Aristocrat Leisure : 16 09 2021 Transcript

Aristocrat Management Roundtable

16 September 2021

Start of Transcript

Rohan Gallagher: Hello, everyone, and welcome to Aristocrat's Investment Management Roundtable Speaker Series. On behalf of Aristocrat I'd like to welcome you to today's call. My name is Rohan Gallagher, and along with Linda Assatoury, we look after the investor relations program here at Aristocrat.

Unfortunately, we haven't been able to get out and about and visit many people at this point in time given the broader market landscape, but we do recognise the market's interest and access and value of corporate access in particular getting to catch up with our senior management team.

Over the next 50 minutes or so we're going to be featuring our CEO and Managing Director Mr Trevor Croker, and making his debut performance in our Management Roundtable Series, Mr Mike Lang from London. For those not familiar with our Roundtable Series, over the next 50 minutes or so we're going to take your most popular questions and we're going to put those questions to our leaders so that they can provide everybody with open and equal access. For us, we think it's important as we head into our 30 September period end where we'll be going into blackout shortly thereafter.

Now, this call is going to be recorded. A copy of the recording will be posted onto our website as well as a transcript for those people who would like to follow up after this call. We're going to do our best to answer all of the calls that have been registered by you, our attendees, and if we cannot get to all of those questions, the investor relations team will double-back and catch up so that you're fully complete and in control.

Thank you for your interest. Welcome to Trevor and Mike, and with that I'll ask Trevor to unmute his line and ask him if he could extend his welcome to the Group, and also to provide a quick update on the Company's strategy. Thank you, Trevor.

Trevor Croker: Thanks, Rohan, and welcome everybody. Thank you for spending some time with us today and we hope that you get some good value from this call.

Aristocrat continues to remain focused on high-qualityproduct-led growth. Our consistent approach to the way we do that is through a couple of lenses. First of all is we continue to take share in the markets in which we participate and I'm confident we're continuing to do that again in 2021, that we look at new adjacencies that we can grow into, and there's a number of newer adjacencies that we're able to grow into across our gaming and our digital business. Those adjacencies are also good opportunities to expand on our

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capability, both in our content teams, our technology teams, our commercialisation teams at the same time.

No doubt Mike will make a few comments on some of the new adjacencies that the digital business has entered into over the last period of time. If I then take you back to the gaming piece of the business, we have entered the Illinois VLT and Oregon VLT markets in the last 12 months. We will be entering the New York Lotteries in calendar '22, and we'll also be entering HHR in partnership with Churchill Downs in 2022 as well.

These are new adjacencies that build on the existing adjacencies that we've been attacking over the last period of time, including bar top, stepper, Washington, Ovation, and Class III Stepper as well. But at the same time, we have another - a number of good stories to talk about from a digital point of view, particularly around the recent acquisition of talent that Mike will talk about in the new studios, to building up new talent in new locations to address new genres and new capabilities at the same time.

Then if you go back to the fundamentals of who we are, we are a strong company. We've got a strong balance sheet, we've got strong capacity, and we've got a strong desire for growth. We continue to remain focused on that in our core business and can see strong growth there, but more importantly, we have opportunity through M&A to accelerate growth in the future as well.

Rohan Gallagher: Thanks, Trevor. If we turn our attention to the strategy itself, can you talk about whether the Company's strategy has actually changed during COVID, and if it has changed, where do you see the focus has been on?

Trevor Croker: We took the opportunity to review and finesse our strategy during COVID. What it has highlighted is the strength and the diversity of our Aristocrat business. The strength of the digital business came to the fore during the COVID period and that's given us an opportunity to then refresh our overall strategy.

Mind you, we found that the compelling points of our strategy that we had 18 months ago are still compelling now and if anything, we've probably accelerated a few of those. Things around people, things around capability, ESG, making sure we've got a responsible position in ESG. Also around product and continuing to look at innovating and bringing forward new product.

If you come back to what do we focus on when we talk about our strategy at Aristocrat, management's priorities are still our people, our customers, and our resilience, and we continue to focus on that in everything we do, making sure that we focus on the development of our teams, focus on the D&D development team which you will recall that

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we kept working, or wanted to keep working right through the COVID period. We're seeing the fruits of that coming through with a fantastic portfolio of games which no doubt you've seen highlighted through the Eilers' reports, but we're extremely proud of the current portfolio of games and the competitiveness of both the games and the cabinets.

If you then think about where we're getting our growth, as I said, I still feel very, very strongly about the way that this organization is set up to continue to have strong growth over a number of years. We've proven that by coming out of the blocks fast in 2021. In our half year you would have seen in the first half we've been able to come out of the blocks fast, come out with good profit, and we're able to now continue to accelerate on that because of our continued investment for growth, investment in D&D, investment in UA, and investment in capital behind our gaming operations products as well.

As I said at the start, it gives us all the optionality we want to think about how do we then address M&A as another accelerator of the next wave of growth for Aristocrat.

Rohan Gallagher: Thanks, Trevor. Now, we've touched on growth and at Aristocrat we like sustained and profitable growth, and that's pretty challenging in a pretty competitive market landscape at the moment. If we can unpack that, is it possible just to go through what you see our growth options are in the short and medium term, please, across gaming, digital and other facets of the business?

Trevor Croker: Yes. If I talk about gaming first, because Mike's going to layer in a lot on digital, so I'm going to talk a little bit about gaming and Mike can add more context and colour in digital a little bit later on. If I talk about where we are with gaming, we are taking share and continue to take share in the core markets we participate in. You can see that in the reporting and you can see that in the performance stats. Premium games portfolio over 3 times floor average, fantastic set of results. Top 5 cabinets in the gaming space index in cabinets. So, we continue to invest there. That's continuing to make sure we're taking share in the core businesses.

At the same time, as I said earlier, we're entering more adjacencies. So, Illinois and Oregon in 2021 calendar year; we're now queuing up with New York and HHR as well, which will drive through the second part of - sorry, not the second part, into calendar year '22. Then you look at the portfolio of games, Buffalo Link, Choy's Kingdom, all these great games that are continuing to queue up and allow us to place cabinets and games into the marketplace as a whole.

There's no two ways to know - everyone knows that Australia has been impacted this year.

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We had a very good first half in Australia where we saw good pent-up demand and opportunity because of great cabinets and games - as I said, Choy's Kingdom, Dollar Storm are great ways to enter the North American marketplace, but most of the eastern states have been closed now since the late part of June. We are still seeing good orders and good demand across the Australian marketplace but naturally until those markets reopen, and we hope that's soon for everybody's sake.

If you then think about where else we're going is building on our technical capability. One of the things we found through COVID was cleanliness and our customers' experience or systems business, the features that could be built in, digital wallet, cleanliness, that were all features that were required now by our customers because they were looking for ways to give their customers a safe and easy way to engage with the product on the floor. We've been investing behind that and we continue to see great opportunities to continually expand our footprint there, particularly in North America and also sharing some of those synergies across with the Australian business as well.

I won't get too deep into the digital - I'll get a little bit about digital then I'll let Mike go deeper again. At the end of the day, the digital business is about an $80 billion business, so it's a sizeable business. It had a one-off spike with the COVID lockdown period globally, which I think has seen the market mature to a size, probably something we wouldn't have seen for a couple of years, but we do believe that that market is going to continue to grow at above-GDP rates and see it as a real opportunity to continue to invest.

As you know, we've got a strong portfolio that we've built out from, from our social casino portfolio. Number 2 casino producer, number 1 slot producer in the social casino games. Increase in the publishing eight to 10 games per month across the app portfolio to increase customer engagement.

If you then think about the new entrants, and you saw some of those great ads that we just opened up with RAID and Mech Arena and RAID particularly continuing to scale although not at the same rates that you experienced a year ago, but that's become a mature and strong game in its genre, a market-leading game in that genre as well. Then EverMerge, which is Rohan's favourite game as you can see, we've seen good growth from that early days and still see that Merge category as an attractive segment to move into longer term as well and continue to invest for innovation.

Then like I said, Mech Arena. Just out, scaling extremely well, looking forward to seeing how that game grows in the new genre, learning a lot about that type of genre and the economics behind it as well.

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Then finally, that's all the organic stuff and what we can see in our pipe. We've got good, clear line of sight of that, very confident about that, from '21 carrying momentum into '22, confident into '23 with another pipeline of opportunities as well. We've got the opportunity, as I said earlier, about M&A to accelerate and we continue to look at M&A, whether it's bolt-ons or tuck-ins in digital, whether it's more support in adjacencies in the gaming business, and there's obviously other adjacencies like RMG, et cetera, that are around the marketplace that we continue to monitor as those new markets start to emerge, particularly in North America.

Rohan Gallagher: Thanks, Trevor. With Aristocrat's growth ambitions, the core focus is really above-category growth organically, and that's to really optimise the existing business, and then opportunistically the Company has a history of accelerating growth via M&A. Rohan Sundram from MST Marquee is actually quite keen to hear your latest thinking around that further M&A opportunities and, importantly, how those recent digital acquisitions originated?

Trevor Croker: Yes, thanks for the question, Rohan. We've taken a pretty rigorous and methodical approach to M&A, when you look at the acquisitions that we've done as an organisation. We focus very much around making sure that they're accretive from day one, and then also looking at how we leverage the learnings and capabilities from those acquisitions across the Group, or how the Group can actually help scale those acquisitions.

If I then talk about where we are at the moment, we're really focused on getting the fundamentals of the M&A right, so it's not just about, do we have the capacity or do we like the target? It's really things around the quality of the management team, the growth and the size of the addressable market, the differentiation of the product within the segment in which it competes, the culture of the organisation, and also the capacity and capability of the key teams to help grow and add to our culture - and also to our capabilities as an organisation, as well.

As far as it goes, we still have gaps in our portfolio, and it's good to know that we've always got gaps that we can fill. We continue to see opportunity, as I said earlier, to add in a few bolt-ins to Mike's business and the digital business, which I've been very pleased about the way that we've addressed that.

They've been either into new genres, either in new capabilities or into new locations, which is building out the diversification of the digital business, at the same time, helping to build the scale that we want to build the pipeline or product for the digital business longer term.

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