Aristocrat Leisure Limited (ALL) Earnings Call Transcript & Summary

Good day and thank you for standing by. Welcome to Aristocrat's 2024 Sustainability Disclosure Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Natalie Toohey, Chief Corporate Affairs Officer. Please go ahead.

Good morning, everyone, and welcome. My name is Natalie Toohey, Chief Corporate Affairs Officer at Aristocrat. And joining me on the call today are Harry Ashton, our Group General Manager for Sustainability and members of our Investor Relations team. Before we begin, I'm pleased to acknowledge the Traditional Custodians of the land upon which we're meeting today. the Wallumettagal clan of the Eora People. I note that we published our sustainability disclosures on our Aristocrat Group website yesterday, and I do encourage everyone to review those disclosures if you haven't already. They really do contain a wealth of information and increasingly more data that tracks our progress and provides deeper insights. And this is in response both to your feedback and also in view of approaching mandatory reporting standards. We have been active, of course, in meeting with many of you and sharing information on our ESG priorities and progress over the last few years. And you may recall that last year, we held a deep dive session on our ESG agenda in December, and today's call builds on that engagement. I'll now hand over to Harry, who will take you through key features of the disclosures for 2024 and invite your questions. Harry?

Thank you, Natalie, and thank you to everyone for joining the call. Over the past year, we brought forward a new enterprise sustainability strategy, which was endorsed by our Board, and I want to start today by summarizing the process we followed. This is outlined in the report that was released yesterday. We started with a double materiality assessment, which I'll refer to as DMA, to which a number of our investors and ESG specialists contributed to, and we're very, very grateful for that support. This encompassed an assessment of both impact materiality, which is impacts on people and the environment and financial materiality, which is how sustainability matters affect the financial performance of the company. The methodology for a DMA identifies material impacts, risks and opportunities that may arise related to our activities and value chain. Our DMA process drew on the core principles of materiality as defined by major international standards and directives. The DMA identified 13 material sustainability matters, which underpin the new 3-year sustainability strategy and inform the overall structure of the report. So now I'd like to move into the strategy. The 13 material matters have been grouped under 4 strategic pillars of good governance and responsible business; empowering safer play, which is a new pillar we've previously referred to as responsible gameplay; operational sustainability and climate; and people and community. The first pillar is good governance and responsible business. Here, the DMA found a number of areas associated with good governance that are material issues for Aristocrat, namely regulation and compliance, corporate governance, business conduct and ethics and digital trust and cybersecurity. Our vision for this pillar is to maintain high standards of effective corporate governance and responsible business practices to help create, protect and enhance shareholder value and the future sustainability of Aristocrat. A key target for us with this pillar will be complying with ESG mandatory reporting regimes from fiscal '26. The second pillar is empowering safer play. You'll note that this is a stand-alone pillar for responsible gameplay, which is a reflection of this being our most material sustainability topic. We're also changing the name of our program at a group level to empowering safer play. We felt the name better reflects our commitment to proactive harm minimization and aligns with the growing industry trend of adopting safer gambling terminology, particularly with key RMG operators and in markets outside of the U.S. In the U.S., responsible gameplay remains the most accepted term and one which customers are most comfortable with. We see a need for flexibility and will take a tailored approach to naming conventions across our business under the group-wide empowering safer play program. Our vision for empowering safer play is to create entertaining experiences, which comply with industry regulations and internal standards, empower players to make informed choices about their play while pushing ourselves to continuously improve. Alongside the development of our sustainability strategy over the course of FY '24 Aristocrat develops its first medium-term 3-year empowering safer play strategy in recognition of the need for more consistent and longer-term actions across this important agenda. We now have a suite of goals and targets related to compliance with safer play requirements, player education and awareness, internal education and awareness, safer play innovation and partnerships and research. The third pillar is operational sustainability and climate. This pillar encompasses climate action, sustainable product design, modern slavery prevention, supplier diversity and responsible sourcing. Our vision in this area is to operate sustainably integrating social and environmental factors in our decision-making, whilst taking action to mitigate climate change. Our key targets are our science-based emission reduction targets which were validated by the science-based targets initiative in FY '24. This will require Aristocrat to reach net zero across its value chain by 2050 along with near-term targets, which are aligned with the Paris Agreement. And the final pillar is people and community. This pillar is largely unchanged from our previous strategy, capturing employee health, safety and well-being; employee engagement and development; diversity, equity and inclusion and community impact. Here, we strive to be a destination of choice for talent through fostering an inclusive, diverse, safe and thriving workplace while supporting the communities in which we operate. We also have targets related to health and safety, engagement and DE&I. So that's an overview of the new strategy, but I also wanted to give you an update on significant steps we've taken in FY '24 to align with mandatory reporting regimes in Australia and Europe. From 2026, Aristocrat will need to comply with the recently legislated Australian climate reporting standards. In addition, we're likely to require to report against European reporting standards across a broad range of material sustainability issues. We've taken steps to restructure and resource our efforts to respond to these changes. Four cross-functional work streams are now executing coordinated 3-year road maps across the critical areas of disclosures and policy, assurance, including engagement with our external auditors, data collection and automation, and finally, abatement. While the initial work is focused on climate and our targets, work streams are taking into account potential mandatory ESG reporting obligations across other material issues, such as responsible gameplay, governance, cybersecurity and health and safety to ensure our systems and processes are readily adaptable if needed. There are many highlights across the fiscal year, which can be found in the sustainability report and summary documentation, and I encourage you to dig in over the coming weeks. And with that, I'd like to open up for questions.

[Operator Instructions] I see no further questions at this time. I will now pass to James Coghill for any questions.

Yes. We've had a couple questions that have been texted across. So I'll just -- I'll ask them here from the room. The first one is how have you integrated NeoGames into sustainability initiative? And what have you learned from them?

Yes. Thanks, James. As you recall, we acquired NeoGames which completed in April of this year. So we -- the reporting period only covered a portion of the year where we had NeoGames in the operation. As a result, we've partially integrated NeoGames across a wide range of sustainability areas, including cyber, privacy, responsible gameplay or empowering safer play and in the people and community areas. In terms of an example of how we're doing this is in the empowering safer play area. And what we did was to start with a risk assessment of the NeoGames operation, which was measured against our enterprise risk framework. We identified the controls and actions and risks and opportunities to underpin a new strategy for a new responsible gameplay or empowering safer play strategy for Aristocrat Interactive. And there's been plenty that we've learned on both sides, and we're still learning, and we're still continuing to integrate. And you'll see in future reporting period -- in future reports that there'll be much more information on these efforts. And much more information on some of the great initiatives that NeoGames is undertaking.

We have a question lined up for the audio. Please wait a minute before we bring them up. [Operator Instructions]. Now we have Rohan Gallagher from Jarden Group. Please go ahead with your question.

Two questions, if I may. Harry, over the next 12 months, what would be the 2 or 3 key objectives for you and the team? And then can you also provide us an update regards the New South Wales cashless gaming situation conscious of the report being released yesterday.

Thank you for the question. I'll address the first one and I might pass the second to Natalie, if that's okay. So yes, thanks for the question on in terms of the next 12 months, what are the 2 most important initiatives? Well, we can [indiscernible] lean on our double materiality assessment rolling out our most material matter, as I mentioned before, is empowering safer play formerly known responsible gameplay. So we'll be really focused in that area in rolling out our new strategy, which you'll note and you'll see in the report has a suite of targets against the goals that we have there. So that's going to be and will continue to be our #1 focus. But, I guess, the second area, which is also super important. And I alluded to this at the end of the opening remarks. And that's preparing for the forthcoming mandatory reporting regime. So this is a huge amount of work that's going on with the sustainability team and other cross-functional areas like finance and data and legal and other areas that we can essentially stand up a new reporting framework against the mandatory reporting regime. So I mentioned that we've got a huge amount of work going on to prepare data sets for assurance. And this is a real step change in the maturity that is under -- being undertaken in our sustainability program at the moment. I guess I'll pass to Natalie now on the question regarding cashless.

Yes, Thanks Rohan for the question. I mean, I think the first thing to say is that Aristocrat as a company is very supportive of the goals of the New South Wales government's expanded cashless trial. And in fact, we were investing in cashless trials before, it was anybody's policy before it became a political talking point. So contributing, of course, through the inaugural trial we ran at Wests, Newcastle. . I guess, from an Aristocrat perspective, we've been transparent that a few months ago, several months ago, in fact, we withdrew from the voluntary trial in favor of focusing our efforts on completing the development of a robust cashless technology solution for New South Wales, which we believe will be adaptable also to other jurisdictions over time. And we are very much focused on being ready to bring that solution to our customers in this market as the product requirements and the approval process, et cetera, becomes clearer over time. But I just want to maybe address why we withdrew, it really just became clear to us. And this is -- obviously, it was a fast-moving process. It became clear that the time frame and various other parameters of that trial were just not consistent with us being able to develop the solution to the level that we thought was appropriate and right for our customers and would support a really useful set of trial outcomes. And bear in mind in that Rohan, we've already run a trial of cashless technology in New South Wales. So we're very cognizant of the need to make sure we are leveraging learnings from that process into any subsequent trials. So for us, it was -- that was the context of the decision that we made to pivot the -- our focus and our resources to developing the next generation of cashless solution, building on the lessons of our trial and hopefully bringing forward something really effective and appropriate for this market at the right time.

[Operator Instructions]. I will now pass to James for more questions. Thank you.

Thank you. We've had a couple on our climate action initiatives. So I'll ask the first one. Someone has picked up that Aristocrat's emissions went down over the year. So the question is what drove this change?

Yes. Thank you for the question. That's correct. We did see our emissions go from around 800,000 metric tonnes of CO2 down to around 657,000 [ metric ] tonnes. I think the important thing to note here is that this wasn't directly due to abatement activities that we've been undertaking. We're setting up those processes at the moment. So the majority of these are related to improved data collection processes, noting that we're still maturing across this important area and closing gaps in data and data quality issues. So we did see a reduction of around 30% in our Scope 1 emissions. And this was a 33% reduction in mobile fuel combustion and this was offset by about a 10% increase in stationary fuel combustion. In Scope 2, we saw an increase of 55% noting that Scopes 1 and 2 are a small proportion of our overall emissions. But it went up by 55%. And this was attributed to the identification of new properties that we hadn't included in the previous year. And then in Scope 3, we saw a 19.2% reduction from FY '22 to '23. And this was partly driven by a decrease in emissions related to use of sold products, which is the largest emissions category in Scope 3. I should also note, while the question is there that we did only report on FY '23 data, it's been a quite a journey in terms of doing our first year from FY '22, took a long time to collect that data. We've improved our processes. We're getting quicker with '23 and we're hoping to bridge that gap in this year and -- so that we can get up to speed before the mandatory reporting period kicks in, in FY '26. So that's the question -- that's the answer, James.

Thanks, Harry. And then just related to that, how do you ensure the accuracy and reliability of your Scope 3 emissions just given the challenges associated with collecting this information.

Yes, you're right. There are a lot of key challenges related to the collection of Scope 3 data and we're not the only company that is experiencing this. So this is going to be an ongoing challenges as the economy looks to decarbonize. So what we have at the moment in terms of our processes is an end-to-end verification and sign-off process where we essentially identified data owners within our business that can capture -- accurately capture this data. And then we identify things like the properties and entities that are captured within the operational boundary. . And then what we'll do, we'll work with them to identify an RFI. And so we get the right sort of questions that are being addressed. We'll go through a series of back and forth to complete the RFI. We'll do an internal evaluation of the data, and then we'll get the external evaluation of that data. That's not assurance at this point in time, but it will be. We're moving towards that stage. But at the moment, for '23, that was the process we went through internal checks, external quality checks, resolution of the data gaps and then the publication of the report. And then this year, we did improve those processes and identified some gaps from the previous year, as I mentioned. But yes, that process will improve as we move towards assurance in the coming years to comply with the mandatory reporting regimes.

We've got a couple more that have come through here on RG or as we're now calling it empowering safer play. You touched on this earlier, but perhaps you can just expand on why did you change the name of responsible gameplay to empowering safer play? Will there be any substantive impact of this in terms of your focus?

Yes. Thanks again for the question, James. And yes, we did -- we changed the name to empowering safer play. And, I guess, this came through the process of the identification of the targets and goals that we were -- that we -- you could see in the report. This process started probably in November, December last year, where we engaged an external consultant to assist us with some external benchmarking around what are other companies doing in this space with regards to setting targets, goals and metrics. And so we did like a deep dive exercise there. And through that process, we saw that in markets outside of the U.S. and in markets such as -- which are heavily involved in the RMG space or the online gambling space. The term safer gambling was becoming more prominent in its use. So we saw that in markets like Australia, in places like the U.K. and Europe. And this was reflected not only in regulator statements or industry associations, but we even saw some of our customers starting to use this term, particularly in the RMG space. So we thought that we should change the name of our program to empowering safer play. But through that process, we realized that in the U.S., responsible gameplay is still the most used term. So we have the flexibility in the U.S. to continue to use that term, but under the banner of the overall project name of empowering safer play. And in answer to the question around what impact will it have? Not a huge amount, but I guess it's a reflection of the need for us to continually adapt as society changes, society expectations, research, expectations, regulatory expectations change around us and customer expectations as well.

Good. Thanks Harry. And just one that gets into a little bit more detail, but I'll ask it anyway because I think it's quite an important point. In your sustainability report, you flagged a hypothesis that you tested with RG messaging across your social casino player base, which led to more self-exclusions of only half the number of e-mail messages. Can you shed any light on why that occurred?

Yes. So previously, we used to send out messages to all of our players in social casino. And this would come via e-mail for registered players or pop-ups in the game via socials and other areas. But it was fairly arbitrary. It didn't look at player behavior. And we commenced our self-exclusion program a number of years ago, and we've been able to collect some data sets around that. And we were able to -- we thought to ourselves, what can we learn from that about player behaviors and what can we do to improve our program? So we looked at potentially developing a model whereby we could push out targeted messages to players that are attributing -- that have certain behavioral attributes. And we looked at behavioral flags based upon our self-exclusion data. And it was things like revenue rate, point in, time played and the hour of playing the number of spins per session. The use of the out-of-chips flow, which is specific to social casino and the use of certain features like auto-spin. And then we did some testing on that and look to validate the model and the team were able to validate the hypothesis that players that had these certain characteristics would benefit from receiving these messages on a more frequent basis. So what we saw when we rolled it out in -- particularly in Cashman Casino. And we've now rolled it out across a number of other social casino apps. Despite the fact we sent less messages, we've got more use of our self-exclusion functionality. So we see that as some effectiveness to this new targeted messaging that we rolled out last year.

Can I just add as well that I think what Harry has spoken to there also shows the benefit of iterating. So we've been doing these player messaging campaigns and experimenting with them, learning from them over a couple of years now. And I think what you're seeing here is that we're able to build on what we've learned to test hypotheses, maybe bring new player information to new tools and make sure they're being more effectively received and used over time. So I mean, I personally, I'd really love to see this in our program where we're able to keep learning and building on some of the things that we're finding out.

Thanks Natalie. We've got another one here that's a bit broader. And I think I'll direct it to you, Natalie, how are you protecting your intellectual property and your talent, quite a topical area. Is this specifically covered by your sustainability agenda?

Thank you for the question. I mean, I think elements are. I would say, to start off with, we take a pretty comprehensive approach to creating, protecting, leveraging IP assets and the talent that creates it in our business. And I think you can see aspects of that reflected in the report around things like talent development, traction, culture building, and certainly, things like reward and retention programs. I think you can also -- I would also say that our approach is about systems as well and capabilities. So capabilities to maximize, our ability to turn great ideas into valuable trademarks, patents and the like supported by things like training and policies and processes to make sure that we're keeping those assets secure and to minimize as far as we can the risk of any of that valuable IP being either misappropriated or compromised in any way. So I think there's a number of ways in which our comprehensive approach around those issues interacts with the sustainability agenda. I would also say the final piece of this puzzle is we also actively defend our IP assets through legal avenues and elsewhere as when needed. So I think we're always refining -- we're always looking to refine and strengthen what we do in this area, where there are opportunities to do so, we will do so. And, I guess, in summary, I'd say it is a very big focus for our organization as you would expect, given the quality of those assets and how much they underpin our competitiveness and our ability to continue to grow.

Last chance for audio questions before closing. [Operator Instructions]. Thank you. I see no further questions. I will now pass back to Natalie.

Thank you, operator. Look -- thanks, again, everybody, for joining the call. In summary, we're really pleased with the progress that we've achieved across the year in our sustainability agenda. And we are genuinely excited about the opportunities ahead. It won't be a surprise to you to hear us say this is a very fast-evolving agenda, both within our business, but also in terms of external developments and expectations and indeed requirements. So your perspective, the perspectives of our shareholders and stakeholders are very valuable. And we are grateful for your participation today and just for your engagement more generally. If you have any further questions or comments, please don't hesitate to reach out to our Investor Relations team in the first instance. And with that, I'll just reiterate my thanks. Have a great day, and thanks for joining us.

This concludes today's conference call. Thank you all for participating. You may now disconnect.