Aristocrat Leisure Limited

Thank you for standing by and welcome to the Aristocrat FY20 results briefing conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Trevor Croker, CEO. Please go ahead.

Good morning. Welcome to Aristocrat Leisure Limited's financial results presentation for the 12 months to 30th of September 2020. My name is Trevor Croker, Chief Executive Officer and Managing Director of Aristocrat. It is a pleasure for me to be presenting today along with Julie Cameron-Doe, our Chief Financial Officer. Thank you for joining us. Before we begin, please note the usual disclaimer statement on page two of our investor presentation pack. Turning to slide three. Full details of the results are contained in the operating and financial review document released this morning. In today's session, we will first address our business's response to the challenges of COVID-19 during the reporting period, including the refinement of our group growth strategy. We'll then step through a summary of our group results and performance across our two operating businesses, Aristocrat Gaming, formerly referred to as our land-based business, and Aristocrat Digital, I'll close by saying a few words on our expectations for the 2021 financial year before opening a line for Q&A. For clarity, all references to prior corresponding period or PCP represent the 12 months to 30 September 2019 and are expressed in reported terms unless otherwise specified. Normalised results refer to the reported results excluding the impact of certain significant items during the period. As set out in the materials released today, these are COVID-related government benefits, contingent retention arrangements related to the acquisition of Plarium, an onerous lease obligation with the big fish business, an expense related to the legal settlement disclosed in May this year, and recognition of a deferred tax asset of over $1 billion in line with the group structure changes announced in November 2019. While the group was on track to deliver growth in line with our plans before the pandemic hit, results in our gaming business were materially impacted by customer venue closures and the implementation of social distancing measures that have been in place across key gaming markets globally since March 2020. In the context of this unique, challenging year, I'll begin by speaking to our COVID response, the progress we made and how Aristocrat is positioned heading into the 2021 financial year. Turning to slide four. At the outset, I want to express my deep appreciation and respect for the resilience and commitment shown by our people over the past 10 months. Their care for each other, their focus on our customers and players and their absolute determination to deliver what has been critical to getting us to where we are today. Their safety and well-being and the safety and well-being of our customers, suppliers and other stakeholders remain our first priority. It's never been more clear that our people are the heart of our business. our most important responsibility and our biggest asset. Our 2020 sustainability disclosures will be published to our website at the end of the month. And in it, we are sharing just a few of the inspiring ways our people have risen to the challenges we've faced this year. I'd encourage everyone to review the report. And in the meantime, to the more than 6,000 risk-prone people around the globe, let me simply say thank you. While today's results demonstrate the impact of the pandemic during the period, they also highlight the group's strengths, and the effectiveness of our business's response over the past 10 months. As always, we've focused on what we can control to protect and extend our strategic advantage and position the business for future growth. We've accelerated our diversification over the past several years by entering more adjacent markets, segments, and game genres. We've also driven scale and digital, adding a material B2B operational engine to the group and delivering further diversity to a revenue base that is now almost 80% recurring rather than one-off in nature. The benefits of this diversification are evident in our results for the period, during which we have maintained revenues in excess of $4 billion at group level, while protecting the business and maintaining investment behind our strategic differentiators for the future. Throughout 2020, we confirmed our commitment to our industry-leading D&D, or design and development, organisation. while also maintaining strong investment in digital games and user acquisition, and continuing to commit capital to further grow our gaming operations footprint. We also invested more in strategic capabilities, including customer experience, cybersecurity, and data capability, among other priorities. At the same time, we took the opportunity presented by this crisis to improve. Ariskrat pivoted to an explicitly people-first focus, energizing our culture and offering more support flexibility and recognition to our people. An average engagement score of 8.5 was achieved through the reporting period, which is significantly above industry benchmarks. We also experienced no loss of business momentum despite the disruptions and remote working arrangements. We made difficult but important decisions to further support our liquidity. This included a significant rebasing of our big fish business, which is now poised for more profitable, sustainable growth. We chose to reinvest a portion of the $100 million savings in operating expenses identified in the second half of the fiscal year 2020 compared to the PCP behind growth drivers such as our customer service, product development and user acquisition. In addition, we sharpened our operational priorities in gaming and focused on supporting customers with higher levels of service, flexibility and tailored commercial options to help them recover as quickly as possible. Furloughed staff were brought back to work early to help customers prepare to reopen safely and underline our commitment to being partners of choice to our customers. Aristocrat's long-term focus on lifting our competitiveness through outstanding people and products positioned us to benefit in digital and in gaming as demand began to return through the later half of the reporting period. This is evident in the share gains achieved by our gaming business in key markets over the years. along with outstanding customer feedback and industry data on portfolio performance, particularly in our largest markets in North America and in Australia. Our digital business also took share across core genres, reflecting our investments in improving the Product Madness portfolio and scaling the world-class title Raid Shadow Legends, along with broader portfolio performance and COVID-related tailwinds. At period end, Aris created excellent liquidity, low debt, and a balance sheet that provides the group with full optionality. We have a revitalised team and people first culture. Our strategy has been reaffirmed and we are focused on accelerating it and making the most out of the opportunities presented by disruption. While we continue to manage the new term impacts and volatility driven by the pandemic across global markets, we believe we are ideally placed and will continue to be proactive, ambitious and focused in our response to these unique challenges. I'll now turn to a summary of our group growth strategy on slide five. During the year, we took the prudent steps of reviewing our growth strategy in the context of COVID. Our strategy aims to deliver high quality, sustainable profit growth by continuously improving the quality and breadth of our product portfolios. We achieved this by investing in great people, product and capability, building on foundations of strong culture, governance and financial rigour. Our approach is summarised in a diagram, iterations of which have been shared with the market previously. We took the opportunity to retest our short and long-term assumptions and consider potential changes in underlying trends as relevant to our business, customers, players and broader markets. In summary, the review confirmed the soundness of our strategy and its ongoing relevance in a COVID-impacted world. We have expanded and reordered some priorities, and in some cases we've been encouraged to move faster in executing our plans. The text in red represents new language demonstrating some of the refinements implemented as a result of the review. For example, we're placing more emphasis on upskilling leaders and broadening new strategic capabilities. We're also bringing a deeper focus on people, drawing on the lessons of COVID, and embracing opportunities presented by the changing nature of work. Customer Experience Leadership, or CX as we describe it, is all about unlocking new value streams by delivering customers and gaming patrons connected products and services in line with their changing needs and underlying consumer trends. With the benefit of a dedicated CX team, we're increasingly leveraging our strong customer partnerships, compelling content and growing capability to deliver seamless experiences beyond the gaming floor. During the reporting period, CX successfully launched our first mobile loyalty products for a major US customer. In the context of COVID and with the encouragement of our customers, we will continue to significantly escalate our focus on convergence products and services in the period ahead. We are also emphasising our readiness to invest to accelerate our progress. Where we see quality opportunities, we will consider unlocking them through organic investment, M&A or internal synergies and collaboration. For example, in the period, we concluded two deals to acquire access to more world-class game development capability in digital. Investments in the proven game studios Neskin and Proteus signal our intent. We have the balance sheet strength and the track record to support bold moves as well as incremental ones. These are changes in emphasis and in some cases priority, but the foundations of our approach won't change at all. We'll continue to grow our market-leading portfolios with strong investment in gaming D&D, digital pipeline expansion and smart user acquisition. We will continue to focus on taking share wherever we choose to play. Whilst driving strong operating cash flow, good governance, balance sheet strength and operational excellence remain core along with our commitment as a group to grow strongly and sustainably. Taken as a whole, COVID has helped to confirm our strategic direction as a business while sharpening our focus and highlighting our priorities. Moving to a summary of aristocrats' performance for the 2020 financial year on slide 7. Aristocrats' group results for the 2020 financial year were materially impacted by COVID-related headwinds as previously flagged. Normalised profit after tax and before amortisation of acquired intangibles, or MPAT-A, of $476.6 million represents a decrease of 47% in reported terms, and 49% in constant currency, compared to the $894.4 million delivered in 12-month period to 30 September 2019. Revenue decreased by 6% to approximately $4.1 billion, with COVID impacts on the gaming business partly offset by strong growth in digital, again demonstrating the benefits of our diversification strategy. Earnings before interest, tax, depreciation and amortisation, or EBDA, fell around 32% compared to the PCP to almost $1.1 billion. Fully diluted earnings per share before amortization of acquired intangibles of 74.7 cents represents a 47% decrease compared to the PCP. Operating cash flow of over $1 billion was achieved, reflecting a relatively modest decrease of 5.8% compared to the PCP. This demonstrates the business' strong underlying cash flow capabilities enhanced by targeted COVID responses. Balance sheet quality was once again a feature of aristocrats' results. Net gearing at period end was 1.4 times flat on the PCP. This was driven by positive cash flow generation throughout the period. Liquidity was further enhanced by proactive measures, including increasing the group's revolving credit and term loan B facilities and cancelling the interim dividends. In view of aristocrats' effective COVID response and confidence in our strengthening performance, the directors have authorised a fully franked dividend of 10 cents per share, 63.9 million Australian dollars, in respect to the period ended 30 September 2020. This represents a decrease of 82% or 46 cents. The record date will be 2 December and the payment date will be 18 December. The underlying operational strength of the business was evident during the period, with a further lift in share and market-leading fee per day for the North America's gaming operations segment. Digital performance reflected our success in building the competitiveness of our social casino portfolio through investment in live ops, features and new slot content, as well as the momentum of Raid Shadow Legends and new games launches. Performance also benefited from the tailwind of COVID stay-at-home mandates. As I mentioned, we took a strategic decision to maintain industry-leading D&D investment through the period to protect our core advantages in product, fuel expansion into new adjacencies, and position the business for longer-term growth. We experienced no loss of momentum in our product organisation with high productivity and full focus on recalibrated priorities. Over the 2020 full year, D&D investment fell fractionally in absolute terms by $2.5 million to $49.8 million. This is a strong result at the top end on the range of 11% to 12% of revenue that businesses allocated across recent years. At the same time, we invested aggressively in user acquisition, or UA, to support growth in digital at a time of opportunity. UA investment of just under US$450 million represented 28% of segment revenue, up 1.7 percentage points compared to the PCP. I'll now invite Julie Cameron-Doe, RiskRat's Chief Financial Officer, to take us through further details of group results beginning on slide eight, Julie.

Thank you, Trevor, and good morning, everyone. I will first step through the composition of Aristocrat's reported NPAT performance of $476.6 million, normalised for significant items and reconciled to the PCP. As Trevor mentioned, this result represents a 47% decrease, or 49% in constant currency. compared to the PCP, and has been fundamentally driven by COVID-related impacts across all regions of the gaming business, partly offset by strong growth in digital. NPAT performance was also supported by a range of prudent cash preservation measures Aristocrat implemented across our non-digital operations in response to the pandemic. Stepping through the chart from the left-hand side, profit in the Americas business fell $414 million compared to the PCP, This reflected a material reduction in capital spend by customers and lower overall gaming operations revenue due to venue closures and the impact of social distancing measures experienced since March. In the outright sales markets of ANZ and International Class III, profits fell $112 million and $45 million respectively compared to the PCP, reflecting COVID impacts as well as the broader economic impact of bushfires and drought in ANZ. Underlying performance remained robust, with leading ship share sustained across key markets. The digital business delivered almost $130 million in incremental profit, demonstrating strong portfolio performance, as Trevor mentioned, including growth in social casinos, the ongoing success of Raid Shadow Legends, and new game launches. Corporate costs and interest increased by $12.3 million compared to the 12 months to 30 September 2019, largely driven by least interest. D&D represents the business's investment in talent and technology to drive long-term differentiation and sustainable growth. We continue to invest strongly in D&D over the year, with deliberate and rigorous prioritization of resources, resulting in a modest $9 million reduction in spend compared to the PCP. A decrease in the group's effective tax rate from 27.5% to 24.9% compared to the PCP drove a $10.9 million reduction in cost with the recognition of a deferred tax asset of approximately $1.1 billion. This reflects the impact of changes in group structures announced in November 2019. Finally, favourable foreign exchange movements reflecting a weaker Australian dollar increased profit by a further $16.4 million compared to the PCP. Turning now to slide nine. Net debt for the full year of just under $1.6 billion compared to net debt of around $2.2 billion reported at 30th of September 2019. This represents a net debt to EBITDA leverage ratio of 1.4 times in line with the PCP. As of 30th of September 2020, Aristocrat had total liquidity of just under $2 billion, comprised of cash and $277 million in available credit. This reflects the number of steps taken during the year to optimize our liquidity, including an increase in the group's revolving credit facility limit from $150 million to $286 million in April 2020, and insurance of a new $500 million U.S. incremental term loan B facility in May. Our debt facilities remain competitively priced at a weighted average of LIBOR plus 217 basis points. Credit agreements remain covenant light and provide the group with ample financial flexibility. The business also maintains stable credit ratings through the recent volatility. The group's balance sheet strength and debt profile continues to provide us with financial certainty, flexibility, and full optionality going forward. Turning now to cash flow on slide 10. The group's cash-generating fundamentals remained strong, despite the impacts of COVID, with operating cash flow of over $1 billion for the period. This represented a modest 5.8% fall compared to the PCP. This again highlights what is a core strength for Aristocrat, and also demonstrates a further increase in the proportion of recurring revenues in our total group revenue mix. Capital expenditure decreased almost 22% from around $317 million in the PCP to just under $250 million, reflecting investment in hardware required to support growth in the North American gaming operations installed base. This expenditure reduced significantly in the second half of the period compared to the PCP due to the impact of COVID. As Trevor mentioned, significant items in the period are detailed in the OFR document released this morning. That concludes the summary of group performance. I will now pass back to Trevor to comment on operational performance and outlook for the 2020 financial year. Trevor.