The Lottery Corporation Limited

Good morning and thank you for joining today's call on the Lottery Corporation's 2026 financial results. I'm Wayne Pickup, the company's MD and CEO, and I'm joined by our CFO, Adam Newman. We'll walk through the investor presentation lodged with the ASX this morning, then open the line for questions. Since I joined the Lottery Corporation nine months ago now, you may have heard me say that it operates from a position of strength with a privileged market position and strong fundamentals. But while that's true, we need to position the business for the next chapter of growth to evolve from being a lottery operator to a digitally-led entertainment platform. To achieve that, we have refreshed the strategy and implemented a new operating model. New teams are in place and we're moving at pace to execute. We're preserving what's been successful over many, many years but modernising it for how Australians want to play and engage today as customers move online and demand more. That creates a clear opportunity underpinned by a simple vision to be the place where Australia comes to play. Looking back on the first year, three things stand out. Firstly, the core is strong. That's the benefit of strong infrastructure like foundations, through our long licences, operational scale and well-known brands. Secondly, FY26 was a really soft year for big jackpots. A one in 45 year outcome. A good one for our customers as more Australians won million dollar prizes. But it was the first time in five years that Powerball didn't jackpot to $100 million. Oslotto, our other jackpot game, didn't get to $50 million for the first time in nine years. But as you know, the math tells you jackpot runs even out over time. The momentum in pricing, base gain participation, and digital share matters more to the long-term trajectory than what happens in any single period. So when we evaluate our business, we see through the variations and think that's the right way to look at it. Thirdly, we're executing the new strategy well. Structural changes to our cost base are giving us room to invest in areas where we can get better returns, like digital, AI, product, and the customer experience in retail. Slide four outlines the investment case. Let's be clear, this is a great business that has trusted partnerships with governments to sell products that Australians love. Our license-backed market positions would be the envy of lottery operators around the world. Our scale is significant. That enables investments and provides the liquidity to fund the prizes that customers want. It's delivered steady turnover growth and reliable returns over many years. but more growth sits inside our existing customer base in addition to new customers we attract. We'll pull the structural levers to accelerate that growth over the medium to long term beyond the 4% historical turnover growth rate. Slide five shows how we will turn strategy into shareholder value. What's common to these initiatives is our intention to modernize the business and be more focused on entertainment, not just jackpots. We want people to come back more often, be engaged more often, and not just participate when there's large jackpots. So we need to fill the entertainment portfolio with more reasons to come back and engage and really build on these in-between moments. This will grow our base of known customers playing more often. What we're targeting is to combine accelerated revenue growth, expanded margins, and strong cash generations to deliver compounding earnings. We have the ingredients in this business to deliver it. Now it's about execution. Turning to the year in detail on slides seven and eight, if you wanted just one example of how resilient and reliable this business is, it's the fact we've held the dividend at 16 and a half cents. That also reflects our confidence in the business's health and growth outlook. The Victorian license extension to 2068 supports that growth outlook in three ways. It secures our position as the national lottery operator. It's materially reduced the business' risk profile. Our next major renewal is New South Wales in 2050. It keeps us part of the Victorian community as we have been for decades and supports a vibrant news agent and lottery agent network. The Victorian licence was always a bit of an outlier, historically granted on 10-year terms, but the extension brings it broadly in line with other licences. New South Wales and South Australia have 40 year terms and Queensland runs for 65 years. We had a very good year in terms of execution. Slide eight outlines several initiatives. The biggest pieces were the strategy refresh and new operating model. At an operational level, both lotteries and keynote delivered initiatives to strengthen the customer proposition. Now I'll hand over to Adam for the group results in more detail.

cash balances. Following the Victorian licence renewal, interest expense will rise materially in FY27. Profit after tap for pre-significant items declined 6% and as Wayne mentioned, directors held the full year dividend at 16.5 cents per share. Significant items, $58 million after tax, are set out in Appendix 1, and these mainly comprise the ACT licence impairment plus reorganisation costs. Moving to slide number 10, and our EBITDA result reflects the underlying strengths of our overall portfolio. Jackpot turnover adversely impacted EBITDA by $88 million versus the PCP. Factors we control offset most of that impact, limiting the year-on-year EBITDA decline to $13 million. Strong pricing changes to our two biggest games, including excellent price retention from the late FY25 Satellite Lotto change and eight months of the Powerball price increase. Our base games were resilient, with continued momentum in instant scratchets and lucky lotteries. Keno delivered another record year, with retail visitation and in-venue improvements sustaining growth. Lower OPEX, reflecting ongoing discipline and overall focus. So in summary, these elements enable the business to manage the jackpot volatility with diversification across our game portfolio, channels and customer segments, providing earnings stability. Moving on to slide number 11, and there are a few key points on this slide. OPEX came in at $296 million below last year. That reflects disciplined cost management, including the benefit of optimisation activities which remove structural costs from the business. This was accompanied by actions taken in a low jackpot environment with advertising and promotion and incentives approximately $10 million lower. We're expecting OPEX and FY27 to be between $305 and $315 million subject to jackpot outcomes. FY27 will benefit from labour savings tied to the recent operating model changes will reinvest some of these savings to drive long-term, top-line growth. Secondly, the dividend. As Wayne said, we manage the business for the long term and look through jackpot variability. Holding the full-year dividend reflects the board's confidence in the business. From FY27, we'll move to a payout ratio that's based upon net profit after tax, pre-significant items, and adding back licence amortisation after tax. This is a more cash-based measure that fully reflects our cash-generative nature and supports the consistent, reliable dividends that are a critical element of our capital management framework. Leverage and interest. Since the merger, we've held the leverage near the bottom of our three to four times target range. thereby preserving capacity for the Victorian licence extension. Now the Victorian licence has been renewed, leverage is likely to increase above the long-term target range. Reported leverage was 3.1 times at the 30th of June 2026. Adding in the cost of the Victorian licence and normalising for jackpots, adjusted leverage was 4.2 times. However, we expect to deleverage over time and return to the target range. supported by both earnings growth and free cash generation. The new debt will also materially increase interest expense in FY27. Our average interest rate is currently 5.8% and new debt is expected to be at higher rates given where basis rates are now and likely margins for tenants of anywhere up to 10 years. Finally, Standard & Poor's reaffirmed our BBB Plus credit rating after the licence extension, reflecting the structural de-risking that it provides. So to summarise, our balance sheet and strong credit rating is a fully debt-funded Victorian licence. And in a year of unfavourable jackpots, we held the dividend and showed the cost and capital discipline it would expect from us as we focus on delivering long-term value for our shareholders. Thank you and back to Wayne.

Thanks Adam. Now let's turn to the segment starting with lotteries on slide 13. As the chart shows, the lean jackpot run for Parble and Oslotto was estimated to have had an $80 million impact on VC versus model expectations. Despite that, what I think is important to take away from the slide is that where we control the levers, we performed well. Our pricing strategy and reduced OPEX is clear evidence of that. Slide 14, as you'd expect, fewer larger jackpots reduced overall customer numbers and turnover. I want to touch on the key distinction between retained and new or reactivated customers here. There are two cohorts that behave differently. Retained customers are the most valuable group. They typically spend around five times more than new or reactivated customers. This cohort remains quite resilient and has grown over time, compounding at about 3% a year since FY22. and moving within a very narrow band throughout. This points to a structurally healthy core, even through softer jackpot periods. New and reactivated customers, on the other hand, swing more with the jackpot cycle. Customer is a herometric. How many we have, how engaged they are, and what they're worth to us. And we've set ourselves a very simple target, more customers playing our games more often. More than 4 million Australians play our games each year who aren't registered today. So we're very focused on this opportunity. Some of the recent initiatives the teams implemented have cut friction and make it easier for customers to sign up for us to reach them. In terms of channel, we continue to benefit from the shift to digital with digital share growing 90 basis points. That's notable given jackpots, which skew stronger to digital, had lower turnover this year. Slide to theme, looking at our base games, a really pleasing performance, up 5.6% on the past year. Saturday Lotto was very strong, as were Instant Scratchits, which grew almost 8%. That's referenced in Appendix 3, which sets out the turnover performance of each game. We have renewed Momentum and Instant Scratchits. It's a great category. It's retail only. and the team have done an excellent job in extending the product's appeal and we see even more opportunity for improvement across the ticket range. We touched on how we intend to do that on slide 18. Slide 16 now. These charts really speak for themselves when it comes to the softness of the offers in both jackpot games. Oslotto was especially soft against the tough FY25 comp. More than half its draws sat at the $3, $4 or $8 million level where the offer is naturally less attractive than higher levels. We're addressing Oslo directly and more on that shortly. Slide 17 is new and shows exactly where the unfavourability occurred. By coverage we mean how many of the draws possible combinations are covered by tickets sold and allowing for the fact that some players have the same numbers. To illustrate, take the Oslotto draws between $15 and $40 million, where the average coverage was just 27%. This means there should theoretically be a winner only 27% of the time. The actual rate was double that. 54% or 13 of 24 draws had winners. A similar story for Powerball. As a result, we didn't reach the very large offers. $100 million plus for Powerball or $50 million plus for Oslotto where turnover grows the fastest. As we've said, this is variability and we expected it to, we expect it rather to even out over time. In fact, since the business listing, the aggregate variation over those five years nets out at zero. In other words, outcomes tend to regress to the mean over time. Now, if we turn to slide 18, One of the things this business has done really well over time and is a key strategic differentiator for us is optimisation through price. It's a proven and repeatable playbook where we change against subscription price and lift prices at the same time. Our recent changes to Saturday Lotto and Powerball are working as planned. Coming up, Set for Life relaunches next month, subject to regulatory approvals. It's already a strong product and we're going to make it even stronger. We're now going to give winners an extra $200,000 up front and a further $20,000 in Division 2. It's tested well and a 10 cent price increase will support that next evolution for that game. Oslotto will be next. We're targeting a price and matrix change with launch plan for the second half of calendar 2027 subject to all regulatory approvals. Oslotto plays an important part in the portfolio as one of two weekly jackpot games. This duality increases the likely frequency of large jackpots and our ability to stretch the customer proposition. So following the successful Powerball changes, we see a timely and compelling opportunity to optimize Oz. Now if we turn to Keno on slides 19 and 20, the growth story continues against the prior year that had a really strong Keno classic jackpot run. The pubs and clubs continue to experience good visitation. were sought to gain share of Wallet by making the keynote in-venue experience more visible and more engaging. As for online, as many of you are aware, legislation was introduced in federal parliament by the government to ban online keynote products as part of broader gambling reform. Parliament's currently considering the bill. The full year impact of this discontinuing online keynote for us would be circa $25 million of EBITDA based on FY26. our response is to double down on keynote and licensed venues. We have long-standing relationships with venues and we're well and truly embedded in the Eastern Seaboard pub and club ecosystem. Now, if we bring it together, let's recap our strategy on slide 22. Here's the logic and what sits behind the three clear pillars. Pillar one is about strengthening what we have. That's renewing and growing what we already do well, the core lottery and keynote offer. Any adjacent opportunities would be looked at selectively, only where our licenses and brands can compete. We're not chasing markets where we lack a clear edge or aren't sustainable. Pillar 2 answers where new growth comes from. That's digital. That's where younger adult Australians, where we have the most room to grow and where margins are attractive. We want to create digital experiences that customers want to return to and play, not just transact with. And pillar three is about delivering the first two by modernising our operations, maintaining our expanding capital discipline and building trust. Four capabilities support these pillars and make the strategy executable. Slide 23 lists this year's priorities. In lotteries, it's investing in product and marketing to drive participation and know more of our customers. It's also about continuing to invest in retail and that critical connection between the retailer and customer. In digital, we have a strong pipeline of initiatives backed by a new team. One of our biggest opportunities is social play, turning a solo experience into something that people want to share. Syndicates, digital gifting, et cetera, there's a lot we can build here. There's two features about to go live on the Lot app in line with being more about entertainment. The first is the reveal. It turns checking the results on the app into a more dynamic event rather than a transactional type of notification that says whether you've won a prize or not. The second is play pick, which can make number selection far more engaging. Rather than tapping numbers on a grid or letting a quick pick decide, customers can pick their numbers through quick interactive games. The idea is picking your numbers should feel playful and entertaining, not just functional. And we're investing confidently in Kino, rebuilding it around licensed venues to make it more entertaining and deliver really simple social play. One example is our planned BYOD model, a customer-led digital solution that gives customers more choices in how they play Kino within a pub or a club. We also expect it to expand our reach into new venues So lots of upside from that initiative alone. As for what we've seen so far in FY27, jackpots have been off to a slow start, but the underlying health of the business remains strong. We haven't seen anything in the past seven weeks that changes our expectations for the business or our approach to managing it. So in conclusion on slide 24, the financial performance in FY26 was resilient. Where we controlled the levers, we performed very well. The Victorian license extension in 2068 strengthens our infrastructure-like characteristics further. Our new operating model gives us three verticals with clear ownership and accountability and an in-flight roadmap and clear indicators to track progress. On a final note, I'd like to thank our team for their hard work in contributing to this result and we'll now open up the line for questions.