Statement of Performance Expectations€¦ · Brand engagement Given the intangible nature of our...

Statement of Performance Expectations

for the financial year ending 30 June 2017

Headline 1Headline 2

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2 Lotto New Zealand

This Statement of Performance Expectations sets out the financial forecast of the New Zealand Lotteries Commission (Lotto New Zealand) for the financial year from 1 July 2016 to 30 June 2017, and has been prepared in accordance with the Crown Entities Act 2004.

This Statement of Performance Expectations is written on behalf of the Board.

Judy KirkChair

27 April 2016

Tony MossmanDeputy Chair

27 April 2016

Table of contents

Crown copyright ©. This work is licensed under the Creative Commons Attribution 3.0 New Zealand licence. In essence, you are free to copy, distribute and adapt the work, as long as you attribute the work to Lotto New Zealand and abide by the licence terms. To view a copy of this licence, visit creativecommons.org.Please note that no logos may be used in any way that infringes on Lotto New Zealand’s copyright. Attribution to Lotto New Zealand should be in written form and not by reproduction of any such logo.

Lotto New Zealand’s strategic direction 5

Performance expectations 8

Prospective financial information 10

Forecast financial statements 11

Directory 19

4 Lotto New Zealand

Statement of Performance Expectations 2017 5

Lotto New Zealand’s strategic direction

Our purpose To provide safe gaming that allows New Zealanders to play and win while contributing money back to New Zealand communities.

GoalsIn all of our activities, we aim to:

• Maximise profits for transfer to the Lottery Grants Board for the benefit of New Zealand communities

• Minimise the harm from problem and underage gambling associated with our products.

OutputsLotto New Zealand has one class of outputs – our games. By successfully and responsibly promoting and running our games we will achieve our goals.

Strategic overviewLotto NZ exists to generate essential funding to help build strong Kiwi communities. Our goal is to maximise profits for transfer to the Lottery Grants Board for the benefit of New Zealand communities. The strategies outlined for the coming period focus on growing sales in order to deliver this goal. However, it is fundamental to our success as a business that we grow in a socially responsible way.

Our long-term strategic priorities remain in line with those set out in our 2016 - 2019 Statement of Intent. However, we have refined certain areas of the plan to reflect the changing operating environment and the performance of the business in the 2015/16 year. This is reflected in greater separation of the strategic shifts we would like to affect (strategic focus), from the activities we will undertake in order to meet our strategic goals (programmes of work).

Strategic focus The strategic focus for the business reflects the shifts we would like to affect over the coming period. These four areas, where we will focus our resources, are based on both the external influences impacting the business and the performance of Lotto NZ.

Driving demandWe need to ensure that we continue to drive demand for our games in order to deliver positive results in the short term.

Powerball jackpots are the largest driver of sales for Lotto NZ and it is therefore imperative that we continue to offer a strong Lotto Powerball game that creates excitement and captures the imagination of New Zealanders. Given the intangible nature of our products, loved brands that make New Zealanders feel good about playing our games and the contribution they’re making to the community will continue to be important. In addition to this, we need to ensure that we have a footprint that reflects changing shopper behaviour and that it remains convenient and easy to purchase our games, wherever and whenever our customers choose to play.

Growing digitalGiven the increasing proliferation of digital consumption, Lotto NZ needs to keep pace with the rate of change in the digital space.

Through evolving MyLotto we will ensure that we are meeting the increasing demands of our customers over the coming years. A new modern MyLotto platform, offering new games and engaging content, will facilitate a seamless experience across all devices. A focus on mobile reflects the growing importance of smartphones, as they are increasingly the favoured device for many consumers.

Increasing diversificationOver time we need to lessen our dependency on jackpot-fuelled growth and deliver a greater proportion of our sales from new customers.

This will be achieved by reaching more New Zealanders through extending the appeal of our games and brands to connect with an increasingly diverse market, together with developing our non-Powerball game portfolio to provide the business with a greater level of stable sales during times when we do not have high jackpots.

Front-footing disruption In the short term, offering a compelling portfolio of games of chance, available through a convenient retail network and engaging digital channel, will deliver strong performance for the business.

Looking out further we must ensure that we are tuned in to social and technology trends and that we have a comprehensive understanding of how consumers’ needs are evolving, in order to remain relevant to New Zealanders in the future.

6 Lotto New Zealand

Programmes of work In the 2016/17 year, we will be focusing on the following activities as we work towards meeting our long-term strategic goals.

Technology enablement The current MyLotto platform was launched in 2008, around the time that the first iPhone was launched in New Zealand. As a result, mobile was still in its infancy and MyLotto subsequently evolved as two completely separate websites, namely a desktop site and a mobile site. In line with the growth of the wider digital environment, MyLotto continues to represent an increasingly important channel for Lotto NZ. Over 575,000 visits are made to the MyLotto site every week, providing a great opportunity for us to further engage with these players and potentially convert them to playing online in the future. Over the coming year we will continue to invest in developing a new digital platform, including MyLotto desktop, mobile and App, to protect the integrity of the channel, reduce cost of development and allow us to further strengthen our digital offering. Given the growth of mobile devices, with mobile increasingly the first screen many consumers turn to, there will be a focus on mobile for both design and functionality. Through updated technology, we aim to provide useful utilities and services to enhance customer experiences both online and in-store

Retail experience The coming year will see us continue to focus on targeted growth within supermarkets and fuel stations. We know that less regular players are unlikely to go out of their way to purchase a Lotto ticket. Therefore being where people are already shopping and making the purchase as convenient as possible will encourage less frequent players to purchase more often. Specifically, the ability to sell Lotto tickets through an integrated point-of-sale solution at both supermarket checkouts and fuel stations allows for a single transaction, increasing the efficiency of the purchase process. We will also investigate opportunities to sell our games through new sectors, where Lotto has not traditionally had a presence, in areas of the country where we see per capita sales underperforming.

Game performance Our plan for the coming year will see us focus on improving the existing games within our portfolio. Following the introduction of Lotto twice a week in the 2015/16 year we now have a more compelling midweek offer for our players, with Lotto, Powerball

and Strike being drawn on both Wednesday and Saturday. The simplification of our offer in the large jackpot games space makes product enhancements easier in the future and we will be exploring opportunities to continue to improve the proposition of our core game. We will look to drive improvements across all elements of Instant Kiwi, as well as investigating the possibility of introducing online instant games, which have proved popular for overseas lotteries. The changes we make to our portfolio of games, together with relevant communications that talk to New Zealanders today, will ensure that we continue to offer great games that inspire more people to play our games more often.

Brand engagement Given the intangible nature of our products, a strong brand is imperative to the success of our business. A more prominent Lotto NZ brand helps New Zealanders feel good about playing our games and giving back to communities – and is therefore vital to driving sales and maximising profit for the Lottery Grants Board. The Powerball brand is all about making an emotional connection with New Zealanders, giving our players the chance to dream big about the possibility of a win. To further increase visibility and drive awareness of Lotto NZ, we will leverage our reach through New Zealand’s largest retail network with updated retail branding. We intend to generate greater awareness of the purpose of Lotto NZ by continuing to remind New Zealanders why we exist and the benefits that funding from Lotto NZ games provides to New Zealand communities.

Organisational shifts Advances in technology and the growth of the digital landscape have significantly changed the skills and capabilities many organisations require. In the 2016/17 year we will look to increase our level of digital capability across the organisation, through a combination of training and up-skilling programmes, along with enhancing our internal ways of working. Our ability to understand consumer trends and player behaviour is vital to our ability to engage with a more diverse set of consumers, and therefore putting the customer at the heart of our decision-making will continue to be central to the way that we operate the business.

Solid business foundations in financial management, responsible gaming, risk and security management, health and safety, and the operational availability and performance of our systems will support these programmes of work.


Lotto New Zealand performance driversThere is a very strong correlation between the size of the Powerball jackpot on offer and the number of people playing our games. As the jackpot grows, so do the number of people playing, specifically we see more infrequent players come into the category who only play at the higher levels. As a result, the length of jackpot runs, and corresponding first division prizes on offer, has a direct impact on our performance in any given year. This brings with it a degree of volatility that needs to be accounted for when forecasting.

We have experienced both the upside and downside of this volatility over the past few years, which has materially impacted the profit generated in any given year. High jackpots in 2013/14 resulted in net profit of $226.2 million (which was bolstered by an additional $5 million from the sale of Lotto NZ’s Auckland building in that year), while lower levels of jackpots the following year saw profits of $198.6 million.

Volatility in profit has been further accentuated in recent years by a managed reduction in the size of the prize reserve fund. This fund represents cash reserves the business carries to self-insure against the risk of jackpots being struck more frequently than would be statistically likely. From 2012/13 through to and including 2014/15, the level of cash reserves has been reduced with the effect of further increasing profit over that period.

Estimated profits in the 2015/16 year are likely to be below the budget of $200.2 million. This is on the back of another year where the Powerball jackpot was won more often than what we would expect in a statistically typical year.

A forecast of $191.1 million profit for 2016/17 is based on a statistically normal year for Powerball jackpots and a stable prize reserve fund and takes into account game enhancements during the year.

8 Lotto New Zealand

Performance expectations

Statement of performance expectations for the year ending 30 June 2017We have just one output class to report on – our games. The information in these tables reflects the measures Lotto NZ considers relevant to external stakeholders, in order to evaluate performance in the 2016/17 financial year.

KPIs Actual 2014/15

Target 2015/16

Estimate 2015/16

Target 2016/17

Sales ($m) 893.7 (1) 997.4 (2) 922.0 (2)(3) 947.3

Operating expenses ($m) 62.8 66.0 62.5 65.4

% operating expenses (4) 7.0 6.6 6.8 6.9

Net profit ($m) 198.6 200.2 180.5 191.1

Paid to the Lottery Grants Board ($m) 198.6 200.2 180.5 191.1

Lotto/Powerball/Strike Sales ($m) 545.4 749.1 681.8 754.9

Gross margin ($m) 136.7 204.1 177.4 207.6

Instant Kiwi Sales ($m) 147.0 154.5 141.2 145.5

Gross margin ($m) 22.1 22.3 19.7 20.3

Other games Sales ($m) 49.3 51.5 46.2 46.9

Gross margin ($m) 12.4 12.1 11.2 11.0

KPIs Actual 2014/15

Target 2015/16

Estimate 2015/16

Target 2016/17

Primary mode of gambling citations per 10,000 players (5) 1.1 <1.5 2.0(5) <2.0(5)

Note: Sales, and hence profits, in any one year are subject to considerable fluctuation depending on the length of jackpot runs for Powerball and Big Wednesday. Actual net profit for 2104/15 included additional amounts of around $17.5 million relating to prize payments funded from the prize reserve account. This was able to be facilitated due to the prize reserve account being higher than required, at the time, for its intended purpose.

1 Total sales in 2014/15 also included $152.0 million from Big Wednesday which was replaced by a Wednesday draw of Lotto, Powerball and Strike in October 2015

2 For 2015/16 the sales target includes $42.2 million and the total sales estimate includes $52.8 million from Big Wednesday, which was replaced by a Wednesday draw of Lotto, Powerball and Strike in October 2015

3 2015/16 estimate as at March 2016. The difference between 2015/16 target and estimate relates mainly to the unusually high number of short Lotto Powerball jackpot cycles in the year to date

4 Operating expenses as a percentage of sales5 Number of players defined as the average number of New Zealanders aged 18 and above who state they have purchased one or

more Lotto New Zealand products in the past year. Source: Colmar Brunton. Estimate for 2015/16 is based on the estimated number of presentations for the half-year to 31 December 2015, pro-rated for the 12-month period and is subject to change. Source: Ministry of Health. There has been a change to the methodology used to calculate problem gambling citations, whereby all gambling modes are now recorded as primary gambling modes. The 2016/17 target takes into account this change in methodology

Profit maximisation

Harm minimisation


KPIs Actual 2014/15

Target 2015/16

Estimate 2015/16

Target 2016/17

Lotto NZ brand health (9) – – 61% 64%

KPIs Actual 2014/15

Target 2015/16

Estimate 2015/16

Target 2016/17

Average weekly sales ($m) 17.2 19.2 17.7 18.2

Average weekly transaction count (m) 1.23 - 1.25 1.30

KPIs Actual 2014/15

Target 2015/16

Estimate 2015/16

Target 2016/17

Retail sales ($m) 818.2 908.5 837.3 856.4

Number retail outlets 1345 - 1375 1485

Supermarket penetration (7) 80% - 82% 84%

KPIs Actual 2014/15

Target 2015/16

Estimate 2015/16

Target 2016/17

Digital sales ($m) 75.5 88.9 84.7 90.9

Number registered MyLotto players 380,000 - 437,000 495,000

MyLotto usage – average weekly visits (6) 489,000 - 577,000 627,000

KPIs Actual 2014/15

Target 2015/16

Estimate 2015/16

Target 2016/17

Retail network unplanned downtime 0 hours <4 hours 0 hours <4 hours

Core gaming system unplanned downtime 0 hours <0.5 hours 0 hours <0.5 hours

MyLotto unplanned downtime 4 hours (8) <0.5 hours 0 hours <0.5 hours

Brand engagement

Game performance

Retail experience

Technology enablement

Operational performance

6 Average number of weekly visits to the MyLotto site. Source: Google Analytics7 Supermarkets include Countdown, New World, Pak n Save and Fresh Choice8 Four hours of downtime due to outages on the 4 April, 7 May and 14 May 2015 caused by a software defect in the MyLotto

mobile website. The issue was resolved following 14 May outage and has not occurred since10 % of people who answered ‘like’ or ‘love’ to the question ‘How do you feel about Lotto NZ?’ Source: Colmar Brunton

10 Lotto New Zealand

The prospective financial statements reflect Lotto New Zealand’s budget for the year ending 30 June 2017, forecast financial position at 30 June 2016, and forecast results of operations and cash flows for the year ending 30 June 2016. They have been prepared in accordance with section 142(1)(a) of the Crown Entities Act 2004 and were authorised for issue by Lotto New Zealand’s Board on 27 April 2016. The purpose of the prospective financial statements is to facilitate Parliament’s consideration of the planned performance of Lotto New Zealand. Use of this information for other purposes may not be appropriate.

The budget and forecast have been prepared on the basis of assumptions as to future events that Lotto New Zealand’s Board reasonably expects to occur.

The Board is responsible for the prospective financial statements presented, including the appropriateness of the assumptions underlying the prospective financial statements and all other disclosures.

The forecasts, in respect of the year ending 30 June 2016, incorporate the actual financial results for the nine months to 31 March 2016.

Actual results are likely to vary from the forecasts, and variations may be material.

It is not intended that the forecasts will be updated subsequent to the issue of this Statement of Performance Expectations.

Prospective financial information


Forecast financial statements

2017Budget

$000

2016Projection

$000

2015Actual

$000

Revenues (note 3) 901,029 877,979 848,538

Cost of sales (note 4) 644,548 634,986 587,167

Gross profit 256,482 242,993 261,371

Expenses

Promotion and retail support (note 5) 26,567 23,262 24,542

Property, plant and equipment depreciation 4,869 4,907 5,054

Computer software amortisation 1,897 2,047 1,597

Gaming system 7,041 6,587 6,215

Employee benefits 13,987 13,699 12,462

Other 11,039 12,003 12,898

Total expenses 65,400 62,505 62,768

Profit 191,082 180,488 198,603

Distributions to the New Zealand Lottery Grants Board 191,082 180,488 198,603

Profit/(loss) after distributions to the New Zealand Lottery Grants Board - - -

Other comprehensive income - net change in fair value of cash flow hedges - - 849

Total comprehensive income/(expense) - - 849

The accompanying notes form part of this statement and should be read in conjunction with it.

2017Budget

$000

2016Projection

$000

2015Actual

$000

Total comprehensive income after distribution to the Lottery Grants Board - - 849

Equity of beginning of the period 23,113 23,113 22,264

Total comprehensive income for the period as above - - 849

Equity at the end of the period 23,113 23,113 23,113


Prospective statement of comprehensive incomeFor the period ended 30 June 2017

Statement of movements in equityFor the period ended 30 June 2017


2017Budget

$000

2016Projection

$000

2015Actual

$000

Assets

Current assets

Cash and cash equivalents 29,994 27,845 30,180

Term deposits 19,700 20,700 20,551

Debtors and other receivables 5,200 4,200 8,161

Prepayments 4,100 4,400 3,360

Inventories 3,500 3,500 3,204

Total current assets 62,494 60,645 65,456

Non-current assets

Property, plants and equipment 17,663 18,510 20,034

Computer software 8,417 7,674 5,847

Long-term financial derivatives - - -

Total non-current assets 26,080 26,184 25,881

Total assets 88,574 86,828 91,337

Liabilities

Current liabilities

Creditors and other payables 44,169 41,990 49,851

Annuity prize liabilities - - 50

Employee entitlements 700 700 648

Provisions - - 486

Lease incentive 235 235 235

Total current liabilities 45,104 42,925 51,270

Long term liabilities

Lease Incentive 1,236 1,471 1,706

Total long term liabilities 1,236 1,471 1,706

Prize reserve account 19,121 19,319 15,248

Total liabilities 65,461 63,715 68,224

Equity

Retained earnings 23,113 23,113 23,113

Total equity 23,113 23,113 23,113

Total liabilities and equity 88,574 86,828 91,337


Prospective statement of financial positionAs at 30 June 2017


2017Budget

$000

2016Projection

$000

Cash flows from operating activities

Ticket sales 892,079 869,049

Other receipts 7,451 6,152

Prize payments (524,169) (518,209)

Lottery duty (52,100) (50,711)

Retailers' commission (61,310) (59,882)

Employee costs (13,987) (13,699)

Other payments (51,616) (48,037)

Net cash flow from operating activities 196,347 184,663

Cash flows from investing activities

Sale of property, plant and equipment 45 135

Interest received 2,500 2,602

(increase)/decrease in term deposits 1,000 300

Purchase of property, plant and equipment (4,021) (2,867)

Purchase of computer software (2,640) (4,391)

Net cash flow from investing activities (3,116) (4,221)

Cash flows from financing activities

Discharge of annuity prize liabilities - (50)

Payments to the New Zealand Lottery Grants Board (191,082) (182,728)

Net cash flow from financing activities (191,082) (182,778)

Net (decrease)/increase in cash balances 2,149 (2,335)

Opening cash and cash equivalents balance 27,845 30,180

Closing cash and cash equivalents balance 29,994 27,845


Statement of cash flowsFor the period ended 30 June 2017


1. Accounting policies

REPORTING ENTITYThe New Zealand Lotteries Commission (Lotto New Zealand) is a Crown entity as defined by the Crown Entities Act 2004 and is domiciled in New Zealand. Lotto New Zealand’s ultimate parent is the New Zealand Crown.

Lotto New Zealand has determined that it is a profit-oriented entity for the purpose of complying with the New Zealand equivalent to International Financial Reporting Standards and applies Tier 1 For-profit Accounting standards.

BASIS OF PREPARATIONAccounting complianceThese forecast financial statements comprise prospective financial information and have been prepared in compliance with New Zealand Financial Reporting Standard No. 42 – Prospective Financial Statements (FRS-42).

Basis of measurementThe measurement base applied is historical cost modified by the revaluation of certain assets and liabilities as identified in this statement of accounting policies. The accrual basis of accounting has been used unless otherwise stated.

These financial statements are presented in New Zealand dollars rounded to the nearest thousand.

ACCOUNTING POLICIESThe accounting policies set out below have been applied consistently to all periods presented in these financial statements.

Changes in accounting policiesThere have been no changes in accounting policies since the date of the audited financial statements for the year ended 30 June 2015.

ComparativesThe 30 June 2015 figures are those published in the Annual Report 2014/15.

When presentation or classification of items in the financial statements is amended or accounting policies are changed voluntarily, comparative figures are restated to ensure consistency with the current period.

Computer software

Computer software that is not integral to the operation of hardware is recorded at purchase cost less any amortisation and impairment losses. Amortisation is charged to the profit or loss on a straight line basis over the software’s useful life of three to seven years.

The useful life of computer software is reviewed at least annually to determine if there is any indication of impairment. Where any software’s recoverable amount is less than its carrying amount, it is reported at its recoverable amount and an impairment loss will be recognised in profit or loss.

Contingent assets and contingent liabilitiesContingent liabilities are disclosed if the possibility that they will crystallise is not remote. Contingent assets are disclosed if it is probable that the benefits will be realised.

Employee entitlementsEmployee entitlements to salaries and wages, annual leave, long service leave and other similar benefits are recognised in the profit or loss when they accrue to employees.

Obligations for contributions to the defined contribution retirement plan are recognised in surplus or deficit as they fall due.

Termination benefits are recognised in surplus or deficit only when there is a demonstrable commitment to either terminate employment prior to normal retirement date or to provide such benefits as a result of an offer to encourage voluntary redundancy.

Financial instruments

Cash and cash equivalents, and term deposits

Cash and cash equivalents include cash on hand, bank accounts and deposits with maturities of up to three months from acquisition date.

Term deposits represent deposits and other instruments with maturities of more than three months from acquisition date.

It is Lotto New Zealand’s policy to restrict its investments to instruments issued or guaranteed by either the New Zealand Government or registered New Zealand banks. Although investments are normally held to maturity, they are readily

Notes to the forecast financial statements


marketable and therefore may be regarded as liquid assets. The value of investments held fluctuates as changes in market interest rates occur. However, the extent of such fluctuations in value is relatively minor.

Cash equivalents and term deposits are recorded at cost, adjusted in the case of government stock by the amortisation of any premium or discount included in the purchase price.

Annuity prize liabilities

These represent prizes payable from Instant Kiwi games where the payments are spread over a period of greater than 12 months from the date the prizes are claimed. These liabilities are initially measured at fair value using the effective interest rate method. Any changes in value are recorded through the prize reserve account.

Foreign currency transactionsForeign currency transactions are translated into New Zealand dollars using the exchange rates prevailing at the dates of the transactions.

Goods and Services Tax (GST)All items in the financial statements are exclusive of GST, with the exception of amounts due from retailers for current games, trade receivables, moneys received for games not drawn at balance date, and trade creditors.

InventoriesInventories held for sale are recorded at the lower of cost (calculated using the first in, first out (FIFO) method) and net realisable value.

The write-down of inventories to net realisable value is recognised as an expense in the period the write-down occurs.

InterestInterest income is recognised using the effective interest rate method.

Interest on cash equivalents and term deposits relating to unpaid prizes and the prize reserve account is credited direct to the prize reserve account. Interest on other cash equivalents and term deposits is credited in profit or loss.

Estimates and assumptionsIn preparing these financial statements, Lotto New Zealand has made estimates and assumptions concerning the future. These estimates and

assumptions may differ from the subsequent actual results. Estimates and judgements are continually evaluated and are based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There are no estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Critical judgements in applying accounting policiesLotto NZ has assessed the prize reserve fund as a liability as itemised in the prize reserve account policy below. No other critical judgement has been made when applying accounting policies.

LeasesOperating leases, where the lessor substantially retains the risks and rewards of ownership, are recognised in a systematic manner over the term of the lease. Leasehold improvements are capitalised and the cost is amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is shorter. Lease incentives received are recognised evenly over the term of the lease as a reduction in rental expense.

Prize reserve accountThis account is established in accordance with the requirements of the Rules governing the conduct and operation of Lotto New Zealand’s games. Transfers into this account comprise amounts set aside from the prize pools for games, together with prizes unclaimed after 12 months from the date of the relevant draw or game closure and interest earned on investments representing prize liabilities. Funds accumulated in this account are used exclusively for the purposes of augmenting the prize pools for various draws and games. The balance in the account fluctuates as a result of a number of factors, the most significant of which is the frequency of Lotto Powerball and Big Wednesday division one wins. Long jackpot runs typically result in an increase in the balance. Conversely, wins early in the jackpot cycle cause a decrease in the balance in the account.

Property, plant and equipmentItems of property, plant and equipment are initially recorded at cost.


Additions

The cost of an item of property, plant and equipment is recognised as an asset only when it is probable that future economic benefits or service potential associated with the item will flow to Lotto New Zealand and the cost of the item can be measured reliably.

Disposals

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses on disposals are included in the profit or loss.

Subsequent costs

Costs incurred subsequent to initial acquisition are capitalised only when it is probable that future economic benefits or service potential associated with the item will flow to Lotto New Zealand and the cost of the time can be measured reliably. The costs of day-to-day servicing of property, plant and equipment are recognised in the profit or loss as they are incurred.

Depreciation

Depreciation of property, plant and equipment, other than freehold land, which is not depreciated, is calculated on a straight-line basis so as to allocate the cost of the assets, or the revalued amount, over the shorter of the economic life or the relevant lease periods as follows:

Gaming computers, associated equipment and integral software

4-7 years

Other computer hardware 3 years

Leasehold improvements 1-9 years

Draw equipment 5 years

Furniture and fittings 10 years

Motor vehicles 4 years

Office equipment 5 years

Building 10-50 years

The residual value and useful life of an asset is reviewed, and adjusted if applicable, at each financial year end. If an adjustment to the useful life of an asset is made then the remaining book value at that point is depreciated on a straight line basis over the adjusted remaining life of the asset.

Revenue and expense recognitionRevenues and corresponding direct expenses for Lotto (including Lotto Strike and Powerball), Keno, Bullseye, Play3 and Big Wednesday are recognised when each lottery is drawn. Instant Kiwi revenue and corresponding direct expenses are recognised when retailers activate ticket stock prior to sale to players, making those tickets part of a game.

Taxation

Lotto New Zealand is exempt from income tax by virtue of Section 264 of the Gambling Act 2003.

The following taxes are paid by Lotto New Zealand:

• Lottery duty of 5.5 cents in the dollar on GST-inclusive sales

• Problem gambling levy on GST-inclusive sales less prizes payable

• GST charged on lottery sales less related prizes payable

• Fringe benefit tax

• Non-resident withholding tax.

2. Principal assumptionsThe principal assumptions made in arriving at the forecasts for the remainder of 2015/16 and for 2016/17 are as follows:

• There will be no major outages affecting our lottery systems

• There will be no changes in lottery duty or taxation which will continue to be levied on Lotto New Zealand on the same basis as at March 2016

• There will be no statistically abnormal series of jackpot runs for Powerball. Major variations in jackpotting behaviour may have a significant effect on actual financial results

• There will be no major global lotteries initiative over the internet during 2016/17.


2017Budget

$000

2016Projection

$000

2015Actual

$000

Sales including GST 947,265 922,020 893,673

GST 55,186 52,971 54,556

Sales excluding GST 892,079 869,049 839,117

Other revenue 8,951 8,930 9,421

Total Revenues 901,029 877,979 848,538

3. Revenues

2017Budget

$000

2016Projection

$000

2015Actual

$000

Lottery duty 52,100 50,711 49,152

Problem gambling levy 1,269 1,218 1,154

Retailers' and interactive commission 61,310 59,882 58,239

Prizes paid and payable 472,802 467,718 437,335

Prize reserve account 51,367 50,491 35,961

Ticket costs 4,948 4,236 4,165

Cost of goods sold to retailers 751 730 1,161

Total cost of sales 644,548 634,986 587,167

2017Budget

$000

2016Projection

$000

2015Actual

$000

Media advertising 11,154 11,018 11,161

Media production and draw 6,446 5,220 7,908

Point of sale, game stationery and distribution 4,377 4,155 3,469

Retail revitalisation 2,916 456 2

Promotion and retail support other 1,674 2,413 2,001

Total promotion and retail support 26,567 23,262 24,542

4. Cost of sales

5. Promotion and retail support

Included within the retailer revitalisation costs for 2016/2017 is a $2.75 million allocation for the ‘Lotto NZ’ rebranding of our retail network.


Auckland officeLevel 1, 73 Remuera RoadRemuera, Auckland 1050PO Box 8929, Symonds StreetAuckland 1150

Telephone 09 356 3800Facsimile 09 366 1605

Board membersJudy Kirk, ONZMChair

Tony MossmanDeputy Chair

Miranda Burdon

Mark Gilbert

Keiran Horne

Logan Sears

Executive teamWayne PickupChief Executive

Dan BalasoglouChief Financial Officer

Ben ConeyChief Innovation and Technology Officer

Guy CousinsChief Marketing Officer

Kathryn HaworthGeneral Manager, Strategy

Chris LymanChief Operating Officer

Emilia MazurGeneral Manager, Corporate Communications and Social Responsibility

Amie McKinlayGeneral Manager, People, Culture and Brand

Wellington officeLevel 1The Woolstore Design Centre258 Thorndon QuayPO Box 9448Wellington 6011

Christchurch office66-68 Mandeville StreetPO Box 8609RiccartonChristchurch 8011

ContactWebsite mylotto.co.nzEmail [email protected] 0800 695 6886

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