Playtech plc (ALL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Aristocrat Conference Call. [Operator Instructions] I would now like to hand the conference over to Trevor Croker, Managing Director and CEO of Aristocrat. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us on the call on short notice today. I'm joined today on the call with [indiscernible] from the Aristocrat team and also the Investor Relations. I'd like to make a few comments before providing opportunity for you to ask some questions and answer your questions on our conversation today. It should take around 40 to 45 minutes. I just want to reflect on Aristocrat and our journey. And if you go back and look at what is our approach to M&A, we invest in our business through D&D and UA to grow our business and to take share in the markets in which we compete. In financial year '21, we spent over $1 billion investing in that growth on an annualized basis. We then utilized our strong financial position and discipline to accelerate growth through M&A, and we've got great examples of that in BGT, Plarium and Big Fish Games. As we come to strategy, we seek to look at adjacencies to accelerate our capabilities and to use things like our content, our technology and our distribution as opportunities to expand and continue to grow our business. And our gaming was an example of that, and this was supported by our customers as well. Obviously, it's a disappointing outcome with what was announced overnight regarding our offer for the Playtech acquisition. It was a recommended offer by the Board and is supported by the majority of Playtech shareholders who voted. However, there was a number of material investors, who had not engaged meaningful about their views, and we're overwhelmingly passed both against which effectively block the deal. Based on public disclosures, the majority of these shareholders arrived from the Playtech register after the announcement of the recommended acquisition. Notwithstanding our extensive due diligence, these developments since our offer have been largely beyond Aristocrat control. Of course, we've sought to take every step possible on the recommended offer and have sought to engage around all alternatives. While we've been flexible, we have not been able to find a way forward, but facilitates a company -- a whole company transaction with Playtech at this time. Aristocrat commitment to a scale presence in online gaming will not change. This is an important plank in our growth strategy. Our online RMG capability will be one that will deliver new and connected experiences that leverage our world-leading content and unlock additional value across Aristocrat's portfolio while deepening customer engagement. Long-term interest at our shareholders an absolute focus of our M&A at Aristocrat, delivering strong long-term shareholder value and transaction certain use threshold requirement any M&A transaction for Aristocrat. We'll now move on to actively accelerate plans to -- for our alternative, online RMG scale options and continue to execute our strategy going forward. I'd just like to make a couple of comments on the core business. Our core business is in great shape. We ended 2022 with excellent operating momentum flexibility and resilience, and we continue with strong product-led performance across gaming and Pixel United. You'll not only notice that in the recent reports through our list project on our gaming performance, be it in game performance or cabinet performance and also in the current [indiscernible] performance of social casino as well. We look forward to providing you more detail in course as we move towards the AGM in about 3 weeks' time. With that, I'll open it up to questions. Thank you.

[Operator Instructions] Your first question comes from Sacha Krien from Evans & Partners.

First question from me. Just wondering if you can please confirm that you're not under any restrictions in being able to bid for Playtech's assets in the event that they do decide to sell some of those on a personal basis.

Yes, Sasha. As part of the scheme, it has lapsed. So we have lapsed now, and we are not able to make a holdco bid. So that has -- that is part of the U.K. takeover code unless we receive consent from the Playtech Board and the panel, the Takeovers Panel. If there is other assets that are available for sale, then we would consider that, but it would have to be in line with our shareholder interest and have the confidence that we're able to deliver on them.

Yes. To that end, are you surprised that votes against looks like it was actually around about 35% of this year capital. It seems a bit higher than the shareholder group that has been talked about.

No, because I think what we had is we had an overwhelming support from those that have voted. The voting turnout was possibly lower than anticipated although higher than previous both to be undertaken for Playtech assets. And at the end of the day, I think circa 80% of those votes were from people that had come into the register half the announcement of our deal.

Got it. A couple more very quick ones. You've talked before, and I think you mentioned just then on the -- that you would be looking to still enter the Grill money gambling market on a scale basis. I think you said before that Playtech was the best option in that regard. I mean if we have to go to Plan B, are you sort of talking about more sort of a series of organic and inorganic steps to get there?

Yes. I mean, Playtech was our preference. We've done a lot of work to actually get to our position. We had looked at this market, looked at the various options and the right options for Aristocrat for our shareholders and for our organization to do that. We continue to look at that, and we'll continue to stay in that flow of what is available. It's this situation, we have continued to do that. And basically, we feel that we've got great customer relationships. We've got strong regulatory relationships and we've got a strong content pipeline, and we know that, that content pipeline will be an asset for entering this sector. And we are -- we have the capacity both to invest in our own business to enter the segment, to also pursue other alternatives. And we're very cash rich, as you know, and we have the balance sheet capability and the financial discipline to do the right things.

I'll leave someone else. I just want to very quickly clarify, Trevor. You said you can participate in asset sales. Can you make it take over a bit as in 50% threshold transaction? Or do you need to wait period before you would do something like that?

No. On the basis of the scheme is, Sacha, we can't make an offer for holdco for 12 months unless we have the consent of the Playtech born in the U.K. Takeover panel.

Your next question comes from Matt Ryan from Barrenjoey.

Trevor, I just had a question about how vertically integrated that you want to be within U.S. RMG. And I guess the question is, was there anything specific about Playtech that, I guess, caused you to go down the path of, I guess, going up the value chain? Or did you sort of make a decision that that's where you want to be and then look for the best offering in that space.

We've talked in the past about the 3. If you look, the 3 elements of RMG. The pure [indiscernible] play, the content aggregation play and then the platform and technology play. When you look at each of those, we could participate equally in the first 2. However, we feel that the platform play, which is more about integrating the -- our current systems business, integrating our customers with online was a better solution, and we believe that as a technology and a content company investing in another technology solution to advance that longer term was the right place. So we have targeted that sector is where we were looking at, but there are other alternatives, as I said, there's a pure content play, which we could do, content aggregation and also platform play.

And I guess, you've looked at many companies and many deals over the last few years. A lot of the companies that we can see are sort of on the listed market and there's not that many of those. Can you just share any insights on, I guess, the depth of unlisted companies out there that might offer something similar to Playtech either through setup solution like Playtech had or even if you just needed to sort of buy and build something which is a little bit less advanced?

Yes. As you say, there are a number of listed companies, but there are also -- there are a lot of technology businesses and technology platforms that have been built in our unlisted ones, so we've been looking at both listed and unlisted technology and platform companies, also content aggregators. We can see options to actually achieve our objective through either a listed or an unlisted solution. And we also see the opportunity that we can invest behind it ourselves.

And just last quick one for me. Your term loan debt, can you just remind us of I guess, how you could make that more efficient, given that you are sitting on cash at the moment? What are the sort of I guess, logistical steps to potentially buy some of that back or to create a bit more efficiency in the balance sheet?

Yes. I think it comes to -- yes, we are sitting on a bit of cash at the moment, but also at the same time, we do have the option to think about other alternatives. So things like asset purchases, further M&A, accelerating our D&D pipeline and other growth initiatives. We can retire debt, you're right, and that is one of the options we have, also increasing dividends and potentially returning capital to shareholders. But our plan is to continue, as we've always done to invest in the growth of the organization, and we can still see a path and a reason to invest in the interest of shareholders to drive growth in the short term and medium term, utilizing our current balance sheet strength. And also, it's worth noting at the moment, this sector that we've been talking about in the last few minutes has come off by about 20% over the last 3 months or so. So our balance sheet capacity and strength and also that suggests that we should be making sure we've got the right strategic choices and then executing them.

Your next question comes from Justin Barratt from CLSA.

Just one question for me. Just given the expected rapid growth in the iGaming total addressable market in the U.S. over the next few years, how important is it for Aristocrat to move really quite quickly to secure a platform or content aggregator in order to make its move into online RMG in your view?

Justin. Look, I don't think we're in a rush. At the moment, there's only 7 states as at January 2022 that have got license sky gaming. And we're only expecting -- we're expecting that to be 20% by 2025. So we have time, and this is about what's the right solution close of what is in the best interest and how can it be executed. And so from our perspective, if this would have been a preferred solution, but we also see that there are, as I said to Matt, there are other alternatives, and we won't be pushed by time. We'll be focused on what's the right return for our shareholders, what's the right strategy for our business, and how do we maximize our content through the opportunities that are out there.

Your next question comes from Rohan Sundram from MST Financial.

Most of my questions have been answered. But maybe can I just confirm, Trevor, that with the additional term loan B issuance, is that going ahead based on what you said earlier? Or was that conditional upon the acquisition?

Rohan. I appreciate that maybe I wasn't too clear on that, but it won't be it is conditional on the acquisition. So at this point in time, going ahead, but it's better at it at the moment.

Okay. And you mentioned a number of options. Could capital management be a potential option given you are so you're in a very good position in mind you're still looking at M&A? Or if not, when could capital management be a consideration?

It's something we're always talking with the board about and it's a key principle of our decision-making on a regular basis. We'll update you as we get further down that. But at the point where we sit at the moment, as I said earlier, there's opportunity to invest in our core businesses. And the strength of our core business at the moment is wonderful and very confident about that is there is options to continue to invest in that. There are also options to invest in high gaming. There are options to continue to invest in tuck-ins behind our digital and our gaming businesses as well. So we'll keep you updated on that. But at the moment, we still see that we've preserved a lot of financial optionality to execute our strategy and continue to drive strong shareholder returns.

Your next question comes from Larry Gandler from Credit Suisse.

Trevor, how important is price in your recent sort of considerations of RMG and maybe even the whole online space I know it's an obvious answer to say price is important, but sometimes there's an asset out there that's great quality. Playtech wasn't a fantastic quality asset. You have to divest we'll close down the agent operations, if you would acquire it. But I'm thinking of a business like Evolution Gaming, it's the industry leader online. It's got great slot content. It would be a fantastic merger with Aristocrat, but price, obviously, evolution is a very expensive business. That's why I'm asking. Maybe you can shed some light. I know it will be difficult to answer that sort of question.

Larry, I appreciate this easy one particularly on today's morning. Look, I think we come back to our investment fundamentals, right, as we focus on making sure we invest in the core business, which I've said many times on this call. And then we look at what are the investments that accelerate our growth. And we take a disciplined approach to that. We look at what the investment means for us, what it means for our shareholders what means for our customers. And we really do create that we do focus on the long-term value I think where we get to on price, particularly in this situation is that our price was the only price that was in the market. It was a 58% premium to spot price underserved, and it was the only cash -- full cash certain offer that was put to the board and put to the shareholders. So we do the rigor. We have financial discipline around it, and we stay focused on what's important to us. Options like we talked about could be considered. I'm not saying we're doing that, but those are some of the capacity opportunities we have because of the strong fundamentals of our core business. Our 80% -- over 80% of our business being recurring revenue and the strong balance sheet that we have that allows us to have that optionality as we think about accelerating our position and growing scale in the RMG market.

Your next question comes from Sacha Krien from Evans & Partners.

Just one follow-up question. I mean, Playtech provided a good foothold in a number of areas like B2B, live tables and also B2C. Can you maybe just comment on what your primary focus is going forward in terms of organic and inorganic investment? Is it really initially that U.S [indiscernible] gambling market?

Yes. That's summarized it very simply, Sacha. Our focus is iGaming North America focus, leveraging our strong content in that marketplace, our customer relationships and our strong regulatory relationships, and that becomes our core focus. Other attractive markets are obviously Europe and then content moving into the European markets. And we were very excited by the B2C business with Playtech had. It was a very good well-run business constrained to the Italian market predominantly, but had opportunities to grow in other B2C markets. But our focus is North America. It's the largest market. It's only just starting to open, as I mentioned earlier. And we see the opportunity to distribute our content with our customers in those regulated markets as a large opportunity for us going forward.

Okay. Great. And to what extent can you get your content ready ahead of acquiring the right type form and RGS to actually provide their content to operators?

We're getting close. It's a capability we've been building for some time. We have mentioned the fact that we are in the RMG business and we are looking to accelerate our scale, and we have that capability, and we are building it, and we are making games now.

And then final question, just on the question of return to -- returning capital to shareholders. I mean, it's hard to find an acquisition the sort of rival, the size of Playtech in this space. And as you said, asset prices have come down. And I think that's a big part of that acquisition price was the B2C business, mean at what point we maybe give a difficult bit more clarity to investors about the possibility of handing some of that capital back if you can't find the new store.

Yes. I think we're 24 hours after a vote or 24 hours, we just after the vote. As I said, we've got options within our core business but continue to invest for growth. It's a bit preemptive to start giving guidance around returning money to shareholders report in time. I would ask shareholders to give us the confidence that we've been able to invest their funds for growth and drive superior shareholder returns for a number of years now, and we'll continue to do as a priority for our management and the board. And as we get to a point later in this year, we'll keep all shareholders and investors up to date on what our intentions are around capital management.

Your next question comes from Larry Gandler from Credit Suisse.

I have some follow-up questions from me as well. So with the content aggregator piece just listening to your answer with Sacha, is that something that you're indicating you might be close to having ready for the market?

I think, Larry, Sacha's point was how close are we to making games. We are making games, I think, is the answer.

Okay. So that's the...

Content aggregation requires a little bit more complexity than that, it requires more technology behind it, and it also utilize a broader portfolio of games and games solutions.

Yes. So I was asking -- yes, that's right. So that remote game server, I know that it's quite a complex thing to build. And I think you indicated in the past that you guys maybe have been working on one in the background. Is that something that you'd be ready to come to market with if an acquisition opportunity doesn't with [ Altel ]?

Yes. We have had -- we had an RGS for a number of years, Larry, and we're continuing to work on it. We felt that the scale opportunity of entering through an acquisition was a better solution, but we can use that as well. We do have an RGS that is operational.

Okay. Great. And Trevor, I'd like to just maybe switch a topic just briefly let me know if it's all right. But with all the geopolitical tensions in the Ukraine, I just wanted to ask with over half your staff for Pixel United in Ukraine and Russia, maybe you can sort of tell us what's happening on the ground. We read the western newspapers, and that may not actually be what's happening on the ground, particularly with regards to how your staff are confronting the issue?

Yes. Larry, it's certainly a timely question, but we are a global business, and we have geopolitical risks and management plans for all parts of the world, unfortunately, and we're very much alive to the Ukraine situation. We have got robust plans for our businesses in the U.K. -- sorry, in the Ukraine, my apologies. We come back to the same principles that we applied when COVID came in, which was people first and then looking after our customers and business resilience. And we've taken that same approach in this. We have continued to stay engaged with our people on the ground. It is fair to say that there are different perspectives on the ground to what there is from newspapers and media reports, but we are listening and talking to our team. We've developed an appropriate risk and mitigation plans. We have alternatives in neighboring countries like Poland and Finland. We also have taken the appropriate steps around protecting our IP and our technology as well. So we're hopeful it doesn't escalate further, but we have planned on the basis that should escalate that we have mitigation and ways to administer and focus on making sure that our team in those regions are safe and well. I talk to people every couple of days of out, Larry. It's a live conversation.

There are no further questions at this time. I'll now hand the conference back for closing remarks.

Well, thank you, and thank you, everybody, for your time. It is appreciated in such short note for you to spend some time with us. I will just make 2 comments. First of all, we go back to our core business. We ended the year in great shape, and we continue to see that momentum building through the year. Our game performance is continuing to be the top of category, not just in number of games in this but also our performance. Our cabinets continued to deliver and also our strong position with social casino. With all that said, obviously, we're disappointed by the board. But at the end of the day, we are committed to entering to scaling our position in the RMG market and accelerating that. We have the capacity, we have the opportunity, and we have the strong commitment of the management team and the capability of the management team and the board to be able to do that. At this point in time, if I reflect on what's happened over the last 18 months, Yes, this process was a good process for us. We've learned a lot. We've become smarter. We're much clear on what our options, and how we want to move forward. And we're also as an organization very excited about the future and keen to accelerate in the months ahead. So I'm very optimistic and confident about where the company sits in core and also our ability to execute going forward and continue to drive the long and sustainable growth profile of Aristocrat in the future. So with that, I'd like to thank you for your time. And certainly, if there's any other follow-up, the IR team are available for any other follow-ups. But thank you very much, and all the best.

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