The Lottery Corporation Limited

Good morning and thank you for joining. I'm Wayne Pickup, the CEO of the Lottery Corporation. With me today are our CFO, Adam Newman, and Chief Commercial Officer, Cullum Mulvihill. We'll run through the investor presentation lodged with the ASX and take any questions you have. I've now been with the business just under three months after relocating from Chicago. Let me firstly share with you some of the observations I've had so far on slide four. Many of these are the same things that attracted me to join the company in the first place. The Lottery Corporation is a global leader. We have exceptional assets, household brands millions of Australians engage with, and an unmatched licence portfolio. The balance sheet is strong. That gives us options and it has supported consistent shareholder returns. The culture is also strong. There's great people here, and that's not always a given. This is supported by capable leadership and teams that understand their business and their customers. I've spent time with our technology teams, our commercial teams, and our contact centre, listening to how we serve and interact with customers. I've spent time in lottery outlets across the eastern seaboard, from news agents in central Melbourne to pubs and clubs in regional Queensland. It's clear we have an engaged workforce and a strong retail network. So I'm starting from a position of strength but there is upside ahead and that's what energises me about the opportunity. Our strategy has served the company well but we can unlock more value and going forward we have three focus areas as outlined on slide five. The first is accelerating our evolution as a digital entertainment company. This is evolution, not revolution. It's about embedding technology across the enterprise, modernising platforms and creating seamless customer experiences. I want to be clear, this is not at the expense of retail. It's about choice and integration. In fact, online store syndicates show how retailers can engage with this digital shift. Many of our retailers, in fact about 80%, sell shares in their store syndicates through our online store syndicates platform. This is enabling lottery agents to earn revenue around the clock, extending well beyond the traditional shop front. We've just rolled out a major digital signage upgrade across 3,300 lottery outlets that enables more dynamic in-store advertising. It also unlocks the next phase of delivering data-driven, automated and API-enabled content into stores. This will improve our speed to market, promotional effectiveness and consistency across our network. Ultimately, we want customers to choose us for entertainment, not just for big jackpots. Technology enables personalized experiences at scale. That's what keeps customers coming back and engaged. The second theme is concentrating on our local, highly regulated markets. The Australian market is attractive. The licence structure is unique, generally decades long with staggered maturities. We've got a long history of growth through jackpot and economic cycles, underpinned by population growth and one of the highest spends per capita globally. There's broad acceptance of lotteries, Typically one in two Australian adults participate each year, but only half of them have registered and is outside there. So the focus will be on existing business and adjacent lottery opportunities. The third theme is focused execution. The fundamentals will maintain a straightforward, continued innovation and active management of our game portfolio. We will make strategic technology investments to maximise the digital opportunity and oversee disciplined capital and cost allocation to deliver strong returns on our shareholders' capital. We intend to detail more about our strategy at an investor day in the middle of this year. Now let me turn to the results on slide six, which demonstrates the business underlying strength. Firstly, jackpot activity was well below statistical averages. In fact, it was the leanest jackpot environment we've seen since listing. Despite this, we delivered solid financial outcomes. Strong free cash flow enabled us to maintain the dividend in line with the prior period. More than half our lotteries turnover typically comes from Pavel and Oslotto, so a lean jackpot run has impact. That flowed through to participation levels and also impacted digital share growth. Saturday lotto game change is delivered with high early retention of the recent price increase, albeit in a low jackpot environment. Kino continued to strengthen retail, capitalising on pub and club foot traffic. Our balance sheet gives us strategic flexibility few lottery businesses have globally. We remain mindful of balancing investment with generating returns to shareholders. I'll now hand over to Adam for the group financial overview.

Thanks, Wayne. Hi, everyone. Thanks for taking the time to join us here this morning. Let's move to slide number eight. As Wayne has covered, at first half 26 was a period of lean jackpot activity with Division 1 offers for jackpot games down 14% on the PCP. Despite this, the group delivered a resilient financial performance, reaffirming the strength of our business model. Group revenue was $1.8 billion, demonstrating the value of our diversified portfolio and helping to cushion jackpot variability. OPEC's growth remained tightly controlled at 2.9%, consistent with our disciplined approach to managing costs. Libida was $367 million, down just 0.7%, with Keno's record performance partly offsetting jackpot-related impacts. Interest expense rose 2% due to both lower average cash balances and lower average rates. We remain materially insulated from movements and interest rates given around 85% of our debt is fixed or hedged against foreign exchange movements. And we earn significant income on our cash balances. And while net profit after tax declined 1.4%, the directors determined to pay an 8 cent per share fully franked interim dividend in line with the first half of 2025. And this represents 103% of net profit for the half. We turn now to slide number nine. Our performance reflects the underlying strength of the portfolio, despite the jackpot headwinds that adversely impacted EBITDA by approximately $26 million versus the prior period. Several drivers demonstrate the business resilience. Base games performed strongly, with Saturday Lotto and Lucky Lotteries being the standouts. Instant Scratchits continued their momentum, supported by new products and pricing, where Keno delivered another record half, with strong retail visitation and venue partner initiatives, sustaining growth and mirroring the themes that we saw in FY25. Importantly, digital turnover continued to grow, reinforcing what we highlighted at the full year results, that digital penetration is a structural margin driver which represents significant long-term opportunity for us. In summary, these elements enabled the business to manage short-term jackpot volatility, with diversification across our portfolio of games, channels and customer segments continuing to provide stability. We can now move to slide number 10. And as we've stressed previously, we manage our business for the long term with the strong fundamentals in mind and our cost and capital discipline is not unduly influenced by short-term jackpot outcomes. OPEX for the half was $146 million and this was an increase of $4 million or 2.9%. and reflected the timing of Powerball product changes and increased employee costs. At FY26 OPEX target is $310 to $320 million, and consistent with prior periods, our OPEX is expected to skew to the second half, and this is predominantly due to advertising and promotion expenditure, technology and project-related costs. will continue to seek to manage costs tightly, maintaining the aim of keeping annual OPEX growth below normalised revenue growth over time. CapEx for the half is $34 million and is expected to ramp up through the second half, with digital and core transformation and retail terminal upgrades continuing. We are targeting FY26 capex of between $90 and $100 million, consistent with the investment profile for the next three years that we described at the full year results release. This is a resilient business that generates strong and predictable cash flows with low capex and a highly variable cost base. We allocate capital in order to drive long-term shareholder value and our balance sheet provides us with flexibility to maximise shareholder returns. Net debt to EBITDA is at the bottom end of our targeted leverage range at three times. We have $560 million of available liquidity and a four and a half year average debt tenor, preserving flexibility for disciplined investment and returns. The Board remains committed to the three to four times leverage target, and we continue to explore opportunities to deploy capital to deliver long-term growth that's in line with our strategy, which includes licence enhancements. We'll always exercise discretion and make pragmatic risk-based assessments of any near-term investment requirements, and ultimately we'll seek to return any excess funds to shareholders in the most tax-efficient manner. So in conclusion, the strong cash flow is a robust balance sheet and continued focus on our costs as well as digital transformation that's driving both margin expansion and improving the customer experience. We remain well placed to deliver long-term value to our shareholders. Thank you and I'll hand back to Wayne.

Thanks Adam. Turning to the business results, starting with lotteries on slide 12. The strong underlying performance given jackpots were well short of statistical norms, making it the least favourable half of jackpots since our ASX listing in 2022. The net result being a circa 400 million unfavourable impact on turnover versus circa 200 million unfavourable impacts in the first half of 25. That said, the changes to our two largest games, Powerball and Saturday Lotto, are resonating. Saturday Lotto's 6 million core offer is generating good incremental revenue every draw. Early signs on Powerball pricing are positive. If we turn to slide 13, it shows digital share of turnover grew to 41.2% of Lottery's turnover in the half. Big jackpots stimulate participation. You can see the impact their absence had on active customer numbers during the half. We've got a slide 14, shows our portfolio diversification at work. Base game growth largely offset the unusually low jackpot games, with Saturday Lotto being the standout. Instants were also particularly successful. A refreshed range and a use of higher price points, such as $30, sold through well, especially in key gifting periods such as Christmas, where we had sales up 8.5% over last year. Lucky Lotteries was up over 60% driven by the Mega Jackpot, which reached $21 million at period end and now sits at just over $24 million. If we turn to slide 16, it shows our success refreshing the game portfolio. The new $6 million Division 1 offer and price increase for Saturday Lotto in May won immediate acceptance. The early price retention of 103% is well above expectations. The context that surpasses the retention of prior Saturday Lotto price increases, including during COVID when the Division 1 offer went to $5 million. The full effects of the powerful price change introduced in November are expected to become evident with a return to statistically normalised jackpot levels over time. Set for Life will be our next game refresh, which we want to implement in September 2026, subject to the necessary regulatory approvals. The changes are backed by research. Customers are saying they'd like more upfront prizes and promotional draws. So, with that in mind, we'll introduce an extra $200,000 up front for Division 1 winners, and a subscription price increase from $0.60 to $0.70 is going to enable more promotional offers. Moving to slides 17 and 18 on Keno, which continued its strong performance. Turnover was up 7%, growing above historical trend. This performance was valuable given the softness in jackpot games and a reminder of why having Kino in the portfolio matters. Promotional initiatives and venues and the clear positioning of Kino is a fun social game as part of the growth story amid strong visitation in pubs and clubs. We've prioritised making sure our in-venue assets, terminal screens, marketing collateral are set up for maximum impact. The online channel returned to growth post the introduction of spend limits in FY25 with turnover up 3.5% and a half. That's positive as we look to build the online keynote opportunity going forward. Slide 20 sets out our priority areas for the next 12 months. First, the digital experience. We're growing digital, but we can capture growth faster. Digital-first customers expect seamless experiences, instant gratification and personalisation. There's an opportunity to better embed data and AI across the enterprise, so we use technology to understand what each customer enjoys and just simply show them more of it. On short-term initiatives to drive registered customer sign-ups, Check and Collect will let customers scan their ticket and claim their prize immediately via our app. We're rolling out QR codes in our retail outlets to simplify customer registration and help acquire customers. These are practical steps that remove friction. On product, Set for Life is next for refresh, but as we think about the portfolio, we'll increasingly test opportunities beyond traditional lotteries. The focus is on customer entertainment, not just jackpot anticipation. We're reviewing how we position and market our products. The evidence tells us customers choose by game first. They play Powerball or Saturday Lotto or Oz Lotto, not lottery as a category. There's an opportunity to lean into that insight, making our hero products the stars and building stronger entertainment experiences around them. This is about amplifying what already works. We have strong product brands and we will make them more central about how we go to market. Keynote also fits into this evolution. It's entertainment beyond the jackpot cycle and we'll continue to invest in it. There's more keynote growth to capture, including online where we are underrepresented. On the operating model, we'll structure for the speed and agility required in a competitive digital market. Finally, we'll prioritise protecting and enhancing our licence portfolio. We hold incredibly valuable and unique licences These carry rigorous regulatory obligations and in return generate material lottery duty revenue that funds state services and community programs, as well as supporting thousands of small businesses. This is a social compact we take very seriously. But the competitive landscape is evolving. Operators licensed in the Northern Territory offer foreign-matched lottery products that sit outside the broader established state-based regulatory frameworks. They contribute no lottery duty to Australian governments other than the NT and operate under lighter regulatory obligations than we do. The Federal Government continues to review these products. The issue should be more fully addressed. We'll continue to advocate for consistent regulation that upholds the integrity of Australian lotteries and preserves the value of our licences. Where opportunity exists to extend or enhance our licences, we'll do so prudently deploying shareholders' capital. Now let me wrap up with slide 21. The first half shows the core business remains resilient and the fundamentals are sound. The changes to games like Saturday Lotto are delivering as intended. Looking forward, there's upside. We have the assets, market position and financial strength to unlock more value, be more relevant and position the business around digital entertainment. That's the business we'll be building, not just a steward of licences, but a company that earns its market position every day. We intend to detail the strategy further at an investor day in the middle of the year. I look forward to taking you through our plans in more depth then. We'll now open up for questions and Adam and Cullen will join me.