Aristocrat Leisure Limited (ALL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Aristocrat fiscal year 2023 results call. [Operator Instructions] I'd now like to turn the conference over to Mr. Trevor Croker, CEO and Managing Director. Thank you, sir. Please go ahead now.

Good morning, and welcome to Aristocrat's financial results presentation for the full year to 30 September 2023. My name is Trevor Croker, Chief Executive Officer and Managing Director of Aristocrat. I'd like to begin by acknowledging the Boromedegal clan of the Eora people, traditional owners on the land on which we meet today, and I pay my respects to elders past and present. With me in Sydney are Sally Denby, our Chief Financial Officer; Mitchell Bowen, CEO of Anaxi and Chief Transformation Officer; and Hector Fernandez, CEO of Aristocrat Gaming. Today, I'll step through highlights of the results and provide an update on our strategy and sustainability performance. 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. Turning now to Slide 2. I'm proud of the high-quality results that we are announcing today. The growth of Aristocrat delivered over the period demonstrates the ongoing resilience, scale, competitiveness and diversification of our portfolio and sound fundamentals in the markets in which we operate even as we navigated mix conditions. At the same time, we've been able to accelerate investment behind our successful growth strategy. While the world around us remains volatile, our team managed the conflict in Ukraine and more recently in Israel, with empathy and effectiveness, and will continue to do so as any further upheaval in these regions unfolds. Turning to the numbers. We reported 13% growth in revenues at group level compared to the prior corresponding period, or PCP, or 7% in constant currency, driven by continued strong performance from the Aristocrat Gaming Americas business, partly offset by mixed conditions for the mobile gaming market at Pixel United. EBITDA margins were 20 basis points higher than PCP. This stability reflects easing supply chain pressure in our gaming business, offset by the mix impact from strong growth reported for outright sales. The margin pressure we reported to Pixel in the first half of the financial '23 has been effectively managed in the second half. The group's NPATA result of around $1.3 billion represents a profit improvement of 21% in reported terms and 13% in constant currency compared to PCP. Our strong free cash flow generation was applied to fund both organic and inorganic growth, while surplus cash has been returned to shareholders through dividends and on-market share buybacks in line with the group's capital allocation framework. In terms of outlook, Aristocrat plans to deliver NPATA growth over the full year to 30 September 2024. We continue to monitor the macroeconomic environment and consumer sentiment closely and believe that our diversified portfolio provides resilience through economic cycles. I'll return to provide more detail on our outlook expectations at the end of this presentation. Turning to Slide 4. The benefit of our strategic investments to grow and diversify risk [ matter ] was particularly evident in the strong 7% constant currency revenue and EBITDA growth over the year. This was underpinned by an exceptional gaming performance, which more than offset the impact of an industry-wide moderation in mobile game demand, again highlighting diversification and scale as fundamental strengths of our business. Strong investment in organic and acquisitive growth initiatives continued in fiscal 2023. Aristocrat's group growth strategy is anchored in leveraging world-leading game content at scale and across an expanding number of attractive verticals. We chose to invest in more product and core infrastructure technology to position the business to execute our strategy while also improving our cybersecurity, data and other vital capabilities. Organic investment in talent and innovation accelerated to pursue gaming adjacencies and expand our capabilities in both gaming and Pixel United. Focusing on online RMG, which is a strategic priority for growth and diversification, Aristocrat made significant progress over financial '23. This involves successfully building out our dedicated online RMG business unit, Anaxi, and increased D&D investment in technology to facilitate the development of our growing high-gaming game suite. The acquisition of Roxor was completed and the proposed acquisition of NeoGames was announced. We believe NeoGames will deliver numerous strategic benefits to the group, expanding market opportunities and adding vital capabilities that will unlock our full potential to become the leading and most trusted global online RMG provider. Our consistently strong investment once again delivered above the industry performance in key segments and drove market share gains. Some portfolio highlights for each business are referenced on the right-hand side, and you'll note a number of other references to our leading and improving share performance in key markets and segments throughout the presentation. Turning to Slide 5. Throughout 2023, Aristocrat continued to invest in executing our sustainability strategy, driving improvements and further lifting maturity in our most important priorities across the pillars of business operations, product responsibility and people and community. Aristocrat will publish comprehensive disclosures covering our progress on our group website on the 1st of December. I'd encourage you to review these in detail and also remind you that we are hosting our first ever ESG-focused session at our Sydney office on the 5th of December. This will be an opportunity to hear directly from our subject matter experts and business leaders, ask questions and better understand our priorities and progress across this important agenda. The event will be webcast for those unable to make it physically. Please reach out to our Investor Relations if you haven't yet signed up and want to participate. I'll just mention a few highlights here. Responsible gameplay remains Aristocrat's highest leadership sustainability priority. It is increasingly part of the DNA of our organization and we regard it as vital to the delivery of our growth strategy. Over financial '23, we continue to strengthen RG governance with the launch of the new suite of tailored policies and compulsory training rolled out across the business. We also completed Australia's first cashless gaming trial with lessons learned already being factored into the next generation of trial technology. We continue to innovate in player education and engagement, launching our first ever positive play consumer marketing campaign in the U.S. and rolling out the next generation of targeted player messaging in a key social casino app. We continue to take an iterative approach to testing and learning to refine and expand our efforts. In terms of climate, Aristocrat took a big step forward with the development of an enterprise-wide greenhouse gas inventory of a 2022 baseline. We also drafted and have now submitted science-based emission reduction targets to the SBC initiative and expect validation of these targets in the first half of calendar '24. We've also updated our supplier code of conduct, further embedding climate, anti-modern slavery and other key commitments throughout our supply chain. In people and community, the representation of women on our Board increased to over 44% on our executive team to over 45% and across the group, total representation of women stood at over 32%, shifting us closer to our midterm published targets. Teams right across the business were engaged in these efforts, and I'm proud that our sustainability agenda has strong volume among our people and has become part of our culture and an expression of Aristocrat's values. We will continue to take an ambitious and strategic approach to sustainability to ensure that we're able to grow and deliver benefits to our shareholders and all stakeholders over the longer term. I'll now hand over to Sally, who will take us through a summary of the group results and provide an update on capital and our balance sheet.

Thanks, Trevor, and good morning, everyone. Turning to Slide 7, our group results summary. Over the 12 months to 30 September 2023, Aristocrat delivered NPATA of over $1.3 billion. This represents an increase of 21% in reported terms and 13% in constant currency. On a fully diluted EPS basis, growth was further boosted by our on-market share buyback program, increasing 26% in reported currency. Revenue increased 13% from almost $6.3 billion. On a constant currency basis, revenue was 7% higher than the PCP, reflecting the standard result achieved for gaming outright sales and another leading performance from North American gaming operations. Pixel United demonstrated resilience in an environment where mobile gaming demand was mixed, achieving broadly stable revenues in the second half of the year of [ comparativeness ]. EBITDA was 14% higher than the PCP and up 7% in constant currency. This reflected slightly higher margins at Aristocrat Gaming. We were pleased to report modest growth in Pixel United profit in the second half, as we committed to at the first half result in May, mainly reflecting efficient investment in U.S., active management of operating costs to align the cost base to evolving market conditions was also undertaken in the second half, which will deliver benefits to Pixel United in future periods. Operating cash flow of almost $1.8 billion was comfortably above the PCP. We continue to return excess cash to shareholders with $811 million returned through dividends and on market share buybacks in the period. The directors have authorized a fully franked final dividend of $0.34 per share in respect of the period ended 30 September 2023. I'll now move to Slide 8. The slide provides a snapshot of the key drivers of NPATA growth. As you will observe, the profit increase from Aristocrat Gaming, driven by growth in the premium Class III gaming operations installed base, outright sales in Americas and a strong recovery in our International Class III business was partly offset by a decrease in Pixel United post-tax earnings as previously referenced. Strong operational performance allowed us to actively increase investment in D&D over the course of the year, increasing to 13% of our revenue, above our historical 11% to 12% range. This represents an additional $90 million NPATA investment in our strategy and in future growth. As referenced earlier, we directed this investment in talent, products and technology to grow across a range of priority segments and genres, establish Anaxi, integrate Roxor, scaling online RMG and lift core product technology infrastructure and capability. Finally, there are some nonoperational features that I would also like to highlight. NPATA growth benefited from higher interest income arising from the increase in interest rates and was also positively impacted by foreign exchange translation. Turning now to cash flow on Slide 9. Aristocrat's high-quality results from financial '23 is evident in our strong cash flow generation over the year, reflecting the positive underlying business performance and higher interest income, partly offset by other increases in working capital. Increased net working capital has been a recurring feature in recent half to meet customer order fulfillment and is moderated over the second half of the year. Robust cash flow generation was utilized to fund investments in our installed base in North America and the Roxor acquisition. Aristocrat returned $443 million to shareholders in the form of share buybacks during the year with $755 million returned to shareholders today. At period end, Aristocrat completed a total of 50% of our $1.5 billion on-market share buyback program. Turning now to our capital investment priorities on Slide 10. Aristocrat continues to focus capital allocation on supporting our long-term growth strategy and maximizing shareholder returns. In particular, the business drives organic growth through consistently strong and disciplined D&D spend, UA and CapEx investment while also pursuing strategic M&A opportunities to accelerate progress in line with our rigorous criteria. Over the reporting period, Aristocrat invested $820 million in D&D to further strengthen our product portfolio and support our entry into online RMG. This is tracking above our 11% to 12% historical range, which I will address in more detail on the following slide. Capital management remains a focus as we manage our balance sheet through cycles of investments in inorganic growth. We are targeting a leverage ratio representing net debt to EBITDA of 1 to 2x over the medium term, and we expect to return to a geared position after the proposed acquisition of NeoGames closes in the first half of calendar '24. The ability to move outside this gaming range for strategically attractive acquisition is in line with our historical approach and provides flexibility to return cash to shareholders through dividends and on-market share buybacks. Now turning to Slide 11. Before handing back to Trevor, I would like to focus on our investments in organic growth. The chart on the left tracks investments over the past 4 years, and the right shows changes over the past 4 halves. Priorities across our business portfolios do change as we optimize returns and respond to growth opportunities. A recurring feature is the ongoing discipline in our approach to investment across the group. This total investment is tracked at around 30% of group revenues over the past few years with investment lifting to over $1 billion in the second half of financial '23. The lift in D&D spend reflects the growth of our gaming business to support our studio's increased investment in product technology to accelerate entry and scale in Anaxi and the acquisition of Roxor in January. Pixel United contributed $319 million to the $820 million of D&D spend, an increase of $45 million over the financial year. Although UA investment in Pixel United declined over the year, reflecting the maturity of certain game titles and a dynamic approach to investment, reduced UA spend was partly offset by additional D&D investments. This reflects our ongoing commitment to investment in Pixel United Studios and creative capabilities. Finally, the increase in CapEx reflects Aristocrat Gaming's investment in almost 5,000 additional units in the installed base of financial 2023 with close to 3,000 of these being closed in the second half. This completes the overview of group results. I will now hand back to Trevor who will step through the operational performance.

Thank you, Sally. Turning first to Aristocrat Gaming business on Slide 13. Aristocrat Gaming revenue and profit grew 22% and 23%, respectively, in reported terms, reflecting continued penetration of our high-performing games and cabinets, another strong performance in North America. In the Americas segment, revenue increased 16% and profits by 14%. Outright sales grew by an outstanding 40%, driven by the significant lift in North American outright sales units increasing 26% compared to the PCP, along with a 14% lift in ASP to over USD 21,000. Strong share growth was further supported by penetration of new hardware, along with successful growth in priority adjacencies led by the VLT segments in Illinois, Oregon and Canada. Gaming operations revenue increased 7%, driven by an 8% increase in our installed base over the prior year, with particular strength in Class III premium with strong market-leading fee per day trends within the portfolio. The gaming operations footprint grew to over 64,000 units with continued penetration of leading hardware configurations and high-performing game titles driving this momentum. Aristocrat Gaming continued to deliver strong game performance across the portfolio in North America, running at 1.4x for average during the reporting period and exceeding all major competitors. Our highly anticipated National Football League games will add to the depth and quality of our portfolio. The distribution of NFL Super Bowl Jackpots to casino floor started in early September, and our Class II game NFL kickoff is now available for placement. Americas margins contracted marginally by 90 basis points compared to the PCP to 55.2%, reflecting product mix given strong growth in lower-margin outright sales, offset by moderation of the supply chain pressures experienced last year. In ANZ, revenue was relatively flat compared to the PCP, reflecting solid second half momentum. Overall, profit margins contracted by around 1% mainly due to increased U.S. dollar input costs, partly offset by positive mix due to the further penetration of the MarsX cabinet. Although not shown on this slide, we're also encouraged by the recovery of our International Class III operations, which reported over 87% increase in revenues on PCP in constant currency and more than double its profit contribution. In summary, the Global Gaming business has delivered another high-quality performance, particularly in our North American and international operations. Now moving to Pixel on Slide 14. Pixel United delivered a resilient performance despite mixed conditions across mobile gaming. Revenues declined by 4% and profits were 6% lower as strength in social casino games were offset by softness in RPG, strategy and casual games. Margins decreased by 80 basis points to 32.2% and were impacted by a reduction in bookings from some higher-margin legacy products as well as exiting Russia and the ongoing costs associated with the conflict in Ukraine. Margins improved in the second half of the year, in line with our commitments outlined in May this year, finishing the year on an encouraging trajectory. The margin reduction was partly offset by lower UA expense, reflecting our dynamic approach to allocating UA across our portfolio of franchise games, relatively strong growth in social slots and fewer new game releases. The lower UA spend is consistent with pre-COVID spending levels. Investments were also made to further bolster game development, operational and leadership capabilities. Pixel United retained its #1 global position in social slots and increased share, reflecting continued investment in live ops, features and new content combined with effective player engagement. Social casino bookings were up 1.8% on PCP, driven by the strong growth of Jackpot Magic Slots and Lightning Link, partly offset by some softening of Heart of Vegas and Big Fish Casino. RPG strategy and action bookings declined 11%, reflecting lower revenues from the world-class RAID franchise. Sustained profitability in this successful title was supported by efficient UA investment as well as innovative marketing initiatives, including the animated YouTube series, RAID: Call of the Arbiter. Casual bookings decreased 11% due to mixed demand across the genre and some legacy titles in our portfolio. After successfully scaling EverMerge over the last 2 years, revenues were lower in fiscal '23. The recent relaunch of Merge Gardens has reported positive performance trends. Pixel United continued to execute on its longer-term growth strategy with innovative diversification of marketing across platforms, channels in response to evolving mobile game market and rising CPIs. Plarium Play remains an important part of our platform diversification and now accounts for around 31% of Plarium revenues, up from 26% in 2022. Our partnerships with Brazilian footballer Neymar and WWE wrestler Ronda Rousey and RAID: Call of the Arbiter also demonstrate our diversified marketing efforts. Pixel United continues to focus on long-term value and maximizing portfolio profitability. As we've shared previously, Pixel United aimed to have 10 to 15 qualified titles to enter active development at any time and to grow this pipeline over time. 3 to 5 of these titles could be launched over a 2-year period with launch timing dynamic and subject to a range of variables to maximize chances of success. Turning now to Slide 15, which provides some context on Pixel United's performance against the global market. It highlights an extended period of market share gains over the 5 years to 2023 with Pixel United delivering a CAGR of 12% compared to the market CAGR of 8%. Looking at financial 2023, the global games market declined 5 percentage points on the same period last year, broadly in line with an approximate 4% decline for Pixel United. I'd now like to say a few words about our online RMG and Customer Experience Solutions division, Anaxi. Moving to Slide 16. Around this time last year, we announced our new brand to the business and today, we are live, real and entertaining players. We delivered our market entry commitments through the 'build and buy' strategy that we shared in May last year. Anaxi has made considerable progress and is now live with 7 operators in 6 countries across 8 jurisdictions. We completed the acquisition of Roxor, a leading studio and content publishing technology company. And Roxor has now been successfully integrated into Anaxi as a core product technology, accelerating the delivery of our strategy. In our priority North American market, we're live in the 3 big states of Michigan, New Jersey and Pennsylvania with 6 operators giving us over 80% market access of the legal iGaming market in the U.S., up from over 60% previously disclosed ahead of our original target. We have 117 game titles live across the globe, and Anaxi's focus is now scale and gain share with a strong pipeline of content to be released over the coming 12 months. Buffalo is currently live in the U.S. and U.K. with indicators of strong early performance. Finally, we announced the proposed acquisition of NeoGames in May this year. Aristocrat and NeoGames has satisfied all required antitrust and foreign investment clearances and are making good progress with the necessary gaming regulatory approvals. We expect the transaction to close in the first half of calendar 2024, earlier than we indicated in May. NeoGames will bring technology, distribution, new capabilities and talent to Aristocrat when combined with our leading content and strong relationships with both commercial and tribal operators and regulators, it will allow us to build a world-class online RMG company at scale, operating across the 3 main verticals of iGaming, iLottery and Online Sports Betting. From all it remains early days, we're excited and confident about our medium- to long-term growth prospects in online RMG. Moving now to outlook on Slide 18. Aristocrat expects to deliver NPATA growth over the full year to 30 September 2024 on a constant currency basis, reflecting continued strong market share, revenue and profit growth from Aristocrat Gaming with a possible moderation in consumer spending in key markets, disciplined execution in Pixel United with a focus on market share and investment efficiency to maintain momentum, focused investment in Anaxi as it scales its content portfolio to support broader market access in North America and Europe, and completion of the proposed NeoGames acquisition. This is expected to be accretive to EPSA in the first full year of ownership with a broadly neutral impact on NPATA in FY '24 after funding considerations. Please note the additional modeling inputs you usually see on this slide have been included in the appendices. In summary, the group has delivered a high-quality result for financial '23, demonstrating excellent growth fundamentals, market share gains in key markets and genres and strong operational momentum. Aristocrat has over 7,800 employees around the world, and I want to thank each and every one of them for their dedication and hard work throughout the period. Your resilience and commitment will allow us to continue to deliver for all stakeholders. With that, I'll conclude the formal presentation and hand it back to the moderator to open the line to questions.

[Operator Instructions] First question comes from Justin Barratt of CLSA.

Congrats on the results. I appreciate some of the commentary that you've made on your outright sales performance. Maybe a question for Hector. Just asking if you can, I guess, expand on that. Obviously, very, very encouraging performance there. What areas or regions are you performing well? How are sales in your adjacent markets? And what were the key drivers of that really strong ASP?

Thanks, Justin. I'll hand it to Hector to answer that for you.

So thank you, Justin. So obviously, a very strong performance. We're proud of the results. Like you mentioned, strong unit sales, strong ASP. If you think about what our strategy has been, it has been to continue to invest in our D&D and to drive performance for our customers. And so from a North America perspective, we obviously benefited from a high total addressable market as a result of post-COVID kind of pent-up demand, if you will. And we also were able to commercialize one of the highest-performing core portfolios in the market. And as a result of that, customers rewarded us with incremental share. And like we talked about in the last half, we also very much focused on pricing with innovation. So instead of just taking unit pricing with elevated supply chain cost, we focused on that element. From an adjacency perspective -- and keep in mind, a lot of these adjacencies are areas where we currently have not operated. So any share gains come at an incumbent player's cost. Roughly about 25% of our for-sale performance was through this adjacent market. And so it is very clear that customers are rewarding performance on their floor, their ability and willingness to pay a premium price for that performance. And it really demonstrates our ability to commercialize not just within our core markets that we've operated historically but also these new adjacent markets where we've had a lot of success.

Fantastic. And then maybe another question for you, Hector. Just I guess in terms of the outlook, how are conversations going with your major customers' reports from, I guess, one of the major casinos remains quite encouraging. But I guess everyone is a little bit cognizant of the outlook. Have you -- are those conversations still remaining quite robust in terms of the outlook more broadly?

Yes. Justin, I mean, I think with all things, we're obviously very -- we're cautiously optimistic, right? There's been a talk about a slowdown for the last couple of years. And what we've always said is we're going to compete in whatever market presents itself, and our strategy is to gain share anywhere we play. But all of the recent conversations we've had is very robust performance. If you think about what's happening right now as we speak on the Vegas trip, right, you have F1. So you'll have some pretty significant visitation rates there. And so while we, from a business perspective, remain very cognizant and look at leading indicators all the time and we're very cognizant of how we invest our dollars. It's still very robust conversations around forward CapEx. And then the one last thing I would say, just to remind everyone, part of our strategy has been to enter into these longer-term deals with our customers, which gives us better visibility, and remove some of that lumpiness that we've had historically.

The next question will be from Adrian Lemme of Citi.

My first question was related to the NFL game. It seems like interest out of G2E was very strong. Have you seen any sort of change in the level of uptake from then? And are you finding that it's replacing existing Aristocrat titles on the floor? Are you displacing competitor titles overall?

Yes. Thanks, Adrian. Hector will give you a good rundown on that quick.

Sure, Adrian. Thank you for the question. Obviously, lots of excitement at G2E from the NFL, not just one game, but really a portfolio of 6 different games, not just in one form factor or so Class III, Class II stepper mechanical reel. In fact, Eilers actually just published something this morning that talked about the most anticipated games, and it was something like close to 50% of the votes came through the NFL. And so it was very clear that, that strategy has resonated with our customers. I would say it's very early days from a performance standpoint, but we're quite pleased with the uptake that the NFL has taken. The other piece were quite pleased in some of the early data that it's showing is that it's actually incremental play, Adrian, and it isn't cannibalization of our existing products. And so we're taking incremental share not just from the existing product on the floor but also we're bringing in a different player base. Again, very early days, but the player base tends to skew slightly younger and slightly more male. And so early days, we're very, very pleased with the performance and the uptake that we have seen.

And can I just sneak in one more question while I've got you, please. I noticed the big per day for gaming ops was down about 1% for the full year. I think some of your peers have reported -- been reporting low single-digit increases. So is it just mix driving that? Or is there something else going on? And should we expect growth in that metric given ongoing inflationary pressures, please?

Yes. Thank you, Adrian. I mean, I think I'd just reiterate that we still have the market-leading fee per day, and it's stable and strong. So I would almost call it relatively flat year-over-year. The other thing I would say to that is, we talked a little bit about that -- a significant portion of our installed base is actually variable. So it's not a fixed fee. Therefore, any fluctuations in coin in results in a fluctuation in fee per day. But as you think about even our strategy with the NFL and innovation, right, part of our strategy is to continue that industry-leading fee per day and, from a performance standpoint, drive value to our customers. And so we feel really good about our relative positioning. The other thing I would note is some of that fee per day from a competitive standpoint, I would encourage you to go look at their installed base performance. Because one of the things that we're very proud of our performance is not just the fact that fee per day was relatively flat, but we installed nearly 5,000 net new adds for the year, which is a significant portion of the total industry install.

Next call will be from Andre Fromyhr of UBS.

I just wanted to ask about your organic investments. Obviously, you've called out that you spent less on UA in this period and more on D&D as a percentage of sales, and that sort of outlook is expected to continue next year. How much of that is sort of a strategic pivot that the UA probably wasn't achieving the return on investment that maybe you'd hoped? And therefore, should we expect that D&D rates to be sort of more permanently higher at this level?

Yes. Thanks, Andre. I'll make some comments on this one. First of all, we continue to invest in our organic aspects of the business. So we've included an extra slide in the pack today, which talks around the investments between D&D, UA and CapEx. You can see that there's still consistent investment there in and around that 30% of revenue on an ongoing basis. To your question, we dynamically look at where we invest both for the short term and for the long term. And we continue to invest in our D&D as a high priority for the organization, more importantly, to continue to establish a great games hardware and technology platform for the gaming businesses; to continue to support the distribution and growth within Pixel as their top line pipeline; and then to stand up and to scale Anaxi as we enter this new adjacency, very attractive adjacency, over the medium to long term whilst building a technology investment behind our technology infrastructure; to enable us to do that on an ongoing basis. And then if you talk about were D&D sits, I mean, D&D is down as a percentage of revenue. We acknowledge that. But at the same time, it goes to the -- sorry, UA is down as a percentage of revenue, my apologies. But at the same time, it goes to the stage and the maturity of our portfolio. We've got a very efficient UA investment when it comes to social casino. We've got scaled assets, world-class assets like RAID, and we have been scaling merged segment games like Merge Gardens over the last year. But that will become more dynamic, and it will depend on where we are from a portfolio point of view, where we are with new game launches, and also where we see ourselves going as far as -- it's coming back to about where it was in the pre-COVID levels. But at the same time, we're offsetting that by investing in alternative marketing strategies, whether it's television advertising for Lightning Link; Ronda Rousey in RAID; and other initiatives like Call of the Arbiter, which is trying different ways of marketing our brands, which don't end up in the UA alone.

Just I had another one, specifically about the Anaxi investment. I appreciate you calling out or you're separating the D&D portion for Anaxi. But where is the other sort of parts of your current Anaxi business recognized across the group? I assume that there are -- there's other OpEx associated with standing up that business. And you've had Roxor for the entire second half, and you've got new content agreements that are going to kick in at some point. So is there a way that we should be adjusting either the corporate costs or the gaming P&L once Anaxi sort of stands alone?

Sally will give you a good update on that.

Yes. So thank you for the question, Andre. The largest portion of the Anaxi investment is in D&D, which is why we've specifically called that out. And that does include Roxor because, again, the largest portion of expense in the Roxor business is actually in the D&D line. There are some overheads, as you point out, and they currently sit within the gaming business across both ANZ and Americas. And as we move into next year and bring NeoGames on board, we will actually revisit the way that we report this business in the market. But as I said, we've disclosed D&D because that is the largest portion of investment as we scale this business.

Our next question will be from Matt Ryan of Barrenjoey.

I just had a question on the strategy of D&D within Pixel United. So just trying to get an understanding of, I guess, your -- how you're assessing what you're spending. And I guess the context is that I think you're talking about disciplined execution, which we can clearly see that in the UA spend. But the D&D continues to increase at the moment, and I suspect you might be able to clarify that that's going to increase next year per your guidance. So I guess just in the backdrop you've got, I guess, a pretty challenging situation with -- market growth is pretty subdued, and CPIs have gone up a lot. So just trying to understand that D&D line and what the strategy is. Do you sort of think that the market is going to recover? Do you think that you've been a little bit unlucky with the games that have come out over the last 3 or 4 years that they haven't hit the mark more than what they have? Or just any color on all of that would be pretty helpful.

Yes. There's a lot there, Matt. So I'll try and unpack some of it certainly, see how we go from there. First of all, I think the strategy with D&D, consistent with the way we think about our gaming business, is that we believe in the creative talent is a differentiator for us. And we continue to look at having a pipeline of 10 to 15 qualified games in the Pixel portfolio. As you know, we've launched Merge Gardens in the last 2 years -- sorry, EverMerge in last 2 years. Merge Gardens was relaunched earlier this year. And we'll have games coming through in the FY '24 period, which we'll take the soft launch and providing those scale with the metrics we'll take them full -- through to full release. That pipeline is a rigorous process, and that's where the discipline comes in as to how do we apply various investment thesis and also points of investment where we get confidence around the stage-gate approach to the development and ultimately to the release of a product to market. So the discipline comes into looking at the way that we build the pipeline. We continue to monitor and evolve the pipeline. And then ultimately, as we get to a scaled release, then it's what's the ongoing support that's required to support that pipeline as well. We do have a benefit where we are now getting around 100 games in social casino. Around 50% of those are coming from Pixel, of which some end up in the gaming business. And then we do have games that go from gaming into the Pixel business as well. So it's really around the strategy is continuing to look at the genres in which we participate; the strength and resilience we have in each of those various genres, particularly social casino and RPG strategy; and then looking at how do we continue to build out the portfolio. As I said, they have 10 to 15 qualified games in the pipeline at any point in time.

I mean, is there something changing in the future? Because the simple way that we're looking at it is if you take EBIT after the D&D expense that you've called out, it has been declining for a few years now. Is there a change to that trajectory that you think is going to be driven by market growth? Or do you think you've just been unlucky, I guess, with the games that have come out over the last few years?

Yes. I think what we've been focusing on is continuing to drive features and LiveOps. And you would have seen that we've been talking to the market now for probably a couple of years about increasing the capabilities of that. And that's really been able to drive share taking for the social slots portfolio and continue to evolve the rate and the RPG strategy portfolio. I don't think it's unlucky. I think the market is still very volatile. And what we're saying is we're going to take control of what we can control, and we will take share in the markets in which we can participate in. And really, what we're focusing on is we're adjusting other costs in the Pixel United business to manage to the right outcome whilst continuing to believe that organic investment, which is core to our growth in the short term and long term is the right thing to do under a disciplined approach.

And just a comment in the guidance about moderating consumer spending. Is that something that you're seeing at the moment?

I'll just probably go back to Hector's earlier comments from a customer's point of view. I guess what we would say on that basis is that we've said it could be possible, and that's really what we've put out there. I'd point to a couple of points here. We've been talking and we've shared over a number of results now the resiliency of the gaming business over the last 20 years through different economic cycles and still believe it to be quite resilient. At the same time, we also have seen coming out of COVID good games will perform better than an average game at a time when there's a choice for the consumer. So we believe that having the best portfolio, a large installed base is an advantage from that perspective as well. So all we're saying it's possible. I think picking up the commentary that Hector said, certainly, the customers at the moment are still having robust conversations and there's good forward view on it. We're just saying that it is one of those things that's talked about out there, but we see gaming to be quite resilient. And we think that our diversified portfolio of assets across our business being Anaxi, Pixel United and gaming allows us to manage that.

Next question will be from David Fabris of Macquarie.

Can I just start off, I just wanted to unpack the guidance for NPATA growth, if we can. I just wanted to understand if you can provide some extra color on thoughts across the land-based businesses on the regions you report and just maybe comments on Pixel United and Anaxi to help us understand, I guess, building up segment profit.

Yes. Let's see if we can do that for you. First of all, we've put out there that we're going to expect to deliver NPATA growth, right? So we're going to continue the growth trajectory which we have done for a number of years now, and we see that being able to be achieved. Obviously, the 4 -- or 3 business units, particularly, I think we've been around the grounds on gaming. But Hector, I don't know if you want to make any more specific comments about -- around taking share adjacencies?

Yes. I mean I think, David, from the gaming perspective, there's still growth left to be had, right, because there's a lot of -- there are several adjacencies where we haven't currently competed in. And if you just think about from a regional perspective, there's been significant growth in Asia, particularly the Philippines and Singapore. You're starting to see some early signs of Macau recovery as well. And look, North America, to Trevor's earlier point around performance and game performance, we've been able to demonstrate that investing in innovation, customers have rewarded us by driving incremental share. And so that stated strategy has not changed. And so from a gaming perspective, we still see plenty of growth ahead of us going forward.

Yes. And then just building a little bit. I mean, I think we've -- Matt asked some questions around where we see Pixel United. It's around discipline, making sure that we've got the portfolio, we're investing in the right levels for the portfolio. And as the market changes, we will continue to take the upside from that. So we say we're going to take share. Again, whatever the size of the market is, we will take share, and we believe that we've got the right portfolio and strategy, and we're also being disciplined in the way we apply that. Mitchell, I don't know if you want to make any quick comments just on the Anaxi scaling and entry into North America and Europe?

I think, David, from Anaxi standpoint, it is -- we've talked about before about market access, and we've talked about that 80% in North America. But then as we start to scale across Europe as well, continued focus on getting as much access to the available GGR as possible. And then our original hypothesis about our top-performing land-based games resonating well online, as we've talked about, is proving true. So building up that pipeline and scaling that pipeline through the market access is what Anaxi's focus is going forward, and that's what we talk about by scaling that business.

The final part, David, is that, we've put a bit more clarity around where we are on the Neo transaction with the antitrust and financial regulators all approved, and now it's really with gaming regulators. And that's expected to close in the first half of this financial year for Aristocrat.

Got it. And can I just ask a question on Pixel United. Obviously, Mike Lang is no longer there. Can you maybe talk to whether you might review the strategy or the benefits of owning all parts of that business? How should we think about the change of leadership there?

Think about it as a change of leadership, strategy is robust. The business still remains an important part of what we're trying to do with Aristocrat. There are synergies across the group, whether it's from a learning and knowledge point of view, whether it's around data. There's also technology benefits and also innovation in the way that they do live box. They do features that we can learn for Anaxi. So we still see it as an important part of our portfolio and a strong part of our diversification. Just going back to what happened through COVID, we saw the value of a diversified business, and we still see Pixel being part of that. And it's really just a leadership change.

Got it. And just to sneak one more question in just on D&D. I know we've spoken about it a lot. But as a percent of revenue, it's going up or it's going to be 12% to 13% in '24. How should we think about it in '25 when you have a full contribution from NeoGames? Should it start to moderate from those levels? Or is this the new normal?

I think as Anaxi scales over the medium term and that includes Neo coming on board, we expect that it should reduce. I think realistically, that's going to take us a little bit of time. So we will probably be at the upper limit for the next couple of years. But our ambition and our target will be actually to get back to that 12% range again, David.

Next question will be from Rohan Gallagher of Jarden Group.

A lot of the questions have been already asked and answered. One question for me. In regards to an excellent U.S. operating gaming performance, we share growth across both gaming ops and games sales. We saw no operating leverage even though we've got a disproportionate growth in particular, gaming ops, which is the highest-margin segment. Can you help us reconcile that, please, whether there were some additional start-up costs in there, change of allocations of costs, et cetera, that we should be looking through going forward, please?

Yes. Thank you for the question, Rohan. I think when you look at the margins in North America, if you look at how we've evolved over the last few halves, we're back now -- just over 55%. And if you compare that to our historic range if you go back to FY '19 in a pre-COVID world, it was always our target to get back to that level of margin. And we obviously cycle through periods of higher-priced inventory, and we've come out of that in the second half. And we expect that to moderate, but we will continue to watch and monitor that situation and be ready to respond proactively. But I think our result is that, yes, we'll continually drive efficiency in the business. So we're back at a margin that aligns with pre-COVID level and where we thought we would actually be. Just remembering that we've got adjacencies in there. Now they are also a slightly lower margin than some of the premium operations.

And Rohan, just keep in mind also, even though we had a very strong gaming office performance, we had an incredibly strong game sales performance. And therefore, there is -- Rohan, there's a weighted average mix element there because gaming off comes at a higher margin. And so gaming was strong, but game sales was disproportionately stronger.

Yes, I don't disagree. It was phenomenal operating performance. But I think one would assume there should be some scale benefits to drive efficiencies, and therefore, margin enhancement given outstanding the results you delivered, but I'll leave that as a comment. And finally, on a positive note, which we never talk about or we haven't talked about for a while, international, phenomenal effort, it's now 2/3 of ANZ. I'm aware that there was a number of one-off projects, Philippines integrated results, et cetera. What is a ratable sort of run rate for this business on a go-forward basis?

I think just to put some [ beverage ] around this international fix-up, LatAm, Asia Pacific -- Asia and also EMEA. So maybe, Hector, put some context because it is a collection of different geographical regions.

Yes. Rohan, we are quite proud of the performance that we put out from an international perspective. International, particularly Asia, tends to be a bit lumpy. So just keep that in mind that it isn't this linear thing that we can extrapolate because it is very dependent on new openings and expansions and replacements and things like that. But I would say from an EMEA standpoint, I'll start there, it was largely open and recovered. And so if you look at the Eilers performance, we had industry-leading performance there. And from a commercial execution, we capitalized against that performance. And then the second thing I would say from an Asia perspective that I mentioned was high growth for us as well. We've really committed to that market and designed content that goes after that market. So that's specific. So not just porting content from Australia or North America but really designing that. And so one highlight I will give you is we launched Dragon Link in that market under a hybrid model, and our customers have accepted that model. And that is the first time that we've really done that in that market. And so we're very proud of the results there, but it is lumpy. And we will continue to -- everywhere where there is growth, we will continue to execute against that growth.

Next question will be from Rohan Sundram of MST Financial.

Hector, I might start with a question for you. Just taking on board all your comments earlier and around growth outlook, how would you rate the forward visibility that you're seeing at the moment given the customer conversations that you're having?

Yes. Rohan, you would know that we don't really comment too much on kind of forward guidance. But I will say all of the conversations we're having are very positive. It's like we've talked about over the last few halves, it's really less about a transactional conversation. The conversations we're having is with the C-level executive, and it's really around a strong partnership. And one of the things I'll highlight is, in fact, yesterday, I was at a dinner in Australia here in Sydney with some of our key customers. And we were talking about just the resilience of the business and the need for strong partnerships as we tackle some of the unknown waters. And so that's really been our focus from day 1, right, is change the business from a transactional business to really be a long-term strategic partner where we -- each kind of share the value, if you will. So from that standpoint, they continue to be very positive.

I might switch to Anaxi. Mitch, I noticed that the Aristocrat Anaxi now over 80% market access in the U.S., seems a pretty good improvement on where we were 6 months ago. Just keen to understand what's driving that and whether there has been any another key customer signing.

So I think -- yes, I think as Trevor mentioned -- or 2 things I would say. The grabbing market access and making sure that our technology works and our games converted or adapted into the online world does take some time, and that's what we have spent our time doing. From a contractual standpoint to key customers, we've obviously got a lot of the large operators signed and live, which you would have seen. And then our pipeline for continued contracts is strong both in North America and across Europe and then as we emerge into Latin America as well. So I think when you're starting up a new business and trying to scale it, there is a timing piece. So over the next 12 months, you will start to see that business go.

Next question will be from Simon Thackray of Jefferies.

I'm just going to stick to some financials pretty simple one, to be honest with you. The net debt-to-EBITDA target medium term 1 to 2x on a pro forma basis looks about $1 billion higher than what you suggested at the time of the NeoGames M&A, which was based on FY '22 pro forma at 0.7x. Just trying to understand, what's the driver of that guidance to -- for gearing to rise by $1 billion, considering the strength of the free cash flow and the earnings that lay ahead with growth?

Yes. Thanks, Simon. Sally will give you some context.

Yes. I think as we said that target out, Simon, we did say that, that was the medium-term target. When we execute on Neo next year, that will bring our leverage, but we absolutely will not go back into that medium-term range. And our ongoing review, this is that we will continue to do buybacks. We want the flexibility that we've got today. We'll continue to be opportunistic in how we target buybacks, but also in how we look at being acquisitive in the market as well. So it's very much a medium-term target and not a short-term target for us.

Sorry, Sally, you sort of cut out there. I think you turned the page. What did you say that where the target -- you expect the target to be after the NeoGames acquisition?

It will come up, but it's still within the 1% to 2% -- the 1 to 2x. That 1 to 2x is definitely a medium-term target.

It will keep below the 0.7x?

We're not commenting on where it will be at this point in time, Simon, but it will be below the 1 to 2x.

Okay. And then maybe just a real quick housekeeping one, Sally, just the depreciation step-up second half versus the first half, I presume with acquisitions and investment. But just what should our expectations be going forward for the depreciation side of the D&A and noting that the amortization of intangibles actually went down year-on-year?

The depreciation step-up is largely driven by our investment in the gaming operations slate. So I had to talk to, we had a net addition in the year of 5,000 additional units, but the gross additions was higher than that. And obviously, there are premium cabinets going out on the floor. So that's ultimately driving the largest portion of the increase in the depreciation. From an amortization perspective, the reason that, that number has come down through over the year is that we had some intangible assets in there that are fully amortized over the last 12 months. And obviously, that number will get revisited once we bring Neo on board at some point next year.

Sure. So ex-Neo, the depreciation run rate for the second half is more representative of what we should be thinking about for the full year?

The amortization run rate, yes.

And the depreciation run rate, similar?

No. The depreciation is largely driven by gaming operations and our investment in that installed base in North America.

Next question will be from Harsh Singh of Bank of America Securities.

Three questions from my side. One, the lower user acquisition spend call-out for next year, could we interpret it as signaling that you'd be spending less behind any new game launches besides maybe scaling up EverMerge? And then are you seeing any improvements in user-targeting capabilities for Pixel United? AppLovin called out some improvement in the ad tech engine using AI machine learning. How are you thinking about using that?

Yes. Thanks, Harsh. First of all, I think when we think about UA investment. So we've got a good suite of games and we've got a very efficient suite of UA investment when it comes to social casino. And so we continue to drive that. Also, as you said, scaling EverMerge and scaling NeoGames as they and when they come to market. The guidance we provided is around moving back more towards where we were pre-COVID and it sort of reflects where the maturity of the portfolio sits, that gives us the capacity to invest behind NeoGames going forward. At the same time, we're doing other user -- not user, other marketing activities, like we said earlier, RAID: Call of the Arbiter. You would have seen that we've done the Ronda Rousey, the Neymar activities. Plus, we've also -- there's a new activity coming with RAID, which is entering [ Xena: Warrior Princess ] is coming into the Xena game. Again, there's another way to market the game and also to put it out there. So what I would say to you is we're trying alternative methods. To your question about are we using AI? We're using different ways of looking at reaching new markets and also out of our traditional just UA investments. So it's a little bit of both.

Sure. And second question on the increase in D&D spend. How much of that is coming from targeting Anaxi scale-up in the coming years? And how much of that is probably geared towards lifting your ship share in new adjacencies and outright sale markets?

Sally, do you want to just...

Yes. I think the reality is that it's actually a mix. So we've seen opportunity to invest in the breadth of our portfolio. And in gaming, very much focused on the 1 of that portfolio, including the addition of the adjacencies and our expansion into new adjacencies. And then obviously, the standard Anaxi and scaling that business along with the acquisition of Roxor during the year, which, as I said earlier, actually added to the D&D cost base.

Yes. And last one question, if you can disclose. Any comments on how the NFL game portfolio is trending versus the zone average?

Sure. Hector might just put some clarity around that.

Yes. So we -- it's obviously early days, so we wouldn't disclose kind of the performance. But like I said earlier, we're very happy with how it's doing in the market. And more importantly, we're happy with our customer reactions. I think one of the things that's really unique about the NFL brand is the largest sporting brand in North America. And it actually gives our operators a true way of being our strategic partner of driving innovation on their own floor on how they're going to commercialize it on their own floor. So there's quite a bit of excitement that we've enjoyed having those different kinds of conversations of how can we together bring the NFL brand to a player.

Maybe just Class II just released.

Yes. Class II has been live about a little -- probably a little bit over 2 weeks now. Again, very early days. We use a very proven math model to develop that content. It is not a port of the Class III product. It is actually a completely different product. And so when we think about being successful in all the markets we compete, we really took that approach with the NFL and really tried to give the operators the flexibility and the capability to drive innovation and build some interesting things on a casino floor that could potentially monetize a high-foot traffic sports-betting player that historically has not played slot machines.

Next question will be from Paul Mason of E&P.

I just wanted to ask a couple of things about online RMG. Just any comments on when or whether Dragon Link and Lightning Link are going to come out? Whether there's a potential for you take your NFL agreement into iGaming as well? And then also whether you've got any intentions around live table games? Those are the 3 things I hope you touch on.

Thanks, Paul. I'll hand over to Mitchell.

Thanks, Paul. Look, I think to answer the first couple of questions, we've obviously -- as we start to scale and drive market access and bring NeoGames on board. We have a very regular cadence of game launches over the next 12 months and certainly over the next 24. So we will -- we are thoughtful in how we release that. Certainly, discussions have been had internally about your said games, and we'll continue to have those conversations over the coming period. I won't give you a time frame on when all of that happens, though. The second part of your question around Live Dealer. Look, I think as we've talked about with our strategy in online RMG, slots was a logical entry point for us to leverage the top-performing games in land-based. When we define RMG, we do talk about iLottery, online sports betting and iGaming being casino. Within the casino genre, there are multiple different product segments that are part of our strategy. But in the immediate term, our focus is to obviously scale Anaxi and close NeoGames, but we'll continue to keep you updated on that strategy as we progress.

Next question will be from Don Carducci of JPMorgan.

Cognizant of time, maybe just an easy one, like a yes or no. Is there an opportunity or are there plans for cost-out to aid margin expansion?

No. We expect disciplined investment on an ongoing basis, Don, is continuing to invest in D&D, which drives our short term and long term. But we continue to look at where other costs lie within the organization. We remain focused on that, and it is part of a broader program. You saw that we did some adjustments in the Pixel business in the second half, but we remain focused on how do we create more synergies and more connections across the risk going forward. We still believe we're -- we have the opportunity to invest in the core businesses and also to scale.

There are no further questions at this time. I would like to hand back over to Mr. Croker for closing remarks.

Thank you, operator. Aristocrat continues to execute well against its strategy of offering a diversified gaming portfolio that leverages our leading content and capabilities. While we face a number of uncertainties as we move into fiscal '24, our constantly strong investment in talent, technology and innovation leaves us confident that we've captured the numerous opportunities that lie ahead. If you have any further questions, please don't hesitate to reach out to our Investor Relations team. I'll now call the formal proceedings to a close. On behalf of the broader team at Aristocrat, we thank you for your ongoing interest in the company, and we wish you a good day. Thank you.

Thank you. That does conclude our conference today. Thank you for participating. You may now disconnect.