buyer, usually when an unconditional contract of sale is signed. The gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the time of disposal and the net proceeds on disposal.

(c) Receivables All Receivables are carried at fair value. Revenue from product sales is due for collection from retailers each week. Collectibility of receivables is regularly reviewed and debts which are known to be uncollectible are written off.

(d) Income Tax EquivalentNSW Lotteries Corporation is exempt from Commonwealth Taxation, however, pursuant to the State Owned Corporations Act, 1989, the Corporation is subject to the National Tax Equivalent Regime.

NSW Lotteries adopts the balance sheet method of tax effect accounting. Under this method income tax expense equivalent for the year comprises current and deferred taxes (Note 4). Current tax is the expected tax payable on the taxable income for the year using current tax rates. Deferred tax is provided using temporary differences between the carrying amount of assets and liabilities for reporting purposes in the Balance Sheet and the amounts for taxation purposes. The amount of deferred tax provided will be based on the expected manner of realisation of the asset or settlement of the liability using current tax rates. Deferred tax assets are not brought to account unless it is probable that taxable income is available to utilise these assets.

(e) Cash Equivalent AssetsCash equivalent assets, which are negotiable securities expected to be realised within one year, are carried at market value, being their fair value. Gains or losses on these securities are recognised in the Income Statement.

(f) Other Financial AssetsNon-derivative financial assets, which are deposits with fixed or determinable repayments and fixed maturities, are classified as held-to-maturity when the intention is to hold these assets to maturity. These deposits held-to-maturity are stated at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any discount on acquisition over the period to maturity.

Notes to the Financial Statements


49

(g) Property, Plant and Equipment Revaluations of Physical Non-Current AssetsProperty, plant and equipment is measured at fair value in accordance with AASB 116 and TPP 05-3. At reporting date each physical non-current asset is reviewed for impairment. This is to ensure that its carrying amount does not materially differ from fair value at that date, and if necessary its carrying amount is then written down to its recoverable amount. Revaluation increments are recognised in the asset revaluation reserve; decrements exceeding previous revaluation increments are recognised as expenses in the Income Statement.

DepreciationDepreciation is applied on the straight line basis over the estimated useful life of the asset to the Corporation.

The useful lives of each class of assets are:

Buildings 30 to 40 years

Leasehold improvements the leased term

Computer equipment 4 to 10 years

Other equipment 3 to 8 years

(h) Intangible AssetsIntangible assets are identifiable assets that are without physical substance; are separable from other assets; and arise from contractual or other legal rights. Intangible assets are stated at cost less accumulated amortisation and impairment losses.

AmortisationIntangible assets are amortised over their economic lives.

(i) Impairment of AssetsAt each reporting date the Corporation reviews the carrying amount of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If impairment exists, the asset’s carrying value is written down to its recoverable amount. The recoverable amount is the lower of the asset’s fair value (less the costs to sell) and the value in use. Any excess of the asset’s carrying value over its recoverable amount is expensed to the Income Statement.

(j) PayablesAll payables are carried at cost which is the fair value of the consideration to be paid in the future for goods delivered and services rendered up to the reporting date, whether or not yet billed to the Corporation.

(k) PrizesFor all products, the prescribed percentage of subscriptions payable as prizes is allocated to the respective prize account from which payment to prize winners is made.

Unpaid PrizesUnpaid Prizes represents prizes that have been won but which have not yet been claimed by prize winners up to twelve months after the drawing of the relevant game or, in relation to Instant Scratchies, after the game was closed, together with prize amounts that have jackpotted at the reporting date.

Prize FundsPrize Funds comprise the balance of prescribed allocations, prizes unclaimed after twelve months from the drawing of the relevant game or, in relation to Instant Scratchies, from the date the game was closed and revenues generated through the investment of prizes payable, reduced by payments of additional prizes.

(l) Employee BenefitsSalaries and annual leaveSalaries and annual leave (including any associated on-costs) that are payable within one year represent present obligations resulting from employees’ services provided up to the reporting date calculated at remuneration rates that the Corporation expects to pay when the liability is settled.

Long Service LeaveLong service leave, calculated at remuneration rates that the Corporation expects to pay when the liability is settled, is provided for all employees. Long service leave expected to be settled within one year has been measured at the amounts expected to be paid when the liability is settled. The liability that is payable later than one year is measured at the present value of future cash payments .





50

SuperannuationThe Corporation contributes to various employee superannuation funds and charges are expensed as incurred.

In respect of defined contributions superannuation schemes, the Corporation’s obligations are determined by the amounts to be contributed for that reporting period so no actuarial assumptions are required to measure the obligation or the expense and there is no possibility of any actuarial gain or loss.

The Corporation also contributes to three defined benefit superannuation schemes. Its net obligations to these schemes are calculated separately for each scheme by estimating the amount of future benefit that employees have accrued in return for their services in the current and prior reporting periods, discounted to present value based on the long term Commonwealth Government bond rate less the fair value of any assets of the funds. All three schemes are closed to new members.To the extent that a surplus or deficit is generated due to variations in actuarial valuations, these variances will be reflected in the Balance Sheet as an asset or liability and recognised in the Income Statement as income or expense. A surplus resulting in a superannuation asset may allow the Corporation to have a reduction in its contributions. A deficit resulting in a superannuation liability may require the Corporation to increase the level of its contributions.

(m) Financial Instruments Financial Instruments give rise to financial assets of the Corporation and financial liabilities owing to other parties and account for the majority of the Corporation’s current assets and current liabilities. In accordance with AASB 132 “Financial Instruments: Disclosure and Presentation “, information is disclosed in Note 7 in respect of the credit risk and interest rate risk. All such amounts are carried in the Financial Report at the values disclosed in the Balance Sheet and applicable Notes to the Financial Statements.

(n) Goods and Services TaxReceivables and payables are stated with the amount of the Goods and Services Tax (GST) included. Revenues, expenses and all other assets and liabilities are recognised net of the amount of GST except where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the item of expense.

The net amount of GST recoverable from, or payable to, the ATO is included as a receivable, or payable, in the Balance Sheet. Cash flows are included in the Cash Flow Statement on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable, to the ATO are classified as operating cash flows.

(o) Provision for DividendsDividends declared, determined or publicly recommended on or before the reporting date are recognised as a liability for the entire amount that remains undistributed at that date.

(p) Critical Accounting Estimates and JudgementsManagement evaluates estimates and judgements incorporated into the Financial Report based on historical knowledge and best available current information. Estimates and judgements assume a reasonable expectation of future events and are based on current trends and economic data,obtained both externally and within the Corporation.

Key Estimates -

Impairment - The Corporation assesses impairment at reporting date by evaluating conditions specific to it that may lead to impairment of assets Where an impairment is found the recoverable amount of the asset is determined. (See Note 1(i))

Make Good - The Corporation estimates the restoration costs of its leased premises at reporting date by evaluating conditions specific to the premises that may lead to impairment of the asset. Where an impairment is found the recoverable amount of the asset is determined. (See Note 1(i))



51

(q) First-time Adoption of Australian equivalents to International Financial Reporting Standards (AIFRS)(See Note 1(a))

2004 2004 2004 2005 2005 2005$’000 $’000 $’000 $’000 $’000 $’000

(i) Reconciliation of Equity at 1 July 2004 to 30 June 2005 AGAAP

Transition impact AIFRS AGAAP

Transition impact AIFRS

Current Assets

Cash and Cash Equivalent Assets 164,422 - 164,422 171,385 - 171,385

Other Financial Assets 2,321 - 2,321 2,567 - 2,567

Trade Receivables 3,372 - 3,372 6,380 - 6,380

Other Current Assets 414 - 414 329 - 329

Total Current assets 170,529 - 170,529 180,661 - 180,661

Non - Current Assets

Other Receivables 2,073 - 2,073 2,073 - 2,073

Other Financial Assets 26,960 - 26,960 17,896 - 17,896

Property, Plant and Equipment 37,160 (7,527) 29,633 36,594 (8,314) 28,280

Intangible Assets - 8,522 8,522 - 9,343 9,343

Deferred Tax Assets 7,336 231 7,567 7,225 341 7,566

Other 5,493 (5,493) - 9,898 (9,898) -

Total Non - Current Assets 79,022 (4,267) 74,755 73,686 (8,528) 65,158

Total Assets 249,551 (4,267) 245,284 254,347 (8,528) 245,819

Current Liabilities

Trade and Other Payables 96,562 - 96,562 93,850 - 93,850

Current Tax Liability 623 - 623 4,519 - 4,519

Provisions 83,236 - 83,236 80,512 - 80,512

Total Current Liabilities 180,421 - 180,421 178,881 - 178,881

Non - Current Liabilities

Other Liabilities 16,386 - 16,386 17,896 - 17,896

Deferred Tax Liabilities 124 1,053 1,177 223 2,179 2,402

Provisions 3,619 769 4,388 433 1,136 1,569

Total Non - Current Liabilities 20,129 1,822 21,951 18,552 3,315 21,867

Total Liabilities 200,550 1,822 202,372 197,433 3,315 200,748

Net Assets 49,001 (6,089) 42,912 56,914 (11,843) 45,071

Equity

Contributed Equity - - - - - -

Reserve 4,121 (1,053) 3,068 7,874 (2,179) 5,695

Retained Profits 44,880 (5,036) 39,844 49,040 (9,664) 39,376

Total Equity 49,001 (6,089) 42,912 56,914 (11,843) 45,071

Asset Revaluation Reserve

Tax effect accounting AASB 112 - Revaluation of property 4,121 (1,053) 3,068 7,874 (2,179) 5,695



52

2004 2004 2004 2005 2005 2005$’000 $’000 $’000 $’000 $’000 $’000

(i) Reconciliation of Equity at 1 July 2004 to 30 June 2005 continued AGAAP

Transition impact AIFRS AGAAP

Transition impact AIFRS

Retained Profits - movements

Retained Profits at 1 July 2004 46,606 - 46,606 44,880 - 44,880

Profit from ordinary activities after income tax equivalent 35,478 - 35,478 38,106 - 38,106

NSW Government - Dividend (37,204) - (37,204) (33,946) - (33,946)

Leased assets make good - - - - (107) (107)

Employee entitlements AASB 119 - (5,267) (5,267) - (9,898) (9,898)

Tax effect accounting AASB 112 - Superannuation liability - 102 102 - 180 180

Tax effect accounting AASB 112 - Leased assets make good - 129 129 - 161 161

Retained Earnings at 30 June 2005 44,880 (5,036) 39,844 49,040 (9,664) 39,376

(ii) Reconciliation of Profit for the year ended 30 June 2005

Revenues

Product Sales 1,148,361 - 1,148,361

Cost of Sales (1,047,561) - (1,047,561)

Gross Profit 100,800 - 100,800

Other Revenues 23,733 - 23,733

Total Revenues 124,533 - 124,533

Expenses

Retail Network (34,142) - (34,142)

Printing & Distribution (5,745) - (5,745)

Administration (32,016) - (32,016)

Leased assets make good - - -

Total Expenses (71,903) - (71,903)

Profit from continuing operations before related income tax equivalent expense 52,630 - 52,630

Less Income tax equivalent expense (14,524) - (14,524)

Net profit 38,106 - 38,106

Profit attributed to equity holders 38,106 - 38,106

There was no effect on the profit for the year as the transition adjustments were made directly against Retained Profits and the Asset Revaluation Reserve.

(iii) Explanation of material adjustments to the Cash Flow StatementsThere are no material differences between the Cash Flow Statement presented under AIFRS and the Cash Flow Statement presented under the previous AGAAP.

(iv) Financial InstrumentsAs a result of the deferral to 1 July 2005 of AASB 132 “Financial Instruments: Disclosure and Presentation” and AASB 139 “Financial Instruments: Recognition and Measurement”, under AASB 1 “First time adoption of Australian equivalents to International Financial Reporting Standards” (AIFRS), comparative information for these two Standards is presented under the previous Australian Accounting Standards (AGAAP) which applied to the year ended 30 June 2005. Under AGAAP negotiable securities expected to be realised within one year were measured at fair value and deposits held-to-maturity were measured at cost. Under AASB 1 these assets have been reclassified as Cash Equivalent Assets and Other Financial Assets respectively . There are no material differences between the financial instruments presented under AIFRS and that presented under the previous AGAAP.

(r) ComparativesComparatives have been reclassified and repositioned for consistency with current year disclosures.

(s) Roundings of AmountsWhere appropriate, all amounts shown in this Financial Report have been rounded to the nearest thousand dollars.



53

2006 2005 $’000 $’000

Note 2 Other Revenues Other Revenues from Continuing Operations includes:

Investment revenue 9,544 8,925

Note 3 Profit from Continuing Operations Includes:

(a) Significant Revenue The following significant revenue item is relevant in explaining the financial performance of the Corporation:

Increase in superannuation asset (Income tax liability $1,857,844) (refer also to Note 10) 6,193 -

(b) Expenses Cost of Sales: Retailer Commission (84,674) (79,193)

Prizes (691,268) (680,570)

Government Duties (292,104) (287,798)

(1,068,046) (1,047,561)

Employee Benefits 1,749 1,792

Superannuation - defined benefit plans 804 958

Superannuation - defined contributions plans 496 496

Depreciation (refer Note 8) 3,521 5,659

Amortisation (refer Note 9) 1,954 348

Loss on sale of plant and equipment 139 47

Operating lease rental expenses 592 561

Consultancies 4 69

Bad debts 16 -

Note 4 Taxation (a) Income Tax Equivalent Expense Prima facie income tax equivalent expense calculated at 30% (2005 - 30%) on the profit 16,577 14,478

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

Non-deductible depreciation 36 12

Other 75 34

16,688 14,524

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

Current income tax equivalent provision 18,931 14,314

Deferred income tax equivalent assets (3,751) 111

Deferred income tax equivalent liabilities 1,508 99

16,688 14,524

(b) Current Tax Liability Provision for current income tax

Movements during the year:

Balance at the beginning of the year 4,519 623

Less instalments of income tax paid (14,190) (10,418)

Current year’s income tax provision on profit 18,931 14,314

9,260 4,519

(c) Deferred Tax Liabilities Deferred income tax equivalent liabilities comprises the estimated liability at the

applicable rate of 30% (2005 - 30%) on the following items:

Tax effect of revaluation of buildings taken directly to reserve 2,179 2,179

Tax effect of superannuation asset 1,538 -

Income currently non-assessable for tax but recognised as revenue for accounting purposes 193 223

3,910 2,402



54

2006 2005 $’000 $’000

(d) Deferred Tax Assets Deferred income tax equivalent assets comprises the estimated future benefit at the

applicable rate of 30% (2005 - 30%) on the following items:

Provisions and accrued employee benefits not currently deductible 1,926 1,843

Jackpotting unpaid prizes not currently deductible 5,460 2,862

Prize Funds components not currently deductible 3,508 2,340

Tax effect of leased assets make good 161 161

Tax effect of superannuation liability - 180

Difference in depreciation of property, plant and equipment and amortisation of

deferred expenditure for accounting and income tax purposes 262 180

11,317 7,566

Note 5 Cash and Cash Equivalent Assets Cash at bank and on hand 180 131

Cash equivalent negotiable securities 187,105 171,254

187,285 171,385

Note 6 Other Financial Assets Current Assets Deposits held-to-maturity 2,846 2,567

Non - Current Assets Deposits held-to-maturity 17,681 17,896



55

Note 7 Financial Instruments (a) Interest rate risk Interest rate risk is the risk that the value of the financial instruments will fluctuate due to changes in market interest rates. The Corporation’s exposure to interest rate risks and the effective interest rates of financial assets and liabilities at reporting date are as follows:

30 June 2006Floating

Interest RateFixed 1 Year

or LessOver 1 to 5

YearsMore than 5

YearsNon Interest

Bearing

Carrying amount as

per Balance Sheet

Financial Instrument Note $’000 $’000 $’000 $’000 $’000 $’000

Financial Assets

Cash and Cash Equivalent Assets 5 26,966 152,459 5,597 2,083 180 187,285

Other Financial assets 6 - 2,846 9,663 8,018 - 20,527

Receivables - - - - 14,349 14,349

Total Financial Assets 26,966 155,305 15,260 10,101 14,529 222,161

Weighted Effective Interest rate 5.75% 6.03% 5.65% 5.64%

Financial Liabilities

Payables and Other Liabilities 11 - - - - 125,609 125,609

Current Tax Liability 4(b) - - - - 9,260 9,260

Provision for Dividends 16 - - - - 30,133 30,133

Total Financial Liabilities - - - - 165,002 165,002

30 June 2005Floating

Interest RateFixed 1 Year

or LessOver 1 to 5

YearsMore than 5

YearsNon Interest

Bearing

Carrying amount as

per Balance Sheet

Financial Instrument Note $’000 $’000 $’000 $’000 $’000 $’000

Financial Assets

Cash and Cash Equivalent Assets 5 23,171 133,713 12,337 2,033 131 171,385

Other Financial Assets 6 - 2,567 9,023 8,873 - 20,463

Receivables - - - - 8,453 8,453

Total Financial Assets 23,171 136,280 21,360 10,906 8,584 200,301

Weighted Effective Interest rate 5.50% 5.84% 5.81% 5.58%

Financial Liabilities

Payables and Other Liabilities 11 - - - - 111,746 111,746

Current Tax Liability 4(b) - - - - 4,519 4,519

Provision for Dividends 16 - - - - 33,946 33,946

Total Financial Liabilities - - - - 150,211 150,211

(b) Credit RiskThe Corporation’s maximum exposure to credit risk is represented by the carrying amounts of the financial assets included in the Balance Sheet. Credit risk represents the loss that would be recognised if parties holding financial assets of NSW Lotteries at reporting date fail to honour their obligations under contract.

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

(c) Net Fair Values of Financial Assets and LiabilitiesNet fair values of financial assets and liabilities are determined by the Corporation on the following bases: Cash equivalent assets included in Cash Assets are traded in an organised financial market and are carried at market value. Cash equivalent assets in fixed interest deposits are shown as Other Financial Assets and are carried at cost. Cash at Bank and on Hand, Receivables, Cash Book, Trade Creditors and Accruals, Government Duties, Sales in Advance, Unpaid Prizes, Other Payables, Current Tax Liability and Provision for Dividends are carried at historical cost.



56

2006 2005 $’000 $’000

Note 8 Property, Plant and Equipment Land & Buildings Leasehold land - at fair value 5,850 5,850

Buildings - at fair value 13,810 13,759

Less accumulated depreciation (4,680) (4,309)

9,130 9,450

Leasehold improvements - at fair value 637 637

Less accumulated amortisation (299) (185)

338 452

Total Land & Buildings 15,318 15,752

Plant and Equipment Computer equipment- at fair value 24,332 23,913


9,707 11,454

Other plant and equipment - at fair value 7,695 5,804


2,629 1,074

Total Plant and Equipment 12,336 12,528

Total Property, Plant and Equipment at Fair Value 27,654 28,280

Valuations of Land & Buildings Leasehold land and buildings are measured on a fair value basis, being the amount for which the assets could be exchanged between knowledgeable and willing parties in an arm’s-length transaction, having regard to the highest and best use of the asset for which other parties would be willing to pay. The current year’s valuation was determined by the directors, taking into account the prior year independent valuation, depreciation of buildings during the year and any significant market movements. The valuation, based at 30 June 2006, resulted in a value of $5,850,000 for the leasehold land and $9,130,000 for the buildings being the value attributed to the balance of their economic life.

Leasehold Improvements Estimated fair value of leasehold improvements at directors’ valuation is $338,000 ( 2005 - $452,000)

Plant and Equipment Estimated fair value of plant and equipment at directors’ valuation is $12,336,000 ( 2005 - $12,528,000).

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

2006 2005 $’000 $’000

Leasehold land - at fair value Carrying amount at the beginning of the year 5,850 4,600

Revaluation increment - 1,250

Carrying amount at the end of the year 5,850 5,850

Buildings - at fair value Carrying amount at the beginning of the year 9,450 7,323

Additions 51 13

Revaluation increment - 2,503

Depreciation (371) (389)


Leasehold improvements - at fair value Carrying amount at the beginning of the year 452 35

Additions - 536

Amortisation (114) (119)

Carrying amount at the end of the year 338 452

Computer equipment- at fair value Carrying amount at the beginning of the year 11,454 11,454

Additions 696 308

Depreciation (2,443) (308)




57

2006 2005 $’000 $’000

Other plant and equipment - at fair value Carrying amount at the beginning of the year 1,074 1,439

Additions 2,733 902

Disposals (585) (478)

Depreciation (593) (789)


Note 9 Intangible Assets Intangible Assets 15,974 15,193

Less accumulated amortisation (7,804) (5,850)

Intangible Assets at Fair Value 8,170 9,343

Reconciliation: Reconciliation of the carrying amount for intangible assets is set out below:

Carrying amount at the beginning of the year 9,343 9,273

Additions 781 765

Amortisation (1,954) (695)


Note 10 Other Non-Current Asset Superannuation Superannuation contributions are made by the Corporation to three defined benefit employee superannuation

schemes as follows:

State Authorities Superannuation Scheme (SASS)

State Authorities Non-contributory Superannuation Scheme (SANCS)

State Superannuation Scheme (SSS)

These three schemes are closed to new members. The Corporation’s contributions to the schemes are held by Pillar Administration in Investment Reserve Accounts.

The superannuation schemes provide for defined benefits based on years of service and final average salary. Employees contribute to the schemes at various percentages of their salaries. The Corporation’s contributions are generally at a multiple of the employees’ contributions, depending on the scheme.

The individually significant revenue item of $6,192,814 referred to in Note 3 (a) was made up of $466,560 representing contributions that otherwise would have been paid together with an increase of $5,726,334 representing the movement in the conversion of the superannuation liability in 2005 to a superannuation asset at reporting date.

The following tables summarise the components of the net benefit expense recognised in the Income Statement and the funded status and amounts recognised in the Balance Sheet for the respective schemes:



58

2006 2006 2006 2006 (i) Superannuation Asset $’000 $’000 $’000 $’000 30 June 2006 SASS SANCS SSS Total

Reconciliation of the asset recognised in the balance sheet

Present value of defined benefit obligations (7,157) (1,938) (35,098) (44,193)

Fair value of plan assets 8,802 2,753 40,717 52,272

1,645 815 5,619 8,079

Surplus in excess of recovery available from schemes (601) (298) (2,054) (2,953)

Unrecognised past service cost - - - -

Net asset to be disclosed in the balance sheet 1,044 517 3,565 5,126

Movement in net asset recognised in the balance sheet Net (asset)/liability at the start of the year (249) 127 (478) (600)

Net benefit (291) (107) 5,786 5,388

Contributions 1,584 497 (1,743) 338

Net asset recognised in the balance sheet 1,044 517 3,565 5,126

Net benefit Current service cost (332) (119) (416) (867)

Interest cost on benefit obligations (411) (103) (2,061) (2,575)

Expected return on plan assets 504 163 2,821 3,488

Net actuarial (gains)/losses recognised in the year 549 250 7,496 8,295

Change in surplus in excess of recovery available from scheme (601) (298) (2,054) (2,953)

Past service cost - - - -

Net benefit (291) (107) 5,786 5,388

Actual return on plan assets 1,086 337 5,825 7,248

Valuation method and principal actuarial assumptions at the reporting datea) Valuation method As required by AASB 119.64, the Projected Unit Credit (PUC) valuation method has been used to determine the present value of the defined benefit obligations and the related current service cost. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.

b) Principal actuarial assumptions 2006

Discount rate -30 June 5.9% pa

Expected return on plan assets- 30 June 7.6% pa

Expected salary increases 4.0% pa to 2008, 3.5%pa thereafter

Expected rate of CPI increase 2.5% pa

Arrangements for employer contributions for funding Summary of the 30 June 2006 financial position of the Fund calculated in accordance with AAS25 “Financial Reporting by Superannuation Plans”:

2006 2006 2006 2006 $’000 $’000 $’000 $’000 SASS SANCS SSS Total

Accrued benefits (6,897) (1,835) (29,312) (38,044)

Net market value of fund assets 8,802 2,753 40,717 52,272

Net surplus 1,905 918 11,405 14,228

Recommended contribution rates for the entity: 1.9 2.5 1.6

Basis: multiple-member % member multiple-member contributions salary contributions

Weighted average assumptions: 2006

Expected rate of return on fund assets 7.3% pa

Expected salary increase rate 4.0% pa




59

2005 2005 2005 2005(ii) Superannuation Liability $’000 $’000 $’000 $’00030 June 2005 SASS SANCS SSS Total

Reconciliation of the liability recognised in the balance sheet Present value of defined benefit obligations (6,869) (2,010) (37,911) (46,790)

Fair value of plan assets 6,619 2,137 37,434 46,190

(250) 127 (477) (600)

Surplus in excess of recovery available from schemes - - - -

Unrecognised past service cost - - - -

Net (liability) to be disclosed in the balance sheet (250) 127 (477) (600)

Movement in net (liability) recognised in the balance sheet Net (liability) at the start of the year (559) 17 203 (339)

Net expense 14 (19) (1,055) (1,060)

Contributions 295 129 375 799

Net (liability) recognised in the balance sheet (250) 127 (477) (600)

Net (expense) Current service cost (315) (117) (390) (822)

Interest cost on benefit obligations (380) (107) (2,031) (2,518)

Expected return on plan assets 399 136 2,427 2,962

Net actuarial (gains)/losses recognised in the year 310 69 (1,061) (682)

Change in surplus in excess of recovery available from scheme - - - -

Past service cost - - - -

Net (expense) 14 (19) (1,055) (1,060)

Actual return on plan assets 721 238 4,311 5,270

Valuation method and principal actuarial assumptions at the reporting datea) Valuation method As required by AASB 119.64, the Projected Unit Credit (PUC) valuation method has been used to determine the present value of the defined benefit obligations and the related current service cost. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.

b) Principal actuarial assumptions 2005

Discount rate -30 June 5.2% pa

Expected return on plan assets- 30 June 7.3% pa



Arrangements for employer contributions for funding Summary of the 30 June 2005 financial position of the Fund calculated in accordance with AAS25 “Financial Reporting by Superannuation Plans”:

2005 2005 2005 2005 $’000 $’000 $’000 $’000 SASS SANCS SSS Total

Accrued benefits (6,250) (1,747) (28,895) (36,892)

Net market value of fund assets 6,619 2,137 37,434 46,190

Net surplus 369 390 8,539 9,298

Recommended contribution rates for the entity: 1.9 2.5 1.6

Basis: multiple-member % member multiple-member contributions salary contributions

Weighted average assumptions: 2005

Expected rate of return on fund assets 7% pa





60

2006 2005 $’000 $’000

Note 11 Payables Current Cash Book 4,466 5,795

Trade Creditors and Accruals 9,048 8,297

Government Duties 28,209 25,646

Sales in Advance 9,621 6,922

Unpaid Prizes 56,491 47,114

Other 93 76

107,928 93,850

Non - Current Unpaid Prizes 17,681 17,896

Note 12 Provisions Current Employee Benefits (refer Note 17(a)) 5,870 5,580

Prize Funds 45,438 40,986

Provision for Dividends (refer Note 16) 30,133 33,946

81,441 80,512

Non - Current Superannuation Liability (refer Note10(ii)) - 600

Provision for Make Good on Leases 536 536

Employee Benefits (refer Note 17(b)) 404 433

940 1,569

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

Prize Funds Balance at the beginning of the year 40,986 44,370

Allocations and transfers made during the year 60,003 55,730

Payments made during the year (55,551) (59,114)

Balance at the end of the year 45,438 40,986

Provision for Dividends Balance at the beginning of the year 33,946 37,204

Provisions made during the year 30,133 33,946

Payments made during the year (33,946) (37,204)


Provision for Make Good Balance at the beginning of the year 536 430

Provisions made during the year - 106

Balance at the end of the year 536 536

Note 13 Contributed Equity Authorised Capital 100 Ordinary Shares of $1.00 each - $100 (2005 - $100)

Issued and Paid-up Capital 2 Ordinary Shares of $1 each fully paid - $2 (2005 - $2)

NSW Lotteries was corporatised on 1 January 1997 with authorised capital of 100 ordinary shares at $1 each. The issued capital of two (2) $1 shares are issued to the Treasurer and the Minister for Finance on behalf of the NSW Government. The $2 issued share capital has been rounded to zero in the Balance Sheet.



61

2006 2005 $’000 $’000

Note 14 ReserveAsset Revaluation Reserve 5,695 5,695

Asset Revaluation Reserve - reconciliation Balance at the beginning of the year 5,695 4,121

Increment on revaluation of land and buildings. - 1,574


Nature and Purpose of Asset Revaluation Reserve The purpose of the asset revaluation reserve is to record increments and decrements as a result of the revaluation of physical non-current assets measured at fair value in accordance with AASB 116 and TPP 05-3.

Note 15 Retained Profits Retained Profits at the beginning of the year 39,376 44,880

Net profit 38,569 38,106

Total available for distribution 77,945 82,986

AIFRS adjustments - (9,664)

NSW Government - Dividends Provided (30,133) (33,946)

Retained Profits at the end of the year 47,812 39,376

Note 16 NSW Government Dividends Dividends provided 30,133 33,946

Note 17 Employee Benefits (a) Current Provision for Annual Leave 1,385 1,252

Provision for Long Service Leave 4,485 4,328

5,870 5,580

(b) Non - Current Provision for Long Service Leave 404 433

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

2006 2005 2006 2005 2006 2005 $’000 $’000 $’000 $’000 $’000 $’000

---Annual Leave---- --Long Service Leave-- Total Total

Balance at the beginning of the year 1,252 1,190 4,761 4,092 6,013 5,282

Allocations and transfers made during the year 1,160 1,092 589 700 1,749 1,792

Payments made during the year (1,027) (1,030) (461) (31) (1,488) (1,061)

Balance at the end of the year 1,385 1,252 4,889 4,761 6,274 6,013

Note 18 Related Parties (a) Key Management Personnel - DirectorsThe names of each person holding the position of director of the Corporation during the financial year are:

Mr J. Bagshaw, Ms B. Boezeman, Mr M. Cockburn, Mr M. Howell, Mr J. Johnson, Mr D. McCormack and Ms S. Walsh. Mr M. Howell, Chief Executive Officer of the Corporation, is the sole full-time director.

The total emoluments paid or payable, directly or indirectly, by the Corporation to directors, excluding the salary of the full-time director, was $388,127 ( 2005 - $376,813 ).

(b) Key Management Personnel - Other

Name Position

Ms S. Browne Director Corporate Services

Mr M. Cassidy Director Information Technology Services

Mr B. McIntyre Director Finance

Mr N. Nichles Director Marketing and Sales

Mr C. Patterson Director Customer and Agency Services



62

2006 2005 $ $

(c) Key Management Personnel Compensation

Short-term employee benefits 1,413,342 1,438,705

Post-employment benefits 255,895 206,971

Other long-term employee benefits 132,139 100,925

1,801,376 1,746,601

(d) Principles of CompensationCompensation paid or payable to directors, excluding the full-time director, is determined by the Shareholders.

The full-time director and other key management personnel are employed by the Corporation under individual contracts of employment.The nature of compensation paid or payable to these personnel is approved by the Board having regard to relevant legislation and current market practice.The amount of compensation paid or payable to the full-time director is approved by the Board; the amounts of compensation paid or payable to other key management personnel is set by the full-time director within parameters approved by the Board. In relation thereto, the advice of an independent external consultant is obtained to ensure that fixed annual compensation is aligned to the market at the 50th percentile for each individual. Fixed annual compensation is reviewed annually and adjusted subject to assessed individual performance and contribution to the Corporation, market movements, movements in the Consumer Price Index and the Corporation’s financial performance.

Short-term employee benefits paid or payable to the full-time director and other key management personnel includes a performance-related incentive that is approved by the Board and conditional upon the achievement of corporate targets. Incentive payments account for only a minor proportion of the total compensation paid to each of these individuals.

The duration of the employment contract for the full-time director and other key management personnel varies within the range of three to five years. Six months notice or six months payment in lieu of notice is normally required for the Corporation to terminate a contract.

2006 2005 $’000 $’000

(e) Superannuation Contributions

Contributions to Superannuation Funds on behalf of employees 1,300 1,454

Note 19 Auditors’ remuneration Audit fees: Auditors of the Corporation ( audit and review of Financial Report) 138 123

Other services: Auditors of the Corporation (supervision of draws ) 135 130

273 253

Note 20 Commitments not provided for in the Financial Statements Commitments under operating leases for motor vehicles, plant, office and warehouse

accommodation at 30 June 2006:

Payable within 1 year 592 592

Payable 1 to 5 years 502 1,001

1,094 1,593

The property leases are leases with three year terms, rent payable monthly in advance. Options exist to renew each lease for an additional period of three years.

Note 21 Contingent Liabilities The directors are not aware of any contingent liabilities.

Note 22 Contingent Assets The total commitments under operating leases of $ 1,093,577 (2005 - $1,593,427) shown in Note 20 include $99,416 (2005 - $144,857) in input tax credits that are expected to be recoverable from the Australian Taxation Office under the Goods and Services Tax legislation.

At the date of this report there were no commitments for the purchase of non-current assets (2005 - Nil) and no input tax credits are expected to be recoverable from the Australian Taxation Office under the Goods and Services Tax legislation.

Note 23 Segment Reporting NSW Lotteries Corporation operates solely in the business of selling Lottery tickets in the state of New South Wales and the Australian Capital Territory.

End of Audited Financial Statements

63

ACCOUNTS PAYABLE PERFORMANCENSW Lotteries’ policy is to pay all accounts within the suppliers’ terms of trade. No interest was paid or payable as a result of late payment of accounts.

The following indicators summarise the Corporation’s performance and give a snapshot of accounts payable by the Corporation at the end of each quarter and the indicative payment timeframe:

Ageing of Creditors at the end of each quarter September 2005 December 2005 March 2006 June 2006

Current (within due date) $8,162,492 $7,783,431 $7,237,608 $9,047,541

< 30 days overdue Nil Nil Nil Nil

30-60 days overdue Nil Nil Nil Nil

60-90 days overdue Nil Nil Nil Nil

> 90 days overdue Nil Nil Nil Nil

Accounts paid on time during each quarter September 2005 December 2005 March 2006 June 2006

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

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

Total dollars paid within 30 days $8,162,492 $7,783,431 $7,237,608 $9,047,541

Total dollars paid $8,162,492 $7,783,431 $7,237,608 $9,047,541

Standard Results 2003/2004 Results 2004/2005 Results 2005/2006

Number of complaints for late or non-payment

Less than 0.1% of all accounts

NilComplaints

NilComplaints

NilComplaints

CONSULTANTSConsultants equal to or more than $30,000There were no consultancies costing $30,000 or more.

Consultancies less than $30,000During the year, one consultancy was engaged in the following area:

Category Cost

Finance & Accounting/Tax

Engineering

Environmental

Information Technology

Legal

Management Services

Organisational Review

Training

Total Consultancies less than $30,000

$4,015

Nil

Nil

Nil

Nil

Nil

Nil

Nil

$4,015

TOTAL CONSULTANCIES $4,015

CREDIT CARD USEDuring the year, credit card use within the Corporation was in accordance with the Premier’s Memoranda and Treasurer’s Directions.

Statutory Reporting Appendix


64

EQUAL EMPLOYMENT OPPORTUNITY 2005/2006 Planned Results1. The Salaries, Allowances and Conditions of Employment Award for Corporation staff was amended during the year to enable casual

employees to elect to become full or part-time employees, thereby gaining secure employment and its corresponding benefits.

2. Succession planning was strengthened within the Corporation to recognise and develop staff with the potential to fill key positions.

Strategies for 2006/2007Implementation of a Workforce Plan including:

1. Designing and implementing a Management Development Program in line with the Corporation’s Succession Plan.

2. Instituting coaching/mentoring training to assist employees with career planning and making contacts across the organisation.

EEO Statistical ReportTable A. Trends in the Representation of EEO Groups1

% of Total Staff2

EEO GroupBenchmark

or target 2003 2004 2005 2006

Women 50% 51% 47% 46% 47%

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

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

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

People with a Disability Requiring Work-Related Adjustment 7% 2.7% 3% 2.9% 3.1%

Table B. Trends in the Distribution of EEO Groups1

Distribution Index3

EEO GroupBenchmark

or target 2003 2004 2005 2006

Women 100 82 82 83 81

Aboriginal people and Torres Strait Islanders 100 nc4 nc4 nc4 nc4

People whose first language was not English 100 85 89 87 90

People with a Disability 100 nc4 nc4 nc4 nc4

People with a Disability Requiring Work-Related Adjustment 100 nc4 nc4 nc4 nc4

Notes:

1. Staff numbers are as at 30 June 2006.

2. Excludes casual staff.

3. A Distribution Index of 100 indicates that the centre of the distribution of the EEO group across salary levels is equivalent to that of other staff. Values less than 100 mean

that the EEO group tends to be more concentrated at lower salary levels than is the case for other staff. The more pronounced this tendency is, the lower the index will be.

In some cases the Index may be more than 100, indicating that the EEO group is less concentrated at lower salary levels. The Distribution Index is automatically calculated

by the software provided by ODEOPE.

4. nc = Not Calculated. The Distribution Index is not calculated where EEO group or non-EEO group numbers are less than 20.

EXEMPTIONS FROM THE REPORTING PROVISIONSIn accordance with section 7 (2) of the Annual Reports (Statutory Bodies) Act 1984, the Treasurer has exempted NSW Lotteries from disclosing in its Annual Report a detailed budget and an outline budget.

ETHNIC AFFAIRS PRIORITIES STATEMENT NSW Lotteries conducts its affairs in recognition of the Community Relations Commission and Principles of Multiculturalism Act 2000. Each year, the Corporation develops an Ethnic Affairs Priorities Statement Plan, which identifies strategies to improve our services to the diverse community of NSW.

We report to the Community Relations Commission on the implementation of this plan and detail our progress in our Annual Report. The Corporation’s Performance Report for fiscal 2006 follows:



65

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.



66

FUNDS GRANTED TO NON-GOVERNMENT COMMUNITY ORGANISATIONSNo funds were granted to non-Government community organisations.

INVESTMENT MANAGEMENT PERFORMANCEAt the end of the financial year investment funds were apportioned between two fund managers:

Treasury Corporation 44.94%

Legg Mason Asset Management Australia 55.06%(previously known as Citigroup Asset Management Australia)

Gross returns on investments were:

Actual % per Annum for year ended

Benchmark % per Annum for year ended

June 2005 June 2006 June 2005 June 2006

Treasury Corporation 5.54 5.76 5.62 5.74

Legg Mason Asset Management Australia 5.78 5.86 5.62 5.74

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

LIABILITY MANAGEMENTNSW Lotteries has no borrowings, debt or unfunded liabilities.

OVERSEAS TRAVEL

Officer Destination Purpose

Nick Nichles, Director Marketing & Sales Hong Kong Attend Asia Pacific Lottery Association Conference.

Christopher Patterson, Director Customer & Agency Services Fiji Explore business development opportunities.

Mark Bowen, Business Development Manager Fiji Explore business development opportunities.

PROPERTY DISPOSALNo land was disposed of by the Corporation during the reporting year.

STATEMENT OF PERFORMANCE FOR EXECUTIVE OFFICERS Name: Michael Howell

Position: Chief Executive Officer

Period in Position: Full Year

Total Remuneration Package: $376,384

Performance Payment: $18,412

Performance assessed by: The NSW Lotteries Board. Authorised by John Bagshaw, Chairman

Results:• Lottery sales increased by $17.2 million (or 1.5%) to a record $1,133.2 million (including GST).

• Profit from continuing operations (before income tax equivalent expense) reached a record $55.3 million which was up 5% on last year.

• Total Government Revenue (comprising duty, GST, dividends and income tax equivalent) reached a record $381.6 million.

• Organisational efficiency, as measured by sales per employee, increased by 5% to $6.6 million per employee.

• 93% of NSW Lotteries’ surveyed customers indicated that they were satisfied to extremely satisfied with the quality of service provided by the Corporation and the retail network. In addition, 95% of NSW Lotteries’ retail agents surveyed indicated that they were satisfied to extremely satisfied with the quality of support services provided by the Corporation.

• The on-line gaming selling system delivered 99.99% availability against a benchmark of 99.99%. In addition, a range of system improvements and game features were delivered without any system downtime.

• A sound working relationship was maintained with all relevant stakeholder groups.

• All statutory responsibilities were completed on time and no major shortcomings in internal controls were identified in audit reports during the year.



67

Performance Payment Criteria:Payment is subject to meeting or exceeding annual sales, profit and key accountability targets contained in the Corporation’s Business Plan, Statement of Corporate Intent and the Chief Executive Officer’s Performance Agreement.

The level of incentive payment and associated performance hurdles are set annually by the Board and are independently assessed and measured against actual results.

Name: Nick Nichles

Position: Director Marketing & Sales

Period in Position: Full Year

Total Remuneration Package: $220,000

Performance Payment: $6,000

Performance assessed by: Michael Howell, Chief Executive Officer

Results:• Overall product sales increased by $17.2 million to a record $1,133.2 million (including GST).

• Total Government Revenue (comprising duty, GST, dividends and income tax equivalent) reached a record $381.6 million.

• Successfully launched a number of game changes and player options which were well received by customers and contributed additional sales revenue.

• 93% of NSW Lotteries’ surveyed customers indicated that they were satisfied to extremely satisfied with the quality of service provided by the Corporation and the retail network. In addition, 95% of NSW Lotteries’ retail agents surveyed indicated that they were satisfied to extremely satisfied with the quality of support services provided by the Corporation.

• Managed the day-to-day operations of the Marketing & Sales Division in an effective manner and ensured that all critical functions and activities of the Division were completed on budget.

• Effectively managed our day-to-day working relationship with Lotto Bloc partners in the other States.

Performance Payment Criteria:Payment is subject to meeting or exceeding a number of sales, profit and key accountability targets contained in the Corporation’s Business Plan, Statement of Corporate Intent and individual Performance Agreement.

The level of incentive payment and associated performance hurdles are set annually at the beginning of each financial year by the Chief Executive Officer. Actual results for the key indicators are assessed and measured against the pre-established targets.

FREEDOM OF INFORMATION Under Section 14 of the Freedom of Information Act 1989, NSW Lotteries is required to publish an annual Statement of Affairs describing the structure and functions of the Corporation and how these functions affect the public. Additionally, the Statement of Affairs requires the inclusion of Policy documents held by the Corporation and how these can be accessed by members of the public.

Statement of Affairs Structure and FunctionsNSW Lotteries Corporation is the only Government-owned gaming and wagering operator in NSW and is licensed to develop, promote and conduct lotteries in NSW and the ACT. The structure of NSW Lotteries is outlined in this report under the section titled The Management Structure. The day-to-day functions of the Corporation are reported under the section titled: Who We Are and What We Do, in addition to the five sections that cover our day-to-day operations and titled: Our Players, Our Retailers, Our Business, Our Staff and Our Shareholders. Information on the functions of NSW Lotteries is also publicly available by visiting the Corporation’s website www.nswlotteries.com.au

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



68

Policy DocumentsNSW Lotteries Corporation holds the following documents, which are available for public viewing:

• Rules for all products (Lotto, Lotto Strike, OZ Lotto, Powerball, Lucky Lotteries, Instant Scratchies and 6 From 38 Pools);

• ‘How to Play’ pamphlets for all games;

• ‘Join the Players Club’ brochure;

• ‘Welcome to the Players Club!’ brochure;

• ‘A Player’s Guide to Claiming Prizes’ brochure;

• Brochures relating to NSW Lotteries’ Policy for Appointing Agencies;

• Australian Lotteries Industry Code of Practice;

• Advertising Code of Practice;

• NSW Lotteries Code of Conduct;

• NSW Lotteries Privacy Policy; and

• Annual Reports.

The following legislation relates to the conduct of our games and the operation of NSW Lotteries:

• Public Lotteries Act 1996

• NSW Lotteries Corporatisation Act 1996

• State Owned Corporations Act 1989.

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

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

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

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

A 50% reduction in fees and charges is available in the following circumstances:

• where the applicant is a pensioner or under 18 years of age;

• where the applicant, as a non-profit organisation, demonstrates financial hardship;

• where the applicant seeks information which does not concern his or her personal affairs, and which the applicant demonstrates is in the public interest to be made available.

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

PublicationsIn addition to the Policy Documents listed above, NSW Lotteries prepares other publications relating to its products and operations which assist in keeping our customers and retailers informed. These publications include:

• Network News – product and event information for retailers;

• Promotional material for special product events; and

• Results of games in the Daily Telegraph.

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



69

Statistical Report for fiscal 2005The following table shows all categories affected by the Freedom of Information Act 1989 (NSW) requests in 2005/06 compared to 2004/05.

Personal Other Total 2005/06 Total 2004/05

Numbers of new FOI requests

New (including transferred in) 0 2 2 0

Brought forward 0 0 0 0

Total to be processed 0 2 2 0

Completed 0 2 2 0

Total processed 0 2 2 0

Unfinished (Carried forward) 0 0 0 0

What happened to completed requests?

Granted in full 0 1 1 0

Granted in part 0 0 0 0

Refused 0 0 0 0

Deferred 0 0 0 0

Completed 0 1 1 0

Ministerial Certificates

Ministerial Certificates issued 0 0 0 0

Formal Consultations

Number of requests requiring formal consultation(s) 0 1 1 0

Amendment of personal records

Result of amendment - agreed 0 0 0 0

Result of amendment - refused 0 0 0 0

Total 0 0 0 0

Notation of personal records

Number of requests for notation 0 0 0 0

FOI requests granted in part or refused

Total 0 0 0 0

Costs and fees of requests processed during the period

Assessed Costs 0 0 0 0

FOI Fees Received 0 $60 $60 0

Discounts allowed

Numbers of FOI requests processed during the period where discounts were allowed 0 0 0 0

Days to process

0 – 21 days 0 1 1 0

22 – 35 days 0 1 1 0

Over 35 days 0 0 0 0

Totals 0 2 2 0

Processing time

0 – 10 hours 0 0 0 0

11 – 20 hours 0 2 2 0

21 – 40 hours 0 0 0 0

Over 40 hours 0 0 0 0

Totals 0 2 2 0

Reviews and appeals

Number of internal reviews finalised 0 0 0 0

Number of Ombudsman reviews finalised 0 0 0 0

Number of District Court appeals finalised 0 0 0 0



70

An assessment of FOI requirements on NSW Lotteries’ activities found no major impact during the 2005/06 financial year. There were no major issues that arose with regard to the Corporation’s annual reporting compliance on FOI issues. There was no involvement by the Ombudsman or courts in relation to any inquiries or appeals under the FOI Act.

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

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

Total external costs incurred in the production of the report

Design, Production & Photography $ 23,619

Print Management $ 17,125

Total external costs (ex GST) $ 40,744



71

AA Message from the Chairman & Chief Executive Officer 4-5

About This Report IFC

Access to Services [ARSBR Schedule 1] IBC

Accounts Payable Performance [ARSBR Schedule 1, TC 01/12] 63

Agency Business Plans 22

Agent Satisfaction Survey 25

Aims and Objectives [ARSBR Schedule 1] 10

Annual Report

• Availability [ARSBA s12, ARSBR c8, ARSBR c18] 70

• Letter of submission [ARSBA s9A] IFC

• Submission to Minister [ARSBA s10] IFC

• Presentation to Parliament [ARSBA s11 (1)] IFC

• Cost [ARSBR c8, TC 03/11] 70

Audit

• Internal audit arrangements, program and results 35

BBalanced Scorecard 11

Board [ARSBR Schedule 1] 34-38

Board Committees [ARSBR Schedule 1] 35-36

Board Attendance [ARSBR Schedule 1] 35

Business Continuity 27, 35

Business Planning 10

CCall Centre 19

Charter [ARSBR Schedule 1] 10

Chief and Senior Executive Officers

• Name, position, level and performance of officer [ARSBR c11, c14] 37, 39, 66-67

• Number of executive positions [ARSBR c14] 30

• Number of female executive officers [ARSBR c14] 30

Consultants 63

• Costing greater than $30,000 [ARSBR Schedule 1, PM 02/07]

• Costing less than $30,000 [ARSBR Schedule 1, PM 02/07]

Consumer response - services improved or changed [ARSBR Schedule 1] 19-20

Corporate Governance 34

Credit Card Usage [TD 205.01] 63

Customers 4, 10

Customer Satisfaction Survey 20

EEconomic and Other Factors Affecting Achievement of Operational Objectives [ARSBR Schedule 1] 4-5, 12-18

Electronic Service Delivery [PM 00/12] 20

Employee Reward and Recognition 30

Energy Management Policy [PM 98-35] 40

Equal Employment Opportunity 64

• Achievements and strategies [ARSBR Schedule 1, TC 02/17]

• Statistical information [ARSBR Schedule 1, TC 02/17]

Ethnic Affairs Priorities Statement [ARSBR Schedule 1] 64-65

Exemptions from the Reporting Provisions [ARSBR c19(4)] 64

FFinancial Report 42

• Statement by Board of Directors 43

• Independent Audit Report [ARSBA s7(1)(a)(ii)] 43

• Financial Statements and Accompanying Notes [ARSBA s7(1)(a)(i)] 44-62

Freedom Of Information (FOI) 67-70

• Contact officer

• Statement of Affairs

• FOI Report [FOIA s68, FOIR s9, FOIM App. B, ARSBA s5A (2)]

Funds granted to non-Government community organisations [ARSBR Schedule 1] 66

GGames at a Glance 14-17

Games – Key Facts 3

Gaming System 26

Guarantee of Service - standards and provision of service [ARSBR Schedule 1] 11, 19-20

HHistory 8-9

Human Resources

• Industrial relations policies and practices [ARSBR Schedule 1] 28-31

• Number of employees by category [ARSBR Schedule 1] 30

• Personnel policies and practices [ARSBR Schedule 1] 28-31

IInformation Technology 26

Instant Scratchies 16

Internet address IBC

Insurance [ARSBR Schedule 1] 40

Investment Management Performance [ARSBR c12, TC 03/09] 66

KKey Facts 2005/2006 3

LLand Disposal (Property Disposal) [ARSBR Schedule 1] 66

Legal change (Legislative changes) - in Acts or significantlegislation [ARSBA s9(1)(f), ARSBR Schedule 1] 66

Letter to Shareholder Ministers [ARSBA s9A, SOCA s24A(5)] IFC

Liability management performance [ARSBR c13, TC 03/09] 66

Looking ahead 18

Index


Lotto 14

Lotto Strike 14

Lucky Lotteries 17

MManagement and Activities

• Benefits from management and strategy reviews [ARSBR Schedule 1] 10-11, 34-36, 40

• Major problems and issues [ARSBR Schedule 1] 12-13, 18

• Measures of performance [[ARSBR Schedule 1, SOCA s24A(3)] 2-3, 6-7, 11

• Nature and range of activities [ARSBR Schedule 1] 4-5, 10-11

• Performance reviews [ARSBR Schedule 1] 2, 20, 25, 36

Management and Structure

• Method and term of appointment of Board members, frequency of Meetings and members’ attendance, Board committees [ARSBR Schedule 1] 34-36

• Names and qualifications of Board members [ARSBR Schedule 1] 37-38

• Names, offices and qualifications of senior officers [ARSBR Schedule 1] 37, 39

• Organisation chart [ARSBR Schedule 1] 33

Mission 10

NNetwork Syndicates 19

OObjectives 10

Occupational Health and Safety [ARSBR Schedule 1] 29

Organisation Chart [ARSBR Schedule 1] 33

Our Business 26

Our Players 12-20

Our Retailers 22

Our Shareholders 32

Our Staff 28

Overseas travel [ARSBR Schedule 1] 66

OZ Lotto 15

PPayment of accounts [ARSBR Schedule 1, TC 01/12] 63

Performance of Executive Officers [ARSBR c11, 14] 66-67

Performance Measures 2, 6-7, 11

Players Club 19

Pools (6 From 38 Pools) 17

Powerball 15

Privacy 19

Promotion [ARSBR Schedule 1] 68

Property Disposal [ARSBR Schedule 1] 66

Publications - summary list of promotional material [ARSBR Schedule 1] 68

RResearch and Development

• New product development [ARSBR Schedule 1] 12-18

• New technology [ARSBR Schedule 1] 26-27

• resources allocated [ARSBR Schedule 1] 26

Results 2

Retail Image 24

Retail Network 22

Retail Training 24

Responsible Gaming 21

Risk Management and Insurance Activities [ARSBR Schedule 1] 40

SSaturday Lotto 14

Service Standards 6, 11

Shareholders 34

Staff Training 30

Statement of Corporate Intent 2

Summary Review of Operations

• Narrative summary of significant operations [ARSBR Schedule 1] 4-5

• Operational information [ARSBR Schedule 1] 6-7

TTerritory Managers 22

The Year in Brief 6-7

Top Shop Awards 23

VValues 10

Vision 10

WWaste Reduction and Purchasing Policy [ARSBR Schedule 1] 40

Website IBC

Who We Are and What We Do 10-11

Workforce Planning 28

AbbreviationsARSBA Annual Report (Statutory Bodies) Act 1984ARSBR Annual Report (Statutory Bodies) Regulation 2005FOIA Freedom of Information Act 1989FOIR Freedom of Information Regulation 2005FOIM Freedom of Information Manual 1994IBC Inside Back CoverIFC Inside Front CoverPC Premier’s CircularPF&AA Public Finance and Audit Act 1983PM Premier’s MemorandumSOCA State Owned Corporations Act 1989TC Treasury CircularTD Treasurer’s Direction

Index


72

Retail SalesNSW Lotteries’ products are sold throughout NSW and the ACT through a network of 1,615 agencies, of which 132 agencies retail Instant Scratchies only.

On-Line Selling Hours:

Monday to Wednesday 5:00 am to 8:00 pm

Thursday & Friday 5:00 am to 9:00 pm

Saturday 5:00 am to 7:30 pm

Sunday 5:00 am to 6:00 pm

Branch SalesSydney City

Pitt Street Store

City Tattersalls Building

200 Pitt Street, Sydney

Open (Public Holidays excepted):

Monday to Friday 8:00 am to 5:30 pm

Thursday evenings until 7:30 pm

Saturday 9:00 am to 1:00 pm

Homebush Bay

Level 2

2 Figtree Drive

Homebush Bay NSW 2127

Open (Public Holidays excepted):


Mail SalesMail sales are available by writing to:

Customer Sales Unit

PO Box 6687

Silverwater NSW 2128

How to Check Your TicketsYou can check your tickets:

• At any NSW Lotteries on-line Agency – either through the selling terminal or the results notices;

• By telephone:

- Customer Service - 1300 363 444

- Results Service - 1900 956 886

- SMS Service - 19 756 886

• Hearing Impaired Service - (02) 9752 5560

• On the Internet: www.nswlotteries.com.au

• By watching the televised Draws

• By Newspaper Results

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

Inquiries may be directed to 1300 363 444.

Corporate Headquarters2 Figtree Drive


Australia

Telephone (+61 2) 9752 5500

Fax (+61 2) 9752 5511

Hours of business:


Website addresswww.nswlotteries.com.au

Email [email protected]

Access to Services

2 Figtree Drive


PO Box 6687

Silverwater NSW 2128 Australia

Telephone (+61 2) 9752 5500

Facsimile (+61 2) 9752 5511

Hours of Business:

8:00am to 5:00pm Monday to Friday

Internet www.nswlotteries.com.au

E-mail [email protected]

★

7575 years1931~2006

a ticket for changeNSW Lotteries started with a very simple proposition. A ticket for fi ve shillings and threepence might just win you a fi ve thousand pound prize and change your life. Even if you didn’t win, you knew that you were helping to fund a worthy cause.

Today this simple proposition is still as compelling as it was three-quarters of a century ago. In current terms the minimum cost of a ticket is far cheaper, usually little more than a dollar, while prizes have skyrocketed into the tens of millions of dollars.

Most importantly, a NSW Lotteries entry has been a ticket for change - not just for the lucky winners - but for all the people of NSW who have benefi ted from the funds raised to help our community.