Aristocrat Leisure Limited

Good day and thank you for standing by. Welcome to Aristocrat half-year 2024 results conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on the telephone. You'll then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I'll now let the head of call over to Trevor Cooker CEO and Managing Director of Aristocrat. Thank you. Please go ahead.

Good morning and welcome to Aristocrat's financial results presentation for the half year to 31 March, 2024. My name is Trevor Croker, Chief Executive Officer and Managing Director of Aristocrat. I'd like to begin by acknowledging the Wattamatical clan of the Eora people, traditional owners of the land on which we meet today. And I pay my respects to elders past and present. He with me in Sydney is Sally Demby, our Chief Financial Officer, and Hector Fernandez, CEO of Aristocrat Gaming, with other executives on the line. Today, I'll step through the highlights of the results and provide an update on our strategy. Sally will then discuss our group financial results and balance sheet, after which I'll run through the operational performance and outlook. Please note the usual disclaimer statement at the back of the deck. This is once again an outstanding result, illustrating Aristocrat's resilience and ability to grow strongly through different operating environments. Our revenues grew 6% over the period, while our segment profits grew 15%, with positive operating leverage evident in a number of areas. Aristocrat Gaming delivered another strong top-line performance, driven by market share gains and install-based growth in gaming operations, with margins benefiting from the robust performance of our rest-of-world operations. PepsiUnited finished the half year with encouraging revenue momentum and margin expansion, driven by innovative marketing campaigns in RAID and ongoing cost efficiency. Our newly rebranded division, Aristocrat Interactive, performed strongly as we prepared for the integration of NeoGames, demonstrating momentum in both systems and iGaming. Strong MPAD-A growth of 16% over the half reinforces our confidence for the full year and we reiterate our outlook that Ariskrat plans to deliver MPA day growth over the full year to 30 September 2024. Sally will share more details on the numbers shortly. I'll now turn to our strategy. We've announced today that Ariskrat intends to conduct a strategic review of the group's casual and mid-core gaming assets, that is, Big Fish Games and Plarium Global. No decisions have been made yet, and the process will assess all options to maximise shareholder value and ensure the ongoing success of these businesses going forward. Aristocrat has a track record of successfully acquiring and integrating businesses. The group creates value by generating growth and bringing strategic capabilities to the risk-rep business. The acquisitions of Big Fish and Plarium Global are good examples of this, as they have added significant scale to Aristocrat's social casino and broader digital offering, while enhancing the group's resilience and proving to be critical assets through the COVID period. Both acquisitions have brought valuable content and capability that have enhanced the portfolio. With the expanded aristocrat interactive business now sitting alongside aristocrat gaming, we have clear opportunities to lean into our strengths in regulated gaming. This spans multiple attractive verticals, including social casino through the product madness business. We'll provide more detail on the outcomes of the review as appropriate. Slide five lays out the three established core elements of our growth strategy. This describes how we deliver superior long-term profit growth on a sustained basis. Our starting point is investing and innovating to create the world's greatest gaming content at scale. Our commitment to leading levels of D&D and CapEx to support content development is unwavering alongside investment in talent and technology that are improving both the speed and efficiency with which we can deploy content and leverage it across multiple markets and channels. Next, we focus on growing and distributing our leading content, taking share wherever we compete and reaching players wherever and whenever they play, including in existing and new adjacent markets. We identified online RMG as a large attractive adjacent segment for a risk-cracked market leading gaming content. Today, a risk-cracked interactive is an established global operating business. The addition of Neo Games will accelerate interactive to become a scaled global player. This will enable it to compete effectively for share in the relatively nascent North American market and unlock significant future growth opportunities, including in the iLottery market. We also invest in differentiating enablers that help us achieve and accelerate our strategy. These include nurturing outstanding talent and strong customer partnerships, along with a compliance culture that is underpinned by a commitment to a sustainable and vibrant industry. We look forward to sharing more on these differentiating enablers at our upcoming Investor Day on June 26th. Turning to slide six. The results of our strategy and the effective execution are clear and compelling. Since financial year 2018, group revenues have grown at a compound annual growth rate, or CAGR, of 12%, increasing over 75% from $3.6 billion in 2018 to $6.3 billion in 2023, as we've gained share across all key segments. Segment profits have grown at an 11% CAGR, increasing from $1.6 billion to over $2.7 billion over the same timeframe. This strong financial performance has been delivered through diverse economic conditions and some challenging global events, demonstrating the resilience of the group. It's also allowed us to continue to fully fund our growth priorities. At the same time, we've returned over $2.2 billion of surplus capital to shareholders through dividends and on-market share buybacks. The performance in the first half has set us up well to continue to deliver these results in financial year 2024. Turning to slide seven, We made considerable progress in the first half of 2024 on our sustainability agenda, driving improvements and further lifting maturity across our most important priorities. I thank many of you for your feedback on our ESG events in December and for your interest and support in our sustainability journey. I'll make some brief comments now and look forward to sharing more detail in our annual disclosures. On responsible gameplay, our highest sustainability leadership priority, we've been busy. We rolled out refreshed company-wide training and progressed player-focused initiatives, including dynamic messaging for social casino players. We also launched a new version of Aristocrat's FlexiPlay functionality on new EGMs in Australia. And in the US, we expanded our innovative Positive Play campaign focused on customers and players. Teams across the business were engaged in these efforts, and I'm proud that our sustainability agenda has a strong buy-in amongst our people and has become an expression of our values at Aristocrat. We are pleased to announce that in early May, the Science Based Targets Initiative approved ERISC-CREP's near and long-term emissions targets and verified ERISC-CREP's net zero target by 2050. We are continuing to put in place data collection and policy infrastructure, including collecting data on our greenhouse gas emissions for the 2023 financial year, and we're undertaking assessments to support prioritisation of abatement activities over the coming years. We're also preparing to undertake limited pre-assurance work as we move towards mandated reporting in Australia and Europe. Finally, we continue to advance our people and community goals, holding our fourth annual diversity summit and completing the first year of our tribal community engagement program in the US. Moving to slide eight. Before I hand over to Sally, I'd like to summarize my comments on strategy and growth by outlining a risk-crash proposition for investors. We have a track record of delivering high-quality and sustainable MPAD-A growth over the long term, and over the past five years have grown at 13% CAGR. With Interactive established and set to build operational momentum, Ariskrat now offers exposure to three exciting segments of gaming entertainment, all with large addressable markets and at different stages of growth, maturity and stability. We are focused on our most attractive and addressable growth opportunities in each vertical to take share. These opportunities start with great content that we know resonates across each of these verticals and further enabled by technology. A lot of time and effort is devoted to ensuring that we are connecting effectively across these verticals to optimize the strategy. Our leading content combined with leveraging competitive advantage such as our relationships with customers and superior commercialization capabilities has allowed us to achieve leading positions in scale. And we see continued attractive opportunities for growth from both organic and inorganic perspectives across all three businesses as we execute our strategy. We're at an exciting juncture in our evolution and we're confident that our successful approach will continue to deliver for shareholders and other stakeholders for many years to come. I'll now hand over to Sally who'll take us through a summary of the group's results and provide an update on the capital and our balance sheet.

Thanks Trevor and good morning everyone. Turning to slide 10, our group results summary. The results we are presenting today reflect the new segment reporting structure that we shared with you last week. I'm pleased to present our first results on this basis. We continue to welcome all feedback on the changes. Over the six months since 31st of March, 2024, Aristocrat delivered MPAT-A of $764 million, an increase of 16% in reported terms and 13% in constant currency. On a fully diluted basis, EPS increased 20% to 112 cents in reported currency, reflecting our strong operational performance and accretion from our share buyback program. Revenue increased 6% to almost $3.3 billion, and 4% on a constant currency basis, reflecting another leading performance from North American gaming operations, strong sales in Asia, and strong growth in Interactive. Pixel United continued to demonstrate resilience with share gains in the key social slots segment and improved player engagement in core apps like RAID. EBITDA was 18% higher in reported currency, reflecting margin expansions that arose from positive mix, operating leverage, and cost optimization efforts across the group. We expect to generate annualized ring rate savings in excess of 60 million for FY24 from our cost optimization efforts with further benefits to emerge in FY25. Effective cost management is providing capacity for strategic reinvestment across the group and leveraging our scale effectively, with operating cash flows remaining strong. The directors have authorised a fully franked dividend of 36 cents per share for the period ended 31st March 2024. As our operations outside Australia continue to grow strongly, future dividends will likely be partially franked reflecting further growth in the portion of non-Australian earnings. We intend to manage the dividend payout ratio and the level of franking to ensure appropriate dividend outcomes for the shareholders. Slide 11 provides a snapshot of the drivers of MPA growth. Gaming's significant contribution to the result was driven by strong growth in the gaming operations installed base. UA and cost optimization at Pixel United were also significant contributors. D&D was invested to continue to support interactive, as well as core strategic product technology infrastructure and capabilities. Finally, MPA growth also benefited from higher interest income. Turning now to cash flow on slide 12. Aristocrat's high quality result is evident in our strong cash flow generation over the period, reflecting positive business performance and higher interest income on cash balances, offset by higher tax payments. Aristocrat returned $828 million to shareholders through share buybacks and dividends during the half. Approximately $1.4 billion of our $1.5 billion share buyback program has been returned to shareholders to date. Today, we are announcing an additional buyback of $350 million and extending the program through to February 2025. consistent with our capital allocation framework to return excess cash to shareholders. Aristocrat continues to focus capital allocation on supporting our long-term growth strategy and maximising shareholder returns. In particular, the business drives organic growth through consistent, strong and disciplined D&D, user acquisition and capex investment, while also pursuing strategic M&A opportunities. Over the reporting period, Aristocrat invested $425 million in D&D to further strengthen our product and technology portfolios and support our entry into online RMG. This represents 13% of our revenues at the upper end of our annual guidance, which I will address shortly. Capital management remains a focus as we manage our balance sheet through cycles of investment in inorganic growth. We continue to target a leverage ratio of one to two times net debt to EBITDA over the medium term. And subsequent to the period end, we have returned to a gear position following the completion of the NeoGames acquisition. Now turning to slide 14. Before handing back to Trevor, I would like to focus on our investment in organic growth. The chart on the left tracks investment over the past four years. And the right shows changes over the past five reporting periods. We actively make investment choices across our business as we prioritize growth opportunities with a focus on optimizing long-term returns. This Turkey investment has tracked with around 30% of group revenues over the past few years. In 2023, we saw a planned uptick in the spend that reflected the growth of our gaming business. increased investment in product technology to accelerate scaling in interactive, the Rockstar acquisition, and investments in core technologies to leverage content across platforms. While we continue to prioritize our investment in D&D, it has reduced both in absolute dollars and as a percentage of revenue from the second half 23 levels. US spend at Pixel United also contracted, reflecting a new approach to investing to ensure appropriate returns on advertising spend. Trevor will share more on this shortly. Turning now to slide 15, you will observe our industry-leading investment in D&D. In Interactive, we have continued to invest a high proportion of revenues as we establish and scale our presence in online RMG. Our disciplined approach has enabled ongoing high levels of investment in gaming, and in Pixel United we have continued to deliver successful new features and live ops whilst maintaining investment in creative capabilities. A strong March revenue performance resulted in D&D as a percentage of revenue at the top of the target 12 to 13% range for financial year 24, a slightly better outcome than we'd indicated at the AGM. D&D investment is expected to return to 11 to 12% of revenue over the medium term. I will now hand back to Trevor, who will step through the operational performance.